Bank Crisis & Credit Crunch Gossip

AN INTERESTING ARTICLE
I know the whole money structure is bewildering to some it is hard to grasp especially with how the news explains it.
The article below explains a few things and is a pro side to letting the banks collapse or digging themselves out and not using tax payer cash to get them out when it hardly will beneift us.




Given that banks lend 9 times more than they borrow (their borrowings are your deposits that you lend them) and the average UK debt has approximately £40,000 of debt and the average savings a mere £7,500 when the Government says propping up the banks is protecting UK savings, what they really mean is they are protecting your debts!!!

If the banks were allowed to fail and their debts written off the average person would be around £32,500 better off. Given this point, why is the Government using tax payer funds and borrowing more, the interest for which will be charged to our children’s tax bill, when we would be better off if the banks fail?

If the banks failed and their debts written off, many would have their mortgages wiped. If you have paid all the demands made upon you by the bank the bank doesn't have the right to reposses your home. If your bank fails and stops making claims on you who are you going to pay?

Remeber the banks are telling you know that if they don't get multiple bailouts and they go bankrupt the money you have lent them in savings etc. will be lost, (Blackmail) it is only right then that the money they have lent you is also lost if they fail.

If they ever sent you notice regarding repossession due to bankruptcy, all you need to do is gather legal advice (or do it yourself) and confirm that you have received their notice but are contesting it due to legal reasons - these can include:

1 - It was not your fault that the bank became bankrupt and feel it was down to bad management or irregularities within the bank, which you require thorough investigation of
2 - You have not missed payments on your mortgage and through no fault of your own, they are no longer willing to honour your contract. They are in breach not you.
3 - You do not feel that it would be ethical for the bank to reposses your home and wish to take this to the EU or World court due to breach of human rights

Bear in mind to that with potential take over suitors knowing this is mortgage payers intent, how many will want to buy these morgage "assets"? The contract can either lapse, or you can buy your own mortgage back at whatever price you can negotiate. Liquidators have a legal obligation to try and sell these assets to recover creditors money so make an offer.

Those on variable rates who are worried the bank will jack prices, check what your variable rate is, 2% above BOE for example. They cannot exceed this. It should not be much of a cocern anyway as you will only have any imminent payments to cover, bank runs only take a few hours to collapse a bank.

With mortgages gone, disposable income would increase. With so much more disposable income you could afford to by a new car, go out for some expensive meals or build an extension. Pumping cash back into the faltering, manufacturing, service and construction sectors and driving unemployment down.

With parents mortgages gone, many could choose to give there children more help financing university education which benefits society.

If the banks fail, the housing market would be freed up. No longer would sellers have to keep the price above the mortgage secured on it and with no banks to lend crazy mortgages prices would fall to more realistic levels. First time buyers would have more access to the market and as demand returns the construction industry enjoys a boost.

The boost in spending will also increase Govt. tax revenue, (which will be useful later).

Potential losers
Low to mid level Bank Employees:
Those that had debts with the banks will have those removed reducing the urgency with which they need to earn. The boost in consumer demand will also increase demand for labour, creating jobs in other sectors.

Top level Bank Employees:
The shares they gifted themselves in the banks for free (they didn’t buy them on the open market) will be reduced to nothing. However those with diverse portfolios will benefit from the boost in consumer demand and profitability in other companies. Most will also have susbtantial cash and other assett reserves.

Also you would be surprised how little of an obstacle “Bought the country to its knees” on their CV will be for their friends finding them top jobs in other industries.

Pensioners:
Those which loose there pensions are the new recipients of all the cash the Government had lined up to give to the banks. Also the increase in tax revenue from the new spending will help finance increase state pensions. Many will have seen the value of their pensions savaged anyway over the last few weeks.

Savers with more savings then debt:
For the few who have more savings than debt and fail to get their money out before the crash, perhaps they were saving for a house? House prices will come down by a substantial amount. This group should be allowed to be the first to withdraw there savings.

