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What is the Bilderburg group?

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dr.bob
875746.  Fri Jan 06, 2012 5:38 am Reply with quote

Neotenic wrote:
With the nationalisation of this mortgage book, all the profits that would otherwise have gone to the big players on the wholesale markets - the much beloved Goldman Sachs and people like that, is going into our pockets instead. I would have thought that more money for government, and less money for bankers was a good thing, on balance.


Is this a persuasive argument in favour of nationalising the banks?

 
Neotenic
875747.  Fri Jan 06, 2012 5:40 am Reply with quote

No.

 
dr.bob
875752.  Fri Jan 06, 2012 5:52 am Reply with quote

Why not?

 
joeontheland
875758.  Fri Jan 06, 2012 6:28 am Reply with quote

Neo, would you class Max Keiser as a conspiracy theorist?

Also what are your reasons for believing that banks should be a private business.

Be that the function of money is to allow people to easily trade services, why would you need to also create an industry which makes money from money basically. It seems rather backwards to me.

 
joeontheland
875761.  Fri Jan 06, 2012 6:34 am Reply with quote

Neotenic wrote:
Quote:
So why could we all have not done the same as Iceland and written the debts off?


Largely, because Iceland haven't written the debts off, just refused to pay them. For now. Debts can only ever be written of by the creditor, not the debtor.

And defaulting, or refusing to pay, some of their debts is not consequence-free. There's the matter of credit rating, which was downgraded as a direct result of Icesave. This makes all government borrowing more expensive, not just that linked to the financial crisis. If it gets downgraded too far, then investors may simply just refuse to loan them any money at all, as the risk of losing it is too great. Iceland now sits nine points lower on Moody's 21 point scale than us.

And being unable to secure any form of foreign investment into a tiny economy with a tiny workforce and few natural resources is going to make any recovery desperately slow and painful.


Do you know how much of the national debt is interest?

 
Neotenic
875766.  Fri Jan 06, 2012 6:49 am Reply with quote

Quote:
Why not?


The reasons, unsurprisingly, are numerous.

An important one would be the inherhent conflicts in legislation, regulation and operation being dealt with under, effectively, the same roof.

I think the temptation, were all banking under government purview, to use the mechanism as a straight-forward method of the implementation of policy would be too great to be ignored for long.

Indeed, one of the many contributory factors behind the housing boom and eventual bust was the explicit policy, by governments from both sides of the aisle on both sides of the pond, to encourage home ownership. I can't help but think that if those governments had their hands directly on the tap (or faucet) of mortgage finance, the resulting problems would only have been greater than they are now.

Additionally, bringing services under public control instantly politicises them - as we see all the time in the battles in Westminster and across the country about the operational issues within health and education, which are a good chunk of the reason why both can be so spectacularly inefficient at times.

Don't get me wrong, I'm not about to advocate dismantling the NHS or privatising all of schooling, but I do think that these examples are enough reason to limit our exposure to these types of risks as much as possible.

A further aspect to this is that banks need to be able to say 'no' - again, something politicians have great difficulty doing if saying no is not what the public at large wants to hear. And, as we have seen, 'no, you can't have cheap loans any more' is desperately unpopular. And, I think repossession, however unpleasant it is, is a necessary part of the process but one that, again, would cause no end of political trauma if the government were seen to be taking people's houses away from them.

It would also politicise the wider operational and lending decisions of the banks - as we have already seen with people wanting the government to use RBS as a tool for the implementation of policy, like this.

And, to some extent, mortgage lending was effectively a nationalised affair in the States, with Fannie Mae and Freddie Mac - and I think we all know how well that worked out. The 'moral hazard' argument, that was deployed as a rationale not to bail banks out, would most certainly apply in spades.

 
Neotenic
875767.  Fri Jan 06, 2012 6:50 am Reply with quote

Quote:
Neo, would you class Max Keiser as a conspiracy theorist?


I can't honestly say that I had encountered him before - but a quick scoot around would suggest to me that he is unlikely to be much more than yet another member of the pantheon of inconsequential shouters.

Quote:
Do you know how much of the national debt is interest?


Yes - none.

The interest is obviously paid as part of the process of paying down the debts, but it is not included in the actual debt itself - just as with a mortgage, you would say that you owe 100,000 and not the combined value of the 100,000 capital and the aggregated interest you would pay over the term of the loan.

The interest paid on the debt is part of the ongoing expenditure of the government, and as such may form part of the deficit, but not the debt itself.

Quote:
Be that the function of money is to allow people to easily trade services, why would you need to also create an industry which makes money from money basically. It seems rather backwards to me.


The entire economy, at it's most basic level, makes money from money. That's how it works. In the main, in order to make any money at all, you need at least some money to start with to spend on the things that you will need to make the profits when you sell the goods and/or services.


Last edited by Neotenic on Fri Jan 06, 2012 6:58 am; edited 1 time in total

 
PDR
875770.  Fri Jan 06, 2012 6:57 am Reply with quote

joeontheland wrote:
Be that the function of money is to allow people to easily trade services,


That's *one* function of money, cartainly - but it's not the SOLE function of money. Another important one (arguably a more important one) it to provide a non-perishable means for storing spare accrued or earned value. This allows people to operate in areas that don't provide a steady stream of "earned value" (eg food production).

PDR

 
dr.bob
875804.  Fri Jan 06, 2012 8:51 am Reply with quote

Neotenic wrote:
The reasons, unsurprisingly, are numerous.


