ARE THE BANKS DECEIVING EVERYONE – INCLUDING POLITICIANS ?
Probably. But how are they getting away with it ?
We are told that bank or mortgage lenders a or b have posted huge losses of billions here and billions there because of ‘bad’ mortgages that borrowers cannot repay.
As a result World banking has seized up and the World economy is grinding to a halt everywhere with huge inflation and increasing poverty.
The gigantic figures for losses that the mortgage lenders talk about do not seem to make the slightest sense because they appear to be much larger that could ever be conceivably possible.
Mortgage lenders talk of huge losses, particularly on the sub-prime market as people cannot repay housing loans and houses are re-possessed.
But as most houses repossessed are sold and mostly repay the mortgage loans in full, there are absolutely no losses for the mortgage lenders with those housing loans that were completely recovered without loss to the banks.
While there are some repossessed properties that do produce varying degrees of loss for the lender, they are a relatively small number of repossessions and cannot possibly add up to the silly figures of billions that the banks claim.
For example, if an average mortgage loan is £200 000 and there is a total loss of that loan to the bank because the property is repossessed, then the approximate total annual repossessions here in the UK of about 40 0000 properties, assuming that each repossession represented a total loss of the entire value of the average loan, would be 40k x £200 000 = £8 000 million or £8 billion in total ONLY !!!
This figure can be approximately multiplied up for the USA’s bigger population by a factor of, say six, to produce a maximum loss figure of £48 billion which is so much smaller than the losses being claimed by the banks it is laughable.
Combine these two total loss figures of both the UK and the USA and it adds up to a total of £56 billion, not the many, many hundreds of millions all the banks are claiming.
It also must be pointed out that the above calculation assumes that every repossession represents a complete and total loss of the entire loan for the lender. Obviously this cannot be the case because most repossessed properties are sold and repay the lender in full. Very few repossessions end up in any loss and even fewer end up with total loss. That figure must be a microscopic one.
This would make the real, actual loss figures for the banks infinitely less than this maximum possible figure of about £56 billion. This makes their claims for hundreds of million in losses incomprehensible.
So, can someone tell me what on earth the banks are talking about when they say they are losing billions ? Can it be they are making up fairy tale figures based perhaps on what incomes and profits they imagined they might earn at some vague point in the future.
In other words the whole thing seems to have been hyped up as a figment of the fevered imagination of bankers utterly obsessed with their own greed.
How are the huge figures for losses posted by banks calculated ? And why would any particular lender suddenly and dramatically ‘go bust’ overnight owing hundreds of millions.
I just don’t get it. The figures don’t add up. They seem to be living in some fantasy land.
Can some kind economist explain this to me – and all the other millions of very puzzled members of the population who really do not understand all this gibberish talked by the banks and politicians ?