A trillion here and a trillion there
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pretty soon there will be real consequences. As for the bailouts, where do we get the money for them? Answer is Debt. Why is it important to pay attention to debt? Watch this http://www.iousathemovie.com/[^]
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There's something I don't get: the current crisis is caused by the explosion of a gigantic credit bubble. The virtual growth based on financial games collapsed, and now what we've got is an enormous debt made of toxic loans, and even more toxic loans based on toxic loans. And the solution of this crisis would be more debt, more fuel for that credit fire that burned already so much money? Not without taking control of the financial system then. The first step should be a nationalization of the failing banks: if they want taxpayers money, they will have to deal with taxpayers. No more public money to be given as dividend to shareholders or bonuses for the CEO. We also need urgently a new monetary organization like Bretton-woods to avoid speculations on moneys, and avoid all the complex financial products made to compensate for rate variation. We've got to learn, and quick.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
- Let the banks collapse holding the board members and reveivers of bonuses liable for the resulting debt. (Collapse as in take into reveivership ie, government management) (There is a precedent here. Directors of a limited company (SA in France) can be prosecuted if they knowingly allow the company to take part in illegal practices. 2) Bank shareholders lose out too. Its tough, but thats what happens when you invest in a crooked company. 3) Reschedule existing loan repayments to cover the remaining debt without reposession or prosecution. After all, its not entirely the borrowers fault if money is thrown at him in the form of easy credit and he swallows some of it)
Morality is indistinguishable from social proscription
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There's something I don't get: the current crisis is caused by the explosion of a gigantic credit bubble. The virtual growth based on financial games collapsed, and now what we've got is an enormous debt made of toxic loans, and even more toxic loans based on toxic loans. And the solution of this crisis would be more debt, more fuel for that credit fire that burned already so much money? Not without taking control of the financial system then. The first step should be a nationalization of the failing banks: if they want taxpayers money, they will have to deal with taxpayers. No more public money to be given as dividend to shareholders or bonuses for the CEO. We also need urgently a new monetary organization like Bretton-woods to avoid speculations on moneys, and avoid all the complex financial products made to compensate for rate variation. We've got to learn, and quick.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
I, too, think that the banks should be nationalized (like Sweden did). Creation of "bad banks" similar to Japan's efforts will fail. I am sure. However, nationalization should only be for the short-term. Afterwards, they would be returned to the private sector. However, I cannot agree with you on a version of Bretton-Woods II. To make Bretton-Woods effective, you have to choose a standard to peg to. Economies, therefore, become tied to each other. This is one of the current ills of the Euro system. It leads to the Triffin dilemma[^]. Bretton Woods was a horrible idea. The way forward is through better regulation. One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance" (for example to a regulatory body). The insurance policy would be such that, if a bank does fail, then the insurace payout goes to the government, rather than the bank. Premiums would rise with increased leverage and decreased liquidity and decrease for a bank that is more secure. The insurance policy idea also gets around the "too big to fail, to small to save" problem.
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- Let the banks collapse holding the board members and reveivers of bonuses liable for the resulting debt. (Collapse as in take into reveivership ie, government management) (There is a precedent here. Directors of a limited company (SA in France) can be prosecuted if they knowingly allow the company to take part in illegal practices. 2) Bank shareholders lose out too. Its tough, but thats what happens when you invest in a crooked company. 3) Reschedule existing loan repayments to cover the remaining debt without reposession or prosecution. After all, its not entirely the borrowers fault if money is thrown at him in the form of easy credit and he swallows some of it)
Morality is indistinguishable from social proscription
Just some thoughts ... Not that I am suggesting that Banks are whiter than white as they are not. But there is a world of difference between (1) illegal practices, (2) Questionable practices, and (3) Poor quality Management. To nationalize a bank is hugely expensive and is political but not necessarily the best option. But allowing the banks to collapse is very problematic as the money supply would dry up immediately. Some middle ground needs to be found where it is possible for banks to fail yet the supply of money can be maintained. No matter how solvent a company is (or a private individual for that matter) no movements of monies is death or will cause excessive failure that will make the Depression of the 1930's appear mild by comparison. Shareholders should suffer if their investment fails, however, consider Pension Schemes, they too might fail as well therefore your savings for your old age has also evaporated. That will be a big worry for those who are nearing retirement age as the Statutory