back to article Four illegal ways to sort out the Euro finance crisis

Saving the euro isn't the easiest of things: solving the current problems actually would be quite easy, if expensive, except for all the laws and regulations that rule out all of the easy ways. The basic problem is well explained here. Don't worry too much about what the Taylor Rule is: just accept that if you're going to have …

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dak
Headmaster

@Mark 65 et al

Before we get too hung up about the philanthopists in the SE of England keeping the rest of us alive, let's not forget that public spending in London far outstrips anything in any other part of the UK, and that much of the earnings ascribed to London are due the location of companies' head offices, not where the money is actually made.

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@ Mark 65: Chicken and egg

"It is a case of being between a rock and a hard place for the MPC. Given the SE of the UK and London, in general, subsidise the rest of the economy of the UK and contain the largest part of the economy it makes sense to target rates for that area."

Why does SE England subsidise the rest of the UK? Because it earns more money. But could it be that the only reason they earn more money is that the economy revolves around them? If the economy in Newcastle or Manchester or Cardiff or Belfast or Glasgow or Inverness is constantly being battered by changes made to suit London and its neighbours, then other parts of the Union aren't going to be given the opportunity to pay their way.

Except that this subsidy stuff is a bit of a myth anyway. Which makes me wonder -- is SE England actually holding back the UK? Is it actually the *least* productive part, and if we controlled the economy to suit the rest of the country, might we all be richer...? (And we wouldn't all have to emigrate to London to look for a decent job.)

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All about faulty risk asssessment

I'm not sure I wholly agree with this. The US has a system that allows individual states to go broke and default within a single currency area and default without upsetting the whole. What happened here is that institutions (private and state) have been happily buying Greek bonds on the basis that the Euro area would not allow a default. Pretty well everybody who has looked at the Greek situation will realise that some form of default is inevitable, however it's how it is dressed up. The Greek national debt has simply reached unsustainable levels compared to its GDP. When the bond markets finally cottoned onto this fact and that a default is most certainly possible, then this triggered the current crisis.

If those responsible for buying Greek bonds in the first place had properly factored in the risks involved several years ago, then the Greek deficit would not have been allowed to grow to these levels, simply because the bond markets would have acted as a control as the costs of state borrowing would have increased. That (mostly) Eurozone-based institutions thought they could treat Greek bonds in much the same way as German government ones was a serious mistake and is at the heart of this mess. More generally, it was loose credit control that was at the heart of the financial crisis which we are currently in. That institutions thought they could immunise themselves against these risks using increasingly complex financial instruments (like the dreaded credit default swaps) served to produce a horrible interconnected, yet opaque finance system almost designed to produce the current crisis.

What is surely required is a much less interconnected system where the risks are more easily assessed and contained.

As for the idea that there can be several percent of the northern states' GDP to subsidise the south, then that is surely never going to be sustainable. If we look at these sort of transfers in the UK it has essentially just made some parts of the country state subsidiaries. That's simply not viable for whole countries.

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Devil

Credit Default Swaps

You say dreaded, but Greece had quite a lot on their bonds.

The PM sold 1.3Bn worth of CDSs to private investors (his falafel eating chums), taking I think a 43Mn cut, just before announcing the trouble Greece was in.

Those CDSs shot up to be worth 27Bn. [1]

I recall an FT article likening most of the CDS market to insuring someone else's house before burning it down (greek pinyata party or something? ah - [2]), but thought it important to show that they have a proper use as well.

And that George Papandreou is a cunt.

[1] http://fromthetrenchesworldreport.com/greek-prime-minister-is-accused-of-treason-%E2%80%93-major-european-and-us-banks-could-be-involved/4508

[2] http://www.ft.com/cms/s/0/e7168fc6-1740-11df-94f6-00144feab49a.html#axzz1Sq3Iv7NH

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@Steven Jones

"If those responsible for buying Greek bonds in the first place had properly factored in the risks involved several years ago, then the Greek deficit would not have been allowed to grow to these levels, simply because the bond markets would have acted as a control as the costs of state borrowing would have increased."

Those bond buyers correctly factored in that Germany effectively backstops every sovereign bond issuer in the group and, when they were all receiving dirt cheap Germanic lending rates, every sovereign issuer and the EU politicos were ecstatically happy with the success of their grand scheme whilst this was happening. When the music stopped and Greece looked like defaulting those buyers were then bailed out. Thus they were proved correct in their assumptions. It is what happens when you have rules effectively stating that an issuer cannot default or leave the grand scheme - someone ends up footing the bill for that constraint.

