Financial Crisis

[John83]

Any particular reason why Iceland never joined the EU? Fish stocks?
I don't know. They're in the group of three (with Norway and Switzerland, I think) with a special trade agreement with the EU, so perhaps they didn't think it was worth trading up from that.

[Dodge]

Iceland is a member of EFTA (http://en.wikipedia.org/wiki/EFTA) and the EEA (http://en.wikipedia.org/wiki/European_Economic_Area)

This article (http://en.wikipedia.org/wiki/Iceland_and_the_European_Union) talks about Iceland's relationship with the EU. The main issue is lack of control over fisheries (apparently)

[OneRedArmy]

I've always understood Iceland stayed out primarily due to fishing rights (the same reasons the Faroes are not part of the EU but are governed by Denmark).

The Icelandic situation is the most excessive example of how "cheap" money was over-leveraged. The carry trade played a huge part in this, with cheap money being borrowed in low interest rate environments and being invested in Iceland, which was then acquiring overseas assets at a furious pace.

Absolute madness that a country of 320,000 people was so highly leveraged.

[pete]

I don't know. They're in the group of three (with Norway and Switzerland, I think) with a special trade agreement with the EU, so perhaps they didn't think it was worth trading up from that.

Switzerland like being able to control their own banks as EU regulation would not make so attractive any more. Norway is very rich due to oil 7 gas reserves so don't need the EU.

I wonder how much fish they really have in Iceland.

[geysir]

AFAIU. most of the money was borrowed by at cheap rates by offshoot companies of the Iceland banks with separate company identities in England and Scandanavia. Did not come into Iceland at all.
Those separate companies had by banking standards reasonable liquid assets.
The investment on that borrowed money in Iceland was petty cash in comparison.

How much of AIB is exposed to the builders and property developers at the highest property values for projects in high risk at present? Is it 70%?

[OneRedArmy]

How much of AIB is exposed to the builders and property developers at the highest property values for projects in high risk at present? Is it 70%?17% to property development (BoI 5%)
70% to property in the wider sense, which includes mortgages.

http://www.finfacts.com/irishfinancenews/article_1014537.shtml

[geysir]

Thats it thanks.
This was an article I read in the Tribune
FF,The Builders and the Banks (http://www.tribune.ie/news/article/2008/oct/05/the-golden-triangle-ff-the-builders-and-the-banks/)

It was these bits I was trying to recall
'Irish banks are owed €110bn by the property and construction sector. It accounts for €60 of every €100 that residents have on deposit. As 28% of all borrowings, it is significantly greater than the 25% construction proportion of bank lending in Japan when the banks crashed there in 1989'

'A risk assessment conducted by an international investment bank of AIB and Bank of Ireland found half of all loans for development were given to just 40 borrowers. Some 60% of AIB's total loans were taken up by the property sector and 70% of Bank of Ireland's'.

[Sligo Hornet]

Any particular reason why Iceland never joined the EU? Fish stocks?

I think it was due to them using this irritating woman in their ads

http://i36.tinypic.com/jzwprl.jpg

[Dodge]

Denmark has bucked the trend and raised interest rates

[OneRedArmy]

Thats it thanks.
This was an article I read in the Tribune
FF,The Builders and the Banks (http://www.tribune.ie/news/article/2008/oct/05/the-golden-triangle-ff-the-builders-and-the-banks/)

It was these bits I was trying to recall
'Irish banks are owed €110bn by the property and construction sector. It accounts for €60 of every €100 that residents have on deposit. As 28% of all borrowings, it is significantly greater than the 25% construction proportion of bank lending in Japan when the banks crashed there in 1989'

'A risk assessment conducted by an international investment bank of AIB and Bank of Ireland found half of all loans for development were given to just 40 borrowers. Some 60% of AIB's total loans were taken up by the property sector and 70% of Bank of Ireland's'.Its the property development stuff thats the real worry.

The valuation of the land on which the loans are secured is anyone's guess at the minute. In any case, it ain't worth much.

