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Dawn breaks on a socialised banking system

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Paul Mason | 07:40 UK time, Monday, 13 October 2008

OK we now have two major banking groups effectively nationalised: HBOS and RBS. I say effectively because it looks like they will both end up with a majority government stake.

The others are committed to raising capital and have to do it on a bigger scale than envisaged last Wednesday, largely because the FSA has - one is tempted to say "at last" - taken a precautionary view of the situation and forced them to recapitalise on a bigger than expected scale.

What does the taxpayer get for their money? These details are crucial because they will then reveal the answer to a more fundamental question: what happens to competition within the retail banking sector?

My thesis is, now, competition is effectively over. These banks were competing with each other at the margins - churning customers to get people onto more lucrative deals, encouraging credit-card swapping, bombarding us with ads designed to generate specific business etc.

Any state-backed bank that does this will be greeted with howls of protest by the others and some customers: for example one bank, if I remember rightly HBOS, was offering new customers better mortgage deals than existing ones etc.

So if there is no competition in the sector, then - as with gas - profits have to be regulated by the regulator. The banks will become utility like and unable to leverage their monopolistic position to reap a super-profit.

Hence we have a socialised banking system. (Incidentally, Paulson's problem is this: you can't easily do this when the institutions are effectively investment banks not commercial banks: how would you "socialise" an organisation bred for predatory M&A and financial speculation on a vast scale?).

The next question is what do we want to do with this part-socialised system: not a question most politicians are prepared for even thinking about. Who are the stakeholders in this question:
a) The new shareholders - that's mainly taxpayers for the big two plus Rock and B&B
b) The customers
c) The staff
d) Society which licenses them to operate and may set conditions for that privilege.

If you are, say the head of corporate social responsibility at a bank like RBS your main obsessions have been with responding to lobbyists on two of the great issues of our time: climate change and international development. I suggest that this will now lead to a reprioritisation to a third great issue of our time - ending rip-off banking.

Once the wing public realises these companies are being run in part in the public interest there will be an avalanche of campaigns: over small business interest rates, over rip off lending practices, over offshoring. The banks, in other words, will be required to show some social responsibility towards their actual customers.

In the past this might have taken months to emerge, but surveying the blogs and bulletin boards it is clear it may take just days,

When my grandfather's colliery was nationalised they stood there and watched the flag go up, got in the cage and hacked away at the same coal on the same wages etc. Only crazy radicals believed there ought to be some actual change in the way the pits were run. This is a very 21st century nationalisation: the first in the age of info-capitalism. I have no way of predicting what its social or economic outcome will be, because there is nothing in the manifestos, think tanks, books, speeches of any of the main parties to indicate what they might do.

The politicians and technocrats have a huge opportunity, rare in life, to shape something different from scratch. The more we learn about the way HBOS and RBS were run (I am working on a Money Programme Special on this) the more we realise both had unrealistic goals and pursued them with catastrophic means: namely expansion pursued by wholesale funding and unwise M&A.

The final caveat - and a big one. A lot of my economist contacts think it won't work: that the shares will carry on sliding and they will have to be nationalised. Not because of the inadequacy of the move but because they will now feel the full force of recession.

One final point: the FTSE100! It was already looking a bit wierd, dominated by mining companies and the like. Now four of the top ten blue chips have gone cap in hand to the state, what does that mean? My mind is boggling.

Comments

  • Comment number 1.

    Just a quick recap before deciding whether it is wise to invest in the banks......

    So, a widespread collapsing of confidence has occurred among many national and international banks. The lack of confidence stems from the fact that there are concerns and / or confusion over the quality of assets bought and sold on the wholesale money markets. Aside from some domestic sources of capital to substantiate these assets, it does somewhat appear that a major source of inflows (i.e. debt) has been coming from:
    1. Those countries and institutions willing to lend to us, so that we can buy their goods.
    2. Our 'efforts' in generating money from money (leveraging seemingly compounded on leveraging)

    At the crux of both of these was probably a self-reinforcing speculation: one that us, our Government and our supplier countries were happy to perpetuate. Let’s admit that almost all of us were deluded into thinking that the growth, stability and prosperity of the last 20-30 years was predicated on our shrewd management of (and fundamental belief in) the following macroeconomic principles:
    1. get someone else to make it for you if it costs them less to do so (the Ricardo theory of comparative advantage)
    2. borrowing money up to your eyeballs is a good thing

    The “lack of confidence” in the wholesale money markets is surely an unwinding of these two interlinked issues. Not only could there be panic by our creditors that we may struggle to pay them back (for monies already borrowed), but worse still they are also frightened that we may not buy as much next time round!

