"It's not clear we have that much time."
July 10, 2013 10:23 AM   Subscribe

As Andrew Haldane, director of stability at the Bank of England, put it in a historical overview a few years ago, ‘there is one key difference between the situation today and that in the Middle Ages. Then, the biggest risk to the banks was from the sovereign. Today, perhaps the biggest risk to the sovereign comes from the banks. Causality has reversed.’ Yes, it has: and the sovereign at risk is us. The reason for that is that in the UK bank assets are 492 per cent of GDP. In plain English, our banks are five times bigger than our entire economy. (When the Icelandic and Cypriot banking systems collapsed the respective figures were 880 and 700 per cent.) We know from the events of 2008 and subsequently that the financial sector, indeed the whole world economy, is in an inherently unstable condition. Put the size together with the instability, and we are facing a danger that is no less real for not being on the front page this exact second. This has to be fixed, and it has to be fixed soon, and nothing about fixing it is easy.
- "Let's Consider Kate," John Lanchester, London Review of Books (via)
posted by Rustic Etruscan (29 comments total) 12 users marked this as a favorite

 
Yes, the euro banks are a mess. Yes, they need to delever. But I think its too much to say the banks have "failed" the people by not providing loans to small business etc. There is plenty of credit available, the problem is that there is no demand. It opens a whole pandoras box of policy and politics to discuss why there is soft investment demand from business (lack of long term tax policy, lack of confidence, global competitiveness etc) but its really hard to say that is the banks doing.

Also, if you think the British banks are a mess, check out the big German & French banks. Complete horrorshow. DB is levered approximately 39-to-1.
posted by H. Roark at 10:39 AM on July 10, 2013


Everything about fixing it is easy, the problem being that the .001% of the population who will suffer from fixing it control 90% of the apparati of power.
posted by cell divide at 10:54 AM on July 10, 2013 [12 favorites]


From the link:
If they’d just given the money directly to the public, perhaps in the form of time-limited, UK-only spending vouchers, it would have amounted to just under £6,000 for everyone, man, woman or child, in the country. Can anyone doubt that the stimulus effect of that would have been much bigger?
But you can't trust little people with all that money, can you? Giving banks money is the only way out of our mess, right?
posted by Mental Wimp at 11:02 AM on July 10, 2013 [4 favorites]


The much-maligned-in-these-parts Matt Yglesias has made similar points about giving money to people being more effective than giving money to banks, calling for Bernanke to drop pallets of c bills from helicopters. (It's Slate, there has to be some ridiculous part.)
posted by PMdixon at 11:07 AM on July 10, 2013


the helicopter part isn't Slate, in '02 Bernanke actually suggested tongue-in-cheek that dropping money out of choppers was a potential solution to Japanese deflation.
posted by JPD at 11:14 AM on July 10, 2013 [2 favorites]


the helicopter part isn't Slate, in '02 Bernanke actually suggested tongue-in-cheek that dropping money out of choppers was a potential solution to Japanese deflation.

Indeed, economist blogger Duncan Black (Atrios@eschaton) has been calling him "Helicopter Ben" since then.

The trouble with just giving people money is that they'll go out and buy things with it, effectively wasting it on foolish nonsense like food, and housing.
posted by Pogo_Fuzzybutt at 11:31 AM on July 10, 2013 [2 favorites]


from the article: "It’s clear that the commission was amazed by the lack of personal responsibility inside the banks"

All other solutions aside - including the author's solution to populate bank leadership with persons who want to help rather than rape economies - this is the main problem. The entire worldwide banking system is largely populated by so-called "leaders" that are sociopaths. You don't change sociopath behavior with slaps on the wrist; rather, you remove the sociopath and impose powerful penalties for misbehavior. Until this is done, nothing will change. btw, the same can be said for the political sociopaths who are bought off by bankers. They need to go. That's the hard part.
posted by Vibrissae at 11:33 AM on July 10, 2013 [2 favorites]


But you can't trust little people with all that money, can you? Giving banks money is the only way out of our mess, right?

Much of that money would go straight to the banks to pay debt, with the added bonus of lifting much of the population from their servitude to the banks.

The inflation arising from a helicopter drop would be beautiful. I am so indebted that any time I hear of a threat of future inflation (or dare I hope, hyperinflation) I get an endorphin rush.
posted by banal evil at 11:36 AM on July 10, 2013 [7 favorites]


In plain English, our banks are five times bigger than our entire economy.