Investors:
When entering the market “The value of your investments can go down as well as up” do they deserve a government bailout any more than a gambler at a casino deserves one? Those with diverse portfolios will benefit from the economic upswing in there other share assets. Looking at your portfolio right now, what kind of condition is it in anyway?


Inflation:
Since no new money has been created, in fact a whole load of debt money removed from the economy there shouldn’t be inflationary pressures. People will still be receiving in general the same pay cheques.

Potential Negative Side effects:
Housing speculators who have large debts seem to gain lots of equity from all of this. However house prices will dive so speculators will not have massive gains. Home owners won’t be affected by the dive in house prices, as they will simply be swapping one house for another of similar value if they decide to sell

Those who have run up debts will get them wiped, those without debts will feel cheated. This is no different to begrudging a gambler who bets on something and wins, whilst you either bet and lose or refrain from placing a wager. This is the honest mechanism of Free Markets.

Now when you understand this, and you have contracted with a bank for an instant access savings account you are perfectly within your rights to withdraw your savings at any time. It is not your fault if banks became too greedy and have over leveraged there finances and will collapse if you choose to exercise your legal rights. Again this is no more your responsibility than a Las Vegas gambler who borrows and looses.

If the Government chooses to maintain your debts rather than let the banks fail and improving your economic situation, by nationalising banks rather than letting them fail. Have they really got your best interests at heart?

PART ONE
Another long read for anybody who wants to understand banking system and get a few ideas/opinions on whats happening.
There are a few inaccuracies in article. And I dont agree with all of it but some interesting points....

Not sure what people are doing with their bank cash at moment. I'm 50/50 with keeping some stored away and left the rest in bank. Just on the safe side.
If more banks do totally collapse the pound might be worth nothing anyway but its not a bad idea just to be cautious...




This is how banking works (against you.)
-The bank has £0, you have £100 paper notes
-You deposit £100 in paper cash, you now have a bank statement of £100
-Someone asks for a loan of £100 and gets a £100 credit to their account
-They withdraw your £100 of cash-your bank statement remains at £100
-You can electronically transfer that £100 to anyone else if you want to buy something on debit card for example.
-So you have £100 on your debit card which you can spend, and the other person has £100 in cash to spend...the money is doubled!!! If the money available to spend is doubled but your £100 stays the same (plus a little interest) your buying power halves.
-If you choose not to spend on your debit card but try to withdraw cash, this is a run on the bank and the bank will ask for a tax payer bail out.

Since very few people do ask for cash, banks are permitted by law to do this nine times. The banks of course know form experience that only 1/9th of demands will be in the form of hard cash so they always make up and lend a digital 9 times the original paper or coin. Every time you deposit £1 in the bank and the bank creates 9 more, if those nine are withdrawn and deposited in a new bank they can create a new £9 each, your buying power is reduced by substantially more than the interest it would earn. This is why real inflation, including house prices, shares commercial vehicles or any asset with a Net Present Value is much more than savings interest. This fact is obscured from view because houses, shares etc or NPV assets are not in the Retail Price Index shopping basket which is the governments’ inaccurate measure of inflation. Inflation is the ratio of money in existence to goods and services available.

Keeping your money in a bank makes you poorer; the only person that gains is the banker.

Deep down you already know this, but have never thought about it before.

(This stems back to a time when, gold bars were real money and gold certificates were the digital money. Goldsmiths would forge 9 extra gold certificates for every bar of gold they had in the vaults. As long as people were happy with the gold certificates and didn’t want the gold things would be fine.)


Now the real problem! If there was £100 to start with and £900 was lent at interest of 0.2% even if the borrowers took all the money of that of that depositors £100 that originally existed and added it to their loans they will still be short of the total repayments: £900 at 0.2% interest is £1080. Where can that £80 come from? No where, someone has to give up something they owned before they borrowed. (The process can take place slower if the interest rate charged is lower than 0.2% but compound interest on debts that will always end the same way.) As you can see around you now in the credit crunch, the £80 is missing, people are selling their houses and shares, real assets with value, to try and make the repayment.