Pension is not exactly generous so you will have a large body of very vulnerable people whose security has gone making them possible destitute to some degree. Would you accept the premise that if a company goes bust, and I include Banks there, if there is insufficient assets to meet liabilities then a particular percentage of the assets are thus payable to satisfy. I appreciate that assessing assets values for such a large organization such as a bank is, at best, problematic and very time consuming, but not impossible. A property (your mortgaged home) is a registered asset of the bank. That portion that is subject to mortgage will form part of the assets of such a busted bank. It would have a value of x% in the £ of mortgage outstanding and this is the value that should be assigned to part satisfy liabilities. To re-schedule a loan without regards to its asset value (x% in £) would just move the problem in its entirety elsewhere. Borrowers should accept their due fault in this irrespective if the loan was for house mortgage, credit for a major item such as a car, or credit cards. People generally know deep down if they can actually afford to buy a XXX item but, in many cases, are blinded by Banks and their use of (1) easy money and (2) their use of phrases like "APR" which means different things to different people calculated in a way that "ordinary" folk cannot comprehend. Financial Services Authority must look deeper into how financial institutions are supervised whilst also reviewing the terminology used by financ
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I, too, think that the banks should be nationalized (like Sweden did). Creation of "bad banks" similar to Japan's efforts will fail. I am sure. However, nationalization should only be for the short-term. Afterwards, they would be returned to the private sector. However, I cannot agree with you on a version of Bretton-Woods II. To make Bretton-Woods effective, you have to choose a standard to peg to. Economies, therefore, become tied to each other. This is one of the current ills of the Euro system. It leads to the Triffin dilemma[^]. Bretton Woods was a horrible idea. The way forward is through better regulation. One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance" (for example to a regulatory body). The insurance policy would be such that, if a bank does fail, then the insurace payout goes to the government, rather than the bank. Premiums would rise with increased leverage and decreased liquidity and decrease for a bank that is more secure. The insurance policy idea also gets around the "too big to fail, to small to save" problem.
John, this has just been published Bank says UK 'in deep recession'[^]. And this quote is trouble "The Bank predicts the economy will shrink by 4% from mid-2008 to mid-2009.". I don't know how many millions will find themselves unemployed by the middle of this year but the estimate of 3 million could be a low estimate, he also makes comments about new measures. Surely, there is not much more that the Bank of England could realistically do. With the money that has already been thrown at the problem, the coffers must be close to empty by now.
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John, this has just been published Bank says UK 'in deep recession'[^]. And this quote is trouble "The Bank predicts the economy will shrink by 4% from mid-2008 to mid-2009.". I don't know how many millions will find themselves unemployed by the middle of this year but the estimate of 3 million could be a low estimate, he also makes comments about new measures. Surely, there is not much more that the Bank of England could realistically do. With the money that has already been thrown at the problem, the coffers must be close to empty by now.
There isn't much the banks can do. Rates are effectively zero, so interest rate policy won't do much to help any more. I think quantitative easing has lost its benefits as well. I think nationalisation of banks is the only way. Setting up these so-called "bad banks" won't help much, in my opinion. This is the approach Japan took and they ended up in a worse and much more prolonged mess. I think that Greece, Italy, Spain, Belgium, Switzerland and perhaps eventually the U.K. face a real threat of sovreign default. I also think the U.S. could be headed straight for a cut to their AAA rating. Obama's spending policies could easily see U.S. government (fiscal) debt grow to 2 trillion dollars. The question then becomes, who will buy U.S. debt? At what interest rate? And if the U.S. gets a rating cut, even to AA, look out. China may be encouraged to dump U.S. debt in a form of economic warfare. They're already manipulating the renminbi...
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I, too, think that the banks should be nationalized (like Sweden did). Creation of "bad banks" similar to Japan's efforts will fail. I am sure. However, nationalization should only be for the short-term. Afterwards, they would be returned to the private sector. However, I cannot agree with you on a version of Bretton-Woods II. To make Bretton-Woods effective, you have to choose a standard to peg to. Economies, therefore, become tied to each other. This is one of the current ills of the Euro system. It leads to the Triffin dilemma[^]. Bretton Woods was a horrible idea. The way forward is through better regulation. One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance" (for example to a regulatory body). The insurance policy would be such that, if a bank does fail, then the insurace payout goes to the government, rather than the bank. Premiums would rise with increased leverage and decreased liquidity and decrease for a bank that is more secure. The insurance policy idea also gets around the "too big to fail, to small to save" problem.
