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Banking crisis, recession or credit bubble - LIES?





deanhills
Which is it, an international banking crisis, an international recession or an international credit bubble?

It would appear that politicians are lumping together all of the above, just so that the responsibility for the international banking crisis can be made more palatable to the people in the street. I believe the BIG banking crisis of the United States (shared with the UK and Europe) is a separate issue from the international recession.

An enormous treachery has been committed. As it would appear that people in the street had to sign a blank cheque for bailing out BIG banks who failed as a result of BAD loans, and to make this look good, Governments are trying to make their citizens responsible for this failure by convincing them that the citizens have been greedy, overextending themselves and that is why BIG banks had failed as a consequence. Whereas real truth of the matter is that the loans were for BIG companies, BIG investors, Government, on the highest levels. I am still waiting to see the real details of all those defaulted loans, which we probably will never see.

South African banks are in good shape, so are the banks in Bangladesh, also in Canada apparently. People in those countries have also overextended themselves with loans, in fact it is not an unheard phenomenon that people tend to overextend themselves with loans during the good times. Interest rates were low, and there were opportunities to invest in properties. However that was not the REAL problem here. the REAL problem was that BIG investment banks in the US and England had been involved in BAD loans in the multi-billion dollar category. And the dishonest part of it for me is that they have offloaded those problems on the citizens of their countries without giving details of exactly what happened and putting responsibility where it belongs.

The real perpetrators have failed to take responsibility for their multi-billion loans, worse, instead of firing the bastards, they are still running their banks and the only issue over their heads is that they may not get any bonuses!!!! How can citizens of countries allow that to happen? How can they sign away billions of dollars without asking to see detailed balance sheets of those failed banks? How can they sign away billions of dollars without asking for exact details of how it will be allocated and spent?
Bikerman
The crisis started because Banks in the US thought they had a magic formula which would let them lend money to bad credit risks - particularly sub-prime mortgages. They thought they had a way of bundling them up with good risk loans into financial instruments called collateralised debt obligations which would offer a guaranteed return. They then sold these like crazy. This put on the pressure to sell mortgages to anyone and everyone - regardless of their ability to pay it back.
As long as everyone pretended that the system worked then all was fine. When house prices began to fall in the US, however, people began to default on their mortgages in large numbers and the whole house of cards began to fall. Suddenly nobody knew what their CDOs were actually worth. Because of this the banks became unwilling to lend to each other and to anyone else, since they couldn't accurately assess how much money they actually had.

The reason that nobody can say how much toxic assets the banks hold is simply because nobody knows - unravelling the complex instruments used, and guessing how much of the face-value of that will actually be repaid, is more guesswork than science.
deanhills
Bikerman wrote:
The crisis started because Banks in the US thought they had a magic formula which would let them lend money to bad credit risks - particularly sub-prime mortgages. They thought they had a way of bundling them up with good risk loans into financial instruments called collateralised debt obligations which would offer a guaranteed return. They then sold these like crazy. This put on the pressure to sell mortgages to anyone and everyone - regardless of their ability to pay it back.
As long as everyone pretended that the system worked then all was fine. When house prices began to fall in the US, however, people began to default on their mortgages in large numbers and the whole house of cards began to fall. Suddenly nobody knew what their CDOs were actually worth. Because of this the banks became unwilling to lend to each other and to anyone else, since they couldn't accurately assess how much money they actually had.

The reason that nobody can say how much toxic assets the banks hold is simply because nobody knows - unravelling the complex instruments used, and guessing how much of the face-value of that will actually be repaid, is more guesswork than science.

Thanks Chris. Sounds like a good explanation to me. Just worrying that nobody knows what is going on, i.e. surely when they are being bailed out, there should be long lists of accounts being prepared and heads rolling in every direction and the media picking over each and every head. Instead those responsible for these fancy instruments are still doing what they have been doing before. Think there is a lot of detail missing and some of it is being hid behind a very convenient recession. Not that the recession is being minimized, but perhaps the mortgage blunder is not being maximized as it should and blame apportioned thoroughly with accountability and penalty where it should be apportioned. If anybody had done any of that on the personal level they would have been seriously investigated by the SEC and jailed. Yet these guys are in the process of getting away with it with full backing and bail-out by Governments without a thorough investigation and public scrutiny and accountability. Think we need those watchdogs that Indi has been talking about.
Bikerman
But I thought you were against more regulation?
I have always been a supporter of strong regulation - the banks were deliberately deregulated over the past 2 decades and left to manage themselves using the 'old boy' network. This was always going to end in tears - particularly since the large 'consumer' banks got heavily involved in these financial instruments. The executives of the large banks should indeed be punished, but the blame rests on everyone - from citizens who happily accepted loans that common-sense should have told them they could never repay, through government who happily let the banks get on with it, through the financial regulatory system which didn't understand, nor WANT to understand the nature of the risks being taken and finally the traders who were paid commission for the amount of dodgy credit they could shovel into the system.
ocalhoun
Bikerman wrote:
But I thought you were against more regulation?

