Ooooh, dear Aditya

Everyone knows history is written by the victors, but this is something else: bullshit recounted by the bullshitters. Even the banks are back to bragging how many billions they generously chip in to Her Majesty’s Exchequer, presumably hoping no one will point out that they took £1.3tn from taxpayers in just a few months in 2008.

The £1.3 trillion was liquidity support, something the central bank is supposed to provide. And it was all paid back, at a profit to the taxpayer, too.

RBS and Lloyds, don’t think they are at a profit. But then they weren’t liquidity support either.

Here’s the stuff of historical bad dreams: at the height of the banking crisis in 2008, every man, woman and child in Britain handed over £19,721 each to bankers.

Err, no, they didn’t. The liquidity support was new money, QE if you like. And much of that sum was guarantees, which were charged or to boot. Guarantees which weren’t called upon and thus the fees were a profit to the taxpayer. Aditya actually points to his source document which doesn’t say anything like he says it does.

Debt racked up through the greed of financiers being dumped on the poor, the young and people with disabilities in what must rank as the biggest bait and switch in postwar Britain. I say that, but we have only had seven years of austerity. If Philip Hammond stays in No 11 and sticks to plan (one must hope he does neither), the cuts will continue until the middle of the next decade. After 2025, who knows what will remain of our councils, our welfare state and our public realm.

The blow out in public debt wasn’t spent on the bankers. And the plan is at least that the “austerity” will take public spending back to about the percentage of GDP that it was when G. Brown was still in power. After that significant rise as a result of the recession.

Just what is Chakrabortty blathering about?

47 thoughts on “Ooooh, dear Aditya”

  1. Clever of him to cite a source document. He knows 99% of his readers won’t read it, or even want to read it, so the 1% who do and know he is bullshitting can be easily denounced.

  2. So how do we let badly-run banks go bust then?

    Without having to save the world?

    I’ll propose an Ecksian solution: no more limited liability for banks. Full and unlimited exposure for shareholders. If they go under the shareholders have to meet the losses. Jointly and severally. Confiscate all their assets and future income. It works in reinsurance (something no sane person would consider investing in) and would seriously concentrate the mind.

  3. Even Lloyd’s isn’t really unlimited liability any more. And places like Munich Re most certainly aren’t.

    I would also guarantee that you can’t raise £50 billion in capital on joint and several liability. Maybe not even £500 million.

  4. He’s a liar and a propagandist, that’s what he’s blathering on about.

    Re BiG’s remarks I think he’s at least on the right lines. The shareholders and management must have more skin in the game than they did pre 2008 – what was there to concentrate their minds?

  5. Near all bank bonuses are now paid in stock in the bank, which vests over a number of years. Usually some years into retirement as well, as many as 5. That’s skin in the game.

  6. I accept that public spending is only returning to Brownian levels, but “cuts” have definitely occurred. Some of them are rather the failure to keep up with demand, some are actual reductions, but there are increases in other areas (interest on National Debt, say, as well as “Keynesian stabilisers”) but I can’t find a comparative breakdown to show the change in composition of fiscal revenue and public expenditure between the two periods, which i think would shed much needed light on the issue.

  7. Excellent summary, btw, Tim. Whenever my lefty friends claim that taxpayers bailed out bankers, I ask them where this apparent, rather specific, public spending is shown in government spending.

  8. Interested,

    What was there to concentrate the minds – also known as ‘performing due diligence’ – of everyone involved, right down to the retail level? Has government intervention increased awareness of the need for personal responsibility and thus made a repetition less likely, or exactly the opposite?

  9. @Tim

    ‘Near all bank bonuses are now paid in stock in the bank, which vests over a number of years. Usually some years into retirement as well, as many as 5. That’s skin in the game.’

    The threat of losing £ if you don’t get away with it (putting it crudely) while earning handsomely in the meantime is some skin, but it seems pretty clear that some of what happened in the run-up to 2008 was caused by people who saw a lot of upside with not a great deal of downside.

    I don’t have the answer, I admit.

