Bankers

[oldrocker]

A few quotes I've found !

A banker is a fellow who lends his umbrella when the sun is shining and wants it back the minute it begins to rain. Mark Twain.

I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale. Thomas Jefferson,

It is easier to rob by setting up a bank than by holding up a bank clerk. Bertolt Brecht,

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. Thomas Jefferson, (Attributed)

Bank failures are caused by depositors who don't deposit enough money to cover losses due to mismanagement Dan Quayle

I hate banks. They do nothing positive for anybody except take care of themselves. They're first in with their fees and first out when there's trouble. Earl Warren

[dggar]

I think Dan Quayle got it right

[davejc64]

or as the cockneys put it "Merchant bankers!"

[timenec]

They work within the regulatory system made by politicians.Vent your spleen at those who are really responsible for all the ills in this society-politicians.

[mattvince]

Bankers are, unfortunately, one of those things that we have to have - the alternative is a mud hut. timenec has raised a good issue - any business will require a degree of regulation (you could widen that to include anybody - see criminal and civil law) to ensure it doesn't act irresponsibly and endanger life and/or property. The balance is having the right amount of regulation, enforced by regulators who both understand the industry which they regulate and which understand all the consequences of their regulation. And regulation needs to be both supported by the elected representatives of the people, and, at the same time independent of those elected representatives. Ditto the industry which is being regulated.

Banking should be seen as two separate functions - the commercial banking sector (simply: your high street bank), and the investment banking sector (hedge funds et al). The commercial banking sector has done little wrong, and judging by my recent experiences with the sector seems to be picking back up again. It's the investment bankers which are the problem - too many bad investments and risky undertakings. Actually - it's not even that: it's confidence in the investment bankers' decisions, which undermines confidence in the rest of the system. Recessions are 90% psychological, 10% monetary. The credit taps were turned off not because the banks ran out of money, but because the people holding the tap-handle panicked. And the panic was over the ability of the banks to lend the money.

Now, getting our politicians involved: Take the Basel II Accord, enacted into EU Law by the "EU Capital Requirements Directives". Suddenly those banks sailing close (but perhaps not dangerously close) to the wind find themselves on the wrong side of the line, and in attempting to get back over the right side of the line (the line is not necessarily real - it is as real as a territorial waters line on a navigation chart, to continue the nautical theme) panic and cut the credit flow out of their banks. Government, demanding that these arbitrary lines be met, pours money into banks sailing on the wrong side - but note that the money being poured is no more permanent than a tow-rope, it is in the form of loans which are to be paid back irrespective of anything else. Cue even steeper cut of credit as the banks aim to avoid drifting back over this arbitrary line - which then hits the rest of the economy.

Here's how: Almost all businesses need loans at some point - whether in the form of loan capital to assist with start-up, to invest in new sites/equipment, or simply to smooth out the flow of payments in and payments out. Cut that line of credit, and either the new equipment which was to be bought can't be, or worse the company cannot afford to pay creditors and employees. That has repercussions both ways - the supplier of said equipment gets a defaulted sale (big problem if the raw materials/lesser components have already been purchased), and the customer of that company does not get their product (which hits them because they have no product to sell, and if that customer is a specialist contractor it could mean them cancelling a contract - which could hit them with cancellation fees). Extrapolate across numerous companies and you have a big problem. Staff being made unemployed also hits the wider economy - less consumption.

Which brings us to the cause - whilst the immediate cause was the banks turning off the credit, the little-seen cause of that was a regulatory decision requiring the banks to have greater capital - which brings me back to my earlier point about the regulator understanding both the industry which they are regulating and the consequences (especially the unintended consequences) of their regulatory decisions. And as the politicians are the only people able to make such widespread regulatory decisions (Basel II is incorporated into an EU directive - it is law, made by politicians), then the politicians must shoulder the blame for any unintended consequences of their actions.

Please note: I am not saying that this is necessarily the cause of the current recession, just that a recession similar to ours could happen in the above circumstances.

Politicians need also shoulder some of the blame for encouraging the behaviour of both lenders and those seeking credit - I could pick out a set of choice quotes, however I suspect it might be sailing close to the wind as regards politics on this forum. I'll merely note that the media loves a scapegoat, and provided the scapegoat isn't a politician, then all is well. And apologies if this sounded like Economics #101.

