Bank Bail Out's

[buddy]

^but the retail banks also borrow from the central banks so if the retail banks go under the central banks do not get their money back.

It's just a giant house of cards.

Nope - They just write it off as they have always done with bad debt, creative accounting, cooking the books, call it what you want.

Sounds like you believe the Banks?

Isn't that the same as not getting their money back?

But there is no "real" money from the Central Banks, its all created out of thin air, free money that only has value when you get a loan and go into debt, where the Bank then multiplies the ratio say 9:1, there was never any money there in the first place..its all based on fiat.

[buddy]

...or a Tuk Tuk

[Heng]

Because while the banks many some stupid investment decisions, so did all the folks who got into overpriced mortgages.

[PattayaParent]

^but the retail banks also borrow from the central banks so if the retail banks go under the central banks do not get their money back.

It's just a giant house of cards.

Nope - They just write it off as they have always done with bad debt, creative accounting, cooking the books, call it what you want.

Sounds like you believe the Banks?

Isn't that the same as not getting their money back?

But there is no "real" money from the Central Banks, its all created out of thin air, free money that only has value when you get a loan and go into debt, where the Bank then multiplies the ratio say 9:1, there was never any money there in the first place..its all based on fiat.

I agree with you, that's why I said it's just a giant house of cards.

[buddy]

Capital Adequacy Ratios/leverage. Injecting $1 into a bank's capital is worth many multiples of increasing a bank's assets by $1

Administratively much easier to make payments to a few hundred banks than millions of homeowners

Paying off mortgages = Risk it encourages people to default to claim the handout further aggravating the situation

On the face of it treats all members of the population equally (ignoring tax). In your scenario people who had their debt wiped out would be delighted. Honest hardworking people still trying to pay their mortgages would be disgusted. To compensate others as well would ramp up costs even more

Loans to banks from governments would eventually be repaid. Giving money to mortgagees on the other hand is an expense to the government. Adding a billions to the government balance sheet is much better than writing off billions as expenses

"Investments" or shares taken in banks can be sold at a later date to allow governments to get their money back

Governments injected liquidity into the system, and can withdraw when they think the time is right. Paying mortgages doesn't allow them to withdraw the money again and loses control on timing later

etc

Thank you fletchsmile for your contribution.

My take on some of your expalanations -

"Paying off mortgages = Risk it encourages people to default to claim the handout further aggravating the situation"- Pay part of the Mortagage off, compensate people with out mortgages, dont wish to go into the finite detail but if theres the will it can be done.

"Loans to banks from governments would eventually be repaid" - Banks repay to the Government probably within a couple of years, but Mr Joe soap avarage tax payer has to pay for the rest of his life and the generations to come (without his consent).

"Giving money to mortgagees on the other hand is an expense to the government" - OK, but the Government would have had a greatly stimulated economy where the Tax take increased by Billions to compensate.

"Investments" or shares taken in banks can be sold at a later date to allow governments to get their money back" - See the sense in this from the Governments perspective, however

Mr Joe soap avarage tax payer wont be able to directly profit from this, the other purchasing Banks will.

"Governments injected liquidity into the system, and can withdraw when they think the time is right. Paying mortgages doesn't allow them to withdraw the money again and loses control on timing later" - You hit it right on the head, They would lose control (Liquidity = printing more money).

Still for all the financial terminology it doesnt get away from the fact that the Banks get paid twice and the tax payer has to pay for the Governments irresponsible spending and borrowing for generations to come...Right?

[fletchsmile]

1) One small example on capital adequacy ratios (CAR):

Regulators globally usually require banks to maintain a minimum CAR of around 8%. This means that for every risk weighted asset of $100, a bank must maintain $8 of capital or reserves at the central bank. The ratio is 8/100

If the government injected $1 via the top line capital route the ratio would be (8+1)/100 = 9%

If the government injected $1 via asset reduction/paying off mortgage the ratio would be 8/(100-1) = 8.08%

Hence the improvement is much greater by injecting capital. Paying off mortgages is much more expensive.

{Please note the above actually over simplifies in several ways, e.g. banks actually use risk weighted assets (RWA) and each mortgage loan attracts a risk weighting. In Thailand for mortgages this is often 35% or 0.35. So a$1 mortgage attracts an RWA of $0.35. The improvement in CAR is therefore only 8/(100-0.35) = 8.03%}. The capital route is therefore around 35 times more effective than trying to improve the assets in this case)

2) Note also, not all the money given to banks was injected as capital. Much of it were loans to provide liquidity. The cost to the taxpayer is therefore only the cost of funding the loan to the bank, or oversimplifying again the interest, as the principal will be repaid by the bank. Pay a mortgage off though and that pays off capital + interest...

Actually the crisis was much more than just mortgages. It was based on many other credit factors and instruments, combined with a liquidity crisis. Paying off peoples mortgages would cost far more and risk putting way to much money into the system causing inflation risk and further asset bubbles down the line.

