True or Not?

[GreyWing]

Just seen some guy on TV giving a decent interview.

In it he says that a decent amount of the credit crunch has started over the last year or 2 because the amount of time that money takes to move between banks has become almost instant.

What he was saying is that money used to dissapear for a day or 2 when moving from one account to another. Obviously it used to take 4 days to pay bills or transfer money.

Now it's down to about 1 -2 days at most, he says the banks have lost a lot of liquidity because of this. To end the credit crunch, he said all you need to do is move the time take back up to 4 days. He wasn't denying the sub prime mortgage problem but he says that banks used to use the missing days when the money was not in the accounts of the 2 people involved in the transaction, and lend it to people.

Now is this credible? I have been sat here trying to work out if this is plausible and can see both sides of it but still can't work out if he is smart or stupid.

[domainking]

yes its true
if they played the money market for those 2 days and if you take it they have say 500.000.000 for 2 days thats a lot of Cash to get % of in the stock market

[binny]

It could concievably have wiped out a floating, non-existant £1 billion or more that the banks were using. Interesting thought.

[denchomsky]

Well if that was the case would the government really go to the extreme measure of bailing the banks to the tune of 100's of millions of pounds if all they had to do was re-introduce the longer transfer period?

I doubt even this government are that stupid.....or are they?

[crabfoot]

It is a true thing, but it doesn't happen with all transactions.

When people pay by debit card, the money transfer is very quick. So pay £50 into your bookmaker's account to make a bet, and the cash is there in minutes.
You back a horse, it wins. You want to put the £400 you won back into your bank account. The bookie does this as a chargeback - immediately. Four days later, the money hits your account.

While we are on the subject, there are Merchant accounts for credit card payments which don't have charges. Most Merchants do not use them. To make this a worthwhile proposition, the bank does not pay out until 90 days after the transaction.
Which gives you an idea how long it take them to cover the usual 3.5%ish commission on a card payment.

It's a philosophical point. In the large view of things, it might affect the smaller banks more than the large ones, because they have to pay out instantly, but the clearing system means that their payments come in a day slower than for the clearing banks.

I was a day late paying a credit card last month - cost me £12. I wouldn't mind, but it's a Lloyds card paid from a Lloyds bank account - via online banking. They have my money, they take 3 days to move it from one place to the other, then they charge me for doing it slowly.

An analogy - imagine if your host said "your site will load 3 days after someone requests to see it".

And you want to know what MERCHANT is cockney rhyming slang for?

[pred]

not so sure
not doubting the theory but am doubting what the banks do

when you pay your credit card, even when paying cash over the counter they say allow 4 days to clear, they want them 4 days too as if you pay 3 days and a weekend the c*nts hit you with a charge

same with banks, if i pay a cheque in at barclays it takes 4 days to clear. now they really want 4 full working days, one good thing though is they let you draw on that cheque up to a grand straight away at barclays, so it may be things like that.

bottom line is it was a bubble waiting to burst. i didnt think it would bang this big but thing amazed me was it took this long. i was doing the buy to lets before most had heard of them back in 97 onwards, i got out in 2003 as it was getting ridiculous. a shithole studio flat in catford or something would cost 100k up, it was mental.
londons like that still now, pay though nose to live in a hovel and hideous area full of cars, freaks and god knows what else lol
i'm a londoner and thats how i see it!
i knew i lost out on a fair old bit getting out then but was happy to get out of london and all the landlord probs anyway.

