Bank Betting

  Dragon_Heart 01:04 05 Mar 2011

I was watching a TV programme last night which explained the basics as to why the banks went to the point of going bust.

In effect they were betting on the outcome of markets.

Lets put it into non banking terms :-

A bookmaker gets a large amount of money bet on one horse Fearing he will go bust if the nag comes in 1st he takes some of the money the punters have bet and himself bets on the horse with other bookmakers.

One of the problems is the banks were taking their winnings prior to the horses crossing the finishing line.

The banks also had to have a certain percentage of money as capital of all their loans to safeguard investors against defaulted loans. To get round this they set up 'shadow banks' ( and thus outside of their regulated business ) and 'sold' these loans onto them thus keeping their capital reserves lower.

Could it happen again ? YES !

What's been done about it ? Effectively nothing

From memory it said the Royal Bank of Scotland has loans valued at £1.5 trillion. That's more than the UK's Gross National Output !

The underside of the mattress is looking better each day.

  spuds 12:08 05 Mar 2011

'The underside of the mattress is looking better each day'. It didn't help Ken Dodd though ;o)

But going back to being a serious event, reading some news media reports of late and today, the bankers are still dicing with death, or other peoples money. But remember "We are all in this together" and "Lessons will be learned"?.

  Forum Editor 16:33 05 Mar 2011

has loans valued at £1.5 trillion. That's more than the UK's Gross National Output !"

Looking at liabilities in isolation isn't the way to make an assessment, you need to compare liabilities to assets.

The last available financial statement for the RBS group showed that it had total assets of £1,697 billion against total liabilities of £1,602 billion.

In other words, its assets exceeded its liabilities.

As far the UK GDP, in 2010 that amounted to £1,474 billion.

  oresome 11:07 07 Mar 2011

I think one of the problems with the large financial institutions is that their affairs are so complex that no one, including or especially those in charge fully understand them.

There's been one global banking failure in a lifetime and the benefits in the meantime have been enormous so perhaps the politicians are resigned to the fact that the risks are worth taking.

  Dragon_Heart 01:31 09 Mar 2011

I know many politicians think they live in some sort of fairy tale land 'oresome' but even a 5 year old knows you can't trade if you have no marbles.

This money does not exist !

I agree about the complex nature of banks ... but they make it so and so the TV programme said they employ people on stupid wages to make it so.

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