Credit Crunch

Ive been sitting on the idea of this thread for a while. Well right now as im sure some of you are aware, we are heading for a global recession in the world economy due to bad banking habits and unregulated market (very simplified explanation).

Basically since i was born in 89 i dont know what a recession is, i thought it was a myth and when studying history, wall street crash, bubble burst of late 80s . I thought bloodyhell these people are making a big fuss about nothing but now im soon learning the woes of depression.

The current economic downturn is affecting me because im a student in my 2nd year having to rent out a flat and pay bills. Since banks have stopped lending loans and people have stopped buying houses and opting to rent out instead, obviously my rent has gone up as well. I have to work two jobs to keep financially stable but i might be made redundant since companies have to cut back especially on part time jobs. My social life has taking a huge hit, no more clubbing because i cant afford to get pissed out of my head anymore.

When i was 18 i inherited some money and started to save that for the future and now i fear for my savings since bank stocks keep free falling at any moment.

Personally, although i have things to be concerned about im well off compared to alot od others.

Basically i just want to know what people think of the current economical situation and if it affecting you in anyway.

QUOTE (franzoir @ Oct 10 2008, 08:14 PM)Basically since i was born in 89 i dont know what a recession is, i thought it was a myth and when studying history, wall street crash, bubble burst of late 80s . I thought bloodyhell these people are making a big fuss about nothing but now im soon learning the woes of depression.
Funny you should say that as yesterday (Friday 10th October) was one of the worst trading days in 30 years for Britain. The FTSE 100 lost 380 points (or 8.85%) in that day alone. In lehman's terms that means the top 100 companies in the UK lost £90 billion ($150 billion) in share value. Britain hasn't experienced such a bad day since the depression of the late 80's. This has all happened despite Gordon Brown making a £450 billion pledge to restore confidence in the banking system. I guess the pledge was not designed to stop the recession entirely; it was just implemented to prevent the recession from turning into a major depression like in the 30's.

The Bank of England (like other central banks across the world) cut interests rates by 0.5% to encourage borrowing (borrowing becomes cheaper when the interest rate is cut). Only time will tell whether these plans will have the desired effect. I guess the basic cause of this recession was the fact that the banks (and consumers) were borrowing too much money during the boom period. When the economy slowed they could no longer meet their payments and eventually went bust. When the first banks went bankrupt (Northern Rock, Lehman Brothers) it caused a crisis of confidence; this resulted in the banks not lending to each other or customers.

As for me the main thing I notice is the price of grocery shopping; the price of my weekly shop has gone up dramatically! On the upshot the price of petrol has gone down! But for how long?

QUOTE (monsta666 @ Oct 11 2008, 04:09 AM) The Bank of England (like other central banks across the world) cut interests rates by 0.5% to encourage borrowing (borrowing becomes cheaper when the interest rate is cut). Only time will tell whether these plans will have the desired effect. I guess the basic cause of this recession was the fact that the banks (and consumers) were borrowing too much money during the boom period.
Also Bankers took it upon themselves to recieve extrodinary bonuses.

I think that a major part of the problem was people were looking for ways to keep their money safe. People thought they had learned their lesson from past economic booms and bust and had put it down to when there is a lack of confidence in the bank thats when the recession hit big time hence the rise in bank insuranance companies. So inorder to remedy the situation people looked for other tangible methods of protecting their money without relying on bank confindence. Oligards and the super rich remedied the situation by buying expensive art that will keep rising in value no matter what. For ordinary people, thought that a tangible method of safeguarding money would be buying houses which also like art always rising in value because we always need houses. This false confidence in housing led to banks adopting bad policies such as loaning people six times peoples annual wage. However when it reached a stalemate when first time buyers couldnt afford to buy, simple economics dictates low demand= fall in price and that is when problems started.That is my opinion on the problems in Britain anyway.

If it was just that Britain would of survived the slight slump in the economy but then after dealing with northern rock, only a few months after America problems had reached a climax which sent destructive waves to already shaky economies around the world. Im not really too informed about America situation but i can say
the stereotypical thing that its the culmination of failed bush economic policies. Although my American teacher told me that America's economy has been in decline since 2001.

