Friday, July 31, 2009

Financial crisis costs UK taxpayer £21 billion

Well, this settles an earlier dispute with an anonymous commentator who thought the UK taxpayer might come out ahead on this financial crisis...

From the BBC....

The cost of protecting UK savers during the credit crisis has been revealed by the body set up to compensate victims of banking collapses. In its latest annual report, the Financial Services Compensation Scheme said it paid out £21bn in the six months after the onset of the crisis. That compares with just £1bn in the seven years before the crisis.


  1. AC: "who thought the UK taxpayer might come out ahead"

    Isn't the FSCS paid by subscriptions levied on the financial institutions?

  2. Anon 20;35

    the FSCS levies a charge on deposits. Since it is a legally mandated payment, it is in effect a tax on deposits.


  3. AC, you started this debacle by saying you thought you were going to become a communist. Could you elaborate on that? Just curious about what measures you think it would take to set the financial sector straight.

    My view is that finance is basically a utility, one providing a generic service which, if provided efficiently, would be almost completely unprofitable, with razor-thin margins.

    It makes no sense for such an utility to be on private hands. A private company's raison d'etre is to make a profit, which for a utility like this is encouraging inefficiency, the formation of cartels, the corruption of governments, excessive risk-taking, ursury and fraud.

    It also places a critical part of the economy at least one step further away from democratic control. Yes, AT LEAST one step: Lately we've arguably seen formally democratic governments taking their marching orders from finance.

    Of course, public ownership and control of finance would fall short of guaranteeing something like the financial crisis couldn't happen again, but in that case at least the victims would be more likely to have themselves to blame.

  4. Its my humble opinion that the UK is technically bankrupt. As an Island we are no longer self sufficient in energy or food (we had difficulty feeding the nation during ww2, we have almost double the population now). We have no other natural resources that we can use to pay for the energy and food we consume.

    We don't have much of a manufacturing industry left to add value to imported raw materials.

    We don't do much R&D, and what R&D does happen in the UK is mostly for large internationals, so any revenue from intellectual property rights don't provide the returns that UK based R&D would bring.

    Then you have the service industry which can only help if we sell services abroad and we have services (a well educated population) that they want. It doesn't help the service industry that we have a strange dislike for our closest neighbour and can only speak one language.

    And that only leaves the financial sector, which has to try and a) make money from money internal to the UK, or b) make money from money abroad. The amount that banks can make from the UK population reduces as we fall further into bankruptcy. (and the popping of the housing bubble put the final nail in that coffin) Which leaves making money from international banking.

    Government policy (domestic and foreign) does tend to support this theory. I expect that government will do a lot of talking about regulating the industry, but on the "don't bite the hand that feeds you" concept, very little will be actually done.


    Gives a range of ways to generate returns from the housing market.

  6. Anon: 10:44

    Finance has some of the features you describe. It provides services, such as an efficient payments system, which are of course worthwhile.

    However, we have just been through the most awful financial crisis, which was only stabilised once the government used taxpayers money to sort the problem out.

    A lot of taxpayers are a little upset by the current state of affairs, having gained little from the boom in financial services and having lost enormously as their tax receipts are being used to clean up the mess.


  7. Thank you for your reply, Ms. Cook.

    I must say I admire your restraint; I asked for an opinion and offered one of my own, and the response is 'A lot of taxpayers are a little upset' -which presumably includes you- and 'finance has some of the features you describe' without mentioning where our views differ.

    It's understandable. Writing a blog daily under a full name in tha same way that I make anonymous comments would probably turn it into a hornet's nest. Leave it to the rest of us to bicker. Not that I personally came looking for an argument. I'm just nosey.

  8. @Anon: 10:44
    Finance is not a utility. Currency is the utility that allows for an exchange of goods and services, and yes purely in that role you could have a state run bank making 0 profit. Although more informed examples are the use of local currencies, or scripts as they are sometimes called.

    Finance is a tool to make money from money and as such has no place to be run by the state. And that opens up a debate several thousand years old about the morality/wisdom of making money from money.

  9. Alice - THINK THINK THINK. You think this "settles" your dispute with me?

    Firstly - the dispute will not be settled until 3-10 years down the line, when the economy has recovered and we have disposed of the investments in RBS and Northern Rock. I expect the government to earn a healthy profit - you don't. That's fine and time will tell who is right.

    Secondly, the FCCS is funded by BANKS not GOVERNMENT. So this makes your whole blog post completely and utterly wrong - again.

    THINK THINK THINK before you post.

  10. So far, Northern Rock assets have been disposed of at a loss. Given the dire state of the government books they are desperate to get rid of RBS assets at any price as soon as they can find a buyer - in otherwords at a loss.

    Or to put it another way, I THINK THINK THINK you have no idea what you are talking about - also amply shown by the fact that you feel you have to post anonymously.

  11. @anon 00:48 -- Your distinction seems a bt contrived to me. You concede that currency is a utility, but with credit/debt and money being fungible, how is banks and such making money from money different from making money from the utility that is currency?

    As many other commentators on this blog has pointed out, when the government makes money by inflation, it's basically siphoning off value from other users of the currency. It may be making money, but it's not making value. Why is it different when the banks are doing what amounts to the same thing?

  12. Anon 10.44, Anon 00.48

    Posted along these lines before, but comment seems to have got lost...

    Banks could invest thir own money for profit - quite legitimate.

    Banks could invest their depositors money for profit and share the proceeds with the depositor. Quite legitimate.

    But this will not create hundreds of billions in profits. The REAL money is made like this:

    Banks CREATE money, loan it out to people and charge interest. This is NOT legitimate. It is an outrage that a small group of private individuals have been given the legal right to create money (as debt) and keep the profits made from it.

    ALMOST ALL the money in circulation (trillions of pounds) has been created by private banks, who charge interest on it. This is absolutely outrageous. Banks can expand the money supply at will, driving us all into high interest debt for inflated house prices. Then when they get bored, they can deflate at will, and reposess the property.

    There are some functions which must be run by government in a democracy. They include the police, the army, and the creation of money (by fiat, or by credit).


  13. TimG - I don't think you really understand how banks make debt.

    The money comes from somewhere - either people buy bonds (and give the bank their money) or banks securitize their existing loans.... either way, they are using real money.

    You can argue they are using too much leverage, but they only get that leverage as other people (bond buyers or securitized loan buyers) are willing to let them leverage up.

    If we stopped buying bonds and securitized loans the banks leverage would be reduced... we could do the same for the UK government too by stopping buying gilts or demanding higher yields.

  14. @ anon 02:20 -- financials are mainly trading bonds and securitized loans whith each other. It's an 'I leverage you, you leverage me' quid pro quo.

    Oh, there's the occasional sucker, like pension funds, sovereign wealth funds, and other money for which the financials act as custodians, but that money too is under their control.

    Not sure what 'we' you are referring to; to stop buying bonds and credit backed securities, I'd first have to start.

  15. Anon 2.20

    It has taken me a long time, and a revolution in my mental map, but I finally DO understand how banks make money.

    All this stuff about gilts, bonds, securities and derivitives is mere obfuscation. Banks create money from nothing, and get the use of it.

    "The process by which banks create money is so simple the mind is repelled." - John Kenneth Galbraith, Economist

    "I am afraid that the ordinary citizen will not like to be told that banks can and do create money"
    - Reginald McKenna,
    past Chairman of the Board, Midlands Bank of England

    “That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”

    Marriner S. Eccles, Chairman and Governor of the Federal Reserve Board

    “The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented"

    - Sir Josiah Stamp Director, Bank of England 1928-1941