Wednesday, 8 October 2008

Good morning fellow shareholders!

WELL, as I am now a proud shareholder in our High Street banks, I shall be writing to my bank later this morning and demanding that my overdraft limit be extended. I shall also be suggesting that because of my help in trying to bail them out of their current difficulties, it would be a nice gesture in return to cut the interest rate I have to pay on that overdraft.

So the Government is providing £50 billion now, and another £250 billion over the next few years just to prop up private banks. It's a scandal. The Government has refused to help British industry on numerous occasions when it needed a tiny fraction of this amount of funding, and it has even allowed people to die because they said they couldn't afford the drugs they needed to survive. Yet it can provide an unlimited supply of OUR money to keep private banks afloat.

Brown should have let them go to the wall and only offered security on pension funds and personal savings. As I said earlier, it should then set up the Bank of Great Britain, a bank run by the Government in the interests of the British people and British industry only. But it has taken the worst option of all - pay with no say - just underwriting the past mistakes of private banks and letting them carry on regardless.

The Daily Star this morning has Jon Cruddas warning that the financial crisis will channel voters towards the British National Party and he is right. When under threat, people close ranks and look to their own for support. When you face a bleak future you don't want the influence of outsiders making it worse. Migrant workers have been unpopular even during the time of plenty of work and easy credit. When jobs are in short supply and there are no more 0% balance transfer deals for escapism shopping and holidays, the British people are going to looking at them in an even more unfavourable light.

A special George Orwell 1984 Newspeak award should be presented to Radio 4's Today programme this morning for it's five minute report on tackling extremism in schools. In the whole report they only mentioned 'Islamic' once and didn't even mention 'Muslim' at all. So according to the BBC report, every child in the country is a potential terrorist and there is no particular community that we should be especially concerned about.


Peter said...

I am quite disgusted at what has happened here as regards the banks getting an unlimited supply of, how do they call it in bank speak "liquidity money"..We should mark down yesterdays date as quite momentous when the "save banks at all cost" decision was made and stuff the rest of you. The figure being banded around is that this is going to cost each tax payer £2,000!!

My thoughts were also on the fact that there is so much umming and arring as you say over cancer drugs , other drugs etc to save lives and they do this with the banks. Also people will be dieing this winter unable to heat their homes, why don't they nationalise the gas and electric firms then, to save a few lives this winter.

I would like to think that the BNP are at this moment are going to produce a leaflet pointing out the double standards. In America why did they have to put it to a vote and make it law for the seven hundred billion and Alastair Darling in this country just says "there you go fellas, there's two hundred billion, take what you want when you need it", without a vote.

Bert Rustle said...

The following article by Porter Stansberry “How AIG's Collapse Began a Global Run on the Banks” seems plausible.

... banks must comply with ... Basel II regulations. ... The rules are based on the quality of the bank's loan book. The riskier the loans a bank owns, the more capital it must keep in reserve. ... AIG appeared to offer banks a way to get around the Basel rules, via unregulated insurance contracts, known as credit default swaps.

... Say you're a major European bank... You have a surplus of deposits ...You know you could buy a portfolio of high-yielding subprime mortgages. But doing so will limit the amount of leverage you can employ, which will limit returns. ... AIG is selling a five-year policy ... to guarantee the subprime security you're buying against default for five years for say, 2% of face value.

Although AIG's credit default swaps were really insurance contracts, they weren't regulated. That meant AIG didn't have to put up any capital as collateral on its swaps, as long as it maintained a triple-A credit rating. There was no real capital cost to selling these swaps; there was no limit. And thanks to what's called "mark-to-market" accounting, AIG could book the profit from a five-year credit default swap as soon as the contract was sold, based on the expected default rate.

... With this structure in place, the European bank was able to assure its regulators it was holding only triple-A credits, instead of a bunch of subprime "toxic waste." The bank could leverage itself to the full extent allowable under Basel II. AIG could book hundreds of millions in "profit" each year, without having to pony up billions in collateral.

It was a fraud. AIG never any capital to back up the insurance it sold. And the profits it booked never materialized. The default rate on mortgage securities underwritten in 2005, 2006, and 2007 turned out to be multiples higher than expected. And they continue to increase. In some cases, the securities the banks claimed were triple A have ended up being worth less than $0.15 on the dollar.

... On September 15, all of the major credit-rating agencies downgraded AIG ... The world's largest insurance company was bankrupt. ... The Fed stepped in and agreed to lend AIG $85 billion to facilitate an orderly sell off of its assets in exchange for essentially all the company's equity.

... AIG's largest trading partner ... was Goldman Sachs.

... Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company's exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded, Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. Goldman immediately sought out Warren Buffett to raise $5 billion of additional capital, which also helped it raise another $5 billion via a public offering.

The collapse of the credit default swap market also meant the investment banks – all of them – had no way to borrow money, because no one would insure their obligations.

... The mainstream press hasn't reported this either: A provision in the $700 billion bailout bill permits the Fed to pay interest on the collateral it's holding, which is simply a way to funnel taxpayer dollars directly into the investment banks. ...