    In one form or other we have all either speculated on our economy ourselves (e.g. pushing house prices up and taking out huge loans), or endorsed the speculation of others on our behalf (e.g. private pensions). The high growth in house prices and stock market shares is about to collapse. Indeed then we could be witnessing a major collapse of that speculation.

    If it looks like a bubble, and bursts like a bubble, then IT IS a bubble.

    Is it wise to borrow even more money to try and prop up a speculative bubble? Isn’t that the same as throwing good money at bad? To restore confidence in the banking system is an attempt to restore confidence in the above predicates. Yet they are the conditions which created the mess we are now in. It’s clear then that the economic world view for the last few decades is at best a delusion, and at worst a lie!

  • Comment number 2.

    VOICE OF SIMPLICITY

    'FTSE up over night'. Does that mean the IMAGINARY MONEY that went AWOL, is now being re-instated? (The Emperor has a NEW SUIT?) Answers in small words please.

  • Comment number 3.

    As Polanyi said in The Great Transformation, "laissez-faire was planned, planning was not". This means that this ad hoc and spontaneous measure by the state is not nationalisation in any strict sense of the word, merely an emergency measure. The only way that it could turn into socialisation is if some party were to take this ad hoc-ness and turn it into a deliberate political campaign, as did Labour with the pits in 1948. There is no sign of that and indeed the very nature of this "nationalisation" actually demonstrates how much New Labour is in hock and thrall to the neo-liberal agenda. And there lies the root of this problem. It is unlikely to cure the symptoms which have appeared over the past few weeks because it does not address the root of the problem, i.e. the financialisation of capital valorisation which the world economy has undergone since the mid-1970s. we are still very firmly in Thatcher's world, whatever the percentage of state ownership of RBS (whose share price has fallen further this morning I note) and until that ends, the crisis won't go away. I have said it before but here goes anyway, we are now well on the way to a kondtratieffian downturn which will last for at least another 10 years, it's just a question of how soft we can make the landing.

  • Comment number 4.

    As complex problemistic structures in cybernetics both banks and animal species can be assessed using the same datums.

    In the natural order of things should the present finanial system been allowed to go extinct?

    The steps taken have not stabilised the system, they have just deferred it for the moment. Now when it does collapse it will be massive and catastrophic.

    A knee jerk reaction which will end up kicking us all in the ass.

    What should have happened was a managed transistion to a more appropriate system.

  • Comment number 5.

    CON-PETITIVE BANKING

    Paul writes of the banks competing - implicitly in our interest.

    From the margins, I was under the impression that they competed in stealth, deviousness, spin, cunning etc.
    AH! Now I can see: their annexation by government is a natural fusion.

    Corruption rules, and money talks lies - OK?

  • Comment number 6.

    thanks for now nicking other peoples ideas ...you at the bbc have done nothing but describe this ...and then your other best offering is a solopsist in the form of a Mr Taleb..whose great pearl of wisdom is
    "that when I wake up in the morning all I knows is ..that I dont know

    ....Great !! really helpful!!!

    Ive been treated by the bbc as some sort of lunatic when I ve tried to explain this where you guys have failed . This crisis comes out of the inevitable contradiction riunning through capitalism; in that "competition "inevitably sets up a cycle of change which means that finance capital ends up having to service both production and consumption .Its what Marx called the "insoluble contradiction of Capital"

    What really bugs me is the way that you economist and journailsts have nothing really profound or original to say....you ve offered us "description "not "explanation" and lunatics rather than reason.

    What we are now seeing is the "organic emergence of socialism...forget what twaddle politicians have rattling around in their heads...they are merely reactive .
    What has happened is the death of an idea and a practice, ... that the free liberal market can sustain us . ...that the world works in concert with their laws .

    Well ITS just told us all that it DOESNT .

    The mantra of competition is over ..and the quicker we get to see the bigger picture the less painful it will be .

    Politicians around the world .were WRONG ...AND SOME OF US KNEW IT ..HENCE WHY " WE "PREDICTED IT AND "YOU and THEY" DIDNT .

    Of course no doubt you'll ignore this ...because like middle class people do they just smile politely and ignore contradiction.

