tony de wonderful

I thought you were the one defending banking?

I'm just posing the question.

Trout

iTrader: (1)

Mr Wonderful,

why do you think banks sold credit too cheap? If you honestly think that was the cause of the credit crunch you are even more daft than you are funny!

Trout

Trout

iTrader: (1)

On reading a number of posts I think that something is missed that is the conundrum of banking. In many ways it is subconsciously behind the strength of feeling it creates in the general public.

Banks operate in a free market, and yet they also do not.

The large banks have taken on the mantle traditionally provided by the Central Banks in that they have become the source of money supply in the economic system.

If banks were research organisations or manufacturers we would praise their innovation - but because their invention relates to money - something we are all intimate with, it is very hard to separate innovation from a perception of greed.

Also because the innovation is money - the rewards can be disproportionate as there is a lot of it about.

The other dimension is that banks have this dual public service, private sector role which is not evident in their free market behaviour. But without them, in the current system, the economy would literally shrink. Not forever, but certainly until a new system of value exchange was established.

There is no easy answer, but the free market experiment of letting the bank fail lasted a whole 24 hours and we will be feeling the repercussions for years to come.

So a bailout was in some ways inevitable due to the nature of the public service side of banking. But is was equally despised due to the private nature of their business.

tony de wonderful

It was the cause of the insolvency related to bad loans to sub-primes.

Trout

iTrader: (1)

No it wasn't.

Trout

iTrader: (1)

And to add, most sub-prime deals were done at 12-14% APR, at a time when the prime rate in the US was below 2%.

tony de wonderful

I see your point Trout but otoh the free market was never given time to come up with a solution. You can't just extrapolate the collapse of the likes of Lehman fwd and say civilisation would have ended. Yes the financial system may have collapsed but the whole ethos (and success) of Capitalism is to punish failure even though it can mean short term pain.

One repercussion is that the system is free to fail again and who will pay for the bail out next time?

tony de wonderful

Sure they lent money to bad risks which was not at a price which compensated for the high risk.

It's a bit of a truism I know.

jonc

If a customer buys a Ferrari knowing full well they would never be able to maintain the upkeep of such vehicle, is it right they blame the dealer for selling the car?

Banks aren't just made up of prop traders and not all are the reckless gamblers that the media like to portray. Many traders traded instruments based on the ratings provided by the ratings agency.

hodgy0_2

I understand the necessity of banks and banking – to provide the credit and capital needed in a capitalist economy, to oil the wheels of trade and allow innovation.

And if that is the case they are just the means to an end – but in the UK/US model they seem to have become the end in itself.

Unless I am mistaken to add real wealth to an economy you need to take a “raw” material – add value then sell it for more than the cost, like the Germans do with cars.

Is it a coincidence then that the German economy strong and surging ahead even in these difficult times.

The problem with the UK/US model of capitalism is that it takes the line of least resistance – to make the most money with the least effort - i.e. Banking

tony de wonderful

Sure Bankers produce debt. An economy where everyone is a Banker would produce only debt and everyone would starve.

You could take the POV that we had a misallocation of resources into the finance and Banking industries before 2008.

The credit crisis was Capitalisms way of correcting the misallocation, it would have made many Banks go bust and the Bankers would have to get other jobs.

Unfortunately the state decided to stop that correction, but I believe market forces will triumph eventually.

Trout

iTrader: (1)

On the other hand - an economy with no bankers would grow at a snails pace and there would be extremely limited economic development.

f1_fan

iTrader: (9)

If they couldn't cover the loan they took out for it yes! The cost has nothig to do with it, it is whether people over extended temsleves.

If I see a 100K Ferrari for 50K and buy it on the never never that I then can't afford is that the dealer selling the cheap Ferrari's fault?

fast bloke

Tony - Do you just make this up as you go along, or do you really believe what you post based on any sort of demostrable model? Sometimes (when it suits you) pure capitalism is the answer. Then three posts later, pure socialism is the answer. I think you tend to have a piont of view that is juxtaposed to the last poster

hodgy0_2

yes -- I agree, but what about the ends and means argument

I think what frustrates people is that the mantra of "market forces" was used to justify the whole charade

and that's fine, if you believe market forces are the best way and the only solution to any problem -- but lets be consistent and let market forces run their course

quite a few American free marketeers believe that the banks should have been allowed to fail

EddScott

Bank behaviour is f*cking disgusting!!

Got a call from Barclays yesterday looking for my mother. She paid in a cheque a few days ago for £10K which is already earmarked for something else.

You would think when I answered the phone and gave the company name the clue to what we do is in the flippin name.

