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tom_edinburgh

Listed below are comments made by tom_edinburgh between Monday, 20th July 2009 and Monday, 14th September 2009.

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The lessons of Lehman 1:04pm on 14 Sep 2009 25:
I think I'm going to open an investment bank; I will invent a market selling air, and when the public realise the air is overpriced, then I will sell it back to the government in the form of specially packaged "air bonds".

Too late, its already been done, its called carbon trading and it is worth $100Bn/year. And, surprise, surprise, the 'ratings agency' that was supposed to make sure the carbon was actually being offset has been suspended because it wasn't.

The entire semiconductor industry is worth about $220Bn/year and just think about how much our lives are changed for the better by electronic products. Yet we are forced by government to spend about half as much on something which has no effect at all. If the carbon offset market grows as expected it will be larger than the semiconductor market in a year or so.

Banks and government have created a crazy economy where there is almost no relationship between cost and value.
Hester: fast recovery "dangerous" 7:09pm on 12 Sep 2009 Question: why is the banker in Monopoly not allowed to practice fractional reserve banking and lend out the other players money at interest?

Answer: because it would completely waste the game: either the banker would win or the bank would crash and everybody would lose their money. Once you played two or three times you would see what was happening and refuse to play again unless you were the banker.

The difference with real life is that because the game runs for decades its a lot harder to see what is going on and even if you do see you don't have a choice about playing.

So why should we be surprised that when the government look for people to run the nationalised banks they choose a guy from British Land and a guy from Citybank i.e. people closely associated with the property and fractional reserve banking system that caused the problem. They chose them because they want to put things back the way they were, they don't want any embarrassing enquiries into who did what and they don't want any serious reform. All well and good except that with the amount of debt we have taken on to fix things up this time we won't be able to do anything when it all goes wrong again.
Lloyds to cut use of taxpayer insurance 12:53pm on 10 Sep 2009 I just wish car insurance companies offered the same deal. Free coverage from the beginning of the year while you think about whether you really need the insurance and then the chance to only insure those cars which have already crashed.

We are in a new form of feudal society with bankers and civil servants taking the place of the landed gentry.
Can governments squeeze bankers' pay? 1:05pm on 04 Sep 2009 Banks need to pay a lot to key employees because the people doing those jobs know that much of what they are doing is unethical and basically a scam on the rest of society.

Talented people do not feel good about themselves when they are doing unproductive, unethical things and the nastier your business the more you have to pay the staff.
Who'll be shot when banks misbehave? 1:56pm on 31 Jul 2009
UK government has shown it is incapable of regulating the city. Same old people are still in charge same old bonus culture. The problem is that the City is geographically so close to the centre of government and the people are so interconnected it has a disproportionate lobbying ability compared to all other sectors of the economy.

To get this thoroughly cleaned out we need to have numerate people who understand business but have a profound distaste for bankers take control for a few years. The EU may be the least worst option. At least Brussels is far enough away that there is no inbreeding between UK bankers and EU regulators.
BT: A blacker pension hole 1:16pm on 30 Jul 2009
As a customer I'm paying for broadband now, not pensions for people that used to work for BT. I can't afford any kind of reasonable pension myself so I've got zero tolerance for paying extra to support someone else's. I'd rather see the money spent on equipment to make my internet connection faster. If BT does not ditch this pension liability then, if the market works, its prices will be uncompetitive compared to companies that dont have a final salary scheme and I'll buy my broadband someplace else. Just like I fly EasyJet rather than BA.

The final salary pension promise is just a big lie which it has been convenient to ignore for a long time. I had no part in making this promise to BT's pensioners, or the post office pensioners or BA's pensioners or the RBS and Bank of Scotland pensioners that got bailed out when their banks were saved, or pensioners from any other big semi-monopoly company with a sweet final salary scheme they can't afford. But I have a nasty feeling that as a taxpayer and customer one way or another I'm going to get handed the bill and as a result I'll be able to save even less for my own retirement.
Business still being crunched by banks 4:54pm on 23 Jul 2009 The banks would find it easier to make 'sustainable levels of profit' if they did not pay bankers so much i.e. between 50% and 75% of revenue going on pay. Cut that to 25% and problem solved.

How to achieve that? First nobody should get bonuses until the bank is out of the woods. Second share infrasturcture with competitors. This is what the 3G cellphone companies did - shared infrastructure operated by third parties in some cases rather than every network building out its own set of base stations. For example, the computing infrastructure to operate bank accounts could be operated by a third party service company and shared between multiple banks - this also has the advantage that the computer systems are isolated from the financial failure of banks. Similarly, just like at airports one service company can provide check in for multiple airlines in many areas of the country a service company could provide basic branch services for multiple banks.
Does size matter? 03:17am on 23 Jul 2009 How can any sane person argue that it only matters that you spend £150 billion it doesn't matter what you spend it on? £150 Billion is £2.5K for every man, woman and child in the country.
Treasury forecasts £77bn loan losses for Lloyds and RBS 11:03am on 22 Jul 2009 The asset protection scheme is not insurance it is a subsidy for banks. Imagine you phoned up a car insurance company after you crashed your car - would they give you coverage for an event that had already happened even thougth you did not know how much it would cost to repair the car.

Whatever the premium on asset protection scheme it should be doubled. The present charge is to cover losses on the crash that has already happened. As soon as the banks have asset protection insurance and they are paying a premium for it naturally they are going to make sure their losses exceed the premium. They will be looking for schemes and deals that crystalise losses on old protected loans while creating new 'profitable' business.

Since government have decided that people who lend money to banks should be protected from loss all the banks should also be paying compulsory insurance against costs to the state if they crash again. What is the market rate for insurance against an event that has happened regularly throughout history and which cost more than £100Bn the last time it happened?

If they were paying for the true costs of their business banks would not be nearly as profitable. They might start looking at getting their costs into line by cutti8ng pay.
Tory plan to sanitise banks 1:57pm on 20 Jul 2009
The big banks receive a massive hidden state subsidy in the form of a guarantee on their debts, this is one of the reasons they are so profitable. Also, a state guarantee becomes more valuable the more risk you take on.

Consider this: suppose your mum wanted to lend your company £10,000. If your company went bust she could lose everything. If instead she lent her money to a large bank by making a deposit or buying bonds she can be sure based on rcent history that the state will bail the bank out and she will not lose any money. So she chooses to lend her money to a bank and instead of borrowing from your mum you borrow from the bank and pay extra interest and fees for the privilege. The only reason you and your mum involve the bank in the transaction is the guarantee your mum will not lose her money. This is something which was provided free of charge by the state but is charged for my the bank, therefore it is a state subsidy to the bank.

The state should charge for this guarantee and just like an insurance company it should charge a variable amount based on its view of the risk of a particular bank failing an invoking the guarantee. The charge for the guarantee would be very large - if we assume that the present crisis has cost £100Bn and it will repeat every ten years and the state applies the same kind of rules an insurance company would apply to this sort of risk to make a profit then maybe £20Bn/year spread over the big UK banks.

If the banks were paying a commercial price for their state guarantee they would be a lot less profitable and a lot less able to pay their people ridiculous salaries and bonuses. Charging a variable amount according to the perceived risk would make banks more careful about taking on risk and incentivise them to make their affairs more transparent so they can prove they have limited risk.

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