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Post by Grand Moff Muffin on Sept 18, 2008 7:03:27 GMT
I can't get my head round it. Sounds like a big global financial panic attack... or else all the world's banks got drunk for a few years and have just sobered up and realised they had done things people in their right minds wouldn't do. Either way, it seems that supposedly clever people have realised something obvious in hindsight and are now throwing all their toys out of the pram and calling for their mummies.
What's going on?
Martin
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Post by Philip Ayres on Sept 18, 2008 9:27:45 GMT
Lots of lending there shouldn't have been. House prices up above and beyond their value. People living beyond their means. It was inevitable really.
Then we have lots of people in the city (etc) being paid huge ammounts of money for what they're doing which in turn puts them at an advantage over the rest of us doing real work and getting paid a reasonable ammount of money The housing market should run at a level where a nurse or a teacher can afford to live near where they work. The old mortgage formula was 3 x salary + 10% deposit. (so salary = 30% House Price) Fix that and you have a fair economy, mortgages that work that people can afford to pay off and stand a hope of finishing in the prescribed time period and saving a little on the side in case the boiler or the car blows up !
I earned c25K at the point I quit on ill health which is comparable to a nurses/starting teacher salary I believe. By that formula somewhere for me to live should be about £82.5k. Where was that in SW London ?
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Post by Philip Ayres on Sept 18, 2008 9:29:24 GMT
First step to solving the problem ? Ban every TV program encouraging you to make money by selling/doing up houses. Houses are for living in not speculating on !
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Post by The Doctor on Sept 18, 2008 10:06:59 GMT
Yes, this was obviously coming from a mile off. The high amount of lending was never sustainable, as was the way house prices went away from what people actually earn.
I spent quite some time trying to buy a home circa 2005-2006 and already by that point I was unable to find anywhere I could even afford to bid on using the 3xearnings formula+deposit and all I was after was a bog standard 1-bedroom starter flat. By the end of 2006 prices had gone up so much it was impossible. I could have easily got a home had I went for a formula of up to 6xearnings as banks were falling over themselves to offer such rates, but I declined as I knew that was a recipe for repossession within 5 years as I would never be able to earn enough to pay off such mortgages. So I'm probably stuck in the expensive rental market forever. Ah well.
-Ralph
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dyrl
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Post by dyrl on Sept 18, 2008 17:41:59 GMT
I blame the existence of government central banks like the Federal Reserve and the like, as well as government monopolies on money.
It's no wonder that private banks lend without proper risk assesment since the government promises to bail them out and since the supply of money has no natural limit (as it would if it were based on gold or silver) and can be increased at will by the only legal counterfit printing presses - namely those of central banks.
What is basically happening now is the government is bailing out corporate buddies at the expense of regular people. Regular people lose their life savings, their house, their livelyhoods - and the experts say "well that's free market capitalism."
The corporations and banks start going under and suddenly government steps in to "help."
This just shows that government is owned by the banks and corporations; and that the central bank is to corporations what some guy named The Shark who runs a counterfit printing press in his basement is to the Mafia.
But there is a bright side to all of this: all of these "high and mighty" companies and banks ARE collapsing. And good.
Companies like AIG make their money not based on serving the needs of the people, but by getting connections with those in power and securing prviliges through government laws and regulations.
But ultimately; your business either generates real value or it doesn't. No amount of "government power" and "insider status" will save you in the long run if you stop working on behalf of people and convince yourself that you're invinsible because you donated to such-and-such's campaign and because you go to cocktail parties with important people.
I just wish the government would let these crooked companies collapse rather than trying to bail them out.
The sooner those misallocated resources are allowed to be liquidated and moved towards other, more productive ends, the sooner we all get better off.
That goes for the biggest missallocated resource of them all: central banks. I say, as Andrew Jackson once did: "The National Bank - kill it!"
Pete
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Post by Gav on Sept 18, 2008 21:58:26 GMT
It really isn't helping that companies are capitalising on the current 'crisis' by gearing all their advertisements towards the 'credit crunch' (a term i abhor):
Don't worry so much about the credit crunch, we're lowering our prices - shop at Tesco you ROBOTS! MUAHAHAHA! Yes...buy more MELON.
It just makes it seem a lot worse than it actually is.
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Post by karla on Sept 18, 2008 22:03:52 GMT
banks are so naughty, just full of money grabbers
no, don't shop at tesco, go to john lewis!