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@Mark65

I understand the point, but it's not quite true that some current bond holders won't suffer a loss. That is part of the new deal, albeit nothing like as bad as it could have been (and might yet be). That France is notably keener on assisting Greece than is Germany might be something to do with the former's banks being particularly exposed to Greek sovereign debt (albeit German banks are the second largest creditors).

In any case, the notion that all state-issued bonds in the Eurozone are equally sound has now been disproved, the importance of that being that it should be possible to contain risks in the future. However, we are where we are, so there's an awful lot of reckless lending to be unwound. For instance, the UK banking sector is particularly exposed to Irish sovereign debt.

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All doomed to failure

All these plans and ideas are doomed to failure as long as countries such as Greece are allowed t participate in the Eurozone and not be held accountable for their failure to enforce basic monetary sanity.

If I give my daughter a credit card and keep paying it off every month there is no incentive for her to stop spending or to develop a budget. In Greece almost every tax payer under reports their income to the point of absurdity and the government turns a blind eye. Worse it has now become an accepted way of living any attempts to make people actually pay for their public transportation and infrastructure costs are seen as attempts to oppress their rights to not have to pay for anything.

It is all just good money being poured down a Greek sewer. Ireland, Italy, Spain and Portugal have some of the same issues but at least make an effort to run their countries properly.

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Accountability

Since you want to talk about accountability why not look at the real source of the problem?

There is a fundamental problem with Greece, they were borrowing huge amount of money to finance the day to day running on the country. Practically everything in Greece is nationalised, and as such, important infrastructure became playthings to be run for the benefit of politicians, Greece’s state run enterprises are overstaffed, overpaid, and very inefficient (even by our standards). Tax evasion is endemic in Greece, for example, 324 swimming pools registered in Athens yet more than 16,000 have been counted on google maps. Doctors in upmarket Athens suburbs declaring incomes so low that they did not pay any tax on them at all. The list goes on and on.

Ireland and Spain have similar problems; they have a property bubble that has popped. Ireland’s economy is reasonably healthy; however drinky (cowen) and the brian (lenihan) have sold the family silver to bail out the banks.

So where did all this money come from? The biggest source was the German banks. German people have a greater tendency to save than anyone else in Europe, see fractional reserve banking for how that worked.

The second source was the low interest rate that Germany wanted to fund the reunification of Germany. At a time when the ECB rate should have been higher that it was to control inflation, the so-called “European” central bank was setting a rate that suited Germany. This enabled a lot of European financial institutions (mostly French and German) to borrow cheaply, and to lend on to banks in Spain and Ireland which funded a property bubble in these countries.

This problem should have been addressed years ago, unfortunately Nickolouse Shortasrekey and Angina Mirthhill did what politicians did best, they ignored the problem hoping it would go away or that somebody else would fix it and paid more attention to local politics, or as it’s more popularly known, getting re-elected.

So yes Diskcrash, lets hold the responsible people accountable, but they are not Greek, Irish or Spanish[1], they are the idiot bankers who lent all this money to Greece, Ireland and Spain in the first place. It’s banker’s greed that led to all this in the first place, and until we tackle the problems of unregulated greed driven banking, then this problem is not going to solved and will probably reoccur.

The regan/thatcher light touch free market policies have failed, just as communism has failed, Georges Clemenceau said “War is too serious a matter to entrust to military men”, the time has come to realise that “Banking is too serious a matter to entrust to bankers”. Banks need to be run for the benefit of countries and economies[2] and not just for the benefit of fat cat bankers and the chosen few.

[1] Haven’t mentioned the Italians, haven’t a clue what is happening there

[2] As in the ECB should operate for the benefit of Europe, not just France and Germany.

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er, what's failed, exactly?

"until we tackle the problems of unregulated greed driven banking, then this problem is not going to solved and will probably reoccur. The regan/thatcher light touch free market policies have failed, just as communism has failed,"

If we'd taken the light touch approach, the greedy bankers would have gone bust. Instead, we took the "massive state intervention" approach, plonking a multi-trillion dollar debt on our grandchildren in order to bail out the bastards and pretend the system was working.

For added irony, the UK PM who screwed the next two generations of working classes in order to bail out the plutocrats called himself a socialist and fancied himself as a bit of a economics whizz.

