This is starting to get a little scary Page 362

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  • LeoliansBro 24 Sep 2012 15:14:43 41,863 posts
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    I think banks are being very risk averse. I don't however think they're being too risk averse.

    LB, you really are a massive geek.

  • LeoliansBro 24 Sep 2012 15:17:24 41,863 posts
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    And you're right, Vince Cable isn't trying to solve the problems of the banks. I was just pointing out that what he is doing is fundamentally unsound as a business strategy, and he has no business calling it a 'bank'. It's a government charity.

    Plus 1bn is a bit small no?

    LB, you really are a massive geek.

  • Bremenacht 24 Sep 2012 15:18:24 15,741 posts
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    LeoliansBro wrote:
    Vince Cable's brilliant new bank doesn't solve these problems, it ignores them. Hence, it's a stupid idea.
    By ignoring all of that, I think it's a great idea.

    The big problem at the moment is that everyone is looking to everyone else to do something, and no-one is really doing it. Fear of failure. The assumption seems to be Europe needs to get fixed before anyone else can get their house in order. That could take more years and the UK has bugger-all input into how that fix should work (if anyone knew what the 'fix' should be).

    If each business case is assessed as they should be, and risk is correctly managed within the overall parameters of the scheme, what's the problem?

    Once an eagle taught me courage. And I will never forget that day

  • LeoliansBro 24 Sep 2012 15:22:03 41,863 posts
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    Bremenacht wrote:
    If each business case is assessed as they should be, and risk is correctly managed within the overall parameters of the scheme, what's the problem?
    The problem is that high street banks are already doing this.

    VC is effectively setting up a business where the risk profile of the lendings is higher than the risk profile of the borrowings, and hoping that 1bn of government cash will bridge the gap. Doesn't work at the most basic level.

    LB, you really are a massive geek.

  • Bremenacht 24 Sep 2012 15:23:38 15,741 posts
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    I also think it's less the case of an aversion to risk and more a case of banks taking a CBA attitude to SME's because there isn't enough margin in there for them.

    They seem to be most interested in big government-funded infrastructure schemes and PFI/PPP type stuff - big margin stuff.

    Once an eagle taught me courage. And I will never forget that day

  • LeoliansBro 24 Sep 2012 15:26:49 41,863 posts
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    Bremenacht wrote:
    I also think it's less the case of an aversion to risk and more a case of banks taking a CBA attitude to SME's because there isn't enough margin in there for them.

    They seem to be most interested in big government-funded infrastructure schemes and PFI/PPP type stuff - big margin stuff.
    Sorry, but this is completely, utterly untrue.

    LB, you really are a massive geek.

  • Bremenacht 24 Sep 2012 15:30:09 15,741 posts
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    LeoliansBro wrote:
    Bremenacht wrote:
    If each business case is assessed as they should be, and risk is correctly managed within the overall parameters of the scheme, what's the problem?
    The problem is that high street banks are already doing this.
    Well, there's the problem - banks seem to have raised the bar very high on what they see as acceptable risk. Too high. SME's didn't cause the crash, so I don't see why they should be subject to greater control or scrutiny than they were before.

    I agree that 1B won't do much. The intention is to put more in, but I suspect coalition politics will be the greatest influence over how much money goes in. If it looks successful, it'll make GO look like an ass and they'll work to kill it off. Politics before country, again.

    Once an eagle taught me courage. And I will never forget that day

  • Bremenacht 24 Sep 2012 15:31:56 15,741 posts
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    LeoliansBro wrote:
    Bremenacht wrote:
    I also think it's less the case of an aversion to risk and more a case of banks taking a CBA attitude to SME's because there isn't enough margin in there for them.

    They seem to be most interested in big government-funded infrastructure schemes and PFI/PPP type stuff - big margin stuff.
    Sorry, but this is completely, utterly untrue.
    Well, it's my opinion. I can't back it up with anything. If there's no problem, why are they trying to fix something?

    Once an eagle taught me courage. And I will never forget that day

  • LeoliansBro 24 Sep 2012 15:33:54 41,863 posts
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    Bremenacht wrote:
    Well, there's the problem - banks seem to have raised the bar very high on what they see as acceptable risk. Too high. SME's didn't cause the crash, so I don't see why they should be subject to greater control or scrutiny than they were before.

    So, you're saying banks should be riskier?