[thenudehamster]

Sorry Matt, but in one respect I have to disagree with you.
Commercial banks sparked the largest part of this current recession by lending far too large a proportion of capital cost (frequently as much as 125%) on mortgages to people whose income was insufficient to meet the repayments. When they defaulted - as so many, unsurprisingly, did - the bank was then in the position of being owed more than it could hope to recoup from the sale of the collateral. The reason it didn't just take down the banks doing the lending is that almost every bank had offset some of its risk by borrowing from other banks to help cover the risk - spreading he load, effectively. Of course, when the fertilizer got into the air-conditioning, every bank which had some level of investment in these 'sub-prime' (meaning that the borrowers' credit ratings were below the primary level necessary for prudent lending) mortgages got very badly burned. As a result nobody had any money to lend anyone else - and wouldn't lend it anyway because they had no idea where the repayments would come from!

Incidentally, the 'median value' of a house in Detroit, Michigan, has gone from about $50,000 to $7,500 - and you STILL can't get a mortgage on one!

[parsfan]

Politicians are damned whatever they do. If they do start regulating then they are accused of interfering in commercial enterprises. They are told that regulation should be done by the market. However if they don't regulate and things go wrong then they are condemned for not stepping in.

The problem is thier aren't enough people in this country prepared to enter politics. For years the numbers involved has been falling. Political party membership is at an all time low and still falling. I;ve heard people saying this is a good thing but in fact it a very bad thing. Politicians come from political parties. the fewer members a party has the smaller the choice and the lower the calibre of politician. It also means that the leadership of parties get free reign, part membership is ignored. Fewer members in a party means politicians see only a tiny section of society. They get only a limited number of opinions and hence become divorced from reality.

Its easy to condemn politicians however we all have it in our own hands to change things. I don't mean just by voting. That in itself wont change everything. What people can do though is join parties on mass. If all the people who's instinct would be to vote Labour went out and joined the Labour and took part then they would be able to change the Labour party, the people would have a real say and politicians would be forced to listen. The same is true of the people who's instincts would be to vote Tory or Lib Dem. Ultimately though more people are going to have to consider becoming MP's, we just don't have enough people prepared to enter political service.

[jbilton]

Hi
I agree, as has been said many a time. "The only thing good men need to do, to be ruled by bad men, is NOTHING"
My local Labour Party has a current membership of 290 out of a city of 90,000.
The grey suit brigade have taken over our world, and are doing very nicely for themselves.
Worse , they have managed to persuade even those with an a little social conscience, that they are wrong, and just looking after number one is the best policy.
My main fear is, the easily lead ,those with short memories, swinging voters, will change sides at the next election.
Cheers
Jon

[mattvince]

As I have said before: Regulation should always be independent of politics, just as it should always be independent of business. Only independent regulators, respected by both politicians and industry, can effectively regulate - business regulation is not something for here-today, gone-tomorrow ministers, and regulators should not be able to be used by politicians to further their own interests. Nor should they willingly turn a blind eye to bad practice by those being regulated.

As to the political parties lacking support - have they ever considered the possibility that it is because they do not accurately represent the views and opinions of the electorate? The problem with the party system is that it presents only a few fixed 'menus' (as in restaurant menus) decided by seemingly out-of-touch party officials, and written by ideologically-driven 'Policy Wonks' and 'Special Advisers', whereas the electorate would seemingly rather go 'a la carte' with its politics. Perhaps that is a flaw in the whole system - because many people vote for the party of their choice (as opposed to the constituency candidate - voting for J. Bloggs of the A Party because they are the A Party candidate, not because they are the best person to be the local MP), we end up with ineffectual MPs who don't seem to represent their constituents, and policies which can only claim the support of 35% of the popular vote (22% of the electorate). Actually, you end up with ultimate power in the hands of governments with minority support - but with no checks-and-balances on that power. Constitutional experts talk of something called the Separation of Powers - dividing the system into the Executive, the Legislature, and the Judiciary. The division of power between the legislature and the executive is virtually non-existent in our system - the party with the majority in the legislature is the executive, and the executive can use the party to rubber-stamp laws going through the legislature. It's no wonder many people feel that there is no point voting or joining a party - at the end of the day, most MPs will only tow the party line, thus any opposition from the constituency will fall on deaf ears. Perhaps it is time for a new kind of democracy?

Thanks BarryH - I forgot about sub-prime mortgages.

[ashgray]

We seem to be getting well embroiled in party politics here - may I remind you of Forum Code of Conduct Rule 2b? I've already had to remove one post from here today, due to inappropriate content...

Thread locked. Any complaints to another moderator.

Ash