Credit Crunch - latest
Wednesday 14 May 2008 File - Investment
Once
upon a time, there were lots of small banks and
building societies and they all got on well together,
managing as best they could.
Gradually, some of the bigger small banks started buying the small banks until there were only a few big banks left.
Witnessing what a bank could do that a building society couldn't, look, pots of gold at the end of the rainbow, let's become banks, said some of the building societies, and so they did.
That's not what we had in mind, thought the big banks, what we are going to do?
I've an idea, said one of the big banks, let's create a new lending market to attract customers we'd never want in a million years and pretend we don't mind the new small banks having a huge share of it, then, when they're up to their necks it in, we'll pull the plug.
Good idea, said the other big banks, coming up with lots of new financial products will give our marketing people something exciting to do.
And so it came to pass, the new small banks they fell for it and were allowed to capture a huge share; never mind if customers couldn't really afford to borrow, take the money.
For years, everything went according to plan. The new small banks had a field day. Thanks to them, the economy was booming, property prices rocketed, the government could introduce taxes galore and no one minded because there was so much money about they couldn't give it away.
Not everyone was happy. The really big bank, the one the banks revered, was getting a bit annoyed that its inflation target was coming into sight and the big banks could sense they'd lose their emotional credits if they didn't do something to make sure a letter didn't have to be written to the big chief Brown, whose initials GB appeared on car bumper stickers. No one wanted to go first, so they decided one big bank would have to play at being nice. So, because the revered bank is in England, where appearances must be kept up, they got one of the Scottish banks to draw the short straw.
All they had to do was choose the right moment.
Careful what you wish for!
A bank on another continent announced that a gift-wrapped parcel of mortgages it had bought from another bank was worthless because the borrowers that didn't have any money were unable to pay. Sensing a hand-out, the banking community responded generously, by immediately shutting their doors.
In England, a small bank, former building society, Northern Rock, found it couldn't borrow any money. Suddenly there were queues in the streets and the Government was being told it had to do something, which it did by summoning some politicians back from their holidays abroad.
To an observer, it seemed all hell was let loose, but to the banks in Britain it was a dream come true.
With Mrs Trellis of North Wales in mourning for Humph of Round Britain Quiz, it was left to Mr Bingley of Bradford to say there but for the grace of God.
God knows.
First to repent was HBOS, the biggest ex-building society, whose falling sp was met by a barrage of 'we shall not be moved', only to find that, when the tide came in again, it was not going to be quite as immovable as all that.
Sorry, said the Scottish bank, we've run out of money to give away, so we need you shareholders to cough up £12Bn, but don't worry you'll still get a dividend which we'll be able to pay you in shares just as soon as you've handed over the lolly. While the Scottish banks shareholders were reeling from the shock, while you're at, said HSBS, we'll have some, us too probably said Barclays.
Not us, said Lloyds TSB, we were so slow off the mark, we can call it old-fashioned banking. No problem, said Mr Bingley, we've sold a load of mortgages to GE Capital at 6% discount and have plenty more up our sleeve. Nothing to do with us, said Alliance & L, who'd been without a cheer-leader for years, and were happy distributing the non-existent CEO's salary, etc around the board.
What with sovereign states threatening to not invest their zillions in London, and a Mr Darling of Peter Pan flying through the roof, the big revered bank decided it would help out. Sensing an opportunity to replenish gold reserves, it offered to take all the securities the banks have in exchange for 0.01% off LIBOR, the overnight interest rate that the banks borrow at when they can't be bothered to look for 50p just to reconcile their books at the end of the day.
Meanwhile, in the real world, life carried on almost as normal. The supermarkets carry on ripping-off, this time using soaring demand from everyone else in distant lands to inflate prices. The big banks focus on helping themselves to their customers' money, whilst the new small banks focus on how to break the news to their customers that they, the new small banks, are not big enough to borrow any money, so fixed rate mortgages at 2% and 3% can be renewed, or at less than 7%. And, in the property market, whose BTR statement makes Britain what is today, with the legacy of the Olympics to look forward to, thousands of sellers who, whether through greed or sheer bad luck, had missed the buyer gravy train, now face the treble whammy of rising costs of living in a house they don't want, not being able to afford the petrol to go house-hunting, and losing their luggage at Heathrow T5.
And on a sunny Wednesday afternoon, the voices in the wilderness, those that no one ever listens to, were heard to say, 'don't know why we need so many banks, they're all the same, one or two is enough, why don't we just let those that are broke go broke and call it a day?'
