I've been asked by a number of people what chance there is that we'll have another banking crisis in the UK.
Well, just read this from the Guardian this morning:
Underlining his concern about the pressures on UK financial institutions, the governor said Threadneedle Street would provide as much cash as banks required "given the turbulence ahead".
Osborne said the Bank and the Treasury were taking co-ordinated action to inject new confidence into the financial system and support the flow of credit to the real economy.
"We are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep. The government, with the help of the Bank of England, will not stand on the sidelines and do nothing as the storm gathers."
I don't think it needs incredible powers of interpretation to say that the Bank of England is calling it a certainty.
And because almost nothing has been done so far to address the problems arising from and which created the last crisis then the money will simply have to flow again.
I just hope that this time first we directly inject the money in any bank that needs it as equity, and at a significant discount to current market price on the reasonable assumption that the funding prevents failure and second that this time the funding is sued and is not converted immediately in a) funding for speculation and b) cash for bonuses.
Is that too much to hope?
Of course, what is also needed is, as I have argued (with my colleagues) since 2008 is a Green New Deal.
But I fear Osborne would rather trash the economy than do anything so useful.
And in answer to the opening question: it's going to happen. The only astonishment would be if it didn't.
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We are on track for the great bust of 2028.
The banks are going to crash a lot sooner than that, Henry. This is just georgist speak.
The way Osborne is going, the banks are going to crash US. The 2028 is the Big One after that.
Henry, what is this bust of 2028 you are talking about? You’ve piqued my curiosity.
There appears to be a land price boom-bust cycle with a periodicity of 18 years. Even allowing for “noise” in the statistics, the existence of this cycle is well attested and can be traced back to the beginning of the nineteenth century.
Phil Anderson has researched it in more detail and proposed a possible mechanism. There is a positive feedback loop in the relation between the real estate market and the banking system which gives rise to these cycles, it is suggested. Fred Harrison predicted the 1992 and 2010 busts long before they happened.
http://www.businesscycles.biz/phillipandersonsnewbook.htm
What is the probability of a banking crisis ? 100%.
What matters is the timing
What is the probability of a banking crisis in the next 5 years ?
Almost certain, what matters is whether the UK Govt will, once again, bail them out.
There’s no bank manager network any more. the banks have no mechanism for appraising and making ‘loans’ (and I use the word advisedlyof course) to the community. It’s not what they do now. We need a new banking network as the existing banks will just use any money given or loaned them by the BofE to play casinos with. If they win, they give themselves huge bonuses. If they lose, they either hide it off the balance sheet and award themselves huge bonuses or they apply for a bailout (which we have to pay for) and award themselves huge bonuses. This is clearly an abuse of their oligopoly – isn’t there some legal challenge that can be made about this?
The banking crisis in inevitable. The US ratings agencies have decided — in their position as independent professional arbitrators of financial risk — that the Eurozone is going down and they’re going to make it a self-fulfilling prophecy. Each downgrade or negative outlook, simply brings us one step closer to the crash or mass-bailout.
We know that the Eurozone is going to hit a wall soon enough and the decision they make will have tremendous political and economic consequences.
The politics that has been played in the Commons by Ed Balls has gained them ground on the economy, but simply because he is lying. He knows that until the Eurozone situation is resolved, enterprise will not invest in the Eurozone — it’s simply not worth the risk. Once the crash comes, it will take a year or two until the dust truly settles; at that point and at that point only, we will begin to see growth once more, as foreign investors regain trust in the long-term stability of Europe. Until that point, we will continue to recess and lose confidence from the international money markets and business community.
This move needed to be made to secure the banks, but how far will these free loans go? They’ve already been given a great deal of capital that was intended to bolster their balance sheets, in case of a crash, but I worry about the accountability for this free money in the interim period. Are the banks lending it out at extortionate rates, or investing in the bonds of their European neighbours? There is a lot of manipulation of currencies going on at the moment and the Bank of England has a very influential part to play in the game.
Thanks
Darren Murphy
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I suspect the outcome will be another European war which always makes some people very much richer and provides extra employment. We have not seen the last of money manipulation or devious bankers.
Hmmm
In a time of massive financial/employment uncertainty most businesses and people will not want to borrow.
Those that do are likely to be in trouble anyway.
And what happened to the money previously given/lent/loaned to the banks to lend to those needing it ?
I’m starting to think that bankers bonuses are given to those good enough to persuade the government that they need money, which they then lend to nobody.
Banks need to be local businesses in order to be able to properly assess risk, which is the basis of banking. If you extracted all land rent from the economy for public benefit they would have to do this anyway because they wouldn’t be able to rely on land collateral, which is a scarce essential resource so never completely loses its value.
George Osbourne said yesterday that he wanted to help more people to become home owners.
Sounds so benign to most viewers – but clearly he wants to blow up another housing debt bubble, and have people buy toys from China again. You would think he would have learned from the last crisis. But the neoliberal growth model is one of banks predating on people who need credit to get a home.
Thomas Palley believes that we have already exhausted this one as house price inflation is already to high and debts too high. People would be foolish to borrow in an uncertain jobs market with negative equity to face.
If there is indeed another banking crisis (almost certain), then the banks must be nationalised, NOT bailed out!
Any odious debt, that is, debt caused by speculation, should be writtten off. All toxic derivative products such as CDOs and credit default swaps should either be banned outright or else heavily taxed to deter their use.
