When you subscribe to my blog you’re never quite sure what you’re going to get – could be technical help, and idea for a website or a political statement. Sorry that is the way it is – I like to use my blog to talk about what’s going on in my brain and not to worry too much about the consequences.
But this is my take on the economic crisis in Greece and it’s all rather unfair on the Greeks, who give us all such a lovely holiday experiences in the sun after all.
Our politician are desperate to regulate the banks – a major factor of all three UK election campaigns is the curbing of the banks. But hang on second we have a massive debt problem in the UK. So do many other countries. Who do we owe all this money to, well the Banks.
The Banks appear to have chosen to act – by charging Greece exorbitant interest rates they’re saying if you treat us badly we’re going to call in our loans. Countries will go bankrupt. We’re in a capitalist society and that’s the way it works – period.
The solution is an IMF/Euro rescue, but even these guys are charging 5% interest (compounded that means Greece will repay in total roughly double what they actual borrow). But why are the IMF charging interest at all? Surely some sort of administration fee is all that is needed.
The answer is because the IMF, Germany and other lenders have to borrow the money off the banks! Now it’s their credit on the line.
There will be NO regulation of banks in any country anywhere while countries continue to be beholden to banks in this way. Let none of us mistake the situation whether you have an overdraft, a hire lease on a car, a mortgage, you know as well as I do your beholden to the bank. The same is true of our country.
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I cannot fault your logic this time, and agree with you wholeheartedly, it rather puts the whole lot of them into a worst light than usual.
However by taking in savers money should be a much stronger long term way to improve their balance sheet as they will be able to lend more money to people.
The fact the government is the safest bet when is comes to lending is a sad indictment of the current situation and at only 4% is not going to help anyone.
The balance of risk and return comes back into play here and clearly risk is not something banks are managing very well.
All very interesting - thank you for your comments.
Banks are not unique in wanting to make money. It's a primary objective of all businesses. Even when they are largely in public ownership, shareholders expect businesses to make a commercial return on equity.
Savings don't on their own help banks to repair their balance sheets. They merely provide funds for the banks to lend to someone else. Unless the bank successfully lends the money, taking in savings actually makes their situation worse because they have to pay interest to the saver.
To restore a healthy balance sheet a bank needs to reduce the number of risky loans that will lead to losses. It then needs to lend the money to much safer borrowers. Guess who is seen as the safest entity to whom the banks can lend money - the Government! And that is exactly what our banks are doing.
They are recalling loans to individuals and businesses and lending it to the Government by buying gilts. They pay savers a pittance and current account holders even less. Then they buy gilts, which currently pay around 4% on a 10 year term.
Despite what it tells the public, the Government is quite happy with this arrangement. It needs the banks to buy all the gilts it is issuing to finance the massive budget deficit.
That is why elsewhere I have suggested that we need to create a new way to provide funds for new businesses.
Thanks for this, but surely they owe more to each other than to anyone else.
If banks want to restore their balance sheets they have to do more to encourage savings. That should be the key I would have thought.
I am not quite sure I understand who is not in hock to the banks? All the banks seem to be mostly in hock to each other.
Regulate the banks and you effectively increasing the costs of them making money, all they want to do is make money, it's what they think they are therefore.
We'll never change that culture without regulation, but the regulators all owe money to the banks who will stop lending if the regulators regulate. A classic vicious circle in my opinion.
Not sure it's totally true that everyone is in hock to the banks.
Banks are still harbouring massive, undeclared losses and must rebuild their balance sheets. The only reason we don’t know the true extent of their losses is that the rules changed in the wake of the recent bailout.
One of the biggest banks in Britain is currently disposing of its entire commercial property loan book (£30-40 billion) in response to this challenge.
Surely, if the banks have a problem with their balance sheet, it's because they owe more than people owe them.