    Or perhaps you're going to jump on the bandwagon of the emerging truth and write your book telling us ...oh of course I knew this all along ...but you know how it is... BBC an all.

    I dare you to get in touch and have the conversation we all should of been having ages ago!

  • Comment number 7.

    One of the many problems today is the inherent contradiction between reinfalting the housing bubble that created the problem and the stated desire to maintain lending of mortgages at 2007 levels.

    The idiots don't seem to have grasped the fundamentals if they truly believe this will happen.

    House prices must fall, and must continue to fall until the average house price is 3 to 3.5 times average income in every area of the UK.

    The statements behind the LloydsTSB / HBOS merger directly contradicts this necessity. We must hope that the wise heads who actually run the newly merged bank will prevail against the fools at the Treasury, FSA and Bank of England. I hope that the meaning has been lost in translation and we have been given the wrong information.

  • Comment number 8.

    Who actually thinks that the government can do a good job of running banks?

    I think that businesses run badly go bust, but governments run badly simply charge more tax. However, banks seem to have made the switch form the former to the latter.

    Furthermore, the two options for running "our" new banks are not good:

    1) The government can allow the banks to manage themselves, but this will probably mean that they keep up the reckless lending knowing that the taxpayer is now providing a safety net. E.g. NRock first took government cash in Sept07 but was still giving 125% mortgages in Feb08!

    2) The government actually has a go at running the banks itself. This is likely to be disastrous as the government does not have a good track record of managing anything. E.g. the bankers may renegotiate salaries and end up doing less work for more money like the NHS doctors, or think failed NHS IT systems.

    The worrying thing is that the government seem to be trying to go back to 2007 lending, which is basically what got us into this problem. Their cunning plan is probably to try and re-inflate the debt bubble that gave false prosperity so that it looks like Gordon is a hero going into the next General Election ... but then the whole country will probably have so much debt we will be nationally bankrupt.

    (Alternatively, they could subcontract the running of the banks to the usual sort of company, which then puts all the bad debt on a computer hard drive and loses it ;-)

  • Comment number 9.

    I think it would be useful to look at the French banking system to see what a semi-socialised banking system might look like.

    Mainstream banks must become completely stable and utterly boring businesses (again) ala utilities.

    Longer term, web based 'social lending' sites e..g .Zopa, look like an interesting model for reducing the friction of business by cutting out the middleman ... a conventional bank.

    PS. At the weekend whilst out and about, I saw a faint legend on the wall of a sober building, which obviously had been a business but was now housing.

    The legend said 'National Provincal Bank', and I thought it was a great shame ... that
    local banks had disappeared ... these people really knew their customers and rarely loaned 'bad' money .

  • Comment number 10.

  • Comment number 11.

    As with most economic analysis Marx was of course right about all of this. He called it, in Grundrisse I think, "the objective socialisation of the means of production and exchange." Just a question now of whether his political predictions which emerge from the inevitable immiseration of large parts of the population also prove true.

  • Comment number 12.

    You are over-estimating the amount of 'change' the 'corporate animal' can make.

    A corporation is still a corporation. It might have some state share-holding, but if it looks, walks and quacks like a corporation, then...

    The idea that they will embrace corporate social responsibility, drop interest rates for all small businesses, and stop 'penalty charges' for overdrafts overnight is, I feel, fanciful and rather driven by wishful thinking.

    But I've been wrong before..

  • Comment number 13.

    the price in the share market reflects bets on the perception of future growth ie profit. Clearly if you are heading into a recession maybe depression [the difference is in the number of years it lasts] one would expect some sectors to generate less profit. If those declining sectors are the majority in any index then that index will go down. So its a no brainer that the shares will fall with relief rallies [or bull traps as they call them] along the way. Don't get hung up with the stock market because nothing will change the no growth story there in the short/medium term.

    the charts to look are the bond charts like march short stirling which is related to libor. When the uptrend in that is broken then one might say the story has moved on in the credit market. Its unlikely today because the usa bond markets are closed for columbus day.

    yes what the banks were doing was mad. The politicians still worshipped at the altar perhaps because they remember the 1960's model of Quaker banking when the local bank manager knew your name and your kids names and was feared. The political lawyer class didn't understand that modern banks operated on the Gecko model.

    one significant thing perhaps overlooked is the relaxation of the mark to market rules [that precipitated the whole thing] in the usa. the mark to market rules were brought into to stop another Enron. Yet they were instrumental in provoking this situation.

