The Lemon Fool

raybarrow wrote:Hi Folks,
Sunday morning, coffee, random thoughts.
I recently inherited a good sum of money and am currently spreading it around various accounts to keep balances around the £85K financial protection limit whilst I look at investing it. I know it's a nice problem to have but the thought occurred what do the rich/super rich do? £85K per bank wouldn't touch the surface of some people's fortunes. I know they would have all sorts of investments etc etc. Do 'private' banks not have the same limits or is there insurance available or what?
Ray

Money market funds is one answer.

dealtn wrote:

mc2fool wrote:

dealtn wrote:I'd be careful what you wish for if you are serious about threatening with Bank Directors with 10 years prison sentences that don't apply to other businesses.

Other businesses didn't need the government to stump up £137 billion.

You're talking about the future though.

Errr ... well, yes. I don't see any point in trying to prevent things that have already happened!

dealtn wrote:So go ahead let's have bank Directors personally liable to prison sentences during global recessions and financial crises. What type of person do you think will volunteer to be a Director of a Bank, compared to a Director in an alternative industry? What kind of decisions will they be making in good times (and bad)?

Conservative ones, that don't think they're masters of the universe, making conservative decisions that don't end up costing the government £137bn.

dealtn wrote:Do you think you would have had global successful business bringing in the huge percentage of tax revenues that financed much of the 1980s and 1990s expansion in Government spending?

Ah, I see. We need to carry on with the privatise the profits but socialise the losses model because they pay taxes...?

mc2fool wrote:

dealtn wrote:

mc2fool wrote:Other businesses didn't need the government to stump up £137 billion.

You're talking about the future though.

Errr ... well, yes. I don't see any point in trying to prevent things that have already happened!

dealtn wrote:So go ahead let's have bank Directors personally liable to prison sentences during global recessions and financial crises. What type of person do you think will volunteer to be a Director of a Bank, compared to a Director in an alternative industry? What kind of decisions will they be making in good times (and bad)?

Conservative ones, that don't think they're masters of the universe, making conservative decisions that don't end up costing the government £137bn.

dealtn wrote:Do you think you would have had global successful business bringing in the huge percentage of tax revenues that financed much of the 1980s and 1990s expansion in Government spending?

Ah, I see. We need to carry on with the privatise the profits but socialise the losses model because they pay taxes...?

We appear to have fundamentally different ideas on what caused the financial crisis, what its cost was, and what the probable outcomes would be with an incentive scheme for Directors as proposed by you. All of which is interesting, but not hugely relevant to this thread, sadly.

dealtn wrote:We appear to have fundamentally different ideas on what caused the financial crisis, what its cost was, and what the probable outcomes would be with an incentive scheme for Directors as proposed by you. All of which is interesting, but not hugely relevant to this thread, sadly.

Maybe we do have different ideas on what caused the financial crisis. I think it was man-made, by the banks and associated financial institutions and their risky practices. The cost came from FullFact. Maybe 10 years in prison is a little harsh; how about pillorying or public flogging instead?

As you say thought, OT ....

raybarrow wrote:Hi Folks,
Sunday morning, coffee, random thoughts.
I recently inherited a good sum of money and am currently spreading it around various accounts to keep balances around the £85K financial protection limit whilst I look at investing it. I know it's a nice problem to have but the thought occurred what do the rich/super rich do? £85K per bank wouldn't touch the surface of some people's fortunes. I know they would have all sorts of investments etc etc. Do 'private' banks not have the same limits or is there insurance available or what?
Ray

In a Zero-balance account. Fundamentally in stocks, bonds, land, gold, paintings/tangible. Write cheques and/or draw actual currency and each day their private bank (in return for a fee) liquidates assets to restore the negative account balance back to £0.

mc2fool wrote:

dealtn wrote:We appear to have fundamentally different ideas on what caused the financial crisis, what its cost was, and what the probable outcomes would be with an incentive scheme for Directors as proposed by you. All of which is interesting, but not hugely relevant to this thread, sadly.

Maybe we do have different ideas on what caused the financial crisis. I think it was man-made, by the banks and associated financial institutions and their risky practices. The cost came from FullFact. Maybe 10 years in prison is a little harsh; how about pillorying or public flogging instead?