As for oil prices, they are very much controlled prices, if oligards wanted, they could withhold the supply of oil which would shoot the price of oil upwards. Middle eastern oligards have done it before.

QUOTE (franzoir @ Oct 11 2008, 06:37 PM)So inorder to remedy the situation people looked for other tangible methods of protecting their money without relying on bank confindence. Oligards and the super rich remedied the situation by buying expensive art that will keep rising in value no matter what. For ordinary people, thought that a tangible method of safeguarding money would be buying houses which also like art always rising in value because we always need houses.
This is precisely what the government wants to avoid. When people lose confidence in banks they will withdraw their money and invest it elsewhere (be it on art, houses, gold or any other asset). If that happens the banking system will collapse and we would be in deep trouble. This is what happen to Northern Rock; in it's last days people lost confidence in Northern Rock (they thought it was going bust). As a result people started withdrawing their money en masse. The bank did not have enough money to give people their money and it went bust.

It's a problem all banks have; all banks only have a fraction of the money they claim to have (I believe it is around 5%). That means if every bank customer went to their bank tomorrow to withdraw their cash, the bank could only repay 5% of the customers (assuming all customers have the same amount of money). So you see how important confidence is in the banking system.

Gordon Brown has made a £500 billion pledge in a attempt to restore confidence. Saying that I doubt he will actually spend £500 billion. The bill has 3 areas, the first £50 billion will be used to buy shares in England's major banks. This is will prevent banks going bust (at least that's the plan). A further £200 billion will then be lent to banks in the form of government bonds. This will encourage banks to borrow from each other again. The final £250 billion will go on liabilities. That means if a bank were to go bust the government will pay £250 billion to any customer that lost money as a result of the bank going bust. This should stop people from withdrawing their money (there will be no fear of losing money).

There's good chance other European countries will follow Britain's lead. In any case the major EU nations are having an emergency meeting on Wednesday to discuss this current crisis.

As for America, the $700 billion bill will mainly pay for the banks bad debt. Bad debt is when a bank lends money to a customer who couldn't pay back their loan. The bill was pretty controversial as many people thought it was the bank's fault for lending irresponsibly.

At this point, everything is a gamble, what the E.U and other leaders plan is to do is stand unitedly strong and borrow money from their respective taxpayers and hope that the market picks up from the unified action and that should sort the problem out. However this is what leaders planned to do from the very start, its just that there were other unscrupulous people out there that were out for blood. Examples would be short sellers, once bank experienced a significant drop in shares, opportunist seized the lack of confidence and started spreading rumours of how banks were in trouble, ofcourse the media doesnt help because they also fuel the rumours as well. This lead to the bank suffering an even more substantial drop in their shares and by sheer misfortune of speculation the bank is finished and the rumours become true.

All i know is that, its not a question of whether the problem will get sorted. If the problem doesnt get sorted then all western developed economies will revert back to barter economies, where its like i'll trade my good shoes for a loaf of bread, which hasnt been seen since the likes of revloutionary russia. The problem is now how fast the problem get sorted because the speed will dictate how long economies will spend in recession for the next years to come.

QUOTE (franzoir @ Oct 13 2008, 12:37 AM)All i know is that, its not a question of whether the problem will get sorted. If the problem doesnt get sorted then all western developed economies will revert back to barter economies, where its like i'll trade my good shoes for a loaf of bread, which hasnt been seen since the likes of revloutionary russia. The problem is now how fast the problem get sorted because the speed will dictate how long economies will spend in recession for the next years to come.
I don't think it's as dark as you say. Maybe if all the banks collapsed then we would resort to these methods, but I doubt that will happen. Saying that after the disastrous week it seemed the government is upping the ante and will gain a bigger share in the British bank. That way they can have more control on the banks actions. It's all up in the air but it is expected that they will control the Royal Bank of Scotland and they may even takeover Lloyds TSB.

One significant thing, despite the global recession taking place China is still enjoying strong economic growth. With America and Europe in trouble, it could well be a case of China picking up the pieces. I doubt they'll be the number one nation but they could well benefit from other countries losses. As they say one man's loss is another man's gain.

QUOTE (monsta666 @ Oct 13 2008, 12:00 PM) I don't think it's as dark as you say. Maybe if all the banks collapsed then we would resort to these methods, but I doubt that will happen.