    The way to hell is paved with good intentions?

  • Comment number 14.

    6. At 09:55am on 13 Oct 2008, tiptopticketyboo wrote:

    I agree with the above person's comments, however out of all the so called experts who have been reporting on the `credit crunch', Paul Mason is one of the few who has attempted to explain what is happening, and what actions could be taken to at least offer the opportunity to provide sustainable change for the benefit of all, rather than the greedy few who have caused this disaster.

    The Chief Executive of the RBS has resigned, however it appears he will be walking away with a massive pension, which will be paid for by the tax payer.

    You will not hear the mega rich saying this is wrong, as it does not affect them anyway, because they avoid paying their share of the taxes through loopholes devised by the financial experts they employ.

    The RBS Chief Executive should have been asked to stay on, and told he would be working for the minimum wage for the next year at least, and the salary he would have received would be returned to the treasury, as by doing this at least some form of accountability would have taken place for the risk he took with not only the banks investors money, but also the future of a once great bank.

    This should be done with every person who played their part in causing the misery this country, and the wider world will face for years to come.

    On further measure Mr Brown and Mr Darling should also have announced today is that when the banks start making money, whenever that may be, the share of the bank taxpayer owns will be retained, thus avoiding giving these self-interested Friedmanian Free Market Capitalists' the chance to ruin them again.

    What has happened to the banks may just be the start, and it shows that such a crucial service to the country should not be left to the gluttony of the Freemarket.

    Time to take public control back of the parts of other services which are now in the Private Sector such as education, health, prisons etc, where profit is the only objective.




  • Comment number 15.

    Gosh someone else using the "M" word .

    But then thetruth will out .Im sorry for my earlier "aassault"on you Paul..nothing personal...its just been so frustrating hearing so much Bull over the last few weeks ,..months ....years....I ve just had enough of it ....

    I went to University with people who are now trying to tell us what things are and who ssadly control our lives .The talked pish then and they're talking even greater amounts of it now .
    What is going to emerge now is a whole new thinking on what economics and politics is . The cartesian disconnect days are over ...trouble is this lot are going to try and put the Genie back in the bottle , to cover their tracks ...keep them in suits and
    make sure that we pay for it.

    Anyone notice that Gordon has already gone back to ..."ending the cycle of boom and bust"?....he did it in America last week . ...Once an idealist ...always an idealist.....

    Kick them all out bankers the lot...turn the houses of Parliament into a play nursery.......ohhh I forgot its one already.
    .

  • Comment number 16.

    Just a couple of small question from a poorly educated pensioner: Won't the newly 'nationalised' banks stlll have to compete with HSBC and Barclays, which will not be subject to the same conditions? Isn't that likely to result in HSBC and Barclays outcompeting the banks that we taxpayers have been forced to 'invest' in?

  • Comment number 17.

    At last, Paul - someone talking about root-and-branch reform:

    'The politicians and technocrats have a huge opportunity, rare in life, to shape something different from scratch.'

    I apologise for repeating wholesale what I put into one of Peston's blogs but here it is:


    Yes, there has to be a global solution but in light of climate change there must also be a fundamental rethink of a financial structure that seeks to stimulate infinite growth in a finite system.

    I recommend reading 'The Ecology of Money' by Richard Douthwaite. Here are a few lines from the book's final page:

    '[In 1994] two economists, FX Browne and JPC Fell, who then worked for the Central Bank of Ireland but later moved to the European Central Bank...suggested that central banks were losing their power to control the money supply. Professor Kevin Dowd of Nottingham University Business School agrees. He points out that banks are already providing a smaller proportion of all loans as a result of 'securitization' - the sale of a bank's loans to non-bank investors who are not subject to reserve requirements. This, and the development of electronic cash, means that more and more money can be placed in circulation on a smaller and smaller reserve base. Dowd writes, "As base money becomes less significant, it will gradually lose its effectiveness as a channel through which the central bank can influence broader money supply."

    In other words, our current money system is coming to the end of its useful life. Its radical reform has become necessary as well as desirable. Only a widespread debate on the issues, by a well-informed public, will ensure that when changes are made they are on the right lines.'

    This was written in 1999. And the time for that debate is now.

    Especially if we (part) own the bloody things!

  • Comment number 18.