As you say thought, OT ....

Your link says net cost was £27billion as at March 2019.

One idea is to park large amounts of cash in short-dated gilts and other AAA-rated money market instruments. Your counterparty is then the UK government rather than an institution.

Not that I worry about it that much, and it is a faff having a large number of accounts to keep track of, report for tax purposes, and so on. For much the same reason I don't play the game of jumping around between savings accounts to gain slightly more interest for a while.

Gits etc, interesting option I hadn't looked them.
About keeping records etc. When I retired at 56 Mrs B was till working and wanted to keep working. Being a Northerner I was always careful with money and considered it part of my 'retirement' job to get a reasonable return on our money. I did chase rates etc and enjoyed it, still do but of course not so vigorously as rate differences are not what they were. On the plus side the Tax free £1000 interest means reporting is also a lot less involved.
I always remember unsuccessfully trying to convince my mother in law that her Building Society Account at 1% was derisory and she could have earned many times that with no more risk. That money was her deceased husband's money and she wouldn't move it, difficult to argue with that. That was a good few years ago. Who would have thought we'd be looking at 1% as 'not bad at all'.
Ray

raybarrow wrote:Who would have thought we'd be looking at 1% as 'not bad at all'.
Ray

I know what you mean
but 1% is derisory and any money held at that rate is losing out owing to inflation
Like many here, I presume, I can remember double digit rate returns, so looking at 1% and often less, is very difficult to buy into

mc2fool wrote:

dealtn wrote:

mc2fool wrote:Other businesses didn't need the government to stump up £137 billion.

You're talking about the future though.

Errr ... well, yes. I don't see any point in trying to prevent things that have already happened!

dealtn wrote:So go ahead let's have bank Directors personally liable to prison sentences during global recessions and financial crises. What type of person do you think will volunteer to be a Director of a Bank, compared to a Director in an alternative industry? What kind of decisions will they be making in good times (and bad)?

Conservative ones, that don't think they're masters of the universe, making conservative decisions that don't end up costing the government £137bn.

dealtn wrote:Do you think you would have had global successful business bringing in the huge percentage of tax revenues that financed much of the 1980s and 1990s expansion in Government spending?

Ah, I see. We need to carry on with the privatise the profits but socialise the losses model because they pay taxes...?

Out of interest, where does your £137bn come from?

dealtn wrote:

mc2fool wrote:Maybe we do have different ideas on what caused the financial crisis. I think it was man-made, by the banks and associated financial institutions and their risky practices. The cost came from FullFact. Maybe 10 years in prison is a little harsh; how about pillorying or public flogging instead?
As you say thought, OT ....

Your link says net cost was £27billion as at March 2019.

Yup, the net after several years. It also says the govt. had to stump up £137 billion of public money to provide loans and capital to stabilise the banks at the time, of which it didn't know how much it'd get back or when, or if at all. Curiously, the £137bn is according to the OBR whereas FullFact also reports a £133bn figure from the NAO.

Spet0789 wrote:Out of interest, where does your £137bn come from?

See link above.

@raybarrow I've also had an inheritance 1-2 years ago. I can say what I've done.

First thing I did was upgraded my house by home improvements, next moving to a larger home. Do hold cash but once move completed do not intend holding any cash (might be too risky for some).

Balance in mixed investment funds, such VLS60, CGT. Less volatility in mixed funds but still tied to stockmarket therefore accept will lose money when you get a correction and/or bear market.

Cash interest of 0.5% now is ridiculous. A mixed portfolio *should* return 7% averaged over a long period, based on post ww2 returns.

dealtn wrote:

mc2fool wrote:Make requiring a bail out a criminal offence by the directors and top level executive management, minimum 10 years.

I'd be careful what you wish for if you are serious about threatening with Bank Directors with 10 years prison sentences that don't apply to other businesses. Think about the calibre of person who would accept such risks compared to alternative directorships.

A tangential comment on Politics Live today made me do a little research and lo and behold...