Against government interference. In this case, more regulation may be the lightest touch the government can use to fix the situation.
deanhills
Bikerman wrote:
But I thought you were against more regulation?
I have always been a supporter of strong regulation - the banks were deliberately deregulated over the past 2 decades and left to manage themselves using the 'old boy' network. This was always going to end in tears - particularly since the large 'consumer' banks got heavily involved in these financial instruments. The executives of the large banks should indeed be punished, but the blame rests on everyone - from citizens who happily accepted loans that common-sense should have told them they could never repay, through government who happily let the banks get on with it, through the financial regulatory system which didn't understand, nor WANT to understand the nature of the risks being taken and finally the traders who were paid commission for the amount of dodgy credit they could shovel into the system.


I actually am against more regulation, and made the remark about watchdogs in jest. Nationalisation (partially) will require lots of regulation by Government. Government is not supposed to be in the business of trading, so all of it goes totally against the grain of capitalism. I truly believe that it cannot get better when Government interferes in the process. Once they start with regulation, there will be more regulation needed to cover the regulations, etc. In a business that they know nothing about. Almost like putting the fox in charge of the hen-house. The Banks should have been allowed to fail. Capitalism allowed to take care of itself. Which it is probably going to do anyway as we have seen with the stock exchanges who are basically ignoring everything Government has been doing. I wonder whether the people really know what they have let themselves in for?
Bikerman
I disagree. Regulation is absolutely essential. That does not need to be done by the Government directly - the government allocates the powers to an independant regulatory body. In the UK this was previously done by the Bank of England, but part of the responsibility was devolved to a new body called the Financial Services Authority (FSA). Therin lies the problem - neither body took responsibility and the rules they were working to were far too lax.
I would separate customer banking from investment (merchant) banking completely. I would also set much higher 'capital' limits for those investment banks wishing to indulge in more risky financial trading (ie you can only 'play the game' if you have a large amount of capital).

As a socialist I would quite like the banks to have failed - it would have brought the capitalist system around the world to its knees. I suspect you, as a capitalist, would have been less pleased since this would have meant social uprising on a huge scale as millions of people saw their life savings vanish overnight....
deanhills
Bikerman wrote:
I suspect you, as a capitalist, would have been less pleased since this would have meant social uprising on a huge scale as millions of people saw their life savings vanish overnight....

Whose lifesavings would it have been? Exactly who would have been the ones to loose their savings and what would the demographics of the losing parties have been? Surely if those regulatory bodies that you mentioned were worth their salt, they would have drawn up an exact list by now? Why aren't people asking logical questions like these? I.e. if the banks were to fail, EXACTLY who would the losers have been? How can they work on a solution if the problem is not crystal clear and broken into completely transparent detail?

I believe that the reason for failure is not capitalism, but bad financial management. By greedy people. Even if you re-organize the regulatory bodies, it would just complicated things, the people who need to be sorted out are the greedy financial guys who are using every loop they can find to circumvent the system. I suspect that the bigger part of the losers in the banking crisis would have been individuals in the upper income bracket and your big companies with enormous loans. Those investors who have their whole live savings invested, would have it in stocks and shares, and have lost BIG TIME already.
Bikerman
deanhills wrote:
Whose lifesavings would it have been? Exactly who would have been the ones to loose their savings and what would the demographics of the losing parties have been. Surely if those regulatory bodies that you mentioned were worth their salt, they would have drawn up an exact list by now? Why aren't people asking logical questions like these? I.e. if the banks were to fail, EXACTLY who would the losers have been? Even for the socialist option, at least that would have given the Government a clear picture of what the remedies need to be.
Well, as I explaned previously it is not currently possible to know the scale of the losses since they are all bound up in extremely complex instruments and nobody really knows how many of the loans will actually default. Without some sort of outside intervention then many banks would be technically insolvent. That means that ANYONE with savings in those banks would stand to lose some or all of those savings. That would have a huge knock-on effect as businesses would also stand to lose their working capital and would be forced into insolvency. Allowing many large banks to simply fail would, in my judgement, result in massive social unrest leading to possible uprisings. This would be meat and drink to revolutionary socialists and anarchists Smile
deanhills
Bikerman wrote:
Well, as I explaned previously it is not currently possible to know the scale of the losses since they are all bound up in extremely complex instruments and nobody really knows how many of the loans will actually default. Without some sort of outside intervention then many banks would be technically insolvent. That means that ANYONE with savings in those banks would stand to lose some or all of those savings. That would have a huge knock-on effect as businesses would also stand to lose their working capital and would be forced into insolvency. Allowing many large banks to simply fail would, in my judgement, result in massive social unrest leading to possible uprisings. This would be meat and drink to revolutionary socialists and anarchists Smile