    I agree SMEs didn't cause the crash. They're just far more likely to go bust and leave the bank out of pocket in the post-crash economic climate than larger businesses.

    Edited by LeoliansBro at 15:34:26 24-09-2012

    LB, you really are a massive geek.

  • IJ 24 Sep 2012 15:35:59 741 posts
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    I haven't really read the story, but if its 1b in capital then that can be leveraged multiple times depending on the riskiness of the loans.

    Banks are often 20-30x leveraged (which is partially the problem, but if they weren't loans would be much more expensive than they already are).
  • mcmonkeyplc 24 Sep 2012 15:36:39 38,853 posts
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    LeoliansBro wrote:
    And you're right, Vince Cable isn't trying to solve the problems of the banks. I was just pointing out that what he is doing is fundamentally unsound as a business strategy, and he has no business calling it a 'bank'. It's a government charity.

    Plus 1bn is a bit small no?
    The reason they're doing it is because it's unsound business strategy at the moment. Banks won't do it so the government has to step in to fill the gap. Little market failure there.


    Yes, 1bn is a small for a bank but it's only for SME's. Probably hoping for a little multiplier effect here. Vince being an economist and all.

    Come and get it cumslingers!

  • LeoliansBro 24 Sep 2012 15:36:52 41,863 posts
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    Bremenacht wrote:
    LeoliansBro wrote:
    Bremenacht wrote:
    I also think it's less the case of an aversion to risk and more a case of banks taking a CBA attitude to SME's because there isn't enough margin in there for them.

    They seem to be most interested in big government-funded infrastructure schemes and PFI/PPP type stuff - big margin stuff.
    Sorry, but this is completely, utterly untrue.
    Well, it's my opinion. I can't back it up with anything. If there's no problem, why are they trying to fix something?
    There's a problem with the general risk profile of businesses, not with the assessment of the banks.

    VC is trying to provoke economic growth by doing this, but he's ignoring the fact that the 'bank' he's creating is financially unsound, puts the general public's money at risk, and is supported by very very little from the government.

    LB, you really are a massive geek.

  • disusedgenius 24 Sep 2012 15:46:00 5,140 posts
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    Can't this be seen as more of a short-term cash injection into small businesses with a possibility of recouping the costs than a long-term investment strategy by the government? Compared to the amount of money the banks got post-crash it hardly seems excessive.

    Edited by disusedgenius at 15:46:22 24-09-2012
  • IJ 24 Sep 2012 15:47:25 741 posts
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    I think some people expect banks to be social enterprises. They are businesses. Banks are hardly making any money at all at the moment. They're returning around 5-10% ROE (return on equity) and in some cases (RBS/Lloyds) negative returns for shareholders. Banks are businesses with shareholders at the end of the day and have to make money. If i have shares in a bank which return me 5% a year, I'll just move them to a company which makes me 10% a year...simplistic but they have to be viable attractive businesses.

    Against this, they're all tasked with shrinking due to Basle 3, almost every single bank has to REDUCE the amount of assets they hold by large amounts to meet 10% Tier1 capital in the coming years.

    Clearly the fact banks were undercapitalised caused a large part of the problem in 2007-2009 so government regulation to increase capital is probably the right thing to do.

    But banks can't reduce assets, reduce their riskiness, increase margins, increase lending and transform all at the same time.

    The credit crisis was caused by the easy supply of credit. If the banks flood the market with credit we'll just get another bubble in 5-10 years. Anyway, what's the problem with charging 10% on a 5y loan? I can take money and put it in safe 5y assets at 6%. SME's are clearly all different but generally all would be classified as high yield due to their small business profile reliance on one industry. Therefore they should be borrowing at 15%. As an investor I would rather get 6% from a safe asset than 10% from a highly risky asset.

    This is where a government 'bank' comes in. It works on two fronts, charity (non-profit) and access to government funding (2-3% cheaper than UK banks at the moment). The bank can even lose money because the government see's positives on lots of other fronts, increased employment so a reduction in benefits, increased taxes from income, less social problems due to unemployment etc etc

    Edited by IJ at 16:05:53 24-09-2012
  • mcmonkeyplc 24 Sep 2012 15:47:44 38,853 posts
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    disusedgenius wrote:
    Can't this be seen as more of a short-term cash injection into small businesses with a possibility of recouping the costs than a long-term investment strategy by the government? Compared to the amount of money the banks got post-crash it hardly seems excessive.
    That's exactly what it should be seen as.