No no i only brought up barter economies to say that would happen if no one did anything and just let things free fall. But ofcourse leaders are doing something about it and its been annouced today llloyds, hbos and rbs will now be partially nationalised with 60% of shares being own by the government. I feel sorry for Lloyds tsb, they wouldnt need partial nationalisation if they decided to let hbos plumet, but the chance of a super conglomerate was just to tempting to pass by. Shame, up untill that decision Lloyds tsb was a prudent a safe bank.

I remember Gordon Brown saying there are two types of chancellor, the ones that get out in time and the ones that dont. He may of got out in time but looks like he gotten a bit muddy with his bad borrowing habit. I still think he was an excellent chancellor though. However just like democrats talk about Reagans debt i think Gordon has trumphed Regan and we are now in unknown lengths of national debts which will go much too labours shame and conservatives glee.


QUOTE One significant thing, despite the global recession taking place China is still enjoying strong economic growth. With America and Europe in trouble, it could well be a case of China picking up the pieces. I doubt they'll be the number one nation but they could well benefit from other countries losses. As they say one man's loss is another man's gain.

As for china it will be very hard for them to become a world power , US and other western countries have a Institutions and credit to fall back on. It took US two world wars for them to replace Britain. If the world was to go through another war i doubt there will be anything to left to take charge of anyway.

P.S I dont like the fact that these top official bankers were dealt with behind closed doors. This is where the japanese get it right. When Japan's Yamato Life Insurance company went bust. They bowed there heads in shame on national tv. Why cant we have that?

Low income, high commodity cost. You can pretty much guess what most of us are going through right now. Also i heard that in the US almost 700,000 jobs were cut, a lot of families are now homeless due to their house being forclosed etc.

The sad thing is, there's this agent guy who went public a while ago who stated that even families who paid their rent responsibly and had no debt got foreclosed. WTF is that?

And yeah even though the oil price is rolling back, most of the commodities depending on oil for production still aren't.

That's for the crisis in general. As for the credit crunch specifically, i don't use credit cards so i don't have a problem with it. I just don't know what will happen to AIG owned companies here in my country.

QUOTE (franzoir @ Oct 13 2008, 08:41 PM)I remember Gordon Brown saying there are two types of chancellor, the ones that get out in time and the ones that dont. He may of got out in time but looks like he gotten a bit muddy with his bad borrowing habit. I still think he was an excellent chancellor though. However just like democrats talk about Reagans debt i think Gordon has trumphed Regan and we are now in unknown lengths of national debts which will go much too labours shame and conservatives glee.
Although the levels of debt are high, they are not unprecedented. The level of national debt was higher when Labour came into power (55% of national income) than they are today. That is despite Gordon Brown spending billions on saving the banking system. He has broken one of his fiscal rules of not letting national debt exceed 40% of the national income. Then again his rules were never designed to cater for financial crisis. As it stands we are on 50%.

Speaking of Brown, he must be loving the limelight. Not only is most European nations adopting his plan but also America.


QUOTE (franzoir)As for china it will be very hard for them to become a world power , US and other western countries have a Institutions and credit to fall back on. It took US two world wars for them to replace Britain. If the world was to go through another war i doubt there will be anything to left to take charge of anyway.
China already has the second biggest economy in the world; so it is only a matter of time before they become a world superpower. The current crisis will only speed this process up. There's one thing China has that America and Europe can never hope to match, the size of their workforce. China has 1.2 billion people, if they harness this resource properly then they could achieve anything...


QUOTE (franzoir)P.S I dont like the fact that these top official bankers were dealt with behind closed doors. This is where the japanese get it right. When Japan's Yamato Life Insurance company went bust. They bowed there heads in shame on national tv. Why cant we have that?
The bankers did not make to national TV but they did reach the front pages of some newspapers. At least the ones that got sacked... In any case it is better that case are dealt with discreetly until it is obvious who the guilty party is. That way the case can be dealt with objectively.

Yes who would of thunk it, a Republican government no less would turn to nationalising banks. Leaders of the free market i think not. That must of been a hard decision to make. Im not really surprised that people looked to Gordon Brown for economic solutions, he has been excellent at managing the economy and will probably be able to write a few books on the economy in later life. Only problem i could see when he was chancellor was the level of borrowing and amount export to import ratio.

