back to article Gov report: Actually, evil City traders DIDN'T cause the banking crash

So we've now got the official report on the glorious cock-up that was Halifax Bank of Scotland. There will of course be cries that lessons must be learned, such things must never be allowed to happen again and that the guilty must be punished, as is traditional in such post mortems. But the important thing is that the right …

COMMENTS

This topic is closed for new posts.
  1. Anonymous Coward
    Anonymous Coward

    But surely?

    It said in the Sun/Mirror/Daily rag that all bankers are bad therefore it must be true!!!!!

    1. Professor Clifton Shallot

      Re: But surely?

      Well it was still "bankers" to whatever extent that is a coherent group that made these mistakes.

      And it's not unreasonable to speculate that part of the reason these mistakes were made is that banking culture over-promoted and over-rewarded sales regardless of the sense of the sale, and risk taking regardless of the risk.

      1. Richard Wharram

        Re: But surely?

        HBOS certainly had an atmosphere amongst management that bad news was not welcome.

        Bonusing corporate loan arrangers for getting big loans that they could approve themselves didn't help a great deal either I gather.

        1. Anonymous Coward
          Anonymous Coward

          Re: But surely?

          "HBOS certainly had an atmosphere amongst management that bad news was not welcome.

          Bonusing corporate loan arrangers for getting big loans that they could approve themselves didn't help a great deal either I gather.'

          Agree, I don't see the distinction between a retail banker making bad loans to collect bonuses in the short term and an investment banker levering up to 40 to 1 to make huge bonuses selling a large bundles of bad loans. Both were taking excessive longer term risks, probably knowingly so, for short term gains. Scale is the only difference.

      2. Spoonsinger
        Headmaster

        Re: But surely?

        Re- "Well it was still "bankers" to whatever extent that is a coherent group that made these mistakes."

        Not really bankers fault.Basically you are looking at:-

        a peep - "We need to buy something from someone."

        a bank - "ok, Here you go."

        a world weary peep - "Being a responsible borrower, how can you say that", (maybe they don't ask).

        a bank - "Well the people who allow people to print the money say we can"

        a peep - "Yeh!, Ta, lets get our 'roof over the head' on"

        later..

        from the 'people who allow the people to print money' - well this isn't going to work is it?

        from the 'people who print the money' - nope.

        from the 'people who allow the people to print money' - ok, crap, the only way we can get out of this is to devalue savings. We can't increase interest rates because da people will see this as a fault in our ideas.

        from the 'people who print the money' - well 'da people' won't notice if we just print more money. They just like shiny.

        from the 'people who allow the people to print money' - yeh!!! that will see us through our term.

      3. SoaG

        Re: But surely?

        "over-promoted and over-rewarded sales regardless of the sense of the sale"

        Do you know of some line of business that doesn't get snookered by their own sales department?

        1. Richard Wharram

          Re: But surely?

          Ironically, in the years before the collapse I'd been (with others ofc) working on MI systems that tracked the quality of sales made over time to make sure they weren't of poor quality e.g. cancelled in a week because they were only taken out under pressure.

          Stupid that they did this for current accounts but not huge corporate loans :)

      4. Tom 13

        @Professor: No, the report was a whitewash job to cover for the real culprits

        The leftists in government. Bankers don't make risky loans without a damn good reason. The reason in Europe and the US is that leftists have pointed a regulatory gun to their heads if they don't make loans to people who can't afford them. In boom times this typically doesn't cause bankers a problem. Everybody's raking in cash and your profits will cover the costs. The problem is, when things start to get tight, those profits get too thin. And then, because you are over-extended on bad loans, the whole things comes crashing down like the house of cards it is.

        1. firefoxx

          Re: @Professor: No, the report was a whitewash job to cover for the real culprits

          Quite right - check out Bill Clinton and the Community Reinvestment Act (CRA) putting immense legal pressure on banks to make bad loans to 'subprime' customers who were unlikely to repay their mortgage. It was a way for the lefties to procure houses for their poorer supporters, and retain their votes.

          If you don't believe me then look it up. Carter started the CRA decades ago and Clinton spun it up out of control. Bush Jnr tried to do something about it but the other houses were under democrat control and refused. It's simple left-wing political corruption really.

    2. Anonymous Coward
      Gimp

      Re: But surely?

      It said in the Guardian/Mirror/BBC that all bankers are bad therefore it must be true!!!!!

      FTFY.

    3. h3

      Re: But surely?

      HBOS are worse than most :

      See the libor fixing things that Barclays did the right thing and came clean about and got loads of hassle from MP's. (And a £200 million fine) and their CEO took responsibility and resigned.

      The bailed out HBOS got charged £400 million for doing the same thing and just ignored it and the government have done nothing about it. That was £200 million wasted that could have been given back out of the bail out money.

    4. LarsG
      Meh

      A cover up

      Don't be conned by the report, it was the bankers pure and simple, without the bankers, no loans could have been given, no mortgages provided and no PPI sold, and no huge bonuses paid out.

      Don't kid yourselves, they'll look for a few scapegoats to pin it on.

      They just want to change the lasting image of the bent overpaid bankers, the report not blaming them is the beginning.

      1. Richard Wharram
        WTF?

        Re: A cover up

        @LarsG

        wtf? The report blames the bankers. Squarely. Did you read it?

      2. This post has been deleted by its author

    5. Green Nigel 42
      Big Brother

      Re: But surely?

      Does this not make the boards of sale banks, the finacial watchdogs, the major share holders (thw expert pension investors), those who voted for & set in motion deregulation with associated loan fuelled econonic boom, even more culpable? After all this is their traditional business which they should know inside out by now, unless they are incompetent arrogant privileged horray Henry's!

      Oh & stop calling me Shirley

    6. This post has been deleted by its author

    7. gablody

      Re: But surely?

      "It said in the Sun/Mirror/Daily rag that all bankers are bad therefore it must be true!!!!!"

      Well, it has been said many times in that irreproachable source, the Guardian, so it must be true. They surely take a dispassionate view of things.

  2. RyokuMas
    Mushroom

    "So how do we solve the banking problem?"

    I'm reading chapters 1-15 of the BOFH operating manual and modifying appropriately. So far I've got:

    - with a bat.

    - with an axe.

    - with an over-voltage, illegal cattleprod.

    - with fire.

    - with skips full of glass.

    ...

    1. Anonymous Coward
      Flame

      Re: "So how do we solve the banking problem?"

      Did you, perhaps, forget the word 'and' between each of those items?

      1. Richard 12 Silver badge

        Re: "So how do we solve the banking problem?"

        It's implicit.

    2. Anonymous Coward
      Anonymous Coward

      Re: "So how do we solve the banking problem?"

      I'd add a gallon of petrol and a gelding instrument to prevent them breeding.

  3. Richard Wharram

    This has worried me for a while

    That we are trying to force the banks to lend to businesses when that was half (or indeed it seems now, nearly all) the problem in the first place.

    1. JayBizzle

      Re: This has worried me for a while

      Banks work on a process of Risk Weighted Assets and all lending is attributed a risk, pre 2008 any lending to governments would carry a 0-10% risk (now much higher) and an unsecured loan was considered up to 100% risk.

      Therefore the bank would need to keep a portion of money aside (a percentage of a percentage) to cover the losses that could be incurred from the loan not being repaid.

      Quite simply this means that to lend more money in this current climate means they have to keep more money locked up (Capital Ratio) which costs more money to the banks. So they aren't going to lend to small riskier businesses unless someone gives them a guarantee which reduces the risk.

      What SME's seem to fail to realise is that they are high risk ventures, but unfortunately this doesn't account for the fact that a business is a good idea and can indeed profitable (you hear the success stories despite the lack of lending) but banks dont care about potential, they care about getting their money and interest back. The only entity that can fill the gap is the Government.

      1. Anonymous Coward
        Anonymous Coward

        Re: This has worried me for a while

        "Banks work on a process of Risk Weighted Assets and all lending is attributed a risk"

        Ah yes, and fat lot of good those value-at-risk models were. Not just because they didn't provide enough capital, but because they understated the exposure of the bank's equity holders to risk by at least one if not two orders of magnitude. Nobody has been held to account for those duff models and careless assumptions.

        You mention SME's as a significant source of risk, but Leveraged Buy Outs were a far faster growth area of lending in the years up until 2008, and far more risky. And the banks, greedy fools that they were, thought that if they clubbed together to lend money, then they'd spread the risk. Which ignored the obvious rising tide of indebtedness that could never be repaid. I was working in the City at that time, and there were voices saying that the multiples were not sustainable and it would end in tears. But the banks continued to lend idiotic multiples to private equity buyouts, in return for fat arrangement fees and big bonuses. And a major, major spreader of this contagion was none other than our old and crooked friends at RBS, who were, in the words of a competitor bidding for lead arranger status on these LBOs, "all over Europe, like a rash". But because the turds at RBS who led this charge to lend anything to anyone then syndicated the debt to other buyers, the gormless herd bit into RBS' poisoned apple, and Notsir Fred's demonic influence was multiplied and spread.

        I'd take issue with the claim by the article that RBS fell to bits because it over-paid for ABN. That's true against any accurate retrospective valuation of ABN, but the true cause was that RBS had a rotten lending portfolio full of steaming ordure, and ABN's was even worse. They were in such a rush to buy ABN that they didn't bother to check the asset base, and happily ponied up a vast sum of cash to worsen their position, as we all know. But the root cause isn't that overpayment, because the goodwill element could (as with all such things) be amortised over time, the root cause was that both banks engaged in bad lending.

        And as for government filling the gap, since when have governments backed winners? Why will good old government be any better at avoiding the losers than the banking sector would? And in a portfolio approach that you need to take to any investment, that means higher interest rates to sectors with higher default rates, ergo no material difference to asking for a loan from the bank.

        1. bep

          Re: This has worried me for a while

          Australia has a 'four pillars' policy; basically a government-regulated oligopoly. The result is that everyone pays more for all banking services that they would under an open competition model, but there are less nasty surprises. No system is perfect, but this seems better than what is currently happening, or is proposed, for the US and UK.

        2. Tom 13

          Re: This has worried me for a while

          LBOs had NOTHING to do with the morass of NINJA home loans issued with government backing to people with no prospect of paying them back. Neither did the risk asset models BECAUSE the government claimed it was assuming the risk. This was the root of the problem. And I hear that to juice up the economy again, they are going back to that failed policy.

    2. James Micallef Silver badge

      Re: This has worried me for a while

      Yes, they went bust the 'old-fashioned' way, but WHY were they making the wrong loan decisions? Why were they simply not saying no to loan applications? They were simply taking too much risks, and the reason for tha is that they were too greedy.

      Also, one of te bad ideas in banking - fractional reserve banking at ratios of 10 or 20:1, which means top bods at the bank would have been looking at their balance shets and thinking that they're not issuing enough loans... and putting pressure on branch managers to approve loans.

      Was there not 1 branch manager in all the bank who resisted giving easy loans to non-credit-worthy people / companies? I bet there probably were, and they were probably circumvented / undermined within the bank or let go

      1. Richard Wharram

        Re: This has worried me for a while

        Branch managers have next to nothing to do with loans in this day and age. It's not Captain Mainwaring any more. Personal loans and mortgages were all approved by computer systems. I'd imagine there was constant pressure from the top to slacken the algorithms used to be more generous.

        1. Tom 13

          Re: the top to slacken the algorithms used to be more generous.

          Yes, this was the problem, but foisted on the banks in order to comply with government policy. If you don't make enough "minority loans" you are accused of redlining and lose your banking license. You can't give bonus points to minorities because of SCOTUS reverse discrimination cases. So the only way to get the "minority loans" is to lower the standards far enough that you pick up enough of them. Of course at that point your whole risk/reserve model is shot to hell and collapse during what should have been a correction becomes inevitable.

      2. Anonymous Coward
        Anonymous Coward

        Re: This has worried me for a while

        Why were they simply not saying no to loan applications?

        Because of Securitisation - The banks found out that they do no need to hold the debt themselves. Instead, they could outsource the risk by converting the loans they issue into bonds, which can then be sold to suckers, aided and abetted by Ratings Agencies - whom the banks outsourced the credit valuations to. In the end, they ran out of suckers and the banks bought their own thrash via off-shore vehicles to make a market for it.

        Securitisation is also a reason banks hate lending to SME's: Those loans are too small to be securitised so the bank must carry them, which they hate.

        1. kraut

          Re: This has worried me for a while

          <quote> Securitisation is also a reason banks hate lending to SME's: Those loans are too small to be securitised so the bank must carry them, which they hate.</quote>

          Almost all loans, including mortgages, are too small to be securitised on their own. Which is why banks package them up and then securitise them.