[PattayaParent]

I thought the CAR in UK was 12.5%?

At least it was when I majored in economics 35 years ago!!

[fletchsmile]

I thought the CAR in UK was 12.5%?

At least it was when I majored in economics 35 years ago!!

Your memory is going. Feel free to look it up, and you'll find the minimum CAR in UK (based on total capital: Tier1, Tier2, Tier3) is 8%...

{Your grey matter is probably remembering that 100/8 = 12.5, which people sometimes use to calculate what max RWA they are allowed based on the capital available}

Edited May 13, 2010 by fletchsmile

[BigPig]

Because while the banks many some stupid investment decisions, so did all the folks who got into overpriced mortgages.

It good to see after 33 posts someone state the obvious.

Its these greedy bastrds that caused the problems ... pricing honest working men like me out the market ... i am now bailing them out with low savings rates.

[flying]

Because while the banks many some stupid investment decisions, so did all the folks who got into overpriced mortgages.

It good to see after 33 posts someone state the obvious.

Its these greedy bastrds that caused the problems ... pricing honest working men like me out the market ... i am now bailing them out with low savings rates.

True & a sad state to be in but............

The banks did not make some *stupid investment decisions* Many such as GS knew full well what they were doing/causing & even took out hedge insurance knowing it would all collapse.

The greed behind packaging bundles of mortgages & having them rated AAA knowing full well they were not was more than stupid it was greed/deceit flat out criminal action. Same goes for the banks that put together the NINJA loans for all the folks you are calling greedy bastards. That was beyond stupid...

Yes they should not have gotten a loan with no income...no credit history etc...Who gave them the loan & why?

It was more like putting a steak dinner in front of someone who had never had one but always heard about how good they tasted & they were hungry. Was there ever a chance that someone who never was going to get a chance at owning a home was going to turn it down? Then factor in the slippery ARM loans they made for these non qualified buyers.

Yeah there is enough blame to go around. The only thing that really bugs me is .....

At the end of the day why bail the crooks? I am not saying bail the folks who should not have bought either.

[TheKingfisher]

It might have been mentioned but....

What if you had been paying off a mortgage for the past say....15 years and then suddenly the low income people who couldn't afford to pay their payments had the government pay off their house? how would you feel... and you were still paying yours off.......

unawesome.

[BigPig]

Because while the banks many some stupid investment decisions, so did all the folks who got into overpriced mortgages.

It good to see after 33 posts someone state the obvious.

Its these greedy bastrds that caused the problems ... pricing honest working men like me out the market ... i am now bailing them out with low savings rates.

True & a sad state to be in but............

The banks did not make some *stupid investment decisions* Many such as GS knew full well what they were doing/causing & even took out hedge insurance knowing it would all collapse.

The greed behind packaging bundles of mortgages & having them rated AAA knowing full well they were not was more than stupid it was greed/deceit flat out criminal action. Same goes for the banks that put together the NINJA loans for all the folks you are calling greedy bastards. That was beyond stupid...

Yes they should not have gotten a loan with no income...no credit history etc...Who gave them the loan & why?

It was more like putting a steak dinner in front of someone who had never had one but always heard about how good they tasted & they were hungry. Was there ever a chance that someone who never was going to get a chance at owning a home was going to turn it down? Then factor in the slippery ARM loans they made for these non qualified buyers.

Yeah there is enough blame to go around. The only thing that really bugs me is .....

At the end of the day why bail the crooks? I am not saying bail the folks who should not have bought either.

Gret news today though buy2letters in the UK will soon be getting taxed at 40% on their capital gains ... this coalition has the few lefty policies i like aswell as the conservative ones that are common sense .... bail out buy2letters OP you fool, id be on the streets willing to kill.

Edited May 13, 2010 by BigPig

[buddy]

It might have been mentioned but....

What if you had been paying off a mortgage for the past say....15 years and then suddenly the low income people who couldn't afford to pay their payments had the government pay off their house? how would you feel... and you were still paying yours off.......

unawesome.

If there is a will there is a way to satisfy this question.

How about say 50,000 pounds or 100,000 Dollars to each Mortgagee...by the way I totally agree with what you are saying.

Which raises another point..what is the cut off point in years when say you fall on bad times have paid your mortgage for 5, 10 years and the Bank doesn't give you any money back when they foreclose on you?

...3 years?...5 years?...8 years????

[Heng]

It was more like putting a steak dinner in front of someone who had never had one but always heard about how good they tasted & they were hungry. Was there ever a chance that someone who never was going to get a chance at owning a home was going to turn it down? Then factor in the slippery ARM loans they made for these non qualified buyers.

I think the steak factory has a much better chance of turning it all around compared to that starving person who just had another "free looking" steak thrown onto his/her plate.