Who is bailing who out of the leaky boat?
Women and children first, so the mantra goes. It would certainly seem to be so in the case of Portugal.
Whilst I was double checking some facts before I wrote on Angola the other day, I fell over some interesting information. We are about to play a bailout game of ‘Find the Lady’s Pound’ – so make sure you keep a close eye on her as I move the cups around…
When we think of ‘Bank Bailouts’ we think of a ‘run on the banks’; we think of the ordinary working man and woman going to the bank for their weekly food shop and finding that the bank has no money to give them, but that is not exactly what happens. The so called ‘bank bailouts’ actually go to the owners of the banks, the shareholders. True, in some cases those shareholders comprise the oft quoted ‘widows and orphans funds’, and pension funds, but they can equally be some exceedingly wealthy individuals.
Keep your beady eye on our ‘Lady’, she is off round the international banking crisis. Here she goes.
This is our ‘Lady’, she was earned by Jane Doe, a school dinner lady in Middlesborough. Jane could have done with hanging onto that pound, she worked hard enough for it, but it was taken out of her wages and handed to the government. Jane would tell you that she supports the NHS, thinks our Police are wonderful and doesn’t really mind that much helping to pay for all that. But Jane’s Pound coin is off to a far more exotic home.
You might catch a fleeting glimpse of Jane’s Pound as it passes through the Treasury, but you would have to be quick, it is off to Washington, USA, into the headquarters of the International Monetary Fund, courtesy of the agreement that Gordon Brown made.
It won’t stay there long, for it has already been promised to Portugal, as part of a 78 billion Euro bailout, that the BBC says is essential to prevent the ordinary working man from finding himself with no money in the Bank. (Cue shot of ordinary working man queueing up outside Northern Rock).
Keep a close watch, for that coin won’t be in Portugal for long. The Portuguese Government have promised to bail out the Portuguese Banks with 1.5 billion, you know the script by now, to make sure the ordinary man in the street etc, etc.
Amongst the Banks that they are forcing the Portuguese Taxpayers to bail out, bolstered by all the other contributors to the IMF, including our school dinner lady’s pound coin, is the Banco Português de Investimento S.A. usually known as the BPI for short. Even this isn’t exotic enough for Jane Doe’s coin. For the bailout is actually going to the shareholders of the BPI. And that is where I pricked my ears up. For an entire fifth of the bank is owned by Isabel dos Santos. Or put it another way, 20% of that 1.5 Billion bailout is going to be handed to Isabel. She used to own a mere 10% of it, but quite recently she stumped up another €46 Million to bump that up to 19%. She’s definitely not short of a bob or two. She might be a very nice girl for all I know – but she’s not Portuguese. Nope, Jane’s coin is on the move again.
Other than buying a selling large slices of European Banks, and the major share of the biggest Portuguese cable company, ZON, we don’t know how Isabel came by her Billions. Perhaps she had a wealthy husband? She married Sindika Dokolo and his Father owned the Bank of Kinshasa, all of it. But then President Mobuto seized it all and the family was ruined – Perhaps she had a wealthy Father? As it happens, we know precisely what Isabel’s Father earns – the wonders of the Internet. He is paid roughly the equivalent of $5,000 a month. He has seven children to support, and a wife. And one of those children, Isabel, can just stump up the money to double her holding in a Portuguese Bank. One that is in such trouble it is only a month away from a 1.5 billion bailout…
Perhaps it does help when Daddy is President of a country that is renown for its corruption and the ability to lose billions of dollars in oil revenue that its poverty stricken citizens need more than most in the world. He has been for the past 30 years.
If you can explain to me why Jane Doe is ladling out chicken nuggets and cold custard to Middlesbrough kids in order to put money into the swollen bank account of Isabel dos Santos, daughter of the President of Angola, in less than 73,000 complicated words, do please mail it to me. I’d like to be able to explain to Jane why her hard won pound ended up there, but I’m lost for words…
Ms Raccoon lives in the Monbazillac area of South West France, renown for its fine wines and gourmet food, so she frequently finds better things to do than sit in front of a computer all morning. She is liable to take off traveling at a moment’s notice. Consequently this blog only gets updated these days when it is raining – and it doesn’t rain very often round here…
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1
June 20, 2012 at 17:09 -
In my more paranoid moments I wonder if the Northern Rock thing was more of a try-out to see if we would rise up and do the lamp post thing or swallow any amount of nonsense.