QUOTE China already has the second biggest economy in the world; so it is only a matter of time before they become a world superpower. The current crisis will only speed this process up. There's one thing China has that America and Europe can never hope to match, the size of their workforce. China has 1.2 billion people, if they harness this resource properly then they could achieve anything...

As for China, i still doubt they can become no1, they have alot of problems when it comes to the internal workings of their state which need to be resolved one way or another if they really want to become no1. Even if they did, i still do not feel they can become no1 because they are not of the same world, they are still communistic at heart which would make other western countries hard to do business with china. I think it would be more realistic to say that China would simply replace the old USSR as a second powerblock interms of balancing out the world power (i mean there are not even in the G8 and japan are).

Commentators are now saying that its US fault for letting Lehman's fall but then go and save AIG. Letting Lehmans die caused panic in the markets that government would not bail out company but in reality they did. For some political reasons the government decided to let Lehmans die but if they had save Lehmans it could of saved them from the 700 billion tarp plan and the destruction they sent out to the rest of the world.


QUOTE That's for the crisis in general. As for the credit crunch specifically, i don't use credit cards so i don't have a problem with it. I just don't know what will happen to AIG owned companies here in my country.

When we talk credit crunch or credit crisis, we do not mean credit cards, we are talking about the toxic debt in the market that has accumulated through bad banking habits meaning banks stopped lending each other money and to customers as well.

I still think top banking officials should be name and shamed at the very least, through their negligence we all suffer where as when they resign they are still getting their bonuses (although some have waived it and rightly so). If it was up to me i would lock them up to deter them from bad banking but at the very least a public apology like they did with US and Japan. Most of the time government know the individuals that are involved, i would be very worried if they didnt. So its not a question of who did it.

Yes i know that credit crunch means it is hard to get loans and credit from banks due to varying reasons, basically like a liquidity crisis.

And aren't credit cards used to acquire loans or credit too? That's where i made the connection.

QUOTE (franzoir @ Oct 14 2008, 10:17 PM)Yes who would of thunk it, a Republican government no less would turn to nationalising banks. Leaders of the free market i think not. That must of been a hard decision to make. Im not really surprised that people looked to Gordon Brown for economic solutions, he has been excellent at managing  the economy and will probably be able to write a few books on the economy in later life. Only problem i could see when he was chancellor was the level of borrowing and amount export to import ratio.
The choice shouldn't be a hard one, if they failed to act to now there would be a good chance the country would face worse hardships. It should have been obvious right at the start that they needed to save the banks.

When the Lehmann Brothers was in trouble the US government decided not to save them because it went against their capitalist ideals i.e let market forces deal with the situation. When the bank went under there was a sudden panic; stock prices tumbled and suddenly other banks were in trouble. Learning from their mistakes they saved AIG. Now if AIG went bankrupt as well, then the current crisis would have been that much worse.


QUOTE (franzoir)As for China, i still doubt they can become no1, they have alot of problems when it comes to the internal workings of their state which need to be resolved one way or another if they really want to become no1. Even if they did, i still do not feel they can become no1 because they are not of the same world, they are still communistic at heart which would make other western countries hard to do business with china. I think it would be more realistic to say that China would simply replace the old USSR as a second powerblock interms of balancing out the world power (i mean there are not even in the G8 and japan are).
The USSR was communist state yet it was a world superpower; so I see no reason why China cannot achieve the same thing. That said, China is not as communist as the USSR was so the point is not completely relevant. In any case many western countries trade freely with China, particularly in the manufacturing industry. America have borrowed a lot of money off China to fund their wars; with their growing level of debt it is obvious how they can benefit. China also does a lot of their trade with middle Eastern countries. It's a significant problem cause America cannot completely outcast those countries as China will just fill the gap. As the recent turmoil in Zimbabwe showed, China is willing to trade with anyone as long as they have cash.

As for the G8 all they do is talk! Maybe I'm cynical but I just feel the G8 is just a massive PR exercise...