[retired_member12]

Whether it takes 2 hours or 2 weeks, it is always in the coffers of one or other of the banks involved anyway, consisting or both validated deposits and/or pending transactions.
Liquidity is lost just like in any other business, when expenditure is greater than income. Reckless lending by almost every major bank, without any prospect of repayment or security, has dried up the river.
In the long run, it'll be higher interest rates paid by you, property devaluation suffered by you, and greater taxes taken from you, which will free up the system again. Yes, you the public will be paying for it all.
As for savers, they're already not getting much interest on their deposits, meaning the banks get to keep a greater proportion of the interest earned from their loans. What are the savers going to do about it? Nothing, there are no other banks to put their money into, something all the Governments can rely upon!
When these banks split into two, it won't be one of the new entity 'bad' banks, with their new unfamiliar, non-public trading names, that you'll be encouraged to borrow from, oh no! It'll be one of the traditional 'good' banks we all know so well already. Look how the confidence building 'con' exercise is starting already. Watch out for fully profitable announcements within about 18 months!

[retired_member6]

For that to be true, you'd have to find out how many countries have had the system newly introduced as sweden have had the instant transfer system in place for over a decade. The majority of this is due to the greed by bankers who a) lent to a lot of people based on silly figures who would never ever be able to pay back if things got bad or even stayed good and b) even more stupid bankers who sold these on as packaged debt and then gambled on whether they would go up or down as loss or profit. Lending at the top end of a boom, on never ending house prices that would fall bigger than anyone had thought possible because banks silenced or sacked the clever people speaking out. One of the idiots who did one sacking ended up running the FSA on behalf of the government. ******* *****.

Lastly, if the west come sout on top then it will all work out as things were getting rather expensive for everyone anyway as india and china were catching up and breaking the bank. the poorest of the world can't get rich quick at the expense of the west who aint paying over the odds for the normal stuff. So somethign had to readjust. And the solution aint rocket science either yet. Lend on sound criteria and get the money moving again, renationalise every bank for five years and tell them they can have their business back when the country, business and people get their liquidity back.

pS: One way to bring back overall confidence and stop the housing slide due to liquidity, is just build those house, more jobs, more houses equals more stability. Domain sales are booming, we're coming out of recession, a year and a half was long enough, we're on the up again but unless something is done now to change the bad ways of the last decade and stupidity of the bankers, as every from tom dick to harry knew they were lending wrong, then we're doomed to repeat.

But re thie holding of money, yes banks gambled on it and made money from it, however sub prime and passing of debt packages around the world that belonged to people under the poverty line started years before. They may have a lost a profitable line of business but not that large in England to cause a world wide recession. Not even solely based on the libor lending rate.

[retired_member6]

The system has to be allowed to unravel, the virus has to be contained and slowly vaccinated, there is no quick fix but governments are for too slow and are spending too much tax payers money. They don't want a quick fix otherwise they would have found, the virus is in now, people will lose jobs, sectors affected will fall others will rise, people will live again, but government are ignorant and have no real clue, the housing programme should have begun by now, social housing, labours dream program, paid for by tax credits to companies, making the housing market stable, renationalising banks at the same time or making sure they lend properly again, getting money moving to where it should.

Simple really. But one things for sure, unless the problem which started in the west, resolves in the west, the east aint finding their manufacturing picking up any time soon unless the global economy becomes more regional and start trading that way, based on security rather profit.

Alas the lack of food and oil prices didn't help either, some may come to the conclusion that the west wasn't going to allow their countries to be held to ransom by the arabs and russians anymore and until that settles and bars are in place for set prices forever more, then the crisis will be forced to continue, that is more closer to the truth than any instant transfer of money.

[GreyWing]

Originally Posted by DoubleTap

Whether it takes 2 hours or 2 weeks, it is always in the coffers of one or other of the banks involved anyway, consisting or both validated deposits and/or pending transactions.

I'm not so sure, because for those 2 days that the money is missing it does not have to exist in the real world.

It can appear off the balance sheets of banks client accounts. So that is billions and billions if not trillions of pounds floating around in no currency what so ever, in cyber land. Only when the money is instantly transferred does the money need to reappear. And when the money can't reappear, we have the credit crunch, The true credit crunch?

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Just for the record the guy wasn't denying the sub prime and housing markets weren't to blame. He is merely saying that this is a massive cause and it hit around the same time. What he also said the clearing system being reduced probably accelerated the sub prime crash.