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Austerity is mishandling economic management and it is the congenital tendency to think that cutting public spending budgets (or raising certain taxes - especially the regressives like VAT) is identical to reducing the deficit. Even forgetting the issue of what really reduces the deficit a programme of severe austerity may induce social disorder and destroy the confidence of private bond holders in the ability of governments to avoid defaulting on their sovereign debts. Much of Europe, including the UK, is playing a dangerous game of the economic equivalent of blood letting as a cure for ills.

Good Evening Paul.

The Irish Election has been on my mind all weekend. Yes, Fiana Fail deserved their drubbing, but they actually survived. But the outgoing government committed a crime against democracy by passing a budget designed to tie the hands of their successors. The election should have been before the budget. If I had been an Irish citizen. I would have voted for any party prepared to repudiate the budget and the bailout of the banks. I believe, and I hope I am wrong, that promises to "renegotiate" the debt are a figleaf for knuckling down.

It is very interesting that conservatives are not prepared to accept the laws of capitalism, but in the end expect the state and the poor to bail out the wealthy.

I watched Fergal Keane's Irish documentary tonight, and was struck by a number of things. One of them is that the young people he interviewed were determined to emigrate rather than accept the debts of the previous generation. Unlike in ancient Rome, the parents haven't been able to sell their children into slavery to pay off their debts - at least not all of them!

Another thing that struck me was the criticism during the boom reserved for those who questioned its basis and sustainability. Keane showed this notorious speech by Bertie Ahern, wondering why critics didn't commit suicide:



As J K Galbraith has chronicled at length, this is typical of the kind of attacks directed against boom deniers throughout history - and indeed against people like Robert Peston who highlight inconvenient truths!

There is no discrete European financial sector...the whole world`s finances are inseperable.

We were quite deliberately got into debt and asset stripped and saddled with toxic debt by fraudsters in the USA who have been pulling similar stunts for a century now....and seem able to carry on doing it with the active assistance of people we vote into government in the hope that they will look after our interests.

American global capitalists run our politics and our economy and even the media upon which we rely for information.

None of this is a secret or economic rocket science...it`s bare faced blatent organised crime...and if any other country than the USA had done it there would be Hell to pay...with people being dragged in chains over to the United States to receive America`s idea of justice!

WHAT DO YOU DO WHEN THOSE IN DENIAL DENY THEIR DENIAL?

A drug Tsar, in Reading (Berkshire) once said to me: "We have no drug problem - only a people problem - people whose lives are so wretched they escape to drugs."

I echo: "We have no money problem - only a people problem - people who, though higher up the scale, yet have lives so wretched (well disguised) that they escape into delusional manipulation of their fellow, for personal gain.

The common factor is that both are addicted and both need, always, 'another hit'.

The greater pool of trend-setter humanity (our lot) is on a downward path of immaturity. Political leaders are drawn from the most needy (driven) of this pool. Such people are brilliant at the 'animal arts' but no bloody use at wisdom, honour, integrity etc; and the last thing they master is SELF KNOWLEDGE.

Therein lies the global problem. You can apply monetary manoeuvres, and growth stimuli, till the sky falls, but with declining social competence in both leaders and universally suffered (sic) voters, the result will inevitably be failure, regardless.

That'll be 30 Guineas.

My bouncing czech for thirty-one pounds ten shillings is in the ultimate postal system Barrie...and a close study of its progress therough life might yield some useful clues as to the roots of our problems.

Paul,

So in layman's terms (as oppose to Lehman's terms).

'Good' banks are only considered to be 'good' banks on the premise that government debt is 'worth the paper it is written on' and they have tons and tons of it.

Bad banks are considered bad banks because they don't own loads of government debts, just debts.

On average any bank potentially can lose about 30 times more than any money you have put in with them. i.e. if it even goes slightly wrong you will lose all your savings.

This arrangement is considered 'normal' by bankers.

Interestingly your graphics do not show two of the biggest sovereign debt nations - the US & UK.
When is reality about their precarious positions going to be addressed too?
Currently US dominated media (including it's UK subsidiaries) somehow reminds me of the tales of Emperor Nero. :/

4. At 11:20pm on 27 Feb 2011, barriesingleton wrote:

The greater pool of trend-setter humanity (our lot) is on a downward path of immaturity. Political leaders are drawn from the most needy (driven) of this pool. Such people are brilliant at the 'animal arts' but no bloody use at wisdom, honour, integrity etc; and the last thing they master is SELF KNOWLEDGE. [End quote]


Dear Blogger

IMO there are at least two former Treasury Ministers who may fall very easily into your above categorization, Mr Singleton. They are Mr Edward Balls, and to a lesser extent, Ms Angela Eagle. Both Oxford graduates. Both stunning orators. Both brilliant ministers. One attended Harvard (HKS) : Mr Balls. He was indeed highly praised for his scholastic ability by former HKS Professor Lady (Shirley) Williams in her recent biography 'Climbing the Bookshelves'.