In plain English, the banks are five times bigger than the output of the entire economy in a year. A year is an arbitrary amount of time.
posted by Pruitt-Igoe at 12:19 PM on July 10, 2013 [2 favorites]


The inflation arising from a helicopter drop would be beautiful. I am so indebted that any time I hear of a threat of future inflation (or dare I hope, hyperinflation) I get an endorphin rush.

I recall 17% inflation during the Carter Administration. No rush, only pain.
posted by three blind mice at 12:27 PM on July 10, 2013 [2 favorites]


> There is plenty of credit available, the problem is that there is no demand.

Why do so many economists throw up their hands over the "liquidity trap" and say "When you're at zero percent interest and they still won't borrow, there's nothing else you can do. You can't get any lower than zero."?

Of course you can go lower than zero percent. You want me to come over to your place and haul away a wheelbarrow full of money, Mr. Central Banker? Pay me to do it and here I come.
posted by jfuller at 12:35 PM on July 10, 2013


This guy is a novelist. I'll stick with Krugman, thanks. Everyone wants to be an expert in shit they know nothing about these days.
posted by Ironmouth at 12:44 PM on July 10, 2013


Nah Ironmouth - I disagree with his framing of his central premise (for reasons I really don't want to go into) and I think the "we need 15% A/TCE" crowd is misguided a bit but Lanchester usually knows wtf he's talking about when it comes to Finance stuff.

That said so few people understand why looking at IFRS bank assets is bit of a waste of time that almost any article that talks about that is likely to be misguided.
posted by JPD at 12:53 PM on July 10, 2013


Also I think Lanchester misses the point that most banks that blew up, blew up for liquidity issues, not solvency issues. I can have 15% A/TCE and if the rest of the right side of my balance sheet is overnight money I can still go away pretty easily.

Captial ratios are not a panacea
posted by JPD at 12:57 PM on July 10, 2013


"Everyone wants to be an expert in shit they know nothing about these days".

Metafilter is rammed full of people talking shit about things they know nothing about. After any news events the 'instant experts' come out of the woodwork and deliver lectures on anything from the Northern Alliance to Stuxnet. I've seen it.
posted by fingerbang at 1:00 PM on July 10, 2013 [1 favorite]


Metafilter is rammed full of people talking shit about things they know nothing about.

Well yes, but then we're just shooting the breeze here; not laying out prescriptions for What The Government Should Do in nationally-read organs for public intellectuals. The standards are, or should be, rather different.
posted by yoink at 1:06 PM on July 10, 2013 [2 favorites]


Pogo_Fuzzybutt: "The trouble with just giving people money is that they'll go out and buy things with it, effectively wasting it on foolish nonsense like food, and housing."

Well, presumably they're already balancing the books on food and housing. The hope is that they'll do something else with it, and the cynical assumption is they'll just put it into savings instead.
posted by pwnguin at 1:17 PM on July 10, 2013 [1 favorite]


I recall 17% inflation during the Carter Administration. No rush, only pain.

So, here's where I am coming from on this. I have no savings, no property, and no rents to collect. I have been out of college for 9 years. Roughly a third of my income goes toward paying debt (student loans and credit cards from a period when I was unemployed a few years ago). If we were in a price wage spiral (and assuming that I am employed with a job which gives me a wage with similar purchasing power), that percentage of my income paid to the banks would decrease. The most I would stand to lose would be in increased prices over the short term.
posted by banal evil at 1:18 PM on July 10, 2013 [1 favorite]


I recall 17% inflation during the Carter Administration.

I recall banks charging 17% on credit cards back then. Today they charge up to 27%.

And anyone fooled by the statistics on inflation should remember that the Core Inflation Index does not include Food or Energy, or Housing Prices ('replaced' by Housing Rental in 1983). They're about as useful on a 'real life' basis as the Employment Statistics (where they've been regularly removing people from the 'Employment Pool' for a long time).
posted by oneswellfoop at 1:27 PM on July 10, 2013 [1 favorite]


And anyone fooled by the statistics on inflation should remember that the Core Inflation Index does not include Food or Energy, or Housing Prices ('replaced' by Housing Rental in 1983). They're about as useful on a 'real life' basis as the Employment Statistics (where they've been regularly removing people from the 'Employment Pool' for a long time).

These are both silly claims. Are you really suggesting that adding housing prices back into the CPI would raise the CPI? We've just been through a massive, historical drop in housing prices, after all. Stripping food and energy out of the CPI makes perfectly good sense because both fluctuate pretty dramatically and throw a lot of noise into the numbers, but it is simply false to suggest that this is done in order to generate a falsely low CPI and false to suggest that factoring them back in would have consistently driven CPI higher over any reasonably long period.