Banks have two choices, write it off or provide for it and take an equity stake in the property developers in exchange.

[geysir]

I don't know the main reason for not applying to be a full member of the EU. It's very split.
Nothing worse than listening to Icelanders arguing about something political.
I have often heard 'Too small to have any influence over what it needs to protect'.

Anyway it's too late now, they are on the way to talk to the axis of evil and become the Cuba of the North Atlantic.
The 3 biggest embassies in Iceland are the Russians, the USA and the Chinese.
Then there was some mysterious American Research Institute where all the EMF's emanating would kill your mobile signal stone dead at a 100 paces.

[pete]

BBC Business (http://news.bbc.co.uk/2/hi/business/7658908.stm)



Before the crisis, the Icelandic banks had foreign assets worth about 10 times the Icelandic gross domestic product (GDP), with debts to match.

[geysir]

The Iceland Banks were the some of the first to hit the global market after de regulation. They had a head start on all the others. They were very successful at that banking game that grew and grew when country after country de regulated.
Any economist who has actually looked at the exposure of the foreign branches of the Icelandic Banks and their liquid assets can find nothing remarkable about the operations.
The figures I have seen indicate the liquid assets were well ahead of the exposures and by standards were good.
This is the scary bit for other Banks in England who are actually more exposed.
The Icelandic banks are/were actually better run that many other Banks but there is no way a small country can put in more than a few drips should there be a credit squeeze.

I have no doubt that more and more banks around Europe will fail because this crisis is total and global.
And the so called bail outs will not be sufficient.
But they can be temporarily patched up because of Taxpayers money which suddenly appears like a rabbit from a hat.
I think we safely say that the British £50bn is now starting to flow into the system.

[Stuttgart88]

I met the treasurer from Kaupthing (kaput-thing?) a few years ago. Bright guy but he was only a kid. 31?

[geysir]

Exclusive hotel "101 Reykjavik" owned by Kaput thing:D director is reportedly down on business.

http://www.101hotel.is/upload/images/101myndir/101hotel/restaurant/restaurant2.jpg

Also I think he is in hiding until the arrival of his armour plated Hummer.

[Stuttgart88]

If countries were companies Iceland would be bought by Norway.

What's the talk about IMF assistance?

Is sovereignty potentially under threat?

[Stuttgart88]

Denmark has bucked the trend and raised interest rates

Denmark had a housing bubble worse than ours and 3 smaller banks were nationalised over the last month or so I think.

Iceland complained about lack of help from its friends, but in reality Denmark has its own issues to face up to.

Anyway, I'm sure Geysir will be offering his assistance in any reaction to the hostile UK response!

[Stuttgart88]

Actually, Hugo Chavez should buy Iceland. He's got the money.

[pete]

Good article here about capitalisation (http://news.bbc.co.uk/2/hi/business/7662846.stm).



The idea is that after capitulation you reach a point at which the last investor who is desperate to get out of shares and move into supposedly less risky assets has sold out.

Capitulation is easy to spot in retrospect but the people who recognise it accurately at the time get very rich.


Sounds like a gambling situation, everyone cashes out & tries to predict the bottom & then a flood of cash into the markets again...

[geysir]

Sovereignty is not under threat in times of relative peace.
In times of upheaval, Iceland will surely be "protected" for strategic purposes, but by who?
The Brits occupied Iceland during WW2, my house is situated on land (now blessed after undergoing an intense sanctifying process) where they had their billets, there are 3 underground concrete bunkers on the edge of my land.
I hired out a jackhammer and converted one of them to use as a cesspit :D

The USA is crippled.
What will happen when all those dollars around the the world are sent back to be cashed?
Don't mind Gordon Brown, the stool pigeon of the architects of deregulation and an advocate of selling of the central bank reserves. He is just posturing, focussing public anger on the shifty Icelanders. This is a global crisis.
Iceland only has real strategic value, the Russians are not that naive to think if they want an axle of evil air base here in exchange for a €4bn loan that Nato is going to look very benignly upon that.
A few years ago NATO moved out of the base beside the airport but everything is still in place, the macdonalds, the apartment blocks the hangers, the airstrips, even the 110v electricity. I think the radar system is still in place.
Russia wants an ally with a steady flow of food to supply them with, who knows what else?