It is only just lately (as far as I'm aware, as I am often away in other European countries), that Mr Balls has admitted ANY form of culpability for not noticing excess liquidity building up in the monetary system pre-crisis. This 'confession' was in a front page interview by the FT some ten days ago. A picture is worth a thousand words but sometimes many more. Mr Balls's back was literally against a brick wall and his face was staring into the lens of a camera. Proving that the UK has some of the finest and most humorous photographers.

Now where are those two ex Ministers Balls and Eagle earning their crust ? Not sitting on green benches in any outdoor London park....but on verdant leather upholstery indoors, in a Pugin Building, not far from the Glorious Treasury itself.

ALAS... we are not only talking about politicos. There are also several examples in British Commerce , of which I shall draw your attention to one chosen completely at random. Mr Andy Hornby also travelled the path of Oxford and Harvard. You'll need little reminding that he became, in his middle thirties, COO and then CEO of HBOS . It is easy to be reminded of him : whilst shopping, on passing the Halifax or Boots in most high streets ; or nursing loses on Lloyds shares.

NB Your fee cheque for thirty-one pounds and fifty p is in the post, sent under separate cover. I have added an extra cheque to accommodate changes in VAT.

Yours etc

Amused2Death

@6 Jericoa - 鈥漇o in layman's terms (as oppose to Lehman's terms).鈥� GROAN! ;-)

@3 Jim 鈥滱merican global capitalists run our politics and our economy and even the media upon which we rely for information.

You can't just blame the Americans, there are, and always have been, homegrown British members of this international conspiracy.

At the moment, most governments have partially succeeded in conning their electorates into taking the rap. In Ireland, they have voted for a different executioner, but the 鈥渃apital鈥� sentence remains.

Iceland chose not to rescue its banks, and its people seem determined to resist pressures to socialise the debt..

/news/world-europe-12519355

They are also being more robust in pursuing those who caused the crisis

/news/world-europe-12519355

There are more shocks in the system. We have to look beyond the crisis: broadly, Europe has the resources and infrastructure to provide for its citizens needs. It's our financial system which has failed. The economy is being strangled by a virtual Gordian knot of imaginary money and debt. Much of the money buying the bonds came into existence as other people's debt via the debt/money feedback loop. In the end, the knot will have to be cut and the debt repudiated. To mix metaphors, we have to excise the debt cancer, and it will be bloody.

Governments will not do this without pressure from their people. The question is, which will be the first domino to fall? My betting is on Greece.

Credit Default Swaps are Strauss-Kahn's handy whip, the other side of his alleged 'I want you' calling card text tactic's. Germany banned naked CDS's but no other state, but why not, they are a threat to the Euro. Well 'The Globalists' have partly let the massive bankster fraud off the hook so they can use this financial weapon to bring these states to heel, a chess move - to corner and force them to turn to the IMF-EU edict. The public of these countries need to demand DEFAULT and keep the IMF-EU OUT ! As Michael Hudson says: 'what cant be paid will not be paid'

Actually I agree with Barrie, not only has our financial system failed, our political system has failed too. Politicians in the West regularly defend the indefensible - when it's perpetrated by one of their own allies. Doublethink seems to be hardwired into the political mind.

This will not be changed unless we citizens are (1) prepared to be less tribal, and (2) prepared to demand a proper say in our society, ie more than a cross every five years. I agree with flicks3's (@10). The public should demand default!

Activism works, as North Africa is now showing. Also, in Germany, activism is denting the popularity of "Baron Googleberg" and the government. Incidentally the photos and vid clips from this demonstration demonstrate that young Germans DO have a sense of humour:



Sometimes humour is all we have left. About a hundred years ago, Jaroslav Ha拧ek, the Czech anarchist/socialist and writer was so depressed about the passivity of his fellow humans that he tried to throw himself off a bridge in Prague. Being rescued from this, he and a couple of friends, as a joke, formed a new political party called "The Party of Slight Progress Within the Limits of Law", and spent the cash collected from this activity in his local pub.

If we are not prepared to be active, we deserve what we get.