    3. Anonymous Coward
      Anonymous Coward

      Re: This has worried me for a while

      Indeed.

      The other half of the problem is the "wholesale" market. HBOS would have never gone that far down the "classic bank failure" path if it was not able to rely on cheap wholesale credit. Similarly, dunfermine, northern rock, etc would have never managed to lend out that much unless they could dip into that bucket too. That bucket in 2007 was overflowing with "fake" and "oversold multiple times" credit during the crisis and the reason for that was derivative trading. By the way it still is and will overflow again because none of the regulations have addressed this so far. In fact some of the "anti-crisis" moves by governments have tried to "revive" that too instead of killing it once and for all (in its current form).

      So while Halifax failed conventionally (and so did NR) the derivtive trading did have a role in it - it produced credit not backed up by reality for them to consume and resell to customers.

  4. Vladimir Plouzhnikov

    At last

    A voice of sanity observes that the Emperor's new clothes are not what he said they are.

    Thanks for the good article, Tim!

  5. Duncan Macdonald
    Thumb Down

    Still caused by greed

    The management were too interested in profit to see the risks. If they had kept to 80% loans then they would not have gone bust - it was the 90% and higher loan to value mortgages that caused the problem. Of course if they had stayed with 80% LTV they would not have made as much profit in the good years and would have had smaller pay packets.

    1. Anonymous Coward
      Anonymous Coward

      Re: Still caused by greed

      Duncan, it was not necessarily the mortgages that blew them away, it was the personal loan portions to the 'unique' products that NR sold. Some deals allowed you to have a 115% LTV deal with a 90% mortgage and a 25% personal loan portion. It used to be the personal loan that tanked people, not the mortgage, since that portion had a higher interest rate.

    2. fajensen
      Flame

      Re: Still caused by greed

      Look at the incentives: If management grows the business at an unsustainable rate stocks will rise, bonuses grow and stock options turn into Real Money. When the business tanks, there will be golden parachutes and new, cushier positions. If management do not meet the "growth targets", is is replaced and does not collect on the goodies.

      These people are not stupid, they knew this was not going to last so they went "all in" to get as much as possible on the way out.

  6. Tom 38
    Stop

    RBS went bust because it bought ABN Amro for too much money.

    It was only too much money because ABN Amro was lying about the value of it's mortgage assets, with the connivance of the rating agencies. It's like saying someone who drowns has died of suffocation, technically it is accurate, but it's missing the bloody point.

    1. Anonymous Coward 101

      "It was only too much money because ABN Amro was lying about the value of it's mortgage assets"

      It might have been a good plan to give the tyres a kick before splashing out, don't you think? I mean, when ABM Amro only provided RBS with "two lever arch folders and one CD ROM of information"* then I would guess that they were trying to be evasive.

      * http://www.economist.com/blogs/schumpeter/2011/12/royal-bank-scotland-0

      1. Anonymous Coward
        Anonymous Coward

        "It might have been a good plan to give the tyres a kick before splashing out, don't you think?"

        Most certainly. But the cavalier attitude to the "target" is not a financial sector prerogative. Look at HP.

        Unfortunately, unless the current UK class action against RBS and its former directors succeeds (which I doubt), then there will continue to be no means by which idiot directors can be held to account,, and the US situation appears no different, with HP paying off the last set of idiots most handsomely, only to hire yet more idiots.

      2. Anonymous Coward
        Anonymous Coward

        Actually ABN/AMRO never gave any value and nor was the problem their mortgage assetts. Their valuation was a public evalation one (from the likes or Poors & Standard or Fitch), their bad debt book (which was down to US bad debt investments, not just Dutch mortgages) was unknown at that time. Sor Fred went in with a silly offer despite doing no due dilligence, where as Barclays (who were the prefered bidder) walked away for undisclosed reasons.

        Anonymous as I used to work for RBS, plus have some connections from much further up the food chain who had to deal with the mess Sir Fred dropepd even before it killed the bank.

        1. Tom 38

          It wasn't the mortgages that banks themselves loaned out that was the problem, it was the mortgages that other companies sold, which were then packaged up into financial instruments offering a high rate of return for apparently zero risk.

          These instruments were then sold around the world to other banks. It is these debts which became toxic, the liquidity issue was due to the fact that all these banks had these toxic instruments, but no-one could tell, or was willing to find out, the true value/risk associated with them.

          ABN Amro wasn't saddled with massive debts because the Dutch don't pay their mortgages, it was because it used it's assets to buy this external debt that turned out to be worthless.

          This crisis was caused by the creation, marketing, selling of these financial instruments, all of which came with AAA ratings from the people who are supposed to assess risk. The ratings agencies made fuckloads of money rating these bonds, the companies creating and bundling these mortgages made a fortune turning worthless sub-prime into AAA gold.

          None of these people have ever had to answer for fucking us all in the ass.

          1. Matt Bryant Silver badge
            Stop

            Re: Tom 38

            "It wasn't the mortgages that banks themselves loaned out that was the problem...." Actually it was. The realisation that those mortgages were valueless as they would never be repayed that led to the subprime collapse when traders stopped buying the mortgage bundles. If the mortgages had still be good investments then the trading would have continued.

            1. Local G
              Unhappy

              Re: Matt " then the trading would have continued."

              Only if housing prices continued to inflate. Once prices flatten and decline, the bubble is burst and here we are.

            2. Tom 13

              @Matt Bryant

              Actually, it was a lot more complicated than that. Remember that German tire kicking I mentioned above? Until the Germans tried to foreclose on a house to collect money that was due to them, the assumption was that the securities were equivalent to mortgages. Since they were in parallel, the risk of the whole thing breaking is less than the risk of any one of them breaking. So as long as the proper adjustment is made to the receipts expected, it should have been okay. But when the Germans tried to foreclose because they didn't get their payment, a judge rightly said they didn't own the mortgage so couldn't foreclose. At which point they realized NOBODY owned the mortgage anymore. At that point nobody knew what the right price for any of the SBMs. So trading in them stopped completely. Worse, because the trading stopped, the book value for people who held them as assets immediately fell to zero, wiping out what should have been reasonably secure reserves. Now, if you actually had the portfolio of mortgages they were certainly worth more than zero. You might not have gotten 95% of the loan back, but you probably would have gotten 50%, possibly as much as 75%. But the banking system nearly collapsed anyway.

      3. Tom 13

        Re: good plan to give the tyres a kick

        Unfortunately, that would only have started the Great Recession earlier. Much like Enron, the bad loans were already on the books. Although you'd think a good tire kick (something the Germans are good at and incidentally was the spark for the Enron collapse) would have only hit the bad guys at ABM, with the asset size it still would have seized up the whole system just like AGI did. At which point the rest of the banking system was at risk. In short, everybody had a vested interest in not noticing the problem and hoping it would go away.

  7. Ian 62

    So umm.. Who decided to lend the money?

    If it wasnt the bankers fault. Then who was making the decisions to lend people money?

    Oh, yes, the banks. Because they could get credit cheap from each other, they passed it on to the likes of you,me, and them.

    But the 'them' couldnt really afford the credit the banks gave them. Because credit was cheap the banks didnt look too closely at the amount of money you wanted to borrow or how much you could pay.

    So long as the money kept moving it was okay wasnt it. Errr...no.

    Still sounds like it was the banks fault to me.

    1. Anonymous Coward
      Anonymous Coward

      Re: So umm.. Who decided to lend the money?

      But they were still only part of the problem and not the problem itself. Most of the problems can be back-tracked to the unregulated boom (and subsequent burst) of the housing market bubble.

      My parents bought a 2 bedroom house for £35k about 15 years ago, with no changes to the property the house was valued at over £120k 5-10 years later just because that was what the market dictated. People were buying houses as pension pots or to make a quick buck not as homes and as the prices rose banks needed to take the risks with new home owners and had to offer cheaper rates otherwise the entire market would stall.

      We can blame the bankers for making the cheap money available but we the public have to also take responsibility for creating the situation that made cheap money becme a necessity.

      1. Anonymous Coward
        Anonymous Coward

        Re: So umm.. Who decided to lend the money?@MattEvansC3

        "We can blame the bankers for making the cheap money available"

        Actually, the bankers were merely following the lead of central bankers, who set the interest rates. Central banks denied there was any boom, preferring to say that this was "growth", and with easy money being made from asset price inflation, and ludicrously low interest rates, the scene was set for disaster.

        The banks are to blame for their part, and that is a big one in the shape of irresponsible lending. But state controlled central banks are primarily responsible for the daft interest rate policies that created cheap money and made it all possible. Government is also responsible for the lax regulation. And borrowers are responsible if they borrow more than they could repay. And in the case of mortgage lending, government have a further malign influence, in that the planning laws restrict new house building to lower levels than new demand, pushing up prices per se, but also creating the erroneous idea that housing is an "investment".

        1. Vladimir Plouzhnikov

          Re: So umm.. Who decided to lend the money?@MattEvansC3

          "Actually, the bankers were merely following the lead of central bankers, who set the interest rates."

          And the governments, who encouraged them to provide cheap money to as wide a population as possible so as to get more votes during elections.

          I am looking at you, Tony "I Could Have Done Better" Blair, by the way. Those were your cronies installed in the big banks' management who were presiding over the disaster and getting peerages and invitations to Royal banquets in exchange for digging big holes under their banks.

          1. Anonymous Coward
            Devil

            Re: So umm.. Who decided to lend the money?@MattEvansC3

            "I am looking at you, Tony "I Could Have Done Better" Blair, by the way. Those were your cronies..... presiding over the disaster and getting peerages "

            Indeed true. But which c*nt was asleep at the wheel of the FSA during a large part of disaster? Hector Sants. knighted at the behest of that vile, gormless, posh boy twerp, Cameron. A pity Her Maj didn't slip with the sword. And where did the slug go after that? Now Head of Compliance, Government & Regulatory Affairs at Wanklays.

            One could easily assume that he was a typical Oxbridge twat, and part of the establishment that has shafted this country for god know how long.

            When Dave the Feckless said "we're all in this together", he meant it, and it was true. Just not in the way that the press and proletariat interpreted it.

      2. Alan Brown Silver badge

        Re: So umm.. Who decided to lend the money?

        "My parents bought a 2 bedroom house for £35k about 15 years ago, with no changes to the property the house was valued at over £120k 5-10 years later just because that was what the market dictated"

        It's simpler to think of it in terms of earnings ratios, because that's what really counts.

        Throughout most of recent european/western history housing has cost 5-7 times the buyer's annual wage. Banks knew that if they loaned at that ratio they'd have a good chance of getting their loans back. Historically when they loaned at higher ratios the risk was high.

        With the UK housing bubble - which was fuelled in equal parts by cheap credit and the UK government's insane refusal to allow enough housing to be built, ratios of 15-22 became the norm. This is redline territory and various economists said so. Even now the average ratio seems to be about 9-12 which is still far too high.

        Things weren't helped by reports of steadliy increasing house prices without mentioning actual unit numbers - in the 2 years before the bubble burst, London sales had fallen off by at least 80% but with media focussing on the numbers that part is invisible.

        Even now, a few very high priced sales are skewing "average" prices sky high(*). The truth is that the vast majorty of the housing market is sluggish and prices are still well below bubble peak values (but still well above where they should be - this won't change until the artificial housing shortage is sorted out)

        (*) Stinking rich people buying expensive housing don't pay mortages to UK banks, but the effects of their buying puts pressure on the mortgage market. This applies whether it's a mansion or the increasing numbers of vacant "investment properties" being built - the latter would be dealt with by reimposing property taxation (aka "rates"), or switching "investment" housing to commercial classification so the owners pay business rates - this won't happen, because it would upset people who vote for the current govt.

        As much as people hang onto the concept of "the Green Belt", it's time to accept that the policy has fucked over the vast majority of the poorer population and make changes to suit. (which won't happen under any government. NIMBYs are even louder about lower socioeconomic groups in their backyard than they are about windmills or railway lines)

        Casino banking is another matter, but it was also fuelled by a desire to cover up and farm out the exposure from insanely cheap, extreme-risk lending in the USA since 1999. That lending was driven by federal decisions and was probably the driving force behind high risk lending becoming common in the EU (bankers and investers are mostly sheep. One could make a comment about wolves in sheep's clothing leading them astray, but they tend to do even better if dressed up as the shepherd)

        1. Anonymous Coward
          Anonymous Coward

          Re: So umm.. Who decided to lend the money?