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Re:Accountability

The problem was not that of greedy banks but of complacent politicians. Banks figure that Germany was the backstop to the EU project and the politicians did nothing to dissuade them of this as the low rates that it led to for the periphery made the whole project viable. Those cheap rates turned out to be a pull-forward of future earnings as they are now finding out.

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Blame??????

I agree that a significant part of the problem is complacent politicians; however it is not the root cause of the problem. In fact complacent is not the word I would use, but the word I would use also begins with ‘C’ (no it’s not 4 letters either). German politicians wanted a low interest rate to fund german reunification at a time when a lot of countries needed a higher rate to control inflation. The ECB was being run for the benifit of Germany and to a lesser extent, France.

Back in 2004, the Wall St companies, including Goldman Sachs, then led by Henry Paulson, lobbied the U.S. Securities and Exchange Commission to remove the “net capital rule”[1] that ensured that brokerages hold sufficient reserve capital which in turn limited their leverage and risk exposure. The rule required companies to value assets at market vale and then apply a ‘haircut’ to that value to ensure the company had sufficient reserves to meet requirements should there be any sort of problem in liquidating those assets.

The US also applied pressure on the EU to not

This also enable companies to rely more on mortgage-backed securities (MBS, a claim on the cash flows from mortgage loans through securitisation and collateralised debt obligations (CDOs) are a type of asset-backed security collateralised by debt obligations such as bonds and loans.

Sadly it turned out that so of these so-called assets were sub-prime American mortgages.

Not only that but Goodman-sachs then sold mortgage backed securities in the market and then took a short position on them in the market, betting that the vale of the securities would fall. G-S made $4Billion on that.

In 2006 dubya nominated Paulson as Treasury Secretary.

So when the sh-one-dot-t hit the fan, Paulson was ideally placed to bailout G-S and scupper Lehman's

So the next time you hear a politician say that the collapse of Lehmans caused the financial crises, remember that it was actually “the Wall St bankers lead by Goodman Sachs and their CEO Paulson got the net capital rule revoked to allow them to short their own securitised mortgages in the market so that they could make money when the market crashed and Paulsons (now head of the US treasury) refusal to bailout one of Goodmans Sachs biggest rivals caused Lehmans to enter chapter 11 bankruptcy and which started the run on the banks that caused the financial crises”

If you want to get into the area of conspiracy theories you cold also look at some of the announcements by Paulson about his concern about the sub-prime market prior to the collapse. Go research it yourself!

[1] http://en.wikipedia.org/wiki/Net_capital_rule, and while you’re at it, read up on credit default swaps as well http://en.wikipedia.org/wiki/Credit_default_swaps

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FAIL

Accountability

> It’s banker’s greed that led to all this in the first place, and until we tackle the problems of unregulated greed driven banking, then this problem is not going to solved and will probably reoccur.

Because the bankers FORCED the Greeks and Spanish and Portugese governments to borrow all that money? Or the Irish to invest like mad in property? [The Irish are a different kettle of fish from the others... they just made a monumentally stupid decision by not letting their banks fail and instead guaranteeing them with taxpayer money]

> The regan/thatcher light touch free market policies have failed, just as communism has failed

Ah yes, Thatcher was famous for running up huge government deficits wasn't she? [ Reagan did actually run up a huge deficit, despite talking about a smaller state, but then he was trying to outspend the Soviets]

Such a long post... and so short on logic.

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A bit of amangled edit in the middle

"The US also applied pressure on the EU to not"

should have read

The US also applied pressure on the EU to not exanine foreign firms' reserve holdings if the SEC was doing so.... except for teh fact that the parent holding company of the big American brokerages were already beyond SEC oversight due to the Financial Services Modernization Act of 1999, which repealed the law preventing any one financial institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.

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title

Funny you should mention logic, where did I say anything about thatcher (or regan) running up a huge deficit. My point is about the light touch regulation that allowed financial corporations to reduce the level of assets backing them. Essentially, there is nothing wrong with high levels of gearing, however when you have G-S shorting those assents in the market place it's the free market gone mad.

I don't think the Spanish and Portuguese grubberments borrowed that much relatively speaking, like Ireland it was the privately owned banks that borrowed the money. The Greek grubberment are a different case in that they did borrow huge amounts of money to fund day to day spending.

Neither do I think that anybody will pay much attention to a childish argument that the banks FORCED the Greeks or anyone else to borrow all that money.

