The end of the world as we know it?

[El Presidente]

Basically it is the ratio of debt to assets.

Pedantically, it's actually the ratio of debt to equity.

It measures the proportion of a business that is financed from borrowings (which are interest bearing, and on which interest must be paid) compared to investments from shareholders (which pay dividends, are optional, and can only be paid from profits).

The higher the gearing, the higher the risk. If a business loses money, this decreases equity, which increases gearing, which makes less people willing to invest in a company.

 

[Lokki 7]

Pedantically, it's actually the ratio of debt to equity.

It measures the proportion of a business that is financed from borrowings (which are interest bearing, and on which interest must be paid) compared to investments from shareholders (which pay dividends, are optional, and can only be paid from profits).

The higher the gearing, the higher the risk. If a business loses money, this decreases equity, which increases gearing, which makes less people willing to invest in a company.

Yes, yes I know. I was just trying to make it make sense. As for the banks lending out more money than they have on deposit, that is how banks work. Few people realise that if everyone wanted to withdraw all their cash at the same time, there is nowhere near enough money in circulation to physically allow this. Sort of an odd idea to get your head round. It's why confidence in the banking sector is so important, to stop people doing this.

 

[El Presidente]

It all seems odd to me. For a business if you are owed money - it is an asset.

Any how do they manage to loan out more money than they have as asset. The people receiving the load must see cash at some point ?

I can see why I am not in the city.

The banks use something called a liquidity ratio to lend out money. They know that depositers (and we're talking about people with serious money, not you and I with our £50 that Aunt Mabel gave us for our birthday), are unlikely to ask for all their money back at the same time, so they lend it to someone else.

If we assume a liquidity ratio of 10%, then if Mr B sticks £1m in the bank, the bank will assume that the depositor will only take out 10% (£100,000) in the near future, so they lend out 90% (£900,000), and charge interest on this, and make a profit.

The people that borrow the £900,000 spend it, with say Mr C. Mr C then takes this £900,000 and puts it in the bank. The bank then lend out 90% of this (£810,000) and the whole cycle starts all over again.

Eventually the bank will have lent out £10million (£1m/10%) from Mr B's original deposit of £1million.

The problem is made worse if the banks convince the regulators (think of a dumber version of Jade Goody), that actually depositors will only take out 5% of the amount they put into the bank, so therefore from an original £1m deposit they can lend out £20million.

The problem arises when Mr B hears a rumour that his bank is struggling, and asks for his £1million back, as the bank has only £100,000 to give back to him..........and so capitalism collapses, as it is built on a system of keeping your fingers crossed that your savers have full confidence in your integrity and ability to survive.

 

[bullshit detector]

This is capitalism's 1989. It's a stinking, evil system. They crowed like hell when Stalinism fell and now they are bleating like little lost sheep. As for us ordinary mortals the whole world is going to know how we felt like when we were shafted by Archer. The right wing ideologues' 'let the market decide' has come home to roost,and now the very same people who claimed 'the business of government is not the government of business' ( a quote from Thatcher) are clamouring for state support. Well, I'd give them state support all right.

The greedy scum who did this should be locked up and their assets nationalised to help the ordinary people whose futures are being shafted.

Whay should we just nationalise failing banks? The public utilities and railways should be nationalised, without compensation to any fund which does not directly benefit ordinary people (ie small shareholders and pension funds)

Those greedy bankers are just like Archer. Archer wasn't a bad apple. He is a prime representative of capitalism. He himself would certainly agree with that statement!

The worst thing is that the Left is in such a pathetic state that an open goal is being spurned - it's an even worse miss than Gordon Smith's...

 

[Dick Knights Mumm]

Thank-you lokki and el pres - that makes it clearer. So the government took a chance in guaranteeing Northern Rock deposits - if depositors had withdrawn it all presumably the country would be in trouble.

 

[Lokki 7]

Thank-you lokki and el pres - that makes it clearer. So the government took a chance in guaranteeing Northern Rock deposits - if depositors had withdrawn it all presumably the country would be in trouble.

NR on its own is not such a big deal, the problem is that the loss of confidence could have led to runs on other banks and the dominoes start knocking each other over. As long as confidence holds up, we are saved. That's why this current US proposal is so vital as something large is needed to stem the rising panic.

 

[Easy 10]

The banks use something called a liquidity ratio to lend out money. They know that depositers (and we're talking about people with serious money, not you and I with our £50 that Aunt Mabel gave us for our birthday), are unlikely to ask for all their money back at the same time, so they lend it to someone else.

