RBS was the biggest baddest bank in the great British bust. It is now mostly owned by the Government (people) and has been made `safe` by having a deposits to assets ratio of 1:1.
The Cypriot banks also had 1:1 ratios, but have now gone bust.
Unless the Russians come in and rescue them, the Cypriot banks’ best deal is to `tax` a percentage of their deposits.
This will not go down well with the people of Europe, who all had their deposits (under 100,000 Euro) guaranteed during the 2008 crisis.
It all comes down to digits.
The Cypriot banks don’t have any significant equity or bond holdings … so it only the depositors digits that can balance the losses on the asset side.
All very pragmatic, but I see of group of people who are sneaking away clean from all this.
Not the bankers … they go without saying.
No, it is `the borrowers`. It is they who have caused the problem by not paying back their loans.
Borrowing money is really the only game in town.
If you win with your bet … you make more money and can pay the loan back. If you lose … it was worth a shot, nothing much lost.
Borrowing money puts you in best seat. Everyone wants you to succeed.
Saving money is a mug’s game.
This is the latest from our friend Richard Koo (in this morning’s FT)
The greatest cause of both the deflation and economic weakness in the past two decades is a lack of private sector borrowers. The bursting of the country’s debt-financed bubble in 1990 left the private sector with a huge debt overhang. To restore its financial health and escape negative equity, the private sector as a whole had no choice but to pay down debt or increase savings levels, even at zero interest rates. Although most private sector balance sheets were repaired by 2005, a serious aversion to debt remains.
Today, the private sector is saving 9 per cent of gross domestic product at zero interest rates, a shockingly high number. The same figure for the US is 7 per cent; for the UK, 4 per cent; and for Spain, 8 per cent. All have record-low interest rates. These numbers suggest the private sectors of all these countries are still strengthening their balance sheets instead of maximising profits.
He is a bit off with his `UK 4%` according to this morning’s Telegraph -
The people have less money to spend … so they save more~!