The Iceland PM is a remarkably dull and morose.
I'm expecting soon to hear he will have jumped off from the top of 101 Hotel.

[OneRedArmy]

Good article here about capitalisation (http://news.bbc.co.uk/2/hi/business/7662846.stm).



Sounds like a gambling situation, everyone cashes out & tries to predict the bottom & then a flood of cash into the markets again...Capitulation is when people lose all hope and they sell everything.

We definitely are close to it (I sent an text to a colleague on Monday calling capitulation for Tues morning, but it seems I was somewhat premature).

Of course capitulation is a stage in a normal capitalist economic cycle, what if this doesn't turn out like the way the economics books say it should?

[pineapple stu]

A question I don't think has been raised yet - where's all this going to end? What sort of place will the world be in five years, say? I'm assuming subsistence farming is an over-reaction, but the structure of the Irish economy in terms of jobs (phrased badly, but you know what I mean) will be totally different. What will we be doing, what will we be buying, what will we be able to afford?

[pete]

A question I don't think has been raised yet - where's all this going to end?

I doubt any one knows that. No doubt we heading for worldwide recession but how long that lasts is any ones guess.

As small open economy we are badly dependent on multinationals so I think we will ride on the worldwide tide.

[dublinred]

Not looking good today sounds like a big US bank could be looking for chapter11 bankruptcy , only way out of this is for the banks to call an amnesty and declare all the dodgy CDO crap that some of them are hiding which is the root cause of the mistrust and re-open the interbank lending markets.

[geysir]

Distrust?

This is more like the Mexican Standoff scene from Tarentino's "True Romance"

[Stuttgart88]

I have to say this really feels like the capitulation phase. However, I've mainatined for over a year now that the equity markets have failed to see what the credit markets spotted, and even the wholesale credit markets were slow to cop on to the reality of US housing. I despaired when equities would rise based on alaysts' expectations of easier monetary policy. You'd swear these analysts had been hooked on the Greenspan era panacea of lower rates and knew next to nothing of what really affected corporate earnings.

Anyway, even if this is the capitulation, it's hard to see how any recovery in valuations can happen anytime soon.

FT Alphaville, essential reading during this crisis (and indeed any other time) quotes Jim Read from Deutsche saying the same thing, and Read adds that even at today's crashed levels he sees equities as pretty fairly valued given earnings outlook.

If anyone followed the Niall Ferguson documentary on Ch4 last year "The War of the World" (?) you'll quickly see now that all his conditions for a major international war are actually brewing. I know this sounds daft and alarmist but economic and social conditions ain't too different to the years preceding WW2. Declining empire, recession / depression, ethnic faultlines etc. It might explain why Campbell's Soup is perceived as being the strongest corporate credit globally, its credit margin being less than the UK, Germany and USA! Buy arms makers & baked beans as my mate said to me this morning.

OK, so maybe I'm OTT & I don't particularly like Niall Ferguson but food for thought.

Look at the Baltic Dry Index today - an index of freight volumes around the world and a major leading indicator of the oil price. It stood at 11500 in May this year and is at 2500 today. I read today that the global shipping indistry has ground to a halt. Exporters have asked their ships to remain in port because they won't accept the Letters of Credit provided by their buyers (i.e., the IOU provided by the buyer's bank saying they'll guarantee the buyer's creditworthiness). These ain't local Crimean banks - this is the likes of BNP, Citi and global banking giants.

Rate cuts mean little in my opinion (though thankfully my own mortgage is tied directly to UK Base Rates). Keynes' famous "pushing on a piece of string" springs to mind. This ain't about the cost of money. The very basics of money transmission have broken down. The very basics of global trade are breaking down. Hull beat Arsenal & Spurs. St. Mirren beat Rangers. What's next? A Robbie Keane competitive Ireland goal? :)

[OneRedArmy]

The last time we had similar economic circumstances National Socialism was the biggest legacy. Food for thought.

