Posts Tagged ‘banking’

A bank in Denmark is now offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase.

As reported by the Guardian and others, Jyske Bank – Denmark’s third-largest bank – said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers can actually pay back less than the amount they borrowed.

To put the -0.5% rate in simple terms: If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.

Oh those crazy, whacky Scandinavians, right?

Well, maybe. Or maybe not.

If the alternative is that the bank doesn’t gain market share, or their lending book dwindles, possibly through a generalised lack of consumer confidence, then it might be that the bank is better off locking in a small loss now, rather than a bigger loss later. Plus there’ll probably be some fees associated with the lending, so they can cover themselves to a degree.

Financial markets are in a volatile, uncertain spot right now. Factors include the US-China trade war, Brexit, problems in Hong Kong, and a whole heap more including a generalised economic slowdown across the world – and particularly in Europe. Some – not all – investors fear a substantial crash in the near future.

So some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by failing to lend money at higher rates later on that customers cannot meet. Essentially, lock in your customers now and help them ride out any coming storm.

Banks are probably also betting that some of those 10 year mortgagees will extend their loan or borrow more in the future, as most people tend to return to an existing lender before looking elsewhere.

But as one commentator remarked:

“It’s an uncomfortable thought that there are people who are willing to lend money for 30 years and get just 0.5% in return. It shows how scared investors are of the current situation in the financial markets, and that they expect it to take a very long time before things improve.”

So where’s the good news? Well hyper-low interest rates are putting a floor under housing markets everywhere, and making it possible for some people (such as first home buyers) to get into the market where they couldn’t before. Home renovators will also find it easier to tart up their homes, which will lend useful support to both tradespeople and building products manufacturers.

Overall, we seem to be now firmly in a low-growth economic model, with only China really bucking the trend, and even that biggest of Asian tigers is slowing down a little.

So what does this all mean for business?

  • Fight harder than ever for market share.
  • Review your pricing to stay competitive.
  • Be prepared to run efficiently on lower margins. Even take a loss for a while, if you can, if it means you can outlast your competition.
  • Innovate to add value.
  • Provide improved customer service.
  • And advertise more – not less – to grow your market share.

As for people living on their savings? Good luck. You’re going to need it.

How lo9ng till the mob starts burning down the offices of those that rob them? It might be nearer than you think ... especially when they work out what's going on.

How long till the mob starts burning down the offices of those that rob them? It might be nearer than you think … especially when they work out what’s been going on.

The fascinating piece of reportage that follows from Bloomberg deserves to be re-blogged on every damn blog in the world. And if you’re a blogger reading this, I mean you. And if you’re not a blogger, then just repeat it on every FB page and email list in sight.

Let me first say this: I am not against banks per se – they’re a necessary evil in a modern mixed economy.

Am I against banks where the executives vote themselves massive salaries, yet where they fail to create any real shareholder value, and where without a subsidy from the poor bloody customers that every day they f*** over with unreasonable fees, charges and restrictive practices they would go broke? Yes I f****** am against them. I am customer, hear me roar.

Am I against them when they rort and skew the banking system to allow themselves to behave with utter irresponsibility lending money to people who will never be able to repay it, and then sloughing off that debt onto people they should deal fairly with but in fact they dupe, and doing so knowingly and ruthlessly? You damn rootin’ tootin’ I’m against them.

Am I against their executives not being prosecuted for their idiocy, but just shuffled around the boardroom tables of Wall Street, London, Paris, Athens, Rome, Madrid etc etc until the paper trail becomes so convoluted that no-one’s sure who is really guilty? Yes. I am against that. And if they all end up in jail together because no one can be sure who started the mess, then frankly serve them all damn well right.

In short: stop working class welfare for bankers before it wrecks our society!

