tag:blogger.com,1999:blog-4815867514277794362.post3954364830641016206..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Rortybomb argues my point (though he didn't mean to)John Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-4815867514277794362.post-56957129577077050322009-04-03T06:05:00.000+11:002009-04-03T06:05:00.000+11:00It may be that part of the problem are the guarant...It may be that part of the problem are the guarantees States seem all to offer to savings.<BR/><BR/>I just read an Economist article;<BR/><BR/>http://www.economist.com/world/britain/displaystory.cfm?story_id=13415778<BR/><BR/>Basically, a building society, a purportedly conservative saving entity for mortgages, failed. Problem was exactly as John described, they took on a lot more risk.<BR/><BR/>They did this because they were being out-competed in the market by the regular banks.<BR/><BR/>Great quote from the article, from the ex-director of the society;<BR/><BR/>“What do you do when your core product has become everyone else’s loss-leader?”<BR/><BR/>They were offering mortgages at 5.0%, banks were offering 4.3%.<BR/><BR/>Now this is where the savings guarantee comes in. Savers have absolutely no reason whatsoever to care about the safety and security of the entity holding their money. No matter what happens, the State will ensure they lose nothing.<BR/><BR/>So a conservatively investing entity, very safe, with a low return, is dead. You're offering safety - but it has absolutely no value to the saver. He's safe anyway. The risk has been taken on by the State.<BR/><BR/>If you want financial entities to exist which offer truly low risk behaviour and stick with it - which means they offer low returns *and* make a decent profit - people must benefit from the risk reducation.<BR/><BR/>So I think this State interference in the market may be causing fundamental problems. I think it may be profoundly altering the type and behaviour of financial entities.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-40898302324529602432009-04-02T23:45:00.000+11:002009-04-02T23:45:00.000+11:00In the world with only a few big profitable banks ...In the world with only a few big profitable banks is there room for unregulated non deposit taking finance companies to provide more creative and more expensive credit. Somewhere in between the banks and the hard money guys. Will these big profitable sleepy banks provided the necessary intermediation to the finance companies through warehouse loans or TRS? <BR/><BR/>Perhaps at the end of the day I would give up some stability for a better chance to make a buck.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-37849507555395507452009-04-02T13:29:00.000+11:002009-04-02T13:29:00.000+11:00My first reaction was like Septo's.... you are ess...My first reaction was like Septo's.... you are essentially arguing for increased taxation (i.e. fatter bank margins) because the cost is worth it if it generates some bigger general good (no depression). Doing it by letting bank profit margins get big seems like a bit of a roundabout way of going about it though. Its kind of like trying to have your cake and eat it too.... free markets and competition are good things, but not really... or at least not too much. Surely there is a better solution..?Peter Rickwoodhttps://www.blogger.com/profile/05381042446869694987noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78319931714666204662009-04-01T22:28:00.000+11:002009-04-01T22:28:00.000+11:00Actually septo has nailed the right question - whi...Actually septo has nailed the right question - which is why have private sector banks at all?<BR/><BR/>My guess - the banks can still make profits in a regulated price environment by cutting costs.<BR/><BR/>But Australia ran quite well for a long time with one government owned bank.<BR/><BR/>I would be quite unhappy with four government owned bank.<BR/><BR/>But you can do it with lots of banks, stifling regulations and toasters.<BR/><BR/>JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-71337038492133270592009-04-01T21:05:00.000+11:002009-04-01T21:05:00.000+11:00john: your model prefers big safe banks without m...john: your model prefers big safe banks without much competition. how do you define acceptable levels of competiton? why have private sector banking at all?septizoniomhttps://www.blogger.com/profile/14253705209662419429noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-34482185751140068652009-04-01T19:27:00.000+11:002009-04-01T19:27:00.000+11:00As a consumer of banking services, is it really im...As a consumer of banking services, is it really impossible to have healthy banks with thin margins (i.e. competitive banking industry)?<BR/><BR/>Can we achieve it through government policy?<BR/><BR/>For example, I knew China regulated their banks and economic growth by tweaking reserve requirements (in addition to interest rate). Initially, I didn't realize the significance of this. Now, I realize it is a great idea. During boom times, the government force the banks to maintain higher reserve. When the economy slows down, the government reduce reserve requirements. The banks are in better financial health to make more loans when the economy is slow. <BR/><BR/>I do agree that big bank isn't the root of the problem. However, having big but uncompetitive banks doesn't sound right either. Especially, when the financial system is global and banks have to face global competitors.Foobarhttps://www.blogger.com/profile/13624313160940110676noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-70224414323771501972009-04-01T15:12:00.000+11:002009-04-01T15:12:00.000+11:00I have dealt with the cross border problem several...I have dealt with the cross border problem several times.<BR/><BR/>The country has to be separately capitalised. Read the earlier posts.<BR/><BR/>Cross border banking is real dangerous.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-681438550106555212009-04-01T13:45:00.000+11:002009-04-01T13:45:00.000+11:00I'm not convinced that your model would work as yo...I'm not convinced that your model would work as you think it would.<BR/><BR/>Ireland has a (normally) high-ROE banking duopoly and both have imploded in the current crisis. And this is the second time in 25 years that AIB has had to be bailed out. <BR/><BR/>Also what about the impact of traders like traders like Rusniak, Leeson or Kerviel who can lose billions in a short period whilst representing their activities as low-risk regular banking transactions (forex trading etc). Seems like just one of these people can bring your high-ROE oligopilistic bank down.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-63809618951223956902009-04-01T11:54:00.000+11:002009-04-01T11:54:00.000+11:00Isn't securitisation a way of increasing asset tur...Isn't securitisation a way of increasing asset turnover, i.e. of increasing revenues relative to assets employed? If so, might not a bank rationally forgo margin in pursuit of higher turnover, much like a grocery store, without sacrificing overall return on capital? Thanks.<BR/><BR/>-Nadav ManhamAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-19902212926617981422009-04-01T11:04:00.000+11:002009-04-01T11:04:00.000+11:00Agreed completely. Barry Ritzoltz tried to defend...Agreed completely. Barry Ritzoltz tried to defend securitization.<BR/><BR/>I have no problem with banks that sell loans, especially if they get to the position where they have to sell loans. <BR/><BR/>I have a big problem with a bank that BUYS loans, especially a bank that has a guarantee from the government.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-75783379397019090722009-04-01T09:44:00.000+11:002009-04-01T09:44:00.000+11:00John, I hate to think what the logical conclusion ...John, I hate to think what the logical conclusion to all this is if you assume that monopolies/oligopolies are the appropriate structure for financial systems. If ROEs for banks of 20% over the cycle are good, why arent ROE's of 30% better. Why shouldn't we return to the days (in Australia) when home loans were 6% above bank bills, because of the wonderfully cosy nature of the banking system. I suspect the safest and most regulated banking system in the world is Chinas and they now have most of the big cap banks in the world. However I'm not sure thats an economic/financial/social model that many of us would like to replicate.Campbell Dawsonnoreply@blogger.com