Risky business
Mark Bathgate 12:18pmWith the largest transfer of liabilities in British history – the insurance of the risk of loss on £240 billion of toxic RBS assets by taxpayers – proceeding, there is worryingly little information being given about either what these assets may be or what risks there are to the taxpayer. Rather than the parliamentary enquiry and detailed disclosure Swiss parliamentarians demanded when UBS needed similar assistance, a small press release noting such exotics as “structured credit assets “ has been issued. The spin continues to be that there is nothing to worry about and all this money will come back fine.
Bank of England data shows that UK bank exposure to the US increased increased by over half a trillion dollars between 2004 and 2007 to 1.2 trillion. As the unemployment rate in the US has doubled to above 10% over recent quarters, the number of mortgage defaults has similarly soared. As the above chart shows, over 14 percent of all US mortgages are now in default. With three quarters of US households having no more than 2 months outgoings covered by savings, people walk away very quickly. The mortgage crisis has spread well beyond sub-prime, with almost 7 percent of prime mortgages now in default. US banks have chosen to take interest rate cuts and their massive government subsidies in windfall bonus gains rather than pass on lower interest rates to borrowers, further exacerbating the default problems. UK banks seemed to have failed to pay attention to the fact that many states have laws that allow people to walk away from mortgages without further liability. As the $30 billion loss one trading desk at RBS took on mortgage exposure shows, the losses here are very real.
The situation in Dubai is no better. As the above Bank of England data shows, the UK banks hugely increased their lending to the UAE around the same time as Dubai went on their global shopping spree. The data does not prove that this is all to Dubai, but it does seem a rather unnerving coincidence of timing, especially as Governments elsewhere are reluctant to endanger their own solvency by continuing idiotic lending. The comments made by one of the savviest investors in the Middle East, Prince Alaweed, are telling:
A bad bank – which the asset protection plan is an attempt at – is, ultimately, likely to be a key part of getting the UK banking system fixed. The main point of transferring risk to the taxpayer, though, is to ringfence the problem debt and allow private sector equity capital to return. For this to work, the transfer of potential losses has to be done in tandem with a credible and open assessment of the remaining bad assets. The basics of how to make this work have escaped both the government and their highly-paid investment bank advisors – as demonstrated by the news that taxpayers, rather than private investors, will hand over a further £33bn to the troubled banks. Given this ongoing fiasco, it’s no surprise that George Osborne has made reforming UK bank regulation a key priority. Until then, this sorry farce of “trust us, we’re experts, you’ll get all your money back, guv” with Labour and their investment banker friends drags on at potentially huge cost to UK taxpayers.“These banks are very mature banks, and they have to differentiate between a corporate loan and a sovereign loan. When things go sour, you can’t have some banks in the West going to Dubai and saying ‘oops’ and crying wolf and saying, ‘You should have guaranteed those loans’”
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strapworld
December 3rd, 2009 12:45pm Report this commentI am sure trevors den or peter dp will have the answer.
Colin
December 3rd, 2009 12:53pm Report this commentNo doubt, Dave and his chums, not wanting to be seen as being not statesman-like (ala Iraq & AGW), will just go along with it all, thereby relinquishing any authority to oppose in our interests.
Moraymint
December 3rd, 2009 1:00pm Report this commentHands up all those who say, "Phew, we're pretty much through the global financial crisis now and from next year, all should be well". After all, that's what the politicos keep telling us.
Sheeesh. Anyone want to join me in that group of people who took the view about a year ago that our banking-political mafia colluded to kick a can of dynamite a short distance down the road ...
... and now, here we are again, peering down at the can of dynamite, watching the fuse burn down, wondering what to do next.
Have governments got enough dosh to kick the can away again? Or do you think that the great global deleveraging will now start in earnest ... and take down one hell of a lot of individuals, businesses and possibly governments in the process?
Holly ......
December 3rd, 2009 1:00pm Report this commentThe non Eton experts in charge will do what they always do.
Chuck money at it, believe it's fixed and then get back to the smearing.
The media will continue to hold Cameron to scrutiny and life will continue on.....then
when the 'no idea what they are doing'brigade(regardless of which school they went to)are long gone,we will be given the bill.
Merry Christmas.....it may be the last,best
one we will have for a few years.
My Christmas list has just shrunk by three, It only had five in the first place, but hey,fifteen quid is a weeks gas and four 2Lts of milk.
Hawkeye
December 3rd, 2009 1:11pm Report this commentThe politicians simply will not do what needs to be done - strip out and float off all the GOOD assets, strip all debt with a better than 50% of being repaid and guarantee it in a new "sort of toxic" bank and collect all the rest of the cr*p into a toxic bank and crash it.
There's no other way. It'll hurt, but the pain will be short and sharp.
Beer Moth
December 3rd, 2009 1:46pm Report this commentAnd for this performance, the directors of RBS demand £1.5 billion to be paid in bonuses.
Best bit is, if they don't get it, they threaten to walk out taking all their expertise with them.
Walk where to? Who the hell would hire this bunch of chimps?
Graham Clark
December 3rd, 2009 2:28pm Report this commentIts nice and comforting to know that our Much Loved, Esteemed and intellectually astute Prime Mentalist, Pa McRuin-Broone and Captain Alistair Darling really do know what they are doing - after all, they have abolished 'Boom 'N Bust' now havn't they. After all Pa Broone said it with his own lips!!
As for the Banksters, just a bunch of greedy so-and-sos who truly just don't get it!!
Ken
December 3rd, 2009 3:53pm Report this commentWhat Beer Moth said.
Let them walk, all of them, and confiscate into an escrow account any of their assets that are reachable, until the mess is sorted.
The banking crisis is nowhere near ended and the banks are again demanding they be allowed to carry on just as before.
Sarkozy is absolutely right, tighter supervision and a different model saved the day in the eurozone so Anglo Saxon banksters will have take the hits they deserve until they come clean about the catastrophe they and Gang Brown perpetrated.
Along with every other G20 member France is out of recession, except errr ....
(and no Prime Minister, Spain is NOT a member).
michael
December 3rd, 2009 4:03pm Report this commentQE a fiscal stimulus: Dont make me larf.
Its balance sheet ballast for buggered banks
-creative electronic accounting.
BOE only know the total. As to where it all is and the economic good that it has done they're clueless.
euro-zone
December 3rd, 2009 4:39pm Report this commentwell, if I remember rightly calamity James pledged this last spring at the meeting of the G20 in London (remember that?) to get rid of tax havens, google "international tax havens" and donīt be surprised, the UK is listed as fifth, so he is doing what he pledged
Hysteria
December 3rd, 2009 11:09pm Report this commentMoraymint is right
buy food and ammo
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