Collapse of the Euro - UK Banks ? by Trebor (Page 1 of 2)


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Trebor
According to the latest news the collapse of the Euro is now a very real possibility, so should we be worried about what effect this will have on UK Banks ?

I dont profess to fully understand economics on this scale, so could this mean more bail outs for banks or could some of them even face meltdown ?

With interest rates so low on investments is it time to stuff any spare cash in the mattress ?
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Posted 02 Dec 2011, 08:59 #1 

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Arctic
(Trader)
Cash is always king trebor that and gold not that i have got much of either :) but you can bet your bottom dollar it means prices of fuel will go up and inflation on food etc taxes

Posted 02 Dec 2011, 15:37 #2 

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Chartermark
Currently British banks are owed circa £7b 'Sovereign' debt by Portugal, Italy, Spain, Greece and Ireland, broadly considered the 'sub-prime' Euro' countries, whose GDP to debt ratio, now attracts bond rates in excess 7% in some cases.

When however you factor in the inter-bank debts (moneys owed by these countries banks to UK institutions, plus the funds extended to their companies and individuals) the total figure is approaching £200 billion.

This would almost completely deplete our banks of their total reserves for bad debt across all their fields of activity. Also they would be bereft of any liquidity, so 'inter-bank' lending would disappear. There has recently been a resistance to this practice anyway, as fear of what bond stocks in the so called 'Pig' countries (see above) each holds as 'blue-chip' security. Literally without State intervention (again) holes in the wall could dry up, as the entire banking system collapsed. The corollary of this could be civil conflagration (a la this years riots) accompanied by apathy, inertia and years of stagflation.

Only a few days ago the US Federal Reserve, The European Central Bank -- along with the Bank of England, the Bank of Japan and the Swiss National Bank announced a coordinated plan to pump dollars into Europe's financial system. This to provide funds for European banks repaying debt and also needing to still provide desperately needed loans for cash starved commerce.

Two of the most powerful forces in finance are uncertainty and the fear of it. With a sea of debt and loss in Europe (Germany exempt), everyone's hanging onto their cash, whilst printing more of it.

It's only similar to a business wanting to borrow from a bank. You need to provide (along with many other items) your last 3 years accounts and balance sheets. Imagine being Italy, with the latter showing 120% debt to your current trading profit and loss revenue results, and inevitably a huge negative after spiralling costs, even before interest, were applied. Consider the mauling you'd take in the 'Dragon's Den' pitching up with a business plan leaking like a sieve, borrowed to the hilt and just about to get far worse.

It has to be said that for years Italy, Spain and Greece (amongst many others) have accrued sovereign debt year on year, with reckless disregard. Politicians struggled to come clean with their populations that we were all living too high on the hog. Many thought the 'Euro' was a good hiding place from their inability to live with reality. In truth to expect 16 disparate economies to run cohesively with one currency was ill conceived, ideological idiocy. and the French and Germans as sponsors have much to be responsible for, if the ship of fools does hit the rocks.

Here the UK will be damaged beyond comparison with any past experience, (including 2 world wars), compiling a fractious position where we already owe £1.1Trillion and rising.

Not being in the Euro is not an escape either. If a giant asteroid hits the earth anywhere, even if your the other side of the globe from the epi-centre, the after effects would no doubt prove terminal(see dinosaurs).

From a personal viewpoint, damage limitation could be found by leaving cash funds under £85k in a bank or building society account, where the Government underwrites any loss you may experience up to that figure. If you have excess to that amount, split it into separate accounts with DIFFERENT banks, the guarantee only applies to one individual with ONE institution. Belt and braces, well we own, despite their activities to the contarary, RBS (84%) and have a 41% stake in Lloyds, so putting your money with them may well be wise.

The overriding problem however, is how much can the treasury funded by the taxpayer continue to absorb by bailing out these floundering companies, where we might not be able to sell our debt to a similarly cash strapped world? Euro failure may be a tsunami too far.

Sadly the mattress has it downside too, because any cash, whilst probably rising in value initially as the Euro nose dived, would thereafter suffer in a cash shrunk world where the £ , owned by a very sick UK would inevitably likewise plummet.