The Government (back in 1694) wanted to spend more than it had raised in tax revenue, instead of minting new money as it had no gold to mint into coins it borrowed from the newly formed Bank of England (a private bank owned by Robert Patterson for him to make a profit) with the intention of repaying the loan + the interest on the loan from increased tax the next year. Since the then Private Bank of England also wrangled a legal monopoly on gold certificate production the debt could only be repaid in BOE gold certificates or gold. As we know there would not be enough BOE gold certificates to cover the interest, so the government would have to use gold. However the government was afraid to raise taxes and take the peoples gold as they would loose popularity! So when the loan repayment fell due it didn't have the money, so the loan rolled over with compound interest. This has continued since that time.

(Patterson and the original investors pooled there gold and of course issued 9, or more, it was never audited, times as many gold certificates as they had in gold. Remember: As long as people were happy with the gold certificates and didn’t want the gold things would be fine!)

Gold today is no longer legal tender so cannot be used to repay a debt if the lender refuses. The only legal tender is “Money” be it digital or paper, which should represent the wealth of the nation.

National Debt (the amount the government has borrowed with the intention of repaying it through taxes) exceeded Gross Domestic Profit (the amount of wealth the country creates on which tax can be levied) even before the bailout. The gap between what the government has borrowed and what the country can produce has dramatically widened since the recent torrent of government borrowing.

According to the institute of policy research the countries national debt has exceeded its Gross Domestic Product. This was before the latest huge round of borrowing.

There is no way we can pay off the debt in the style of Andrew Jackson (US president that paid of the national debt, closed the central bank and refused to allow the government to borrow).

The value created in this country through the work of the people is now considerably less than the principal of its borrowing even before the new interest is added.

Nothing in this country has actually been paid for as the original money was borrowed so it has outstanding debt attached accruing compound interest at rates which the government will not disclose. So although we think of ourselves as a developed nation, we are no more “rich” than someone living the highlife on a credit card, when the bill comes and can’t be paid the repo men will come for the Porsche, the Rolex and the penthouse.

So for every years work we do, all of the profits of production PLUS a portion of the means of production needs repaid to the banks to meet the repayment demands. As the means of production is decreased with each repayment how can we produce the next repayment? If we fall short of the repayments, the compound interest widens the gap. We are in the equivalent position of a landlord who’s rents don’t cover their mortgage, to meet the repayment he has to sell a room, with 1 room less to rent next month how will the next repayment be met?

You can see the effects of this in action as house prices and share prices fall. Remember the price of these assets is a reflection of their Net Present Value, the sum of the future discounted cash flows. Houses will no longer be able to be rented for as much and rents will fall, companies will shrink and profits will fall there fore the NPV, or amount people are prepared to pay for them today is falling. In the future companies and people will have to give up more of their wealth in tax to try and meet the governments borrowing repayments so there are less profits for everyone.

We now owe the banks the government borrowed from for everything in this country, plus everything that it will ever be able to create.

These loans have been taken out without your consent and the government will have to try and repay them through increased taxation.

Notice there was no income tax in the US or UK until the government borrowed (as recently as 1913 in the USA!). Income tax was meant to be temporary (it is still renewed yearly) to repay the loans. If you think about it where does income Tax go...it existed long BEFORE the NHS, or state schools. Council Tax, Road Tax etc. are designed to pay for the services they provide. Income tax is not apportioned to anything.

If we don’t take action expect the following consequences:

Britain, Iceland and possibly more of the "developed" EU countries are bust, they have now borrowed more than they can ever repay. The poor countries in the EU, eastern Europe etc, whilst they have a lower quality of life, it is (more) paid for, we are living the highlife on the credit card and the bill is coming in.

Ever wondered why developed countries want more and more "poor" countries in the EU? The EU is not about sharing wealth it’s about sharing debt!!!!!!! Poland has a constitutional debt limit, (left over from the communist era) once it is on the Euro any other Euro based country (look ahead to UK and Iceland) can run up debts which Poland will get end up sharing!