The PIIGS need to now be calling the shots.

Instead of acting individually hoping that the banksters will turn on someone else they need to act collectively.

They need to remember that if you owe someone a Pound or a Drachma that it is your problem. When you collectively owe them a trillion, or whatever silly number it is this week, it is their problem.

Countries also tend to have armies and secret services ready to protect their nations in ways that most banksters have not yet fully fathomed.

I would not want to be a bankster trying to see how hard I can push the PIIGS over austerity and debt repayments. I might wake up in the morning with a horse's head in my bed.

Or not wake up at all.

WHAT DO DESPOT DAVE AND NON-RUNNER NICK FEAR MOST? (#11)

You set me thinking Sasha.

Might the AV referendum be a chink in Coalition armour? It is a chance to tell both Dave and Nick to get stuffed. All we have to do is NOTHING. 'Which, by a strange coincidence' is exactly what Tony said is not an option.

With Detestable Dave, effectively, heading the NO campaign, and nebulous Nick the YES, and the two of them mutually negating their messages - to call for abstention should be easy. It might be possible to get that 'OPT OUT box on the paper if we threaten to abstain en masse. A beautiful paradox.

It's called fictitious capital.
Money that can be put to no productive use.

The big capital devaluation is still to come!
And it will likely be accompanied by the debasing of the world's major currencies.

Not stagflation more like depress-flation.

Ah, what great news from the Oscars last night:



Having seen the film last week, I can vouch that it is an all you need to know whistlestop tour of the crisis; de-regulation, captured politicians, economists on the take, Wall Street rape of Main Street etc.

"finance is too important to be left to the financiers"

Shame the twittering class has nothing better to do than harp on about Colin Firth.

The UK is far more vulnerable than the other indebted nations in Europe because we are outside the Euro - our inflation problem is entirey down to the weakness of Sterling and the rise in commodity prices.

When George Osborne takes 拢110 Bn out of the economy, drives up taxes and the sharp spike in oil prices hits, the UK's currency will go down like a stone and the impact of huge price rises will spark civil unrest.

Without the ECB to prop up our currency, we're stuffed. Think Argentina - unable to pay for food & fuel imports.

The decimation of Fianna Fail should be a warning for every backbench coalition MP - if you allow Osborne to go ahead with exactly the strategy that drove eire over the cliff, you face a generation in the political wilderness and an incoming Labour (less the "New") government with a total mandate to crack down hard on bankers, the rich and to ditch the libertarian clatrap that got us into this mess in the first place.

