Luckily I am not with this bank.

From what I have heard, it doesnt look like this if funding related at all. Given that the state now owns 87% of RBS, the solvency of the bank shouldnt be any more of an issue than the solvency of the state. (Yeh, I know).

It seems that more of an issue is the offshoring of the IT work. Apparently there have been lots of redundancies and the people who were let go were probably doing more than the board realised. Of course the result of this is a lot of people are now going to withdraw their money from the bank, no point in putting it there if you cant get it when you need it.

Uh huh.... check the interconnections.... specifically, to Spain.

http://online.wsj.com/article/SB10001424....

States Face Pressure on Pension Shortfalls

By MICHAEL CORKERY And MICHAEL RAPOPORT

New accounting rules are likely to show that public pension plans could face hundreds of billions of dollars in additional liabilities, putting new pressure on state and local governments to act.
The revamped rules expected to be approved Monday by an accounting-standards group will force governments to record pension costs sooner than they did before and disclose shortfalls more prominently. The changes also will force some public pension funds to calculate retirement benefits using more conservative assumptions.

The new rules could hit pension plans in states like Illinois and New Jersey particularly hard, and even raise borrowing costs for certain municipalities, analysts say. "This could be the event that incites a bigger policy response than what we've seen so far," says Matt Fabian, managing director at Municipal Market Advisors, a research firm.
The exact impact of the new rules by the Governmental Accounting Standards Board isn't clear. According to researchers at Boston College, pension liabilities at 126 state and municipal pension plans would jump by roughly $600 billion, or about 18%. The estimate is based on 2010 financial data and doesn't reflect the stock market's recent rebound or moves by many U.S. states to rein in pension costs.

Quote:

New accounting rules are likely to show that public pension plans could face hundreds of billions of dollars in additional liabilities

The Illinois legislature is planning on passing the buck by pushing the fat pension promises to local school districts. That means local school districts will probably ask for higher taxes again.

...yup, **** rolls downhill. The taxpayers are the last bagholders.

I predict that this taxpayer will evolve from a bag holder to a torch holder to a noose holder...

I'm surprised the US are still using an 8% pa investment return assumption for pensions funding.

In the UK assumptions have been coming down and down over the last few years, to 5% pa or lower.

Scottbeard,

But Americans can't handle the truth.

I spent some time this past weekend talking to two different people who qualify as "the big money". To say that they were pessimestic about our economic future would be an understatement. These were also two people who made their money in entirely different ways and who have different ways of looking at the world.

They in their own ways talked about crooked markets, corrupt governments and politicians, excessive debts, the usual stuff we talk about on these forums.

All it did was serve to confirm my pessimism.

Flap

Scotland is another place that would happily go full socialist. They are getting remarkably close to full independence, and full socialism. I would love to see that happen to be honest. The place would start looking like 90s Romania in no time. Idiots.

My state, Mississippi, claims their investment returns on their PERS last year was 25%. Yeah sure!!

Karl,

do you have some more information on the RBS situation?

I just cant see any reason why they would go for a systems problem to cover up a liquidity/solvency problem. Too many people would know about it if it were not true, making it next to impossible to cover up. If the bank were caught doing that, it would be game over for the bank.

I have no doubt though that RBS isnt the safest bank around. It was badly regulated and I cant see that it has managed to make itself that much safer recently since its taxpayer bailout given its huge lendings in Ireland. It seems to me though, that this particular incident really is a systems problem that has occurred.

If the facts change, I will change my mind of course.

I've been looking all over for technical details of exactly what this "upgrade" and "system problem" entailed, so far haven't found the specifics.

As a 25-year IT veteran with 17 of those years in the banking industry I can get a good idea of if they're BSing or not if I knew what they did.

All I can think of that would take more than a day or two to recover from, technically, is a situation where a change really went south and their backups were ****ed.

Another potential nstance that I once personally dealt with is when an interface partner accidentally shipped through their entire year of transactions (including old ones already posted) into our system. That took awhile to undo, we ended up having to restore the system to a checkpoint as that was easier than trying to back out all that crap.

Trades50 wrote..

The Illinois legislature is planning on passing the buck by pushing the fat pension promises to local school districts. That means local school districts will probably ask for higher taxes again.

That ain't going to happen. Just looked at my property tax bill again. The local school district gets 70% of the billed amount. Property tax is about 2% of what the assessor deems the fair market value. Many homes are still way over-assessed.

Anyway... Homeowners are already paying $6,000 per year property tax on a home supposedly worth $300,000 (and so on). So in that case, whatever the mortgage payment already is, ADD another $500 per month to that solely for property tax. Example: $250,000 30-year loan at 4.5%. Monthly payment is ~$1,270. Adding another $500 per month for property tax on that is NOT a small deal; that's an additional nearly 40% of the loan payment. ...And 70% of that property tax ALREADY goes to the local school district.

