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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Bailed-out Big Bank's Bonuses Publicity Stunt Ahead of General Election

ElectionOracle / UK General Election Sep 30, 2009 - 12:46 PM GMT

By: Nadeem_Walayat

ElectionOracle

Best Financial Markets Analysis ArticleBritain's top 5 bankster's finally agree to abide by an FSA request earlier in the year for strict rules to apply to the payment of bonuses for 2009.


The rules belatedly hope to address the key cause of the credit crisis, namely bank officers banking billions in bonuses on non existant profits that left the banks they worked for hollow shells carrying huge liabilities that have subsequently sparked Britain's Great Depression and led to some £1.5 trillion of liabilities being dumped onto the tax payers that is expected to result in a real loss of £500 billion and has put Britain onto the path to bankruptcy in addition to the public sector deficit spending of £600 billion over 3 years in the lead up to the next election on which the country will have to pay interest which worsens the fiscal situation during each subsequent year hence the risk of an out of control debt spiral with associated risk to sterling.

Therefore we are looking at £600 billion of deficit spending PLUS £500 billion of bankrupt bank losses leading to a near tripling of Britians debt towards 120% of GDP, whilst total liabilities project to more than 350% of GDP.

Meanwhile the too little too late FSA rules are for bonuses to be paid in installments over 3 years with a provision to claw back awards if the bank performance suffers. Its not surprising that the banks are returning back to profit given the fact that every UK Tax Payer is subsidising them to the tune of £42,000 each!

Earlier in the week the Governor of the Bank of England, Mervyn King had called in ivory tower academic economists to discuss why Quantitative Easing of £175 billion had failed to work, despite the fact that it was the theoretical models that the governments and central banks relied on that led to the crisis on the first place, but still are yet again called on for answers to a crisis they never saw coming.

Though the answer is obvious to all but the academic economists, the reason why Quantitative Easing is failing to work because the bailed out bankrupt banks are have no incentive to lend the money out under the current artificial banking system as a consequence of tax payer bailouts. The bankster abuse of tax payer funds is not just limited to sitting on cash as when they do lend money it is far in excess of the interbank rate of 0.57%. In reality the real interest rate should vary between interbank rate plus 0.5% to 1%, depending on the customers credit rating. However the actual amount being charged to customers on the standard variable rates ranges from interbank rate PLUS 3% to 5%, far beyond that of how a competitive banking system operates as the below graph illustrates.

The UK Government, Bank of England, FSA and UK Treasury have a lot to answer for they have created a market for credit that in effect lets the banks systemically rob the tax payers and borrowers by charging interest rates that have no bearing on any conceivable normal banking market when one compares the rates charged against the rates borrowed at. It would have been far better for the banks to have been allowed to go bankrupt, restructured and then refloated as retail banks with a mandate to service retail customers without access to the interbank market, instead relying on customer deposits for funds. Instead the banks are operating on a business as usual basis with a view to maximising profits at both tax payer and borrower expense so as to enable huge bonuses to be paid out.

The Governor of the Bank of England, Mervyn King stepped out of this ivory tower recently to announce that he is not happy with the Bankster's for sitting on tax payer cash, which is a case of confirming that the authorities continue to have rings run around them by the bankster's.

“It is certainly true that it would be useful to think about ways to encourage banks individually to try to convert some of their reserves which would then reinforce the transmission mechanism of the direct assets purchases that we make.”

What this means is to force the banks to lend money out i.e. to take risks, the Bank of England may implement NEGATIVE interest rates for monies deposited as excess reserves at the BOE. Make no mistake about it, negative nominal interest rates would be a PANIC measure and be immediately reflected in a sharp drop in sterling.

However, the only option available to the British people to respond is to punish the inept, incompetent Labour government at the next general election for creating such a condition that allows the Bankster's to continue to rob the tax payers whilst the regulatory institutions drift from one panic measure to the next, all the while the unemployment count continues to rise as businesses are forced by the banks to go bust due to withdrawal of credit facilities.

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By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Matt
30 Sep 09, 20:46
Who are you going to vote for?

Hi Nadeem,

I will love to see the Labour Party defeated at the next General Election, however, I just wondered who you would recommend to vote for? It seems to me the Tories are heading for a majority yet they wouldn't have managed very well either?

Would you say who you are going to vote for?

Matt


Nadeem_Walayat
30 Sep 09, 20:55
Labour or Conservative?

Neither of the parties are telling the truth to the electorate that are being sleep walked into a 10 year depression.

Its probably a case of which one do I dislike the least 6 months from now.

I will probably vote for the one I deem to be the most truthful at that time.


James
06 Dec 09, 17:28
Next Election

I wouldnt bet on either party winning, definitely not a majority. Most MPs are putting in time, hoping for defeat, so they can get their lump sums and pensions and leave. With the poverty, unemployment, failing NHS, failing schools, rising violent crime and their reputations in tatters over the expenses thefts, why would they want to stick around. Many of them havent been back to the constituencies since they were exposed for the cheats they are. Brown and Cameron shouldnt reward failure. If they lose their seats, they shouldnt be rewarded. Only if they win their seats for their parties then step down should they be allowed to bask with their ill gotten gains. Brown and Cameron dont thave the guts to do this, but this is the only way they will make any effort to sort out the economy between now and the next election. I predict the fring parties will make big inroads as this will be a very low turnout election. Fighting over the garbage more like.


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