    How about this for a prediction of possible government thinking:

    The major house builders are in hoc to the (government controlled ) banks to the extent that they are now effectively state owned.

    The government can effectively restart the stalled house construction industry. It can get it to build cost effective low emission social housing.

    The new housing can be funded by state backed mortgage or shared equity schemes.

    The overall desired effect will be more affordable housing, less unemployment and a gradual deflation in the current house price bubble. A side effect would be general economic stimulus.

    Of course we followed a similar idea in "homes for heroes" after WW2 - Germany and Japan rebuilt industry instead. The rest is history.

  • Comment number 19.

    Why on earth should a politician-run bank be expected to be socially responsible?
    Have you looked at our rulers’ track record on social, or any other, responsibilty?
    As an example, lets look at “Lord” Mandelson – slithering back from Brussels on his way to the British State nipple and dragging behind him over one million “preferentially-taxed” pounds in unearned future wages and pension payments.
    And this is the man in charge of the “social responsibilty” you so look forward to. Laughable, it it weren’t all so dishonourable.

  • Comment number 20.

    #17 Bhuddaman

    A very good post, backed up with good references to publications and eminent academics, about the fallacy of the FRB system.

    This subject has been directly put to Paul many times on previous blogs by myself and others.....but, alas, all we get is silence.

    I guess we will just have to wait until the whole system comes crashing around our ears before we ever get any meaningful debate on monetary reform. But by then it will be too late to propose any useful alternative.

    CAPITALISM WILL EAT ITSELF!

  • Comment number 21.

    #17 Bhuddaman and #20 BankRSlicker

    I agree wholeheartedly. I also think that it is not just the money system that requires urgent reform.

    I can't help feeling that we need much less competition and far more cooperation. Sadly, I don't see any prospect of that happening.

    Meanwhile, I'll carry on keeping my money with mutual organisations and have to just hope the banks cut their own throats, eventually. I suspect that will take a very long time, as 'our' govts (of whatever colour) will continue to mortgage all our futures in order to maintain the status quo.

    Oh well, the sooner we make ourselves extinct, the sooner the planet can recover from our excesses.

  • Comment number 22.

    # Thanks Buddhaman

    This is what I have been trying to say in posts over the last few days.

    "Yes, there has to be a global solution but in light of climate change there must also be a fundamental rethink of a financial structure that seeks to stimulate infinite growth in a finite system."

    Please though get rid of the climate change. Replace it with collapse of ecological life support systems.

    When I suggested to a United Nations Environment and Development report in 2002 commissioned by the UK Gov that climate change and Africa were priorities which became the 2005 G8 agenda, I was only using climate change as an example of the greater planetary ecological imperative.

    Of course when I justified this with the risk assessment climate change was a greater threat than terrorism. Politicians and the media shot off on some mad dash without checking the source.

    I was introducing a political audience to the environmental situation and used climate change as an example. Not the be all and end all of the situation.

    Having been one of the scientists involved in setting up the new generation of climate change models:

    Collapse of ecological planetary systems will kill us before the climate change 'only' scenario will.

    4 years before the ecological systems crashes now?

    This madness of bailing out a financial system, that should have been allowed to die a death, will only stimulate insane growth and consumption, destabilising the ecological system.

    Ensuring the situation will be on us quicker than before. Borrowing off Peter to pay Paul

  • Comment number 23.

    I don't think the UK retail banking system was ever that competitive. Apart from some silly mortgage offers the main form of product differentiation was in the form of all those irritating and wasteful ads.

    If this crisis means we lose Halifax' Howard and the rest of the god-awful characters that Banks and their Ad Agencies have forced upon us it will have been (almost) worth it.

  • Comment number 24.