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2
June 20, 2012 at 17:54 -
The explanation is simple. Needs. (72,998 words to go). The reason is rather different as you so eloquently explain. I do like that definition of finance that says it’s the art of passing money from hand to hand until it finally disappears.
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3
June 20, 2012 at 19:26 -
What makes it even more puzzling is that most of the money never existed in the first place. It was ‘electronically created’ – supposedly against known assets like a nation’s GDP, but nonetheless just magicked out of thin air.
Funny old world.
Unless you’re trying to save up for your old age…..
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4
June 20, 2012 at 18:29 -
The system works for the system. Courtesy of Jane Doe and billions like her. Their consent is irrelevant.
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5
June 20, 2012 at 19:27 -
“For the bailout is actually going to the shareholders of the BPI.”
It ain’t. It’s going to the depositors…..
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6
June 20, 2012 at 19:51 -
In that case, I think the BPI depositors owe the dinner lady a pint!
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7
June 20, 2012 at 21:04 -
I bow to your superior knowledge – I was guided by Golam, who put it like this:
The bank, a private business, has got itself in deep trouble and would go bankrupt which would ruin its owners. Except that the Portuguese government has decided to force the Portuguese tax payers to put €1.5 billion of their money in to the bank so that it can remain profitable for its owners. I put it like that because…that is actually how it is. Banks can and often do go bankrupt without the depositors being effected. Bankers and politicians will always warn of the risks to ordinary people but it is their own wealth and power that they are really looking out for. Hundreds of banks have gone bankrupt in America for example and none of the depositors have lost a cent. When banks go bankrupt the people who use the bank are protected. They go in and out as usual. But the owners, the share holders, lose everything. As do the bond holders starting with the most junior and working up to the most senior, each losing their money until the banks’ debts are paid off. That is how it should be. ‘Saving’ banks is about protecting the owners, the bond holders and those politicians whose power and prestige is aligned with that of the owners, and very often also tied into the bad deals which brought the bank to its knees in the first place.
I wouldn’t dream of arguing economics with you of all people though….
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8
June 20, 2012 at 22:34 -
I’d say Tim Worstall is correct. I’ve no notion of who Golam is but you can’t read past so that it can remain profitable for its owners without hearing the vigorous grinding of an axe.
Crikey, look at the coda: ‘Saving’ banks is about protecting the owners, the bond holders and those politicians whose power and prestige is aligned with that of the owners, and very often also tied into the bad deals which brought the bank to its knees in the first place.
I’ll grant him the politicians and even the bond holders where these are other financial institutions that could topple but who has ever cared about the ‘owners’ of Northern Rock or Lloyds TSB or NatWest/RBS?
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9
June 20, 2012 at 21:27 -
‘For an entire fifth of the bank is owned by Isabel dos Santos’.
Oh hell, no. As soon as I saw that name my hands balled into fists.
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10
June 20, 2012 at 22:22 -
Here goes for my naïve understanding of the situation. Please correct me, Tim, or anyone else, if I’m wrong.
A bank can be bankrupt without the depositors losing anything. A bank makes a profit by charging for services (storing your money, processing cheques, running cash dispensers, issuing statements, etc). It also makes a profit by lending money at higher rates of interest than it pays its depositors, and keeping the difference. When it doesn’t have enough profit to pay its staff and other bills, it’s bankrupt, but the depositors, and borrowers can continue as before, as long as new owners and management come in to clear up the mess.
When you put money into a bank, it lends it to borrowers, sometimes on long-term loans over 25 years or so. So the bank gets its cash back slowly over 25 years. But depositors expect to be able to take their cash out whenever they want. If the bank can’t pay its depositors the money they want back right now, (because for example they have lent the money out and it’s tied up in 25-year mortgages, and there’s a bank run) the bank is illiquid, but not bankrupt. The bank in this event will need to borrow money to pay its depositors, which will affect its profitability, but shouldn’t (but might) make it bankrupt.
