OT: shortage of investment bankers

[Huge]

That's OK, I already know you're not interested in debating.

[Tim Streater]

I think the other point here is that, according to something I saw on the telly, in at least some parts of the US you can get out of the mortgage debt simply by handing the keys back to the lender. At least here you can't get away with that.

[Tim Streater]

Ha ha, yes. And the lying bastards have the nerve to blame this on Maggie. Still, it's a typical leftie tactic - you have a problem, just make up a lie about it.

[Bruce]

Then they justify everything they do on the basis of "helping hard working families". LOL!

[The Natural Philosopher]

What was the real problem, was in interpretng what was junk: essentially the game is this.

A fractional bank prints money that it can lend out to people Lots of it. It can lend ten times maybe what it actually has on deposit.

The world is awash with cheap money, which is used to finance cheap houses

the price of cheapp houses goes up.

More people want to borrow more money so as not to get left behind.

So they do. Houses go up, risky loans become safe as the value of the house exceeds the amount on loan.

So far its a straightforward Ponzi scheme, but there is a risk that eventually it will all get into a bubble and meltdown.,

So, these dodgy loans need to be moved on. They are gift wrapped in an insurance policy, along with some quality loans, and passed along. The insurance on them allows them to be 'de risked' and anyway, house prices always go up.

These polished turds are then sold on to pension funds and the like.

So far, a two layered Ponzi scheme: the original mortgage companies have chucked their shit into the pension funds. So far so good.

Then one day, house prices falter, and, worse still the insurance companies backing these turds look set to fail. In fact the whole bloody Ponzi scheme is starting to unravel, and the horrible truth dawns, that the whole western economy is really one giant Ponzi scheme. Not only that, but the very pesnion funds that teh turds ended up with afe selling bankl sahers like crazy to cover their arses. Itsd all gettung out of control.

So a scream - the final scream of Socialism - Sort out our Banks! or we ae all without credit cards!! The GuvMint must sort It All Out.

So we do.

BUT the dreadful truth dawns. We never really had the money we spent at all. It was an illusion. We were living on borrowed time, borrowed money and the Dream of a Better Society all along, and crappy high street consumerism, and fast running out, oil.

Lets hope when the phones and Internet stop working, and the lights go out, people will pay engineers a bit more than bankers, who do nothing productive whatsoever.

Any fool can make a million commission on a billion pound deal.

An engineer is someone who can do for five bob, what any damn fool can do for a quid, and what a banker can't do for a million, and what a Labour government can't even see the point of doing at all.

[Clot]

When there was no need to do so!

[js.b1]

An article worth reading...

off topic, but it shows a pretty honest take on the situation, where we are, where we may go.

[Andy Champ]

I must jump on that particular statement. You are implying that a 2(i) from any university requires the same intelligence as one from any other.

Remembering that several won't even look at you without straight As at A-level, and others will happily take you on with a couple of Es and a fail - that's simply bullshit.

Andy

[Bruce]

Exactly. No doubt he thought he needed the money to enrich a few thousand more single mothers.

[Tony Bryer]

I get seriously bored of this one being trotted out repeatedly. Of course with hindsight he chose the wrong time, but if the Conservatives were so clever they could have sold off the UK gold reserves in 1987, collected 12 years interest on the money (at much higher interest rates than now) then bought the gold back at half the price they sold it for.

[Clot]

I do apologise, I had forgotten the urgence of that need.

[js.b1]

Up until 1986 a 2(i) was comparable across the top universities and as such formed a usable selection system for upper management candidates.

Exactly.

The basis of a 2(i) degree from the top universities used to be indicative of an IQ 125, that was the academic basis. The numbers claiming 2(i) now make that fundamentally impossible.

CSE v GCE were replaced by GCSE. A levels in 1990-91 alone saw 1) 40% syllabus stripped 2) coursework a significant component 3) recall alone sufficient to achieve a moderate grade whereas in the past it was application to unique problems that got the grades. Degree in 1990 saw substantive stripping out, every year became a virtual riot of staff refusing to strip anymore out - and 1994 saw a considerable migration of top academic staff away from universities more interested in quantity than quality.

