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Do financial institutions actually have a clue about how to run their businesses?
BillieTheBot
Posts: 8,721 Bot
I won't pretend to know the ins and outs of banking and economics, but just allow me to look at the current situation from a simple point of view.
In any area of business other than the financial world, a company that posts literally billions of Pounds of profit one year would not be expected to be in extreme financial difficulties within a year or two. Regardless of market outlooks, slump in sales etc, you would think that anyone with an ounce of common sense would ensure some of the massive profits acquired during the good times are tucked away for rainy days, and that they'd be able to soldier on without being at risk of going burst for considerably longer than this lot has.
I find it a tad scary that we trust banks to manage our finances and even reprimand us when we are seen to spend too much or go over our limit, when they don't appear to even be able to invest their own massive resources wisely and prudently.
Yet we have a myriad of gigantic banks and other financial institutions posting extraordinary amounts of profits one year, then going belly up the next. Where the fuck is all gone? How was it invested so unwisely? Is this caused by short-slightness? Blinding greed? Or plain incompetence?
They don't seem very capable of running a bath, let alone our finances or their own...
In any area of business other than the financial world, a company that posts literally billions of Pounds of profit one year would not be expected to be in extreme financial difficulties within a year or two. Regardless of market outlooks, slump in sales etc, you would think that anyone with an ounce of common sense would ensure some of the massive profits acquired during the good times are tucked away for rainy days, and that they'd be able to soldier on without being at risk of going burst for considerably longer than this lot has.
I find it a tad scary that we trust banks to manage our finances and even reprimand us when we are seen to spend too much or go over our limit, when they don't appear to even be able to invest their own massive resources wisely and prudently.
Yet we have a myriad of gigantic banks and other financial institutions posting extraordinary amounts of profits one year, then going belly up the next. Where the fuck is all gone? How was it invested so unwisely? Is this caused by short-slightness? Blinding greed? Or plain incompetence?
They don't seem very capable of running a bath, let alone our finances or their own...
Beep boop. I'm a bot.
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If I made £1 a day, I'd buy everything under a pound to have some change left over.
If I then got a wage of £2 a day, I'd still spend under the pound, to keep the balance of safety.
But, most get a wage of £10 a day and spend the £10 a day. Just add 6 zeros
I don't see the point myself. If I was rich I wouldn't go on a spending spree of cars and houses.
Regardless I don't think it's true profit in the same sense of the word as large businesses can get quite complex (I am doing a module on that later this year and next year... yay...) but if you 'look' good people will buy shares = creating liquidity which you can use to sell loans. If you look 'bad' people will sell their shares and your liquidity dries up and then you might need to borrow money from other banks and then everyone panics and thinks you're broke.
The simplest formula is if you have £25 in your pocket, saving it for a rainy day is in a way, wasting it. If you can put it in the bank and have 99.99% certainty it will accrue maybe 5% interest a year of course you would do that. Then banks and businesses and investors go one step further and think if they have £5 and have an 80% of chance of doubling that by investing it in x scheme, that might do that. Then if they did it with £25 in 5 differenct schemes then according to the odds 4 will double = £40 and 1 will not = £0. Therefore they have increased their money from £25 to £40 which is much greater than the 'safe' 5% interest.
The problem is everyone got the numbers wrong because of the way the system was set up with brokers. They thought the risk was much lower than it actually was. So when they got to the end of the year instead of 1 out of 5 of those £5 investments so to speak falling through, maybe 3 did, so they actually lost money on the year.
I don't think any one particular part got it wrong, I think it's the whole structure of the system. Bankers who are selling loans are on commision to sell more loans as often they get bonuses and if the computer says yes why not. I don't think the banks realised that the economy was vastly inflated and was due to come back down.
I disagree, most companies make money by selling things that people will buy. Do you need designer clothes? Do you need a £60,000 car? Do you need a £50 a head three course meal at an exclusive restaurant? Etc...
Marketing is all about positioning products whether they are loans or shoes in order to extract the most amount of money out of your customers.
I'm sure that's happened here and elsewhere to a lesser degree as well. When I was a lad in Spain, I still remember when getting a loan involved putting your best suit on and having a meeting with your bank manager, who woul grill you a bit before considering lending you any money, as my parents did on a few occasions over the years.
Fast forward to to present day, and right up to the point when things started to get pretty bad, banks were practically begging just about anyone with pulse to get a loan, no questions asked, name your price etc (not literally, but you get my drift).
This reeks of carelessness to me.
The only solution I see is to let us fall into a recession, ride this thing out and once we get to the end of the tunnel, set up governmental agencies to regulate every single thing any bank wants to do in the future.