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73Zeppelin wrote:
However, nationalization should only be for the short-term. Afterwards, they would be returned to the private sector.
Why's that then?
Nationalisation is expensive and inefficient.
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Nationalisation is expensive and inefficient.
73Zeppelin wrote:
Nationalisation is expensive and inefficient.
You don't consider the current situation to have proved to be expensive and inefficient then? There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers. -Richard Feynman, physicist, Nobel laureate (1918-1988)
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73Zeppelin wrote:
Nationalisation is expensive and inefficient.
You don't consider the current situation to have proved to be expensive and inefficient then? There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers. -Richard Feynman, physicist, Nobel laureate (1918-1988)
AndyKEnZ wrote:
You don't consider the current situation to have proved to be expensive and inefficient then?
No I don't because the current situation isn't related to nationalisation, it's related to (lack of) regulation. Nationalisation only works short-term as a restructuring device. Government isn't a cure-all. Excessive government leads to the birth of countries like France.
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AndyKEnZ wrote:
You don't consider the current situation to have proved to be expensive and inefficient then?
No I don't because the current situation isn't related to nationalisation, it's related to (lack of) regulation. Nationalisation only works short-term as a restructuring device. Government isn't a cure-all. Excessive government leads to the birth of countries like France.
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Nah, every attempt to regulate the banks in the past has failed. This time the solution has to be more drastic.
AndyKEnZ wrote:
Nah, every attempt to regulate the banks in the past has failed. This time the solution has to be more drastic.
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk. Furthermore, if the bank defaults the insurance payout goes to a regulatory body who can use the money to repair any economic damage caused by the bank failure. No nationalisation required and the bank has incentive to keep its risk-taking under control. This could also be accompanied by legislation on executive incomes that tie them to concrete performance standards and rules that forbid compensation to be tied to level of profit.
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AndyKEnZ wrote:
Nah, every attempt to regulate the banks in the past has failed. This time the solution has to be more drastic.
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk. Furthermore, if the bank defaults the insurance payout goes to a regulatory body who can use the money to repair any economic damage caused by the bank failure. No nationalisation required and the bank has incentive to keep its risk-taking under control. This could also be accompanied by legislation on executive incomes that tie them to concrete performance standards and rules that forbid compensation to be tied to level of profit.
73Zeppelin wrote:
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium. I say let them fall, nationalise banking and later on if free-enterprise banking can do it better and cheaper then they can re-enter the game.
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73Zeppelin wrote:
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium. I say let them fall, nationalise banking and later on if free-enterprise banking can do it better and cheaper then they can re-enter the game.
AndyKEnZ wrote:
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium
I know, it has to be legislated. Of course it wouldn't be voluntary. It should form a new set of banking accords. Since Basel II has already failed, it should be one of the foundations of Basel III. Free enterprise can always do it cheaper.
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AndyKEnZ wrote:
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium
I know, it has to be legislated. Of course it wouldn't be voluntary. It should form a new set of banking accords. Since Basel II has already failed, it should be one of the foundations of Basel III. Free enterprise can always do it cheaper.
73Zeppelin wrote:
I know, it has to be legislated.
And therein lies the rub. What has been legislated can be unlegislated. The banks bought their lack of oversite - at least in the US - with large gifts to the members of the banking committees of both houses of congress. All it took was for the Great Depression generation to start dying out and all of the lessons learned from it were forgotten.
Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.
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73Zeppelin wrote:
I know, it has to be legislated.
And therein lies the rub. What has been legislated can be unlegislated. The banks bought their lack of oversite - at least in the US - with large gifts to the members of the banking committees of both houses of congress. All it took was for the Great Depression generation to start dying out and all of the lessons learned from it were forgotten.
Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.