Any idea sounds bad if you simply focus on what could happen. There are lots of bad things about the current system that have happened, but people stick with it because the benefits outweigh the downsides. Whilst the things you mention could happen, they're not necessarily a reason not to do it if you look at the big picture.

Neotenic wrote:
Indeed, one of the many contributory factors behind the housing boom and eventual bust was the explicit policy, by governments from both sides of the aisle on both sides of the pond, to encourage home ownership. I can't help but think that if those governments had their hands directly on the tap (or faucet) of mortgage finance, the resulting problems would only have been greater than they are now.


As you know, my knowledge of economics is slim, but if that happened, would it not increase inflation massively?

Currently the Bank of England is legally required to try to keep inflation below 2%, and it seems to have done a pretty good job at that since 1998. Given that, it seems to me entirely possible to have similar economic rules about how the Bank would be allowed to manipulate mortgage finance.

You've gone on record as saying that governments' chasing of indefinite growth is neither useful nor practical, and that you'd prefer to see an economy striving for a year-on-year modest, sustainable level of growth. So why not have a nationalised bank that's required, by law, to manage the economy to bring about 2% of growth (measured by some indicator designed to avoid simple bubbles like the housing market), much like the BoE currently controls inflation? Seems pretty feasible to me.

Neotenic wrote:
It would also politicise the wider operational and lending decisions of the banks - as we have already seen with people wanting the government to use RBS as a tool for the implementation of policy, like this.


You're right, we have seen people calling for the government to force the banks to operate differently, and we have also seen a complete lack of any such moves by the government. I think the example of RBS rather argues against this worst-of-all-possible-worlds scenario that you're trying to construct.

 
Neotenic
875814.  Fri Jan 06, 2012 9:15 am Reply with quote

Quote:
Any idea sounds bad if you simply focus on what could happen


Er, that's what risk assessment is.

Quote:
why not have a nationalised bank that's required, by law, to manage the economy to bring about 2% of growth


This feels an awful lot like that discussion we had a while back about a centralised 'department for innovation'.

I don't think it would be possible to construct a legal mandate for a certain level of growth - indeed, what would be the consequences of over- or under-shooting that target? What about effects from overseas that are wholly outside the control of any domestic government?

To me, it would feel a lot like Gordon's sainted 'Golden Rules', which were immediately discarded and never mentioned again once economic conditions meant that it would not be possible to meet them without making dfficult or unpopular decisions.

Then there are issues of competition, plurality, freedom of choice and diversification of risk.

The root causes that lead to the government intervention in RBS, HBOS/LBG and Northern Rock were all subtly different - imagine if all three had hit the same institution?

It genuinely would be too big to fail, and if confidence in UK Bank (or whatever you want to call it) evaporated in the same way that it did with HBOS in particular, or with Lehmans in the States, we would all be monumentally fucked - and the measures required to sort it out would likely be in the same order of magnitude as those voted down by the Icelandic people, scaled up to the size of our economy.

Yes, I don't doubt that in good times, there may well be net benefits to such a scheme - but when the economy sours, as it inevitably will do at various points in the future, that kind of arrangement would be more liable to go really, really bad, really, really quickly. And I think we'd all like to avoid that.

 
dr.bob
875838.  Fri Jan 06, 2012 10:55 am Reply with quote

Neotenic wrote:
I don't think it would be possible to construct a legal mandate for a certain level of growth


Yet it clearly is possible to construct a legal mandate for a certain level of inflation.

Are the two so very different?

 
exnihilo
875843.  Fri Jan 06, 2012 11:02 am Reply with quote

There are relatively simple mechanisms for manipulating inflation though. To create growth of that kind would require a planned economy which hasn't always gone terribly well.

 
Neotenic
875848.  Fri Jan 06, 2012 11:10 am Reply with quote

exactament, comrade exnihilo.

Incidentally, the government may well have set the BoE a target of keeping inflation below 2%, but I am less convinced that the figure is enshrined in law anywhere.


Last edited by Neotenic on Fri Jan 06, 2012 11:13 am; edited 1 time in total

 
dr.bob
875849.  Fri Jan 06, 2012 11:11 am Reply with quote

Fair enough.

I agree that planned a economy is something to be avoided. However I'm still not convinced that nationalising banks would necessarily lead to the financial armageddon that Neo seems to think is inevitable. Methinks he might be allowing his own personal dislike for nationalised industry to cloud his view ever so slightly.

Also, where does the Bank of China fit in to this discussion? As I understand it, it's partially owned by shareholders but majority owned by the state.

 
Willie
875851.  Fri Jan 06, 2012 11:14 am Reply with quote

Quote:
With the nationalisation of this mortgage book, all the profits that would otherwise have gone to the big players on the wholesale markets - the much beloved Goldman Sachs and people like that, is going into our pockets instead. I would have thought that more money for government, and less money for bankers was a good thing, on balance.


Until they pay off the entire $26 billion that they borrowed and we stop having to guarantee other debts of around the same amount we are not receiving any profit at all.

If they pay off the loans at the rate suggested by your post it will 26 years before they are paid off, lord knows how long the guarantees will have to be in place.

That is not exactly helpful in getting the economy back on track.

Yes Northern Rock alone did not cause the recession, and yes the in many ways were just a symptom of the cause. The cause being a complete lack of regulation in the world wide financial markets after successive governments all over the world bowed to pressure from bankers.

 

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