          House price to Earning ratios I found were too simplistic a model as it only affects those buying the property. For me it's better to look at housing cost as a percentage of earnings as this takes rent into consideration. When I first started renting privately about 8 years ago rent was about 20% of my take home wage, now even though my pay has increased by almost 8k (mostly via promotions) my rent has increased to over 25% of my take home wage ( this is with social housing, private renting could easily push that up to 30%). Of course raising house prices would also have an effect on mortgage repayments.

          The high house values led to riskier lending ( someone spending 20% of their pay on rent would struggle to get the 10-20% deposit) but its the higher repayments that would eventually force people to fail to meet their repayments and the banks to lose out.

          1. Jess--

            Re: So umm.. Who decided to lend the money?

            I was taught from a young age to always allow 30% of any income as the cost of keeping a roof over my head.

            luckily I ended up in a situation where my wages were far bigger than the cost of where I was living (10% cost not 30%), rather than do what most of my colleagues did and spend the extra / buy a bigger house etc I carried on paying my usual amount and dumped the extra difference into a savings account (20% of my wages).

            after a few years the dot com crash happened and we all lost our jobs and there were no quick prospects for new work. I switched over to running from savings. those savings kept me afloat with no income for just under 2 years, bills got paid as they should and I still had my house etc etc, without exception all of my colleagues lost their homes.

            fast forward to now... my housing expenses are around £1000 per month with an income that averages 9000 per month... 2000 per month still gets piled into savings and I am back at the point where I have a 2 - 3 year safety buffer, anything over the 3 year safety buffer gets pulled out and used to pay down the mortgage earlier.

            as in the article a lot of the problems were caused by lending to people that it should have been obvious couldn't afford to pay it back (I liken some of the lending decisions to lending money to a drunk on a park bench)

      3. P. Lee

        Re: So umm.. Who decided to lend the money?

        > we the public have to also take responsibility for creating the situation that made cheap money becme a necessity.

        I'm not sure the cause and effect is the right way around. Without the cheap credit, the demand would not have been there.

        You should save first and then purchase. However, savers could never keep pace with the rising house prices fueled by cheap credit. It comes back to greedy banks (as we would expect them to be) and politicians who failed to regulate the credit market as they should have.

        Worse was the structure of the mortgage market. The divorce between sales commission and risk was made even worse by the sale of debt and insurance against non-payment loss available to the lender.

        The house-price bubble was always going to burst. It rose so high based on the current generation already having houses so rises is prices didn't actually impact them. When the next generation comes through, they have nothing like the purchasing power because they have no pre-existing assets, they can't afford to buy (or rent), demand drops and prices crash.

        What the government should be doing is taking advantage of the crash and clamping down on credit. It will hurt, house prices won't recover, but it will free the next generation from crushing debt and the country will become a cheap place to live. It might even be cheap enough to actually manufacture things in the UK again!

      4. Tom 13

        Re: problems can be back-tracked to the unregulated boom

        Banking is the most highly regulated industry on Earth. Worse even than nukular. The regulators (aka the government) were the ones forcing the banks to make unwise loans.

    2. TheOtherHobbes

      Re: So umm.. Who decided to lend the money?

      Well - the Gospel According to Worstall is that the City and its leather-faced troll minions never make mistakes, and are never wrong about anything.

      So there was no fixing of LIBOR. No mis-selling of PPI. No creative reporting of capital reserves. Enron never happened - and if it did, it should be blamed on widows and orphans. Or SMEs, uncannily often run by people who have now lost their homes after remortgaging them as security.

      Or something.

      So if they did dodgy lending. it was the fault of the people who borrowed, not the people who lent - the old 'It's all the fault of people living beyond their means' bollocks. And nothing to do with the fact that income has been dropping steadily for most of the population as a percentage of GDP since the 80s, while inflation and unemployment have been raised deliberately - and immigrants imported - to keep pay down.

      Bottom line is that dodgy lending is actually quite profitable in the short term. It blows up in the long term, but you'll have pocketed your bonus money by then, and you can always rely on someone like Worstall to come along with the party line about how it's not your fault, oh boo hoo.

      Meanwhile, how about a share of that dodgy 32 trillion in offshore accounts? Let's not ask how that got there, shall we?

      Politics of envy, old chap. Couldn't possibly be more to it than that.

  8. Anonymous Coward
    Anonymous Coward

    There is a solution...

    Follow the German Sparkasse model. The traditional Sparkasse (or 'savings bank') is regional (and sometimes very hyper-local), and it's not that easy to get money from them. But, if you run your account well and they know who you are, they are more likely to lend you something than if you are just a number.

    Sometimes, financial conservatism is good.

    1. Tim Worstal

      Re: There is a solution...

      Strange that German had to spend even more than the UK to rescue its banking system then really.

      And yes, they really did.

      And, err, the Sparkasse system is pretty much the Spanish caja one that has just imploded entirely.

      I might be willing to agree that the German system is a good one when run by Germans but perhaps not if run by Spaniards. But that's a comment about the cutlure, not the structure of the banks.

      1. Anonymous Coward
        Anonymous Coward

        Re: There is a solution...

        But you will notice, Tim, that it was not the Sparkasse system that had to be rescued. It was banks like Commerzbank (Commercial bank), Hypo Bank (Hypotheke = mortgage in German), and various Landesbanken (banks owned by each state, notably WestLB) who also acted more foolishly with their money.

        And yes, like you say, Sparkassen are effectively the same as Spanish Cajas, except you will find that the Sparkasse system is much much more conservative in lending money than the Cajas were. For the Cajas, it was prestige that made them lend billions to projects like airports, 'cultural cities' and other white elephants.

        :-)

        1. Getriebe

          Re: There is a solution...

          @SP A little unfair to make the Sparkasse equivalent to the Cajas. The Cajas have a significant local political influence and so are more the play thing of the Juntas, vide Castellón. Thus more failures in Spain

          1. Anonymous Coward
            Anonymous Coward

            Re: There is a solution...

            @Getriebe, but you would agree that the very local Sparkasse system held up well during the crisis, yes? Besides, it wasn't me who first linked Sparkassen to Cajas. I point at the article author, Herr Worstal ;-)

      2. Anonymous Coward
        Anonymous Coward

        Re: There is a solution...

        Oh, sorry, there were *some* (well, two) Sparkasse groups that had to be bailed out... namely KölnBonn and Berlin, but primarily because their Landesbanken in turn were involved in some scandals.

        I stand corrected. :-)

  9. ecofeco Silver badge
    Mushroom

    Bollocks

    It's been proven over and over that the banks were, and continue to be, at fault.

    1. An0n C0w4rd

      Re: Bollocks

      I don't think the article disagrees with that

      What the article disagrees with is the regulatory response, and the rhetoric from the politicians who were falling over themselves to point fingers at everyone BUT themselves (despite some indications that deregulation of banking, and lack of a sufficiently competent and resourced regulator or other organisation tasked with making sure they weren't being dumb, played a part in the subsequent collapse)

      The regulators view the investment banking divisions as the cause, and view ring-fencing investment banking from commercial banking as the solution

      However, if it wasn't the investment banking activities that caused the collapse of the banks, then the regulatory reforms aren't worth the toilet paper they're printed on.

      1. Primus Secundus Tertius

        Re: Bollocks & ring fencing

        The reason for ring fencing is that banks have at least two functions. Firstly the everyday transfer of money from buyers to sellers, and taxpayers to taxers. Secondly is the wizardry of declaring profits on loans that are never repaid.

        Most of us can survive if the wizardry stops, but not if the basic transfers stop. It was the threat to transfers that made the banks "too big to fail". It is that threat which, we hope, ring fencing will remove.

  10. Tom 7

    So it was the banks behaviour not the bank that was at fault!

    If it hadn't tried to make the sort of 'profits' the other banks were making by doing in exactly the same completely unsustainable way then when the shock came it wouldn't have collapsed.

    And if it hadn't tried to make the sort of 'profits' the other banks were making it would have gone to the wall anyway as the customers fucked off to the other lying banks that offered higher interest on deposits. And the shock has to come eventually - pulling the cork on an empty bottle makes a noise similar to the champagne being opened but the shock wave it produces is more powerful.

    I say 'profits' because they were really long term loans with no realistic chance of being payed off - unless you have a tens of millions of taxpayers to clean out.

  11. Anonymous Coward
    Anonymous Coward

    "Northern Rock didn't gamble or speculate; it just issued mortgages."

    Yes it made loans as opposed to highly leveraged derivatives bets...

    ...but its management made ASSUMPTIONS!

    ....They assumed they could live off short-term funding indefinitely...

    .....And assumptions are the mother of all fuck-ups!

    ......Mmmh, but I wonder can NR lodge a claim against the Libor manipulators....?

    1. frederickbloggs

      Re: "Northern Rock didn't gamble or speculate; it just issued mortgages."

      There is no connection between Libor manipulation (which was a form of fraud) and aggressive lending - which was stupidity. If stupidity was a crime then half the country would be in prison.

      1. Anonymous Coward
        Anonymous Coward

        Re: "Northern Rock didn't gamble or speculate; it just issued mortgages."

        If stupidity was a crime and half the country was in prison, the other half would be Switzerland. I could live with that.

  12. SeymourHolz

    BBC announcing new sit-com this fall

    Bankers Behaving Badly

  13. ukgnome
    Trollface

    How long before this changes to - Benefit scroungers caused the recession?

    1. ecofeco Silver badge

      They were the first to get blamed and continue to be.

      I know, you mean this as sarcasm, but sometimes some things need repeating.

    2. Vladimir Plouzhnikov

      Oh, but they did. At least played a big part in causing it through increasing the budget deficit.

      1. Anonymous Coward
        Anonymous Coward

        Bollocks

        Most benefit goes to Pensioners. You know, those people that paid into the system all their lives

        After that it goes mainly to workers, who are paid such low wages that the tax payer is effectively subsidising bad employers

        1. Yet Another Anonymous coward Silver badge

          Re: Bollocks

          The generation currently retiring might have - but the previous generation didn't.

          Most women didn't work so the longest living half of the pensioners, paid no tax and no NI, many of the men were manual workers who paid no NI before the 60s

          If you are in the generation that partook of WWII it's likely you were a massive net loss to the welfare system

          1. DavCrav

            Re: Bollocks

            "The generation currently retiring might have"

            I wouldn't be so sure about that. My father recently retired, and I went through the calculation with him, and it turns out (using current rates for simplicity, which are fairly similar for basic rate taxpayers) that if all the income tax and NI he paid over his entire life were put in a pension scheme, it would just about pay for his pension. Of course, it doesn't pay for his use of the health system or education, so the government will make a loss on him, even ignoring all the things like working-age benefits, defence, etc.

            My father was a normal manual worker, not rich but not grindingly poor, so my guess is that most (i.e., >60%) pensioners, even if they have worked since age 16, didn't pay for their pension.

            1. Alan Brown Silver badge

              Re: Bollocks

              "I wouldn't be so sure about that."

              I'm not an actuary, but they're essential in these kinds of statistical calculations.

              What it comes down to is that ~10% of the population never reach retirement age - and that there are enough working people to pay the pensions of the current crop of pensioners - the bollocks about investments etc is just that. As someone else said, "have you ever seen a goverment back a winner?"

              As soon as your population changes from a classic "pyramid" model (only a few old people) to one with an essentially zero mortality aside from old age (pole-shaped with a tapering top) , most of the original calculations go out the window. When you factor in a population bulge moving its way up the age axis, when that bulge hits the retirement age, the model is fucked - and that is what is about to happen.

              It was blindingly obvious to me as a 16yo student in the early 1980s, looking at western european, USA and Australasian population models since the start of the 20th century. One could argue the whole bank shenanigans is simply a way to divert attention from the oncoming financial tsunami.

              (Energy trends were also obvious. If anything we've moved to deploying wind/solar about a decade earlier that I'd have predicted and we still have this ridiculous aversion to fission which can only be dealt with by a good old fashioned population crisis)

    3. Alan Brown Silver badge

      If you're finger pointing at the welfare state it'd be far more "correct" to point the finger at pensions and pension perks (free busses + cheap trains, power, etc all cost, but they don't show as coming from the welfare budget)

      Boomers now approaching retirement may well have paid taxes all their lives, but nowhere near enough to continue to fund the lifestyles which have been handed out to pensioners for the last 30 years - and there's not enough tax income coming in off a diminishing group of earners to fund it either. That's what you get for having population structures change from pyramid to a bubbletop in less than 100 years.

      Unfortunately, pensioners generally vote regularly(*), whilst it's a lot easier to demonise a smaller group because of a few scroungers and know they have little way of fighting back. It'll get interesting to see what happens when pension ages get pushed out to 75+ AND basic tax+NI rates are set to 60% (Both are likely to happen in about a decade, otherwise 1/4 of all Boomers will be collecting pensions) My pick is that a lot of taxpayers will decide to sod off to greener pastures, which will result in even higher rates for those who don't.