The problem that we have at the moment is that banks have lent money in large quantity to governments who they thought were certain to pay it back, but who now look unlikely to. In this case, if the bad loan is big enough, the bank is bankrupt and the depositors lose out. There are government schemes to protect depositors in this event. Bail-outs are low-cost loans to protect the depositors when the bank doesn’t have the cash to pay them and its loans have gone bad.
The reason that the governments are unlikely to pay back the loans is that the governments themselves are bankrupt.
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11
June 20, 2012 at 22:35 -
Hmm. I aint no expert here, and I detest banksters and corrupt politicians. And I oppose aid. Trade, not aid.
The scenario is a bit more complex. The Portuguese bank has to keep a minimum amount of capital to support its loans. That is about 7 % I believe. So if you put a pound on deposit they can lend about 15 quid out at whatever crazy interest rate they like. In addition to the deposits they have shareholders funds to add to their capital stock. Now our well connected lady is taking a risk buying out a chunk of other shareholders, but if she gets it right she isnt getting your hypothetical dinner lady’s pound, she is getting 19% of any future profit from the lending of that pound 15 times – in the future. If the bank goes bust she loses, but its just a gamble Issy is making for now.
The problem is that while they banks were making big bucks selling houses to expats and building Tesco metros at the seaside, they took out all the profits in salaries for the bosses and the “talent”. Meanwhile the government in Portugal and everywhere else spent money like there was no tomorrow and borrowed the £15 which was really just a pound. Now the shit and the gravy train have hit the buffers. The loans are not getting paid back and the assets mortgaged turn out to be worthless in todays money. So the bank takes a loss which wipes out its capital. The shareholders should take the loss but governments are scared to wind up the banks, and besides, the kids who were in the politicians class at whatever school was the elite one in Lisbon or Paris or Istanbul ( Galatasary there ), are still their pals and happen to be the bosses of the banks who made so much before the crash. Couldn’t let them lose their jobs or their polo ponies.
So in a nutshell. The dinner lady’s pound might earn a windfall for Issy the gambler, but right now it isnt going to her. It is probably being used 15 times to buy government bonds in Portugal so the portuguese government can keep paying civil servants. If the great plan works out and the world doesn’t end Issy will make a killing. But right now she isnt getting any of it.
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12
June 20, 2012 at 23:41 -
All banks should be run like George Bailley (0:51:52 onwards) did in It’s A Wonderful Life
As to how that Congolese woman bought the share of the bank, why weren’t the EU money laundering directives used to check the bona fides of her dosh? When I sold my flat and wanted to invest part of the proceeds in a bond issued by the same bank that I had banked with for 15 years and had had the sale money paid into my current account by the buyer’s solicitors, I was called in for a “due diligence” interview “in branch” before they would process the bond. I started the interview by stating that as my new address wasn’t Tora Bora Caves, Afghanistan (it was around that time) and I liked pork pies, I wasn’t a terrorist and that as I got my medication free on prescription (an advantage of epilepsy) neither would I need to be a drugs smuggler, so money laundering was a false flag and they just wanted me to invest the balance of the flat sale with the bank and this was just a time-wasting sales pitch by them. “Would you like a cup of coffee?” was the weak reply from the on-commission “manager” before I bade her farewell and strode out. -
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June 21, 2012 at 00:26 -
Has anyone actually seen this Pound? Every month the figure of approximately 500 Euros shows upon my bank statement, it actually comes from Ireland , but that’s by the by. This is my State Pension. I then go and spend it with the aid of my bank card and my cheque book. But the interesting thing is that I never actually see a single centime of it. In fact I can’t remember the last time I had even a solitary coin in my pocket. So what happened to money? Where did it go? That Isabel person hasn’t got it all, has she?
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14
June 21, 2012 at 08:47 -
Regarding banks and government loans etc. as explained to me by a ‘wiseguy’:
If a guy owes you 10 grand, you got him by the balls
If a guy owes you 10 mil, HE’Ss got YOU by the balls -
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June 21, 2012 at 11:22 -
Ahem! İ let it go in a previous article but twice is too much……
İt is Middlesbrough my dear us Boro boys are a little sensitive as to the correct spelling.
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June 21, 2012 at 11:24
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17
June 21, 2012 at 11:34 -
Accepted mind you this Turkish keyboard means anything İ post is bereft of punctuation so who am İ to talk.
İll drop you a mail once İ return to gods country.
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