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Finanacial Crisis
Not being funny right? But does anyone actually understand what the worlds financial crisis is all about? I’ve heard all the explanations – banks lending to borrowers who can’t afford to pay back, resulting in a lack of confidence in the stock market etc. etc. – yet still I don’t quite get it?
This morning the British government has announced plans to invest 50 billion pounds into British banks to restore confidence and get the system going again. Where is the 50 billion coming from? I read recently that government borrowing was already at it’s limit – in fact the rules on government borrowing had been changed to allow extra borrowing. So presumably the 50 billion that is being spent on the banks is also being borrowed from somewhere – but the banks have stopped lending so where is it all coming from? Is it sitting in a high interest savings account somewhere or under Alistair Darlings mattress?
I’m not trying to be funny or smart – I genuinely don’t understand it all.
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34 Replies
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You know what they say Phill – ignorance is bliss – and this time I mean it in the nicest possible way. Maybe not knowing is the best way to be. I have read, watched and listened for months and am scared sh!tless, but the bottom line for us both is there is little us mere mortals can do about it. So maybe not understanding isn’t such a bad thing…
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read the guy robert peston’s blog on the BBC website every day, he kind of explains things in fairly simple terms, still hard to get my head round tho! 🙄
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I don’t think anyone quite understands whats going on.
It all seem to start with the US realestate situation. Vast overlending, to people who had no hope of ever paying it back, it was just a time bomb waiting to go off…and it did big time!
Where no one could repay their loans means banks weren’t getting their money and the confidence dropped and banks stopped lending to each other, everyone gets frightened and starts off loading shares effectiveley making companies worthless as with HBOS.
Therefore meaning there is no money in the system, hence none to lend and people can’t borrow and pay interest, which really makes the world go round.
And I guess we caught the cold from America but on not such a grand scale, declining confidence – off loading shares- no money.
The 700 billion $ 😮 the US put in is enough to give every US citizen 40,000 $ each and the UK £50 billion would give us around £800,000 each (i think).
Basically the banks f***ed up by overlending and they are being bailed out.
People who over borrowed and are in deep trouble will not be bailed out.
Where the £50 billion is coming from? who knows, they probably have the printing works on overtime.
m
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its all on paper phil, cheques if you like.
the debts are written off I guess.
Basically the banks were greedy, made some poor investment (based on greed and a fair sprinkling of dishonestly ) and got burned.
Thing is, if we made those same choices, and the banks found out, they wouldn’t lend us any money, but its ok when they do it. 😮
The big four banks here are crying poor, and are looking for a government handout too. Don’t think they’ll get it given that those same banks made obscene profits this year. $17bil from last count.
Our dollar is plummeting in value though. Looks like my travel plans overseas next year may well be put on hold at this rate.
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quote Shane Drew:its all on paper phil, cheques if you like.
As Shane says, it’s all paper money, It’s just vast figures that float around in orbit, until they end up in a bankers bonus pay check.
The only real winners are the already stinking rich Hedge Fund companies and individuals, by short selling they have made millions, as I believe they are really responsible for he demise of HBOS. I think I heard the practice in certain cases has been banned now.
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Just heard on the news its going to cost the British tax payer £2000 each to prop up the UK banks 👿 of course when everything is rosey again they’ll give us all a refund :lol1:
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I read in the financial papers that the boss of Leehman Brothers took pay and perks of $172 million 😮 😮 😮 😮 😮 😮 😳 😳
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I asked for an explanation on another forum, as simplistic as possible.
Someone posted this (powerpoint with a few swearwords)
mywebpages.comcast.net/preferred_user/economy.pps
(just copy the above and paste in your browser)
They’ve thrown us a very small bone, as gas prices are down more than 20¢ a gallon since last week.
Love….Jill -
quote Martin Cole:😮 I think I heard the practice in certain cases has been banned now.
Short selling was banned here this month.
talk about closing the gate after the horse bolted!
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quote Shane Drew:talk about closing the gate after the horse bolted!
A classic case if ever there was one Shane.
Just read up it was banned here as I thought.
unbelievable really how they were allowed to do it.Usual story, the rich getting richer at the expense of all the rest of us 👿
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A Tax Funded Company and the Bank of England supplying the funds….BBC2
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quote Martin Cole:Just read up it was banned here as I thought.
unbelievable really how they were allowed to do it.I don’t quite see it that way Martin.
The conventional view of share dealing is that you find a company whose shares you consider to be undervalued, and buy them in the expectation that they will rise in value.
With short selling you find a company whose shares you consider to be overvalued, and short sell in the expectation that they will go down.
Both exactly the same principle, just opposites, and normally no damage occurs with either way of doing things.