Posted 02 Dec 2011, 17:54 #3 

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ned1
Well charter mark, that's cheered me up no end! :panic: GULP!
The road to success is always under construction.

Posted 02 Dec 2011, 18:24 #4 

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Trebor
i was hoping you would come in Martin, i look forward to 5 years time when the government has the defecit under control and reward us all with the bigggest give away budget ever, what was that you were saying about pigs !
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Posted 02 Dec 2011, 18:37 #5 

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Chartermark
Sadly Trevor, history has repeated itself from 1929 and the 'Wall Street Crash'. Two far visioned American Senators formatted a bill that became part of American banking law. They were Carter Glass and Henry Steagall. In 1933 they passed the second Carter Steagall Act that prohibited banks gambling with Retail depositors savings. A piece of legislation that held good until Clinton repealed it following Republican sponsorship in 1999. It took the bankers less than ten years to repeat the '29 crash all over again.

Gordon Brown should have kept a much closer eye and legislated against the banks, but the FSA, were far too cozy with the 'Porsche & Braces' brigade - result repetitive chaos. In all fairness the Tories would'nt probably have done any more to interdict either (see geese & golden eggs).

John Maynard Keynes, the British Economist who did so much to reconstitute the American economy in the 30's once said;

'Bankers are not the sobersides of folk lore, but reckless fellows who need watching very closely'.

How right, but to have them in concerto with short sighted European Political zealots, dreaming of ideality whilst breaking peoples lives, is a sordid concoction of odds indeed.

Posted 02 Dec 2011, 20:43 #6 


Jumper
The reality is that political crooks run the world banking system to suit their own ends, and that means [i]all[i] politicos because they don't even get selected for high office unless they are 'on message'. They then load the racket onto the tax payers, after making sure their accrued gains are ring fenced.

The European debacle has been coming for years because waverers have been threatened with ruin by the cabals. Who ever heard of the likes of von Rumpuoy before he was somewhat undemocratically appointed? The EU annual accounts have not been signed off, as required by EU law,for the last 16 years. Their own accountants are not prepared to put their names to the endemic fraud, malfeasance, and theft.

Unfortunately, ordinary people can do nothing other than keep their heads down, keep their money[i]out of government bonds or savings accounts,[i] and move all personal debt on to interest-free cards whist if possible keeping a cash reserve. Martin, you have it all exactly right if I may say. But the current guarantee of protection for savings up to £85K in different accounts can be rescinded in a 'national emergency' at a panicking government's whim. We are all too young (how nice to be able to say that for once!) to remember what happened to the guaranteed War Loan Certificates and how war widows were left potless by a ruthless decision. Also, move energy suppliers to take advantage of fixed-price gas/electric for as long as possible. Because if it is thought the price hikes of recent years are large then a second thought is coming.

Having now read what I've just written, it seems my intended italics haven't obeyed my commands! It's already happening! We're doomed!

Posted 02 Dec 2011, 21:26 #7 

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Borg Warner
Very well explained guys, I think I understand a little better now. But I'm not going to worry because I can't do anything about it.

A question though; If my bank/lender goes under do I lose my savings and they lose my debt i.e. mortgage? (I think I know the answer but?)

Posted 03 Dec 2011, 13:58 #8 

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Mick
(Site Admin)
Jumper wrote:Having now read what I've just written, it seems my intended italics haven't obeyed my commands! It's already happening! We're doomed!



The tags need a / in the closing tag

Posted 03 Dec 2011, 14:39 #9 


Jumper
Thanks for that Mick. Still over my head though. And I've just tried to post a reasonably full reply to Borg Warner's query and lost it all to a 'page expired' and two additional requests for log in! Probably better if I just give up, I need to get to the bank to pay my mortgage.

Posted 03 Dec 2011, 14:58 #10 

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James.uk
It's worth bearing in mind that your "money" is only a piece of paper that sez the Bank promise to redeem it for, erm, what? hopefully some gold to the value of. But, we all know they don't have anything like enough gold to cover the paper money they printed, so what to do with your paper £'s if the banks have nothing to exchange for it?

