SubscribeAssets Share of house owned by me £70,000 Deposits in bank £10,000 Car £10,000 Stuff I own £15,000 Money people owe me £5,000 Pension £40,000 Total £150,000 Liabilities Share of house owned by bank £130,000 Credit card debt £2,000 Car loan £2,000 Unpaid debt on stuff I own £6,000 Total £140,000 Equity £10,000 Total Liabilities and Equity £150,000The entries for the house are nonsense: if I own a £200,000 house, and owe £130,000 on it, then I've got £70,000 in equity on the house - not, as this implies, a £60,000 net liability. He does seem to get it right for "stuff I own" vs "Unpaid debt on stuff I own," but this doesn't make me want to read anything else he has to say about balance sheets, or finance in general for that matter.
It isn't hard to know how to slay the [insolvent "zombie banks"]. The only way to do it is to hold a gun to the head of the various bankers – those various guys sitting with their heads in their hands staring at balance sheets with holes in them – and force them to admit what their assets are worth, right now. Many of the banks will turn out to be insolvent. In that case the bank is nationalised, or at the very least goes into administration and receivership. […]I think he nails it there. Also, when he discusses the reasons why nationalization isn't being seriously considered, I think he's onto something again:
Nobody in power wants to do that. Nobody with power in the banking system, and nobody with power in government. Both the British and the American plans to help the banks are very, very, very expensive variations on the theme of sticking their fingers in their ears and loudly singing ‘La la la, I'm not listening.’
Because if the banks were taken over, then every decision they take would come at a potential political cost to the government. Your state-owned mortgage lender is threatening to repossess your house, after you fell behind on the payments? Blame the government. Your firm is laying off half its workforce because the bank won’t roll over its loan? Blame the government. This, of course, is in addition to all the other economic things for which people are already blaming the government. People are grumbling now, but to nothing like the extent they would if the banks were directly owned by the state. Politicians simply aren’t willing to take on the responsibility for the banks’ actions.That right there is why you'll never see nationalization. Everything else is window dressing, at least here in the U.S.; all the talk of "socialism" versus the market economy and capitalism is meaningless. We have government monopolies in other areas, have had them historically, and it has not killed capitalism; the reason the government won't take over the banks is because the politicians don't have the stomach for it.
The trigger would be a general view in the markets that the government’s tax receipts weren’t sufficient to meet its debt payments. That would cause a ‘buyer’s strike’ in the bond market: nobody would want to buy UK government bonds, so the government could no longer keep going back to the markets for cash to pay its liabilities. That would leave the government facing an immediate need for cash with no means of raising it – and it’s that which would send us prostrate to the IMF.Why would Britain, in that instance, go to the IMF? Wouldn't they just do as the U.S. is doing right now, and monetize their debt? Issue new pounds sterling and immediately turn around and use them to buy government bonds, essentially short-cutting the public issuance process. It would drive up inflation like crazy, and personally I think it's probably worse in the long run, but it seems more politically feasible. Inflation goes up, everyone suffers, but nobody in power has to actually admit failure or go, hat in hand, to the IMF.
"... Because nobody is spending money, even relatively blameless countries such as Germany, with low levels of debt and workforces who actually make things, are having a difficult time. Germany’s economy is predicted to contract by 5.4 per cent this year. A banker explained it like this: ‘When your country’s economy depends on people buying a car every three years, and they decide that they’ll only buy a car every five years, you’re fucked. Off a cliff.’ So the German economy is fucked off a cliff. But it will recover, when people start buying cars again, and when it does, at least their underlying levels of debt are manageable. ..."No kidding. In many parts of Germany, the bill for this international financial clusterf*sk is already coming due on school kids. Why should British and American school kids expect an easier future?
Ibid
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posted by Elmore at 1:29 PM on May 26