[Stuttgart88]

Urgent warning


The Nigerian government has warned its citizens that if they get any
e-mails from any Irish, UK or US banks, promising government-backed
deposit security and seeking bank account details, it's a scam.

[geysir]

I was trying to tell ye that I am living in your future and I was told to go talk to Joe Duffy.

Food importers in Iceland obviously have no credit now with their foreign suppliers, a letter of credit is not enough, they have to pay for everything upfront. They have to prove they have done that to the shipper before the shipper will accept the goods on board.

The importers have not the capacity to pay upfront because their lines of credit are already stretched. Even if they do get a bit of local cash, they can't get foreign currency.
The Gov has to borrow foreign currency and make that available to the importers.
Then how do you trust the Bank abroad who receives the money or even the wholesaler, even the lorry driver carrying the goods to the port.
My Bank was trying to send money to a student who is studying in England, legit purchased GBP, one main English bank just grabbed the money that was in transit to the students account and said thats ours you owe us. That issue had nothing to do with the student or the family trying to send the funds.
Can you imagine the morals of that bank, confiscating 3 months food and rent that was in transit to a needy student.
.

[pete]

Seems it would be best that some banks so under at least in the short as might flush some of the crap out of the system? :confused:

[OneRedArmy]

Seems it would be best that some banks so under at least in the short as might flush some of the crap out of the system? :confused:Not sure it matters at this stage Pete.

Equity valuations are assuming a large percentage of assets are worthless.

Consolidation is bound to occur soon, but no guarantee that will help anything other than cost base.

[OneRedArmy]

A few more doing the rounds



Q. What the capital of Iceland?

A. About E3.50 (Apologies Geysir)


Q. Whats the definition of an optimistic banker?

A. One who irons 5 shirts on a Monday....

[pete]

What do you say to a hedge fund manager who can't short-sell anything? A:

- Quarter pounder with fries please

[NeilMcD]

I think we should book our holidays to Iceland, must be dirt cheap. Any chance of an away friendly there I wonder.

[geysir]

It's a tourist paradise right now compared to what it was.
Draught Beer at 1/2 the price now, €3 for 1/2 litre
My 1/2L bottle of Grolsch at €5 hic
Empty pubs.

forget the banks
I can give you a good deal on your Euros;)

Icelandic PM did a press conf. this afternoon with the foreign press, mostly English hacks.
I have to say, he was proud and dignified and firmly put them in their place.
He's looking more like Churchill with every passing day

[NeilMcD]

Right lads lets petition the FAI for an away friendly to Iceland.

[cheifo]

Urgent warning


The Nigerian government has warned its citizens that if they get any
e-mails from any Irish, UK or US banks, promising government-backed
deposit security and seeking bank account details, it's a scam.

Very good.

Incredible how Int and Domestic legislators(who must have access to top advisors) appear so baffled and helpless to stop. what seems a runaway train.

I have heard more that one ecomonic commentator say the formula for short term recovery is for Goverments to increase capital expenditure and this combined with lower interest rates is the way forward.
Sounds risky but what do I know.

BTW Stuttgart I saw that documentrary series presented by Niall Ferguson.
I felt after watching it, that his conclusions centred around tribalism and how we have to learn how it dangerously rears its head in uncertain times.

Scarcity of resources, financial meltdown, who will become the scapegoats?
I personally think we should round up the boys on the trading floor.
"Analysts" my arse.:)

[geysir]

Scarcity of resources, financial meltdown, who will become the scapegoats?
I personally think we should round up the boys on the trading floor.
"Analysts" my arse.:)
This is a total crisis/recession and now I'm hearing on the BBC WS 'serious recession'.
Beware of the scapegoat agendas but I'm sure I'll get a good response to a 'stand up if you hate the Brits' chant going at the Iceland v Macedonia game on Wednesday:D.