The real villains are the managements of these banks who, by loading themselves up with bad debt, reduced the value of their companies to what it is now. A Lloyds TSB share really is worth as little as £2.10 today, and that’s not the fault of share dealers who, if they thought they were really worth the £5.00 they were a year ago, would be buying by the barrowload instead of shorting.
Indeed, I think banning of shorting is a bad thing, a panic measure by the government, and an attempt to deflect blame from themselves onto the hedge funds.
Only with a free market in shares can they find their true value. At any given price, some people will be buying, some selling, and some shorting and when averaged out the result is the fair value.
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personally i don’t worry so much about the global side of things, but i do worry about britain and the shower of ‘*%@rds that have been running it into the ground (again) for the last ten years or so.
i read somewhere that we recently just fisnished paying our WW2 debts to the US, so what does brown do… Borrows again, from somewhere else. When our gold bullion reserves were sold, again by the bunch of crooks we have now (when blair was in charge), the price of gold was at an all time low. gold bullion is the std by which a countries wealth is measured, how much is in the vaults etc, so why sell it? those reserves were what we used to be able to borrow against, what are we doing now? mortgaging the country? wouldn’t surprise me.
total short sightedness, that exceedes any and all previous gov’t screw-ups. total mis-management too, not just the gov’t, or the banks for lending, but also the ridiculous tv programmes telling everyone where the cheap housing is, how to be a property developer / landlord, etc etc etc.
fact….
even ten years ago, there are only so many people in the big cooking pot that could afford a mortgage, house prices rose, fuelling bigger lending by the mortgage lenders, up to 150% of the house value ffs.so, they keep lending more and more, the prices are well out of line with inflation, etc, far exceeding what people can realistically be expected to repay, but the banks keep lending, cos the prices keep rising, EXACTLY as it happened in the late 80’s / early 90’s, but it surely can’t happen to this gov’t. sooner or later, there’s no more people to lend to, as no more can afford the houses, and greedy developers, funded by banks, aren’t building affordable homes, they’re building four to 6 bed detached properties in gated cul-de-sacs, only the rich can buy them, but…oh no… who’s gonna buy their house now there’s no-one down the chain who can afford to move up….
and the the house of cards come tumbling down.
as for bailing out the banks? let em go bust, if i go bust and people owe me money, will they repay it? course they wont, will the gov’t interviene and stop me going bust? course they won’t,. a bank is a business like any other, if it isn’t making money and has made bad decisions, let it fold and another bank take it over, survival of the fittest if you like.
this gov’y should help all those who’ve effectively been conned into paying over inflated house prices and sold ridiculous mortgages, cos they’re the one’s who’ll suffer, not those puffing on a big fat cuban while stretching their fat red braces with their thumbs.
whole lot of it stinks. the gov’t knew what was happening, and was happy to ride along, let them and the banks take the fall, not us.
(chat.) (chat.) (chat.) (chat.)
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I reckon they should get the Queen to go on telly and make an announcement commanding all her subjects to stop panicking and to start spending, borrowing and lending money again.
..It’s a plan…It might work…. 😕
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Hugh,
It fine saying let the banks go bust, but what if they have your money?us poor sods have no alternative but to use banks, so the last thing we need is for them to go bust, good or bad, if the banks are solvent, we can vote with our feet which we use, if they start going, the customers are the first to loose their money, including many life savings.
Peter
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Could be worse… you could live in Zimbabwe… 230mil % inflation… Bread is supposed to be $6000 a loaf 😮
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Something that many are not aware of…
In the US, which seemed to start the global chain reaction, it was first Jimmy Carter as president that introduced "democratic" tools (read: Lib/left) that made it more easy for the common man to own a home. Legislation and "government sponsored enterprises" were introduced in order to ensure that anyone who wanted a mortgage could get one. The increasing value of the homes was supposed to offset the risks being incurred.
Ronald Reagan took over and tried to implement corrections to the flawed US economy (often referred to and reviled as Reaganomics). After 2 years in power, the US economy not only stabilized, but took off and used this financial might to help bring down communism.
George Bush Senior stepped in and prosperity continued into the 90s under Republican rule, though spending began to increase as military activity and "sharing the wealth" became more prevalent.
Enter Bill Clinton, who rode a wave of anti-Bush sentiment. This more liberal government chose to re-introduce Carter style financial tools in order to "help the working classes", eventually holding about 6 trillion USD of financial holdings – much of it being low level and sub prime mortgages. Many countries emulated these measures (in varying degrees) because it was viewed as a way to ensure people could buy homes.
Thing is, it only works if people can continue to pay. Once you run out of homes to sell or people to buy them, the prices stop increasing. The market flattens out and interest rates need to change. As rates change, people start to default on their mortgages and banks are held holding the bag. Essentially, the pyramid got as wide as it could and began to crumble.