    Come and get it cumslingers!

  • LeoliansBro 24 Sep 2012 15:49:47 41,863 posts
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    It isn't that, he's creating a whole new bank.

    If I set myself up as a bank, and you deposited all your money with me, would you be happy if I turned around and said 'by the way, there's a fair chance that the people I'm lending your money to will go bust, so you'll lost this money, and in fact every other bank on the high street is safer, but don't worry because the government has shown faith with a token deposit' would you bank with me?

    LB, you really are a massive geek.

  • disusedgenius 24 Sep 2012 15:52:02 5,140 posts
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    Can I deposit my money in it? They seem to be taking about banking in quite narrow terms.
  • LeoliansBro 24 Sep 2012 15:52:48 41,863 posts
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    Yes - that's the whole fecking point I'm making here.

    LB, you really are a massive geek.

  • disusedgenius 24 Sep 2012 16:08:07 5,140 posts
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    Well, time will tell. Gives you a nice chance to say I told you so at the very least.
  • LeoliansBro 24 Sep 2012 16:14:48 41,863 posts
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    Hey, disusedgenius! I've two great offers for you.

    If you deposit 1000 into my Bank A, I'll going to invest it in a sector-neutral portfolio of solid businesses, drawing heavily from dividend paying members of the FTSE 100 and the Fortune 500. Unless I go bust, you'll receive interest on your money of 0.5% APR.

    If you deposit 1000 into my Bank B, I'll going to put it all on number 28 (my lucky number) at Gala Casino on Tottenham Court Road. Unless I go bust, you'll receive interest on your money of 0.5% APR.

    Which bank do you fancy? VC's all about Bank B, and he's putting in 100 of his (although really your) money as well.

    LB, you really are a massive geek.

  • mcmonkeyplc 24 Sep 2012 16:16:43 38,853 posts
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    Yeah cause that's exactly how it's going to work.

    You know what he's trying to do. You know why. I don't get what your problem is apart from it's called a bank cause he's lending money but not allowing new deposits.

    It's almost like it's a financing company...

    Come and get it cumslingers!

  • mcmonkeyplc 24 Sep 2012 16:17:38 38,853 posts
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    A financial intermediary even.

    Come and get it cumslingers!

  • LeoliansBro 24 Sep 2012 16:18:04 41,863 posts
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    He's lending money based on the public's deposits with a little seed capital from the government.

    He's actively encouraging people to be riskier with their life savings!

    LB, you really are a massive geek.

  • Khanivor 24 Sep 2012 16:21:34 39,862 posts
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    Will the bank be insured by the government? If so, sounds like a way to let common people get a taste of givernment bond-type action.
  • mcmonkeyplc 24 Sep 2012 16:22:07 38,853 posts
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    No he's not. What hyperbole is that?!

    The seed capital is the peoples money anyway. He's trying to boost the economy by lending more to SME's. As long as they do this in a prudent way what the hell is the problem?

    He's going to be charging some interest isn't he? It's not giving money away, we might even make a modest amount back.

    Come and get it cumslingers!

  • disusedgenius 24 Sep 2012 16:24:13 5,140 posts
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    It's not like he's hiding what the point of the bank is though - you're only going to be putting money into it if you agree with it's point.
  • LeoliansBro 24 Sep 2012 16:24:20 41,863 posts
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    High street banks ARE doing this in a prudent way. The problem is not with the high street banks, it's with the SME risk profile.

    We're not lending 'enough' to SMEs because there aren't enough credit-worthy SME businesses out there.

    It isn't hyperbole. Why not remove the bank as a middleman - would you rather invest in a local startup or a Proctor & Gamble, if the returns were the same?

    LB, you really are a massive geek.

  • Khanivor 24 Sep 2012 16:31:42 39,862 posts
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    Last paragraph is precisely why it's a reasonable idea. We can't exist as an economy on nothing but Proctotr & Gambles.
  • disusedgenius 24 Sep 2012 16:32:28 5,140 posts
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    Maybe the SME risk profile is wrong?
  • mcmonkeyplc 24 Sep 2012 16:32:32 38,853 posts
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    What if the risk profile is the problem. Which is what he's saying.

    They are being too risk averse. That is the premise of this idea.

    You don't think they are being risk averse.

    This "bank" isn't investing on returns for the bank it's investing on returns for the entire economy.

    Come and get it cumslingers!

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