God knows.
Gradually, some of the bigger small banks started buying the small banks until there were only a few big banks left.
Witnessing what a bank could do that a building society couldn't, look, pots of gold at the end of the rainbow, let's become banks, said some of the building societies, and so they did.
That's not what we had in mind, thought the big banks, what we are going to do?
I've an idea, said one of the big banks, let's create a new lending market to attract customers we'd never want in a million years and pretend we don't mind the new small banks having a huge share of it, then, when they're up to their necks it in, we'll pull the plug.
Good idea, said the other big banks, coming up with lots of new financial products will give our marketing people something exciting to do.
And so it came to pass, the new small banks they fell for it and were allowed to capture a huge share; never mind if customers couldn't really afford to borrow, take the money.
For years, everything went according to plan. The new small banks had a field day. Thanks to them, the economy was booming, property prices rocketed, the government could introduce taxes galore and no one minded because there was so much money about they couldn't give it away.
Not everyone was happy. The really big bank, the one the banks revered, was getting a bit annoyed that its inflation target was coming into sight and the big banks could sense they'd lose their emotional credits if they didn't do something to make sure a letter didn't have to be written to the big chief Brown, whose initials GB appeared on car bumper stickers. No one wanted to go first, so they decided one big bank would have to play at being nice. So, because the revered bank is in England, where appearances must be kept up, they got one of the Scottish banks to draw the short straw.
All they had to do was choose the right moment.
Careful what you wish for!
A bank on another continent announced that a gift-wrapped parcel of mortgages it had bought from another bank was worthless because the borrowers that didn't have any money were unable to pay. Sensing a hand-out, the banking community responded generously, by immediately shutting their doors.
In England, a small bank, former building society, Northern Rock, found it couldn't borrow any money. Suddenly there were queues in the streets and the Government was being told it had to do something, which it did by summoning some politicians back from their holidays abroad.
To an observer, it seemed all hell was let loose, but to the banks in Britain it was a dream come true.
With Mrs Trellis of North Wales in mourning for Humph of Round Britain Quiz, it was left to Mr Bingley of Bradford to say there but for the grace of God.
God knows.
First to repent was HBOS, the biggest ex-building society, whose falling sp was met by a barrage of 'we shall not be moved', only to find that, when the tide came in again, it was not going to be quite as immovable as all that.
Sorry, said the Scottish bank, we've run out of money to give away, so we need you shareholders to cough up £12Bn, but don't worry you'll still get a dividend which we'll be able to pay you in shares just as soon as you've handed over the lolly. While the Scottish banks shareholders were reeling from the shock, while you're at, said HSBS, we'll have some, us too probably said Barclays.
Not us, said Lloyds TSB, we were so slow off the mark, we can call it old-fashioned banking. No problem, said Mr Bingley, we've sold a load of mortgages to GE Capital at 6% discount and have plenty more up our sleeve. Nothing to do with us, said Alliance & L, who'd been without a cheer-leader for years, and were happy distributing the non-existent CEO's salary, etc around the board.
What with sovereign states threatening to not invest their zillions in London, and a Mr Darling of Peter Pan flying through the roof, the big revered bank decided it would help out. Sensing an opportunity to replenish gold reserves, it offered to take all the securities the banks have in exchange for 0.01% off LIBOR, the overnight interest rate that the banks borrow at when they can't be bothered to look for 50p just to reconcile their books at the end of the day.
Meanwhile, in the real world, life carried on almost as normal. The supermarkets carry on ripping-off, this time using soaring demand from everyone else in distant lands to inflate prices. The big banks focus on helping themselves to their customers' money, whilst the new small banks focus on how to break the news to their customers that they, the new small banks, are not big enough to borrow any money, so fixed rate mortgages at 2% and 3% can be renewed, or at less than 7%. And, in the property market, whose BTR statement makes Britain what is today, with the legacy of the Olympics to look forward to, thousands of sellers who, whether through greed or sheer bad luck, had missed the buyer gravy train, now face the treble whammy of rising costs of living in a house they don't want, not being able to afford the petrol to go house-hunting, and losing their luggage at Heathrow T5.
And on a sunny Wednesday afternoon, the voices in the wilderness, those that no one ever listens to, were heard to say, 'don't know why we need so many banks, they're all the same, one or two is enough, why don't we just let those that are broke go broke and call it a day?'
God knows.
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