There may be a depression.

The banking crisis has hit mainstream tv tonight in uk and it will shock many. Its possible many of the public may start to withdraw cash from banks, as some people will panic, although I wouldn’t say out of control in the uk as they’ve seen the situation already with Northern rock and the Halifax crisis,

Bailing out just one bank Northern Rock which didn’t have much toxic paper, just it had a lot of mortgages and a liquidity problem due to too many mortgages, has just a few days ago been admitted has cost much more than originally estimated and has almost doubled the UK national debt, but it’s just sustainable, also the bank is no longer independent of the government does have the bank’s assets and all senior executives were fired or resigned. The mortgages on their books aren’t sub prime and most are well managed so the value remains well supported, with real customers using accounts, but even having to support them has added to financial commitments of the uk. But any profits are used to go towards running the bank and its mortgages. So instead of just nationalising the debts, the UK government for this bank has also nationalised the profits.

It’s important if the bailout bill is passed its radically different from the Paulson, Benanke, bill, supported by Bush that would be a complete disaster. At all costs the bankers must not be rewarded for what they’ve done wrong and at a minimum should be taken over, anyone in charge considered for replacement, also open to any future legal investigations for any fraud and corruption. If the situation can be resolved there needs to be investigations and legal proceedings, there needs to be accountability. As the situation is so severe it needs to be considered if mega bonuses were indeed justifiable and if necessary returned to help the whole economy. Making profits for banks in the current situation and over the short term should not be a priority; simply staying afloat should be all that matters for any banks.
Banks should be forced to lower the interbank rate and if necessary to the base rate, no profit but would enable borrowing to be controlled and liquidity to be available.

Although monitory policy of using interest rates is normally needed in the short term if necessary to lower interest rates, although no point doing that if banks simply try to rack up more profits on the difference. It’s a time for survival not record profits and after this record profits beating profits quarter after quarter fuelled by investing on derivatives and gambling the entire world economy for banks are a thing of the past.

The tax payer can’t keep banks going in the way, pumping ever more money, as that’s what it would take, $700 billion now, next month another $700 billion , the month after perhaps $1 Trillion and every time they would use the sae excuse and every time the economy would be pushed more over the edge. Taking on ALL bad debt and ALL toxic waste would cripple the economy, it would wipe out some banks for them to keep it, but there would be other banks and big investors such as Buffet too willing to pick up the scraps without the tax payer having to accept all the toxic waste.

The one thing government may have to provide for is to guarantee the deposit level for savers up to the limits for nay banks that collapse and that may require some public funds, this would be a one off charge rather than the repeated bailouts that would be necessary to keep all the bad bank going by importing all the bad debts and putting them on the tax payers although as its likely some banks that survive will still be capitalised enough to cover the costs for other banks. In fact the Lloyds TSB deal to take over Halifax in UK prevented a run on Halifax bank and prevented a large bank going under. That was private equity saving private equity as one bank saw it desirable to acquire the other bank at a knock down price before it went under and it didn’t require any public money. That is the capitalist way.

Right now, banks taking a hit, the economy my able salvageable, but if it racks up even more debt it really could be a complete wipe out for the entire economy.

Banking shares would possibly initially crash, but surviving banks shares would recover. The stock market would possibly crash, but to keep in the economy afloat is more important than the share index and saving the economy would enable the markets to recover some value. Whichever way markets could possibly head lower as either way the economy will be hit and company profits will then be lowered and shares currently will seem over valued so whatever the markets will have to go down until they reach fundamental value. Many banking shares will have to come down, just as tech shares did after the tech bubble, although currently there are inflated tech shares again as well and falling advertising revenue may hit some segments as well as demand for goods dropping during a depression. Either way as the fallout from this will lead to more accountability and using woolly figures on values based on performance of derivatives will have to stop and real asset values will therefore be lower than bank shave got used to declaring, even if profits are the same, they will have to be more transparent and accurate so will appear to be lowered.

There may be a depression, rather than a recession now either way, but letting banks crash and picking up the pieces would put an end to escalating debt. Everyone would have to work together to cope with another depression, but the economy could built up gain with hard work and cooperation.
But to go down the road of hyper inflating to the limit, you’ve got an economy like Argentina years ago or Zimbabwe now. It would buy some time, even a brief stock market boom, which would be totally unsustainable, the dollar and the economy would collapse, then deflating would make the ensuing depression longer and deeper.

Banks can’t use a bail out to carry on as if nothing has happened or changed. To bring the economy from the brink banks will have to take a hit and it will be hard, but for the good of the entire society.

If the situation is resolved then that’s the time for profits again, but regulation needs imposing to prevent it happening again, basically all the deregulation acts that were originally developed to prevent such a crisis after the last Great Depression, needed to be re-imposed to prevent it happening again.

Also the banks should have to shoulder the most significant part of the hit. Its their fault and right now they’ve still got more money than anyone else, in fact they’re sitting on a pile of cash and unwilling to loan to one another out of greed.

Tax payers should not have to keep paying more and more instalments to keep things going that way just to save wealthy bankers jobs at the expense of everyone else.

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