Saturday, January 2, 2010

Lest we forget (how much they’re costing us)

Taxpayers make £26bn loss on stakes in Lloyds Banking Group and RBS

Sorry if this has been posted before. The taxpayer begins 2010 with a loss of more than £26bn on its stakes in Lloyds Banking Group and Royal Bank of Scotland, which were bailed out at the height of the banking crisis, illustrating the scale of the problem the government faces in selling its holdings in the two banks.

Posted by a saver @ 09:30 AM (1804 views)
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24 thoughts on “Lest we forget (how much they’re costing us)

  • This is just the beginning. Those who think it is surprising, disappointing, unexpected, should read the seminal article/analysis by Greg Pytel “The largest heist in history” – http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html

    Unlike other commentators (including influential ones such as Martin Wolf) Pytel knows what he is writing about and, in crystal clear terms, shows the mechanics and the extent of the current crisis. The analysis is a bit longish but don’t be put off. Once you understand it it allow you to follow the news on the financial crisis with good understanding.

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  • yes ant it boils down to this: bulls are almost most bullish at the top when they shouldnt be and most bearish at the bottom.

    As for regulation, the banks should have been regulated to have a minimum Loan Deposit Ratio on the way up and that should have been extended to SIVs / MBS / ABS / CDO /CDS etc etc.

    I believe actually it was a mixture of greed and incompetence. The “suits” would say – oh our bottom line looks good, let those clever derivative people carry on .. you have all done very well..

    EITHER Without realising that one day it must all topple over, or thinking it might but they wont be carrying the can.

    The most outrageous thing of all was the LLoyds takeover of HBOS with about 10mins “due dilligence”. I know people that work on due dilligence and it takes weeks for medium sized financial companies. [manufacturing is an easier beast]. FFS if i was a lloyds shareholder i would be so pi55ed off.

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  • “The NAO concluded in early December that the government was right to bail out the banks, saying it was difficult to imagine the consequences for the economy and society if a major bank had collapsed.”

    It is impossible to describe how much comments like this infuriate me. They say the government was right to bail out the banks and then say it was “difficult to imagine the consequences for the economy and society if a major bank had collapsed”. What absolute and utter HORLICKS!! Either they KNOW why the banks needed to be bailed out or they DON’T know. Explain to me, as a taxpayer, EXACTLY why my money was WASTED bailing out these banks!!! Tell me EXACTLY what the consequences would have been if we didn’t, not in fairy tale fuzzy vague language like “Difficult to imagine” rubbish!!! Give me FACTS. This is also aimed at those here that keeping repeating the same nonsense about having to bail out the banks..

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  • @ 3 estrader ….the NAO have to have all their reports signed off by the government so most of their reports are very lame.
    Their usual tactic is to try and hide something critical somewhere in the body report and hope nobody notices – then they put it in the press release. Rule number 1 – don’t bite the hand that feeds you.

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  • here, here.

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  • es trader – off topic i posted some COT links on the post i dedicated to you and MG – are you familiar with this?

    On topic: i actually always thought that was the wrong question – should we bail out the banks or not. The question is really how on earth could we allow them to get to a position on anyones watch (governemnt) where this could happen. I read about this stuff years ago and the only real surprise is how long it took to manifest. I think that the government really did know something but decided to look the other way.

    Once we get to where we are, the easiest and quickest way to avoid collapse was to do what they did. Sure what they should have done was had a contingency plan for when this did happen… but as i said they never had such a plan.. so for example the plan could have been to guarantee all deposits and replace banking infrastructure and let the banks sink or swim based on the liquidation or mark to market of the toxic stuff.

    BUT since they never had this in place im not sure what choices they really had other than to do what they did. That is infact one of the main reasons i was bearish after NR (since that was always going to be the first manifestation) but then expecting the bounce.

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  • and “replace banking infrastructure” rolls off the tongue doesnt it – but easier said than done!!! And if it leaked that they were doing that, and it would inevitably have done, then what would that have said about the state of the banks? and the confidence or lack of it in the banking system? probably would have been the trigger in any case.

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  • There must be many of us who didn’t take part in the borrowing frenzy from the banks over the last 10 years.

    So why should we now bail out these idiots.

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  • ok estrader you have a major bank collapse. Say Barclays. What happens next? Liquidators are appointed. Accounts are frozen until the liquidators can ascertain the value of assets and liquidate those. Once assets are determined and SOLD OFF, (which of course adds to the lack of liquidity in the market) then creditors are provided with a dividend.

    And of course assets include loans – so all loans are called in – including mortgages, business loans etc etc. Some mortgages will be in nequity so HPs collapse, and then it takes even longer to sort out. And then people take their money out of other banks “just in case”. So there is a domino effect. And of course this bank liquidation takes ages in which time people cant access their accounts, so personal bankruptcies increase.

