Forex traders have been shocked into behaving themselves but it might not last...

[AtW]

Liquidate the banks and use the bailout money instead to pay back creditors directly. Bail out the creditors rather than the banks. And strip the banks assets (buildings, land), liquidate those and use that money too. Sounds harsh but that is business.

To liquidate would have meant to fix loss and take on even more because banks were insolvent - there was no money to return all savers, it was much cheaper for Govt to recapitalise and pretend those new shares worth the money they put in.

Now putting directors in jail would have been OK, but then it would also require putting regulators in jail too, and politicians ...

[unixman]

To liquidate would have meant to fix loss and take on even more because banks were insolvent - there was no money to return all savers, it was much cheaper for Govt to recapitalise and pretend those new shares worth the money they put in.

Now putting directors in jail would have been OK, but then it would also require putting regulators in jail too, and politicians ...

The banks were not insolvent after we gave them a cheque for £108,000,000,000. The gov should have kept the money, liquidated one or two banks by appointing an administrator, ie. normal bankruptcy, then used the proceeds from that, together with the big cheque, to pay creditors. Yes it would be hard, there would be job losses, but good banks would have sprung up to replace the bad ones. Let the market sort it out. Had the gov done this, that Libor man would not be going to prison today, and we would have a cleaner, faster, better City of London. Maggie would have done it, and no mistake.

[AtW]

The banks were not insolvent after we gave them a cheque for £108,000,000,000..

You could not liquidate them because most of banks money were tied in loans - nobody had the money to buy it out, and in any case haircut would have been 50%+. It was much more sensible to give some money to prevent panick from savers and pretend all is okish now. It actually worked.

[centurian]

The banks were not insolvent after we gave them a cheque for £108,000,000,000.

That was just to tide them over. 108Bn was small change down the back of the sofa compared to their balance sheets. RBS was over £2 Trillion alone.

Liquidation involves turning the assets into cash to pay off the creditors (depositors). Back then, there was no liquidity. Their assets (mortgages, loans) could not be sold - at any price - because no-one would buy them.

HMG simply didn't have enough cash to pay all of the depositors - it still doesn't - they are still too big to fail.

[DimPrawn]

Liquidate the banks and use the bailout money instead to pay back creditors directly. Bail out the creditors rather than the banks. And strip the banks assets (buildings, land), liquidate those and use that money too. Sounds harsh but that is business.

Absolutely this. That's how the market should work. Bailout the creditors, in order of lowest risk to highest risk. Strip assets of bank directors, sell bank assets to highest bidders.

In this way, the market adjusts to remove stupidly risky behaviour and the bank failures become rare events.

But it will never happen.

[AtW]

I am VERY glad that there are still banks that are too big to fail and long may it continue. Why? Because Govt guaranteed limit of £75k for depositors is piss poor low, and businesses might not even get that. Sadly way too many have more debts than their own money, so they don't give it second thought, but those who do should be eternally grateful to wonderful UK Govt for keeping the system the way it was designed - too big to fail.

[unixman]

Liquidation involves turning the assets into cash to pay off the creditors (depositors). Back then, there was no liquidity. Their assets (mortgages, loans) could not be sold - at any price - because no-one would buy them.

HMG simply didn't have enough cash to pay all of the depositors - it still doesn't - they are still too big to fail.

The banks describing their loans as "assets" is a part of the problem. It allows the banks to make any risk appear as no risk. I could loan you 50k to invest in Siberian pasta mines (extreme risk), then put it as an "asset" on my balance sheet. Preposterous. And lethal.

"too big to fail" is also nonsense. They would say that, wouldn't they? By bailing them out, we also bailed out the bad behaviour, ingrained self-delusion, dishonesty, criminality and plain stupidity (see above) that led the banks to navigate themselves down a toilet in 2006. All of these bank behaviour patterns are still with us, as a weekly glance at any newspaper confirms.

[AtW]

"too big to fail" is also nonsense. They would say that, wouldn't they? By bailing them out, we also bailed out the bad behaviour, ingrained self-delusion, dishonesty, criminality and plain stupidity (see above) that led the banks to navigate themselves down a toilet in 2006. All of these bank behaviour patterns are still with us, as a weekly glance at any newspaper confirms.

Yes for sure. Now move along, nothing to see here.

[DimPrawn]

The banks describing their loans as "assets" is a part of the problem. It allows the banks to make any risk appear as no risk. I could loan you 50k to invest in Siberian pasta mines (extreme risk), then put it as an "asset" on my balance sheet. Preposterous. And lethal.

"too big to fail" is also nonsense. They would say that, wouldn't they? By bailing them out, we also bailed out the bad behaviour, ingrained self-delusion, dishonesty, criminality and plain stupidity (see above) that led the banks to navigate themselves down a toilet in 2006. All of these bank behaviour patterns are still with us, as a weekly glance at any newspaper confirms.

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DEFINITION of 'Fractional Reserve Banking' A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties.

You don't even need 50K, you have just £1 and create the other 49,999 out of thin air.

[centurian]

The banks describing their loans as "assets" is a part of the problem.

The only substantive "asset" that banks hold - are the loans. That's what they exist for - take money from depositors (creditors - liabilities) and lend it to borrowers (debtors - assets). What other assets could they hold - maybe a bit of property, few bits of IT kit. - none of which are liquid anyway.

It allows the banks to make any risk appear as no risk. I could loan you 50k to invest in Siberian pasta mines (extreme risk), then put it as an "asset" on my balance sheet. Preposterous. And lethal.

In theory, RWA (Risk Weighted Assets) covers this. They need to hold sufficient capital to absorb losses on a risk-weighted basis, so a Siberian pasta mine would require much more capital. Unless of course you can get a credit agency to certify it as AAA rated - then you can fill your boots.

"too big to fail" is also nonsense. They would say that, wouldn't they? By bailing them out, we also bailed out the bad behaviour, ingrained self-delusion, dishonesty, criminality and plain stupidity (see above) that led the banks to navigate themselves down a toilet in 2006. All of these bank behaviour patterns are still with us, as a weekly glance at any newspaper confirms.

Yep - and it's still a considerably better outcome than if they had failed completely - depressing isn't it.