      (*) "Democracy lasts as long as it takes for the masses to realise they can vote themselves Bread and Circuses"

      1. Matt Bryant Silver badge
        Go

        Re: Alan Brown

        ".....My pick is that a lot of taxpayers will decide to sod off to greener pastures, which will result in even higher rates for those who don't......" This is one taxpayer that has been contributing tax and NI from his teens who will be happily waving goodbye to these shores and taking my savings with me. The Lefties can shriek and whine about my being greedy or whatever, thankfully the sound of their teeth gnashing won't reach to the beach.

        All the shrieking and finger-pointing about what caused the crash aside, whether it was "ordinary people" being given mortgages they can't afford or "greedy bankers" making to many risky swaps, the solutions being punted around all revolve around making it harder for "ordinary people" to get cheap and easy credit. Businesses will suffer too, to a degree, but the banks will still lend money to the ones actually keeping their heads above water as the governments need them to keep giving loans to businesses. So, what have the Lefties achieved with their reflexive attacking of their favourite bogeymen? That's right - more "ordinary people" paying up to "capitalist" landlords because they can't get a mortgage. And who are the biggest landlords? That's right - those "greedy bankers" that stuffed their bonuses into bricks-and-mortar investments. How ironic!

      2. Tim99 Silver badge
        Facepalm

        @Alan Brown

        "If you're finger pointing at the welfare state it'd be far more "correct" to point the finger at pensions and pension perks (free busses + cheap trains, power, etc all cost, but they don't show as coming from the welfare budget)"

        No. Power costs, bus and train travel doesn't - There is a Public Service Obligation to run trains and busses during the day. If you were running a transport system to make money, you would only run it on popular routes during peak times. There is a huge capital cost to owning fleets and infrastructure that is only used during a small amount of the day which is why the subsidy is paid.

        There is almost no additional cost in allowing pensioners to travel for free, as the staff and vehicle costs are almost the same whether the bus is nearly empty or half full of pensioners. This is why "Eligible older people are entitled to free off-peak travel on local buses anywhere in England." Link gov.uk, and "The Railcard discount isn’t available on tickets for travel during the morning rush hour (peak time), Monday to Friday (excluding Public Holidays) for journeys made wholly within the London and South East area." Link senior rail card.

        It be argued that these "perks" can save money as they can help towards the physical and mental health of older people - Unless of course you really want to reallocate more wealth back to the wealthy, destroy the welfare state, and encourage the "unproductive" to die...

        1. Alan Brown Silver badge

          Re: @Alan Brown

          "There is a Public Service Obligation to run trains and busses during the day. "

          Who uses them?

          Hint: not the people paying the majority of the operating costs.

          All PSOs are local/regional/national govt funded - out of taxes. This results in some rural services being utterly useless to anyone working, because they're 100% geared towards pensioners and the unemployed.

          Funnily enough when it comes to pensions, the retirement age of 65 was originally a _minimum_ age and people were expected to live 18 months past that point on average. It was only after WW2 when the baby boom happened that retirement at 60 became mandatory - that was specifically done to ensure young people would be guaranteed work as they hit eligable ages - one can easily argue that is as much a way of hiding unemployement as hiring thousands of people in ex-mining towns to uselessly shuffle paper in govt departments has become recently. (Here's a hint, those towns grew because there was work there, if there isn't any work left they should dimish back to one horse villages - and I'm not a rightwinger, I just don't see the point in keeping economically dead areas on taxpayer-funded life-support when there is demand for staff in other areas which can't be filled. Britain became "great" because people were willing to move.)

          Govt (USA, UK and EU) policies which encouraged banks to loan money at high risks are where the blame is ultimately attribitable, but it turned into a ponzi scheme driven by bankers and such schemes invariably crash with lots of recriminations. It's far form over too.

    4. Naughtyhorse

      that would be about minus 18 months i think

  14. Annakan

    Right the default swap crisis never happened nor the Subprime mortgage crisis it was all "traditional banking" and nothing to do about it.

    And no banks do not lend only what they have collected, bank run would be less problematic then because the value being there, a bigger bank or a state could provide a fallback and get the "assets" (if only when the state were bailing out the private banking sector they would get shares .... but no)

    Right, let's continue exactly the same there is nothing better, "free market" is the ultimate end of history, right.

    1. Anonymous Coward
      Anonymous Coward

      @Annakan

      "Right the default swap crisis never happened nor the Subprime mortgage crisis it was all "traditional banking" and nothing to do about it."

      Well done for illustrating that you know nothing.

      Subprime was traditional banking, and the part you must be thinking of was the derivatives, mostly collateralised debt obligations that were used to move the liability around. And that movement of liability and returns was what they were intended to do. The collapse, and its root cause was caused simply by lending money to buy houses to people who would never be able to afford to pay back. That traditional enough for you?

      CDS problems are another example of a derivative that only caused a problem because the original credit went into default. And like the CDO's, the derivative did what it was intended to do, of moving the liability along, but the underlying cause was lending to business that had gone bad. So again, basic banking.

      1. Primus Secundus Tertius

        Re: @Annakan

        Subprime always was a dodgy business.

        The lenders knew the loans would not be repaid, but after two years they kicked the defaulting borrower out of the house, sold it again at an ever increasing price, ripped off the previous borrower for every fee you can think of, and pocketed the profit.

        It was when American house prices stopped rising that the bubble burst.

        1. Anonymous Coward
          Anonymous Coward

          Re: @Annakan@ Primus Get A Shorter Pseud Please

          "The lenders knew the loans would not be repaid, but after two years they kicked the defaulting borrower out of the house, sold it again at an ever increasing price, "

          Look at the US foreclosure data, and you'll see you're wrong. The banks never made a profit from kicking defaulting borrowers out of houses. Moreover, US mortgages are typically non-recourse, unlike UK mortgages. (In English: Recourse loan means the fuckers can kick you out, sell your house, and recover any loses and costs from you; A non-recourse loan means they take any costs and loss in that scenario).

          Certainly some US borrowers got into difficulties early, but typically the early defaulters would just refinance (in the same way as UK credit card surfers did), until the music stopped and there weren't enough chairs.

    2. Vladimir Plouzhnikov

      "Right the default swap crisis never happened nor the Subprime mortgage crisis it was all "traditional banking" and nothing to do about it."

      So, please explain to me how the Subprime mortgage crisis has not been caused by "traditional banking" problems?

      1. Anonymous Coward
        Anonymous Coward

        Try reading the damn article

        First of all, the subprime mortgage was indeed a traditional banking failure. And it happened in the US. This article is focused on British banking failures and british and european regulations that are supposed to fix it.

        Also note that that the article is not saying it isn't the fault of the bankers. Its saying that it isn't the fault of the market traders. Its right there in the fucking headline, people!

        The people being blamed for the british banking failures are the market traders "taking crazy risks", and the regulations and roboin hood tax are aimed at them, despite the fact that the banking failures had nothing to do with dangerous market trading at all, they were to do with traditional banking failures. It IS the bankers fault, but the subset of bankers who are mainly at fault are the ones doing the lending, not the ones doing the trading.

        1. Yet Another Anonymous coward Silver badge

          Re: Try reading the damn article

          It did indirectly.

          Banking is a global business, if a British bank's shareholders ask why it isn't making the 10% returns that it's American competitors are by selling subprime mortgages, Mayfly futures and magic bean funds - it has to start doing more than lending only to the nice 40year old couple who want a tiny mortgage.

  15. WonkoTheSane Silver badge
    Unhappy

    Hmm...

    I smell rolled-up trouser legs & funny handshakes (with manilla envelopes)

  16. Pete 2 Silver badge

    Investing is gambling is risk

    > Quite simply, they made loans to people who said they had a great plan

    So they were unable (or unwilling, given the "cooooore! look how much those other guys are raking in!" factor) to correctly assess the risk associated with their loans. That's hardly different from a punter consistently reckoning horses have odds of 4 - 1 of winning and therefore betting his/her entire pension on them if the bookie is offering 5 -1.

    Now, the basic problem was that unless the bank made those bets, and won, they couldn't support a share price that was comparable to the financial sector - so the people at the top would get the chop. It turned out that HBOS was just plain unlucky with who they gambled on - though given their actions: it wasn't really luck, at all. The whole process will repeat, sooner or later, unless the quest for short-term payback is limited and possibly regulated. Without someone telling the bankers (as a whole) that their gambling is reckless and has to be brought under control, it's inevitable that someone will succumb to the "bargain" odds on offer and get it wrong.

  17. Rikkeh
    Thumb Up

    Yes, but

    The report seems to suggest that HBOS's failure was similar to the failure of Woolworths and Comet- all three were bad businesses that were giving the killing blow by the downturn. That downturn was partly down to the high finance-related credit squeeze. Saying that HBOS going down wasn't down to high finance gone mad is true, but misleading as high finance played a role in the squeeze and subsequent downturn that caused all of these sick businesses to go belly up in a short space of time.

    And while HBOS would still have gone bust with tighter capital controls, it *wouldn't* have been in a hole nearly as deep as the one it ended up in. Also, in a more benign economic climate, fewer of its loans would have gone bad, making the hole smaller still.

    You can't use the reasons for HBOS's failure as an argument to regulate high finance, but then again you can't use the reasons for HBOS's failure as an argument not to regulate high finance either.

    Thumb up icon, because there's no gif of a thumb mostly up but wavering slightly.

    1. It'sa Mea... Mario

      Re: Yes, but

      Indeed, my thoughts while reading this are that HBOS (or even the half dozen UK banks mentioned) failing in a traditional way is not responsible for the worldwide ressesion we have been/are experiencing.

      Not saying the government are taking the correct actions, but when do they ever?

      1. It'sa Mea... Mario
        Meh

        Re: Yes, but

        can't spell, but don't care

  18. Zog The Undeniable
    Boffin

    But this analysis is about HBOS

    The wider banking crisis occurred because 'merkin banks made lots of doubtful loans to trailer trash and then securitised these loans, selling them on to a succession of other gullible banks (including British ones) who didn't realise or care what they were buying - they just looked at the predicted cash flows. Predictably, the trailer trash defaulted and there was a massive loss of confidence in the whole system which caused the credit crunch and thus the recession (or is it a depression by now?).

    So it's the same root cause, but through an amplification mechanism that is more akin to the casino banking which the OP dismisses.

    1. frederickbloggs

      Re: But this analysis is about HBOS

      That debt which was securitised and sold on to funds, hedge funds, insurance companies would otherwise have stayed in the banking system. The housing bubble was caused by low interest rates and slack lending. Without securitisation it would have been worse as all of those weak mortgages would have remained in the banking system.

  19. Fehu
    Big Brother

    Odd

    We're having the same revisionist tripe issued over here on this side of the pond where numerous ultra-conservative echo chamber types are pronouncing that George W. Bush and John McCain tried vainly to stop the impending financial meltdown by "reforming" Fannie May and Freddie Mac on numerous occasions. Just exactly how they tried to do this is a little foggy, however. McCain signed on as co-sponsor of a couple of bills that would have moved ownership of said entities from one government agency to another, but would have done little to fix any of the bad practices that later came to light and did nothing at all about derivative trading. W.? Well, he started some wars. That's about all I remember him doing. And speechifying. That, too.

    1. Alan Brown Silver badge

      Re: Odd

      The subprime crisis was caused by Fed policies which were instigated under GW/JM and encouraged trailer trash lending in order to kickstart the USA out of mild recessionist tendencies it was experiencing in 2000/2001 (9/11 was a political gift horse, it allowed attention to be diverted away from domestic economy issues)

      How exactly didn't he cause it?

  20. Julian C
    Paris Hilton

    Confused?

    Sorry... confused:

    "HBOS didn't have an investment bank of any size, and the losses it did make didn't come from the tiny one that it did have."

    Did HBoS have an investment bank of any size or not? (as confused as Paris would be)

  21. captain veg Silver badge

    "It simply wasn't to do with the trading culture or speculation."

    Yes. It. Was. You are wilfully ignoring the context.

    Yes it was, because that culture led to those decisions to pursue risky, speculative business in the traditional lending sector.

    Yes it was, because the Lehman Brothers car crash vaporised confidence in banks generally, leading to the bank runs.

    -A.

    1. frederickbloggs

      Re: "It simply wasn't to do with the trading culture or speculation."

      Your facts are time-reversed. Northern Rock's bank run was in 2007 not in 2008.

