Was It Worth Saving The Banks?

More than two years after the coordinated effort to save the worlds biggest banks

from terminal meltdown, one could be forgiven for thinking that it was all a tremendous waste of time and money. An objective summation might read something like this: The banks painted themselves into a corner by buying over-priced and misrepresented assets including mortgage-backed securities. It turned out that the mortgages backing those assets were laced with Mickey Mouse subprime loans that started to go bad once the properties they were secured on began to plummet in value. The banks had to write down huge losses (over 1 trillion dollars to date). They then had to raise capital but after the sovereign wealth funds got their fingers singed by acquiring stakes in the likes of Merrill Lynch, Barclays and Morgan Stanley, the last resort was the government. We, the taxpayers, obliged and now, we stand by as they recapitalize by stiffing us on mortgages whilst making the best margins ever. If that wasnt bad enough, they pump and dump equity markets, playing havoc with our retirement funds and then have the unmitigated gall to ramp up charges on our checking accounts and credit cards as well.

Earlier this year, the European Union and the International Monetary Fund got together to bailout Greece but, as a senior analysts at Sovereign-International reminded us, The EU and the IMF didnt act to save 11 million Greeks; they acted to save Europes big banks. If Greece defaulted, the banks that held their sovereign debt would have been in serious trouble and another credit crunch would almost certainly have followed and completely killed the fragile economic recovery.

But wouldnt a clear out of the less astute banks who bought this debt in the first place have been a chance for a fresh start? After all, our governments have borrowed an awful lot of money to fund these rescues; money that we and our children are going to have to pay back in higher taxes. Couldnt we have just taken legendary investor, Jim Rogers advice and let the bad banks crumble? Sovereign-International analysts believe this would have been the ideal solution but tempered their concession with caution adding that millions of customers would have been wiped out and governments would have had to borrow to cover the cost of reimbursing those who lost under the various deposit guarantee schemes anyway.

We certainly understand the vitriol levied at the banks. Theyve so completely wormed their way into the very fabric of our lives that itd be hard to get on with our lives without them. In their defense, on the one hand, theyre under heavy pressure to lend more to businesses and individuals because governments want to re-inflate their economies to get growth going again but, at the same time, theyre being told to have more and more money set aside to cover future credit events and central banks are forcing them to use more draconian lending criteria to decide whom to lend to. Like it or not, governments are running the show at the moment and are using the popular backlash to bash the banks into submission. Its the equivalent of putting the arsonists in charge of the fire hose, said one Sovereign-International analyst.

So how does one get the funding to buy a home, we asked. Well, if youre considering buying a property for investment purposes in one of the more affected markets, then seriously reconsider. If, however, its for family purposes, then save as much of a down payment as you possibly can and take advantage of some very good deals available to those with watertight credit ratings. If youve got large sums of cash in one bank account, best to spread it around different banks so that, if things go pear-shaped again and banks do start collapsing, youre covered to the maximum permissible under the laws in your country, said the Sovereign-International analyst.

by: Amanda Sedgewick

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