The mortgages were not given out because of the banks greed – it was the government that encouraged them to do it. While it is obscene for bank executives to walk away with massive salaries that were essentially borne on the backs of someone else’s eventual failure – that’s essentially what stocks and speculative markets always ensure. The failure if the system is not because of corporate greed, but because too much was given to those who could not afford to pay.
It’s a massive warning to those who thing that government control and social subsidies are the way to improve. There is a middle ground – like we have here in Canada (recently announced the most financially stable banks in the world) – but government regulation is different than government intervention. The economy is at its healthiest when those who have wealth are able to make it into more wealth. The only way to improve the lot of those who have no wealth is to encourage it to trickle down – not to take it away and give to those who don’t have.
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edit: deleting double post
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A lad in the pub put a good angle on the UK situation last night. He said it was corrupt how the Government use OUR tax money to bail banks out, who then lend us OUR money back by way of mortgages, loans, credit cards etc only to charge us interest on the repayments.
We are being charged for lending our own money.
I know its a very simplistic way of looking at it, but to a point he was right.
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Thing is, it is not actually the tax payers money. The government is going to have to borrow this money to bail the banks out. So, it is in fact the tax payer who is effectively going to be borrowing the money (as ultimately we the tax payer are the ones who will be liable). Yet I thought the whole problem had arisen because the banks had stopped lending – so where are we going to be borrowing the money to bail the banks out from?
In all seriousness – call me stupid – but why don’t we just print more money to solve the crisis 😕
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Printing more money only devalues it.
Technically speaking *I think* (I’m not an economist) a country is only allowed to put out as much currency as they can replace with gold (or in modern times – credit).
If you have money, you have to be able to trade it for something. Money is only worth as much as that which you trade it for, and it used to be that banknotes were printed in value equal to what that bank held in gold. If every customer of one bank went to withdraw their money, they bank would have to provide it. Same thing with printed currency – it’s a representation of value. If you have more representation than actual value, the value goes down, which is when inflation becomes a problem (currency value goes down, so prices go up).
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Couldn’t they just print more money anyway but just not tell anyone 😕
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didn’t our government sell all our gold reserves 🙄 have we got anything left apart from we put in, and how when they have used all our money to prop the rest up, how do we get our money back 🙄
Lynn
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Haven’t we been printing our own money for years?
The rep told me when I bought my first printer that it was just that,
A license to print money.Peter
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Good plan Peter.
I vote we all go into work Monday morning – scan a £10 note on both sides and start printing extra currency to help the country out of it’s current financial crisis 😀
Just remember not to tell anyone apart from Gordon Brown – we should tip him off as to our plan so that he can instruct the rest of the world leaders to follow our lead in solving this crisis. 😎
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go for the nifties Phill takes same amount of material for more than five x the retail price 😀
Peter
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Naw – wouldn’t work Peter – my local newsagents get suspicious if I try and pay for my Sun newspaper using a fifty pound note – I get way with it when using tenners though 😳
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Marko
What would happen if we just closed the stock exchanges for a period of time to allow things to stabilise, also why does interest rates have to rise on loans already in existence, car loans don’t.
only ashing because I don’t know.
Cheers Mike -
quote Marko YYZ:in Canada (recently announced the most financially stable banks in the world) .
Interesting… we are being told that Australian banks are the most stable in the world.
Bank execs still get their $8m bonuses each year, one bank here paid a $23m bonus last year. Salarys should be linked to performance, not contracts.
Our Prime Minister gets less than $400,000 a year. May explain why our politicians are numpties, on a power trip….
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Hey Marko, passed your place the other day in Mississauga 😉
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quote Shane Drew:Interesting… we are being told that Australian banks are the most stable in the world.
http://www.ctv.ca/servlet/ArticleNews/s … TopStories
Looks like Australia is 4th on the list, which is still quite an accomplishment. The truth is that both countries are a lot a alike, not only being Commonwealth nations with strong influences from their British roots, but also in terms of being large land masses with low – though very diverse – populations who must be bothy innovative and cautious at the same time.
quote Dave Rowland:Hey Marko, passed your place the other day in MississaugaWhat – you’re in Canada? Did you genuinely pass by our place, or just the area?
If you’re still here – it would be great to meet and talk shop.
mod-edit see board rules please
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Hey Marko, I sent you a PM, should say you have a message above
anyway, yes was in Canada, something tells me I did see your place but I didn’t realise who it was at the time… really enjoyed my stay in canada, loved it
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Got your PM, thanks. Seems like I’m unable to send, though – guess it has to do with types of membership on here?
I know exactly where Gand is located (2 locations in Mississauga) and one of them is quite close by (2 blocks). Your hotel is not far from where I used to live. I’m glad you enjoyed Canada… just before it gets too cold 😉
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Malta and Australia are on that list. I know where I get my good financial roots from then 😀
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