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Sunday, February 26, 2012

Financial Banking and Trust

A Bank, otherwise known as A House of Ill-Repute

Here in Spain every country house has bars on the windows and super strong doors, plus a wall around the house, some with barbed wire along the top. This, in comparison with my own country where no house has bars, or even a fence. For the first ten years of my life we never locked our doors, in fact the door didn't have a lock. So, I was a little taken aback at so much security when I arrived in Spain. Once you entered the house, you had to take real good care that a fire didn't break out, because if you were not able to make it out through the door you would have been barred in, as happened on more than one occasion.

Finally, I asked why so much security just to protect the stove and refrigerator. I was told that it was the custom not to trust banks, so people kept their savings at home in caja fuertes, or safes built into the walls. Each house was a bank unto itself, but gradually people started placing their savings with bankers after home breakins rose to alarming rates. Those people knew something the rest of us didn't, and going to the bankers was a mistake.

In the old days banking was a relatively simple matter. Clients were encouraged to place their savings in the bank, for which they would earn annual interest of, say, 3%.  The banker would then carefully vet people who required loans, and they would lend your money at,say, 7%. The difference of four points was the bank's profit. There were other earning possibilities, but the one thing that the bank didn't do a lot of was lose their assets.  "Their assets" was actually yours and my own money. Through prudent management  our savings grew, and all was well with the world.

Then some bright spark got the idea that banks should expand their area of influence and start to dabble in investment opportunities with a little more flair and dash. One thing led to another, arriving at a situation where banks have holdings in all manner of situations, many of which were big earners as long as the market was going up, but when the bubble burst, had it not been for government intervention most banks standing today would be history.

There is at least one bank that I must place emphasis on. This well-known bank placed an incredible amount of money in the hands of Bernie Madoff, the prince of scoundrels who ran a pyramid scheme that collapsed, as collapse it was bound to do, taking with it the bank's money and and a large number of other greedy and stupid investors savings. I say greedy and stupid because if you are promised, or guaranteed, a return on your funds that is way out of line with a normal return, it will be too good to be true. Indidvuals who let their own greed get in the way of sound decisions is one thing, but a bloody bank has to know the difference between what is possible and what is a scam. I can tell you this, I would not have been taken in by this scam, because I have turned my back on a number of others, so how the hell did a bank get conned?

We are now hearing that a number of banks have lost money over the past years, some going back to 2008, including Lehman Bros that went to the wall. Three of the banks within which I diversified my small savings have had the following results: One came dangerously close to closing its doors and declaring bankruptcy. For those shareholders who held the bank's own shares, they are now worthless. Another has a hole in its accounts with losses of over 900 million euros, mainly due to real estate losses as the bottom fell out of the market; and the other has losses totalling 1,270 million euros due to real estate losses and just plain silly, and possibly malicious management decisions. The courts will decide.

The Spanish banking system is in such a mess, with possibly the worst to be discovered, that trust is gone. Unfortunately a lot of people's saving have gone along with trust, but still those bastards think they should be rewarded with ultra-high salaries and a freaking bonus!  Preachers are constantly telling us that if we do not conduct ourselves as good Christians we will go to hell. Well, I hope there is a special and dedicated hell for money managers who have brought so much misery upon the human race. Were I one of these creeps I certainly would not be handing out business cards that say  "Bank Manager" or "Money Manager." There is no honour in those occupations.

If there are any such people who are diligently trying to do a good job for their clients, and who believe in morality, I do apologise if anything I have said does upset you about your profession. I am a client and I have been given the impression that I have from all the public knowledge that is before us. I cannot be expected to believe that any of you have even a clue as to what you are doing.

One more thing: I personally have not actually lost any money because of banking losses. Yet!  Imagine if I had!

Copyright (c) 2012  Eugene Carmichael