Saturday, January 03, 2009

Banking on a solution

On my post about Darling's mad fucking scheme to pour yet more cash into the banks, a brave Anonymous commenter left the following pithy message...
So your solution is to let the publics money thats in these banks go down the toilet I suspect.

Rather than swearing and moaning why not offer some suggestions?

Well, first of all, I am not nominally in charge of economic policy and nor do I have tens of vastly overpaid policy wonks to advise on whether my tactic would work.

However, my suggestion (and I have no idea whether it would still work) was really very simple: temporarily suspend the capitalisation limits.

In this way, banks could effectively not go bust: take RBS, for instance, which has estimated bad debts of... what?... £8 billion but assets of £1.9 trillion. It isn't going to go bust unless it falls below its capitalisation limit.

If it falls below that limit, under EU law (I believe), it has to cease trading on the same day, e.g. effectively declaring itself bust.

So, that's my suggestion: suspend capitalisation limits for eighteen months (and eighteen months only) and tell the banks that they have that time to sort out their portfolios.

Hell, I don't know if it would work, but it seems to me by far the best solution: it is certainly better than throwing billions of pounds of our money at the fuckers.

Of course, to do this we would have to leave the EU, so that's my plan stymied, eh?

Can we leave yet?


Trixy said...

make the Bank of England a temporary clearing house whilst you're at it.

Anonymous said...

OMG, common sense is so passe, sweetie.

Shug Niggurath said...

I got a better idea.

Hang all of the politicians currently in place in the UK tomorrow at 9am.

On Tuesday ask anyone who would be interested in taking their jobs temporarily until we got sorted out.

On Wednesday hang all of the respondents.

That'll be us clear of all the cunts that desire power.

After that we could try and make sure that the chancellor is actually skilled in monetary policy, the home secretary has a background in law and that we don't have a situation where we are being ruled by schoolteachers, postmen and failed union reps.

Anonymous said...

Capitalisation limits aren't an issue. Liquidity is the issue. Those 1.9 trillion of assets are balanced by something approaching the same of debt. Also those assets aren't liquid enough to pay immediate liabilities. If counterparties in the market aren't willing to stump up short-term credit, the bank can't meet immediate liabilities and is insolvent.

Not arguing for bailouts, just saying...


Anonymous said...

Isn't it obvious? The system is totally broken and the banks seriously need to go bust.
Working on the basis of REAL business, where you have a product or service and make money from it, the banks fail the simple test of having the ability to actually auditing their assets in a sensible way.

It isn't really the banks fault though, because they are so much in bed with the governments of the world that for someone to work out where the money is would take at least a few years - with no proof that it was a true account anyway!

The solution is to make all banks private organizations with only the same rules to follow as other companies. Its all these special rules for banks not to go bust which is making things worse.

This would make almost all banks insolvent overnight - which proves my point!

Don't worry though, it would never happen - there are too many knighthoods and other special deals at risk!

Tim J said...

Not sure I've seen the sunk cost fallacy so pithily expressed as by your commenter...

James Higham said...

The question now is - what can be done to stop the madness?

Honest John said...

DK, this seems to be the opposite of your party's monetary policy, which is for banks to have 100% reserve. You're arguing for a 0% reserve.

Do you guys not talk to each other, or what?

Tomrat said...

Agreeing with Macx Stirner on this one; the issue has always been with the method of banking that has dominated over the last 4 centuries; how can anyone track money that doesn't exist? The only way of tracking where this money has gone is to look at who benefits once economies start to contract to their actual size; in this case the state gains more power, a few random banks and some pretty rich individuals who have built up their futures in gold rather than credit...

Best to stop paying for this and let them burn.

Oh, but leave the EU anyway; the ability to cope with debt is severly limited by BASEL 2 accounting methods; can you imagine having to recount your beans every single day to be declared solvent? New accounting methods please that reveal basic information and are open to public scrutiny please.

Devil's Kitchen said...

Macx Stirner,

"DK, this seems to be the opposite of your party's monetary policy, which is for banks to have 100% reserve. You're arguing for a 0% reserve.

Do you guys not talk to each other, or what?"


Should I have to put a disclaimer on every fucking post in order that you people don't somehow try to paint me as being in conflict with LPUK?

To address your point, I took the comment to mean "what would I do, in the current crisis, in order to try to get some liquidity flowing again, all other things being as they are, here and now and at this present time and not at some point in the future when everything is hunky-dory."

If banks were, right now, required to have 100% capitalisation limits, they would have to call in (in full) every, single loan that they have made. Is that going to help in the current crisis? No. It would turn a crisis into a complete collapse: so why the hell would I suggest that?

100% backed loans would be good for stopping future crises, but you are still going to need a transition period, aren't you?

Besides, you will also note that LPUK's policy is to allow several currencies, so it is not even as simple as requiring all loans to be 100% backed.


That's fine: but letting the banks go bust is not quite as simple as merely everyone losing their savings. They underpin the entirety of the world's money supply. Letting the banks go bust is (apparently) not an option at present.

LPUK's policy is designed to minimmise the impact that banks going bust can have on an economy but until that policy has been enacted, we're fucked.

Not least because it is the banks who are backing the government's spending: if the banks go bust, then the government will have no money to reimburse people anyway.


Pogo said...

I'm continually gobsmacked at the "let the banks go bust - it'll serve those fatcats right!" faction. They seem somehow to have failed to notice that if the banks go down so does the world's economy... Effectively it would mean "goodbye money as a means of exchange" - we'd be back to simultaneous barter.

I wonder how many tins of beans you'd get for a nifty webpage design?

Letting the banks go is quite simply not an option.

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