It's woe woe and thrice times woe innit...
...

Posted 03 Dec 2011, 16:00 #11 

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Chartermark
Borg Warner wrote:Very well explained guys, I think I understand a little better now. But I'm not going to worry because I can't do anything about it.

A question though; If my bank/lender goes under do I lose my savings and they lose my debt i.e. mortgage? (I think I know the answer but?)


Savings and Mortgages are current assets ande liabilities to a bank. A collapse normally means another institution acquires the shares & therefore the title to the above along with them.

Therefore your position remains the same, all that happens is the shareholders of your bank change, as they do in their thousands every day

Posted 03 Dec 2011, 16:02 #12 

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Chartermark
James.uk wrote:It's worth bearing in mind that your "money" is only a piece of paper that sez the Bank promise to redeem it for, erm, what? hopefully some gold to the value of. But, we all know they don't have anything like enough gold to cover the paper money they printed, so what to do with your paper £'s if the banks have nothing to exchange for it?

It's woe woe and thrice times woe innit...
...

James,
You are refrerring to Fractional Reserve Factors, no longer tied to Gold, but upon a far more fractious factors such as the deposit / loan ratio. Currently a 10% deposit means a bank can loan 9 times that value, ie you pay in a thousand and they can loan Ten thousand. Of course they maintain that their capital worth (balance sheet) is always their strength but Fred Goodwin suggests the reverse ...

Anyway good old Gordon flogged most of our Gold and Silver anyway ...

Posted 03 Dec 2011, 16:14 #13 

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James.uk
Hiya Martin. :) I thought that the ratio had been increased to 100x1 not too long ago. And if that's true, it's even worse...

Whatever the case, it was bad news for the majority of us...

Maggie sold off all the national industries, Gorden sold what was left... :(
...

Posted 03 Dec 2011, 18:39 #14 

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Zeb
Best thing to do is to spend what you have on summat that'll make you smile whilst currency is actually worth summat! My V8's cash'value' may rise or fall but I don't care, cos it is mine.. :D

Posted 03 Dec 2011, 19:04 #15 


Jumper
Borg Warner wrote:Very well explained guys, I think I understand a little better now. But I'm not going to worry because I can't do anything about it.

A question though; If my bank/lender goes under do I lose my savings and they lose my debt i.e. mortgage? (I think I know the answer but?)


SAVINGS
In my unqualified opinion (lapsed 1993!) your savings and investments can be 'guaranteed' at the nominal amount invested up to a maximum of £85K per account per bank. So similar accounts may be held in different banks for people with more to protect. But care is needed for a trap may exist. When a bank merges or is swallowed the main predators are... other banks! So your various accounts may be vulnerable......

As for guarantees - let's see. Can anyone think of, say, a potential Prime Minister giving a 'cast iron guarantee' of a referendum on the EU prior to an election and then, after winning it, reneging on the promise? Well, sue me if I'm wrong, but that is FRAUD. These guarantees may be removed overnight if the situation becomes desparate. No legislation is required, just an 'order in committee'. By a committee stuffed with placemen! There has never been, isn't now, and never will be, any politician worthy of trust. They will all do exactly as their political masters want.