Europe: The riskiest banking model in the world?
No, I can't agree with this; in fact if the house of cards should fall, it will not be the fault of Europe. It will be the fault of the United States of America.
Why?
On the 3rd Wednesday of every month, the 9 members of an elite Wall Street gang gather in Midtown Manhattan.
The American Bank Money machine, including printing press. Among the members are those whjom you would expect:
- Citigroup Inc
- Bank of America Corp
- Bank of New York Mellon Corp
- JPMorgan Chase & Company
- Credit Suisse Group
- Barclays
- Goldman Sachs
- Deutsche Bank
- Morgan Stanley
These financial giants share a single objective: to protect the interests of big banks in the vast market for DERIVATIVES. They also protect a secret: The details of their meetings, even their identities, have been held un utmost secrecy.
Derivatives are financial instruments which, like insurance, are used to hedge risk. In practice, this group defends the DOMINANCE OF THESE BIG BANKS.
These banks are affiliated with a new DERIVATIVE CLEANRING-HOUSE. In fact, they have fought to stop any other banks from entering the market; they also fight to thwart any efforts to make full information on prices and fees piblically available.
Derivatives, like swaps and options are used to creat "fixed" plans. But who knows how much lower prices might be because these banks do not disclose DERIVATIVE FEES.
Speaking about risk (Europe or elsewhere) derivatives shift risk from one to another. Derivatives are huge business on Wall Street. These 9 banks collect billions annually in UNDISCLOSED fees associated with dervitives, credit default swaps and other nefarious instruments. This price would certainly be lower if there was competition and transparency.
The extent of this market has esculated over the past two decades. PENSION FUNDS TODAY USE DERIVATIVES TO HEDGE INVESTMENTS. If this does'nt sound risky to you, it should. Municipalities them to fixate borrowing costs. Airlines use them to steady fuel prices. Food companies use them to lock in commodity prices.
The marketplace as it functions around these 9 banks adds up to higher costs to all and everyone who deals with them.
However, these same big banks influence the rules governing derivatives. The banks鈥� latest point of influence are clearinghouses like ICE Trust, which attends the monthly meetings with the 9 bankers in New York.
Under the Dodd-Frank financial reforms, many derivatives are to traded such clearinghouses, but guess what?
Republican lawmakers, so many of whom received large campaign contributions from these 9 banks want to have influence over, or even write, the the rules for derivatives. They admit they want to push back reform.
Well, thank goodness the Department of Justice is looking into derivatives. The department鈥檚 antitrust unit is actively investigating
the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries.
The derivatives market reminds me of the Nasdaq stock market in the 1990s; at that time, the Justice Department discovered that Nasdaq market makers were secretly colluding to protect their own profits. Following that scandal, reforms and electronic trading systems cut Nasdaq stock trading costs to 1/20th of their former charge.
When you limit participation to 9 like-minded institutions or individuals who have an interest in keeping the status quo, you have anti-trust breaches; it's inevitable.
It's not surprising that none of the 9 banks were willing comment on the Department of Justice investigation. Clearing should involve keeping track of trades, providing a central repository for money backing those
Just read this statement from a Deutsche spokeswoman who said that the banks鈥� role in this derivative process has been a SUCCESS; further, the provess is one of the best examples of public-private partnerships.
Dig this: three of the four main clearinghouses told the banks that its derivatives operation has TOO LITTLE CAPITAL, and thus potentially poses TOO MUCH RISK TO THE OVERALL MARKET.
The one NEW derivatives clearinghouse that has welcomed Bank of New York and the others - Nasdaq - has been AVOIDED by the big derivatives banks.
During the meltdown it became known that not even government regulators really undestood the size and incest of the derivatives market, especially the market in credit default swaps, which insure against defaults of companies or mortgages bonds. The panic led to the bail out the American International Group, for instance, which had CDS contracts with many large banks.
Regulators ordered banks to speed up plans to set up a clearinghouse to handle derivatives trading. The INTENT WAS TO REDUCE RISK and increase market stability. Two established exchanges that trade commodities and futures, the InterContinentalExchange, or ICE, and the Chicago Mercantile Exchange, set up clearinghouses, and, so did Nasdaq.
Each of these new clearinghouses had to beg, plead, & otherwise persuade big banks to join their efforts; they handed out membership on their committees as an incentive. Talk about letting the fox into the chicken house!
People with direct knowledge of ICE鈥檚 committee said the bank members are: JPMorgan Chase, Morgan Stanley, Deutsche Bank, UBS, Barclays, Credit Suisse, Goldman Sachs, Bank of America, and Cititigroup. That makes 9 foxes in the chicken house. Most of these same banks hold influential positions at other clearinghouses, or on committees at the powerful International Swaps and Derivatives Association.
No business in finance is as profitable today as DERIVATIVES - not leaning, not credit cards, not acquisitions, not even maging money.
better for the bank 鈥� and the worse for the customers.
Enough already!
Except for one thing: 650,000,000,000,000?
This is the size of the deruvative market. Some banks are too big to fail, but it seems that $650 trillion is a number that is too big to tackle or question.
The big question for Wall Street: How the derivative market coiuld possibly have quadrupled in size since 2002, and now measures more than 12 times the size of the world economy? But heh, resold, rebundled, resold...It's not real money. It's bundled sold, resold, rebundled, resold...resold, rebundled, resold...
Of the $668 trillion, most are interest-rate swaps, which, at the end of 2007, had a total notional value of $393 trillion (and a market value of $7.2 trillion).
The sector of the derivatives market that is imploding are the credit default swaps 鈥� notional value, $55 trillion. These are particularly risky. Remember in September, when big firms like Lehman Bros. failed suddenly, putting a huge strain on CDS holders. These were the derivatives that Warren Buffet singled out as "financial weapons of mass destruction".
Now, explain to me again why the European financial model is the riskiest banking model in the world.

Paul,
I would be interested to know how much peripheral sovereign and bank debt has been offloaded to the European Central Bank which now holds a deteriorating asset. Banks may be more secure whilst Eurozone taxpayers could pick up the bills, maybe?

Isnt this why Ireland will not get very far talking about haircuts and better terms for the bailouts.

Everything will be moved to the ECB in Europe and then, in a few years, they will conveniently forget that any country or bank owes any money.

That is how they intend to get the system working back to the old ways again. They won't just write off debt - they will forget it ever existed.

Nice try but I don't buy your analysis. Maybe I've missed something, but there are too many holes in your argument to just take what you say at face value.

