General Discussion

Dawlish has contributed £312 million so far to the bailout of the banks according to the ONS:

http://www.statistics.gov.uk/pdfdir/crbslbg0111.pdf

Here is why:

UK public sector debt liability excluding banks is £890 billion.

The Northern Rock liability is £130 billion whilst RBS and Lloyds (which includes Halifax) is £1300 billion!

So the public sector debt due to banks alone is around £24,000 for each UK resident. For Dawlish alone that equates to £312,000,000. Just think what could be done with that money?

Therefore, there is no justification for any bonuses paid by these banks. The UK Government needs to let these banks go bankrupt (which they clearly are) dismantle what is left of them and create new smaller banks.

Having been subjected to dreadfull treatment by a cetain RBS bank myself. I fully support your comment, however without any political reference I would add that if ever an industry needed to be nationalised with everybody subjected to the same rules then banks would be it.

The new national bank should be run by the post office with the addition of traditional local mutual building sociaties handling the mortgage funding

Yes I had thought of the PO and NS&I fronterman. According to wikipedia Lloyds banking group have £1 trillion in 'assets' and £50 billion in equity.

As all bookkeepers and accountants know (and people that read about it like me), 'assets' include money that is owed to the business and so this £1 trillion in 'assets' for Lloyds consists of loans made to Mr and Mrs No-Job-And-Broke to buy their over-priced 2 bed semi in 2006, a few billion here and there to wannabe London property entrepreneurs, a few billion to corrupt russion oligarch pals... and the list goes on.

The other liability to the tax payer is the FSA compensation scheme which will have to pay out up to £85,000 per saver or depositor if the bank goes bankrupt since the bank itself does not have the money to cover this. £50 billion is not enough.

I am just learning about this now. I had no idea banks, governments and corporations were so stupid and so corrupt (or, rather, the people that run them). To me it is all perverse.

I think your sums might represent a slight oversimplification, Steve. I gather Northern Rock are well ahead of schedule on repaying the government bailout, and HM Treasury have announced steps to end some of their guarantee arrangements for Northern Rock's liabilities. Also, these liabilities were reported at less than £100 billion even in 2008. And the government has broken Northern Rock up into two smaller companies.

More to the point, your conclusion that "there is no justification for any bonuses paid by these banks" isn't really supported by your argument. The simple fact that these banks have proportionally large financial liabilities doesn't lead inexorably to a decision to pay no bonuses, or to dismantle the organisations concerned.

As I said bobbleoff, I am just learning about this myself and I had no idea how banks worked until a recently. Since my numbers oversimplify the situation I am keen to hear from people like you (who clearly know more than me otherwise you wouldn't be correcting me) how we should be interpreting the numbers.

Also, are you saying that the £130 billion figure stated by the Office for National Statistics is incorrect or are you saying that the liabilities have gone up by £30 billion since 2008?

On the other two points of bonuses and dismantling banks, I think my conclusions still hold. Firstly, the banks only get away with paying such large bonuses because they are deemed too big to fail and will cause way too much damage if they do. There is no way any other organisation could pay bonuses to its employees in such circumstances. All these banks are carrying billions in losses that are underwritten by the tax payer. Therefore, they shouldn't even exist let alone be paying out huge bonuses.

Secondly, the reason why we need to dismatle the banks is because we had and still do have banks that are too big to fail.

On a separate yet related note, the idea that Northern Rock was a small bank and proof that it is not the size of banks that was the problem is also nonsense. Northern Rock was deemed too big to fail because Alister Darling decided to use tax payers money to honer ALL deposits 'held' by the bank and hence bail it out.