    @Nemo

    Dunno – I certainly don’t think that more regulation and more government inviligation is what’s required, though.

  10. Well which bank has ever raised £50bn in capital? That might reflect the current stock value but it’s a meaningless number.

    You can run a bank on a computer, the traditional deposit-taking and lending way. Couple of banks in Germany doing just that already. What need is there for capital?

    Facebook’s sale raised, what, that order of magnitude and it and its former owners are basically sitting on the money, they’ve no need of it. Same would apply to Facebank.

  11. I assure you that the regulators will insist that a bank has capital.

    Peer to peer lending, not so much, but then as they’re not doing maturity transformation then they’re not doing banking.

  12. BiG: no more limited liability for banks. Full and unlimited exposure for shareholders. If they go under the shareholders have to meet the losses. Jointly and severally. Confiscate all their assets and future income.

    Brilliant idea! Given that bank shares find their way into most funds and hence pensions, your solution would make a bad situation cataclysmic.

    Confiscate all their future income? I think you must be chanelling Paul Mason! There would be no future income.

    It works in reinsurance (something no sane person would consider investing in) and would seriously concentrate the mind.

    Lloyds of London is probably what you mean and not just reinsurance either. And names at Lloyds are not investing but simply “showing” assets.

    You may be knowledgeable about pharmaceuticals but you’re showing Murphyesque levels of ignorance here.

  13. We kill them, as we did Lehman, Northern Rock, Dunfermline, earlier Barings, and as we nearly did with the Co Op.

    Banks which are too big to be allowed to fail are another matter, the answer there is to tax them into shrinking, as with the bank levy, until we can close them if they are shit.

  14. Make them smaller (by dismantling them, as IG Farben was) and (re)introduce Glass-Steagall provisions.

    Some rigorous supervision wouldn’t be a bad idea either.

  15. What if I don’t believe you, Tim, can you show me proof – written in layman’s terms?

    Genuinely interested

  16. Remove limited liability for banks and there would be calls to remove that from any business.
    In which case there would be a LOT less advantage to using a limited company.
    Remember, limited liability only protects against civil issues, not criminal. And can be bypassed with personal guarantees (which already exist and are used widely for guaranteeing debts).

  17. Lloyds is paying dividends. Even RBS is close to being able to pay dividends. I am surprised that BIG does not recall that Lloyds – a well-run bank that had the misfortune to have a chairman who though Gordon Brown was a worthwhile person – was forced to take over the derelict HBOS, thereby wrecking 2 banks. Banks get taken over all the time. Where are Barings, Rothschilds, Williams and Glynn, Coutts, National Provincial, Midlands, Warburg, BICC, Slater Walker?

  18. http://www.bankofengland.co.uk/markets/Pages/sls/default.aspx

    The Special Liquidity Scheme (SLS) was introduced in April 2008 to improve the liquidity position of the banking system by allowing banks and building societies to swap their high quality mortgage-backed and other securities for UK Treasury Bills for up to three years. The Scheme was designed to finance part of the overhang of illiquid assets on banks’ balance sheets by exchanging them temporarily for more easily tradable assets.

    Although the drawdown period for the SLS closed on 30 January 2009, the scheme remained in place for a further three years. The SLS officially closed on 30 January 2012. All drawings under the Scheme were repaid before the Scheme closed.

    From here as well:

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2788702/How-the-Bank-of-Englands-special-liquidity-scheme-will-work.html

    It pays a fee for the swap, equal to the difference between three-month Libor and the three-month interest rate for borrowing against the security of government bonds.
    On yesterday’s rates, that would amount to 83.6p.

    BoE charged a fee for liquidity. All liquidity was paid back, with the fees. The taxpayer made a profit.

    Note that I did say liquidity, I’m pretty sure the capital injections into RBS and Lloyds have not shown a profit, as I said.

  19. Tim, what if a bank’s growth is because it’s actually well-run; is it really desirable to shrink it below some abstract nominal, thereby forcing customers to deal with less well-run banks? Would you not also expect an overall reduction in investment in the banking sector as you limit its appeal?

