Calling to account

The Observer says that those respponsible for the banking crisis must be called to account. OK, let\’s do that then.

Consensus is already emerging around the need for stricter capital requirements, so banks would be obliged to hold money back in good times to avoid cash droughts in bad times.

I\’ve a thought rolling around the back of my head….and I\’d be very grateful if someone with a little more knowledge could confirm this to me.

Some years back Gordon Brown changed the tax treatment of the way that banks provisioned for future losses. Well, I\’m pretty sure that he did. The effect of the change was to make it more expensive for banks to hold money back in hte good tijmes against potential future losses. So, of course, they held less back.

Anyone able to point to chapter and verse on this?

4 comments on “Calling to account

  1. I’m surprised having read The Observer you aren’t taken your ‘idiotarian’ rocket to this piece by Nick Cohen.

    “In August 2007 Britain passed a grim landmark. Consumer debts in the form of mortgages, loans and credit card bills totalled £1.35 trillion and overtook the entire gross domestic product of the country, which stood at £1.33 trillion. To put it another way, the British owed more than the value of the output of every office, factory, farm, quarry, mine and fishery in the land – and that was before statisticians included the immense debts of the public sector and business, which took the sum of Britain’s borrowings to three times annual economic output.

    We were a bankrupt nation.”

    Er, isn’t most of the debt is owed to other Britons, for whom it is ‘savings’? If there’s a problem it’s the unequal distribution of debt and savings, but using words such as ‘Britain’ is misleading.

    Tim adds: You are indeed correct. It’s also true that a mortgage is not really a consumer debt. Or at least, not a debt for consumption. It’s a debt against an investment. Might be a good or a bad investment, but it is an investment.-

  2. It’s a debt against an investment. Might be a good or a bad investment, but it is an investment.

    I’d rather we didn’t all consider homes as investments, as we then support stupid policies that undertax land to encourage it to go up in value, whilst overtaxing income. (We then wonder why we are no longer competitive in many industries!).

    An investment should produce an income. Homes don’t, unless it is a farm or a B&B, or you rent it to someone else. Similarly, a car is not an investment, it is an expense, unless you are a taxi driver.

  3. No that’s wrong. A house is an investment because it yields a stream of services over a period of time, as is a dishwasher. It’s not because of the capital gain.

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