MORTGAGES

When a lender fails, the on-book debts remain just that. The new owner, having bought the company for a nominal £1 (yes, that's right) then owns the debt. Remind anyone of of anything beginning with 'M' and originating in Sicily? They are entitled to whatever was contained in the original mortgage agreement including the right to dictate interest rates. Mortgagees may find their rates escalating rather more rapidly and suddenly having nothing to do with the Bank of England base rate.
The original lender may have failed due to incompetence in the market. Just because you are a CEO of a bank it doesn't mean you are an economist, a banker, or a lawyer. You may just be the next Buggins in the 'right' club. You may have fallen for the dulcet tones of USA bankers, say, Freddie Mac or Fannie Mae (federal bankers US style - acting with the assumed strictures of federal investment authorities), whose agents sold thousands of home loans to people in trailer parks who had absolutely no hope of repayment of loans on otherwise ummortgeable property. These mortgages were 'unitised' ( a euphemism for bundling together thousands of mortgages and selling them on - common industry practice all over the world).
These mortgages are then wrapped in bundles (metaphorically speaking) with the golden ones on the outside, hiding the iffy ones on the inside and unlikely to be noticed. Gets a better price, see. You may have been complacent in the area of 'due diligence' by accepting the word of a 'trusted' colleague on the other side of the pond! Again, a legal requirement under British law. Result: I should say so! Fanny Mae and Freddy Mac get shot of the problem, the limeys suck it up. The upshot is your percieved relationship with your lender has changed. Big time.

The best way, and I am not recommending this, is to cast off this mortal coil with maximum debt, after placing your entire assets in trust for your children, preferrably in the Cayman Islands. If any bailiffs are sent after me, where I'm going, they are sure to like the music but it won't half be hot.


After a long and mainly successful career in financial sales my default mood is positivity (I'd have starved otherwise). So I hate being the harbinger of doom or presenting the negative. But, seriously, the calibre of rulers and governors at all levels since the demise of Thatcher leaves me totally cynical. But you'd never guess that would you.

Posted 03 Dec 2011, 20:03 #16 

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Chartermark
Quite agree Carl,

Some recovery may indeed come from OAP's like James and I buying something of real value (in all senses). I'm currently pursuing a wasteful whim that first saw life when Dad's Army was young ...

Posted 03 Dec 2011, 20:07 #17 


Jumper
James.uk wrote:It's worth bearing in mind that your "money" is only a piece of paper that sez the Bank promise to redeem it for, erm, what? hopefully some gold to the value of. But, we all know they don't have anything like enough gold to cover the paper money they printed, so what to do with your paper £'s if the banks have nothing to exchange for it?

It's woe woe and thrice times woe innit...
...


But James, they DO HAVE the wherewithall to redeem your £20 note, or in my case a fiver. They just borrow more! That's what's wrong. No assets, only the blind and uncomplaining compliance of the taxpayer!

Posted 03 Dec 2011, 20:10 #18 

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Bermudan 75
[uote="Chartermark"]Quite agree Carl,

Some recovery may indeed come from OAP's like James and I buying something of real value (in all senses). I'm currently pursuing a wasteful whim that first saw life when Dad's Army was young ...[/quote]

That's it then, as Pte Frazer would say, 'were all doomed' and Cpl Jones would say, 'Don't Panic'.

Dad's Army has all of the answers we need :thumbsup: or did they look into the future and see the mess of 2008 and beyond?

Mike
Image

Posted 04 Dec 2011, 16:56 #19 

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Chartermark
Rover418275 wrote:[uote="Chartermark"]Quite agree Carl,

Some recovery may indeed come from OAP's like James and I buying something of real value (in all senses). I'm currently pursuing a wasteful whim that first saw life when Dad's Army was young ...

That's it then, as Pte Frazer would say, 'were all doomed' and Cpl Jones would say, 'Don't Panic'.

Dad's Army has all of the answers we need :thumbsup: or did they look into the future and see the mess of 2008 and beyond?

Mike


Mike, perhaps episode 3 'Miser's Hoard', of the 9th and final series sums it up best, when the platoon discover that Frazer has a fortune stashed away in gold sovereigns.

Mainwearing foolhardily tries to cajole him into cashing them in for 'War Bonds - from his bank - of course.

I keep getting this picture now of old Trevor up there, furtively stealing his way across to Teddy Bears Nursery, in the small hours, with the wind blowing and the owls hooting. Hurriedly, by light of a full moon, he buries his 'Mattres stash' under the Tomato plants and old Pollen filters.

Returning home, James is ringing from the warmth of his CDti, clutching his candlestick parrot phone in hand and whispering down it about the 'Emergeny Powers Act' ...

"Aye and we're all doomed, doomed - innit"!

Posted 04 Dec 2011, 21:23 #20 


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