Bankers don't create wealth

[dikkertjedap]

... they shuffle money, create an illusion of wealth and then it turns out not to exist after all, but they have spent this non-existent money so we (in the real economy) have to stump it up to prevent them going belly up 'as they are too big too fail'. I hope that politicians finally wake up to the fact that it is the REAL economy which creates wealth, e.g. REAL business producing and trading REAL goods. Banks could contribute if they provide finance on reasonable terms to these REAL businesses so they can grow, hey, but that is not happening, doesn't suit the bankers who cannot care less about the real economy. Nothing has changed, all what we are going through now can happen again. What a legacy have we created for future generations!

Most people that take out payday loans do do because they haven't got enough money to cover their BASIC living costs. If your Rent, council tax, electric, gas, water and food come to £1500 a month, and you only have £1000 INCOME per month - then there is ALWAYS something that WON'T get paid! Hence you take out a payday loan to cover these BASIC LIVING COSTS that arise from trying to live in the UK in the 21st Century, on wages that bear NO relation to housing and utility costs. Most of us down the bottom of the ladder are forever robbing Peter to pay Paul because we can't meet our basic costs.

It may not directly be the bankers fault - but what of those who have NEVER used any form of credit - no mortgage as they can only afford to rewnt, no credit cards, no loans for cars or holidays - just payday loans to try to get from one month to the next and manageing to pay all the bills and eat. How is the recession THEIR fault? Yet they are the ones suffering the most from the recession, the unemployment, the welfare reforms.

So, the Banker may lose £1,000 a year in Child benefit. Their child is still fed, still has a house, that is WARM, still has clothes. AND also has luxuries like a holiday, extra-curricular activities, a decent (often Private) education, money to go to Uni with, OPPORTUNITIES.

The NMW worker may ALSO lose £1,000 in Child benefit, if their rent (on a basic 2/3 bed terraced house, NOT a flipping mansion) takes them over the benefits cap. HOWEVER. Losing £1,000 in this case is the difference that means that one month the rent can't get paid so that the water bill can be paid, the next month the rent IS paid, but the gas bill isn't, leaving the house cold, their children may be in a crap school with no chance to go to Uni, they may have to go without nutritious meals through the loss of that £1,000.

THAT is why people are so frustrated with Bankers - their wages are out of proportion with what they do for a living, they have pushed up the cost of living for those with less money, they have been reckless where a lot of people on much lesser incomes haven't been, and the less well-off taxpayers have had to bail them out - yet the Bankers are carrying on as if nothing has happened. They are still working in a 'bonus' culture that rewards them financially even if they fail. The taxpayers that have helped to keep the financial institutions afloat have no such luxury - if they fail in their job, they will get disciplined. If they fail again, they are likely to lose their job.

What I keep asking myself is why are bankers immune from this? Is what they do more specialised than a surgeon? I doubt it. I wouldn't want a lay person operating on me! Yet if a surgeon is reckless, they run the risk of getting 'struck off' by the GMC. Where is the equivalent body for the financial industry? Because if there IS one, it really doesn't seem to be doing its job. And I'm quite sure that if a surgeon was proven to be reckless in his decision-making, and created a loss of life, he would NOT be getting a financial reward for that. Yet a banker can be proven to be reckless in his decision-making, and creates a loss of income for the country, and he STILL gets a bonus?!

I think the chairman of RBS summed it up neatly when he said that he had not expected such a public backlash in relation to Hester's bonus. Bankers still do not occupy the same world as everyone else.

I think that it is absolutely fine to reward performance. Bankers are not rewarded for performance, they are given bonuses if they do well and also if they don't do well: they are guaranteed bonuses whatever their performance. I don't know anyone who gets a bonus whatever happens with their business. Mind you, I don't know anybody full stop who is getting a bonus in the current climate.

What concerns me is all this talk that bankers and the City are so important to the UK economy and hence they need massive salaries and perks because otherwise they will leave. I am highly highly sceptical about this and think that people should call their bluff. I do not believe they are that highly skilled that they cannot be replaced.

The City has done immense damage to the UK and worse, is still doing it. Morally, financially, etc. Worse still, no lessons seem to be learned at all.

What about gearing? It's crucial to a business and a vital part of making money.

Banking is crucial to the uk economy, do you any grasp of the amounts of money made by banks that contribute towards GDP?

How would you buy a house and make money on selling it without a bank?

AprilSkies - the point of buying a house is surely to live in it?

What you said is a one sentence summary of what went wrong with our economy in the last 10 years, indeed since WWII.

Buying houses on leverage expecting huge inflation in house prices became the only way to make money. It diverted capital away from creating businesses. People came to believe that buying and selling houses was the way to get rich. Indeed there was a point a few years ago that it became obvious that people were making more money each day from the price inflation of the hosue they lived in than actually going out to work. That was obviously unsustainable and now the economic chickens have come home to roost.

Ultimatley, most loans from banks are/were secured against property - even if it is a small business loan it will almost always be secured against the business persons house.

I have a friend who had a job that was to basically arrange very large mortgages on commercial property. He told me 5 years ago it was insane and totally unsustainable. He was right. He now tells me prices of commercial property (eg shopping centres, office blocks) in provinicial towns have fallen 50% and still no buyers can be found. Banks will no longer lend against these properties and the owners have defaulted. The banks are facing huge amount of losses on mortgages written only five years ago and the losses are yet to be written off. The banks cannot afford to write them off.

Similar sized losses will occur in residential property.

You need to borrow money in order to make money efficiently. Its called investment. Banks lend money and so they are central to wealth creation, that was the OPs question. When banks fail, that is a different discussion.

The role of a bank is to allocate capital as efficiently as possible towards the most wealth-creating endeavours.

However,

1. They're obviously not very good at it, or they wouldn't have required colossal bail outs.
2. They skim most of the created wealth off the top themselves rather than using it to increase the availability of capital for further investments.
3. They aren't allocating capital, they're allocating debt. Debt that can only be repaid with exponentially more debt. This isn't a service, it's slavery by another name.