1) You assume that banks are fundamentally identical everywhere, at least in business practices. Yet European banks conduct far less mortgage backed borrowing, and when they do it is with far higher 20% borrower deposits. This alone will skew the charts.

2) Swiss bank UBS is probably as much US as it is European, and in the current period of Arab Spring revolution, a large part of it's capital could be considered to be of higher risk now as much comes from Mid East autocracies, so lumping it in with the EU banks is debatable. I'm not saying this makes UBS any weaker, but using it as an example to prove your point about "European" banks because it is at the top end of your bubble chart is at least misleading. You omit Switzerland from the right hand chart though - perhaps because it has one of the strongest World currencies at the moment with very low spreads?

3) Your bubble chart also uses only Tier 1 capital on the left axis, not total capital. Many German banks however have State backed guarantees - are these included in your calculations?

4) "Risk weighted assets" could mean a wide number of things, it would help if you defined this, or at least provided a link to the source of the charts which you have cut and pasted here. Risk weighted how, exactly? By whom? And which banks are represented in the survey - and which ones have been left out?

5) where is the UK and the US on the right hand chart? How can you compare European banks with them when you only show half the argument here, the side that favours your premise?

Even if the data is correct, your conclusions rely on a uniformity of banks, economies, and states that simply does not exist.

Dear FifthDecade,

Good questions/ point, but as I understand it,

1. European banks probably conduct more mortgage lending on-balance sheet than the US banks. This is because 90% of the US mortgage market is credit-wrapped by FNMA, FHLMC, and GNMA with implicit US government guarantees (explicit in the case of GNMA), and resold to the market; the credit risk remains with the GSEs. Banks get involved only in the Alt-A, sub-prime, and jumbo markets. Not sure what the point here is though. the bubble chart will be skewed by mortgages only in moving the bubbles to the right (see point 4 on RWAs below)
2. If you skip UBS you still get the same chart, same pattern.
3. I understand that the chart shows only banks that are listed. By the way, state-backed German banks are probably the worst in Europe. I understood that Germany fought hard to water down Basel III, and it is questionable as to whether they will comply with that by 2018.
4. Risk weighted assets means specifically what the Basel Committee wants it to mean. Banks disclose their RWAs in their reports and accounts. For the long-version of the definition of a RWA, go through the many hundreds of pages of numerous Basel II documents on the BIS website. For the short version, go to Wikipedia (. The short version isn't awful, although far from technically perfect...
5. US and UK banks have their problems. However, their main problem is arguably Europe. See page page 25 (chart 2.22) of the BoE's Financial Stability Report for a taster (.

@17 Bluesberry , very informative post thanks

#17 bluesberry

Posts like yours make me so angry. Who do these people think they are? Who elected them to hold such a position of power over the basic wellbeing of billions of people?

As austerity bites and Chinese ownership of US debt keeps jumping up as reported today this is unlikely to end well in a big way.

There will be a tipping point when the sheer weight of austerity tips the general populus into the realisation of the true scale of this, and the true scale of how they have been made fools of.

The Chinese will also reach a point, when they think they have enough global leverage and stability at home via internal and developing world growth markets to lose its appetite for US debt, and who can blame them?

Makes me weep.

#17 Bluesberry
This is very much what is covered in Michael Lewis' book "The Big Short".
If I recall they came across one CDO which had parts of 93 million mortgages in it. No expectation of unravelling that, not on overtime at least.
Synthetic CDO's and other derivatives were created beyond the mortgage backed trash to leverage the one way bet on property.
The only hope for the global financial system is that we are able to firefight the consequences until the $650 trillion works its way through the system on or off bank balance sheets.
That firefight will almost certainly result in the impoverishment of the developed west. Around the poker table, if you can't figure who is the mug then it's you...the people of Tunisia, Egypt and Libya are finally figuring this out. When will we figure out that it is indeed us, the pension builders, savers, entrepreneurs, workers.

'...James Galbraith testified to Congress: "鈥he study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft-pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now."...'

Europe is quite similar to the events that became the Argentinian crisis in 2001...not the same as the Argentinian banks were reasonably conservative until the govt, in the throes of escalating crisis for over a year (I think), forced the banks to buy the govt debt that once hungry for yield foreigners were keen to snap up...so plumping them up for disaster when sovereign defaulty came. Default was bad enough but what really sealed the deal that destroyed an economy was the banking crisis.

The foreign, then domestic bank, debt was being used to subsidise states beyond Buenos Aires (the powerhouse of Argentina's miracle 90's when IMF and US showcased it as the way for emerging markets to develop through 'market orientated' policies). Familiar echo?

