Treasury’s £100bn lifeline
- Thread starter James07
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Im quite dumb with financial things like this but id like to understand what they wish to do with £100billion
As long as none of it goes towards student grants, eh? lol
Well firstly it's not really £100bn, and that's just one part of the plan.
The £100bn comes from us, the taxpayers, giving a service whereby banks can pay a small fee so that when somebody defaults on a loan (be that company or person, house/car/whatever is covered under the scheme) the taxpayer will agree to absorb a certain amount of the losses,
Another part of the scheme is that banks can declare and kind of isolate the 'toxic debts' (although what determines a toxic debt or not I don't know), I'm guessing they could then get some 'insurance' on this funded by the taxpayer, or it could be used to make the Basel II requirements more favourable to extra lending,
The RBS thing is the government looking like they'll be offering to change the 'Preference shares' (that give out 12% per year 'interest') for more normal shares, this is cheaper for the bank hence why RBS might do it, LloydsTSB/HBOS don't look like they're going to to it.
So 3 schemes, not bad ones, they'll give the banks a little bit more security just as the focus seems to be coming back onto 'how well capitalised are these banks?'. But ultimately it won't stave off the recession, or bring lending back to anywhere near previous levels, but it might take a bit of the edge off.
Problem is they can keep doing things like this and other measures, but we're up a certain creek without a paddle, these measures *may* make the recession less harsh but they are also likely to extend the recession by bringing national debt up, and having banks that want to re-privatise themselves so more likely to spend any free money doing that than to lend it out...
The £100bn comes from us, the taxpayers, giving a service whereby banks can pay a small fee so that when somebody defaults on a loan (be that company or person, house/car/whatever is covered under the scheme) the taxpayer will agree to absorb a certain amount of the losses,
Another part of the scheme is that banks can declare and kind of isolate the 'toxic debts' (although what determines a toxic debt or not I don't know), I'm guessing they could then get some 'insurance' on this funded by the taxpayer, or it could be used to make the Basel II requirements more favourable to extra lending,
The RBS thing is the government looking like they'll be offering to change the 'Preference shares' (that give out 12% per year 'interest') for more normal shares, this is cheaper for the bank hence why RBS might do it, LloydsTSB/HBOS don't look like they're going to to it.
So 3 schemes, not bad ones, they'll give the banks a little bit more security just as the focus seems to be coming back onto 'how well capitalised are these banks?'. But ultimately it won't stave off the recession, or bring lending back to anywhere near previous levels, but it might take a bit of the edge off.
Problem is they can keep doing things like this and other measures, but we're up a certain creek without a paddle, these measures *may* make the recession less harsh but they are also likely to extend the recession by bringing national debt up, and having banks that want to re-privatise themselves so more likely to spend any free money doing that than to lend it out...
The buying up of more toxic assets that were bought as been good assets, but have in fact turned out to be really poor, because there either worth a fraction of what they were or are yeilding extreamly poor returns.
These assets then cripple the banks cashflow and drastically reduce there share price as the banks worth declines reducing there ability to lend.
Is that about right ?
Why do RBS need money anyway? i thought they were selling there 2 billion stake in the bank of china?
and yea as above said it will increase the governments preferential share in the company for which they pay a 12% coupon, some have been arguing lately that 12% is too much and should be reduced if the government really wants them to lend, however barclays were upset at this idea as they sourced oversea funding due to the high coupon rate.
These assets then cripple the banks cashflow and drastically reduce there share price as the banks worth declines reducing there ability to lend.
Is that about right ?
Why do RBS need money anyway? i thought they were selling there 2 billion stake in the bank of china?
and yea as above said it will increase the governments preferential share in the company for which they pay a 12% coupon, some have been arguing lately that 12% is too much and should be reduced if the government really wants them to lend, however barclays were upset at this idea as they sourced oversea funding due to the high coupon rate.
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Im quite dumb with financial things like this but id like to understand what they wish to do with £100billion
It's in the article cheif, its not quite handing RBS £100bn, but guaranteeing that amount of loans, mortgages etc so there would be next to no risk in lending and lowering their interest rates for e.g. on mortgages, thus increasing lending.
In basic terms, I think it goes like this, all of the 'recievables' that RBS would get from mortgages and loans etc, have nosedived in the sense of 'how likely they are to get the payments', this passes a point where it was an asset, and then turns into a liability and bad debts. If certain criteria are met it is written off as a bad debt by the company and destroys their financial statements.
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"We're all socialists now, comrade" - Telegraph
RBS need money for two reasons (firstly related to why £2bn from the sale of the bank of china stake is nothing)
1) They have an 'exposure' around £2,000bn I believe (or £2 Trillion), so an extra £2bn isn't that much, obviously not all of that 2 Trillion will be bad debts, but some of it is (and this is one of the worst bits of this, we're ploughing taxpayer money into banks and they can't even be bothered to go through their accounts and state explicitly how much of their exposure is likely to turn into a loss)
2) They, and other banks, relied on the securitisation markets for funding, they would loan out money, package that up and sell it on to anybody and everybody, the loan then wouldn't be on their books and they can lend out the money again, and again, and again. This failed spectacularly thanks partially due to the american house price crash, can't blame it all on them though seeing as our housing market suffered it's largest ever single year deflation. Those funding markets were worth apparantly £750bn per year iirc, so that's £750bn per year that the uk banking industry has lost, and won't ever get back (well hopefully...)