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Post by The Doctor on Oct 8, 2008 22:54:14 GMT
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dyrl
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Post by dyrl on Oct 9, 2008 7:01:49 GMT
Hate to break it to you Ralph but that is EXACTLY what is going on.
The only thing missing from the article, is how things got to this point - although the narrative would sound fairly similar.
Peter
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Post by legios on Oct 9, 2008 7:10:11 GMT
Hate to break it to you Ralph but that is EXACTLY what is going on. The only thing missing from the article, is how things got to this point - although the narrative would sound fairly similar. Peter That and the fact that they probably won't use the money to build a dome. They've done that already, they will have to find some other folly. Karl |
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Post by Grand Moff Muffin on Oct 9, 2008 17:03:19 GMT
Such as declaring war on Iceland.
Martin
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Post by The Doctor on Oct 9, 2008 17:30:32 GMT
They're never as good as Farmfoods anyway.
-Ralph
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kayevcee
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Post by kayevcee on Oct 9, 2008 22:51:18 GMT
What actually happened in Iceland, anyway? I read in the Metro that one of their banks just folded up completely taking a lot of British local authorities' cash with it (why were British councils keeping their cash in Icelandic banks anyway?) and somehow this is also going to cost us a fortune. Wha?
-Nick
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Post by The Doctor on Oct 9, 2008 22:54:09 GMT
Honestly, I have not got a clue.
What I am finding personally, however, is that there are far less vacancies going than usual, perhaps as a result of the financial chaos employers are holding off on taking on new staff. I picked the wrong time to be unemployed.
-Ralph
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Post by Grand Moff Muffin on Oct 10, 2008 6:48:58 GMT
The population of Iceland is about 300,000.
About 300,000 UK residents (the same number of people as actually live there) had savings in IceSave (a subsidiary of Landsbanki), which has collapsed. Meanwhile Iceland are blaming the UK for the collapse of their other bank, Kaupthing, in which UK customers had £2.5billion invested (more than £8000 per Icelander).
Hmmm. 'IceSave'. 'Landsbanki'. 'Kaupthing'. Personally, I'm not sure I'd put my money in a bank with a comedy name, but there we go.
UK local authorities have about a billion pounds in failed Icelandic banks (more than £3000 per Icelander). I'm now hearing on the radio that UK charities have £120million of their money there too (£400 per Icelander), and also that this has echoes of the 'Cod Wars'.
The mind boggles.
It's madness. A global crisis all about this artificial concept (money) that exists mostly in the form of computer data. Society was working as well as it normally does this time last year. There hasn't been a global famine, war, natural disaster or anything physical in the real world to trigger this off, and yet the system has imploded. No other species on the planet is vulnerable to this particular ailment.
And I fear that yes, Ralph, it's not a good time to be job-seeking... though you would think there are a lot of people out there in need of counselling... not least the average Icelander who has just been informed that his share of what Iceland owes the UK amounts to many thousands of pounds.
Martin
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Post by legios on Oct 10, 2008 12:07:03 GMT
It's madness. A global crisis all about this artificial concept (money) that exists mostly in the form of computer data. Society was working as well as it normally does this time last year. There hasn't been a global famine, war, natural disaster or anything physical in the real world to trigger this off, and yet the system has imploded. No other species on the planet is vulnerable to this particular ailment. Martin The thing is that the entire global financial system is predicated on a magic trick. Money does not, as you say, inherently have any value or use - it is only by an exercise of will that it is given value. In effect, what has happened is exactly what happens when people stop believing in an aspect of a particular piece of magic - the beautiful bride turns back into a mermaid, the Emperor's new clothes disappear "s if they were never there" and so on and so forth. Effectively the entire system ran on confidence, and that confidence is no longer there. Result, the system grinds to a halt. Karl |
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Post by Deleted on Oct 10, 2008 14:34:51 GMT
It just angers me that all of these fatcat bankers in both here and the US have been spending money they knew they had no right to touch on lavish parties and bonuses thinking that it comes to a bottomless pit only to discover that the money has to run out sometime. When the money does run out its the public that has to bail out the banks with our money while these fatcats relax at home counting every penny they have 'earned' in bonuses. Finally, when they have been bailed out with our money they return to work and do it all over again because their only motivation is to make money and nothing else.