This is why the backlash in 1993-94 was so severe by business, it saw the somewhat cosy selection system they had relied upon vanish - and people they recruited kicked out. There was considerable revenge at universities & private schools, trashing the graduates was "the only way to get back at the university" or "the only way to get back at the school". BP Mobil bankrupted chem-eng after chem-eng, they were picking the "ok, cheap" on the course rather than the top people who actually emigrated. Business wanted a free ride and instead found itself shafted. America broadly put it quite simply, what Thatcher did to the Miners Major (and then Blair) had done to the graduates.

By 1993-94 the backlash at the universities was severe, convocation ceremonies had parents booing the vice chancellors. I recall a 7ft+ tall head of IB (Schroders) blowing one VC off the face of the earth at 1) the standard of people applying and 2) the top people who had found out about those being bankrupted and not only not applying but walking away from the UK. The City for one got very brutal on who it would take from and not take from re blacklisting, until in the end it basically ripped up the "take X Y Z".

The university response in 1995 was in some instances to give everyone a 1st despite none having been awarded in the previous 10 years. That resulted in some better 2(i) from previous years being kicked out only to them requested to come back but already sodded off to Aus, Can, US & HK. A very very large number of IB, consultants, accounts, tax specialists, Quants & clients have quite bluntly "sodded off" to HK from 2008. Sadly IB is a case of "recruitment lotto" for the employee, retention of key employees on reduced pay during bad periods is not possible - there is always a bull market somewhere or freelance work with clients/contacts.

In 1993 the professional bodies such as I.Mech.E. wrote articles "what value these shiny new degrees" - as they tried to maintain standards, but within a couple of years rolled over for the fees I guess. It has achieved little, except put a 1st behind every shop counter and a PhD behind every repairer (PC World stuffed) - not just psychology but Chem, Chem Eng, Civ Eng. Companies shut the door on many UK universities and turned to Europe where Delft still meant Delft and could be had somewhat less with a) speaking EU languages AND b) living there. Too many learn a language but no company will take them over someone who has (say) actually LIVED in Germany and knows full technical german etc.

So the result is Assessment Centre usage. Sadly I would rather universities be forced to use them than the existing system.

The problem we have is universities only have to convince "virtually a child" that the degree is worth doing, but the child is then left to the task of persuading an *employer* which they will find considerably more difficult! Frankly at 32k a time it is a ridiculous miss- allocation of capital, but brilliant way of hiding unemployed academics, assistants, infra, staff, students for years at a time. The argument was "well it is better than doing nothing and they pay for their own Benefit rather than claim one", no it is miss-allocation.

Asia has 400M people at the "top 10% of society", shovelling the top

50% of western society into university isn't going to achieve much apart from add a lifelong cost to already disadvantageous earnings, disadvantageous living & property costs. You instead have to identify strengths and strip away social immobility (which has become chronic in UK *and* USA) and treat the human capital as a portfolio. The problem of course is The City Does Not Do R&D or Manufacturing :-) The plan was that City Profits would provide social spending - except of course the removal of so much profit rendered returns so miserable (1990-2009) that The City has merely left the children of tomorrow a bigger bill on smaller earnings.

Standard of living is declining per generation now, it peaked 2000 in USA and probably 1988 in UK, debt can only replace earnings for a time. Once debt exceeds 90% GDP you lose 1% GDP - Western countries are peaked and it is going to get very stodgy going forward.

One other point about dumbing down degrees - it left the top people no- further-educated and thus whilst of similar IQ to their pre-1986 counterparts somewhat less competent in the workplace which meant they could be obtained cheaper. That was a fundamental argument by Arthur Andersen at the time (1993). It made a lot of very top people utterly pissed off, the number of people so bored they did everyone else's course - and then just went binge drinking. By 1993 the people exiting university were shocked by the standard of those entering, even major universities - amusingly the 1986 graduates were shocked by the standard of those 1993 graduates, and so it continued. One reason why job specs can be hilarious, by 1996 a simple lab technician required a MSc, 2(i) BSc and minimum wage was a payrise.