      Also, Lehman was not a bank in the traditional lending sense. It was a pure investment bank without investor deposits. Think of it as a large investment fund which provides financial services (trading, M&A advice, IPOs etc)

      1. captain veg Silver badge

        Re: "It simply wasn't to do with the trading culture or speculation."

        And Barings was busted before that. Your point being?

        -A.

  22. Anonymous Coward
    FAIL

    Nice bit of revisionist history, but no dice

    You're missing the elephant in the room that is linked to casino banking, Collateralised Debt Obligations or CDO's*.

    HBoS was selling mortgages twice, once to the person(s) wanting to buy a property and then bundling that debt with bunch of other mortgages to create a CDO to sell on the financial markets. This raises money that can again be loaned out as mortgages, which are bundled and sold on to raise more money and so the process repeats itself. Commissions get paid at both ends, but especially when the CDO's get sold.

    It reached the point where HBoS and the like were not especially interested in the ability of the mortgagee to re-pay the loan over the next 25 years. They just wanted the completed mortgage transactions to bundle and sell on, at which point re-payment becomes somebody elses problem.

    * - CDO's were sold as bonds to supposedly sophisticated buyers such as pension funds and the local German banks mentioned in the comments earlier. CDO's are structured to pay varying rates of interest depending on the level of associated risk. The top tranche was highest rated and was paid first, the lower tranches cost less for the same % return, but crucially didn't pay out if there was a shortfall because one of the mortgages defaulted.

    1. frederickbloggs

      Re: Nice bit of revisionist history, but no dice

      B**ll*ock. How can you sell something twice. The bank took the loan which they owned and then sold it to someone else packaged in a CDO. In the end, the buyer of the CDO ended up with the mortgage and the bank ended up back where it started. Yes, fees were taken - I suppose you work for nothing.

  23. Anonymous Coward
    Anonymous Coward

    Breaking News

    Government discovers that money only has any value because it's a finite resource... more at 11.

    1. Anonymous Coward
      Anonymous Coward

      Re: Breaking News

      You mean 'when it is a finite resource'. Unfortunately, PPE is not as good as being a real economist, and since 2000, real economists have been subject to Gresham's Law, being driven out by 'bank economists and 'free market economists' - the kind of economist who knows what the answer is, now what was your question?

  24. Anonymous Coward
    Unhappy

    I unfortunately have to agree

    The financial crisis had a bit less to do with evil and speculative bankers (though there was plenty of that) and more to do with the desire of lots of borrowers to get their dream house through financing terms that were literally too good to be true.....

    1. Uffish

      Re: I unfortunately have to agree

      Famously "there's one born every minute", and if you are nimble witted enough you can build a profitable business exploiting that fact. The bankers weren't nibble witted enough.

  25. Anonymous Coward
    Anonymous Coward

    Here is

    a better link

    http://www.publications.parliament.uk/pa/jt201213/jtselect/jtpcbs/144/144.pdf

  26. Armando 123

    Here in the states ...

    ... the obvious culprit has, to my knowledge, never been publicaly stated: the Fed kept interest rates artificially low, so money was cheap and plentiful, and when a commodity gets cheap and pletiful, people waste it, until it becomes scarce then they scramble to get it all back.

    Seems obvious, fits the empirical data, and can be explained by basic economics. No wonder the politicians and journalists haven't mentioned it.

  27. Schultz
    FAIL

    Simplistic and wrong

    The analysis in the article seems too simplistic to me. The credit markets froze due to a lot of casino banking going on worldwide (do read up on AIG, which was somewhat instrumental in getting that going) -- and going bad quickly. When money gets scarce, this hits all types of borrowers, affecting those all-too-ordinary credits which were the business of HBOS. They obviously weren't careful enough to prepare for such a crisis (shame on them), but they surely would have been considered good managers if the worldwide banking casino had survived another decade.

    About the 'Robin Hood tax', I would be very interested to hear your reasoning why that's "so wrong-headed in itself". If you do business, you pay tax. This does suppress business (you'll have to factor in VAT if you want to make profit selling something). It also keeps people from wasting their time trying to get some marginal benefit from trading stuff around.

    The banking system looks like it might need some kind of tax to focus minds. There are too many bankers dealing with bankers, dealing with other members of the financial industry -- all of them hunting some marginal benefits (and creating a big systemic risk by introducing extra complexity into the markets). Tax their business transactions and you'll see a lot of wasteful activities end.

    1. frederickbloggs

      Re: Simplistic and wrong

      Wrong. AIG was not doing casino banking. They are an insurance company. They were simply providing insurance on the senior tranches of CDOs. That is an insurance business. Like providing hurricane protection. In the end, these senior tranches all paid up in full and the government of the US made a load of money on AIG. What happened was the market panicked in 2008 after Lehman blew and all of a sudden people lost confidence in CDOs and their prices fell even though as I have already said, they were actually fine.,

    2. Tim Worstal

      Re: Simplistic and wrong

      Re the RHT.

      http://www.iea.org.uk/publications/research/the-case-against-a-financial-transactions-tax-web-publication

      That also formed the basis of my evidence to the Lords Committee on the tax.

      Essemtially, it'll shrink the economy so much that total tax revenues will fall. Plus, it will reduce liqudity so much that prices will become *more* volatile, not less.

      There's also a much more general point. Transactions taxes are simply a bad idea. Taxes on incomes, final consumption and the like might not be all that good: but transactions taxes are definitely worse.

      1. Vladimir Plouzhnikov

        Re: Simplistic and wrong

        Financial Transaction Tax is the equivalent of putting sand in the oil of a car engine as a way of preventing speeding...

  28. goats in pajamas

    Well duh!

    Of course the Tories are going to let the bankers off - they must be seen as innocent so that when they come for your savings and wages, there can be plausible deniability over the theft.

    At what point is the penny going to drop? The Government is at war with us and they fired the opening shots. Therefore resistance is righteous.

    1. Matt Bryant Silver badge
      FAIL

      Re: dolt in pyjamas Re: Well duh!

      If the Tories read that post they'd probably be breathing a sigh of relief as they now know they're not facing an intelligent opposition.

    2. Anonymous Coward
      Anonymous Coward

      Re: Well duh!

      Which Government? Labour or the Tories, only you opened with it being the Tories, yet all of this happened whilst Labour was in power.

      1. Naughtyhorse

        Point of Order

        New Labour = Old Tories != Labour

        1. Anonymous Coward
          Anonymous Coward

          Re: Point of Order

          OMG it's a political troll, trotting out political bollocks on El Reg.

          Tell you what, when you manage to sell that ridiculous line to Labour party members and voters do come back and let us know, won't you?

  29. J.G.Harston Silver badge
    Paris Hilton

    "a bank going bust ... by lending too much money to people who couldn't repay it"

    And how do the government want to rebuild the economy? By insisting the banks lend more money....

    1. Anonymous Coward
      Coffee/keyboard

      again...

      see above.

  30. IHateWearingATie
    Boffin

    Conclusion is too simplistic

    *desperately dredging up long forgotton finance lectures from Uni*

    I do like Tim's articles, but I find the conclusion a little too simplistic, as the third dimension to weigh is the risk of collapse of an institution weighed against the incentives this drives through the system - i.e. if my bank can collapse if I'm reckless, but I know the risk to me is small as I'm too big to fail, then I may continue being an idiot.

    Probably the subject of another article, but you get into discussions about living wills and depositor guarantees. Some really interesting things have been proposed around this, but unfortunately the better and more radical proposals have been ignored and the status quo continuation of oligopoly and croney capitalism that seems to have infected the city continues.

    @ Schultz

    I agree that financial services seemed have evolved far beyond their proper use in a capitalist system, but the Robin Hood tax is not the method to use to fix it. Other far cleverer than me (not hard) have written about why - quick google should pull up some interesting stuff

  31. Anonymous Coward
    Anonymous Coward

    Lending money and giving people mortgages did?

    I thought it was HBoS buying up all that toxic sub-prime debt from the US domestic market.

    "Halifax owner HBOS today said profits more than halved in the first six months of the year after it took a £1.1bn hit on investments hammered by the credit crunch .. HBOS .. was also forced to write down £1.1bn on investments linked to the toxic US subprime mortgage market". link

    "HBOS .. reported 2.8 billion pounds ($5.5 billion) of writedowns last week .. The charges stem from the collapse of the U.S. subprime- mortgage market". link

  32. John Smith 19 Gold badge
    Unhappy

    I like to think of it as "Secondary banking crisis, 2.0"

    Institution picks up short term money market borrowing to cover short fall between assets and loans, relying on house price inflation and sufficient good payers to keep the cash rolling over.

    Something rather like this happened in the early 1970s.

    It will happen again because all bankers know that "liquidity" requirement (of X% of all funds staying in the bank and being available) is set by regulators who a) Lack banking experience b)Have an exaggerated sense of risk about investments c)Are Guardian reading pinko Liberals.

    So whatever limit the regulators set it will just seem far to high (CDOs were exactly a way to fame the system but that's another story).

    The notion that their pursuit of ever bigger bonuses might be skewing their judgement (or they might have their heads buried firmly up their own arse) of course never enters their thinking.

  33. Uffish
    Thumb Up

    "This was a traditional bank failure pure and simple".

    Nice one Tim. Outrageous statements like this are why we read el Reg; that and the slim dose of fact included with all the entertainment.

  34. montyburns56

    Robin Hood Tax

    " the Robin Hood Tax - which will curb the excessive trading once and for all."

    I thought the idea of the RHT wasn't so much to curb excessive trading, but rather to provide a fund to pay for the banking bail outs, both the current one and any future ones?

    1. Alan Brown Silver badge

      Re: Robin Hood Tax

      "I thought the idea of the RHT wasn't so much to curb excessive trading, but rather to provide a fund to pay for the banking bail outs, both the current one and any future ones?"

      A bit like petrol taxes were originally intended to finance roading systems, etc?

      We all know how that one ended up. RHT will get diverted into something else and not be available when the next bubble (housing)/ponzi scheme (onselling toxic mortgage bundles) collapses.

  35. Local G
    Facepalm

    And the take away is:

    even with the five hundred year 'tulpenmanie' created by Wall Street, the English banks would have thriven and prospered in the terrible global economy -- EXCEPT for all the borrowers they lent to who couldn't pay their loans back.

    Is this a case of not seeing the forest for the tulips?

  36. Burbage

    Not sure about the conclusion

    The conclusion suggest that, as many suspected, the right thing to have done would have been to let RBS, Northern Rock etc. go to the wall. That would certainly be the right thing in any ordinary market. But banks aren't part of an ordinary market. The deposits they safeguard, or fail to safeguard, aren't safeguarded by them at all. They're underwritten, at least to an extent that matters, by the taxpayer. So we had to bail them out.

    The failure of Lehman's, and the need for a wider bail-out, was a largely separate matter. But that was at least partly triggered by unsustainable lending, albeit elsewhere, and gambling on the derivatives based on them. That might not have brought HBOS itself down, but that doesn't make it a good thing. Especially where there's a lack of regulation and especially in markets where retail and investment banks can be the same thing. To claim that this report suggests banking reform is unnecessary is like claiming that, because some people die of drowning, we shouldn't worry about malaria.

    1. Anonymous Coward
      Holmes

      Re: Not sure about the conclusion

      "To claim that this report suggests banking reform is unnecessary is like claiming that, because some people die of drowning, we shouldn't worry about malaria."

      Actually, the lesson of this report is that the banking crisis was, as almost all systemic banking crises in history have been, caused by loose monetary policy. And that means that regulating the banks never has, and never will prevent these problems recurring.

      At this very moment the turds of government are repeating this policy of loose money by "quantitative easing", "funding for lending", the "newbuy" scheme, and more. If cheap, easy credit is on offer, people use it. It's what it is meant for, even if the clowns who mandate it aren't then happy with the outcome. Look at "newbuy" - we taxpayers stomach the losses if somebody borrows more than they can afford. Ultimately that's like Subprime 2.0, in that we simply cut out the stage where the bank takes the hit, and we then bail out the bank, and this time round taxpayers can take the hit on the chin.

      If reform is needed, it needs to be in the rules of eligibility to be an MP. Like having at least ten year's proper work experience behind you (that includes dustmen, but excludes PR managers, towel folders, "researchers", or anybody employed by a political party). And in particular, a complete ban on Oxbridge twats, lawyers, and economists - you lot have had your chance, and you useless, clueless bastards screwed it up.