Of course, that is the Argentinian 'basket case'....and in no way would we Europeans be so careless as we are a lot smarter and grown up about things like that...aren't we?

Meanwhile, in Germany, denial of denial has had its inevitable denoument: Baron Googleberg has been forced to resign. But defending the indefensible has damaged Merkel's credibility:



/news/world-europe-12608083

#24 and 25

I cant bear to read anymore, they may not pull the trigger personaly, but in terms of the the capacity for general misery creation Col gadaffi has got nothing on the capacity and effectiveness of these guys.

When will people start to see such financial practices for what they are...violent acts against fellow human beings for personal enrichment.

They will of course point out that all that they do is entirely legal, it is of course no co-incidence that 'trial by jury' in 'complicated cases e.g. fraud' has been steadily eroded in favour of self appointed specialist courts with proven capacity to understand such complicated financial and legal issues.......

One of the cornerstones of justice is the jury system and it is incumbent upon the legal system to ensure cases are presented in such a way as to be comprehensible by the people they serve. Complexity should never be an excuse in any case where significant issues are at stake.

If any of these guys ever faced a jury they would be locked up to a man.


Makes me crazy all this stuff.. I wish I could not see it sometimes, life would be so much easier.

25. At 10:20am on 01 Mar 2011, Sasha Clarkson wrote:

'...James Galbraith testified to Congress: "鈥he study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft-pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now."...'
---------------------------------------

I think this is the full testimony refered to. Its a good read anyway

@28 How do we call the malefactors to account without violating the principles of natural justice?

I am a member of a small club which is responsible for a property. As the club is unincorporated, the officers of the club are personally liable, without limit, for any debts accrued under their stewardship. For example, if there were a fire, and the insurance proved inadequate or void, the officers could lose their own homes and be bankrupted.

However, for incorporated clubs and limited companies, officers and directors can run up debts with personal impunity unless there is evidence of fraud or criminal negligence, which has a much higher burden of proof than any civil liability.

One step to justice would be to make directors and senior executives off all limited companies liable, personally and collectively, for the debts an collateral damage which result from their decisions. We would not then see the likes of Sir Shred, having done untold damage, retiring to their country estates with six-figure pensions.

@29 Thanks! :-)

People need to wake up to the fact that most will never see the money that they have paid into their pension schemes.

When the banks & the stockmarkets go under, bang, there goes your pension.

#30 Sasha
Adam Smith, arguably founder of economics, was deeply opposed to joint stock companies - as quoted by JK Galbraith...of the stock holders
"[They] seldom pretend to understand anything of the company; and when the spirit of faction happens not to prevail among them, give themselves no trouble about it, but receive contentedly such...dividend as the directors think proper to make to them"
Of the Directors he added...
"being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must prevail, more or less, in the management of the affairs of such a company...Without an exclusive privilege...[joint stock companies] have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it."
Worth quoting at length - nothing is new really!
In discussing action against Fred & co, has no one considered that Force Majeure should apply to the employment contracts and pension arrangements such that they should be set aside?
The other old saw is that bankers have to be paid the market rate, ergo bonuses in profusion. Has no one observed that the market efectively changed with Lehmans, Bear etc. That was an employment market driven by leverage which is no longer there - so we should expect adjustment to market remuneration, or is that too obvious. That said, I really feel sorry for Fred's children who must grow up, go to school etc. with the taint of pariah. Then again the brazen arrogance will soon be learned and attached, as a veneer to wood...Eton perhaps?

#32 Duvinrouge

That is precisely the hostage-takers threat that is being foisted on us at the moment. The message being that we can't let the banks and the stockmarket collapse BECAUSE it will wipe out our savings. This is why people are not really angry at the banks (hence Mervyn King's recent surprise with UK public apathy). We have bought the mantra, hook line and sinker, Stockholm Syndrome style.

In reality, a well managed dissolution of these firms could ensure that any savings and investments could be protected for each individual, up to a certain limit, say 拢250k per person. Therefore the only "investors" who take a real hit are the uber-wealthy.

At the moment there is a very real risk that savings will get wiped out by high inflation and stocks get a pounding too (in real terms) - See yesterday's Keiser Report:


I'd say that the very worse option is for us to carry on with the status quo, for if we carry on as we are, the savings for the lower & middle class will get wiped out anyway whilst the uber-wealthy jump ship and protect their investments through other means (precious metals, commodities, links to corrupt officials etc.).