Yesterday somebody at work questioned why we have to bail out all of these banks. Why don't the bankers who got into this mess do it or even ask the Royal Mint to print more money to solve the problem.
What actually worries me the most is my future. If pensioners today are having money troubles what will it be like when I get to retirement age? I'm not exactly sitting on a pot of gold at the moment so what does the future hold for me?
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Post by legios on Oct 10, 2008 17:20:59 GMT
ask the Royal Mint to print more money to solve the problem. That would not be a good idea. If you print large quantities of money there is more of it about, so its purchasing power goes down. This is one of the things that causes inflation. At the very extreme ends you get situations like they have currently in Nigeria and that we had in Germany in the 1930's, where people need wheelbarrows to carry large quantities of nearly worthless notes that were high denomination a few months or weeks earlier when they were printed. Karl |
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Post by The Doctor on Oct 10, 2008 17:30:49 GMT
Maybe we should use Robot Points instead.
Hey, give it a few weeks. It's not as far fetched a notion as it should be!
-Ralph
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dyrl
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Post by dyrl on Oct 11, 2008 8:25:19 GMT
The real question is - why do these bankers think there is a "bottomless pit?"
The sad answer is: because government keeps assuring them of it.
If the government guarantees your deposits, and if the result of bad business decisions is a multi-billion dollar bailout... what incentive do banks have to be responsible with money?
Also - the problem is fractional reserve banking. You do realize that at any given moment, banks usually have only a small percentage of their deposits on hand?
If every single person with money in a given bank were to coincidentially want to withdraw their assets in one day - the bank would collapse and the majority of people would not get their money.
This situation exists because the government has a system whereby banks need only have X% of people's deposits on hand. In theory, the rest is invested, handed out as credit etc etc - and thereby theoretically multiplied...
In practice this means that banks get to play "investment" with your money, and they believe that government will be there to pick up the pieces if the investment goes south.
In any event - what is more worrying to me than the actual financial crash is the response of governments around the world.
The financial crash is a good thing: stock prices were artificially high, real estate prices were artificialy high, everything was over-valued and nothing bad is happening here - the market is just re-adjusting to reality.
The problem starts with things like the government bailout in the US, and subsequent similar initiatives worldwide.
These initiatives will land us in a Depression because rather than allowing insolvent companies to go belly up and freeing up those resources for more productive uses, the government(s) are just rewarding irresponsible companies.
Also, notice that the Federal Reserve and most central banks have responded to the crisis by lowering interest rates - which is exactly the same as printing large quantities of money - because it makes money cheaper and floods the liquidity hungered markets with cash...
Of course, the effect will just be that this cash will be more and more worthless as there is more of it...
In my view, the only way out of this situation is to abolish central banking and allowing for a free market in money.
It'll happen anyways as soon as the USA goes belly up, which it will, just like the USSR did.
EDIT: Source from CNN (http://edition.cnn.com/2008/BUSINESS/10/11/financial.crisis/index.html) with my interpretation:
Pete
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Post by Grand Moff Muffin on Oct 11, 2008 16:30:43 GMT
Tell me something, Pete.
Starting from where we are now (never mind whether it was the Government or the private sector who got us here), you seem to be saying that Government should stand back, do nothing and let banks collapse.
Surely if that was allowed to happen, the life-savings of millions of innocent people, who haven't acted irresponsibly but just used banks as safe places to keep their money, will vanish into the ether, as will the pensions of many people on the verge of retirement.
If you were in charge of Government, would you really stand back, let that happen, and just say, "Tough - that's the free market - you should have kept your money under the floorboards"? What comfort would you offer those people?
In the UK banks are now being nationalised. I have always kept my savings in a National Savings ISA, which has always been backed up by HM Treasury and therefore been guaranteed by the Government. In future, it seems more banks will be like that.
