Sunday 22 March 2009

It is about the bankers....

(Click on the chart for a sharper image)

For almost two years, I have been raging about household debt. Then, I found this chart. It is from the Turner report; recently published by the FSA.

True, household and corporate sector debt has gone up as a proportion of GDP, but the increase is modest compared to the stratospheric jump in financial sector debt.

With breath-taking understatement, this is how the FSA described the situation:

Looking at total debt claims across the economy, we see some growth of household debt as a percent of GDP and a slightly smaller growth of corporate debt as a % of GDP, but what is striking is the extent to which the debt of financial companies has grown, both in the US and in the UK.

The Turner Report then adds two further observational gems:

1. On a consolidated basis – stripping out claims between financial institutions – financial sector assets and liabilities can only grow in line with non-financial sector liabilities and assets.

2. What this disproportionate growth of financial sector debt represents therefore, is an explosion of claims within the financial system, between banks and investment banks and hedge funds, i.e. the multiplication of balance sheets involved in the credit intermediation process.

The poorly written prose conceals an appalling fact; about half of all debt in the UK are claims between banks, investment banks and hedge funds. Securitization, CDOs, CLOs, MBS - the confusing acronyms of modern finance comes down to one frightening fact. The financial sector was lending money to itself, pulling out commissions and bonuses. Now, the system can not pay itself back.

After twenty years of humiliating the rest of us with their ostentatious lifestyles, these bankers have left the glass towers of the city and slimed their way down the river to Westminister. With lurid threats of a financial implosion, they demand that the rest of us cough up billions to maintain their coke fueled lifestyles.

For all practical purposes, the financial system now controls the Treasury and we are being forced to pay for the most outrageous fraud ever perpetrated in human history. What is worse, we are letting it happen.


Chris said...

Some in the US are calling this a a coup d'état by the financial elite.

Whether that is true or not, this is what 30:1 leverage looks like.

Alice Cook said...


I think you are right. This is a coup d'etat. They have assumed control.


ed thomas said...

Alice- great graph, and you are surely right on much there, but I have some questions.

Firstly you say 20 years of banking freeloading- surely the graph suggests the last ten were the critical ones?

Secondly you say the financial system has taken over the government; surely it's the other way round? Fred the shred is on his bike, albeit loaded with ill-gotten cash. Gordon Brown meanwhile has got a promotion, and his UKinc has been taking over companies in a way that makes other companies' activities look like kindergarten. Monops and mergers meh!

John McClane said...

Another Scottish bank goes under...

Alice Cook said...


Total debt in the UK was about 200 percent of GDP before 1997; it is about 500 percent now. In vague way, this answers your first question.

As for your second question; Fred might be gone, the shareholders wiped out, but the insiders have largely been protected by taxpayers money. As things stand, I can't tell the where the government ends and the bankings sector begins. They have merged; but I do know that the taxpayer isn't in on the game.


Anonymous said...

There are not enough lamp posts.

Anonymous said...

I have a strong feeling they will get away with it. Why? I was on the tube last night in London. Lots of drunken white British blokes. To a man they were thick, bigoted, clue-less and apolitical as one could get. That this lot would develop a sophisticated analysis of the world and rise up against the bankers, is pure dreaming. They will, however, I am sure, attack gays, pakistani shop keepers and people who like fashion. But that's not a revolution, that's just thuggery.

Anonymous said...

Alice, another interesting post... but I do wish you'd include a link to third party reports you cite.

The thing about financial sector debt is that it doesn't directly affect the tangible economy. It is conceivable that when these financial debts fall due, the level of financial debt might fall to near-zero. OK, I'm not saying that this is what I expect - but, taking into account only the statistics, there's no reason to assume this won't be the result.

We need a better way of measuring debt on a systemic level than summing it. Only then will be properly understand the magnitude of our predicament.

OldSouth said...

Your final paragraph is a marvelous summation.

The sense that we have all been defrauded on a massive scale is making it down to street level. Hard to predict what the 'tipping point' event will be, but I think we may be in for a very rough ride in the short term.

I will be interested to see how the US reacts to Timmy Geithner's plan to rescue his friends with the earnings and savings of our lifetimes.

Chin-straps on, everybody.

Anonymous said...

The tipping point will not be a leftwing revolution. My 'chaps' on the tube have a list of favourite things they hate and blame: queers, pakis, nigs. Those are who they blame for the problems, not bankers, Gordon Brown.

Anonymous said...

I am sure, attack gays, pakistani shop keepers and people who like fashion.

If someone with the right skill-set tells them to attack banks they will attack banks - "any action* is action" as they say around here (DK).

*action == a riot, creating the opportunity for a fight with the poof** police

**poof for not shooting the c*nts right there in the street when they have the opportunity.

monoi said...

At least, you're not inclined to use cliches "their coke fueled lifestyles."

Yeah right, it is the fault of bankers (which ones exactly, there are myriads jobs in banks).

A lot more than just bankers were in on it. I don't remember Brown complaining about the tax revenues from those self same bankers, quite the reverse. I don't remember the populace saying no to the huge increase in the government spending (more than double since 1997) for pisspoor services.

So now we discover that the emperor has no clothes, but we've allowed and voted for it (not me personally) for the last 12 years.

So an awful lot of people should take a mirror, and look at the real culprits.

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