I wouldn't say I was "correcting" you, Steve. I pointed out that I'd found information that suggests that your statement "might represent a slight oversimplification". Somewhat different. In any case, I'm quite happy to say that I don't know enough about the banking crisis to be able to educate you or anyone else on the subject, but that doesn't mean I can't question your statements on the matter, does it? Regarding the £130 bn, I'm saying that the figure was reported as being below £100 bn in 2008; that according to both Northern Rock's annual report they're paying off the government ahead of schedule and, finally, that HM Treasury released statements last year to the effect that liability has been reduced and that NR is making significant progress to returning to full private ownership. Assuming those things to be true, it would surprise me if the amount of NR's liabilities that the UK taxpayer is exposed to have increased by something like 30%. Regarding your conclusions, they still don't hold. I'm not saying that the conclusions are intrinsically wrong – in fact I might even agree with them – but they don't follow from the arguments presented in your original post. Simply saying that the banks concerned have huge liabilities is insufficient to support the view that "there is no justification" for those banks to pay their staff bonuses, that they should be allowed to go bankrupt and then dismantled. To begin with, my understanding of liability is that it is inherent to the business of running a bank, e.g., if I put £100 in my bank account, my bank owes me £100, plus any interest they are obligated to pay me by the terms of the account. This only becomes a problem when the bank in question doesn't actually have the funds to settle those liabilities which, as I understand it, is why the government stepped in. It's important to remember that the reason the government tried to save these banks has a lot more to do with protecting the savings, mortgages, pensions and other financial products owned by the millions of people who are customers of those banks than it is to do with protecting the interests of the banking industry. If high street banks are allowed to go bankrupt, then people like you and I stand to lose money.

@bobbleoff. yes you are entitled to your own views and these are just my opinions which are shared by others also from what i have gathered.

Perhaps my original post looks like I am trying to jump tenuously from premise to conclusion when I was really following on from previous posts on here and suggesting that this new information (via the ONS pdf publication) adds weight to the arguments of zero-bonuses and immediate dismantling of banks that could not exist if it were not for the tax payer being exposed to the liabilities. It especially adds weight if the liability is rising and not falling.

I still think any company that is bankrupt, owes billions and is kept afloat by the tax payer should not be paying millions in bonuses. Instead they should be allowed to go bankrupt in the normal manner with administrators working with government to pick up the pieces. Then smaller organisations should be created and refloated on the stock market with no backing by the tax payer. Then once they have no tax payer backing and they become profitable they can pay themsevles whatever they want. I have no problems with people like Bill Gates, Steve Jobs and Mark Zuckerberg earning billions out of their very successful companies.

Also, I am not convinced the banks were saved to protect millions of customers. They were saved to protect a few very wealthy customers I am sure, but they were not saved to protect the millions of average, working, tax-paying people in this country.

I'd be interested to see the ONS material, Steve. Could you post a link?

As I say, I probably agree with you that bonuses should either not have been paid at all, or at the very least should have been substantially limited. It's simply that I don't believe that your quoted liability figures alone are sufficient to make that case. In fact, they probably detract from it, in the sense that it invites a discussion about the veracity of the figures and various other technical issue which, really, are besides the point.

I very much disagree with you about the reasons for saving the banks from collapse. Though a few very wealthy people have no doubt benefited from the situation, I think they're vastly outnumbered by ordinary people. Letting HBOS and NR fail could have had catastrophic consequences for millions of ordinary people: lost savings and investments, massive curtailment of consumer credit, lost jobs and a whole raft of complex knock-on effects for those not directly connected with the banks.

It's a lamentable situation, and I think that substantial and wide ranging reform of banking is required, but the unfortunate reality is that, perhaps through insufficient regulation under the last government, some banks had reached a point where their collapse would have such serious repercussions as to virtually require government intervention in the event of such a collapse.

And lest we forget, it was "millions of average, working, tax-paying people in this country" who were more than happy to take the credit that those banks were doling out.

The ONS material I was refering to was in the original post. Here it is again:

http://www.statistics.gov.uk/pdfdir/crbslbg0111.pdf

I agree, bobbleoff, that my quoted figures are not enough to make the case. Like I said in my other post I believe they add weight to my argument for those who think bonuses and bailouts are necessary or good.