As for the Irish investing like mad in property, you only have to check out the constant stream of good news propaganda coming from the fianna fail(ure) led grubberment of the time. There was constant talk of get on the property ladder now or else you won't be able to afford it later and how strong the Irish economy was. When economists were making warnings about an Irish property bubble and unstainable growth Bertie Ahern, in July 2007, responded to his critics as follows:

<SNIP>

"Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide"

</SNIP>

That's Bertie Ahern, one time leader of fianna fail(ure), a political party where several party members were implicated and convicted of corrupt dealings particularly in the re-zoning of agricultural land for development purposes, who now charges USD40K+ on the washington speakers bureau for talks on how to create economic success.

Yes the monumentally stupid decision by the fianna fail(ure) led Irish grubberment was bailing out the Irish banks, specifically Anglo Irish Bank, but then, Anglo was primarily a development bank and it funded the developers, and the developers funded fianna fail.

That's the same Anglo Irish bank that were hiding circa €100M worth of directors loans by moving them from Anglo Irish Bank to Irish Life and Permanent to avoid them appearing on the year end financial statements. The same bank that recorded (€7Billion ???) of inter-bank deposits as ordinary deposits in order to hide a run on the bank and to boost the banks ratios, and at the same time engaged in a share price support scam by giving loans to "the golden circle " of investors to buy shares in the bank and accepting the banks own shares as collateral for the loans.

That why I blame light touch regulation for the current economic mess.

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Silver badge

Well,

Looks like Gordon Brown actually got something right for once:

http://en.wikipedia.org/wiki/Five_economic_tests

Shame they are no longer policy, but I think it would be political suicide to suggest entering the Euro in the next 5-10 years anyway.

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Flame

Communist Traitors

Gordon Brown and the rest of the Labour / Socialist / Communist card carriers should be

tried in the highest courts for acts against The United Kingdom.

The actions taken by the left have been of such that we are no longer fully able to manage

our country without the forces of our old enemies say so.

We managed to stay out of the Euro...just !

Now let us fight a battle to leave the the ECC once and for all.

No chance of a vote on this I suppose?

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Angel

(untitled)

1) Can you name any of these 'actions'?

2) Why would you want a 'vote' on anything? That's very left wing: one vote each no matter how much money you have? You old Socialist, you!

3) Above all, you forgot to say, "Simple Simon says...".

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FAIL

Can't see the wood for the trees

The REAL problem is that all governments (and "economists" and thus everyone else who listens to them) have been suckered into believing that Governments have to borrow money from someone else.

They don't. They can create it themselves. Some states, like North Dakota, do, and they don't have the problems that the rest of the US has.

So the real solution is for states to stop trying to find someone to buy their 'government debt' and to just create what they need. Google "Ellen Brown" and her writings.

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Anonymous Coward

You mean....

....like the banks do ?

They create money from nothing, and lend to those with less....the "cash in the bank" is only a few percent of that loaned....they are all, literally, insolvent. None have sufficient cash to pay their liabilities.

It's called Fractional Reserve Banking.

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Any country can "create" money.

They just have to print more notes.

Problem is, the more money in circulation, the lower the value of each currency unit. Money creation is not the same as wealth creation, and if you confuse the two then you can well end up with hyperinflation and people taking their weekly wages home in wheelbarrows because you're paying ($£€)200 on a loaf of bread.

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Well, yes

Except that that's out too in the euro. National central banks aren't allowed to create more money. Only the ECB can do that. And they're not allowed to create more money in order to pay down national debts (aka, monetising the debt).

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No

They're illiquid, not insolvent.

They can't pay everyone immediately: illiquid. They can pay everyone eventually, when everyone who has a 25 year mortgage has paid it of. So they're not insolvent, just illiquid.

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Holmes

yeah but

The advantage of a country/state creating their own money rather than borrowing from the market (which has itself created the money out of nothing) is that while there may be an inflationary effect there is no interest charge, i.e. it does not create yet more debt.

This in turn reduces the growth requirement and is generally a better way to handle things.

Except that the finance industry does not makes lots of money for nothing if countries do this, so it doesn't happen.

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And in truth...

Wealth is a finite resource. It's never CREATED--it's only FOUND.

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FAIL

Zimbabwe?

http://lee.org/blog/wp-content/uploads/2009/04/zimbabwe-100-trillion-dollar-bill-obverse.jpg

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No, they are insolvent.

The banks create the money by inventing it and lending it, but they demand interest in addition to repayment. But the total amount of money they've invented is all there is; it's quite impossible for everyone to repay their loans with interest; the money doesn't exist.

Only two eventual possibilities: banks write off and foreclose and end up owning all the real assets, or: endless asset price inflation financed by bigger new loans putting more money out than the repayment and interest on the old loans.