      1. Anonymous Coward
        Anonymous Coward

        Re: Not sure about the conclusion

        I am an 'Oxbridge twat'. I've developed products that have earned millions from export, at least one because a Cambridge degree can give you the confidence to believe your own research and calculation and back it against the people who tell you something isn't possible. The thing is, there are lots of Oxbridge people much cleverer than me who are far too busy designing aircraft and revolutionising mobile phone technology. We are mostly too busy to get involved in politics. And probably just as well. We aren't all Clegg or Cameron.

    2. IHateWearingATie
      Thumb Down

      Re: Not sure about the conclusion

      As I mention above, there has been some very good thinking on reducing the systemic risk using living wills or other devices to allow an orderly winding down of a bank or two, without putting the whole system at risk. That way you can avoid the moral hazard of being too big to fail - unfortunately they don't seem to be taken forward but gov or regulator.

    3. John Smith 19 Gold badge
      Unhappy

      Re: Not sure about the conclusion

      "The conclusion suggest that, as many suspected, the right thing to have done would have been to let RBS, Northern Rock etc. go to the wall. That would certainly be the right thing in any ordinary market."

      Correct. In terms of the real world what would have happened that would be so bad?

      "But banks aren't part of an ordinary market. The deposits they safeguard, or fail to safeguard, aren't safeguarded by them at all. "

      Then perhaps it's time they stopped pretending they were and people accepted that putting money in a bank is no more or less safe than taking shares in say a book maker.

      "They're underwritten, at least to an extent that matters, by the taxpayer. So we had to bail them out."

      Assertion <> to conclusion. The underwriting is up to a fixed limit. So no the UK Govt did not have to bail them out. They were convinced that they had to do so. That's not the same thing.

  37. The Dude

    Good article. Nice to see some honest reporting that clarifies the issues in an understandable way and doesn't muddy the water with more opaque banking jargon that few understand.

  38. frederickbloggs

    Frederick Bloggs

    Credit Derivatives do not create new credit - they pass it around.

  39. ForMe
    Angel

    A load of bankers

    I've never really, /really/ understood why (i) banks are seen as necessary, (ii) interest rates are seen as necessary.

    0% interest, 0% inflation, buy when you have saved enough money, don't live in a fantasy world.

    There, problem solved for everyone except (i) finance people of all sorts, who exist by passing other people's money around and creaming off a cut at every move (or charge for being 'experts' in the whole smoke-and-mirrors trade); people without the self-control to wait until they have the money for something before acquiring it, thus building an ever bigger mountain of world-wide-never-never.

    Guess a lot of folks are in one of those categories and fantasise that it won't all come crashing down, one day.

    1. Richard 12 Silver badge

      Re: A load of bankers

      Very few businesses can be started or even expanded without borrowing money.

      The startup costs for a business are very high - you need your premises, machinery and the ability to pay your staff in the first few months before you actually get paid for any of your products.

      Without borrowing involved, everybody must pay cash-on-delivery of the product/service.

      You are a start-up, so you haven't built anything to sell yet - where can the money come from?

      The same thing occurs domestically - even ignoring the land, just the labour and materials to build a house costs a lot, and again you have to pay that before the house is actually built.

      If its anything other than a detached property, it's got to be built in concert with other homes, magnifying the problem.

      Very few people could manage to save £100k or so before moving out of their parents home, ask a hundred people to save most of that before a block of flats can be built? Not likely.

      Credit is necessary once a civilisation goes beyond the hunter-gatherer stage.

      1. ForMe
        Flame

        Re: A load of bankers

        "Very few people could manage to save £100k or so before moving out of their parents home"

        But they can afford to pay several times as much in interest for the next 20-30 years?

        The problem is that expectations have changed in a way that depends on pretend, toy money (cf. fractional reserve) to fulfil must-have-it-now fantasies. Or, rather, to live out their fantasies whilst building vast edifices of hot air for the next generation and beyond.

        Notce how the age for a first mortgage has gone up during the last 20-30 years? Wonder why? Because of the parents who smugly grew their property bubbles, singing LaLaLa to the idea that it would be their children paying the price. Well, it's those same children who are going to have one hell of a problem paying for the dotage of said MeMeMe parents, even if they feel inclined to. And beyond that little ripple, when the whole Hindenberg falls blazing down, it will be those children and their children consumed by the conflagration. Why? For a the fantasy-living of a feckless, look-at-me, welfy-innit generation.

        (Had to tone that down a bit because there are those still building their fantasy finance bubbles.

      2. ForMe
        Facepalm

        Re: A load of bankers

        "Very few businesses can be started or even expanded without borrowing money."

        Very few businesses can be started or even expanded before I run out of patience, and squeam and squeam to politicos and *ankers (who all agree with me because their living comes from propogating and milking the putrifying finance edifice) because I want it NOW/A/, without borrowing money.

        There, fixed.

    2. Tim Worstal

      Re: A load of bankers

      There's a time value to money. Perhaps there shouldn't be but there is. Humans just behave as if £1 today is worth more than £1 in 365 days time.

      Thus interest.

      I'm afraid that really is it.

      As to banks, the real thing they do is maturity transformation. They take in short term savings (their deposits) and transform them into long term loans. Very few people want to save cash for 30 years but there's an awful lot of people who would like to borrow it for that time. Thus, someone, somewhere, must collect the shrt term deposits and make them into long term loans.

      And that's banking. If you borrow short and lend long you're a bank. If you don't, you're not.

      This doesn't mean that banks or interest have to be the way they are right now: but something or other that performs the same function as both of them will indeed exist.

      1. ForMe
        Facepalm

        Re: A load of bankers

        "As to banks, the real thing they do is maturity transformation."

        Sure do.

        They transform the maturity of, "I'd better start saving if I want that" to the immaturity of, "I want it now. Now! Now!!! And I'll squeam and squeam if you don't give it to me."

    3. Alan Brown Silver badge

      Re: A load of bankers

      "I've never really, /really/ understood why (i) banks are seen as necessary, (ii) interest rates are seen as necessary."

      You might want to acquiant yourself with the history of mideval moneylending.

      They weren't unpopular because they were jewish (most weren't). They were unpopular because the prevailing rate of interest was 30-40% per annum. HIgher for shorter periods - and needed to be, because there was a high rate of "dead loss" - often literally, if a creditor and his entire family exited his house in a wodden box. Most moneylenders weren't much better off than the people they loaned money to despite the shakespeare stereotype.

      Banks were a way of spreading the risk over a wider group than a moneylender could handle and thus lower the costs. The Bank of England was rather famously founded on a bad debt which remains unpaid to to this day.

      If I have a major job coming in which can't be done unless I buy new equipment I don't have money for, financing is the only way to proceed. Interest is there to cover risks and because a full-time moneylender needs it in order to generate an income, to eat.

      Problems ensue when bankers get reckless, which is easy to do when it's "other people's money", in the same way that some of my employees would abuse deals cut to give them some perks, to the point where they'd become major financial drains and have to be shut down for everyone.

  40. Anonymous Coward
    Anonymous Coward

    Strawman I believe.

    We all know what the political narrative about the banking failures - the Great Crash of 2007 - is. Excessive speculation, trading in swaps and options and futures using high speed trading algorithms. Greed and financial capitalism run mad in free markets led to the collapse of the economy and we've got to do something about it.

    Wait, what? Has everyone had some kind of collective memory failure? Nobody ever said that, did they? I can actually remember 2007-2008, and all the news stories at the time were talking about toxic mortgages and these collateralised debt thingies - some kind of bundles into which they'd all been put and sold by and between banks and investment houses. I don't remember anyone at the time suggesting that it had to do with "swaps and options and futures using high speed trading algorithms", but greed and capitalism were certainly responsible for those involved, many of whom were indeed "City traders", having a collective failure of judgement and putting their bonuses and assorted other personal interests ahead of the interests of their employers, the financial system and society at large.

    Also, how does this report into the failure of HBOS change anything we should learn from all the other failures at the time - Lehman brothers, Freddie Mac/Fannie May, etc., etc., etc.?

    The argument presented in this article looks like a classic strawman attempt to divert the debate to me. I think I tend to agree with those who cry "revisionism" here.

  41. Trollslayer

    Actually they did

    By misselling self certified mortgages that they knew people would have trouble paying, trying to force PPI (yes, Halifax tried that with me and I stuck to my guns, pain it off in half the period of the loan).

  42. Curious

    As you write, they " they made loans to people who said they had a great plan.".

    In Ireland 2002, Anglo Irish Bank had a loan book of €20 billion. They announced plans to treble this in 4 years to €60 billion. And they did. Half a billion here to a state entity to purchase a toxic waste dump, 150 million there to buy a hotel that was barely profitable. €15 million for a field which can't find a buyer now at €250,000.

    An anecdotal talk I had was with a part-time self employed builder was invited for a talk with the bank manager and straight out offered 5 million to build a housing estate, which the builder chose to reject.

    So half of the loan book went bad.

    The book of risk management was thrown out the window. The one bank CEO that took a prudent approach was ousted by institutional shareholders that wanted the loan book to bloat like the others.

    The pension fund managers didn't want single digit growth of their share portfolios.

  43. Mike Bell
    Mushroom

    Fractional Reserve Bollocks

    How is it that when a bank lends you money for a mortgage, 90% of the loan value is conjured out of thin air and created as 'new money' that the bank never had in the first place, but will expect to be paid back by the mortgagee. This is called the Fractional Reserve System, which is ubiquitous in modern banking.

    Under such circumstances, how the hell could a bank lose money? That's quite an achievement. If I lent 10 of my mates down the pub £100 each I would need to have £1000 in my pocket to start with. The banks, in collusion with the government, would only need £100. The rest is just made up!

    1. Matt Bryant Silver badge
      FAIL

      Re: Mike Bell Re: Fractional Reserve Bollocks

      Sorry, but your being deliberately obtuse. The bank makes the purchase of the property when a mortgage is taken out, so "real" money does get taken off the bank's books. And without that mortgage system only the rich would be able to buy houses, and just imagine how much the Lefties would scream then.

      1. ForMe
        Facepalm

        Re: Mike Bell Fractional Reserve Bollocks

        "And without that mortgage system only the rich would be able to buy houses, and just imagine how much the Lefties would scream then."

        And with it only the rich would be able to buy houses, and the poor will be able to pretend they have by creating a debt for their children and children's children.

        Only, of course as every horse race punter and lottery card buyer knows: "Something lucky and magical is just about to happen to me and make me rich and happy. It's the others who haven't backed the winner - I can feel it in my bones".

      2. ForMe
        Facepalm

        Re: Mike Bell Fractional Reserve Bollocks

        "Re: Mike Bell Re: Fractional Reserve Bollocks

        Sorry, but your being deliberately obtuse. The bank makes the purchase of the property when a mortgage is taken out, so "real" money does get taken off the bank's books."

        Or, you're being accidentally obtuse. The money got onto their books in the first place because they invented it every time they made a loan and put it there. It's the way that a piece of paper telling the bank that someone owes them money can immediately be put on their books /as if it were actual money/ that puts most 'money' into the economy. A little research on fractional banking (fantasy money) will reveal all.

        1. Alan Brown Silver badge

          Re: Mike Bell Fractional Reserve Bollocks

          "The money got onto their books in the first place because they invented it every time they made a loan and put it there. It's the way that a piece of paper telling the bank that someone owes them money can immediately be put on their books /as if it were actual money/ that puts most 'money' into the economy"

          Yes, it's the selling and accounting of a loan (liability) as an assett which made this particular sorry mess blow up.

          That's the kind of creative accounting which needs to be stomped on, however it may well be too late to legislate it out of existance.

          1. Vladimir Plouzhnikov

            Re: Mike Bell Fractional Reserve Bollocks

            "Yes, it's the selling and accounting of a loan (liability) as an assett which made this particular sorry mess blow up."

            How else can you book a loan on your balance sheet? You clearly know nothing about accounting, why are you dispensing opinions as if you did?

    2. DavCrav

      Re: Fractional Reserve Bollocks

      "How is it that when a bank lends you money for a mortgage, 90% of the loan value is conjured out of thin air and created as 'new money' that the bank never had in the first place, but will expect to be paid back by the mortgagee. This is called the Fractional Reserve System, which is ubiquitous in modern banking.

      Under such circumstances, how the hell could a bank lose money? That's quite an achievement. If I lent 10 of my mates down the pub £100 each I would need to have £1000 in my pocket to start with. The banks, in collusion with the government, would only need £100. The rest is just made up!"

      Really? This again? This is as bad as the BBC Have Your Say. OK, let's go through how FRB works.

      1) The bank has £1m. It lends out £900k in loans, and keeps 10% in various other things to shore up their balance sheet. It gives out less than it has at this stage.

      2) People use the £900k to buy things like houses.Most of that money finds its way back into the banking system again, where say £800k is deposited.