I need to speak to Mrs Scott
Why, I'm her son
I can't speak to you but its about her account
If your looking to give her advice its what we do for a living
No, no, I just need to speak to her about her account

So I give him her mobile thinking theres a problem with the cheque (not the first time) and he calls her - to make an appointment to speak to a Barclays adviser!!!!!

God help him if he calls here again.

Its getting worse. Every week we have clients complaining about being hounded by banks.

Trout

iTrader: (1)

It's just you - I have never been hounded by a bank!

EddScott

Sorry to say but bank poor bahaviour is at an all time high. Every time anyone with a bit of money walks in they are pounced on.

Scare tactics being used, an actual refusal to accept money unless one of thier advisers was seen, flowers being sent after a large deposit, insinuating IFAs can't be trusted (We threatened to move banks unless we got an apology from the girl and the manager for that one)

All the ugly stuff that IFAs apparently do. Truly awful behaviour.

jonc

Yes, disgusting banks. I suggest you tell your mother tell her bank to stuff them, that she'll be taking all her cash out and will close her account and that no greedy banker will ever get their mitts on her money as she'll stuff the cash under her mattress.

Trout

iTrader: (1)

Well, if it isn't obvious, I have one or two pounds and I just do not suffer from what you describe.

EddScott

The point was that even after making him perfectly aware that she is a director of an IFA practice, he still called to arrange an appointment with a bank adviser.

We can only go on past experience can we not? You haven't had a problem.

There would be no point making all this up now would there?

hodgy0_2

my wife has just tried to arrange an interview with a banking group - to set up accounts for our two eldest chidren (11 and 13)

the group has 4 branches in Cambridge

lead time for a Saturday morning appointment is 4 weeks!!!! (bearing in mind the rule that people are more likely to change their marriage partner than bank), they can't be short of customers willing to sign up

Trout

iTrader: (1)

No - but your response to taking a call and saying no thank you is surely not that difficult.

EddScott

If only it were that easy. Re-read my posts. None of the complaints are from cold calls from the bank. Actually, I tell a lie, one bank made so many calls to a particular client they gave in and agreed a home visit - these people are particularly wealthy farmers so the bank put pressure on them to see them.

A bank refused to take a deposit because of the amount without seeing the bank adviser.

The same bank made a big issue of the £50K compensation scheme (since Jan 01 2011 so even that information is wrong) using scare tactics to get someone in front of an adviser.

Some of these people are old and the banks just wear them down and wear them down until they give up and say yes just to be left alone. These tactics are what you usually associate with IFAs yet as the IFA industry has quite nicely cleaned up its act in the face of mounting regulation, that same regulation has pretty much turned a blind eye to bank advisers.

And then even when they are in front of an adviser, the level of advice is dire.

So not so simple as just saying no over the phone.

jonc

And what if the banks weren't bailed out and were allowed to fail? Could the Government risk further runs on three of the five largest banks in the UK, HBOS, Lloyds, RBS. Had they gone under there would have been substantial knock on effect on the economy, shorting and runs on other remaining banks, people losing life savings and pensions, capital taken away from businesses, insurance companies with no ability to cover their obligations to people and businesses, many major companies both large and small would have gone insolvent and there would be an massive and instant rise in unemployment as a result. Since a significant amount of the UK's economy revolves around the financial markets and with no other industry of significance to fall back on, overseas investment to the UK would have dwindled along with the value of the Pound Sterling, making our debt more onerous by not being in a currency bloc. The country would have no way of paying back its debt when the country's creditors comes banging on our shores. UK would have gone bankrupt and there would be major civil unrest and a global stock market crash the likes of which we have never seen would have ensued. There would be no way of telling how long it would take for our country and indeed the global economy to recover.

Granted this would be the worst case scenario, but most, if not all, that mentioned would have likely to have happened to varying degrees had the Government not stepped in.

tony de wonderful

Yes that may be true but you don't necessary need a fiat/paper currency.

A hard currency could avoid the massive bubble situations like we had up until 2008.

Just playing Devils advocate I could ask why the mantra of 'growth' is so important?. It's a very Western outlook. Most times and societies did not think this way.

tony de wonderful

With your skill at predicting the future have you thought about investing in the markets?

jonc

I have been known to dabble in a few stocks and some of them are doing quite well thanks.

Trout

iTrader: (1)

Interesting stat about the concentration of risk in British banks...

"Currently, the top six British banks control about 90% of all deposits. This compares with a 68% market share for Germany's top seven banks and just 35% for America's top eight."

Leslie

Of course the bankers realise what you say and are unprincipled enough to hold us all to ransom for that very reason, and to continue paying themselves obscene salaries and bonuses.

Les