Bail Out Monday

David,
your analysis is in keeping with many others I've read over the past days. But (like many others) you don't proffer any alternative (better?) solutions. Me, I'm just one of the ever suffering and mostly ill-informed and mislead taxpayers.
Happy days!

Frankly all I see banks doing is using these so called loans as handouts to pad out dividends until the market stabilises - What guarentee do we the public who is effectively footing the bill, that these financial institutions will be forced to use the funds for what they are intended. I would also like to see an end to voluntary codes of conduct - it does not matter what or who signs up to these codes - at the end of the day as long as businesses are left to their own devices they will continue to abuse their position, take unwarrented risks, pay rediculous salaries packages and bonuses to senior staff (while laying of regular staff) and rip off the consumer. I think the time has come for stern controls over what such institutions are allowed to do need to be introduced, and the penalties for abuse should also be serious enough to act as a deterent. Why not force all financial institutions to have existing and new products including terms and rates validated by an independant authority before they can be sold.
Also given the fragile state of the market and the risks that some banks may fail or weaken to the point that they may be taken over, it seems appropriate to ask that all such institutions should make investors and account holders aware on a regular basis the current state of the business and what risks/protection the client has including protection provided by FSA in a statement, e.g. where FSA covers investments in one Bank Group to a value of 35,000, a statement should show the investor/account holders total holdings regardless of the which subsidury the investment is with. That would allow people to shift funds for maximum protection.

I don't remember Brown the Clown and his Treasury cronies at the BoE bailing out the Telecom's sector when it got into trouble in 2000/1.....

I say the best approach is to let market forces take control, and then once the banking market and the unwise borrowers have felt the pain, perhaps they will learn a lesson for a short while, until unfettered greed takes over again.

The problem is that it won't work. The rates are too penal, and the banks will be vary sparing in their use of the facility. It does put a lower bound on the price of this debt.

The consequences are that the base rate to libor spread will remain high, and mortgages will be hard to come by, plus being expensive.

As for bailing the banks out, people need to realise what are the consequences of not doing nothing.

A bank going bust would mean real losses for savers, real pain for borrowers and not just for the bank concerned. The company for which you work would have its loans called. Without other banks stepping in you could very easily lose your jobs.

People have had 10 years of cheap loans. The bill has now to be paid.

Nick

There is NO chance of any banks going bust-they have plenty of assets,which they are at liberty to sell. There are NO sub prime mortgages in the UK banking sector. There is some poor quality unsecured lending-I have said it before-it's a trust issue,which is why LIBOR is so high. We're awash with money,but devoid of morals.

I have a question that I haven't heard anybody ask yet, it goes like this:
If this whole crisis is down to banks selling each other doggey CDOs containing far greater portions of sub prime debt than the buyer realised, then why dont they sue the seller for miss representing the product being sold? or more specificaly, before a tranch of CDOs are sold they obtain a risk or credit rating from one of the rating agencies such as Standard and Poor, now the strange thing here is that S&P are invited to rate the the CDO by the issuing bank,not the purchaser, they give it a AAA rating meaning that it should be free from the risk of default and therefore safe to buy for risk adverse investors, THE ISSUING BANK then pays S&P and moves on to the next tranch hoping to find another sucker and again gets it rated by an agency. It has become clear that the rating agencies did little new work when issuing ratings for these products, instead they used old data on default rates and got it hoplessly wronge- so why arnt the purchasers of these CDOs sueing the rating agencies- worse still why are the issuing banks rating thier own products? surley due diligence requires any buyer to undertake thier own assement of the product being purchased- can you imagine buying your next house and relying soley on a survey report done buy the seller themselves or buying your next car with an MOT done by the seller "honest mate, she's as saaafe as aouses,that wheel 'anging off is the latest fashion, nuffing to worry about

The duplicitous fingerprints of Brown & Darling are all over this self serving gesture. These empty suits would be well advised to keep away from the market force which will just swat them away.

Surely the Bank of England (BoE) is the "lender of last resort" - ie it is there to ensure liquidity if the market fails. This is something I learnt in my Economics degree 20 years ago - and I don't see the problem with the bail out - the BoE is just doing its job.

However, the banks do need "reining in" as they have recklessly lent too much to too many over the past years.

"Neither a borrower nor a lender be..."

My practical advice for sam20son would be to carry on saving but spread the money around between banks, don't put too much in one bank. I think the government covers the first £32000 pounds in your account if the bank fails but I'm sure one of the Fool community will correct me on this if it's wrong, so check which bank owns which other banks and use only one from the same family. Also, now I'm not 100% sure about this, but you also need to ensure the banks you are putting your money into are registered as an individual entity as some banks are registered together under one umbrella, there was an article about this on the Fool a couple of weeks ago. So if you have money in two banks and they are registered individually, you should get all your money back, however, if the two banks are registered under one name, you only qualify for one lot of money from one bank. I'm sure someone on here can clarify that. It's always also a good idea to spread your money around in different areas. I.e. ready cash in an isa, shares (again, diversify, i.e. spread the money you invest into shares over several companies/sectors), bonds etc. I also like to have property, desireable stuff not the cheap stuff, which can be made liquid in case of any lean times. So my property is made up of bricks and mortar (non mortgaged), gold (coins and bars are best, not jewellery), I have also invested in a couple of prized signature guitars although this is my own personal choice and I'm sure most people would be a bit sceptical about that, and my wife likes specific pieces of pottery (good stuff not the cheap local market stuff). In short, spread it around, don't put all your eggs in one basket then if one fails, you don't lose the lot.

The problem with your solution laislapequena (re. sam20sam)is that interest rates on most instant access savings a/c's. is negative. Rates of 6% gross (4.8% net 20% tax) is less than the real rate of inflation (and no-one in their right mind believes the Governments inflation figures) for most of the population and thus your savings are depreciating. This is the way governments and central banks thieve your money.
Physical assets such as Precious Metals, Oil and Agriculturals can help protect your savings against inflation but beware Gold which governments and Central Banks hate because it is a threat to their ability to endlessly print fiat money and thereby control the world economy. There is much evidence that the price of Gold has been manipulated for many years. Hopefully, because I hold both Bullion and PM Mining Stocks, their ability to control the price will be swamped by the rush to get out of paper(fiat) currency and into real assets as global inflation ramps up. Bullion is easy to buy on competitive terms from BullionVault, PM, Energy and Agris on the stockmarket and even PM coins although the premium on these is quite high. Paper money is at risk both from inflation and bankruptcy but as suggested spread it around to avoid the latter. Of course the savest place for paper is in Northern Rock - guaranteed safe by the government - that's how crazy the government's inteference in the monetary system has become. Of course everyone is now demanding even more government control,you're being conned!, we need less government control, eventuallly market forces will prevail regardless of government inteference. What we really need is responsible government that doesn't allow/instruct the Treasury to endlessly print money for political expediency. If you supply banks with lots of money they need to circulate it into the economy (doing this responsibly is difficult if the supply is excessive). After all it would be silly if not downright negligent if they simply put it their vaults and watched it depreciate.
I have little regard for the banks but the real blame lies with the Government!

Perhaps when (if) the banks do some "reining in", they can apply it to the obscene salaries paid to their directors, who after all, are ultimately responsible for this mess.

It's amazing how everyone else is supposed to pick up the tab!