If we assume a liquidity ratio of 10%, then if Mr B sticks £1m in the bank, the bank will assume that the depositor will only take out 10% (£100,000) in the near future, so they lend out 90% (£900,000), and charge interest on this, and make a profit.

The people that borrow the £900,000 spend it, with say Mr C. Mr C then takes this £900,000 and puts it in the bank. The bank then lend out 90% of this (£810,000) and the whole cycle starts all over again.

Eventually the bank will have lent out £10million (£1m/10%) from Mr B's original deposit of £1million.

The problem is made worse if the banks convince the regulators (think of a dumber version of Jade Goody), that actually depositors will only take out 5% of the amount they put into the bank, so therefore from an original £1m deposit they can lend out £20million.

The problem arises when Mr B hears a rumour that his bank is struggling, and asks for his £1million back, as the bank has only £100,000 to give back to him..........and so capitalism collapses, as it is built on a system of keeping your fingers crossed that your savers have full confidence in your integrity and ability to survive.

FANTASTIC laymans-terms explanation there El P, thanks for taking the time.
I am now officially an EXPERT in this field, and can proceed to pedal my half-baked ravings to anyone in the pub who is too drunk to realise that I'm a complete benny.

 

[Dick Knights Mumm]

to realise that I'm a complete benny.

I love NSC.

Benny - I had forgotten that. But wasn't it another word for poof (in the vernacular of the time) ?

I am still waiting for aproper opportunity to use the word "flob".

 

[El Presidente]

FANTASTIC laymans-terms explanation there El P, thanks for taking the time.
I am now officially an EXPERT in this field, and can proceed to pedal my half-baked ravings to anyone in the pub who is too drunk to realise that I'm a complete benny.

Ta Easy, I REGRET to say that I have taught creative accounting courses at the likes of Arthur Andersen, Bear Stearns, Lehman Brothers and a few others that I won't mention as they haven't gone bust.......yet. So I do feel some responsibility for what is happening.

What we need however to help us turn the corner is a picture of a CUTE KITTEN to put the world to rights.

 

[Uncle Spielberg]

Can the last person to go bankrupt turn the lights out please.

We are all f***ed.

 

[User removed 4]

This is capitalism's 1989. It's a stinking, evil system. They crowed like hell when Stalinism fell and now they are bleating like little lost sheep. As for us ordinary mortals the whole world is going to know how we felt like when we were shafted by Archer. The right wing ideologues' 'let the market decide' has come home to roost,and now the very same people who claimed 'the business of government is not the government of business' ( a quote from Thatcher) are clamouring for state support. Well, I'd give them state support all right.

The greedy scum who did this should be locked up and their assets nationalised to help the ordinary people whose futures are being shafted.

Whay should we just nationalise failing banks? The public utilities and railways should be nationalised, without compensation to any fund which does not directly benefit ordinary people (ie small shareholders and pension funds)

Those greedy bankers are just like Archer. Archer wasn't a bad apple. He is a prime representative of capitalism. He himself would certainly agree with that statement!

The worst thing is that the Left is in such a pathetic state that an open goal is being spurned - it's an even worse miss than Gordon Smith's...

so what are you trying to say ?

 

[El Presidente]

Can the last person to go bankrupt turn the lights out please.

We are all f***ed.

I blame Glenn Murray for it all, he's the lazy bastard who started it.

 

[The Antikythera Mechanism]

From the BBC

Bush says bail-out will be passed

President Bush on the ongoing bail-out talks
President George W Bush has said that legislators will "rise to the occasion" and pass the Wall Street rescue plan.

In a statement he said there were still disagreements because, "the proposal is big and the reason it's big is because it's a big problem".

President Bush is expected to resume talks with Congressional leaders later on Friday to try to reach an agreement.

He wants to pass a $700bn (£380bn) rescue package to buy mortgage-backed assets from US banks.

 

[Easy 10]

Ta Easy, I REGRET to say that I have taught creative accounting courses at the likes of Arthur Andersen, Bear Stearns, Lehman Brothers and a few others that I won't mention as they haven't gone bust.......yet. So I do feel some responsibility for what is happening.

What we need however to help us turn the corner is a picture of a CUTE KITTEN to put the world to rights.

Ooh look, here's an obvious PUN we both let slip by. You have put it all in LEHMANNS terms. Ahaa ! Ha haha HAAAA !

Oh, here's the kitten.