1) They have an 'exposure' around £2,000bn I believe (or £2 Trillion), so an extra £2bn isn't that much, obviously not all of that 2 Trillion will be bad debts, but some of it is (and this is one of the worst bits of this, we're ploughing taxpayer money into banks and they can't even be bothered to go through their accounts and state explicitly how much of their exposure is likely to turn into a loss)
2) They, and other banks, relied on the securitisation markets for funding, they would loan out money, package that up and sell it on to anybody and everybody, the loan then wouldn't be on their books and they can lend out the money again, and again, and again. This failed spectacularly thanks partially due to the american house price crash, can't blame it all on them though seeing as our housing market suffered it's largest ever single year deflation. Those funding markets were worth apparantly £750bn per year iirc, so that's £750bn per year that the uk banking industry has lost, and won't ever get back (well hopefully...)
I think part of the problem is that (as SKILL intimated in an earlier post), identifying and accurately quantifying 'toxic' debts probably isn't as easy as it sounds. It's quite possible that with the economy (both at home and abroad) heading into a recession, such assets could actually be written down more than they need to be (when thinking longterm - of course, now that the short/medium term security of banks is under threat, they probably don't have that luxury!). Or in other words, we could go from a situation where assets (future loan repayments) are overvalued to a situation where they are undervalued. This would happen if the risk of people/firms defaulting on debts was deemed to be higher than it turns out to be, if the economy starts to come round and businesses do not fail, house prices stop falling, borrowers don't lose their jobs etc.
As an example, homeowners who are in negative equity are probably now deemed more of a risk and thus the asset may get valued at lower than the total loan repayment figure (since if they can't repay their mortgage, the lender can't recover all their debt by simply repossessing the property). But if house prices started edging up again in a couple of years, this would no longer be the case. Remember that most mortgages tend to be relatively longterm (10years+) and historical trends suggest that very long and protracted recessions don't happen.
So in summation, I suppose there is the risk that the way in which these assets are valued is perhaps more 'reactive' than 'proactive'. There is a lag on valuations meaning that they are influenced more by the current climate than what might happen in the future (to be expected of course, as there isn't a crystal ball).
As an example, homeowners who are in negative equity are probably now deemed more of a risk and thus the asset may get valued at lower than the total loan repayment figure (since if they can't repay their mortgage, the lender can't recover all their debt by simply repossessing the property). But if house prices started edging up again in a couple of years, this would no longer be the case. Remember that most mortgages tend to be relatively longterm (10years+) and historical trends suggest that very long and protracted recessions don't happen.
So in summation, I suppose there is the risk that the way in which these assets are valued is perhaps more 'reactive' than 'proactive'. There is a lag on valuations meaning that they are influenced more by the current climate than what might happen in the future (to be expected of course, as there isn't a crystal ball).
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I thought we were already updating the Trident system?
100 billion?
Doesnt that work out as just over £16500 pounds each for everybody in the UK? or are my maths off?
Wouldnt it of been better just pay off everyones mortgage in that case and give us all a few quid to spend?
*pressed too many zeros, what a dumb ass*
In which case, there is still a case for just clearing everyones mortgage debt, or the government buying it and us repaying it back at the Base rate.
Doesnt that work out as just over £16500 pounds each for everybody in the UK? or are my maths off?
Wouldnt it of been better just pay off everyones mortgage in that case and give us all a few quid to spend?
*pressed too many zeros, what a dumb ass*
In which case, there is still a case for just clearing everyones mortgage debt, or the government buying it and us repaying it back at the Base rate.
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lol
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Something around £1255 per person but thats just an estimate.
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£1.25Billion pp? lol... right
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. I have however fixed it.
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If everyone in the UK had a million pounds, the total would be 6x10^13.
Using 60m people as a population, IMO tis probably more than that with all the immigrants lol
One billion is 100,000,000,000 which is 1x10^11
Using 60m people as a population, IMO tis probably more than that with all the immigrants lol
One billion is 100,000,000,000 which is 1x10^11
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I don't understand how the banks need so much.
We (ie the general public) are blamed because we have lived a debt lifestyle - however people have only struggled because the banks have been over zealous, stopped lending and put the pinch on many businesses.... but Its nowehere near the amount they have had for bail outs.
Their losses have come from crap investments - which should have nothing to do with the general public.
I really cannot see what we get for the money - when the government could spend say £20bn to start up their own full proper bank through the post office network.
We (ie the general public) are blamed because we have lived a debt lifestyle - however people have only struggled because the banks have been over zealous, stopped lending and put the pinch on many businesses.... but Its nowehere near the amount they have had for bail outs.
Their losses have come from crap investments - which should have nothing to do with the general public.
I really cannot see what we get for the money - when the government could spend say £20bn to start up their own full proper bank through the post office network.