    A far simpler answer is to abandon the notion that any bank is too big to be allowed to fail and return to the idea that people are in fact responsible for their own investment decisions. People aren’t simply bovine consumers of bank services – they only claim to be. And if the banking sector becomes more staid and sober as a result, and HMRC’s 40%+ slice of remuneration shrinks too, then that might just be a price worth paying.

  20. But taxpayers making a profit? How has the taxpayer benefited?

    Were the spends on public infrastructure that were canceled rescheduled?

    Surely the only profit made was by the financial markets, which is basically those players with the means to exploit those rich pickings?

    Consequences and that.

  21. So you are back, Jesus! Any response to my offer of a job the other day?

    Can you name any infrastructure spend that was postponed or cancelled owing to the capital injections into Lloyds and RBS? As far as I know Crossrail and the legendary M3 roadworks have not been delayed but perhaps you have some cases in mind

  22. Jesus, unlike your father and you I cannot claim omniscience, however I seem to recall that the banks in question issued new shares to the government to expand their capital base. The government has been selling these shares back into the market, thereby making money for taxpayers. The losers are the existing shareholders, particularly in the profitable Lloyds, who suffered a massive dilution of their equity. But you obviously know better, being omniscient

  23. Oh seriously, get a grip will you? BoE profits are sent to the Treasury, just as with seigniorage profits and, before they stopped bothering to pay interest on them, the interest received by the BoE on QE Treasuries.

  24. The point is that there is an implicit – actually pretty explicit these days – insurance guarantee. The TBTF banks will be bailed out even if they’ve spent all the depositors money on coke and hookers. We would prefer that not to be the case. We’d like it that banks which do sped all on coke and hookers get to go bust. Thus we’d like all banks to be small enough to be allowed to fail.

    Sure, not a perfect solution but on balance a decent enough one.

  25. It’s wry that Martin up-thread posits that the removal of limited liability from banks would be quickly followed by calls for its removal elsewhere as whenever the subject of bank bail-outs is raised I immediately think of MG Rover and how governments always meddle.

    And so with banking: government insists on its own meddling, so everyone must be reduced to the lowest common denominator, because government is too leaden to differentiate good from bad, and the infantilisation of the people continues as politicians assume parental responsibility. Small wonder Britain’s becoming such a dire place.

  26. Removing limited liability? Hmmm… Surely not good idea. After all, consider why it was introduced in the first place.

    And, speaking for myself, I wouldn’t choose a bank small enough to fail, if I could choose one too big to do so….

  27. Jesus are you talking about the ordinary shareholders and pension funds who were holding shares in Lloyds and RBS that became essentially worthless in the course of a few weeks thanks to the concerted efforts of Gordon Brown and his pal Peston to create a run on the banks?

  28. RS – Jesus, as in the Bible version, wasn’t omniscient.

    If a load of cash is injected into the finance sector, there are consequences. And we’re talking liquidity not taking a share in the banks.

    It’s not a technical question, it’s what happens in real life.

    That BoE ‘profit’ will need to be paid back and if interest rates rise it’ll cost more to do that. I think.

    Anyhoo. Let’s hope it never happens again. (It will).

  29. It is difficult to determine what point you are trying to make, Jesus. The liquidity advances were repaid. The banks concerned have been trying to repair their balance sheets while paying huge fines for various forms of misconduct that were not spotted at the time. Meanwhile various challenger banks have started up – Metro, Tesco, Virgin etc. It might have been easier to let RBS and HBOS collapse. And spare us that know-all bullshit about how only people as intelligent as you think that bank crashes might happen again. They happen once everyone who lived through the last one has retired. Are you even aware of the crises of 1914 or 1973?

  30. Having read your link, I realise that you think that QE was the “bailout” of the banks. In other words you really don’t know what you are talking about

  31. HMG has made a profit on Lloyds – which it only had to support because Gordon Brown persuaded New Labour’s Victor Blank to rescue Bank of Scotland which had bankrupted the group including its totally reliable partner, Halifax.
    I am utterly fed up with New Labour apologists blaming Lloyds for *Edinburgh’s* failures (including the crooks that the BOS employed in Reading since any action to compensate victims before the verdict would have been deemed “contempt of court”).

