Thursday, 16 June 2011


Ring fence? Ring piece more like. The UK banks that got fucked during the current credit crunch, got fucked because of the following:

- They were over reliant on wholesale funding (i.e. they borrowed too much money from institutions as opposed to yer average man in the street) to finance their lending, an approach never tested before in a financial crisis.

- The sudden mass realisation US sub prime mortgage debt wasn’t triple A (and no one knew what losses it would actually generate), followed by the subsequent Lehman collapse and associated realisation banks could be allowed to fail, prompted, then drove a global, institutional crisis of confidence in banks. As a result wholesale funding dried up.

- Those banks most reliant on wholesale funding had coincidentally enough also gone mental with their property lending both to yer average man in the street buying a new build buy to let reclaimed land/city centre en-suite yuppie flat, but more importantly to commercial property investors and developers. And seriously, by mental I mean absolutely fucking mental.

- A vicious circle was then rapidly established wherein the mental property lenders couldn’t finance their mental property loans and property prices built on having mental money thrown at them collapsed. This in turn gave wholesale funding institutions even more reason not to lend cash to the UK banks reliant on them because the banks had suddenly gone from having commercial property loans done at say (lets be charitable for a mo) 90% loan to value to holding billions of debt secured against assets with a loan to value of say 130% i.e. call in the debt, sell off the asset and its still 30% under water/a 30% loss on loans where the lenders had only been making say 1% p.a..

- RBS adds a bit of colour to this because it also pissed away its cash buying up a bit of ABN Amro. However, stories like this, this and that suggest it also went as mental as an Irishman with the property lending.

The reason for raking up old coals, stating the obvious etc., is straightforward; it wasn’t casino banking wot dun it for the UK banks that were nationalised, baled out or taken over, it was shit-mental lending and funding arrangements.

This isn’t news, this is fucking obvious. This is shite the ring fencing of banks doesn’t address. Like why the fuck is ring fencing such a big deal as opposed to introducing Tobin taxes for all the rentier casino bank financial activity that does nothing but generate volatility, add a commodity price premium we all have to pay and generate otherwise avoidable transaction costs simply to finance commodity/derivative/currency trader bonuses?

I reckon its due to politics and prejudice. Rather than tackle, address or more importantly redress the actual causes of the current fucked up British economy, ring fencing keeps the focus on the casino banking rhetoric and all that entails in terms of bemoaning the multi-million pound bonuses paid to well not that many people actually.

Now personally, I’d be happy enough if the few that did get the big bonuses got fucked roughly into a cocked hoop by a horse-cocked gorilla with anger issues. Except I don’t see ring fencing affecting them in the slightest (unless it increases the cost of capital associated with their activities and hey presto they become less profitable/generate smaller bonus pots), rather they’ll be moaned about in political soundbites, but otherwise left to their own devices.

What ring fencing will do though is let politicians claim they’re doing something, anything even. And by doing so politicians will be able to avoid actually doing anything about the cunts that caused all the problems for the British economy in the first place. Like why aren’t the mentals involved in all the mental property lending being strung up by their balls around Trafalgar square? Don’t worry we’re ring fencing casino banking. Aren’t banks continuing to lay off tens of thousands of staff who had fuck all to do with the losses? Don’t worry we’re ring fencing casino banking. And so on.

And if you really want to identify who made the big bucks out the bubble, it wasn’t actually bankers. Check out property week instead which will give hints to the mental property lending that at its height involved shit like:

Some joker sets up a Special Purpose Vehicle (SPV) i.e. a standalone company/legal entity

Said SPV borrows say £90m to do something involving property with the Joker/founder chipping in say £10m. In the event of things going pear shaped well tough cos there’s no recourse to any other assets the Joker owns what with him having a proven track record, being terribly sophisticated, having invited very senior bank bods to his daughter’s wedding and what not.

That’s day 1. Day 2 the SPV uses the loan to pay the Joker a £20m dividend thus making sure he gets all his money out plus another £10m.

Day 3, who the fuck cares, the Joker has already made a 100% return/£10m. I don’t know, mebbe the SPV buys a portfolio of Belgian public toilets or mebbe a shopping centre. Does it matter? Yer man has already made his money and then some with no recourse to his other assets if it all goes tits up.

Day 4 the bank declares big losses on Joker loans that have left big holes in the bank's balance sheet. The taxpayer bails out the bank, filling in all the multi-million pound Joker holes.

So yeah, ring fencing, casino banking ya de ya de ya avoid the issues, doesn't point any well deserved fingers and so on. Cunts.

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