Martin
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dyrl
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Post by dyrl on Oct 11, 2008 17:11:13 GMT
I will try to answer Martin's questions one by one: Martin: Starting from where we are now (never mind whether it was the Government or the private sector who got us here), you seem to be saying that Government should stand back, do nothing and let banks collapse. Pete: Yes. Martin: Surely if that was allowed to happen, the life-savings of millions of innocent people, who haven't acted irresponsibly but just used banks as safe places to keep their money, will vanish into the ether, as will the pensions of many people on the verge of retirement. Pete: Yes. Martin: If you were in charge of Government, would you really stand back, let that happen, and just say, "Tough - that's the free market - you should have kept your money under the floorboards"? What comfort would you offer those people? Pete: Depends in general on what government you're talking about, because the situation is somewhat different depending on the country. But I'll try to give an answer: a) the choice is not between "doing nothing and watching savings evaporate" and "rescuing savings." Unfortunately, once a crisis like this hits, particularly if it is inflationary, NOTHING can rescue people's savings; everybody and everything is hit - if your savings are in real estate, you lose because the price of real estate spirals down, if your savings are in bank deposits you lose either because your bank fails or because the purchasing power of your currency ceases to have any appreciable value. So the first thing I'd do is stop lying to people and stop pretending that just because "I'm government" that I can fix everything, save everybody and rescue the universe. Secondly, insofar as we're talking US government, I would slash government spending - starting with the military budget. Instead of a 700 billion bail out - I would bring all American soldiers back from Iraq and Afghanistan and close all of America's bases overseas. America is spending about 3 million USD EVERY FIFTEEN MINUTES in Iraq for a war that is only killing innocents in Iraq, inflaming muslims against the west and devastating the country. There are, of course, numerous other instances of wasteful and unnecessary government spending - but the Industrial/Warfare complex is the biggest one. In hard economic times, people have to tighten their belts - so government should also have to tighten its' belt. Reducing the national debt significantly would take a lot of strain off of the economy, because government deficit is always and everywhere financed in one of the following ways: 1) Taxes (stifles economic growth) 2) Printing press (causes inflation) 3) Debt (raises interest rates) I would certainly NOT be stupid or calous enough to start cutting spending on things like medical care for old folks or educational help for children. In reality, the government (at least in America) spends hardly any money on such programs anyways when compared to how much money it spends on war and how perks for corporations. But thus far - the only real beneficiaries of "active do something anything" government have been the very people who have gotten us all into this mess. AIG and the other wall street companies who basically own the political class and are what I would call "political capitalists" who make vast profits off of political connections. The myth that if the "big companies" collapse then we will all die is just wrong. Look at Enron - it collapsed - and what? Did the world end? Ultimately a company - no matter how big, no matter how "important" - has got to serve the needs of people; when it stops doing that, people will stop patronizing it - and it will rightly fall, no matter how friendly its' CEOs are with the political elite. What is happening now is Wall Street is being rescued while normal people are victimized and lose their homes and savings. Martin: In the UK banks are now being nationalised. I have always kept my savings in a National Savings ISA, which has always been backed up by HM Treasury and therefore been guaranteed by the Government. In future, it seems more banks will be like that. Pete: If this is what awaits us in the future, then it only means that more of us will be at risk in the future. You have to wonder "who guards the guardians?" Who backs HM Treasury? A long time ago, GOLD backed HM Treasury, and that was a very solid backing which limited the ability of governments to inflate the currency for political purposes. Ever since the Gold standard was abolished (Brenton Woods in 72), governments have had free reign to inflate the currency in order to buy the political loyalty of their people. Taxes are unpopular, deficits create burdens and raise interest rates; inflationary spending on the other hand is practically invisible (until the actual inflation or stagflation hits). Which I guess leads me to the last thing I would do: If there HAS TO be a central bank - then at least let it be democratically controlled. Why is it that there is no oversite by Parliament (or in the USA by Congress) of the central bank? Why is this vastly important government agency completely unbeholden to anybody? Supposedly, it is because the central bank must be "independent" from political pressure; because financial decisions are too important to be left to the changing emotions of democracy - but if this is true then we might as well not have any democracy at all. The real reason is that the central bank serves as a kind of government imposed financial monopoly which is completely beyond the control of the people. Is it too much to ask that the head of the Federal Reserve be requested to provide not just a meaningless speech to the banking committee, but say - the minutes from Fed meetings showing how deliberations about interest rates and such things proceed? I would say that the current crisis - just like the Great Depression (which was also caused by the central bank) warrants democratic oversight of such institutions. Those people who say "oh well my savings are secure because HM treasury guarantees it" forget that in many countries millions of folks lost their savings to this mentality: Weimer Germany springs to mind as a good example. In Poland, I still remember how we had hyper inflation in the 1990s - it got to the point where bread would cost a few million Polish notes. I still have a drawer full of hundreds of millions of Polish notes actually - the old ones  ... Look at Zimbabwe today... same situation. In the USA, the late 70s and early 80s saw relatively high inflation (by American standards) of 13% if I recall correctly. So... ultimately, there is no perfect system - but what we have is a broken system where there is a central bank and central bankers that are totally immune from democratic control and from market forces making decisions about everyone and everything. I would change that. Pete |