    If I understand what is happening – which I doubt because I lack the intellectual bandwidth that others enjoy - there are a number of factor in play (i) we have a lot of people who are holding shares in all kinds of, what we used to call dodgy, deals and this group is having to sell at any price. Then we have (ii) groups of people who actually only make their money if shares are actually traded, (no complaints here then) and finally (iii) we have a lot of folk who have persuaded governments to lend them billions of taxpayers’ money which they know can only be made available by the governments if they, in turn, borrow the money by issuing bonds. The more bonds that are issued, the more attractive they must be made to investors, which translates to higher rates of return.
    I bow to no one when it comes to public service. My family have been in banking, property, the Church and politics ever since my ancestors, the Normans, improved on the business model of their ancestors The Vikings – (strange that so few think of the connection between Norsemen and Normans) when we popped over and helped Harold and his Saxons with a bit of land redistribution. We can then show a line – arrow straight – through slavery to land grabs in around the world, and some of my cousins on the “trade side” of the family joined in the East India Company, had industrial plants in Bhopal and lately have shown we do not see vulnerable people we rather regard them as opportunities – for example charging the most vulnerable more for their gas and fuel because they are voiceless and compliant and they need to be taught to be less extravagant – eating and keeping warm! Imagine.
    So, I have a dichotomy – now I have access to taxpayer’s bounty – on terms negotiated by folk I know well and, some of these people now think of themselves as shareholders and having an influence on policy. Many in the media want to see us bankers punished – nothing new in that of course, but worse they want to see banks run for the good of the economy and the country. That is truly dangerous and an erosion of centuries old freedoms. The question is, do I sit on both my shares in, and the loans I made to, the nice little businesses down the road that make useful products whilst giving me four pence half penny a year return or do I dump those shares, screw up the little businesses and move quickly into – wait for it, Pike – government bonds?
    And don’t, by the way, tell me that I have learned nothing from the past. I know that before an election people will say they want more taxes to pay for better health, education and transport but where are these do-gooders when the ballot boxes open? I will tell you they are busy scrawling their insignificant little “X’s” next to the blokes name that promised most whilst cutting taxes. Best then, on balance, to sit a while, be humble and then resume my ancient habits when attention is turned elsewhere as it will; in fact our PR team - Bernays and Shyster Co - already have it planned.
    Not long ago I formed, discretely of course, a “smart mob” that gyrated around the market forcing the management of successful but boring Building Societies, one at a time until momentum built, to ditch their mutual status so that I could, in the name of shareholders, pick up a few quid’s worth of newly issued shares in series of cash and grab exercises. When asked today; “where are those conversions” – my answer is a clear and strong one, “they are the victims of their own greed and the market”. Where is my bonus?

  • Comment number 25.

    #22

    Point taken and well made - especially in light of the report last week warning that 25% of all mammal species are threatened with extinction.

    Why don't those in power seem to get it?

  • Comment number 26.

    I'm sorry for the repetition everyone.....but the resignations of Sir Fred Goodwin, Andy Hornby, Lord Stevenson and Tom McKillop earlier today just reminded me of a line from Jeremy Paxman on Newsnight the other week.
    'You can't call yourself a 'master of the universe' when your walking out (of your office) with the contents of your desk in a cardboard box!'.

  • Comment number 27.

    If we're going to nationalise the system, do it right, replace the bankers with accountants, then you won't have type A personality "city boys" running wild, (and making lots of money) but you'll have boring grey people, doting the i's and crossing the t's and make a small stable profit. No more boom, no more bust.

    Of course this will never happen, we need the city boys to make us "competitive" on the global stage, etc. Still I reckon banking would work better as a utility without leverage.

    As for today's action, markets being up more than 10% is not a cause for celebration, it's a mockery, casino capitalism, simply not sustainable.

    So who are you pointing the finger at tonight?

  • Comment number 28.

    " The more we learn about the way HBOS and RBS were run (I am working on a Money Programme Special on this) ..."

    I would be grateful if you would explore the role of non-executive directors in what has happened. The 2003 Higgs Report made it clear that non-execs should oversee the accuracy of a company's financial information and should ensure that appropriate risk management procedures were in place. Since this has manifestly not happened in the banks, where does this leave the role and function of non-execs?

  • Comment number 29.

    China's Exchange Rate.

    Is one of the root causes of this crisis the fact that China does not have a floating exchange rate? If it had; inflation would not have been kept artificially low for so long, interest rates would have been higher and the bubble of over inflated house prices would have been smaller.

  • Comment number 30.

    Can we really look forward to an era when the banks actually listen or even care about their customers? Banks have consistantly been amongst the worst offenders when it comes to Public Realation. The standard reply to any complaint was, " if you don't like it, sod off" knowing full well that each institution was as bad as each other. Banks may be a necessary evil but responsibility is paramount to customers as well as investors.

  • Comment number 31.

    There can be little surprise at the governments announcement..and its move to become major shareholder in the biggest banking groups of the UK.

    Its was the only option left open to it byt those who have pursued their greedy path to wealth and riches. If we , as the taxpayer, have to bail out their failing institutuions, then better the life as an activist shareholder than that of a compliant and horsewhipped customer.