As far as I am concered, I do not want a single penny of my tax money to assist a banker in getting even a single penny bonus.

We will never know what would have happened if we had let the banks fail. I don't believe it would have made a jot of difference to most people since most are in debt to the banks anyway!

As for saving peoples savings and investments? Some counter examples to that: Sterling is at an all time low against other major currencies and precious metals like gold; Northern Rock and Bradford and Bingley Shares wiped out from pension funds (Yes they would have been anyway, but still count as counter examples). I am sure there are others.

Forgot to comment on: "millions of average, working, tax-paying people in this country"

I hear this a lot yet I do not know many people who did this. I believe it was a small minority who were binging on debt (or credit depending whether you are a banker or a person).

Ah, sorry, I missed the original link. It's a startling figure, I agree, though I have to accept that I simply don't have the knowledge of national finances to really understand what it truly means. That said, I gather that a large proportion of the bank bailout money is not in fact "spent", but is money allocated against the possibility of having to pay those banks' debts if they were to fail. And, as I say, Northern Rock are apparently well on track for re-privatisation.

Still, it may be that the actual cost of the bailouts will prove to be significantly less than the quoted figures. Also, presumably, and assuming these banks don't fail completely, the government should get its money back by returning their shares to private ownership.

Regarding consumer debt, you may not know many people who took on dangerous levels of debt, but the figures suggest that a lot of people did. According to Credit Action, consumer credit stood at £214bn at the end of last year. Average household debt, excluding mortgages and based only on those households that actually have some form of unsecured debt, is £16,307. In all, individuals currently owe more than the entire country has produced during the last four quarters. In short, plenty of people were taking lots of credit.

The banks were arguably irresponsible in their lending practices but, when it comes down to it, this is what happens in a free market economy: businesses provide products and services according to the market's demand for them. Now, in a sense, I agree with the general drift of your argument: to make many billions in private profits and then, when in trouble, seek many more billions in financial aid from the public purse is fair weather capitalism, and so, in many ways, I'd like to have seen these banks find their own rescue money or die trying. Likewise, perhaps people who freely took on debts that were beyond their means deserve to lose their shirts, too.

The problem with all that, in my view, is that the social and economic cost of such a policy could be huge: repossessed homes, lost jobs, bankruptcy, and incalculable knock-on effects which, one way or another, would become the state's problem, so arguably the money gets spent either way… unless of course we want to be true free market capitalists, have a completely non-interventionist government, and let the chips fall where they may. So maybe we're all fair weather capitalists?

I think there are 2 schools of thought here. I am all for letting the banks fail, accepting the job losses, repossessions, etc. picking up the pieces, learning by the mistakes and building a better system. In fact, I could not care less if it 'costs' more which I'm sure it would not. It may be 'embarrassing' for some people who overstretched and now are unable to keep up with the Joneses but who cares? They will get over it. Some bankers will commit suicide like in the Bernie Madoff scandal, but there will be many other benefits too.

The other approach, which is the one we now have, is a long and drawn out decade or two of austerity measures with artificially inflated house and land prices, uncontrollable inflation, public service cutbacks which will eventually affect the NHS and quality of health care, the slow and steady rise of unemployment, higher university tuition fees, etc.

The other problem with the approach that was taken is that we still have the same system in place that was there before the crisis. There is nothing to stop this from happening again. This is not capitalism nor is it socialism. It is a form of rigged, crony capitalism whereby governments work with banks to ensure any profits are privatised and any losses are socialised.

The banks are never going to pay off their debts. Why should they when they have the backing of the tax payer? Even if we take the liabilities off the governments balance sheet the liabilities will still be there because the banks know that the government will bail them out with tax payers money when they go 'bankrupt' next time. By 'bankrupt' I mean when a Lloyds banker decides he needs a new Yacht and threatens to crash the system again unless the government allows him to have a few billion in tax payers money for his bonus.