      3) The bank now has another £800k, so lends out 90% of that, so about £720k.

      Repeat.

      Now yes, at the end there's about £2m of bank accounts about about £1.8m of loans, so money has doubled. But banks have deposits to cover *all* of those loans. At no point did they do what you try on.

      1. Mike Bell

        Re: Fractional Reserve Bollocks

        DavCrav, here's a video that might clear up your confusion:

        http://www.youtube.com/watch?v=Ov2Sd-QRi_g

        There are plenty of other resources on the web that show how a tiny reserve held by a bank can result in a massive amount of 'newly created' private money.

        1. Vladimir Plouzhnikov

          Re: Fractional Reserve Bollocks

          In my experience, about 99.99999% of people complaining about "fractional reserve banking" are doing that on the basis of a term they heard from someone, who they believe is sufficiently leftist and anti-Wall Streetist. They have absolutely 0% understanding of how it works, why it works and why it is necessary for the workable economic system.

          The remaining 0.00001% of those who complain about "fractional reserve banking" are bigoted fanatics.

        2. DavCrav

          Re: Fractional Reserve Bollocks

          "DavCrav, here's a video that might clear up your confusion:

          http://www.youtube.com/watch?v=Ov2Sd-QRi_g"

          Hi there. I don't need to watch a Youtube video because I had an actual economics education with books and stuff. But thanks for the link.

      2. Alan Brown Silver badge

        Re: Fractional Reserve Bollocks

        "Now yes, at the end there's about £2m of bank accounts about about £1.8m of loans, so money has doubled. But banks have deposits to cover *all* of those loans. At no point did they do what you try on."

        Unfortunately, they did. That's exactly how those toxic loans were bundled up and sold off. Tommy Cooper himself would have been proud of the sleight-of-hand at work.

  44. Volker Hett

    Those loans where the fuse

    which set lots of investment banks trading derivatives on fire.

    If some of the things I'd been taught in Business School, some 20 years ago in the City :), are true, then there has to be a compromise.

    Trading options on derivatives of derivatives nobody understands in nanoseconds is a very big risk. And one algorithm gone mad costs billions in minutes.

    Nowadays 6 milliseconds latency make a difference of 100 million a year to a hedgefund in London trading in NY!

  45. Johan Bastiaansen
    FAIL

    You're wrong...

    Mortgages are usually a pretty safe bet. After all, if you can't pay back the bank, the bank just takes your house. Now the problem was that the house was overvalued, and that was caused by the "housing bubble". And that was caused by banks lending to much money to people who wanted to buy a house.

    And if they had bought a house and were already paying it off, the value was steadily climbing, so they were encouraged, by the banks, to remortgage their house and do all sorts of fancy stuff with the extra cash. The unlucky ones wasted their money on the stock market, the lucky ones invested it in a sportscar or beer.

    Eventually the banks overstretched themselves, with too many loans outstanding, so they repackaged the whole thing, sexied it up and sold it to other banks.

    And there you have it, a disaster waiting to happen. You can say that in hindsight everybody has perfect vision. But there were a few who warned against this. They were laughed away.

    So you could say that they went tits up by just doing their job, lending money to people who wanted to buy a house, but that would be only half the story.

    And telling only half the story, when you know the full story, just to drive home your point, makes you a lobbyist.

    Or, in my world, a liar.

  46. Johan Bastiaansen
    Devil

    Robust or not

    "You can have a robust banking system where it's difficult to get a loan, or you can have easy money and a banking system that periodically goes titsup."

    Or, you could have a system where anybody with a good plan can lend money and anybody with an insane plan can't. The problem is, then you would need somebody competent sitting behind the counter. Not these flashy kids with their pink shirts and too much gel in their hair who don't have a fecking clue but speak the lingo.

    Then we had overpaid morons who threw money in your lap when you wanted to buy a Ferrari 6 years ago. Now we have still overpaid morons who refuse you flat even when you come up with a good plan now. If that big computer screen of theirs always went green then, always goes red now, why are these people still sitting there, still making too much money? My nephew of 6 could do that. And after a while he would probably be better at it than they ever will be.

    There is no replacement for competence and there never will be.

  47. b 3
    FAIL

    BANKS SHOULD GO BUST!!

    irrespective of the reasons, banks should never be bailed out. this is a capitalist, free-market system. their losses should never be paid for by the public purse, this has to be said?!

    the hapless, fumbling and bumbling mr bean (aka "mervyn king") at the bank of england gave £350 billion pounds of OUR money to private, stateless, amoral, greedy bankers, just so they could lend it back to us at interest, for their profit. because they'd spent too long at the roulette wheel, they used it to rebuild their balance sheets and NOT lend into the economy. mr bean should have created a government bank and lent directly into the economy creating economic activity and jobs AND it was mr bean who kept credit way too cheap for way too long that created this frenzy for borrowing that was the cause of all this nonsense in the beginning! (..and let's not forget keeping house prices out of inflation calculations to make it seems not as much as it was, that's more or less fraud)

    no bank, like no other business, should be allowed to get too big, it simply does not serve the interests of the british people or ANY market to have corporations get that large, it's bad for business. RBS should have died, it was it's own stupid fault.

    as for adam applegarth at northern rock, he was a gambler who gambled on getting money not from deposits or assets, but the international credit markets and using that money to lend. when those markets froze, his business froze, he was an idiot. northern rock should have died.

    i support protecting small depositors up to a point. 50k, maybe 100k i don't know, but the bank should have gone bust! "creative destruction" as prof niall furguson says. the space created in a forest canopy allows more nimble and agile trees (banks) to grow up in the space. by keeping these technically bankrupt and failed banks on PUBLIC MONEY life support we are simply wasting public money and harming the evolution of the financial sector in this country.

    we are suffering a credit crunch in this country because we do not have competition in credit. the existing players have it all sown up so no one else can get in, and we are sitting here suffering. we should have arab banks, russian banks chinese banks, brazilian banks anyone, to come in and provide credit to us. if we had true credit competition, we'd have no credit squeeze. that wouldn't guarantee no slow down, but it wouldn't be as bad as it is.

    it was mr beans boom that we are now suffering from. blame where blame is due, he's got off scot-free, no one is blaming him, but it's his fault!

  48. G Mac
    Thumb Down

    Article hands out a whole lot of banking/corporate kool-aid

    This article is rubbish. It tries to make a case that the HBOS failure was the 'old fashioned' way - that it 'unlucky'. It makes the insinuation that it was unlucky because if it was really the market, then all banks should of failed equally (and of course others did - using the same technique below). So by giving the impression it was unlucky it removes further examination of the rampant fraud by management.

    The only thing traditional thing about this failure was that it used the 'traditional' model of looting a bank by the management. As described by William K. Black ("The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry"), this is the simple recipe with four ingredients:

    1. grow like crazy (HBOS - check)

    2. by making really, really crappy loans but at a premium yield (yield just means 'interest rate') (HBOS - check)

    3. while employing extreme leverage, and (HBOS - check)

    4. while setting aside only the most trivial reserves or allowances for the inevitable losses this kind of behavior produces. (HBOS - check)

    HBOS had a lot of other fraudulent lending going on (commercial, partnering with companies, buying out construction/builders et al), but the mortgage push was key. It also had a shed load of bad behaviour (Quayside, Farepak). But making poor loans (a feature, not a bug) with poor controls (feature, not bug) by poor risk management (elevated from sales - feature, not bug) while buying back shares (£2b - juicing shares for payouts - feature, not bug) and handing out massive bonus pools (nice bribe - feature, not bug) was all designed to allow management et al to loot.

    And don't even mention that management believed they were right - Upton Sinclair nailed that one ("It is difficult to get a man to understand something, when his salary depends upon his not understanding it!").

    So the article finishes with:

    "That just brings us to the great truth at the heart of the subject of economics. There are no solutions; there are only trade-offs. You can have a robust banking system where it's difficult to get a loan, or you can have easy money and a banking system that periodically goes titsup."

    This is straw man choice. Here are some others:

    * Don't place folks that run a bank on the Regulator's board (Crosby and FSA);

    * Don't expect 'light-touch' regulation to catch fraud or bad behaviour (it should be renamed 'light-fingered' regulation);

    * Put the frauds in jail. Prosecute and put them away according to how much they embezzled. It might be 'hard', but so is life;

    * Pay bonuses so they vest over a long term (5-10 years). When they whine, point out regular folks contribute to something similar called a 'pension' which they use when they actually retire;

    * Pay 30% of fines prosecuting fraud and bad behaviour to any whistleblowers that brought it to light. The US IRS does this. Management cannot bribe everyone, and sooner or later a low-level assistant that does the grunt work for the fraud is going to catch on. Don't whine that this is unfair - the low-level folks are the first to be thrown under the bus when the fraud is discovered.

    So five suggestions in 5 minutes. There are more. Maybe there are no 'solutions', but you can certainly corral the problems. But then if you are drinking the corporate kool-aid on government, regulation and the 'markets', you won't see these, or any others.

  49. Anonymous Coward
    Anonymous Coward

    Mostly agree.......

    Yes, that's what happened. These idiots ran out of good creditors to lend to, and in a market predicated on unlimited growth they started to lending to other idiots who stood no chance of paying back what they owed. How else were the greedy buggers going to earn their annual bonus?

    What happened next OTOH is a different kettle of fish. They took all this sub prime debt they'd created and packaged into into "exotic financial instruments" which they then sold onto other idiots until the whole house of cards collapsed.

    The odd thing is, on my many business trips to Africa, I've always held the impression that Africans are far, far smarter than they appear. It turns out I'm probably right because the African banking sector is mostly in rude health. Unlike their counterparts in the developed world, African bank managers have never simply lent money to anyone who came through the door (aka suicide on a continent with so many clever scams going on).

    The solution (and here, I may well agree with Tim)? I'd suggest reading the relevant bits of The Way I See It by Alan Sugar, where he describes the hoops the banks made him jump through to start his first business. Apparently, easy money is a fairly new phenomenon. One that has been tried and tested, and failed.

  50. Local G
    Trollface

    But I digress...

    In 2013, we refer to The Great Recession of 2007 because that's when it began. December, 2007. Many of us remember that we weren't officially informed of the economic contraction until December, 2008.

    After Bear Sterns, after Lehman, oh, and after the election in November of Barack Obama. BO won handily but the Democrats did not get the 67 seats that are needed to change the rules in the Senate. They might have, had the Recession of 2007 been announced the year it occurred.

    Yep, the Republican Treasury Department and the Republican Appointed Chairman of the Federal Reserve didn't know there was a recession (or a housing bubble) right under their very noses until after the election.

  51. Mark Pawelek

    Naturally all the money belongs to bankers anyhow...

    According to Tim Worstall, CDS don't exist. The US government never bailed out AIG to payoff the hedge funds and others holding these CDS which the London office of AIG never sold to anyone. Tim Worstall offers an alternative version of history where finaciers do no wrong. They don't fabricate CDO mortgages to fail (those hedgies just happened to guess that there would be a massive blowout. They guessed that the US treasury would pay them off because, off course, the US treasury belongs to them - as does all money. They've earned it - they work 16 hour days to make all that money.

  52. Jamie Jones Silver badge
    FAIL

    Is this really news?

    At the time, all we heard about were toxic mortgages, "bad loans" and "good loans"

    For a while, many of us could see the stupidity in house prices rising - whilst the news always portrayed such a thing as good news.

    Good news for who?

    Those idiots who though "oooh, my house is now worth £50 grand more than before" - well, that's irrelevant, because if you ever move, you'll have to spend the same corresponding amount on a replacement house". But, it made the people feel happy, it made them feel rich and successful.

    The only people who benefited (apart from bankers) were greedy landlords who owned more than one property, whilst potential first time buyers had to suffer.

    Many of us realised this wasn't sustainable - indeed, the site http://www.housepricecrash.co.uk/ has been going almost 10 years!

    1. b 3
      Thumb Up

      Re: Is this really news?

      i was expecting it in 2003. i wasn't prepared for mr bean at the BOE to keep credit so cheap for so long and keep the party going. it still might go back to that level and probably would if we didn't have secret trusts covering up gangster money buying up our property today (thx tories!)

  53. xnfec

    Where was domino 1?

    At the moment this read as if it is what the author wants to be true. The problem is that HBOS and RBS, badly run though they were were not dominoes 1 and 2 in respect of the global financial crisis but near the middle of the chain (presumably Spain and Cyprus are near the end). Like Northern Rock, they could not survive when the environment changed and the environment began to change as soon as Bear Stearns and later Lehmans hit the rocks with their dodgy instruments and other shennaningans. Time marshalls his facts well but he is picky with them.

