All posts by John Band

End of the world update: time to buy tins and shotguns?

So, when I said “don’t bother switching banks,” what I actually meant was “don’t bother switching banks unless your bank, instead of falling under the UK compensation scheme, falls under the compensation scheme of a small, rainy, historically very poor island which crazily overexpanded over the last five years and has absolutely no chance of meeting its bailout obligations if things go wrong”.

Sorry, Icesave investors. On the plus side, my point about the daftness of transferring money to Irish banks is made rather conclusively.

Oh, and while I’m clarifying – I’m in the lucky position where my savings (just about) go over the protected limit, and I’ve had them split between several accounts to diversify risk even before the current crisis started. While I think it’s likely that a crash – especially if it’s of a real bank, rather than ultra-high-interest online chancers – will bring full protection, it might not, so get transferring now if you’ve still got over £50k with one institution.

Relatedly, Seth Freedman has a piece in the Guardian, wondering why people who chose to sign up for ultra-high interest rates with a ropey over-leveraged bank should be bailed out at the expense of the poor and the prudent – and he has a good point. It’s fair for the government to fully compensate savers in banks that a reasonable person would see as ‘safe’ [*], but hard to justify going over the clearly stated FSCS limits for people who’re choosing to gain an extra 2% interest in exchange for investing in, say, the First Bank of Nigeria rather than Lloyds TSB.

Looking to the longer term, and today’s liquidity-for-shares UK bank nationalisation announcement, my dad has a piece up on Liberal Conspiracy arguing that liquidity bail-outs are a terrible idea, as the crisis would otherwise be an excellent opportunity to get rid of the parasitical bastards at the major investment banks and end the toll they’ve exacted on the global economy ever since the Depression. If my dad were Mark Steel, that’d be unsurprising; since he’s been a stockbroker for 30 years and is currently head of investment banking for a broking firm, it’s a little more interesting…

[*] there’s a difference between savers in Northern Rock or HBOS, and Icesave or First Bank of Nigeria here. Northern Rock was originally a safe, conservative institution that made itself unsafe without most of its customers noticing, while HBOS did something similar (with less ineptitude and worse luck). On the other hand, Landsbanki was a foreign investment bank that nobody in the UK had ever heard of, and that was massively over-extended when Icesave started – and FBN is actually a reasonably good institution by local standards that appears to be holding up well, but hello! it’s a fucking Nigerian bank!

Update 8/10: Darling has copped out slightly. Rightly, he’s agreed to pay the €20,000 that the Icelandic government should have covered to Icesave savers; and rightly, he’s frozen Landsbanki’s remaining UK assets in the hope of recovering some money to offset against the compensation. Wrongly, he’s also covering deposits over £50k, which should have been written off to “if you’re that stupid then you don’t deserve to have 2x the average annual wage in cash”. Still, it’s more evidence for my “put the deposits in whatever goddamn bank you choose and you’re still safe” theory…

Don’t bother switching banks

Executive summary: If your savings are deposited in a UK retail bank, they are safe, and if you’re wasting your time transferring your money into UK government-backed savings or Irish banks you’re a muppet. Although if you’re super-paranoid then Ulster Bank might be worth a punt…

Rationale:

1) If your savings below £50,000 are deposited in a UK retail bank, they are no less safe than they were deposited in government-issued savings products. That’s because the only context in which you would not get your savings reimbursed in the event of bank failure would be if the government was so financially shafted that it couldn’t afford to do so, which is pretty much “tinned food, bottled water and a shotgun” time anyway…

2) With the government guarantee, your savings are probably slightly safer in a UK retail bank than an Irish retail bank, because there’s no way in hell the Irish government could possibly afford to keep its promises, whereas the UK government is slightly better placed to do so (also, the UK economy is slightly less shafted than the Irish economy).

3) Savings in a UK account above £50,000 are also effectively safe: it’s impossible to imagine any situation where the UK government would be able to reimburse savings below the limit and would not also compensate savers above the limit (they account for 2% of bank balances, so the cost to the government of providing the extra bail-out money would be negligible – but the confidence impact of not doing it would be dramatic).

4) Ulster Bank (RBS’s subsidiary in both Northern Ireland and the Republic) might get covered under the Irish plan as well as already falling under the UK scheme. While it’s unlikely that a catastrophic failure that led to the collapse of RBS and the UK government’s inability to bail out RBS depositors would occur without the Irish banking system also collapsing, it’s not completely impossible – so shifting your deposits to Ulster Bank if the deal goes through is the only way to (at least theoretically) enhance your risk profile…

On misreading punctuation

The excellent Rachel North is back. Hurrah! She’s been in New York addressing the UN on terrorism. Hurrah!