You'd be forgiven for thinking fractional reserve banking is simply legalized theft.

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Boffin

Insolvancy test

If they cannot pay their debts as they fall due, they are insolvent.

That's the only test that can reasonably be applied to a country, since the net present value of its assets are based on too many fudgeable assumptions (interest rates, tax rates and population growth for half a century, for example).

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Megaphone

AARRRRRGH!

The expansion of Europe was driven and lobbied hard for by the investors and banks that are now crying to mummy that they need help for the results of their woeful, money-grabbing greed.

They weren't doing this for the betterment of Europeans, they drove the expansion because they wanted to reach more punters to hook up to their scams (lending and betting). And they were right in predicting that many new member states would take the bait - sadly one or two or three had eyes far larger than their fiscal stomachs could handle and took a wee bit too much of the magical never-ending money the banks were peddling. Markets, traders, hedge-funds and bankers - CRASH AND BURN the lot of you! - together with the politicians who were/are just too DUMB.

The little people end up paying for the fookin mess again as usual, makes me sick it does.

Money certainly does make the world go round - but money like this makes it spin round too fast until folk can't hold on any more and fly off hitting a wall (collateral banking damage).

Whilst those in the middle of the merry-go-round count their big fat wads and may glance up periodically to witness the spectacle with dead inhuman eyes.

There are alternative ways to facilitate banking / lending - ways that don't make BIG profits, aren't short-sighted and can bring greater benefit to the larger majority of ordinary folk.

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WTF?

Banks to blame?

The markets didn't want Greece in the Euro. They knew what would happen. The politicians bent the rules to bundle Greece into the Eurozone.

"The little people end up paying for the fookin mess again as usual, makes me sick it does."

Yes but the little people have votes - but they kept voting for an unsustainable debt, a public sector which took the piss, and nobody paid any tax.

You blame the banks for the debt but not the socialist economics that demanded the money from the banks. Weird.

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Facepalm

Keynes is the N in the W….

"...an attempt to make sure that nothing like this ever happens again. Might work, might not: for they've still not solved the basic underlying problem. The eurozone just isn't (and is unlikely to be for many decades to come) an optimal currency area…"

In the same vein, I believe that the USA did not have a unified single currency until quite recently c1930's… around the time that Keynes became popular there… And just look where that got them!

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Boffin

correction

It was actually the mid-19th century. You're confusing it with the creation of the Federal Reserve Bank.

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Boffin

@Mickey Finn

"... USA ... c1930's… around the time that Keynes became popular there… And just look where that got them!" .

Out of the great depression to become the most active economy the world has ever seen, which played the lions share in winning WW2 (with some help from us), which bankrolled the rebuilding of Europe afterwards, and which then went on to put a man on the moon ?

Not the single currency which they had had for decades before, and which didn't prevent the 1929 crash.

Pity about how much things started going wrong when Thatcher and Reagan listened to the monetarists and Keynsian economics went out of fashion in the eighties. Pity also that much economic drivel which was tagged against his name (Keynsianism) after Keynes' death, was never supported by his writings when he was alive. Interesting also that the policies which stabilised economies to a large extent after the 2008 crash put Keynes' conceptual framework back onto the map.

http://en.wikipedia.org/wiki/New_Deal

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No no. . .

"Pity about how much things started going wrong when Thatcher and Reagan listened to the monetarists and Keynsian economics went out of fashion in the eighties."

Well I seem to recall that both Thatcher and Reagan were elected *well after* the economies of their respective countries were hobbled and decaying due to policies that had already been in place for years and years. . .

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Anonymous Coward

Ancient prophecy

Europe will never be united. The Euro WILL fail.

Daniel 2:43 - And whereas thou sawest iron mixed with miry clay, they shall mingle themselves with the seed of men: but they shall not cleave one to another, even as iron is not mixed with clay.

Hitler tried - and failed.

Napoleon tried - and failed.

Kaiser Wilhelm tried - and failed.

History tells us that all efforts to unite Europe failed.

And it will remain so even until the last day.

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AC@ 11:35

I feel that your post calls for a temperate and coherently argued series of rebuttals to your points.

But actually what I'm thinking is

"Arse"

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Coat

And what I'm thinking is...

"But actually what I'm thinking is "Arse"

You haven't addressed the AC's argument, so he wins by default.

Tell me: how do you think Europe is going to be "unified" now? The Greeks suddenly turn into dynamic low debt economies?