 

[Mowgli]

The banks use something called a liquidity ratio to lend out money. They know that depositers (and we're talking about people with serious money, not you and I with our £50 that Aunt Mabel gave us for our birthday), are unlikely to ask for all their money back at the same time, so they lend it to someone else.

If we assume a liquidity ratio of 10%, then if Mr B sticks £1m in the bank, the bank will assume that the depositor will only take out 10% (£100,000) in the near future, so they lend out 90% (£900,000), and charge interest on this, and make a profit.

The people that borrow the £900,000 spend it, with say Mr C. Mr C then takes this £900,000 and puts it in the bank. The bank then lend out 90% of this (£810,000) and the whole cycle starts all over again.

Eventually the bank will have lent out £10million (£1m/10%) from Mr B's original deposit of £1million.

The problem is made worse if the banks convince the regulators (think of a dumber version of Jade Goody), that actually depositors will only take out 5% of the amount they put into the bank, so therefore from an original £1m deposit they can lend out £20million.

The problem arises when Mr B hears a rumour that his bank is struggling, and asks for his £1million back, as the bank has only £100,000 to give back to him..........and so capitalism collapses, as it is built on a system of keeping your fingers crossed that your savers have full confidence in your integrity and ability to survive.

I honestly didn't really understand much of what's going on other than people saying 'we are ****ed' etc etc, but that is the best way i have heard it explained so now have a much better understanding what's going on.

When put that way though it does seem a bit scary!!!

Thanks for putting all the mumbo jumbo that way El Pres

 

[El Presidente]

Ooh look, here's an obvious PUN we both let slip by. You have put it all in LEHMANNS terms. Ahaa ! Ha haha HAAAA !

]

Titter!

When I pluck up the courage I will give my full confession about how last year, just before the credit crunch started, I did an enormous DUMP in the toilets of a world famous investment bank that refused to go down in one flush. I tried a few more times but only succeeded in flooding the floor. In true cowardly fashion I ran from the scene before I was discovered. Because they were worried about the water seeping through to the floor below, the trading desk was closed for a few minutes, and THAT is precisely when things started to unwind for capitalism.

 

[Easy 10]

Titter!

When I pluck up the courage I will give my full confession about how last year, just before the credit crunch started, I did an enormous DUMP in the toilets of a world famous investment bank that refused to go down in one flush. I tried a few more times but only succeeded in flooding the floor. In true cowardly fashion I ran from the scene before I was discovered. Because they were worried about the water seeping through to the floor below, the trading desk was closed for a few minutes, and THAT is precisely when things started to unwind for capitalism.

So in effect, the bottom fell out and all your assets were liquidised.

 

[bullshit detector]

I'm trying to say that all the arguments put forward by right wingers and sceptics against a populist radical left programme ('business won't like it, it'll destroy the economy') are no longer valid 'cos capitalism has eaten itself alive and all bets are off. Socialism is back on the agenda with a vengeance, if those in power have the guts to grasp the nettle.

If Labour wants to get re-elected it should renationalise the utilities and railways without compensation (except as above) and halve the price, and pass a few quick laws enabling it to retrospectively imprison those profiteering City bastards for criminal speculation. The City would scream, but they are as discredited as Ceaucescu. Ordinary people, many far too disillusioned to bother to vote at the moment, would flock back to Labour in their thousands.


Nobody would object to a few foreign energy companies losing their money, and nobody would mourn the demise of private rail companies, many of whose executives should have already been prosecuted for criminal negligence in the first place.

 

[El Presidente]

So in effect, the bottom fell out and your assets were liquidised.

My assets were ROCK SOLID I can assure you, in fact they were UNMOVEABLE

 

[Lokki 7]

I'm trying to say that all the arguments put forward by right wingers and sceptics against a populist radical left programme ('business won't like it, it'll destroy the economy') are no longer valid 'cos capitalism has eaten itself alive and all bets are off. Socialism is back on the agenda with a vengeance, if those in power have the guts to grasp the nettle.

If Labour wants to get re-elected it should renationalise the utilities and railways without compensation (except as above) and halve the price, and pass a few quick laws enabling it to retrospectively imprison those profiteering City bastards for criminal speculation. The City would scream, but they are as discredited as Ceaucescu. Ordinary people, many far too disillusioned to bother to vote at the moment, would flock back to Labour in their thousands.


Nobody would object to a few foreign energy companies losing their money, and nobody would mourn the demise of private rail companies, many of whose executives should have already been prosecuted for criminal negligence in the first place.

Haven't we already tried that route? Why return to old mistakes, why not learn from this and try and improve what we already have, a new era of cuddly capitalism.