They're NOT going to be able to bill much more than they do already. I don't care TO WHOM the state thinks they'll be able to pass the buck. The money simply ISN'T there. The taxpayers DON'T have it. PERIOD.

Buy it now while your cash is still worth something or before they tax it away from you seems to be a good strategy at this point. Damn sure not gonna put it in the stock market!

Scottbeard wrote..

I'm surprised the US are still using an 8% pa investment return assumption for pensions funding.

If they used any less than that the public employee unions would go BERSERK. Just look at what they did in Madison, WI when Gov. Scott Walker and the (R)-controlled State Congress tried to pass a law requiring them to contribute more to their own pensions...



They took over the State Capitol building and rioted for weeks, and state legislators received death threats.
http://dailycaller.com/2012/05/26/johnso....

The FSA on parade...

Perhaps that's why Wells Fargo is off-shoring, they're looking for an excuse for a bank holiday.

double doggie, you know this and I know this, but raising hell isn't going to make this money appear. When they try to collect from the shrinking pool of money the rest of us have, there will be mobs there with clubs to club the protestors. They won't be police, who may be getting clubbed also, as they drink from the same tap, yours and mine.

I don't have any problems with government employees getting paid the median income, maybe plus 20% in some cases. The competent managers should be paid like middle management in private business, as that is their competition. But, they need to be held to the same standard. Plus, I am talking about necessary positions. Then again, there are degrees required.

My mother grew up in the sticks. She has told me her father had her stay at the schoolhouse locally, because they needed help with the younger student. The kids were in part, teaching the kids. You need an education degree to teach kids. My brother taught me the basics of algebra when I started taking it and I caught on, as I was confused. Had I waited for the teacher to convey what a kid 16 months older than I conveyed to me, I might have gotten lost. Then again, I might have had some special capacity to see and comprehend logical stuff the average Joe couldn't. I got on board with accounting the same way, finding a student that explained it to me and I never attended a lecture. What is on one side has to equal the other side, same as algebra.

The point is, they could find teachers for junior high and high school right out of their graduating population. The same is probably true of almost every subject taught in primary and secondary school. Who needs a degree? The same is true in a lot of government service. Cities with large police departments, meaning over 20 cops, could hire Barney Fife. If Barney showed he was competent to do some job, they might train him in how to handle a gun. They could get an idea of his temperment, meaning do you put a swat team guy on the ticket writing squad? Instead, these guys have to have degrees here as well.

For those over 50, the annual income of $30,000 a year is about $2 an hour when we were kids. I did the CPI adjustment in 2003 when I was trying to reconcile the stock market with the 1967 peak and the translation was about 5.7 to 1. We have probably gone up another compound 30% at a minimum. Minimum wage was either $1.25, $1.40 or $1.60 then. It was $1.60 when I was 14 and stayed there until 1974. At that time, $30K a year was on easy street for the middle class people. Today it is a small upgrade to minimum wage. It is also starting wage for a lot of teachers, who are required to have a degree. Forget student loans. Starting salary here is around $45,000, but I think you have to be recognized as a full time teacher, so the district gets around it. I think peak is around $70K. That is for 3/4 a year.

The point of this is the costs of these workers is hidden from view by the establishment. The retirement goodies for these people might tally 10 to 20 years of income, plus they have the current benefits in addition to their pay. The $60K a year the experienced teacher gets is more like $100K. This is in Texas. You probably double that in California and maybe some of the eastern and midwestern states where unions are stronger. People in China are working for $10K a year so it doesn't equate.

Back to the ending point of the post. I think the reason bond yields are so low is the returns on everything else are likely to be as low. Regardless of what Bennie is doing, the market is buying these bonds at 1.6% for 10 years. Bennie has done nothing but inflate asset prices in a market where the returns aren't going to materialize. Cash goes where it is liable. Karl hits a possibility on the head, that RBS might just be out of cash again. Bank run? Movement of money between banks has to be financed. I pull $100K out of Bank A and put it into Bank B, Bank A owes Bank B $100K. Bank B now owes me. But, B won't owe me if A can't make the transfer. This is the true reason for QE. It isn't for the economy, but for the insolvent banks. Bennie does another QE, it will be to relieve funding pressure on the financial system.

The bomb is getting bigger in Europe. I posted an article yesterday from the Mises site that, whether you agree with the Euro or not, it hits the real problem on the head. But, in the meantime, money is fleeing the broke countries for the few relatively solvent ones. TARGET2 balances in Germany are approaching $1 trillion, meaning the other CB's owe the Bundesbank $1 trillion. The banks can't clear their liabilities, which is why they are talking about $100 billion (Euros, not dollars). I don't believe Spain is the real bomb though. That distinction will belong to Italy or maybe France.