[pete]

xIsHD7nwTbU

Joe Rogers has worked with George Soros in the past. Interesting to hear financial guru say bailing out banks is a bad idea. Interviewer was not getting the answer he wanted.

[geysir]

I can´t say I support Joe´s solution either, Laissez faire. Joe just wants to be allowed to get on with doing the sweep up operation and let everything be.
Well I do not trust that the greed of Joe and his like, will be naturally kept in check and will not do untold damage to ordinary people. His responsibility is to his own profits and investments.

No matter what ideology (within reason) one subscribes to, the fundamental principle of Economics is the movement of money. Hide it in a safe, then it loses value. Banks are essential to that principle. Without a banking system an economy stagnates.
Essentially the two fundamental principles of good Banking have been seriously neglected.
The first and foremost, is the Banks intrinsic greed must not threaten the common peoples interests.
The second is the printing of money without proportionate bullion.

When the talk today is about trust, the absence of trust being the problem, I see that as just a symptom of the greater malaise of bad banking practices followed almost everywhere.

[Stuttgart88]

BTW Stuttgart I saw that documentrary series presented by Niall Ferguson.
I felt after watching it, that his conclusions centred around tribalism and how we have to learn how it dangerously rears its head in uncertain times.
Yep, it was hard to argue with his findings. It was a very good series.

The root of the financial crisis in my humble opinion was that money became increasingly cheap and increasingly hard to lose, mainly due to the Fed looking to prop up asset values at every hint of trouble. When something becomes cheap people lose respect for it: banks lent it too carelessly and borrowers borrowed it too carelessly.

I'm not convinced that the individual bankers themselves are too blame. I work in the industry and have seen the sheer greed and lack of humility of several involved but for every such wnaker I've come across dozens just doing a job because it's a decent career and it's the natural thing to do if you have some sort of a business or financial training.

Like in sport or any walk of life the rules were there to be gamed. I'm sure playing the offside trap was never in the rulemakers' minds when they drew up the rule to prevent goalhanging. I'm sure we all speed up between motorway speed cameras before seeing one and slowing down for a bit and then speeding up again.

Companies in the non-financial sector game the accounting rules. I'm not talking about Enron or Worldcom-like cheating, I'm talking about playing right on the edge of the rules. Bankers did this with the regulatory capital rules. You'd be disappointed with them for not doing so - both from a "cleverness" perspective and also as a shareholder (not in hindsight maybe :)). However, you have to be just as disappointed with the regulators for allowing both the sheer scale of regulatory gaming that went on, as well as the really simple stuff: the outright fraudulent and in my opinion criminal lending practices at grass root level.

In the south east UK this weekend the weather was simply amazing. Shorts and T-shirt weather and it was mid-October. The thought struck me: if bankers were weathermen they would have allocated no probability of such weather in October and would have bet ridiculously large sums against such a probability. The rating agencies would have gone out to the garden, taken the temperature and declared with AAA certainty that it was summer, and walked away with USD 300k from everyone that asked. Those that asked would have taken their word for it and have to throw away their lilo's on Monday when the clouds returned, wondering why on earth they wasted money their money on something with such little use.

[Billsthoughts]

1) banks lent it too carelessly and borrowers borrowed it too carelessly.
2)
I'm not convinced that the individual bankers themselves are too blame. I work in the industry and have seen the sheer greed and lack of humility of several involved but for every such wnaker I've come across dozens just doing a job because it's a decent career and it's the natural thing to do if you have some sort of a business or financial training.

These two points are always forgotton by people when they are going off on one against the banks.

[Dodge]

Don't think anyone blames ordinary staff of banks. most anger/vitriol I hear/read is aimed at top brass (i.e. policy makers)

[OneRedArmy]

Have been thinking about this a lot over the last week.

What happened was absolutely unavoidable in the absence of stronger government regulation. That isn't a banker simply pushing the blame around, its reality. Here's why.