That fear thing again! What a valuable tool of Government and the Banks that is. In the meanwhile the fudging of the financial picture is still continuing. If the Banks were allowed to fail, then people would have knuckled down and asked very specific questions, sued the Banks and have all the details come out during court actions. Banks would have been forced to come out with the exact losses, where when how. It's the equivalent of giving people drugs so that they don't really have to feel the pain or face the real problems and allocate responsibility of the problems where they need to be allocated. The guys who did bad business were not fired, all they got was a slight rap over their knuckles and their bonuses postponed ..... who is going to make good on the loans? If it had been your man in the street, they would have been made bankrupt or put in jail. I have not seen a single person being made accountable for the bad debts, just a vague collection of strange debt hidden under all kinds of complicated fancy explanations Smile
harismushtaq
For non financial institutes and even financial institutes on the basis of job saving, when the bail out is finally done, isn't it very difficult in current sales freeze and poor commercial environment, even the reconstruction of these companies is very unlikely to bring profits for them. Recovering with bad dabt does not guarantee profits. So at the end what will the tax payers will get. If GM fails to increase sales and profits and is unable to give the bail out money back before going into another crises, so this means that tax payers money is given with possibly no return to the taxpayers ?
deanhills
harismushtaq wrote:
For non financial institutes and even financial institutes on the basis of job saving, when the bail out is finally done, isn't it very difficult in current sales freeze and poor commercial environment, even the reconstruction of these companies is very unlikely to bring profits for them. Recovering with bad dabt does not guarantee profits. So at the end what will the tax payers will get. If GM fails to increase sales and profits and is unable to give the bail out money back before going into another crises, so this means that tax payers money is given with possibly no return to the taxpayers ?

Absolutely, except perhaps some political mileage for Obama. I'm still wondering when the people of the United States are going to be shown the balance statements of the failed banks. Who is going to take responsibility for that.
Chinmoy
no, banks are actually losing out on shares and that is a fair indication of the loss until otherwise they are making exceptional profits from the non public parts which would be a highly unlikely assumption to make before saying such a thing.
deanhills
Chinmoy wrote:
no, banks are actually losing out on shares and that is a fair indication of the loss until otherwise they are making exceptional profits from the non public parts which would be a highly unlikely assumption to make before saying such a thing.

Come off it Chinmoy. Everyone knows that. But before their shares took a dive they showed enormous losses due to mismanagement of loans. Subsequently Government has convinced people to approve a Bill for massive refunding to save those banks, amounting to partial nationalization.

I am asking for proof of the "enormous losses", exactly what they are about, a break-down, an analysis. If people are bailing out the banks, that makes them part-owners now, and as part-owners they are entitled to full and transparent disclosure of ALL the facts. Where are the facts?
ocalhoun
Bikerman wrote:
That means that ANYONE with savings in those banks would stand to lose some or all of those savings. That would have a huge knock-on effect as businesses would also stand to lose their working capital and would be forced into insolvency. Allowing many large banks to simply fail would, in my judgement, result in massive social unrest leading to possible uprisings. This would be meat and drink to revolutionary socialists and anarchists Smile

Unless, like most bank accounts, their bank accounts are FDIC insured, which covers losses of up to $100,000 (or more in some cases) of funds in an account in a failed bank.
Possibly true, because businesses with substantially more than $100,000 in the bank could stand to loose a lot.
The economic failure of the Great Depression didn't lead to uprisings... Why should another one be different?
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