    I am tired of being bled dry by a banking system that is a necessity of everyday life!!

    I don't believe we are 'socialising' banks but are making an adjustment to a system that has grown excessive and profligate at the expense of effective market regualtion.

    It is right that government should seek a return to lending in order to support the econaomy and try to protect individual borrowers/savers. Though I wonder whether this is action is more designed to cover their embarassment.

    Having encouraged many people to pursue home ownership as a path to wealth and social mobility, they are now reaping the harvest of this policy.

    Not enough houses are being built for rent. Local Authorities have had this part of their staututory responsibility passed to Housing associations. Lack of investment and inflated land values of the last decade have made it impossible to create the number of new homes need by an expanding society.

    Such a building programme, alongside a return to wider social housing provision, will have far more positive effect on the future economy and peoples well being than a return to morgage lending at the same levels as 2007 or previous years.

    In turn, it will lessen the ability of homeowners to borrow against 'virtual equity' of homes which have risen to unsustainable values. We need a return to realistic markets, where prudence and incomes can support peoples life choices.

    As a parting shot, can we now expect the government will insist on banks charging their customers the true cost of administering returned payments etc. After all it is those that are least able to afford it that suffer the highest cost and have been contributing extensively to banks past profitability.

    ..or was this a way of the banks passing the burden of claims for penalty charges back to the taxpayer??!!

  • Comment number 32.

    Paul, you miss the bigger story. Who leaked what to whom and when and why.

  • Comment number 33.

    During Thatchers sell off of our utilities to the Captains of industry I did not receive any shares for something that already belonged to the public. The reason given for the sell off was increased competition. What good has it done us? Now that the present conservative government has Nationalised the banks whilst underfunding our Armed Forces, Local Government and Public Services who is going to gain. apart from the wealthy sacrificial lambs that have resigned their very lucrative jobs today. I have said it before and here we go again We have not had a socialist government in this country for decades and this one is showing its true colours by supporting a failed industry that has tied its apron strings to the American financial model.
    Sean, Labour not NOO LABOR.

  • Comment number 34.


    Sir Fred Goodwin

    December 2002 - Forbes "Businessman of the Year"" by the global edition, which described him as an original thinker with a fast-forward frame of mind who had transformed RBS from a nonentity into a global name.

    April 2003 - No.1 in Scotland on Sunday’s Power 100

    December 2003 - "European Banker of the Year" in 2003

    June 2004 - Knighted in the Queen's 2004 Birthday Honours list for his services to banking.

    I wonder if he willl loose is knighthood like Mugabe

  • Comment number 35.

    #25

    Thanks Buddhaman

    If you hadn't picked this up earlier. This is the cause of the climate change obsession.

    http://www.mp2.worldfriend.com/sustainable_development_forum.htm

    I was one of the scientists at a conference to set up new generation of UK climate models at DTI London 13th Dec 2002. We were guarded by gun toting anti terror police. A bizarre juxataposition when we were supposed to be the 'masters of the universe' there to save the Earth.

    (Don't worry I have an ironic and very satirical humour)

    Me and my girlfrind had just had still born twins (that week) and it was the build up to the war in Iraq. I was 'emotionally disturbed' at the thought of two 'world leaders', I question that second word, who wanted to drop bombs on more children, kill them and create more grieving parents.

    When I visted my girlfriend in hospital I took some roses. When she came out she dried the petals. They dried beautiful and maroon. She couldn't understand as she thought they would wrinkle and turn brown.

    I said the spirit of the twins were in them. We took them to a hill in the mid Cheshire ridge near a iron age fort ruin, above a wood that had been there since the ice age and she scattered the petals on the winds.

    When I got back I wrote this and put it in a UN report commissioned by the UK Gov.

    http://www.mp2.worldfriend.com/sustainable_development_forum.htm

    The rest was history. I suppose I had kudos. DEFRA had recommended me to Caninet Office to advise them. I was a climate change group member. I had worked on the UK submission to the World Summit on Sustaiable Development etc etc .

    There are good people within DEFRA Treasury etc that respect my work. It is far too leading edge for Newsnight and mainstream media etc though. Newsnight doesn't want to go that far ahead of the curve.

    So my work was taken up. The Government's Chief Scientist Sir David King gave the terrorism/ climate change risk assesment global publicity.

    The agenda of the 2005 G8 was climate change and Africa.