However, I had a bit of a double-take moment when I read her ‘I’m back’ post:

“…went to Turkey for 2 weeks with J, read a lot, chilled a lot, went to the Turkish baths a lot, turned extremely brown. Came back, had another week at home with J. Bliss.”

It took a few moments until I realised that was “with my husband J. It was bliss”, not “with excellent Irish greenblogger J. Bliss, with whom I am having a secret and passionate affair”. I think this makes me an idiot…

Back, and an apology of sorts

Right. I’ve sorted out a bizarre WordPress permissions issue, and now have full control over this blog again. Hurrah. In other news, apologies for not posting anything for a while. I’ve been in Canada and San Francisco not working, and therefore my blogging threshold/time has been limited.

In particular, apologies for not posting anything much here or elsewhere on the financial crisis / teacup / disaster that’s going to kill us all / etc. I’d like to claim this was based on the same worthy principles as Dsquared’s lack of comment, but actually it’s more that a) I’ve been on holiday, and mountains are more fun than Congressional bills and b) it’s getting towards the ‘complexity beyond my experience or understanding’ end of the spectrum, so I’m reluctant to say anything which isn’t either very flippant or very data-driven.

Luis Enrique has some interesting thoughts at the other place, which are probably as close to my views right now as anything I’ve seen. Oh, and Alex’s piece on how anyone who thinks the Tories would be less inept at handling the current mess than Labour is certifiably mad is probably worth a read.

I’m starting an exciting period of gardening leave now-ish, so may have more time to comment shortly. Anything I’m particularly proud of will go on LibCon; anything I’m not totally ashamed of will go up here. In the meantime, I’d be delighted to hear your views and/or pointers towards interesting people on the crisis.

One thing that I will say here, though, is that the US government is not planning to give $700bn to the banks, and that the UK government has not spent £50bn on bailing out Bradford & Bingley. In both cases, they’re taking on assets that more or less everyone who isn’t mad agrees are generally worth something approximating their book value, which is perfectly reasonable.

The reason intervention is required is that if (e.g.) B&B went bust, then without state intervention it would have to liquidate its mortgage portfolio at fire-sale prices. Now, this would be an absolutely excellent deal for anyone with cash to spare – the problem is, there aren’t any non-state actors with £50bn in cash to spare right now.

The underlying house mortgages aren’t going to decline significantly in value (even if house prices fall 25-35% in the medium term, that’ll be mostly equity lost by homeowners rather than negative equity), but once a bank is perceived as weak, its asset value is the fire-sale price of its assets rather than their underlying value. Governments are among the few institutions with the cash and the long-term focus to go beyond the market’s sillyness on this (although Lloyds TSB is also getting itself a very good deal, and if I were HSBC or StanChar right now then I’d be seriously considering purchasing some distressed Western assets with the backing of my Asian savers’ deposits…)

Another get-rich-quick scheme thwarted

I’m deeply annoyed that I work for a company that places onerous restrictions on my ability to trade shares, even on my personal account – if I didn’t, then I’d pile some serious money into HBOS stock right now…

September 17 update:

Fuckery. That’s £3,000 I would have made, buying at 150 yesterday and selling at 190 today. Lloyds TSB are wiseas, semirelatedly, are Barclays. Also, can the gibbering clowns who think this is the End Of The World / the Collapse Of The Global Financial System / etc please go away? Finally, this.

Unrelated October 1 update:

OK, so WordPress is doing some deeply weird things which stop me from, among other things, writing new posts and editing or approving comments. I’ll let you know when this is fixed…

Second Unrelated October 1 update:

Fixed.

In praise of loan securitisation

US house prices have collapsed, making mortgage loan portfolios somewhere between impossible to value and valueless. As a result, the investment banks have been devastated. Lehman Brothers has just gone bust, and Merrill Lynch has just been sold at a knockdown price. Bear Stearns went under, and UBS took a massive write-down on its investment banking business.

Meanwhile, the number of failed US local banks, wiping out small savers and shareholders, has remained low. While this might partly be tip-of-iceberg effects, it’d be frankly bizarre if part of the reason wasn’t that many of the riskiest loans ended up owned by Wall Street.

In other words, the system transferred risk from people who weren’t well placed to bear it, to Big Swinging Dicks and Masters Of The Universe, who duly lost their jobs, second Jaguars, third homes, etc, when things went horribly wrong.

Hurrah!

Sir Ben of Goldacre

Buy this book. If you understand why you need to buy this book, then buy this book. If you don’t understand why you need to buy this book then – for the love of all that’s worth a damn – buy this book.

Just don’t listen to the author talk, because he’s got an unfortunately whiny voice – one of those chaps who makes those of us who’re ‘prettiest on the radio’ briefly view that as a compliment…