QUOTE (franzoir)I still think top banking officials should be name and shamed at the very least, through their negligence we all suffer where as when they resign they are still getting their bonuses (although some have waived it and rightly so). If it was up to me i would lock them up to deter them from bad banking but at the very least a public apology like they did with US and Japan. Most of the time government know the individuals that are involved, i would be very worried if they didnt. So its not a question of who did it.
It is interesting to note that Gordon Brown stopped top banking officials from receiving pay bonuses this year. He has also stated that he wants to limit their bonuses in the future, so bank official will no longer receive excessive pay bonuses. He may not have shamed the named officials but it's a good start.


QUOTE (khael @ Oct 15 2008, 06:49 AM)Yes i know that credit crunch means it is hard to get loans and credit from banks due to varying reasons, basically like a liquidity crisis.

And aren't credit cards used to acquire loans or credit too? That's where i made the connection.
The crisis may only directly effect loans but it can lead to other things. If banks lend less to its customers (people and businesses) then it means the customers spend less money. If businesses can't spend as much money, they will have to cut back on expenses (laying off workers) or selling their assets. Off course these things take time, so it unlikely these things will be felt (in earnest) for a few weeks. It is likely that the rate of inflation will rise further. The price of goods where going up anyway and with interest rates going down spending will increase; forcing prices to go up further. Indeed this was one of the reasons why the Bank of England was so slow to lower interest rates; they wanted to control the rate of inflation which was already high.

I presume everybody´s aware of the depression thats riding the world right now.

My country, Iceland, for one is in the center of it and has been declared a terrorist by Gordon brown, some time ago now. (the british took it back though, thats good)

Anyways if anyone has any questions now about whats going on with it here in iceland just ask.

Its gettin real shitty out here, prices on everything have allmost tripled.

A similar thread already exists for this topic:
Credit crunch

If you want to talk about how the current economic depression affects you please use that thread instead of making a new thread!
[Moderator's Note: Threads merged.]

Yes, what's going on there ? I've read about people going from well-off to hobo overnight, 5000 layoffs a month, and a debt that amounts to 12 times the GDP.

I've also read about the British attitude - hoard the money of crumbling Icelandic banks by the declaring the country a terrorist organization and freezing the accounts. In other countries it would be enough for the people to burn the british flag and ... other worse things. But that wouldn't help I guess.

It's hard to imagine what you experience. What are you living through ?

QUOTE (Konohamaru @ Nov 21 2008, 05:28 PM)I've also read about the British attitude - hoard the money of crumbling Icelandic banks by the declaring the country a terrorist organization and freezing the accounts. In other countries it would be enough for the people to burn the british flag and ... other worse things. But that wouldn't help I guess.
I think you have that a little mixed up there, the money was British money which was invested by the County councils into Icelandic Banks and Iceland froze the accounts stopping them getting the money back, hench the terrorist accusation.

Edit - Lol merged as I wrote that thus edited.

QUOTE (monsta666)The choice shouldn't be a hard one, if they failed to act to now there would be a good chance the country would face worse hardships. It should have been obvious right at the start that they needed to save the banks.

Okay, I'll grant you that banks play a central role in a capitalistic, liberal economic system; they're not the usual 'small fry' business that you can let go bust and say: 'Oh, it's just the economic law; they weren't profitable'. Fact is that the world needs banks - i.e. big money accumulators, that gather people's savings and invest them in lucrative businesses.

But if banking is an essential profession, bankers are mere fellows - like you and I - who exercise that profession. This generation of bankers has failed: they proved to be incompetent AND reckless - whether with their asset management, their investments, their risk forecast, their crisis management, their transaction policies - everything ! They were wrong every single step of the way (and their result of their actions keeps driving down the markets as we post, mind you).

So the common sense says (shouts) : "They are not trustworthy, let's demote them, replace them, give somebody else the responsability of managing our money, the responsability of assessing the value of our goods and services, the responsability of setting directions for our economic development."

So it's not an easy choice. For generations (ever since 1945) the politicians had to worry about relatively small economic issues, because the economy was driving the destinies of the countries. Now the economy says "We were wrong, we cannot ensure the livelyhood of so many citizens. We'll have to sweep the rug from under the feet of millions."

So the government is left with an enormous task on its hands. It has a whole range of degrees of action in dealing with many many issues.