Imagine we had a bank, lets call it Bank of Responsibility (BoRe ;) ). Say 2-3 years ago, BoRe had a "road to Damascus" moment and decided that property prices were unsustainable, its loan to deposit ratio was too high and generally it needed to act more conservatively. It therefore decided it would buck the trends of its peers and would not offer high LTV mortgages or speculative property development financing.

In a very short amount of time BoRe's share price would have been savaged by the market, thats right, the same "market" thats now complaining to high heavens about the behaviour of the banks. In short order it would've been taken over by another bank and its management replaced. This isn't a guess or a leap of faith, there are plenty of examples in the last 10 years of conservative banks whose share price got hammered and were taken over by more "enlightened" competitors.

So, we have identified that the system was broken and all the lemmings were running to the edge of the cliff. Who was responsible for stopping them?

If you are a true libertarian or free marketeer, the answer is no-one. We will only learn that its stupid to jump off the cliff after we see all the lemmings die doing it.

If you believe in having a framework of rules and regulations to save society from itself, then Government failed. And thats Government in its widest sense including, but not limited to, IMF, G7, BIS, EU, CEBS......

[Sligo Hornet]

Have been thinking about this a lot over the last week.

What happened was absolutely unavoidable in the absence of stronger government regulation. That isn't a banker simply pushing the blame around, its reality. Here's why.

Imagine we had a bank, lets call it Bank of Responsibility (BoRe ;) ). Say 2-3 years ago, BoRe had a "road to Damascus" moment and decided that property prices were unsustainable, its loan to deposit ratio was too high and generally it needed to act more conservatively. It therefore decided it would buck the trends of its peers and would not offer high LTV mortgages or speculative property development financing.

In a very short amount of time BoRe's share price would have been savaged by the market, thats right, the same "market" thats now complaining to high heavens about the behaviour of the banks. In short order it would've been taken over by another bank and its management replaced. This isn't a guess or a leap of faith, there are plenty of examples in the last 10 years of conservative banks whose share price got hammered and were taken over by more "enlightened" competitors.

So, we have identified that the system was broken and all the lemmings were running to the edge of the cliff. Who was responsible for stopping them?

If you are a true libertarian or free marketeer, the answer is no-one. We will only learn that its stupid to jump off the cliff after we see all the lemmings die doing it.

If you believe in having a framework of rules and regulations to save society from itself, then Government failed. And thats Government in its widest sense including, but not limited to, IMF, G7, BIS, EU, CEBS......

I must say that is a well written, easy to follow and illustrative post!!:)
If only we could swap lemmings for some of the fat-cat bankers!

p.s. I would like to open an account at BoRe, and also arrange a mortgage!;)

[geysir]

Very good ORA.
And understanding that would make you pessimistic that present plans for shoring up International Banking, as it currently operates, is doomed.
The bailouts are support props for a crumbling ediface.


Like in sport or any walk of life the rules were there to be gamed. I'm sure playing the offside trap was never in the rulemakers' minds when they drew up the rule to prevent goalhanging. I'm sure we all speed up between motorway speed cameras before seeing one and slowing down for a bit and then speeding up again.

Stutts,I think it's the absence of rules thats a big part of the problem. To use your traffic analogy, 99% of people can accept the need for traffic regulations, without such regulations would be a recipe for chaos but with such regulations the traffic code structure can cope with the impulsive code breaker.

[Stuttgart88]

ORA, 9 years ago Washington Mutual's share price was attached because they decided to reduce exposure to US mortgage-backed bonds!

Edit:

From the FT's Long View in September:

WaMu on Friday became the biggest bank failure in US history (a title it will hopefully keep for a while). Its decline, as has been amply documented, lay in its huge portfolio of mortgages and mortgage-backed bonds.

A decade ago, assumptions were different. The last WaMu story I wrote covered a day when its share price fell 5 per cent in June 1999. It fell because investors were worried that it was retreating from its policy of levering up by buying mortgage-backed securities.

