Practical to let bank fail then buy it for taxpayer?


J

James Harris

I understand that to let a bank fail is to be avoided as it loses the
savings and pensions of many people. Would it have been practical for
the government - rather than propping up a bank with taxpayer money -
to let it effectively become bankrupt then nationalise it at rock
bottom price?

The people who would lose out would be the shareholders and, possibly,
the board. While I'm not saying to target shareholders per se it seems
more appropriate for them to lose out (they invested in a business
which failed) rather than the taxpayer.

The idea would be to re-privatise the bank (possibly merged with other
banks which suffered the same fate) once it could be made a going
concern again, making significant money for the treasury (and hence
the taxpayer).

Or would failure and nationalisation of the bank wound it too deeply
in some way for it to then compete in the market?

I freely admit I don't understand the economics. Hence this post.
Maybe someone here will know.

James
 
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T

Tiddy Ogg

the board. While I'm not saying to target shareholders per se it seems
more appropriate for them to lose out (they invested in a business
which failed) rather than the taxpayer.

The idea would be to re-privatise the bank (possibly merged with other
banks which suffered the same fate) once it could be made a going
concern again, making significant money for the treasury (and hence
the taxpayer).
Isn't that what's happened?
 
M

M Holmes

James Harris said:
I understand that to let a bank fail is to be avoided as it loses the
savings and pensions of many people.
Not necessarily. There's a government (taxpayer) guarantee up to 50,000
(90% of and it was 32,000). If they'd lett Northern Rock fail on day
zero (something that would have concentrated minds at other banks) then
there'd have been enough from the sale of assets to pay all depositors.
Keeping it going has actually lost more money as asset values
(mortgage-backs) have become more impaired and fallen in value.
Would it have been practical for
the government - rather than propping up a bank with taxpayer money -
to let it effectively become bankrupt then nationalise it at rock
bottom price?
Yes, probably.
The people who would lose out would be the shareholders and, possibly,
the board. While I'm not saying to target shareholders per se it seems
more appropriate for them to lose out (they invested in a business
which failed) rather than the taxpayer.
Exactly.

The idea would be to re-privatise the bank (possibly merged with other
banks which suffered the same fate) once it could be made a going
concern again, making significant money for the treasury (and hence
the taxpayer).
Or just skip the nationalisation part and let folks like Soros and
Buffet start new solid banks by buying the useful assets, and poaching
the useful staff, or the defunct banks.

It's gonna happen eventually anyway because damn near all of the banks
were already insolvent. All we're doing in the meantime is extending the
depression and throwing good money after bad that will take generations
to pay back.

FoFP
 
M

Mark

Isn't that what's happened?
I would say not. The government have lent billions of pounds to the
banks in exchange for possibly overvalued "assets" that I certainly
would not invest in.

If the govt let the bank go bust it could potentionally nationalise it
at no cost to the taxpayer.

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(")_(") their inaction to the problem. I am blocking most articles
posted from there. If you wish your postings to be seen by
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J

Jonathan Bryce

M said:
Not necessarily. There's a government (taxpayer) guarantee up to 50,000
(90% of and it was 32,000). If they'd lett Northern Rock fail on day
zero (something that would have concentrated minds at other banks) then
there'd have been enough from the sale of assets to pay all depositors.
Keeping it going has actually lost more money as asset values
(mortgage-backs) have become more impaired and fallen in value.
But then all the people who's savings were above the 100% guarantee amount,
and at that time it was only £2000 would lose faith in banks in general,
and pull all the money out and put it under the mattress.

That would mean a lot of other banks going under, some of which may not have
had any problems at all otherwise, and would end up costing the government
a lot more.
 
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