Between December 2001 and June 2008, UK bank assets increased by 310 percent. It might seem an obvious point but as banks increase the stock of loans, the quality of those loans has to decrease. When banks grow at this shocking rate, it is inevitable that the proportion of bad loans will also increase at a similar rate.
With a 300 percent growth rate, it should be no surprise that a banking crisis quickly follows. The real question is why didn't someone stop the banks. Isn't that what the Financial Services Authority were supposed to do?
There needs to be some kind of public inquiry into this banking crisis. We need to learn the lessons, and we need to hold our institutions accountable. The government can't simply pour in billions of pounds of taxpayers money into the banking system without investigating the reasons for this mess.
16 comments:
Nice graph!
The Goblin King had the temerity to claim recently that he had been complaining about reckless banks for a decade and that it wouldn't have happened if we'd had a 'global early warning system'.
This is a two Big Fat Lies, of course, he never said a word and if the figures in your graph weren't ringing alarm bells ...
Alice,
It sure looks like the entire U.K. banking system is insolvent.
I seriously doubt all of the losses have surfaced yet. Somebody has to eat the losses.
A giant swindle.
Alice
Your question:The real question is why didn't someone stop the banks. I think the answer can be found here at
http://www.ukinvest.gov.uk/Regulation/is-IS-list.html?nav
I love this quote on a page updated on23/06/08
"The Government attaches particular importance to better regulation and is committed to reducing the burden of regulation on business by 25% by 2010."
The section on education and training is also very funny in a sad kind of way
eyeballing the chart it appears that loans to custumers and securities were the assets that did most of the growing.
I think the spotlight should fall on the Tripartite system of bank supervision. Whenever 3 sets of people are responsible for different parts of a complex system, you can bet you bottom dollar when it all goes t*ts up everyone will blame the other 2, and probably the govt as well for good measure
So who is the person responsible for creating this setup? Step forward none other than G Brown esq, MP, Chancellor of the Exchequer 1997-2007. Somehow I don't think there will be much of an investigation into how we got where we are today......
"The real question is why didn't someone stop the banks. Isn't that what the Financial Services Authority were supposed to do?"
In a free market (which crucially does not have a Soviet-style central bank or deposit insurance) banks wouldn't dare lend so recklessly because it would be asking for a run on deposits. Thus you'd get small occasional bank runs that don't cause much harm, rather than an almightly collapse every 50 years. People would also quickly learn to spread money across a few banks.
If you add in 100% gold convertibility, you'd never have a single bank run.
Depositors are supposed to stop the banks, but they were tranqulised by the FSCS.
Shareholders are supposed to stop their banks, but they were egged on by the lender of last resort.
Nick Von Mises: "Thus you'd get small occasional bank runs that don't cause much harm,"
In actual fact Nick, such contained bank runs would be a good thing, it would make investors and savers a little more conservative and perhaps encourage them to be a little more knowledgeable about the institutions and instruments they were dealing with.
And as for the banks, "Pour encourager les autres"
apl,
Oh yes, I fully meant that as you say.
The chart suggests you should not keep your money in major UK banks.
1) Many of these securitised mortage assets, mortgages, and other assets counted are not sound.
2) All the pundits are saying the government guarantees make deposits up to £50,000 secure. Spread it around and you are safe.
3) The government says that too.
The government could not back out of that guarantee, could they?
But here's how they can:
We are in a 1930's re-run. The £2 billion raised for war bonds 1932-33 has never been repaid; the coupon was reduced, from 4% to 2%. The government kept the interest promise, but never repaid the capital. What an interesting idea...
Hypothesis: the economy stumbles for two years, the tax burden rises to an intolerable level, the currency slides and the IMF can't fully bail the UK out as there simply isn't enough credit to go round all the struggling nations.
The next conservative government could say, as the whole system buckles under the strain:
1) It is simply impossible to fully guarantee retail deposits. The burden on the taxpayer is too great and cannot be sustained.
2) It's not our fault. The mess was created by Gordon and New Labour and you have to blame 'thirteen years of Labour misrule.' We renege on the scheme in its present form for the greater public good. It is the only responsible response, so a reduced tax burden can allow the economy to recover.
3) In the event of bank failure we will convert deposits to government bonds paying interest, to be redeemed when government revenues allow. Sorry, you can't have your cash NOW.
4) Pensioners die off, passing bonds to their children. The debt is largely wiped out by inflation over two or three decades.
5) Maybe in the end the bonds can be redeemed for twenty pence on the pound. But maybe never.
If the Republicans can bail out Wall Street, the Tories can in this way betray retail depositors.
You have until Gordon is voted out to put it ALL IN THE MATTRESS!
B. in C.
"Coffee is for closers only!"
Thank you for explaining the reason why I have this persistent sense of fear. And...good call on a public enquiry about the banking crisis. Vince Cable as chair? How do we sort that out then?
Between December 2001 and June 2008, UK bank assets increased by 310 percent.
Er, going from 2000-odd to 6000-odd is 210 per cent growth, not 310 per cent. It is 310 per cent of the original though.
ntk,
You are, of course, correct. Actually, I was in a bit of a hurry when I did the post. I calculated the ratio, which gave me 310. I then did the chart, and didn't go back to calculate the percent change.
Thanks for pointing this out.
Alice
5) Maybe in the end the bonds can be redeemed for twenty pence on the pound. But maybe never.
6) Buy up the non-performing bonds and repackage them as a Government-Backed, AAA, "High-Yield Emerging Recovery Bond" and sell them to stupid Asian pension funds and Clever Asian investment banks.
Who then ...
7) Uses the HYERB bonds as collateral to create a 100:1 leveraged "Aggregated Asian Total Return Trust". Those certificates are bought by Westerners looking for interest payments and security of principal.
The circle of life ...
Not a problem Alice! May I take this opportunity to say that I do like this blog, and thankyou for writing it.
It was indeed madness which is why I was selling commercial property and repaying loans in 06 07 and 08. And finally sold my property Company in August 2008 at the 11th hour. Cash is indeed king!
People forgot that there is a differance between value,price and worth and if the price obtained is a product of a credit bubble then it must fall. Commercial property values have fallen by 20% to 25% but houses so far by only 15% which is not logical.--CD___
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