"Criminal liability for causing a financial institution to fail

This new criminal offence essentially enables regulators to prosecute senior managers for reckless misconduct that results in the failure of a financial institution. Under section 36 of the UK Financial Services (Banking Reform) Act 2013, it is a criminal offence for a senior manager in a financial institution to make a decision that causes that institution, or any other financial institution which is a member of the same group, to fail."
https://www.hoganlovells.com/en/publications/criminal-liability-for-bank-directors-a-look-at-the-united-kingdom-and-south-africa

More plain English details at the above link. Legislation itself at: https://www.legislation.gov.uk/ukpga/2013/33/section/36/enacted

Only a max of 7 years imprisonment but good enough I guess ... although I think I'd still prefer pillorying or public flogging!

mc2fool wrote:

dealtn wrote:

mc2fool wrote:Maybe we do have different ideas on what caused the financial crisis. I think it was man-made, by the banks and associated financial institutions and their risky practices. The cost came from FullFact. Maybe 10 years in prison is a little harsh; how about pillorying or public flogging instead?
As you say thought, OT ....

Your link says net cost was £27billion as at March 2019.

Yup, the net after several years. It also says the govt. had to stump up £137 billion of public money to provide loans and capital to stabilise the banks at the time, of which it didn't know how much it'd get back or when, or if at all. Curiously, the £137bn is according to the OBR whereas FullFact also reports a £133bn figure from the NAO.

This is not true either. In many cases the government knew exactly what it was getting immediately. For example in bailing out RBS the government acquired most of the shareholding of the bank and still retains a large stake. There were several other nationalisations, in other cases they acquired preference shares in the businesses. So the money was not all "spent"; there was a massive transfer of value from the shareholders to the government as JimSusan and many others of our friends know from bitter personal experience.

GS

mc2fool wrote:

dealtn wrote:

mc2fool wrote:Make requiring a bail out a criminal offence by the directors and top level executive management, minimum 10 years.

I'd be careful what you wish for if you are serious about threatening with Bank Directors with 10 years prison sentences that don't apply to other businesses. Think about the calibre of person who would accept such risks compared to alternative directorships.

A tangential comment on Politics Live today made me do a little research and lo and behold...

"Criminal liability for causing a financial institution to fail

This new criminal offence essentially enables regulators to prosecute senior managers for reckless misconduct that results in the failure of a financial institution. Under section 36 of the UK Financial Services (Banking Reform) Act 2013, it is a criminal offence for a senior manager in a financial institution to make a decision that causes that institution, or any other financial institution which is a member of the same group, to fail."
https://www.hoganlovells.com/en/publications/criminal-liability-for-bank-directors-a-look-at-the-united-kingdom-and-south-africa

More plain English details at the above link. Legislation itself at: https://www.legislation.gov.uk/ukpga/2013/33/section/36/enacted

Only a max of 7 years imprisonment but good enough I guess ... although I think I'd still prefer pillorying or public flogging!

As your link confirms it will be extremely difficult to get a successful prosecution, but there may be enough to temper the extremes of behaviours. It's hard to see who, and why, anyone could have been successfully prosecuted, let alone imprisoned, based on that legislation should it have existed in 2007/8.

raybarrow wrote: I know it's a nice problem to have but the thought occurred what do the rich/super rich do? £85K per bank wouldn't touch the surface of some people's fortunes.

Is their position in that respect any different to those of us who choose to invest?

I mean, we don't put all out eggs in one basket, and inevitably one or two eggs get broken. But the diversification means overall we're (hopefully) still up, or a least a single failure isn't a catastrophe.

Most - I'd guess all, to be honest - of the super rich will have their investments spread across multiple brokers - or more likely multiple direct equity holdings with the amounts they're likely investing, probably through multiple shell companies that they also own, offshore to give a degree of privacy.

Any cash balances they might have at any point in time will likely be a tiny fraction of their overall wealth, and likely only fleeting transfers of large amounts of money - which even then will still only be a fraction of their wealth.

You don't get super rich leaving your money in bank or savings accounts

A single bank failing will just be a minor nuisance, not a catastrophe for them.

In other words, I doubt the £85K protection barely even registers on their radar.

I suspect the biggest problem the super rich face is finding a financial advisor / account / etc who (1) they can trust not to run off with their wealth, and (2) who they can trust to manage their wealth competently.