The only course that had its top people paid sufficient to retain was Civ Eng, however within 2yrs a vast number of those emigrated. International student quality equally declined 1993+ with europe bluntly on the offensive.

It will go down in history as the biggest screwup except for "average academic 55k, average graduate product 12k". The top CFD people in

1994 were on 14k in central london until 2 of the 3 ran left simply because parents could no longer afford to subsidise the long chain of graduate job costs. They now work at LMT, same goes for hellfire and other missile developers, stacks of people just walked out fed up having abuse hurled down the phone and called bluntly "trash".

UK made a lot of enemies, many went into financial services for revenge and most certainly achieved it. The gov't wanted debt expansion and virtual abolition of credit rules in return for votes, the market gave them what they wanted. The gov't is as much responsible as the IBs - both in UK & USA.

[js.b1]

You may, but it was an example of GBs arrogance.

#1 - he dumped the gold off at min bid #2 - he believe boom-bust were over #3 - he failed to retain multi-asset class reserves

China-India-Brazil are building gold & commodity reserves. #1 - Commodities are priced in USD & rise as USD falls (hedge) #2 - Bonds may well have hit max-price, min-yield; next is falling price (last bond bear saw 77%+ loss in principal) #3 - USD as reserve currency gets difficult, China wants a new reserve

It is unlikely China will achieve a new reserve currency. For one thing, USD may have a vast deficit - but since it is denominated in the reserve currency the 1,000B$ that China has (and we have a fair bit too) becomes China's problem in terms of collecting on it.

Whilst UK is #2 re debt and Ireland is #1 it is the USA which has the long term problem re debt, Lehman Bros short silver positions were a real problem, JPM is heavily short gold. The reason is not to stop "gold bugs" but to stop a run from fiat currency to precious metals by the public, because it becomes a contagious diahorrea in terms of runs on banks.

McKinsey list real UK debt as hitting 460% of GDP with Japan only higher - mostly because of undeclared pension obligations re public sector, not just bank bailouts. We have a "naval problem", we need future generations to bail us out - but at the same time we need to lock future generations below decks into higher debt, lower living standards. Therein is one particular reason why brainwashing schoolchildren to general media in "green as the cause" is so important.

GB wasted the gold, some say Thatcher wasted the oil, nothing new :-)

[Bruce]

It was a massive error of judgment to sell the gold at all. There was no need to sell it, and every reason to keep it. The massive error was made even worse by selling the gold in a falling market.

You don't need hindsight to detect a falling market.

After the decision was made to sell, the gold price dropped substantially and the sale should have been called off, but Brown still went ahead. After the first tranche of gold sales, the gold price dropped still further and the second sale should have been called off, but Brown still went ahead. After the second sale, the price dropped still further but Brown still went ahead and sold more.

The Bank of England was never consulted on the sale.

The price of gold was at a 20-year low at the time of sale, and no hindsight was needed to know that. Brown drove the sale through.

No justification has ever been provided by Brown, who lost Britain £5 billion. China, who bought about half of the gold, profited by about £2.5 billion.

In contrast, "Black Wednesday", when the Tories tried to keep the pound in the ERM, lost £3.3 billion. That was said to be Britain's greatest economic misjudgment but Brown's was clearly far worse.

[stuart noble]

I'm going to bookmark that and read it when I'm feeling more lucid.

What I can't figure out is who all the countries in the ring of fire actually owe the money to. Other countries? Banks? British banks maybe? Do we perhaps owe it to ourselves?

[The Natural Philosopher]

Its a very good question.

AFAICMO the way it works is this: a fractional bank gets hard earned cash on deposit and lends 10 times as much to a dodgy mortgagee.

So in a sense the mortgagee owes the money to no one. because it was juts printed on the spot, as it were.

The old game was to inflate the house price so that people who bought houses stayed affluent, people with cash savings lost them due to inflation.

Fractional banking worked well as long as the whole economy kept on expanding.