That's true, but if you set up a robust apparatus, it makes it difficult to be unlegislated. I don't know of any other effective controls. At least there's the possibility that, in the long-term, if it is up for delegislation somebody can always argue: "we did that before and it lead to disaster". I don't know how else we can go forward. Obama's talk of "bad banks" scares me. The Japanese did that and just dug a deeper hole. In this case, the problem with nationalisation is trying to compensate these banks with a "fair price". The U.S. government is already in deep debt (so much so that it is getting worrisome). Obama's talk of "spend, spend, spend" is not reassuring, either. Who's going to buy up U.S. government debt when the interest rates are really low? I don't want to know what happens if the AAA rating gets cut to AA....
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I, too, think that the banks should be nationalized (like Sweden did). Creation of "bad banks" similar to Japan's efforts will fail. I am sure. However, nationalization should only be for the short-term. Afterwards, they would be returned to the private sector. However, I cannot agree with you on a version of Bretton-Woods II. To make Bretton-Woods effective, you have to choose a standard to peg to. Economies, therefore, become tied to each other. This is one of the current ills of the Euro system. It leads to the Triffin dilemma[^]. Bretton Woods was a horrible idea. The way forward is through better regulation. One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance" (for example to a regulatory body). The insurance policy would be such that, if a bank does fail, then the insurace payout goes to the government, rather than the bank. Premiums would rise with increased leverage and decreased liquidity and decrease for a bank that is more secure. The insurance policy idea also gets around the "too big to fail, to small to save" problem.
73Zeppelin wrote:
Afterwards, they would be returned to the private sector.
Agreed, after they have paid the taxpayers for the money they lent.
73Zeppelin wrote:
Bretton Woods was a horrible idea
I don't say Bretton Woods was the best way to organize monetary systems especially because it was based on the good will of one. Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces. If we are able to stabilize relationships between moneys, a lot of stability will be injected into the system and a lot of 'virtual covers' would be unnecessary. The problem of the reference is of course a major obstacle, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
73Zeppelin wrote:
One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance"
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
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73Zeppelin wrote:
Afterwards, they would be returned to the private sector.
Agreed, after they have paid the taxpayers for the money they lent.
73Zeppelin wrote:
Bretton Woods was a horrible idea
I don't say Bretton Woods was the best way to organize monetary systems especially because it was based on the good will of one. Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces. If we are able to stabilize relationships between moneys, a lot of stability will be injected into the system and a lot of 'virtual covers' would be unnecessary. The problem of the reference is of course a major obstacle, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
73Zeppelin wrote:
One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance"
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
Ka?l wrote:
Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces.
Derivatives aren't the problem. For every party to a derivative, there is a counterparty that gets paid out to. So if Goldman-Sachs enters into a derivative contract with BoA, then if Goldman bets wrong, BoA gets compensated. The press only reports the downside losses, not the gains. There is nothing wrong with derivative contracts, what is wrong is improper regulation of derivative contracts in the sense that financial regulation was not able to keep up with financial innovation. But again, that's a regulatory issue.
Ka?l wrote:
, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
It's better at the moment, just like the USD was better after WWII. That's what makes Bretton-Woods style policy a bad idea.
Ka?l wrote:
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
Depends - if capitalization requirements are set, then a sufficiently capitalized bank wouldn't have to pay a high premium. That would act as a deterrent to risky behaviour. The higher the risk, the higher the premium would be.
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73Zeppelin wrote:
Afterwards, they would be returned to the private sector.
Agreed, after they have paid the taxpayers for the money they lent.
73Zeppelin wrote:
Bretton Woods was a horrible idea
I don't say Bretton Woods was the best way to organize monetary systems especially because it was based on the good will of one. Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces. If we are able to stabilize relationships between moneys, a lot of stability will be injected into the system and a lot of 'virtual covers' would be unnecessary. The problem of the reference is of course a major obstacle, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
73Zeppelin wrote:
One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance"
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
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AndyKEnZ wrote:
Nah, every attempt to regulate the banks in the past has failed. This time the solution has to be more drastic.
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk. Furthermore, if the bank defaults the insurance payout goes to a regulatory body who can use the money to repair any economic damage caused by the bank failure. No nationalisation required and the bank has incentive to keep its risk-taking under control. This could also be accompanied by legislation on executive incomes that tie them to concrete performance standards and rules that forbid compensation to be tied to level of profit.
73Zeppelin wrote:
I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk.
How about anyone or any business that takes out a loan is fully responsible for paying it back no matter what.