Depositors to bail out NZ banks?

[Ocean1]

I agree and I'm sure everyone else does too.

But...

Lets imagine the bank which holds your savings was going down the gurgler. You'll either wait years to see even a small part of your money, or never see it at all.

Instead all bank depositors take a haircut - say 10% but that means you get most of your money out.

What would you choose?

I'd choose to have the bank pay for it's own insurance against it's own poor performance. And if that meant they felt the need to increase their charges then I'd be looking around to see which banks were more assured of their future performance.

[Zedder]

I'd choose to have the bank pay for it's own insurance against it's own poor performance. And if that meant they felt the need to increase their charges then I'd be looking around to see which banks were more assured of their future performance.

Yep, looks good.

[mashman]

Into the banking system version of IOUs etc.

If that's the case. Why did they require a bailout?

[Zedder]

If that's the case. Why did they require a bailout?

In a nutshell, the IOUs were IOUed to the max and weren't really worth anything.

The "smart arses" in the finance sector played around and on-sold debts until they weren't recognisable as the original. It ended up as $863 trillion which was way over the value of all economic activity in the world.

[mashman]

In a nutshell, the IOUs were IOUed to the max and weren't really worth anything.

The "smart arses" in the finance sector played around and on-sold debts until they weren't recognisable as the original. It ended up as $863 trillion which was way over the value of all economic activity in the world.

So you mean that the banks bought "products" and never paid for them? Products of such rarity and importance that they only ever increased in value?

8.36 trillion isn't that bad really as the banks only needed a $700 billion bail out and they've paid that back already. Dunno what all the fuss is about. I dunno, people not paying their debts back eh,... it'll be the end of us.

[Zedder]

So you mean that the banks bought "products" and never paid for them? Products of such rarity and importance that they only ever increased in value?

8.36 trillion isn't that bad really as the banks only needed a $700 billion bail out and they've paid that back already. Dunno what all the fuss is about. I dunno, people not paying their debts back eh,... it'll be the end of us.

No, the "products" were subprime mortgages which were sold then on-sold then on-sold etc.

Look up Credit Default Swaps and Collateral Debt Obligations if you're interested, I'm off for a motorbike ride.

[flyingcrocodile46]

Well NO.

In fact you've put your finger on the straw which broke the Global Financial Crisis. People who had savings (Japanese, Dutch, Germans, Saudis, Chinese etc etc) put those savings into so-called AAA mortgage securities only to find out the borrowers couldn't repay.

So not only did the borrowers lose/walk away from their homes but millions of savers also lost their money.

That's why its a crisis. If the investors/savers had recovered their money over time they'd be stressed but not devastated. That money would have returned into spending and jobs but it is gone for all time. Result - the people in the rich nations are substantially poorer so they cannot spend.

The property/houses are the tangible asset (product). Their real underlying value doesn't change a bit. It's only the paper money which we associate with it that changes in value. It's all an illusion that we are duped into believing.

Just for the sake of clarity, nobody has become rich from the GFC. There might be a few counter-cyclical investors who did well but they are rare.

When the world economy was booming, bankers flourished as did some fund managers. When the GFC hit many of them ended up on the street. No job. No gold. Nadda. A few at the top survived.

The whole point of the GFC is it hit the well-off as hard as the rest of us. The difference is they had stuff they could sell to get by.

The money lost in the GFC is gone. That is why a few of the big economies are printing money - to replace what was lost - but it is a desperate move. It will all flatten out someday possibly 2018.

The theoretical (book keeping)money is gone. Not the underlying printed money (which is only a percentage of the total accounted money).

Lots of those responsible were paid unbelievably massive performance bonuses for creating the GFC and were paid from the bailout money in the first instance. Some took advantage of that to play Bear with the real product upon with the fraud was perpetrated by buying up the worthless loan bundles for 10 cents on the dollar to acquire many of the underlying products (the properties which mostly devalued by well less than 50%). That was the big game (much like that played when the bankers deliberately collapsed the US and world economy at the start of the great depression). We are slow learners. They must be ROTFLTFAO@US.

Where did it go?

it never existed. It was theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using an original $1 which a depositer entrusted with the bankers in return for a 1 or 2% return while the bankers themselves are skiming a big chunk of the interest that they charge on each and every transaction using the theoretical money. FFS doesn't anyone know this shit .

In a nutshell, the IOUs were IOUed to the max and weren't really worth anything.

The "smart arses" in the finance sector played around and on-sold debts until they weren't recognisable as the original. It ended up as $863 trillion which was way over the value of all economic activity in the world.

Ok so some have an idea of how Banking really works.

You do know that this is all very legal and is actively supported by international govts in exchange for access to loans from the world central banks (which are paid for by enslaving us taxpayers to pay back exorbitant rates of interest on top of the loan itself).

But the real kicker is that once again it is done using freshly minted play money which is underwritten by theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using an original $1 which a depositer entrusted with the bankers in return for a 1 or 2% return while the bankers themselves are skiming a big chunk of the interest that they charge on each and every transaction using the theoretical money.

