The Banks.....like getting blood out a stone!!

[Adventurelife]

Hi Edward

9 out of 10 is probably a sweeping statement I agree. However, I have seen a lot of businesses and virtually all had agreed payment terms with customers that would give them cash flow issues and virtually all had rubbish collections systems for money that was owed.

I do not exclude myself from the above, when we are all chasing a deal we have a tendency to agree to things that may come back to bite us. I am sure we have all experienced the salesperson who agrees to stupid payment terms just to get the months figures in.

I am not defending banks in anyway, without outside regulation it was obvious that they would rebuild their own balance sheets asap and that business would suffer on the back of this. In some ways it is catch 22 , they need to lend to businesses to get the economy moving but if they do not get their balance sheets fixed asap , the government and hence us will not get our money back and the cuts that will have to be made will have to be worse.

Also the big question that no one seems to be asking is can the banks with stand the same hit again?

It is my opinion that European banks are massively over exposed to commercial property deals and residential property mortgages that are currently sitting on their balance sheets overvalued by 25-50%. This over value is being maintained by the low interest rates across Europe. If interests rise the property will be corrected and the banks will have major balance sheet issues again!

I really hope I am wrong on the above as we all need the banks and the economy to get back to health asap but I have a very bad feeling on the above.

I keep telling myself now is the time to invest and expand in order to be in a better situation when we get out of this. However, as each month passes I am starting to think it may be a very very long journey to get out of where we are.

Peter

 

[Edward]

Adventurelife; fully appreciate that you are not 'defending' the banks as you made clear. I share your apprehension about 'what if' it happens again soon. After all, the original Great Crash in the USA was in fact not caused by the stock market crash, it was caused by the subsequent failure to correct the subsequent recurrent crisis in the banking system.

(Interesting that it was the 'Depression' in the USA, whereas it was 'The Slump' in the UK - maybe because there was nor overall collapse of the UK banking system unlike in the USA?).

I also agree with you on European banks and residential assets. There are other grave governance crisis issues around Europe - we know about Greece, but maybe not so many are aware of the unfolding governance/financial crisis now enveloping their regional Cajas banks (imagine regional Scottish banks run by an assembly of TU leaders, Churchmen and local politicians along with the odd millionaire donor who seems inordinately successful at winning local authority contracts, and you get the general picture).

But meantime, back home, all of the UK’s Fiscal, Government and banking edifice has taken a bad, probably permanent, hit on its credibility. And I still think that the banks and the-then politicans need to be held to account on both the competency and the moral fronts. Adam Smith did a great job in detailing the 'Moral Sentiments' for sound business and society - part of his work that the more right-wing free-market evangelicals tend to ignore of course.

As for when-to-reinvest? Well, there are extraordinary signals of a sustained recovery under way in the prime (repeat prime) UK residential market. And in addition to the European banks, some UK banks are in hock to European residential. Interestingly, the Clydesdale and Yorkshire banks have brought out innovative 'rent and try before you buy' schemes on some of their Spanish holiday developments that they are, reportedly, keen to offload.

But Adventurelife if you give me some of your money I would invest it in established and provan companies who are now seriously developing in the green sustainable economy; there just must be huge growth potential there (otherwise we will be be dead anyway, and maybe in the not-quite-so-long-term)

 

[Adventurelife]

Edward

I have been following the Spanish situation closely, it may be the rolling stone that starts a landslide. I hope not but each month it looks more like it could.

I disagree on the UK prime residential market. No doubt their are signs of recovery but I think that is only happening because interest rates are being falsely manipulated so low. Inflation is rising, but the banks/Government are holding them low as they know the commercial/residential books of the banks are overvalued and will fall rapidly if the interest rates return to where they should be.

Of course I could be wrong on the above it is just my take on it.

Funny you should mention green companies as I have been sniffing around that sector as it obviously has long term potential. Downside is that I cannot find anything that is returning positive cash flow today, it is all about the future. I am at the stage where I only get involved in things I can have a input into and that pay back quickly as I am not sure I will be around for the future

 

[Edward]

Adventurelife... This better be my last post for now, but I need to do it because of a big mistake on my part about the property market - my earlier intended point was about the UK commercial market and specifically about the commercial market. You are very right about the issues around the residential market.

Mind you, I still worry about the wider relevance of your point about (well-intended) fiscal and monetary manipulation. The longer it goes on, the less we can know about what is really happening in the 'real' financial and real economy sectors.

The UK, sadly, is way behind on green technology and applications (one of the stupidist missed opportunities of the entire Blair/Brown Government). One field in Europe that has caught my eye is Dutch and, especially, German energy-effcient prefabricated house manufacturers. After some years of a sustained (no pun) track records they are now attracting UK bulk purchasers (primarely housing associations so far). That one needs to be a bit of a Euro play, but with the Germans I'm confident they will make sure that they continue to come our darn well from the present Euro debacles no matter what.