And the various methods used for calculating unemployment have remained essentially unchanged now for a very long time. Yes, there was some revision around the edges in 1994 but the figures have been extremely comparable for decades. There is and has been no systematic effort to "redefine" people out of the pool. The BLS reports all the numbers, but it makes sense that the press focuses on the U3 rate as the most stably "comparable" rate from era to era. It doesn't mean that the other figures aren't made available and aren't reported on, but we need to know that we're comparing apples to apples. It's ridiculous to compare the U6 rate of today with the U3 rate of 2001 which is what people seem to want to do when they protest that the U6 rate is the "real" unemployment rate.
posted by yoink at 1:42 PM on July 10, 2013 [1 favorite]


The methodology for owners-equivalent rent actually is more reflective of the true change in costs.
posted by JPD at 1:44 PM on July 10, 2013


JPD: The methodology for owners-equivalent rent actually is more reflective of the true change in costs.
Can you define that? I've never "owners-equivalent rent" before.
posted by IAmBroom at 1:46 PM on July 10, 2013


Also this: "I recall banks charging 17% on credit cards back then. Today they charge up to 27%" doesn't really have much to do with reality.
posted by yoink at 1:47 PM on July 10, 2013


The bls has a nice piece on how they calculate OER. It should be easily googleable
posted by JPD at 2:31 PM on July 10, 2013


Metafilter is rammed full of people talking shit about things they know nothing about.

Well, it's like, every time the US invades somewhere, I get to learn about a new culture. After 2007, I get to learn about economics and finance... topics I previously studiously avoided. And then on metafilter I try out what I think I learned, hoping to get shot down in some erudite manner.

And anyone fooled by the statistics on inflation should remember that the Core Inflation Index does not include Food or Energy, or Housing Prices ('replaced' by Housing Rental in 1983). They're about as useful on a 'real life' basis as the Employment Statistics (where they've been regularly removing people from the 'Employment Pool' for a long time).

I think it sort of a part of "Why do I get to hear what the Dow Jones index is doing every day on the news?" CPI and U* are numbers which mean something to someone else... I assume investors, or people at home pretending to be investors. I think when economists/investors talk about inflation they mean: is the economy in a wage/price spiral (or something equivalent.) But now we have hard-money bozos demagoguing the issue by conflating inflation with purchasing power. With wages frozen or declining, very low inflation means a reduction in purchasing power. (without getting into the current bubble in the rental markets of various locations.) Similarly, the "U" numbers seem to be talismans to the market about whether interest rates are going to rise, but what people feel is the ratio of employed people to the total employable people... which has been largely flat since 2009 and fell off a cliff in 2007/8.
posted by ennui.bz at 2:49 PM on July 10, 2013 [1 favorite]


I recently watched an episode of Alfred Hitchcock Presents where the protagonist was complaining that their money in the bank was only earning "a measly 3% [annual interest]". I long for 3% interest on a standard savings account. I yearn for it. My bank offered a deal where, by going through some special registration, account holders could earn 2% on funds deposited in the next six (?) months or somwthing shitty like that.

That's all I know about finance.
posted by windykites at 3:40 PM on July 10, 2013


The article undoes itself in the first paragraph. Iceland let their banks go.

Iceland is OK.

Reading about Iceland's Financial Crisis is worth doing.

It's also worth noting that balancing budgets, i.e. 'austerity', was part of Iceland's response.
posted by sien at 4:51 PM on July 10, 2013 [1 favorite]


You want to strip out food and energy prices because they're so volatile? Fine, but you have to factor them in somewhere because they god damn affect every single person in the world.

Why should we buy the description of the prices of things like gasoline, diesel, corn, beef, chicken, pork, etc. etc. as "volatile" when they've done nothing but INCREASE for the last decade or so?

Oh, but the growth of China and India are causing that, I hear people say. Fine, maybe so, but that still invalidates the "volatile" argument.

Other than tech products and plastic crap that are clearly more "wants" than "needs" please tell me what "needs" have decreased in price in such a degree as to warrant the "volatile" label.
posted by InsertNiftyNameHere at 6:45 PM on July 10, 2013 [1 favorite]


There is a difference between 'inflation,' meaning a general rise in the price level, and things actually becoming more expensive. If, say, the much-predicted Cavendish apocalypse happens, the price of bananas will skyrocket. But this has nothing to do with inflation, and everything to do with (hypothetical) bananas becoming a scarce commodity. Same with oil and food: It genuinely costs more to get a barrel of oil out of the ground.
posted by PMdixon at 9:33 PM on July 10, 2013


« Older In response to a listicle on pop-punk where "most ...  |  Coffitivity is a website that ... Newer »


This thread has been archived and is closed to new comments