[Stuttgart88]

Stutts,I think it's the absence of rules thats a big part of the problem. To use your traffic analogy, 99% of people can accept the need for traffic regulations, without such regulations would be a recipe for chaos but with such regulations the traffic code structure can cope with the impulsive code breaker.The absence of rules - or the inability to apply them - in the "shadow banking sector" allowed a massive amount of leverage to be built up. I heard last week that the so-called shadow banking sector at its peak actually exceeded the actual banking sector by assets though I'm not sure this is true.

However, within the actual banking sector i.e., the global regulated banking system, it can't really be argued that the rules weren't there. They were gamed to the nth degree and in hindsight they were poor rules. Here's an example: take a standby commitment from a bank to its customers (i.e., they don't actually lend money on day 1, they merely say if you need the money at some point in the future we'll give it to you. An overdraft for all intents and purposes). The regulatory rules say that if the commitment period is less than a year then that commitment warrants zero capital otherwise it's a full capital charge in line with the type of borrower it is. If the commitment is drawn upon then the resulting loan attracts a capital allocation in line with the type of borrower it is.

So: if the commitment is for 364 days it's zero capital and if it's 365 days it's full capital. Does 1 day make that much economic difference? The banking system subsequently set up vehicles with hundreds of billions of such liquidity commitments for 364 days (zero capital). They bought long term AAA securities in these vehicles and these vehicles issued short term debt in the US money markets and month after month, year after year this debt was simply rolled over. The banks just kept amending the maturity date of the commitment perios, but always within 364 days.

The result: the banking system effectively owned hundreds of billions of risk with no capital supporting it. At one point in time it didn't even have to report the existence of these hidden assets or contingent liabilities.

A German bank with a substantial Dublin operation failed last year because the size of its off balance sheet asset book, and corresponding commitment to finance the vehicle holding these assets if for whatever reason the US money markets stopped wanting to roll over its short term debt. I can't recall the exact numbers but this bank made liquidity commitments multiple times the maximum amount it could ever realistically expect to have available in cash or liquid assets. How the rating agencies allowed this to happen is beyond me. How the regulators allowed this to happen is beyond me. How management allowed it to happen is beyond me.

These vehicles were an early part of this "shadow banking system" and what happened in Q3 last year was a run on these vehicles, no different to a run on conventional banks.

[tricky_colour]

Given this is a Current Affairs forum can we stick to some level of facts instead of wild speculation?

Will be interesting to what level of interest rate cuts are passed on if any & which banks act.

Given this is a Current Affairs forum can we stick to some level of facts rather than wildly spectlating what level of interest rate cuts are passed on if any & which banks act? :)

[geysir]

The absence of rules - or the inability to apply them - in the "shadow banking sector" allowed a massive amount of leverage to be built up. I heard last week that the so-called shadow banking sector at its peak actually exceeded the actual banking sector by assets though I'm not sure this is true.

However, within the actual banking sector i.e., the global regulated banking system, it can't really be argued that the rules weren't there. They were gamed to the nth degree and in hindsight they were poor rules.
I understand that rules are there. I am more referring to the bigger picture of tried and trusted regulations which were wound down to allow deregulation (in the UK called Better Regulation Task/Commission :rolleyes:)
An environment for all sorts of skullduggery.
Eg. the minimum cash reserve that a UK bank was reduced from 20.5% in 1968 down to 3.1% in 1998, at present it is a voluntary%.

The situation in Iceland has got infinitely more serious.
The Banking law requires that saving deposits are first taken care off when a Bank collapses.
The Brits were ready with pen in hand to sign an agreement that Icesave assets (Landsbanki UK) be sold in order to cover the savers deposits. The assets would cover the Icesave deposits, easy enough to a £30k limit for each saver account. Then the Brits backed off at the 12th hour and want the Landsbanki assets to be used to pay other debts in the UK.
No mention yet what these other debts are. I'm suspicious.
The Icelandic PM refused to agree. The IMF & Russians won't loan until there is an agreement. The Brits know that.