Thursday, September 18, 2008

Banking Questions.

  • What is actually the problem with letting an investment bank like Lehman Brothers collapse? I can see why commercial banks would cause problems if they went bust because the savers could lose money (although in practice their is deposit insurance), but surely if an investment bank goes under it just means that the assets get sold off to other banks at a more realistic value and the shareholders lose their investment but that's it.
  • Why have Democrat politicians in the USA been blaming the Gramm-Leach-Bliley Act for the collapses when as far as I can see this act allows banks to have both commercial and investment functions. The banks that have collapsed weren't taking advantage of this law though and were purely investment banks. In fact it is only because of this act some of them have been rescued by being taken over by commercial banks like Bank of America and Barclays. Spreading the risk by operating in both markets seems sensible.
  • Isn't it sweet how the far left are convinced that this demonstrates that capitalism is doomed, just like they did when a dozen other crises hit the financial sector?
  • Am I being complacent when I assume that this will all blow over with a few collapses then whoever governs Britain or America for the next few years will claim credit for the recovery?
Update: Economists appear to have come to the same view as myself on the error of blaming the Gramm-Leach-Bliley Act which has if anything helped.

5 comments:

James Higham said...

Other way, Ross, other way.

JuliaM said...

Interesting thread over at Protein Wisdom on the possible starting gun for the whole debacle.

You'll be shocked, shocked to find out some kind of twisted 'positive discrimination' may have been behind it...

Letters From A Tory said...

The Lefties are jumping on the bash-bonuses bandwagon. It's already getting tired.

If Clegg and Brown had attacked City bonuses since they took charge of their parties, maybe I would have listened - but it's all about posturing and I for one am not interested.

Ross said...

"If Clegg and Brown had attacked City bonuses since they took charge of their parties"

Yes, Brown has been quite close to city bankers such as Gavyn Davies, so it is clearly disingenuous for him to act shocked, shocked, at the big bonuses they receive.

Mark Wadsworth said...

Re bankers' bonuses, from the point of view of a cash-strapped Treasury, this is a Godsend:

1. The banks were reporting inflated i.e. non-existent profits and paying ludicrous bonuses, of which the Treasury collected 47% (tax and NI).

2. A year later, the banks realise they didn't actually make any profits at all - in theory, they can carry back it's losses from this year and claim a refund of last year's corporation tax (s393A ICTA 1988) but as it didn't pay much corporation tax last year (said bonuses reduced taxable profits), the corporation tax they could otherwise have reclaimed is minimal.

3. Ergo, as I have said before, the real losers from the silly bonuses are the banks' shareholders, who have lost 80% or 90% of their investment over the last year or so.