Lets say that by creating enough extra money for tomorrows needs and pretending you had it, you could lend it to fund development of tomorrows world.

However, that implies that the money is being invested in stuff that will be of use tomorrow. And that further expansion is in fact possible.

If either of those two statements ceases to be true, you are in serious trouble.

Consumer lending mushroomed: people were not borrowing to buy a house, or build bridges: they were borrowing to eat junk food and governments were borrowing to create make believe jobs.

The world was running out of oil, or cheap oil, anyway. Britain is running out of land. Or cheap land anyway.

Now if everyone had had perfect hindsight, what should have happened is a massive hike in interest rates, or taxes, about 2003, to reduce consumer spending and stabilise house prices. Coupled with a massive pull back in the public sector. To get the national debt down sharpish.

As it is, we have transferred the debt from the banks to the governments, and Greece is the first to go.

You see its not so much living beyond your present income, its living beyond your future income, that is the problem. And attempting to live beyond the total income the world is capable of generating.

As people who listen to my rantings will remember I spent 3 years in Johannesburg at the crumbling end of Apartheid, trying to understand the economics and politics as well as earning a living: The problem was stark. The country as a whole did not, and never could, earn enough GDP to satisfy the aspirations of its population.

I am heartily sick of hearing about a 'Fairer' society. Africa showed me once and for all that what happens if you fairly distribute GDP you end up with universal poverty. Unless your population can be stabilised at a lower than starvation level. BUT if you do that then its 'unfair' on the country next door, that does not.

I.e. if we were to take the socialists 'fair world' ideal right now, and apply it universally and globally, we would all be living below minimum wages.

Debt and so called exploitation keeps us rich.

But debt financing cannot cope with a stable world population: That is the problem. We are or have been borrowing to eat and spend against a future that doesn't exist any more. Ultimately the East is the lender of last resort, but why would they keep on lending so we can buy more of their stuff, when we cant afford to even pay the interest on the debt?

This is finally the problem: We can print as much money as we like, and lend it to people. WE can even lend it at zero interest rate. And in a sense it costs nothing of any real value to do it, BUT what happens if we do, is that debtors gain massively from free handouts, and savers end up receiving no benefit: worse, galloping inflation can eat away at the savers future rewards. This is (if you like) ultimately exemplified by Zimbabwe.

If we try and control money supply, by demanding that borrowers and spenders pay interest, then we risk destruction of the consumer economy.

It seems to me that what the world needs is a new system of economics based on zero growth in many many areas. And a zero growth, or contracting economy doesn't need want or should be allowed to have, debt.

We should be solving a housing shortage by restricting immigration and birth rate. We should solve unemployment by having less people doing more.

How we solve a debt problem is really the business of financial engineers to work out. In the end it isn't the real problem. The real problem is we cant sustain growth. Not in Europe anyway. Not in conventional terms.

[Tim Streater]

Are you sure? The borrowers used the money to buy the house. So it had to be real money. The only way the bank can "lend 10 times as much" is because it's borrowed the other 9 times as much from other banks, at a lower rate than they get from the mortgagees. That's how they make their money.

If prices drop, then as I said yesterday I believe that in (some parts of) the US the mortgagee can just return the keys. The bank then owns the house but they're stuck with it being worth less than the loan they made.

In the UK, you can't do that, and quite right too. So if prices drop you have to sit tight until they go up again.

[Tim Streater]

[Andrew Gabriel]

Oh it does - a significant proportion leave the trading desks every year, some having been very successful, but many more having failed or been burned out.

[The Natural Philosopher]

No. Google 'fractional banking'. 'tier 1' 'capital ratios' etc.

A tier 1 bank is allowed to lend about ten times what it actually has on deposit, on the basis that the assets it lends against will be worth at least 90% of the money advanced.

The whole banking crisis, happened because it seemed that actually, they weren't.

RBS was particularly pernicious, because they didn't use deposits to get their capital adequacy ratios: they used short term debt (as you pointed out).

Suddenly, npo one wanted to lend them money :-)

The problem is there is real disconnect between money and actual worth, when you don't have e.g. a gold standard.