PART TWO NEXT POST

PART TWO

So UK and Iceland will move onto the Euro so that the poor companies can use there profits to support us for now. Things will get a bit rough but I think we will come through it, we will be poorer despite working harder but it won't be the cataclysm.

The US is in the same position within the Americas, expect to see a similar scenario there.

Asia, may or may not be bust, but will probably unionize to defend the trading power of the EU and America blocks.

Russia an there sphere of influence probably similar to Asia pacific.

Africa is already in plenty of debt it will probably unionise too for the same reasons as Asia and Russia.

Now we will have 5 big unions all with governments that borrow money and have fractional reserve banking. All the debts of the countries going in will also be centralized in each of there unions.

OF course the only conclusion to government borrowing and fractional reserve is the mess we are in now, except that it will be on the large scale of 5 unions rather than individual countries.

Then we will move to the one world currency as the solution and the NWO will begin.

There will be a few men who own the world bank to which every man woman and child in existence will be bourn into debt to and will never own anything more than a days food despite working every waking hour.

Chances are the World bank will just allow the debts to grow, or allow the people to default on the debts so that the people have just enough to think they are free. If they go to work that day they earn a days food. Anything less than this and the people will have to revolt.

Of course the whole thing is already creeping in slowly. 30 years ago 1 parent was the main earner, normally on a 9-5 job, and families lived within their means. Today it takes 2 good salaries, with people working crazy hours, just to get a mortgage that will allow you to own your own house 25 years later, cars take ten years to be paid off....yet no one really seems annoyed!

Possible solution 1:
The bank of England was nationalized in 1946 and the shares are held by the treasury.

Today, operating as it does as the bankers' bank, it is to the commercial banks (ie the High Street banks) what the commercial banks are to the public.

Just as we may deposit money with commercial banks, so commercial banks in turn keep deposits with the Bank of England. The amount of cash that a commercial bank can buy up from the Bank of England to meet its customers' cash withdrawals is limited to the amount of deposits it has in its account at the Bank of England and/or what it can borrow from the Bank of England or from other banks.

Commercial banks borrow from the Bank of England in exactly the same way that individuals and businesses borrow from commercial banks. In theory the BOE could then use commercial bank deposit and fractional reserve 9 times this amount, and lend it out to the other commercial banks. It could do that today and solve the liquidity crisis. It could also then collect interest on those loans and make a profit which could then pay off the national debt and be spent by the government on public sector operations. Ask yourself why it isn't doing this.

Since nationalization the BOE is no longer a major player in the lending/money creation market. Its annual accounts reveal that its loans and profits are only a fraction of those of a major commercial bank such as Barclays, and it only holds a very small amount of government stocks, so it is no longer really lending to government either -- that function has largely passed to the merchant banks. Again ask yourself why this is the case.

The answer:
Although owned by the state, the bank is largely controlled and run by those from the world of commercial banking and conventional economics. The members of the Court of Directors, who set policy and oversee its functions, are drawn almost entirely from the world of banks, insurance, economists and big business.


There is however a downside to a nationalized bank.


What you have here is a very close to communism. The state bank will be the biggest and most secure bank in town. It could very quickly and easily squeeze out the commercial banks, especially if it was open to business and personal savings.

With one government controlled bank into which all money comes and goes, ultimately every freedom you have will be at the will of the government. Your pay packet will go into your government bank account, if you wish to withdraw that money it will be at the banks discretion. If the government is fair and just every one wins. But as we know from history, power corrupts and absolute power corrupts absolutely. Look across the world throughout history and look at the many examples of tyrants who gain power. If one such person should do this with a nationalized bank monopoly it consequences could be as bad as any political travesty ever before it not worse.

Solution 2:
At the moment the government is borrowing more money to put into the banks to ease liquidity. If a boat was filling with water would you cut a new hole in the boat to make another bucket?

We the people of this country are no more responsible the debts taken out without our permission than a tenant whose landlord can’t pay his mortgage. In the same way the bank can’t claim of the tenant for the landlords liabilities the bankers can’t claim off us.

