The BBC, squirrels, bunnies and taxes...

[phykell]

http://www.bbc.co.uk/blogs/thereporters/markeaston/2008/10/its_coming_the_crowd_murmurs.html

Look at entry #14 :D

[chumpychops]

It's a odd situation certainly. Only a few months ago, banks were posting huge quarterly profits, which implied they had actual, tangible, funds. Where have those funds gone now?

They're still there. Banks make money by making tiny profits on mahoosive figures. Think of how much money passes through an investment bank's account on a daily basis - they process literally trillions of pounds/dollars/euros every year. In that context a few billion profit is peanuts. But if you're business is based on making a few tenths of a percent profit on a deal then it doesnt take much to wipe that out.

If you borrow a billion quid at 5%, invest it at 5.1% for a year then you've made a million quid. Nice. But all it takes is your lenders rate to rise to 5.2% and you're a million quid down.

Banks get a bad press because of their huge profits, but, when you express those profits as a fraction of turnover, their margins are usually paper thin - hence the need to securitize their borrowings that lead to this whole mess.

[phykell]

The actual profit is still an absolute regardless of what "margin" it is. An investment bank might make a few percent on a typical deal but when their deals are measured in the tens of millions (and that's only a small bank), their margin, as an absolute, is a pretty penny indeed. Regarding the more traditional type of bank, Barclays, as an example, posted profits of £7bn only eight months ago. What you might be referring to, is the fact that as a result of the large profits they made, their share values jumped along wth many other banks at the time - this is the abstraction of money.

Lastly, scrutinizing their borrowing would be a case of shutting the stable door after the horse has left. It's the lending that was the root cause of the problem not the borrowing, and the fact that there were people who willingly borrowed from them.