Example of issues:
1) Punishing the bankers
Examples of degrees : I give just 3 degrees; there are hundreds of viable variations
1.a) Gather top bank officials in the central square of every town and city and have a public execution. (quite gory, but not very just: not all of them are responsible, and full of consequences : nobody would want to be a banker ever again)
1.b ) Investigate them - their past actions, their management of the crisis etc. - just like the military top brass go through congressional/parliamentary/government inquiries. For those found to be suspicious, try them; for those tried and proved guilty fine them, jail them and/or ban them from exerting their profession (like doctors responsible for the death of patients through carelessness).
1.c) Bail out their fat asses with taxpayer money and invite them to luxurious hotels to discuss "the future of our economy", "crisis management" and a whole lot of other responsibilities which those bankers have forsaken the very instant when they preferred hiding those stinking assets instead of coming clean !!

2) Train /pick /find /hire a new generation of economists, bankers, investors, ensurers etc.
3) Devise a new economic system, more transparent (the issue with tainted glass cars is that you can't tell if the driver has seen you when they refuse to yield priority at a crossroads), more robust (think of a building that crumbles when a mere window has broken on the top floor), more just (can anyone guarantee that valuable people are not starving to death / going mad / committing suicide due to the current crisis ?!)
4) Give hope - and aid - to people without a job, without a house, and /or struggling in everyday life.
5) Plan the future; analyze the crisis; have economists work with psychologists and software engineers to simulate thousands of possible scenarios. Discuss those, devise others etc. Think, think and think again to provide information for every decision.

In letting Bear Sterns and Lehman Brothers fail AND bailing out all the others ( AIG, Merril Lynch, Goldman Sachs etc), the US government has shown its indecision, its bewilderment; like a fellow from waking up with a huge hangover after a 53-year long binge party.
It has rushed into sentencing some suspects and pardoning others before the trial even started !!



QUOTE (Maiku_Ando)I think you have that a little mixed up there, the money was British money which was invested by the County councils into Icelandic Banks and Iceland froze the accounts stopping them getting the money back, hence the terrorist accusation.

I don't know where you get your information - it seems to be more accurate than mine. I've read about the 'Iceland terrorist' affair in the New York Times.

NYTimes article from Nov 2, 2008

However I'd like to point out that money in itself does not allow people to eat, get sleep, stay cleen or tackle bad weather. Trust does.

But labeling a thief a terrorist is also big mistake, to my mind. Even a 2 year old should be able to tell the difference between an over-optimistic, spendthrift, carefree Icelander - and a bearded Mullah overseeing the training of bomb-setting minions.

If you call some one a thief you say he can't be trusted with the fact that the money he owns is his rightful property, still they are expected to spend that money for eating/sleeping etc. (it's habeas corpus).

But if you call them a terrorist - you accuse them of using their power (based on money or other, rightfully acquired or not) to destroy human lives ( and force the survivors into submission through fear).

Treatments ought to be very different. It may be that using that 2001 anti-terrorism legislation was the only way to bypass the 'private property' principle and keep the money in Britain. But it's like a Vietnam veteran who's become a shepherd ordering a napalm airstrike to kill a lonely wolf.

(Okay, that may be a little far fetched )

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[Moderator's Note: Please do not double post. Edit your original post instead of creating another.]
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QUOTE (Konohamaru @ Nov 21 2008, 06:29 AM) In letting Bear Sterns and Lehman Brothers fail AND bailing out all the others ( AIG, Merril Lynch, Goldman Sachs etc), the US government has shown its indecision, its bewilderment; like a fellow from waking up with a huge hangover after a 53-year long binge party.
It has rushed into sentencing some suspects and pardoning others before the trial even started !!
Lehman was let go for political reasons however the affects of that was like unleashing pandora's box.

In all economic downturns, there is always one event that starts off the domino affect and in this case it was Lehmans' Bros. However everything that has surface since was already harbouring beneath the surface and was waiting like a ticking time bomb. For instance General Motors is now also facing problems because no one will buy their gas guzzlers. That problem was always there but in an affluent time of economic growth it could be overshadowed but in an ecocomic downturn people would rather buy fuel efficient cars.

So anyway you must also remembers Republicans dont believe in big governments and they used Lehman as a sacrifice to warn other industries which turn out to be a huge mistake. Ironically though, Republican govt has gotten so big (TARP) i dont see how Democrat Obama could make his bigger.

