Bailout, bailout, bailout...Restructuring

I'm sure I'm not the only person who got interested in the economy, particularly in these times. My interest in the economy and finance actually started before this mess. I was amongst those sucked into the stock bubble (i.e. those who thought stocks only rose). I called stock trading the rich man's lottery. Because honestly it was a gamble. How could one be sure that the stock they purchased for $10 will be $15 dollars at the close of the trading day? Lots of factors had to swing in one's favour for that to happen and it was someone's job to predict risers and fallers on the stock exchange so maybe it isn't a lottery. Ah call it what you want I still think it is the rich man's lottery. So I got sucked in before all this mess so you can imagine how pissed I am to realise my investment has been a loss. But everything happens for a reason right? And I guess the reason was that I became interested in the market.

So then financial institution after financial institution started collapsing. People were withdrawing money out of their accounts like there was no tomorrow. Ok maybe not like that but investors were worried about investing. Then the government decided to step in because the banks decided to stop lending or at least slow it down and because the banks were "too big to fail". The banks (institutional investors) had made more losses than anyone could have imagined. In England, the government had to step in to save Northern Rock after it failed to find a buyer for the bank. Then it bailed out the Royal Bank of Scotland (RBS) and Lloyds TSB and HBOS (Lloyds). Billions of pounds of tax payers money was used to bail out these banks. So it is only right the tax payer knows what is going on with these banks that were bailed out with its money and also whether the money used to bail out these banks will ever be returned to the tax payer (we know this never gets into the tax payer's account or pocket). An on-going debate in parliament for about a month was restructuring the financial system domestically and internationally. Brown argued that if this wasn't done internationally, then all banks will do is move where the rules are relaxed. Also, separating investment banking from retail/commercial banking was not the answer as both types of banks failed in the last year (Northern Rock and Lehman Brothers).

Then in a week, the good news comes. The EU Commission agrees to the restructuring of Northern Rock. The bank will now be split into a good bank and a bad bank. Just like the name, the good bank will have all the good assets of the bank i.e. the good loans and mortgages whilst he bad bank will have all the toxic assets such as the soured loans. The government will then find buyers for both banks. You may ask yourself, who will buy the bad bank? I would if I had money and for very very very cheap too. I don't think the government will have a strong negotiation position with regards to the price of the bad bank. The good bank, of course, will have a good price. More good news comes this week when the Commission further orders a shake-up of RBS and Lloyds. Basically, RBS will have to sell its lucrative insurance business including Direct Line, Churchill and Green Flag as well as 318 branches. Further, it will sell its NatWest brand in Scotland, RBS Insurance and Global Merchant Services, its card payment business. Lloyd on the other hand must sell 600 branches, TSB, its mortgage lender Cheltenham & Gloucester, and the Intelligent Finance online bank.

I totally agree with this shake up. Virgin and Tesco have been tipped to take advantage of all this restructuring. And why shouldn't they? Some analysts have said that Lloyds have had it easy compared to RBS. Really? All that money that was pumped into RBS? RBS definitely deserves this shake up. They can't eat their cake and have it. Others are worried that the big banks will be back in five years to buy them up. Everything is a cycle, ain't it?