The banks should be used by the state to use funds to directly invest in the real economy to create jobs; housing, infrastructure, transport, manufacturing, particularly in renewable energy.
If banks are to resume as private businesses, then they must be broken up and tightly regulated. Investment banks must be ring-fenced from commercial banks. There should also be a provision for a reasonable amount of cooperative and municipal banks created. Without doubt, the banks should be required to hold larger capital requirements and guard more closely against risk, with actionable laws to make sure they deter financial risk as much as possible.
UK banks are being kept alive with taxpayer and government created cash anyway, so its about time banks were run for the benefit of the people rather than for the benefit of speculators.
The trouble being that the speculators own the government.
Do we really want to fully nationalise this? http://www.ianfraser.org/has-rbs-become-a-rogue-institution/ It’d be like nationalising the Mafia. Replacing it is what we want to do.
Yes, we do want to fully nationalise the banks. If they are under full taxpayer control, then they can be run for the benefit of the people rather than speculators and investors, can’t they?
As the government (or the taxpayer, whichever you prefer) will be the biggest shareholder, then what tthe biggest shareholder says, goes.
As stated before, any debt caused by speculation (which much of it is) is effectively odious debt which should be written off. Why should we be responsible for taking on what are effectively gambling debts?
Also, the banks could be run along the lines that they were designed for in the first place, that is, saving peoples money and giving out loans to people who can afford them.
If they are fully nationalised, then they can be properly regulated and provide a social service rather than providing rich pickings for vultures.
I’ll make clear again…..do NOT keep odious debt – write it off and cancel it!
A government might nationalise all the present banks, but how would it nationalise banking?
What would writing off the debt do to the intenational value of the pound, do we think?
We don’t know
We know all currencies will be impacted
It’s the fear of the chaos that bankers hold over us and politicians dread
It’s a real fear
We really don’t know what would happen
But we could plan for it
“A government might nationalise all the present banks, but how would it nationalise banking?” Henry, don’t banks have to obtain a licence to operate in Britain? I would have thought that if we don’t issue them a licence they can’t operate a bank.
Precisely so
We should remember that banking ain’t wot it used ter be. A bank used to have to be a solid imposing physical place as when money was notes and coins you needed somewhere to physically store it. This isn’t the case any more, put the right chip and software in and you could store all your bits and bytes in your watch with backups in a dedicated cloud. So that’s the storage problems sorted.
It used to be the case that banks pretended to lend money they actually had instead of creating new money to order. Now that notion’s on the way out we don’t need to maintain the pretence any more. Money creation can be done separately and carried out somewhere not even remotely connected to a bank by individuals authorised to do so. Sans the bank manager, as we are, with all his local wisdom, who can be in charge of money creation? I’d suggest local businessmen of mature vintage, same as the blokes who were the original politicians, people who’d made their pile, who understood how it all worked and wanted to put something back into their community. A difference between them and the old bank managers would be that whereas the bank managers would make, ahem, ‘loans’ on the basis of whether it could be paid ‘back’ or not, the new guys would create money on the basis of whether or not creating it would devalue the currency or not. I refer you to my old saw, create money to have a drink in a pub, you’ve got inflation, create money to build a pub and you’ve got wealth. No doubt there’ll be some favouritism, so what? It’s human nature. Some areas will do better than others because some areas will have more creative and entrepreneurial people in them. This will all be new and we’ll have to learn as we go. If we can’t do this with pounds, we’ll have to do it with local currencies. Let them float against each other, the value to be determined by peoples’ opinions and not self-interested politicians or sociopaths, and levels will rapidly sort themselves out.
The banks were well regulated in the 1970s but it did not prevent a banking crisis with an associated boom-bust. That was followed by 15% annual inflation for several years, IMF intervention, the election of Thatcher and sado-monetarism.
The regulations had been worked-round and the problem developed through “secondary” banks. Regulations alone will not prevent a problem if there is enough pressure. Look at the “war on drugs”.
“The banks were well regulated in the 1970s but it did not prevent a banking crisis with an associated boom-bust.”
“In 1971, the UK moved to a more market-related monetary environment under a policy known as Competition and Credit Control. The former quantitative ceilings on bank lending were lifted and interest rates were allowed a larger role in the allocation of credit. This coincided with a period of fiscal expansion and rapid growth of demand in the economy, and monetary expansion was also rapid as banks increased their lending and competed in the interbank market for deposits.”
This triggered a house price bubble.
“A government might nationalise all the present banks, but how would it nationalise banking?”
As you are suggesting, we certainly can’t control what happens in other countries, but we can certainly keep a tight rein on banking over here.
The US banks, for instance, have to come over here to get away with certain things. Regulations over there won’t let them do certain things, for instance, rehypothecation of loans as many times as you like, that is, using the same collaterall to back multiple loans, is far less restrictive over here than it is in the US.
Would there be capital flight if we were to impose restrictions on the banks? Possibly, but the speculative nature of much of finance is something we wouldn’t miss. Good riddance, I say!
There is no reason to believe that we can’t train people on good salaries to run banks properly if bankers were to fly the coup/
Break uo our banks, impose solid regulation on them and have them invest more in genuine wealth creation than in speculation. If financiers want to take risks with other people’s money, then tax then heavily for the privelege.
Someone has to take a stand! It may as well be us!