QUOTE (Maiku_Ando @ Nov 21 2008, 09:44 AM)I think you have that a little mixed up there, the money was British money which was invested by the County councils into Icelandic Banks and Iceland froze the accounts stopping them getting the money back, hench the terrorist accusation.

Edit - Lol merged as I wrote that thus edited.
To elaborate on what Maiku_Ando said, the basic story is this: British customers (including companies and councils) invested money in Icelandic banks. One day the banks froze all the customers assets so the customer could no longer access their money. Little notice was given, so to many, it seemed like they lost their money. Understandably, many customers were angry and annoyed at this sudden development. That said, it is no excuse for them to label the banks as terrorists or even suggest they were working with terrorists. To be honest I did not hear about this terrorist accusation but if it did happen, it was unacceptable. From the sound of things these statements were taken back rather quickly.

In either case the problem of the Icelandic banks was mostly covered. Any British customer had their first £50,000 protected by the British government; this covered the vast majority of customers. Later on the government even secured the payments to customer who had invested more than £50,000.

The bigger problem was to come from the councils. Many councils had invested millions in these Icelandic banks and the government did not guarantee they would get their money back. To be honest though, I think the main blame should be levelled at the councils rather than the bank. The councils shouldn't have been putting taxpayers money into offshore accounts and IF they had to do it, they should have picked very secure banks. Saying that, with the current financial crisis you can never be certain how "secure" a bank is.

EDIT - And here's a joke about Icelandic banks: "What do Icelandic streakers and Icelandic banks have in common?"
They both have frozen assets!


QUOTE (Konohamaru @ Nov 21 2008, 12:29 PM)Example of issues:
1) Punishing the bankers
Examples of degrees : I give just 3 degrees; there are hundreds of viable variations
1.a) Gather top bank officials in the central square of every town and city and have a public execution. (quite gory, but not very just: not all of them are responsible, and full of consequences : nobody would want to be a banker ever again)
1.b ) Investigate them - their past actions, their management of the crisis etc. - just like the military top brass go through congressional/parliamentary/government inquiries. For those found to be suspicious, try them; for those tried and proved guilty fine them, jail them and/or ban them from exerting their profession (like doctors responsible for the death of patients through carelessness).
1.c) Bail out their fat asses with taxpayer money and invite them to luxurious hotels to discuss "the future of our economy", "crisis management" and a whole lot of other responsibilities which those bankers have forsaken the very instant when they preferred hiding those stinking assets instead of coming clean !!

2) Train /pick /find /hire a new generation of economists, bankers, investors, ensurers etc.
3) Devise a new economic system, more transparent (the issue with tainted glass cars is that you can't tell if the driver has seen you when they refuse to yield priority at a crossroads), more robust (think of a building that crumbles when a mere window has broken on the top floor), more just (can anyone guarantee that valuable people are not starving to death / going mad / committing suicide due to the current crisis ?!)
4) Give hope - and aid - to people without a job, without a house, and /or struggling in everyday life.
5) Plan the future; analyze the crisis; have economists work with psychologists and software engineers to simulate thousands of possible scenarios. Discuss those, devise others etc. Think, think and think again to provide information for every decision.
This a good medium/long term solution but it will do little to solve the current financial crisis. None of those plans will encourage borrowing; which is the big problem surrounding this crisis. Many of the bail outs are designed to encourage borrowing (either removing bad debt) or giving them more cash to borrow from each other. Off course, once the banks recover and confidence is restored you would then start applying the measures you suggest.

The reason this crisis came about was through irresponsible lending and if you don't tackle that, I'm sure this problem will come again. Many people did warn about the excessive lending a few years ago but since most countries where experiencing a boom, no one listened... I'm sure this will happen again if no regulations are introduce.

I can't vouch for every country but I know Britain has done something similar. Many of the top executives in British banks were sacked and replaced by new managers, who people think are more responsible (let's see about that). Gordon Brown also banned any of the executives from receiving a Christmas bonus this year and made restrictions to Christmas bonuses in the coming years.