  54. Tim Fulford
    Pint

    Another Perspective

    I enjoyed the above. I agree with much of the article, but, .... the banks did not have a clear vision of what their risks were. A big part of this WAS complex financial tools such as CDO CDS etc. This (as stated above) helped ABM Amro hide their poor value, and created a system where the high street banks, building societies and investment banks could delude themselves into thinking they were as safe as houses. Yes Northern Rock and HBOS went bust without having an complex investment tools (CDO, CDS etc), but they relied upon the ecosystem that used them. Some of their loans were bought and "hidden" in these tools. This meant when the music stopped no one really knew who owed what to who. This is why the problem is complex and the blame is difficult to fix.

  55. DF118

    This subject's a bit of a hobby horse for you, isn't it Tim?

  56. Christian Berger

    The problem is _why_ they lended out that much money

    The problem is that you can sell debt. If you owe me money, I can sell that debt to someone else. That seems remotely fair at first, but if I'm smarter than you I can make the probability of you returning the money much greater than it is.

    So in example, you owe me 100 Euros and promise to pay back 120 Euros with a probability of 99%. I can now sell that debt for 110 Euros or more since the other person expects to get 120 Euros with a probability of 99% which averages out to about 119 Euros.

    Additionally I don't need to have 100 Euros to lend someone 100 Euros since he's either going to pay it back or I can sell that debt. So if I give someone 100 Euros I get 119 Euros of valuable debt back, so I made a profit of 19 Euros.

  57. John Smith 19 Gold badge
    Unhappy

    How many people here have a mortgage?

    I've read the self reliant, save and don't borrow Norman Rockwell BS and in reality it does not happen that often. In hindsight increasing your lending in a market where defaults are rising is pretty stupid (if you actually care about having a long term business, which HBOS senior management did not).

    Most people in the UK could not buy a house outright and don't know anyone who would let them buy it directly from them (IE a sort of HP agreement)

    BTW half of the German banking system is built on small local banks, more like credit unions.

    When a proposal was made to relax the rules on the locality of UK credit unions the UK banks mouthpiece spokesperson protested this would increase default risk and competition.

    Let me suggest a PoV. The UK housing market is dominated by big house builders who control huge land banks and big banks who control mortgage lending.

    It is in their interest that housing remain scarce, prices high and quality low. What to do about it is the problem.

  58. mark daly

    Way too simplistic

    It is true that poor lending by banks to property buyers and businesses was a major cause of the current financial crisis. However, it omits the key fact that the banks would not have managed to generate

    the credit to finance the lending bubble if it had not been for all the fancy instruments and derivatives such as CDOs and CDSs that made crap lending appear to be gold plated investments. It was the creation of a shadow banking system hidden in off balance sheet SIVs etc that mad the whole shebang possible and 'evil city traders' definitely did play a key role in creating the monster. Of course, now their chums are desperately trying to rewrite history to omit their role in the whole in the thing.

  59. All names Taken
    Paris Hilton

    Strange ol' world innit?

    The biggest financial turmoil in the history of the world and the people responsible were not responsible.

    And while it easy acceptable for the state to bail out bankers with billions of monies, fantastic pensions and continued bonus peaking at eye-watering levels it is okay to tell granny that she has to do without because she has a bedroom or two spare.

    Yes!

    That is the way to do it!

    (or maybe not?)

  60. davidp231
    Facepalm

    No reconstruction?

    Well that was disappointing... link for article showed Playmobil image but no epic reconstruction :(

    1. Simon Harris
      Unhappy

      Re: No reconstruction?

      Damn you, Reg, you tricked me with the Playmobil thumbnail too!

  61. SleepyJohn
    Boffin

    It is just musical chairs

    I think it is a mistake to get too complicated about the banking system. In the final analysis it is just financial musical chairs: it matters not how few chairs there are (deposits) as long as the music keeps playing so that everyone does not want to suddenly sit down at the same time (withdraw their deposits).

    If you want lots of ordinary folk to be able to dance round the chairs buying houses and setting up businesses and generally keeping the economy vibrant, you should forget the chairs and concentrate on playing the music. Eventually everyone will realise that we don't actually need chairs (money) at all, just music.

  62. booms

    Excellent article - registered just to say so. This is why I check the Reg several times a day!

  63. Infernoz Bronze badge
    Devil

    Solution = Ban Fraction Reserve (fraud) Lending and shut the central banks which enable it.

    It really is this simple, but the bankrupt corporatist states and politicians, and greedy, money for nothing, bankers hate this idea. So they setup this misdirection and propaganda to mislead you as to the real cause and solution. To put it simply City Traders would mostly be out of business without Fractional Reserve Banking, and it's far worse offspring, derivatives!

    The solution is to have a limited amount of real money, rather than exponentially inflating fiat (fraud) currency, tell the state to sod off with bankrupt socialism and regulations, get out of the way, and let the market price goods accordingly. Boom and bust is far less likely or as extreme in this environment and no money needs to gets destroyed, so deflation would be normal and nothing to fear.

    1. Vladimir Plouzhnikov

      Re: Solution = Ban Fraction Reserve (fraud) Lending and shut the central banks which enable it.

      Well, do explain how the economy without FRB will work then. Especially a capitalist one?

      What, you can't?

      By the way, mister, what do derivatives have in common with FRB? How is your free market going to work without them?

      What you are proposing is a prehistoric natural exchange instead of a free market capitalism, the meaning of which obviously escapes you. Maybe you should take time off posting here and brush up on Das Kapital or something...

  64. goats in pajamas
    IT Angle

    Oh, I see...

    ...it was ordinary people wanting to live in houses. How very greedy and indulgent of them.

    No doubt the Tories are busy reversing this and soon, not many people will live in houses because no one will be able to afford to.

  65. FrMo

    Selective

    Er, what about Lehman? Bear Stearns? Investment banking practices did trigger the financial crisis. Shoddy credit analysis in the US sub prime sector caused a shutdown in the securitisation market worldwide. That in turn felled Northern Rock, Bradford & Bingley and others in the UK, and in the US ultimately led to the collapse of Lehman and Bear Stearns. All this led to a wider crisis of confidence in the banking sector, causing credit to dry up suddenly and send many businesses (especially property developers) to the wall. Yes HBOS lent unwisely, but without the financial storm triggered by subprime it might well still be in business. HBOS may not have done much investment banking itself, but that does not mean investment banking had nothing to do with its fall.

  66. Sirius Lee

    OMG

    He died of respiratory failure. However that wasn't the cause. The cause was the hand around his throat.

    Yes, the right lessons should be learned. To assert that casino banking was not to blame is like asserting that the victim chose to stop breathing. *Of course* there was too much lending but why? Was it because would be home owners coerced banks into lending? Was because SMEs had the banks over a barrel?

    No, banks made loans voluntarily. Why did they behave this way? Because the cost of lending was obscured. Banks thought their risk strategies we far better than they were. And who was making these assessments? Who was making the lending part of the bank feel their loans were safe? Yes, the casino part.

    In his book Nate Silver estimates that through almost reckless risk management bank misunderstood their risk by as much as 200 times (20,000%). The use of CDOs obscured risk by making it more difficult to calculate. It's a bit like blaming the victim for not breathing just because the hand crushing his windpipe is hidden by a scarf.

  67. James 36
    Meh

    blah

    so should the affected banks have been allowed to fail rather than propped up by the government ?

    1. blueprint

      Re: blah

      Oh of course not, it's not their fault you see, it's all just been ever-so-concisely explained for your benefit in this wonderful article.

      They're not to blame at all for the fact that they're all insolvent, so it's up to the Government to step in and keep them all afloat with taxpayer money so that they can keep the bonus gravy train rolling.

      I fail to see how any reasonable taxpaying citizen can not see the fairness of this point of view.

  68. wayne 8
    Pirate

    Don't trust a GOV report on Financiers

    The wolves with a lighter shade of dark fur reporting on the other wolves' behaviours.

    Lesson is banks CAN and DO fail. Deposit money and it's gone...

    Banks do not share depositors interests (or pay interest anymore) and fiduciary duty is so old fashioned.

    Update to "It's a Wonderful Life", Fred, your money is in Greece bonds and Helen, your money is in Italy bonds. And Ivan, your money was in a Cyprus bank.

  69. Anonymous Coward
    Anonymous Coward

    A return to Victorian values

    After several assurance companies had collapsed in the 19th Century, Punch suggested that the directors of the next one to fail be hanged.

    It would doubtless have had an effect then, and if clearing bank directors thought their lives were on the line now, they might just be better bankers.

  70. blueprint

    If you believe this tripe you'll believe anything.

  71. Destroy All Monsters Silver badge
    Headmaster

    Just a citation is needed

    It's US centric, but then again the world is US centric; thanks WWI and Bretton-Woods!

    "Inside Job": A Look at the Heart of the Left - March 15, 2011 by Jeffrey Tucker

    I really wanted to love Inside Job, the film that won the Academy award this year for best documentary. And it is a great film, but to see it that way you have to turn your brain “off” even as you push the “on” button on your DVD clicker. The interviews are personal and interesting. The footage of Wall Street and the offices of big players in the world of finance are absolutely gripping. The narrative has energy that pushes this two-hour film forward. It is easy to watch and tells a great story.

    Sadly, the filmmakers themselves were hunting for something they did not find. And they did not find it because it is mostly not there. They had decided that the story of the boom of the 2000s and the bust of 2008 was a story of scandal and rampant criminality that purposely sucked away resources from the middle class and the poor to feed the lifestyles of the big shots in high finance. They wanted to find those white-collar criminals who made this whole thing happen and make a case for why they should all be rounded up and jailed.

    What they found instead – though they apparently never realized this – was a bunch of interesting and smart people who had mastered the art of chasing prices and chasing paper up during the boom times and down again during the bust times. That’s what entrepreneurs do. If they aren’t going to do that, they could go into some other profession. This isn’t criminality. This riding the business-cycle wave. The problems they are looking for are deeply embedded in the system. They are structural, not personal. If criminals exist in this story, they are most likely to be found within the halls of government. But those people are rather inaccessible whereas the private traders are happy to go on camera.

    The biggest problem was that the narrative never asked where all these paper profits were coming from. The monetary angle eluded them completely. The filmmakers missed this structural point because they decided at the outset to trace our problems all the way back to the “eighties.” Now, in the vocabulary of the left, the “eighties” is a curse word. It means Reagan, which means evil. It means capitalism, greed, the rich getting richer, and all the other political cliches we know so well. So rather than looking carefully at the monetary system that generated all this paper, they filmmakers looked to presidents and their great black beast of “deregulation.”

    Contrast this point of view with the wonderful speech of David Stockman at the ASC the other day. He was just as passionate about the corruption generated by the system but he found the source in the end of the gold standard. He had a coherent theory that allowed him to see, understand, and explain the world coherently.

    The makers of “Inside Job,” by contrast, were all over the place. They are against the boom. But they are against the bust too. They are against the bailouts. But they are against failing to bailout too. They are against housing subsidies. But they are against rationing housing too. They are against the government. But they are against private finance also. Most absurdly, they demand government controls over finance but their own film demonstrates that government is largely captured by private financial interests. They are reduced to looking for ghosts and wishing upon stars.

    They end with a demand for people to be locked up, not people in government (I’m all ears on that) but rather people in investment banking, though it it not clear what they did wrong. The worst crime that the film can drag up is how traders were both denouncing certain kinds of commercial paper as junk even as they pushed it on buyers. But look: this shows you what is so wrong about inflated markets. They make junk profitable and depreciate quality as unprofitable. It’s an upside down world when the Fed and moral hazard take over. There really is not contradiction in seeing certain investment vehicles are pure trash even as you sincerely see them as good investments.

    This film demonstrates all you need to know about the worldview of the American left, and it is completely barren of sound theory. They weave tales of demons all around, even as they lack the intellectual apparatus to understand events rationally. It really is pathetic. This film is a gigantic missed opportunity. They started to tell a good story and instead ended up chasing around ideological conventions and coming up empty handed. That said, if you can provide your own voice overs, Inside Job is worth an evening.

    1. John Smith 19 Gold badge
      Meh

      Re: Just a citation is needed

      ""Inside Job"

      I have seen this film.

      I have no idea what film Mr Tucker saw.

      Long story short. It calls for quite a few regulators to be locked up (especially the ones who entered the revolving door at the Fed from some of the major banksters they would begin regulating).

      It also suggests that quite a few of these deals where driven by (for wont of a better term) a bunch of cokehead a**eholes. Not exactly my definition of "smart." Cunning, convincing, self serving and self deluding perhaps.

This topic is closed for new posts.