The Bloomberg article follows, referring the the USA, but essentially the story is repeated in every advanced country in the world. Bankers have got used to hanging off the teat of Government by crying poor. Enough is enough. Oh, and just a side note? The entire foodstamp programme for the USA cost $78 billion last year …

Why Should Taxpayers Give Big Banks $83 Billion a Year?

On television, in interviews and in meetings with investors, executives of the biggest U.S. banks – notably JPMorgan Chase & Co. Chief Executive Jamie Dimon – make the case that size is a competitive advantage. It helps them lower costs and vie for customers on an international scale. Limiting it, they warn, would impair profitability and weaken the country’s position in global finance.

So what if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?

It's your money. Just keep saying that to yourself as you consider how you feel about this story. It's YOUR money.

It’s your money. Just keep saying that to yourself as you consider how you feel about this story. It’s YOUR money.

Granted, it’s a hard concept to swallow. It’s also crucial to understanding why the big banks present such a threat to the global economy.

Let’s start with a bit of background. Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail.

Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.

Big Difference

Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.

The top five banks – JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. – account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits (see tables for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry – with almost $9 trillion in assets, more than half the size of the U.S. economy – would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.

Neither bank executives nor shareholders have much incentive to change the situation. On the contrary, the financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy.

Monopoly. It's meant to be a game, not a blueprint for the world banking system.

Monopoly. It’s meant to be a game, not a blueprint for the world banking system.

The result is a bloated financial sector and recurring credit gluts. Left unchecked, the superbanks could ultimately require bailouts that exceed the government’s resources. Picture a meltdown in which the Treasury is helpless to step in as it did in 2008 and 2009.

(And picture what it would mean to the very people who are propping the banks up then and now. That’s you and me. Ed.)

Regulators can change the game by paring down the subsidy. One option is to make banks fund their activities with more equity from shareholders, a measure that would make them less likely to need bailouts (we recommend $1 of equity for each $5 of assets, far more than the 1-to-33 ratio that new global rules require).

Another idea is to shock creditors out of complacency by making some of them take losses when banks run into trouble. A third is to prevent banks from using the subsidy to finance speculative trading, the aim of the Volcker rule in the U.S. and financial ring-fencing in the U.K.

Once shareholders fully recognized how poorly the biggest banks perform without government support, they would be motivated to demand better.

This could entail anything from cutting pay packages to breaking down financial juggernauts into more manageable units.

The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.

"Hello fellas, need a hand keeping the pitchforks at bay?"

“Hello fellas, need a hand keeping the pitchforks at bay?”

Read more : How Obama squibbed his chance to rein in Wall Street.

Baldrick: “What I want to know, Sir is, before there was a Euro there were lots of different types of money that different people used. And now there’s only one type of money that all the foreign people use. And what I want to know is, how did we get from one state of affairs to the other state of affairs?”

Blackadder: “Baldrick. Do you mean, how did the Euro start?”

Baldrick: “Yes, Sir, if it please you, Sir.”

Blackadder: “Well, you see Balders me lad, way back in the good old 1980s there were many different countries all running their own economies and using different types of money. Oh, the messy, wild fun of it all!

On one side you had the major economies of France, Belgium, Holland and Germany, known to those of us in the know as “the rich bastards”, and on the other, the weaker garlic-munching dago-type nations of Spain, Greece, Italy and Portugal, and of course, the Irish, who aren’t dagos but are drunk and feckless.

So one fine day, my little dung heap, they all got together and decided that it would be much easier for everyone if they could all use the same money, have one Central Bank, and belong to one large club where everyone would be happy and laugh all day. This meant that there could never be a situation whereby financial meltdown would lead to social unrest, wars and crises”.

Baldrick: “But this is sort of a crisis, isn’t it Sir?”

Blackadder: “That’s right Baldrick. You see, there was only one slight flaw with the cunning plan”.

Baldrick: “I see, Sir. And what was that then, Sir? Can you explain it in a simple way for someone like me
to understand?”

Blackadder: “Certainly, dear fellow. It was complete and utter bollocks to begin with”.