Trade between countries can only go into deficit to the point the trade is financed. A lot of TARGET2 is clearly trade dollars, but I suspect much of it is also investment into Germany. The EU is set up to equally ruin all economies, but the Euro is set up to attempt to do the reverse. The southern European countries, for the most part, didn't adjust as required. The bankers are involved in the mess in Spain and Ireland, maybe much more than the incompetence of their governments, as housing bubbles also need funding. No housing bubbles, these 2 countries are likely not as impaired as many other countries.

Karl wrote a book called Leverage. I haven't read it and I probably should. This isn't because I need to read the book to find out the information in it, but to recommend it to others. This is what is blowing up in Europe, as we are talking about debt service, which is a fraction of the debt. Debt service makes debt look affordable. Governments get away with debt, because they can get $1 to spend and only pay 5 cents. But, they never pay the debt back, because they would have to ask their constituents for $1.05 to get out of debt after a year. Nor do they pay the 5 cents. They borrow another $1 and spend 95 cents. This is the hidden tax. At some point, the capital improvements wear out and the debt is still there. So, they have twice as much debt against the new project. What else happens is their tax income becomes a divisor, not a multiple of their debt. The US, if it paid out everything it collected, would take 5 years to pay off their debt now. I think it is close to 20 years in Japan. I suspect the city where I live would need 5 years revenue.

This is all leverage of income. The same thing happened in housing. I can't say there isn't more income to leverage, but the inducement to get into debt for housing has diminished, though I doubt the speculation has ever ceased. America buys payments and governments around the world buy them. The problem with debt is when one takes it on, they spend it on something. When they try to liquidate it, they not only have to pay interest, but they have to spend that much less. So, if I borrow $5000 to spend this year and pay back next year, I must spend $10,000 less next year or make $10,000 more. Much of government spending is based on getting more next year, as it isn't in their nature to do the reversal as a private entity would. Even if I made $5000 more next year and paid off the debt, my spending would still be $5000 less. The alternative is to continue to maintain my spending and let the debt pile up against my future income.

I am going to post the mises post by Jesus Huerta de Soto again. It is worth a read, whether you believe in the Euro or not or believe in the gold standard. I deals heavily with the debate between Keynesian and Monetarist vs Austrian theories. de Soto says the Euro is like being on the gold standard, which is to control the actions of governments to the benefit of the people. The Euro has cut the spending game of a lot of governments off at the knees. It has blown up the banker/government game, which is why the problem is so difficult to solve. It was in fact set up to function in a tight fiscal range and many of the governments and bankers went right around this limitation. Limitations are always limitations, which is what they are suddenly finding out. Double entry banking and prolifigate government spending is what destroys sound money. There will never be sound cross border trade without gold or a currency that must have the books balanced.

http://mises.org/daily/6069/An-Austrian-....

Another fascinating read is Jacques Rueff of France, who wrote a series of essays encompassed in the following link. I think this is real important to understand. Breton Woods linked the dollar to gold on an international basis. This allowed the rest of the world to anchor their currencies to the dollar. WHAT DOES A BANKRUPT COUNTRY LINK ITS CURRENCY TO? De Soto brings up this point. The Krugmanites of the world are clueless as to what they are doing. I bring this up from time to time, but functioning currencies are more than paper and ink. Without a link, they cease to function as money.

http://library.mises.org/books/Jacques%2....

Bad news doesn't matter, right up until it does.

LizQ, naff backups are something I could easily believe. Seen such things happen many times in over 3 decades in the industry.

What's uglier is something I've seen more than once: "oh, we don't have enough time to both write the backup tapes and verify that they are readable, so we'll skip the latter." Typically, things go along quite nicely, until a set of tapes is called for, and discovered to be trash. Sometimes this doesn't occur until the guilty parties have moved on, and so are not subject to their just deserts. What's the likelihood that the last good backups are over a year old, requiring a crap-load of newer transactions to be run to get up to date?


Mann, I finally got around to reading LEVERAGE last week. I'll repeat what I told my wife: "You need to read this -- but make sure you've taken your blood pressure medication first!" If you don't get mad as hell several times during the course of reading the book, you are either

• a member of the bankster class (or a relative/dependent of same);
  
• a card-carrying member of the FSA;
  
• a "useful idiot" who is probably an unthinking ideologue, and most likely dead from the neck up.

Tully

Smaller fry, but but another one to add the heap. Maybe corrupted interbank transactions of some sort? I tend to agree with Lizardqueen's POV above. Now if Spanish and Italian banks start seizing up...

http://www.independent.ie/business/irish....

Quote:

NIB confirms technical problems with its systems

By Independent.ie reporters
Monday June 25 2012

NATIONAL Irish Bank (NIB) has become the latest bank to confirm it has been experiencing technical issue with its systems.

The bank has moved to assure customers that the cause of the problem has already been identified and back-up systems are in place.

Full service across all systems is now being re-established, it added today.

More news re the RBS/Ulster mess.:
http://www.independent.ie/national-news/....