Our global financial crisis is a long way from over.
If you feel the need to hang a bunch of investment bankers, Wall Street types, lawyers and CEOs, you are likely having a “normal” reaction to reality.
But we still need to get behind the wheel and solve our economic ills. And, in this commentators mind, a bunch of government spending isn’t the cure (it never has sufficed before).
But there still should be justice for the guilty. Didn’t Enron’s Key Lay get the electric chair?
Get the rope. Get Clint Eastwood. Then let’s get Madoff!
But the problems have to be solved. Bailouts of banks buys the mortgages and other debt that has lost value, little value and nobody will buy. So the U.S. has to buy this debt.
There are also some 5 million “home owners” that will default on their morgages unless they get relief.
Accused swindler Bernard Madoff exits the Manhattan federal court house in New York January 14, 2009.(Brendan McDermid/Reuters)
The truth is, there may be some jail time passed out but the real problem is systemic which needs a lot of long-term fixing….
Headlines from London January 21, 2009:
“Banking Crisis May Last a Decade”
“Only Two London-Listed Banks By End of 2009”
…the government is now the largest, or only, shareholder in Lloyds/HBOS, RBS and Northern Rock and it seems highly likely that HSBC and Standard Chartered will be the only UK-quoted bank shares by the end of 2009.
By Philip Johnston
Before the internet age, it was a rite of passage, a feeling that you had finally grown up and were considered responsible and trustworthy. As children, many of us might have had savings accounts or a few pounds in a building society deposited by an ageing aunt.
But to get one’s first cheque book was something special. Mine had the words National Westminster Bank written on the front, an imprimatur that could hardly have sounded more rock solid and British to the core, a guarantee of probity and quiet competence.
In those days, banks were forbidding places; there were no open plan offices. A visit to the bank manager, especially for an impecunious student trying to explain a £20 overdraft, was a terrifying experience conducted in a sternly avuncular manner from behind a large desk.
We all knew that such a world had disappeared. But it was none the less astonishing to wake on Monday morning to discover that the Royal Bank of Scotland – my bank, or at least the NatWest bit of it – had posted the biggest loss in British corporate history.
Nor did it take long for the shock to give way to fury. Charles Dickens captured the feeling well after the collapse of Merdle’s bank in Little Dorrit: “The air was laden with a heavy muttering of the name of Merdle, coupled with every form of execration.”
Well, there were a few execrations in my own household and doubtless in many others across the country. Both curses and questions. How could this have happened?
How is it possible to rack up a loss of £28 billion and yet be worth just £8 billion?
What happened to the RBS share of the £37 billion shelled out by taxpayers last October to recapitalise the banking system? What possessed the executives of RBS to buy a Dutch financial institution for way over the odds even as the Northern Rock fiasco was unfolding?
Beyond the sheer incredulity, there is anger that the people responsible have cushioned themselves financially against the privations that their recklessness will induce in millions of others.
The people at the top may lose their jobs, but they have already paid themselves so much in bonuses and struck such lucrative pension deals that they can retire in luxury while the rest of us face penury.
Extraordinarily, the vast bonuses were paid for what at the time was hailed as success but now turns out to be abject failure. Do they get returned, along with the knighthoods and gongs?
For those of us who did not know what a derivative was until a few months ago and had only a vague idea that Sir Fred Goodwin was “something in the City”, these are revelatory times.
It was evident from the steady flow of letters offering to lend money and urging us to take out new credit cards (all of which went into the bin in our house) that the banks were on a credit binge and that many people were being tempted to join in.
But surely, we all thought, they must know what they are doing. Even the near-collapse of Northern Rock after the first run on a bank since the mid-19th century, seemed like an isolated example of a badly run institution that had been led to the edge by incompetent and foolhardy executives and had to be rescued by the Government.
At the time, some cynical observers suggested that if it had been Southern Rock based in Guildford, it would have been allowed to go to the wall. But it was a big employer and an iconic institution in Labour’s north-east heartland, so it had to be saved. But at least it was one-off, wasn’t it? The other banks could not possibly be in the same leaky boat.
The discovery that they were sinking too has been more than a shock; it has been a betrayal. Their recklessness has bordered on the criminal. One figure from the Bank of England’s financial stability report last October exemplifies the enormity of their folly. In 2000, the amount of money held on deposit in British banks and the amount they were lending was roughly comparable.
Last year, they were lending £700 billion more than they were receiving. This was the mother of all bubbles, yet the bank bosses kept inflating it, egged on by the Government, the Bank of England, the so-called regulators and, let’s be frank, by those of us who borrowed way beyond our means.
In its report, the Bank said: “The seeds of this boom can be traced back to the development of financial and trade imbalances among the major economies over the past decade. Increased borrowing in a number of developed countries was in part financed with inflows of foreign capital, leading to greater integration in international capital markets. Benign economic conditions helped anchor expectations of continued stability. This, along with rising asset prices and low global real interest rates, boosted the demand for and supply of credit in a number of developed economies.
It added: “Over time, banks took on progressively more credit risk by lending to, for example, households with high loan to income ratios, leveraged buy-out firms and, in the United States, to the sub-prime sector.”
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