Because it's the tax payers that got the non-payable loans, but we all shouldn't be punished for it. Banks took it to far with investments, and now we still pay for their fuck ups. Typical.
Hmm I'm very glad I'm not an HBOS or RBS shareholder though - not so long ago I remember banking stock was considered a pretty safe solid investment... can't afford to take the risk but I reckon there's money to be made in buying 'cheap' RBS shares, they've lost 39%... they'll recover at least some of that I'm sure.
Though to be fair to the UK Government we're not as bad as Iceland
So bad they've had to ask the Russians for money... Wonder what strings are attached to that emergency loan. Would nobody else loan them money?
I wouldn't go that far. Russia is a regional power, that's all. They're not doing brilliantly, yesterday falls in shares were so great they suspended the stock exchange
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4895024.ece
They're bailing out Iceland for political reasons - mainly, I suspect, in a vain attempt to pretend they're still a superpower; they haven't had their Suez or Dien Bien Phu moment yet
Incidentally, do you know how China's holding up through all of this, and the neighbouring countries? I know Japan had a rough couple of days, but I haven't heard much about China.
as far as i know, china's economy is mainly based on manufacturing unlike our economies which are propped up by credit. china however will still feel a pinch because we will buy less goods from them while we are undergoing a recession.
in my opinion, the recession is inherent in the system. we have no say in what is going on. labour and the tories are hand in hand on this. they agree in rewarding the irresponsible practices of the financial industry. i dont see anybody will be held accountable. the authorities says that the taxpayer could gain a profit. the key word here is COULD. this is a high-risk loan, much like a sub-prime loan. the govt would have to borrow money from somewhere. most likely from the IMF -- the so-called Masters of the Universe. which would of course include interest. now we come to the real issue. who will pay for the loan should the banks are unable to recover? we are! will we learn? no. because people are so far disconnected from the processes. people who would be hard hit by the recession are ignorant. more concerned with foreigners taking over their precious football club. soon everyone will forget today so the same people who help bring about the situation we are in now, who made a lot of money leading to it, can do it all over again. can anyone remember what happened in the last recession our economies faced?
Nope. All our friends turned out to be not so good friends after all. Only Scandinavia has showed some interest in lending Iceland a hand but it didn't really happen until after the announcement was made about the Russians.
Now there's even news that the UK is threatening Iceland. Wahooey.
Russians have helped us out in the past, in a time where Iceland was disputing with the UK so it's not a completel foreign concept to us although many find this latest development hard to stomach. Also, this loan isn't for sure yet.
It's just a big gamble on our expence - it's all right for the banks, they know they don't have to worry - the customer will bail them out.
When money is too cheap banks get silly and give it out to the wrong people, rates are down to 1.5% in the US again, the Fed is giving out money left right and centre. The Bank of England have said they've got £200bn to loan out, though where in Gods name they got that I dont know.
Yes, I am quite curious about this as well.
Not being in the EU doesn't really help Iceland, EU membership would have provided more of a safety net... although of course, Iceland has high fish stocks - join the EU and British/Spanish fishermen will deplete Icelandic fish stocks in no time.
Yeah I'm fairly sure we've not received much goodwill from the Europe because we're not in the EU. That one is understand, especially as the EU countries are struggling badly enough to support each other. Being the useless lapdog of the US didn't help us either, they've just kicked us again by refusing to make a deal with us. So much for that 'special friendship' and blindly supporting their stupid wars.
If anything, I hope this will mean we'll detach from the US and look more towards the Nordic countries.
It however doesn't change the fact the banks here got way out of control and people really bought into that we were such a great clever nation, denying any criticism! It's a right mess and I think that when things start to settle a real witchhunt will begin.
They are central banks; the sole suppliers of their respective currencies. They can give out as much as they want in any form they can think of. This time though it will be funded with treasury bills..
What no-one in the mainstream press appears to have mentioned is that this crisis involves COMMERCIAL PAPER money.
I am not aware of a crisis in hard money.
the problem with iceland is they don't have enough reserves to maintain the proposed euro peg against the massive run on the currency (-50% in one day!), so the agencies had to cut their sovereign AAA debt rating. meaning noone will touch their treasury bills with a bargepole, because the bad debt they're 'guaranteeing' is several times larger than their GDP.
the problem with china is that there is not enough domestic demand or wealth to replace the huge demand destruction from western consumers, and that huge pile of worthless US treasuries they're sitting on is their only bargaining chip. the shanghai stock market is down ~70% from its peak last time i checked, and the peasants aren't gonna be too happy when the economy starts contracting. hell they're already rioting in HK and Thailand...
the problem with britain is....well i'm sure you get the picture, suffice to say i'm not hanging around to find out. just hope my £ is worth something by the time i get out!