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Post by Grand Moff Muffin on Oct 11, 2008 17:36:58 GMT
I would certainly NOT be stupid or calous enough to start cutting spending on things like medical care for old folks or educational help for children. Well, we agree on that anyway (and on the military spending, as a general point). I'm not an economic expert (maybe the Treasury aren't either, but I'm even less of one as I have no experience of economics). However, I do believe there should be regulation, at least in the sense that an independent agency should scrutinise the banks and ensure that they act responsibly with people's money. Just as I wouldn't employ a gas engineer that wasn't certified by CORGI, I wouldn't trust my savings to a bank that wasn't being kept an eye on by a statutory body. It seems to me from what is happening now that regulatory scrutiny has been too lax. Either Government or some other independent body should have stopped irresponsible lending before it got out of hand. You are right, Pete, that if a Government goes bankrupt, even National Savings are liable to be lost, but that doesn't mean they're not a hell of a lot more secure than private sector banks. I don't know what should or should not be done by Government at this point to stabilise the situation, but I certainly agree with Government guaranteeing the savings of individual citizens. Yes, all the tax-payers then end up chipping in to save the unlucky ones whose banks disintegrate, but I consider that fair - spread the pain around. I'm happy for my taxes to be used to recompense the unlucky minority whose savings have vanished through no fault of their own. But not to recompense the fat cats. So I guess agree with part of Government's approach, disapprove of other aspects, and can't comment on the rest since I'm not sufficiently knowledgeable. Martin |
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Post by Bogatan on Oct 11, 2008 20:49:16 GMT
I wont even pretend to understand it, (though what I do understand fits neatly into the explanation of banking I got from my eccentric business studies teacher at secondary school) but in so far as blame goes it seems that the lack of oversight caused the problem so I wouldn't want the free market controlling banking in the future.
The best example I can give for why not is to say look how fairly medical care is spread in America thank to a system designed to make a profit. America may have the best health are available in the world if some people are to be believed, but only if you can afford it. A free market doesnt help employee's who lose their job because they can't work thus losing the medical cover needed to treat the condition that caused them to lose their job.
The initial 700million the US congress tried to pass was going to be handed over without question or control and was sanely not passed because the thankfully no one had any faith in the people who had got the world in to this mess.
I'm generally happy to have government involvement because come election day the public can hold them to account, which seems like a good motivation for them to get results.
Andy
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Post by Deleted on Oct 12, 2008 15:47:39 GMT
The sad thing is that whatever stand the government makes against the bankers the bankers are always going to wind up as the winners. If no money is thrown at the banks and they are left to go under then the bankers will walk away with a huge redundancy but if money is used to bail them out then they will go back to work on Monday morning to do it all over again. It's the taxpayers that will be worse off as if the banks go under they set to lose X amount of their savings but if the banks are bailed out they set to pay out several thousand pounds each in taxpayers money.
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Post by The Doctor on Oct 13, 2008 9:42:17 GMT
Well my bank (RBS) is being nationalised. Head bloke is bening booted. Still gets a yearly six-figure pension though.
-Ralph
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Post by Deleted on Oct 15, 2008 19:44:23 GMT
This is why the banks are in the mess that they are at the moment. Head bosses are being given the elbow but they still walk away with a massive pay packet which doesn't help matters at all.
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Post by The Doctor on Oct 15, 2008 20:00:01 GMT
It's not unexpected, but it sends the wrong message and also shows no incentive for other banking leaders to buck up their act.
If Joe Bloggs ****'s up in any other job to such monumental degrees, he doesn't still get huge wodges of cash after he gets the elbow.
-Ralph
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Post by The Doctor on Oct 15, 2008 20:27:01 GMT
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Post by The Doctor on Oct 28, 2008 17:15:21 GMT
news.bbc.co.uk/1/hi/business/7694275.stm£1.8 trillion missing. I just can't wrap my head around that. £1.8 trillion of money that probably never existed other than on computers is gone. Mind boggling on a variety of levels! -Ralph
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... Look at Zimbabwe today... same situation. In the USA, the late 70s and early 80s saw relatively high inflation (by American standards) of 13% if I recall correctly.