QUOTE (monsta666 @ Nov 21 2008, 06:04 PM)The bigger problem was to come from the councils. Many councils had invested millions in these Icelandic banks and the government did not guarantee they would get their money back. To be honest though, I think the main blame should be levelled at the councils rather than the bank. The councils shouldn't have been putting taxpayers money into offshore accounts and IF they had to do it, they should have picked very secure banks. Saying that, with the current financial crisis you can never be certain how "secure" a bank is.

Hey - you put that into banks it's going to be invested of course. And there is no such thing as a secure investment - except for drugs and prostitution, despite all the efforts by police and customs - .
What's up with that childish attitude "I want to play, but if I lose we call it void, alright ?"

But yes - I admit that the consistency in the British government's decisions now becomes clear : if they decide to guarantee Joe Bloggs's bank account (which is totaly correct, imo) then they sould take steps to secure some of the taxes money deposited in those same banks - so that the have some supply when Joe comes to withdraw some of its guaranteed cash.
But in doing so, Mr Brown took the money out of the Icelandic banks. And the means he used shows he was desperate to recover that money. Now Ola Nordmann, when he decides to withdraw some cash from his account - and the bank tells him to get lost, he can't declare the bank a terrorist organization, can he ?


It's pure political arm wrestling. And Iceland got its arm dislocated, I guess.


QUOTE (monsta666 @ Nov 21 2008, 06:04 PM)None of those plans will encourage borrowing; which is the big problem surrounding this crisis. Many of the bail outs are designed to encourage borrowing (either removing bad debt) or giving them more cash to borrow from each other. Off course, once the banks recover and confidence is restored you would then start applying the measures you suggest.

Oh I thought that banks refusing to lend money to businesses was the problem. Not businesses refusing to borrow money from the banks ! But that can't be helped since
1) the banks have no such money - just bad credits waiting to be written off
2) you say it yourself

QUOTE (monsta666 @ Nov 21 2008, 06:04 PM)The reason this crisis came about was through irresponsible lending and if you don't tackle that, I'm sure this problem will come again. Many people did warn about the excessive lending a few years ago but since most countries where experiencing a boom, no one listened... I'm sure this will happen again if no regulations are introduced.

I don't know what you call 'regulations'
But, I believe the government should give guidelines to the investors and bankers in order to restore their confidence. These guidelines mean imposed consumer prices on some goods/resources, subsidies on some activities, and heavy taxes on others.

Problem with subsidies and taxes is that they might not unlock capitals they're aimed to, but instead drive them overseas to tax havens.
And problem with imposed prices is that they always end up breaking the arm of some economic partner. (For instance, if the government decides the price of oil is too low at 60$ a barrel - it hinders the investments in renewable energy - and decides to sell it 100$ the barrel at the pump and keep the difference for subsidies, then the oil producing countries will likely come up with a way of bypassing that tariff - they may even encourage bootlegging).

But here comes into play political, diplomatic and military pressure - because a state sometimes has to show that it's not just a bunch of meek pen-pushers.

Now, of course, in wonderland, these decisions would be left to the investors and bankers themselves in the name of the free market principles (and Hail Glory Hallelujah).

But given the situation ...


QUOTE (monsta666 @ Nov 21 2008, 06:04 PM) Gordon Brown also banned any of the executives from receiving a Christmas bonus this year and made restrictions to Christmas bonuses in the coming years.
Oh, poor things, no Santa for them


QUOTE (franzoir @ Nov 21 2008, 10:12 AM)Lehman was let go for political reasons however the affects of that was like unleashing pandora's box.

In all economic downturns, there is always one event that starts off the domino affect and in this case it was Lehmans' Bros. However everything that has surface since was already harbouring beneath the surface and was waiting like a ticking time bomb. For instance General Motors is now also facing problems because no one will buy their gas guzzlers. That problem was always there but in an affluent time of economic growth it could be overshadowed but in an ecocomic downturn people would rather buy fuel efficient cars.

So anyway you must also remembers Republicans dont believe in big governments and they used Lehman as a sacrifice to warn other industries which turn out to be a huge mistake. Ironically though, Republican govt has gotten so big (TARP) i dont see how Democrat Obama could make his bigger.

So this is TARP.

If you're wondering about big government look at China. It has staked twice that amount, and it's mainly for infrastructure and housing - not for bankers to hoard.