    If people lost money in their deposits up to £50k or £35 as was where do you think that comes from? Yes a levy on the banks to the FSCS – but which the taxpayer will fund any shortfall. In either case as a taxpayer you are scr3wed.

    When you think about it the taxpayer is just paying for the increased wealth of people that have over-borrowed and over paid themselves too much over the last few years / decades. There will sadly be winners and losers in that game. But no one ever said life was fair did they?

    Basically the Bof E instead of being the Lender of last resort, it , like the Fed has become the lender.

    They cant give you facts because the only way they (or anyone else) would really know were for it to happen. unfortunately we don’t have the benefit of a parallel universe!

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  • Will the annoying thing is that there isnt a block on the bonuses earned WORLDWIDE. With that i agree. I saw a jeff randall round table discussion the other night – while flicking – a senior banker on there said that they would just send their best people to Zurich, effectively they would do the same job (and could have an extra hour lay in!). But they would be “compensated” – dont you love that? In CHFs!

    I turned over pdq.

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  • Techieman – “unfortunately we don’t have the benefit of a parallel universe!”

    We have the benefit of history – which shows that what the U.K/US Government IS doing has NEVER worked in the long term – simples.

    “When you think about it the taxpayer is just paying for the increased wealth of people that have over-borrowed and over paid themselves too much over the last few years / decades. There will sadly be winners and losers in that game. But no one ever said life was fair did they?”

    I disagree…it is in this current game that the U.K/US goverment is playing in which sadly they don’t want there to be any (individual) losers. This isn’t capitalism it is socialism, which I despise.

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  • [email protected],

    Surely the individuals are losing ie. taxpayers, people being made redundant for example. It may be socialism, but for the rich only.

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  • @11 estrader: “This isn’t capitalism it is socialism, which I despise.”

    Correct! But it is a socialism for the rich: tax ordinary people (mostly middle class), and redistribute it to the rich (like bankers) at the top of the pile.

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  • One more thing, what many good solvent banks were facing was a Liquidity Crisis. The UK/US are providing bailouts to FAILED Bankrupt/Worthless institutions to keep them going. No innocent person needed to lose their savings if the useless, worthless, bankrupt institutions were allowed to fail provided that liquidity was assured by the Government. People would have moved their money from FAILED Bankrupt/Worthless institutions into Solvent ones. Perhaps the ones that the rich [insert foreigner of choice] are withdrawing from to buy up all these valuable U.K [Insert location of choice] houses that all the EA’s keep talking about.

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  • @estrader

    ” No innocent person needed to lose their savings if the useless, worthless, bankrupt institutions were allowed to fail provided that liquidity was assured by the Government.”

    This whole bailout business stinks but I have to say that your comment seems a is a bit simplistic to me. Techieman’s description of the risks (#9 at 11.46) seem quite convincing to me.

    What I’d like to know is are we any better equipped to deal with the next financial bomb when it ges off?

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  • @15 – Look up the term “Zombie Company” and “Zombie Bank”.

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  • tenyearstogetmymoneyback says:

    Techieman said regarding due diligence

    “manufacturing is an easier beast”

    I don’t think the shareholders of Marconi or Ferranti would agree with you on that one.

    It would be interesting to see how many parallels there were .. hubris and deals that looked too good to be true and were.

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  • Thanks, estrader but I don’t believe that there will be another big bailout so no more zombification either. We’ve maxed out our credit.

    There was talk of “living wills” to wind up failed banks a few months ago but that seems to have gone quiet for now.

    http://www.finreg21.com/news/living-will-save-city

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  • mark wadsworth says:

    @ Techie at comment 9.

    The idea that big banks would fail and drag everything with them is a myth. I accept that it gets a bit tricky with Lehmans, but that was a US bank, UK banks are nowhere near as complicated.

    I have been saying, ever since the run on NR that what they ought to do is a debt-for-equity swap or similar (which worked for CIT group in the US) and which is what they have now done for NR – the rubbish mortgages go into a closed fund which is owned by bondholders etc, who get paid out as and when money comes in (so the old bondholders are effectively equity holders in the NR bad bank) and deposits, branches, employees and good loans go in to a good bank who just start again from scratch. The bad bank is a form of liquidation, only there is no need to force all the borrowers to remortgage elsewhere or to sell on those doubtful debts, you just sit back and collect the repayments in the ordinary course of business (to minimise losses to bondholders).

    They did much the same with Bradford & Bingley, actually.

