News Blog > Not so secret anymore - HousePriceCrash.co.uk

by devo

By this very old banker's definition HBOS was being run as a pyramid scheme. A smaller but well run bank was (incredibly) talked into taking it over. The pyramid remains and is being held up by replacing the void of new contributors to the pyramid, with "tax payers money". The latter is not an existing store of cash, but is simply an income stream that is hoped for in the future and which can only be provided for in the here and now by the taxpayer (government) borrowing. When a pyramid has collapsed there is no mechanism known to man that will somehow rebuild it and avoid the losses which have historically been incurred. Simple mathematics proves this to be so. When a bank's loan to deposit ratio gets to one it is bust and by mathematical definition its continuation is impossible. stillthinking said...

I think they are trying to aim at the middle of deflation/inflation, given that an extreme one or the other must occur. Either accept the bank losses (deflation) or print them away (inflation), but there is a middle ground, of which our centralist government is already fond, ie centrally direct the losses, ie half and half default and inflation. For the mass that is the aggregate UK taxpayer there is no difference in any of the three choices, but groups within the taxpayer will either gain or lose. Sort of financial fascism. The relative winners are mortgage holders(not so nice but much better than could be), the public sector and the financial sector(incidental beneficiaries). Losers are pension funds , private sector workers/investors, non-home owners/savers. By beneficiary I mean that the -proportion- share of the cake is increasing at somebody else's expense, although the cake itself is shrinking.

I agree that the shares of the cake are becoming more unequal, and have been doing so for some time before this crisis, mainly from employees to owners/bosses, and of course to house owners (especially those in wealthy areas), and financiers as you say. However, I don't think the public sector is benefiting especially. Jobs there have always been more stable, simply because the services it provides cannot just be dispensed with in the same way that much of private sector production can. Conversely it does not receive great rewards in boom times as happens in parts of the private. Of course, many in the private sector have not done so well lately because of the inequal distribution in wealth.

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