These loans must be defaulted and the country can never be allowed to borrow again.

Those bankers who lent money will loose, but the money they lent they charged interest on. The interest was supposedly charged as the reward for the risk of lending the money, they have collected a lot so far, but now their greed has become too much, the risks were too great and their luck has run out. No one forced them to make the loans.

This is no more your responsibility than if you were a gambler winning a high stakes bet and bankrupting the casino.

Domestically Rather than borrowing for this bailout, why doesn’t the mint print more money and spend it on public services into the economy BUT at the same time raise the fractional reserve requirements of banks in proportion to the new printing to soak up any inflation. As the banks reduce there ratios to 1 2 1 with the new money the system stabilizes and we won't be able to reach this position again.

Private banking continues but governments are not allowed to borrow money in any way shape or form.

Charging interest within the private sector is legal but:

If you deposit money in a bank when it its lent your balance goes down. A bit like when you deposit a cheque and your balance goes up, but your "balance available" doesn't go up until the cheque has cleared.

So you have your "available balance" and your "on loan" amount, the “on loan” money isn’t available to you until the loan is actually repaid. This is the same as you lending a £5 note to a friend, you can’t use that £5er until it is repaid, but you trust that it will be returned to you later plus interest.

There is no fractional reserve.

As a depositor you can choose how much is lent and how much is kept as your available balance.

Interest is charged to borrowers more than it paid to savers, banks take the difference to cover their costs and make there profits.

The government can print money and use it to pay for public sector work. This is the only way new money can be produced. To prevent the public sector giving itself annual pay rises which it can spend first thus beating its inflatory effects public sector pay & expenses is pegged at the previous year’s national average for the equivalent role in the private sector. To balance the fact that pay is a year behind inflation, they are given a week longer paid holiday per year than the equivalent in the public sector.

Public accounts are audited and published yearly and by randomly selected qualified accountants from the public sector, the accountant equivalent of Jury Duty. The pay statistics are submitted by a statistically sound sample of appointed persons within the required companies too comprehensive to corrupt completely and published publically.

Down sides of this are that economic growth will grind to a halt by today’s method of measure. The countries growth will be limited to what it can resource and produce, as natural resources become scarce methods of recycling will be the only way to create new products.

It should produce a sustainable economy.

WOW WALL OF TEXT

Sorry will try and post more briefly next time...

tl;dr

Alexisonline wrote:tl;dr

lol what?

Total Bailout Cost Heads Towards $5 TRILLION
Numbers becoming meaningless as Paulson defends government intervention

Steve Watson
Wednesday, Oct 15, 2008



The total potential cost of the financial bailout to the U.S. taxpayer is already rapidly approaching $5 trillion, over seven times as much as the meaningless $700 billion bailout bill figure.

Analysts have previously marked out the $5 trillion figure as the actual cost, now those predictions are becoming demonstratively accurate.

Meanwhile, Hank Paulson has defended government intervention, stating "There's no doubt that the way to get the maximum bang for the taxpayers here was to invest in banks."

Based on this Reuters summary and the sources linked within the table, here is a breakdown of the bailout's cost to taxpayers so far.



Bailout Type Cost To Taxpayers
Pelosi's latest economic-stimulus package $300 billion
Paulson's Bank Nationalization package $250billion
Bailout to the American car companies $25 billion
Nancy Pelosi's bailout of the state and local governments $150 billion
Financial "bailout" bill $700 billion+
Bear Stearns financing $29 billion
Fannie Mae and Freddie Mac nationalization $200 billion
AIG loan and nationalization $85 billion (+ extra request of $35 billion)
Federal Housing Administration housing rescue bill $300 billion
Mortgage community grants $4 billion
JPMorgan Chase repayments $87 billion
Loans to banks via Fed's Term Auction Facility $200 billion+
Loans from Depression-era Exchange Stabilization Fund $50 billion
Purchases of mortgage securities by Fannie/Freddie $144 billion
POSSIBLE TOTAL $2.56 trillion+
NUMBER OF HOUSEHOLDS PER U.S. CENSUS 105,480,101
POSSIBLE COST PER HOUSEHOLD $24,269

In addition, the U.S. government has said it will temporarily guarantee $1.5 trillion (£856 billion) in new senior debt issued by banks, as well as insure $500 billion (£285 billion) in deposits in non-interest accounts, mainly used by businesses.