I swear that we are the dumbest motherfucking animal on the planet.

[mashman]

No, the "products" were subprime mortgages which were sold then on-sold then on-sold etc.

Look up Credit Default Swaps and Collateral Debt Obligations if you're interested, I'm off for a motorbike ride.

You mentioned IOU's before. I don't class something as having been sold until the paperwork has been done and the cash has been paid. But I understood what you meant and my reply was somewhat tongue in cheek.

it never existed. It was theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using an original $1 which a depositer entrusted with the bankers in return for a 1 or 2% return FFS doesn't anyone know this shit .

I swear that we are the dumbest motherfucking animal on the planet.

Standard broker practice n'est pas? Buy it and shift it for a profit before you pay for it on the promise that the person you've "sold" it to is going to pay you, so that you can then pay your debt. Rinse and repeat as you have mentioned and it becomes a chain of IOU's (assets) that will eventually be paid for, by someone, somewhere, if they could only remember where it originally came from. That and as they now have an asset worth $X, they can fractional reserve the fuck out of it and lend out even more money against the debt, I mean asset.

We're not... but everyone else is

EDIT: neels posted a brilliant illustration a few of weeks ago

[Zedder]

[QUOTE=mashman;1130520200]You mentioned IOU's before. I don't class something as having been sold until the paperwork has been done and the cash has been paid. But I understood what you meant and my reply was somewhat tongue in cheek.


Fair enough, I was just clarifying the IOU bit wif proper info and wasn't getting at ya even though you're a midgie raker...

[mashman]

Fair enough, I was just clarifying the IOU bit wif proper info and wasn't getting at ya even though you're a midgie raker...

WTF is a midgie raker? I used to be a midgie magnet however. Argyll midges... little fockers.

[Zedder]

WTF is a midgie raker? I used to be a midgie magnet however. Argyll midges... little fockers.

A rubbish sifter.http://en.wiktionary.org/wiki/midgie

[jonbuoy]

You can create your own money, if your house is perceived to be worth more than it was 10 years ago you can re-mortgage. Voila 100k pulled out of thin air. Then the price plummets back to its 10 year level and you loose your job can't make the payments and that 100k disappears even though you spent it already. Bank can't get it back by selling your house anymore.

[Winston001]

A deposit insurance scheme didn't help Cyprus, or stop them trying to "haircut" depositors, nor any other European country and it certainly didn't stop the global finacial crisis.

Incidently, the Labour party went on record as favouring an Open Bank Resolution as well, it's not just a National thing. They're all ratbags.

I'd choose to have the bank pay for it's own insurance against it's own poor performance. .

Yeah good idea except mostly it didn't work - as Zedder spoints out.

The Federal Deposit Insurance Scheme in the US did work but only because the government stood behind it with more funds.

The idea of a guarantee is good but there is a problem - the guaranteeing insurance company/fund can go broke itself.

Instead there are the Basel II (now III) banking rules which require banks to have enough in reserve to meet a crisis. You don't need a guarantee if your bank is careful.

Just as a matter of interest, I remember the recession of the late 1980s. The BNZ technically failed. Most banks were hurt badly, except for the National Bank. NB had lost its market share, shrank because of strict lending rules, and was laughed at. But in the recession NB hardly lost a dollar or a client.

That is the sort of bank you want.

[jonbuoy]

Yeah good idea except mostly it didn't work - as Zedder spoints out.

The Federal Deposit Insurance Scheme in the US did work but only because the government stood behind it with more funds.

The idea of a guarantee is good but there is a problem - the guaranteeing insurance company/fund can go broke itself.

Instead there are the Basel II (now III) banking rules which require banks to have enough in reserve to meet a crisis. You don't need a guarantee if your bank is careful.

Just as a matter of interest, I remember the recession of the late 1980s. The BNZ technically failed. Most banks were hurt badly, except for the National Bank. NB had lost its market share, shrank because of strict lending rules, and was laughed at. But in the recession NB hardly lost a dollar or a client.

That is the sort of bank you want.

Lloyds UK had a similar conservative lending strategy and werent directly hit by bad debt so much until the UK government pretty much forced them to buy up banks that had lent stupidly. Are they still offering 110% mortgages in NZ?

[Winston001]

Lots of those responsible were paid unbelievably massive performance bonuses for creating the GFC and were paid from the bailout money in the first instance.....


It was theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans made using theoretical money that was yet to be made from the repayments of earlier loans .... made using an original $1 which a depositer entrusted with the bankers in return for a 1 or 2% return while the bankers themselves are skiming a big chunk of the interest that they charge on each and every transaction using the theoretical money.

FFS doesn't anyone know this shit .

Yes, plenty of us do know this stuff. Not the average person admittedly but then why should they? It is not possible - or necessary to be an expert in all things.

The thing is our financial system has been in place and evolved over the past 800 years when commerce between nations got started. It ain't going to change. I think there have been four recessions in my lifetime and the recoveries have always led to a better quality of life for most people.