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  • @19 mark wodsworth: I think this is absolutely correct. The banks are playing a game of pretending that it is difficult to distinguish good loans from bad loans, good assets from bas assets and so in. Absolute rubbish. The banks want to have it all and pretend that so their entire books are underwritten. In the same way as a bank does not have a problem with distinguishing with really good accuracy (without even knowing – but just by using available records and statistics) between potentially good and bad customers (and we talk about millions in numbers), it is nit difficult to separate good bits of banks balance sheets from bad ones. Than good ones are allowed to operate whilst bad ones are liquidated. Where appropriate in the social and public interest, some compensation may be paid. This would be far cheaper and easier way of sorting out the banks. But then it would have uncovered a lot of quite criminal stuff that has been going on. So no wonder banks are doing all their best to prevent it.

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  • I’m with estrader on this. The government got involved, so now it has to be responsible, to save itself, using taxpayer money. If it kept the feck out in the first place maybe people would spend more time looking after their cash instead of watching fecking x-factor. Government gets involved, they give people an opportunity to transfer responsibility – idiocracy. Life ain’t fair? Yeah, ‘cos the government’s involved.

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  • I think we should avoid making extreme arguments. Whilst philosophically there are valid to make in a sense that we should debate what type of society we want to live in, they actually help the guys who engineered this crisis by stealing loads of money (if in doubt read: http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html) to get away with their crime. The move arguments that Pytel makes from common financial criminality, fraud, to some sort of ideological debate.

    Pytel’s greatest contribution to this debate is that regardless of political or philosophical persuasion, free-marketeers, socialists, communists, loonies of left and right, we should that the financial community engineered massive financial crime. Therefore we should not be dragged into debate about rights and wrongs of governments, democracy, etc but to press for prosecutions (jail, confiscations of wealth) of the fraudsters.

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  • The austrians will tell you central banks are ponzi, shouldn’t we be going after them first? Don’t they set the example? The “financial community” involves the government – good luck.

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  • Wow – that all got a bit heated!

    MW @ 19 – i was responding specifically to estrader’s point, specifically what if the a major bank had been allowed to fail (not to have a debt for equity swap). My understanding is in the context of the discussion we were not talking about NR or B&B – which were both sent into trouble effectively by the evaporation of credit in the wholesale market. There are 2 points where I would like more information on your swap solution. 1. The time this would take and 2. the appetite for it, given the credit conditions in the market at the time. I would have thought that even if this were able to take place for a major UK bank (and i would have thought that those banks would be just as “complex” as Lehmans viz eg counterparty relationships). i am not disagreeing i just would like a higher level of understanding.

    21. Rumble i agree keep the government out completely which means no compensation schemes for a start, which would have kept the banks in check and not allowed them to over lend. But thats not practical where we have been in the last few years / decades, so then on that premise regulate properly. Re government interference – yes but who elects them? I suppose you could ague that the education system for the masses perpetuates the whole system, including the reliance on government to do the right thing. We elected em …. didnt we??

    17. 10years – obviously there are exceptions but i meant that in general terms. Alot of opaque stuff going on at the banks with CDO x2 etc.

    Estrader im not sure what you would propose with the derivative trades. Should the counterparties to those trades just lose all their money? Absent originally a regulated market – im not sure how they would be resolved.

    Estrader @ 11: “We have the benefit of history – which shows that what the U.K/US Government IS doing has NEVER worked in the long term – simples.”

    Absolutely right – as i said at the top, we should never have got here and if we hadnt they wouldnt have made their choice really inevitable. But we werent talking about the long term we were talking about trying to restore confidence in the banks / credit markets etc etc in the short term. Basically to provide that confidence they had to stretch guarantees that in my view they should never have provided in the first place. Yes they could have done the things you say or yes they could have done what MW says. But if they had have done that would the man on the Clapham omnibus have even understood what they were being told let alone believed it???? But to buy time i cant really see what else they could have done to satisfy counterparties AND the general public. If you want to forward a detailed cohesive plan of what they could have done to convince Joe Public that everything would be ok then be my guest – i just think that they had to keep everything as “simples” as possible. “whatever it takes” etc etc. Why else would they start by guaranteeing NR depositors?

    I imagine that otherwise we would have been staring at a run on ALL the banks. I think though that they wont be able to buy enough time which is why i believe we have the 2nd (and worse) leg of the bear to come.

    “I disagree…it is in this current game that the U.K/US goverment is playing in which sadly they don’t want there to be any (individual) losers. This isn’t capitalism it is socialism, which I despise.” You can despise (that spelling never looks right to me) socialism, but i dont think it is socialism at all. Losers abound the losses though are just not realised (in the non liquidation sense of the word). I stand by that statement that you refer, so it looks like we will agree to disagree. unless you dont agree :-).

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