A lot of politicians, bankers, journalists and other liars/stupid people say that "The government had to bail out the banks to protect savers and depositors".
OK, politically I can see the point in 'protecting' people's savings, but let's apply the same logic to e.g. the home furnishings business, where you often proffer your debit card or make a payment well in advance of delivery. So the government could say that they are now going to guarantee that nobody will ever lose money by paying in advance of delivery.
So if you pay your £100 deposit for a new three-piece suite and the supplier goes bankrupt before they deliver, what is the better/cheaper strategy, from the government's (i.e. from the taxpayers') point of view:
a) Give you back your £100 and pursue a claim of £100 against the supplier, or
b) Give the supplier another £100 and ask them to deliver, and run the risk that that £100 trickles away on paying off other liabilities, bringing your delivery date not a minute closer?
Friday, 4 February 2011
Something else which really irritates me.
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10 comments:
The fact that there is an inconsistency as between treatment of people’s bank accounts and deposits made for furniture does not prove much. We as a society often “have to draw a line somewhere”. And very often, wherever we draw the line, the line is not entirely logical.
Positive Money, which is an organisation pushing for a total reform of the monetary system advocates that bank accounts that pay no interest (“current” accounts or “checking accounts” as they are called in the US) should be backed by government.
In contrast, once people want interest on their account, they have crossed the Rubicon, and have entered the world of commerce. And it is not the job of government to subsidised commerce in any way. I.e. interest paying accounts should not be protected.
I.e. the line is being drawn at a different point under Positive Money's proposals.
I agree with Positive Money on this. But the reasons are complicated.
You're right logically of course, but surely you accept that banks are "special".
Banks are treated by the public as a remote piggy bank. I'm not paying a deposit for some product that I may or may not receive, I'm simply giving them my money to hold. I don't expect them to do anything with it other than hold it. The fact that they do, and can lend it out and make a bit of cash for themselves is what makes it profitable for the bank of course, but that's not my problem.
I don't see that it's unreasonable as a taxpayer to have my cash "insured" by the government. If it became even a possibility that my banked money were at risk, I'd simply draw it all out an keep it under the bed. If everyone thought that way it would not be good for the country. A bit of governmental grease to keep that money in circulation sounds like one of the few reasonable things a government can do -- especially given that we expect never to have to call on that insurance. *Cough*.
Everyone who has a normal and healthy amount of cynicism knows that what a lot of politicians, bankers, journalists and other liars/stupid people actually mean is that "The government had to bail out the banks to protect their mates' jobs and massive bonuses". But you can't really expect them to say that, can you, so why be irritated? It's only irritating when someone who doesn't fall into one of the above groups comes out with this sort of crap.
M, sure. I'm not comparing the respective merits of furniture businesses and banks, I'm comparing the merits of reimbursing the depositor (who is largely innocent in all this) and handing over more taxpayers' money to the people who perpetrated all this.
OP, banks clearly aren't special but I agree to a bit of 'greasing the wheels. And because of the way the numbers work, it is highly unlikely that depositors would have lost anything ASSUMING that the government had the nerve to muscle in ahead of bond holders (again, this is a judgement call - are bond holders really just creditors or are they in fact part-owners?).
B, fair points all, what's most irritating is that the sheeple seem to believe that the only way to 'protect' depositors is to throw vast amounts of money at the people who lost the money in the first place.
Yeah, but that's what they are told.
Mind you, what still irritates me, despite my knowing better, is that none of the politicians, bankers, etc ever get picked up when spewing this sort of crap.
Bayard,
Yup. And it's because we have a mostly terrible media that's more obsessed with the microcosm of Westminster Village nonsense than actually dealing with everyday news.
I used to say that they were economically illiterate, but it's worse than that. They simply know nothing more than what comes from either politicians, lobbyists or from other journalists.
They're part of the problem because their ignorance of the city shows through every time they talk. They reinforce the idea that the city is special because rather than taking the time to tiny amount of time to learn and explain this stuff, they'd rather be lazy and pretend it's all super-complicated. When the politicians and city both say "the banks need bailing out", the journalists just nod along because they don't have a clue.
My hope for the net is that people realise that they're being fed a load of old shit by journalists and find better sources (I only respect the Christian Science Monitor - don't be put off by the name).
I would be interested to know how much is actually kept by individuals in bank accounts. If HMG had simply stood behind depositors and handed them the money back from the public purse, for example, how much would the total cost have been? Not all banks would have totally run out of cash, mind, so it wouldn't be 100% of all bank deposits.
Also, how do the figures compare with the £200bn QE?
What you're forgetting is the otherside of the coin. If the State let the insolvent banks go hang, and just made the depositors good, what would happen? The remaining creditors (the bondholders and shareholders) would have to liquidate the rest of the assets to try and salvage something for themselves. This would mean calling in all the business overdrafts, (and personal ones), causing a massive knock-on effect through the economy. Firms would go bust as they would be unable to repay money owed. Fire sales of assets would depress asset prices, weakening other banks. The whole thing would spiral down rapidly, probably destroying the entire economy in the process.
What the State should have done was let the banks go bust, but bought them as a going concern from the receiver for a £1. The bondholders and shareholders would have been wiped out (hard cheese, they were in the risk business), the depositors and borrowers would have been safe, the State could inject the capital required. All staff, including the highly paid investment bankers would have had to have new employment contracts, so the bonus situation would have been sorted too. Everyone would have signed too, as a lower paid job in the hand would have been worth any number of higher paid ones in the bush at that time.
S, your first paragraph doesn't quite stack up - why would bondholders act against their own interests? And shareholders aren't creditors they are owners - so they can ask to be repaid.
As ever, the solution to all this is debt-for-equity swaps.
As to your second para, you say 'the State should have let them go bust and bought them for £1', but in your first para you say that the State can't let them go bust. Doth not compute.
And you don't appear to have understood the basic idea I suggested in the post - instead of a depositor having a claim against the bank (the furniture shop), the government gives the depositor his money AND THEN the government has a claim against the bank (the shop).
No money actually leaves the bank on Day One, all that happens is the bank crosses out the names of the account holders and substitutes "HM Government" instead.
People refuse to understand banking but maybe they understand furniture shops - do you accept that it does not affect the furniture shop if HMG gives Mr Customer his £100? In the same way, it doesn't affect you if I give my kids £100 for their birthdays?
Musgrave: I also agree with Positive Money.
Onus Probandy: If your savings are at risk and you'd thus rather keep the money under your bed, then the banks have to work harder to convince you to leave the money with them, e.g. pay you more interest. Thus as a saver and a taxpayer, you are currently paying tax for the privilege of getting lower interest rates on your savings.
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