I do.
There was the initial lunacy - when they were all passing around parcels of debt - like children playing pass the parcel at a party. Who gets stuck with it when the music stops playing?
It seemed beyond belief that banks had been buying and selling - passing around all these complex parcels of debt - without understanding what they were.
In my naivety, I thought that all debt was bad. Why on earth would anyone sane want to buy a parcel of debt?
Well the music stopped playing and some banks had to own up to the horrific amount of debt they had.
Others (I gather) have still not been totally honest about it.
Apparently some of this is goodish debt, some bad and some very very bad.
What does this mean
I go shopping with Deborah and she sees a jacket she likes, but realises she has left her money at home. I lend her the money to buy it. She is a good friend. She is honest, has a well paid job and no debts. She agrees to repay me next day. That is a good debt.
I go shopping with Tracy and the same thing happens. I know she has money problems and a reputation for not paying back loans. This is bad debt
Whether it is good or bad depends on how likely you are to be re-payed.
Who are all these people who owe money to the bank?
Are they little people from the UK who can't pay back their mortgages?
Are they little people from the UK who have taken out loans and can't pay them back?
Are they small /medium size UK businesses who have taken out loans to make their business work?
Or are they huge faceless multinationals?
Or are they other countries?
Or - perhaps - they are massive debts incurred by the bank gambling with our savings?
Or - perhaps - it is all those nasty parcels of very toxic bad debt from all round the world
If Tracy can't pay me back, I lose that money.
What happens if someone can't pay their bank back? The bank loses that money.
If someone or something goes bankrupt, what happens?
If I went bankrupt Tracy would still owe me for the jacket.
But - If I died then Tracy would breath a huge sigh of relief.
If Tracy goes bankrupt she no longer has to pay her debt to me.
What happens when a company goes bankrupt?
I suspect that those who owe money to that company will also breath huge sighs of relief
But what happens if a bank goes bankrupt?
What happens to those who owe money to the bank?
and
What happens to those who have had all their life savings deposited in the bank?.
If I have a huge mortgage and my bank/ mortgage provider goes bankrupt - does it mean that I no longer have to pay back my mortgage and that I now own my property?
When RBS (based in Scotland) was on the verge of bankruptcy, it was saved by the UK government tax payers putting in huge amounts of money and becoming major share holders.
If Scotland had been independent it would have gone bankrupt trying to that. What would that have meant?
RBS would have had large parcels of bad debt - money owed to the bank
It also would have had huge debts - money it owed to all those who had deposited their savings with it.
Would those with bad debts who owed money to the bank have their debts wiped out?
Would the savers - the people it owed money to - have lost all their money?
Was it insured in some way? Would insurance companies have had to to pay out?
Would Scotland ultimately have had to pay?
At present the UK government backs all personal savings in UK banks up to £85,000
Why didn't the government allow RBS to go bankrupt?
Iceland's main bank went bankrupt and, as a result, the whole country went bankrupt - because the debt of the bank was larger than the GDP of the country. (As was the case with RBS)
Did Iceland honour its debts?
I don't know - I have a feeling that it told everyone to xxxx off and started again. This is not a very business like way of behaving and must perhaps exclude Iceland from international business for a while.
It's shredded reputation now means poor ratings from the credit rating agencies.
Does this matter? Well yes - because it means that no other country will lend Iceland money, or if they do, the interest rate will be exorbitant.
Why might Iceland want to borrow money? Well for anything really - collecting the rubbish, running the hospitals, education, pensions etc.
Most countries in the West borrow huge amounts of money and have massive debts - Britain and America being two of the worst.
Which is the main country lending everyone all this money?
The answer to that is - China
China - quietly - now owns most of the world
Last week, it was announced that RBS would not be split into a good bank and a bad bank.
When this was first announced I understood it to mean that ;-
The bad bank would be the one that gambles with our money - the investment bank.
The good bank would be the old fashioned sort as managed by Captain Mainwairing in Dads Army.
I thought that an excellent idea. I don't want my bank to gamble with my money.
But apparently the bad bank, was to be one, into which all the bad debt was put. That would make it a very bad bank.
But - The new plan is not to split the bank up, but to open a special department in it, into which all the bad debt can be put - hidden away - ignored - forgotten about - perhaps no longer even mentioned in the every day accounts?
But most importantly - not counted as the type of debt that the bank needs to hold capital to balance.
Hence the bank can begin to loan more to the public.
It can be seen as a good bank with healthy books
It can loan more to all those people buying houses in this new government led property bubble- at exorbitant prices.
Is this a new game - pass the parcel and blind mans buff combined?
Interest rates will go up and the whole thing will implode - again
But I still don't really understand bank debt
Perhaps we could sell all the bad debt to the Chinese?
But perhaps they would be wise enough to ask -
(what our banks should have asked)
Why would anyone sane buy bad debt?
What would China do about Tracy who still owes me for that jacket?
Perhaps they would just execute her.
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