  32. Rocco:
    You can *claim* anything you like – it is just that you do not *have* omniscience.
    Mr Murphy is an example.

  33. I’ll think you’ll find, RS ,that the conversation was about the QE to give the banks free reign to continue trading as was. As Tim has said, the capital injection is a different beast. Bailout being a general term to create money for those institutions that shit their pants and froze. Heroes the lot of them.

    You are the one that misread.

    “Are you even aware of the crises of 1914 or 1973?”

    What were the consequences of those events to actual people? Also, they have fuck all to do with what’s been happening over the last decade.

  34. @ Tim
    Lloyds of London has, corporately, unlimited liability and a number of “Names” still retain unlimited liability. There are a number of members of underwriting syndicates which are limited liability companies so the shareholders in those companies are not exposed to risk in excess of the value of their shareholding plus any calls on their shares.
    The market, as a whole, is pledged to meet all valid claims even if a syndicate goes bust, wiping out all its limited liability members and bankrupting its unlimited liability Names (if any – the syndicates with unlimited liability Names go bust rather less often than those where all the mewmbers are limited liability). So the good guys bail out the clients of the incompetent, to the fury of Richars Hiscox.

  35. @ “Jesus Christ”
    The so-called “bail-outs” were HMG buying control of Lloyds on the cheap (and trying, but failing, to do the same for Barclays and HSBC). Barclays is now being accused of a crime for managing to find some non-HMG finance to meet the new rules introduced by Alastair Darling.
    Darling demanded that the big four banks raise more money in one month on the stock market than had been raised in a year (I think almost any year) which is about as easy as mining the Gorgonzola on the Moon. This pushed the share price into free-fall and allowed HMG to buy 40% of the shares at a massivbe discount to NAV, screwing all the decent working-class guys and their widows who had been TSB shareholders after banking there for decades.
    “The virtuous shall suffer under the New Labour rulers of this world”

  36. FFS
    “I’ll think you’ll find, RS ,that the conversation was about the QE to give the banks free reign to continue trading as was.”

    QE has nothing whatsoever to do with keeping banks solvent. The £1.3tn guarantee had nothing to do with QE. Nor did the banks draw down anything like £1.3tn. It was something like £27 bn and it was all paid back. Repeat, it was all paid back. And it is completely unrelated to QE.

    Jesus Christ try to stop being a moron

  37. “I’ll think you’ll find, RS ,that the conversation was about the QE to give the banks free reign to continue trading as was.”

    During its QE programme, the Bank of England bought gilts from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.[70] The banks, insurance companies, and pension funds could then use the money they received for lending or even to buy back more bonds from the bank. Further, the central bank could lend the new money to private banks or buy assets from banks in exchange for currency.[citation needed] These measures have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.[71] Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus encouraging consumption.[70] QE can reduce interbank overnight interest rates and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies

  38. Yep, now add in the fact that at the beginning of QE the banks were short gilts. As a sector, they owned fewer than none. Today the banking sector – as opposed to insurance or pensions funds – is a significant holder of gilts.

    The BoE just didn’t buy the gilts from the banks – perhaps *through* their broker dealer arms of course – simply because the banks didn’t have any, and now have more than when QE started.

  39. Yes Tim, but what does that mean for me? You’re still being technical when not many in the dirty day-to-day of life gives a fuck about that.

    What is the consequence of that action?

    You can’t say that distorting a market with 100s of £billions has no effect on me (not you as you’re a forinner).

  40. OK, very simply.

    You are richer because QE happened than you would have been if it didn’t. The danger was deflation, as happened in the Great Depression in the 1930s in the US. Milton Friedman worked out, in the 1960s, how to stop that happening again. QE is the answer. The end result of QE is that you, and all other Brits, are richer than you would have been without QE.

    Simple enough for you?

Leave a Reply

Your email address will not be published. Required fields are marked *