These figures take the potential cost to $4.559 trillion+ - or $43, 221 per household.

Mervyn King has become the first major UK economic policymaker to warn explicitly that Britain is heading into technical recession, but he said that history was likely to judge the Government’s £37bn banking recapitalisation as the turning point in the sector’s crisis.

In an unusually frank speech in Leeds last night, Mr King laid bare the devastation left by the worst financial crisis in living memory, predicting that house prices would fall further and that economic hardship would last for years.

He said: “The combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand. It seems likely that the UK economy is entering a recession.”

No other major Treasury minister or leading Bank official has explicitly warned of such an outcome, although figures to be published on Friday are expected to show that Britain’s economy shrank in the third quarter of the year, leaving it one step away from technical recession.

Separately, the CBI and the National Institute of Economic and Social Research (NIESR) indicated that a UK recession is now an inevitability.

The CBI’s closely watched quarterly industrial trends survey showed that confidence among manufacturers suffered its sharpest single-quarter fall for 28 years in the last three months after demand for manufactured goods declined and output fell sharply. Philip Shaw, economist at Investec described the survey as “terrible”.

NIESR said that it now expects the UK economy to contract for four consecutive quarters – a technical recession is defined by two – and forecasts the economy will shrink by 0.9pc in 2009. This recession will result in “permanent scarring in the UK”, according to Ray Barrell, senior research fellow at NIESR.

In his speech, Mr King said the pound is likely to be one of the biggest victims of Britain’s coming slump, facing a “larger and faster” adjustment as international investors pull their cash out of the British banking system. The news sent the pound tumbling more than 4 cents to $1.63 again and it was down almost a penny at 79p against the euro.

Mr King described the past weeks as “an extraordinary, almost unimaginable, sequence of events”, but said he was increasingly confident that the drastic measures taken by governments around the world to pour £2 trillion into the troubled financial sector would mark the beginning of the end for the crisis.

He said: “We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will come to be seen as the moment … when we turned the corner.”


* One thing that I notice never gets mentioned is the influx of billions/trillions of cash into the system causes devaluation of that currency.
Most monetary analysts I chat to believe that us filling the system with extra funds from BoE or wherever that is not connected to a proper moneatry standard is just gonna devalue the pound, dollar etc.
Interesting and scary times. I hope everybody is coping ok and people who are on the line I hope you take some precautions this winter and next year. I believe thing are gonna get a whole lot worse in 2009... *

- Pound has dropped massively since his little speech. I think he knew very well what he was doing. Complete *bleep* *bleep*.

- We've lost our private pensions as a result of Gordon Brown's 1997 6 billion pound a year tax-raid on the pension funds. The State Pension is rapidly diminishing as a result of linking it to a totally unrealistic "inflation" figure. Interest rates have been too low for too long to fuel G.B.'s "economic boom" resulting in hyper inflated housing prices and previously unseen levels of personal debt. Similarly with government borrowing. Now the chickens have come home to roost, we have almost lost our savings in the banks. In any case the interest will not cover the hyperinflation that we shall see with the devaluation of the pound. Those of us who are living in the Euro-zone face the triple whammy of a plummeting exchange rate so:- Down with State pension, down with private pensions, down with income on savings, the prospect of more taxes and the plunging exchange rate with the Euro. However, those who have a career in benefits will not suffer, Civil Servants, the ministers and the M.P.s can look forward to a rosy future with inflation linked, gold plated, final salary pensions no matter how badly they have handled the situation. The prudent saver and the few working tax-payers who are left are left holding the baby.