Please enlighten me.

[Dave3498]

Ive been thinking lately about that Frenchman who lost £3 billion for his bank by bad trading. Couldn't it be looked at in another way? Isn't the loss someone elses gain? Why couldn't it be looked at as a cash injection into the market? The money must have gone somewhere so someone has benefitted. Come in you economists out there, I would like an answer.

 

[GB72]

I think it is that you are only dealing in thoeretical values as opposed to actual money. I you buy shares for £5 billion then that is what they are worth but if you then sell for £2 billion then there is a loss to the market as a whole of £3 billion pounds. Nobody profits at this stage and it is just a net loss.

 

[geronimo]

its got to do with the debt the bank that lost the money has.

Thats why northern rock is rejecting mortgages and telling there customers to go else where, this enables them to get back the money they are owed.

If a bank looses 3 billion how can they pay there debtors?

As usual sh!t runs downhill and its us at the bottom of the hill and it is us that have to pay for a banks mistakes, all they do is up the interest rates and we pay.

It has been banks letting people run up debt that they cant afford that has got the whole world into this mess but it is us that will have to pay for it one way or another, this is fact.

Banks as near as legalised theft as you can get.

 

[Dave3498]

Point taken GB72. So it was only a theoretical problem. Surely that's not enough to bring down a bank and colapse a market. It seems to me that it is only numbers on a computer that are being traded here. If it's not hard cash or gold or something, then I find it difficult to take it all seriously. Maybe I need a lesson in economics, or maybe the so-called economists need to get real.

 

[RGuk]

I'm intrigued by the current situation. It seems that a lot of overpaid folk are making a pig's ear of things. All financial products are geared to protecting the banks first, so how come the banks can't protect their own state by judging the climate more effectively? I've messed about with all kinds of mortgages over the years and tend now just to stick with products that have an instant "get out" if I don't feel I'm getting a good deal. I was with one company that wanted to charge an extra amount (as a penalty) for re-mortgaging when I had an extra loan I'd used to pay for new roof and double glazing. They eventually backed down and said they would roll the two loans together, but I'd already signed with another bank...too late...if they want to play tricks, I don't trust them to put me over their "dubious" charges. Sadly, in a case like the one you ask about, I fear that almost any losses are manageable, there is simply a shutdown on generous terms and selling new products until the storm has calmed. My bank "lost" £8.7 bn on bad loans but still turned in a profit....if they'd had better folk watching the sales "on the floor" as it were, then my rate might have not hiked and there'd be less reason for panic.

I'm not that clued up but the small guy can never win, in this case the only people who might have gained are those that picked off the remnants of de-valued shares....probably yet more banks and dealers/speculators.

 

[viscount17]

Many years ago markets (mostly) traded real money. Exchange rates were whole numbers, if A had £x he wanted $y and cents in his hand. If a mine in South America flooded, by the time the news got back to Europe it had been drained and was back operating. Except for deliberate fiddles (eg The South Sea Bubble) there was less panic.
Then along came calculators (computers) and rapid communication. Now exchange rates worked down to notional numbers (that were rounded down to you and I with the banks keeping the bits left over) and if the mine superintendent stubbed his toe everyone knew about it. The problem was (and is) that we (in general) can't cope with the rate of information flow. Hence panic, over-reaction and instability.
Solution - filter the calculations to a maximum of four decimal places (ideally three) and 90% of the currency fluctuations will never be seen.

 

[Dave3498]

There are no unavoidable disasters involved here. No earthquakes, no tornados, no vulcano eruptions, no tsunamis. These problems are completely man-made by overpaid whizz-kids moving numbers around on a computer screen. The consequences are such that people form queues outside banks like NR, trying to close their accounts and withdraw their money, and the knock-on effect of small businesses suffering and mortgage rates escalating etc. It's time that governments put a stop to these money market activities..