Pigs will fly before the PIGS economies modernise.

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Happy

AC@ 22:21

"You haven't addressed the AC's argument, so he wins by default."

Wrong. If you have to open a post with a quote from the Bible (Written in the Middle East > 2000 years ago) they (you?) are already raising a "I am a religious nut" flag.

That's not usually a sign of coherent thinking.

As for the rest I'll note the Roman empire if not all at least most of what is the eurozone for centuries.

*All* listed attempted *military* conquest, not the *willing* joining of sovereign nations for mutual benefit (well that's the theory anyhow).

I'll also note that my post polled 8/2 versus the OP 4/5. I'll guess you and the OP being the down votes. I'll leave you to think about what that says about peoples views of my post and the OP.

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title

The reason Hitler, Napoleon and the Kaiser failed is that they tried to use military force to complete the task. What they should have done is to create the ECB instead.

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Gold badge

Taylor Rule

The basic principle of the Taylor Rule is that increasing inflation can be cooled by increasing interest (and also that if interest does not stay ahead of inflation, then you are effectively loosing the money that you lend)

The linked article talks about testing the Euro zone against the Taylor Rule, but their rule suddenly has unemployment in it!? Where did that come from? Is anything is a Taylor rule if it includes interest and inflation? Can I also include global temperature to make the rule fit (or not fit) anything I want?

The problem in Greece is that the government spent (a lot) more money than it's income. People do it too and did it long before the Euro; it's not the Euro's fault. To be honest, the lenders lent them the money in order to make more money; just like when you borrow money from the bank, it is the bank's job to assess the risk that they won't get their money back. If Greece cannot pay back all of the money then the lenders loose out. The fact that Greece is in the Euro makes no difference. The other Euro states do not have to help out Greece because they are in the Euro (they might do so out of charity, but do not have to).

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EWI
IT Angle

Glibertarianism a go-go

Needs to be said

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Joke

I know!

Can't we just consolidate the debt into a single managable monthly paymet plan from Ocean Finance? Unless Carol Vordie was lying too me....

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Thumb Up

ocean finance

Isn't that exactly what they've done? Save Greece from debt by lending it even more money?

I'm off to pay my AmEx bill with my Visa card...

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Thumb Up

Their plan appears to involve inflicting some pain on large banks who will have to write stuff off.

Good.

I think bankers need to be re-connected with the consequences of the positions they support.

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Flame

Banks don't suffer pain...

...the bankers will simply connect our pensions and savings with the consequences of their positions.

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FAIL

Unicorn economics

As Spoobistle says, it's us who'll pay with lower pensions, lower interest on any savings we were stupid enough to make, and general economic retardnesses. Banks can't create the money out of nothing.

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Happy

AC@22:21

"Banks can't create the money out of nothing."

I did not know that.

So could you explain what interest is then?

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Unhappy

Spopnbistle

"...the bankers will simply connect our pensions and savings with the consequences of their positions."

And will continue to do so until regulation finds a way to punish the *decision* makers, not the institutions.

laws are aversion therapy for organizations. The tough part is to find some that discourage *both* personal and institutional behavior

A case in point is that when banks in the UK called in an accountants to assess if a company was insolvent and they should be shut down (UK banks have preferred creditor status) the accountants who did the audit *also* got the contract to shut the company down.

*Except* at the Royal Bank of Scotland, which tendered the insolvency administration.

Curiously this was the also the bank with the *lowest* number of companies going into receivership.

Good choice of customers or recognition that the firm involved was not going to make *easy* money. BTW It's SOP in insolvency to secure the insolvency fee *first* from the assets of the company you're shutting down.

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Gold badge

Re: Banks don't suffer pain

Well, not if you bail them out they don't.

However, you could let the bank fail, letting the central bank collect the repayments on outstanding debts and guarantee the savings of existing investors. That preserves the pensions and life savings of the man in the street but doesn't preserve the massive salaries of the bankers who failed.

Even within the financial sector, the majority of players *didn't* overstretch themselves. They choose the path of lower returns because they knew the risks and didn't want the pain. We've now penalised *them* by bailing out the idiots. They will learn from this. The next crash will be worse.

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Megaphone

Interest is...

Interest is the Time value of money. That is, it's what you'll pay to have it now, not later.

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Silver badge

@John Smith 19 - Interest

Interest is your cut of the profits from them risking your money in a loan to Greece with the Greek debt being backstopped by the Germans and your money being backstopped by you as a taxpayer.

Nice.

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