    Al Gore cited my work ( British Government) as part of his Nobel. The UK climate models were part of the other UNEP IPCC Nobel.

    I was probably the only person on the planet who contributed to two Nobel prizes in one week last year.

    The best was when the 2005 G8 happened Blair and Bush discussed my anti-Iraq war agenda and they never even realised it.

    Masters of the Universe?

    'Master of Puppets'. more like.
    Try googling that and see were it takes you.

  • Comment number 36.

    Hopefully this will mean an end to the racket whereby it costs £37 for same day Euro transfer between RBS current accounts in Scotland and accounts held with the RBS part-owned subsidiary ABN-AMRO in The Netherlands.

    I have been given no satisfactory answer as to why this internal 'RBS' account transfer:
    1) costs £37
    for same-day transfer;
    2) costs £10 for the 'cheaper' "RoyWorld
    Economy" transfer;
    3) took the last time I used "RoyWorld" 21working days instead of "1 day"as promised after I'd reported RBS to Nellie Kroes the EU's Competition Commissioner?

    Kroes had replied and passed my complaint to her Irish colleague who handles banking matters in
    the Commission. The letter back then mentioned this UK scheme
    called 'CHAPS' to which RBS is a
    party:
    http://www.apacs.org.uk/payment_options/chaps.html

    I had pointed out that this UK racketeering meant that transfer
    of funds between Scotland and Holland was quicker in the C18th
    and that the Dutch invented the
    Giro. But apparently following a merger of RBS with NatWest all
    Scottish branches now have to fax such transactions through
    Birmingham and an outsourcing company which adds to delays
    and massively increases costs.

  • Comment number 37.

    These banks are being 'nationalised' not 'internationalised'.

    As a trading nation, you are only as 'connected' to other nations as you wish to be.

    Nobody forced UK based banks to buy these 'toxic' financial instruments from the American banks.

    It is convienent for UK politicians to blame 'world-wide' forces for our troubles but the asymetrical reward structures at these UK banks, which were aligned with the politicians ambitions to have a 'feel-good' economy, have bought this to pass.

    Now we have to salvage something and the politicians will hope that the general public have short memories.

    As Paul points out, there are hosts of issues that arise from this nationalisation, not the least, ensuring 'fair' competition amongst these banks.

  • Comment number 38.


    Here's one condition the Government should insist on.

    http://www.taxresearch.org.uk/Blog/2008/10/10/the-banks-must-be-forced-to-stop-their-tax-abuse/

    People are asking me a simple question at the moment: why are we bailing out the banks when ti seems that the banks have done the best the can to undermine Britain?
    Those asking the question are right. The banks have done their utmost to undermine the UK’s tax revenues. All the people who were subject to the 2007 tax amnesty covering Jersey, Guernsey and the Isle of Man were customers of the five main Hight Street banks. Over 60,000 admitted they had tax to pay. HMRC thinks the true number may be over 150,000. Not one of these banks had done anything to bring the tax evaders actions to the attention of money laundering authorities anywhere, an action I have always considered illegal on their part.
    These banks (and Barclays and Lloyds in particular) are massive players in the ’structured finance’ market, which is blatant and aggressive tax avoidance to which they dedicate billions of pounds in capital.
    All have operated ‘private banking’ facilities to aggressively exploit the domicile and other tax arrangements that undermine the prospect of the UK collecting tax due to it.
    They populate the major tax havens of the world. Their sole aim in doing so is to undermine the regulation (and ultimately the democratic governments of) the main nations of the world.
    So conditions need to be attached to the government bail out of these banks. They are:
    1) Close down your tax haven operations, now. Not sell them: close them. And report all those using them who you suspect to be evading UL tax before doing so. That’s all who opt out of UK disclosure under the EU Savings Tax Directive, for starters (and I mean all who opt out, not some).
    2) Close down your structured fiance operations.
    3) Repatriate your offshore profits and have them subjected to UK tax.
    4) Close down your private banking advice sections designed to exploit tax loopholes.
    It’s not much to ask in exchange for the bank’s survival, is it?

  • Comment number 39.

    I think the government will hold back from actively running the banks, but it's undoubtedly an excellent interim arrangement for government representatives to be closely involved with the sector while things settle down (as long as trustworthy individuals are appointed to these representative/monitoring roles).

    Really, I want to comment on the 'Credit Crunch on trial' on Newsnight tonight - your list of 'who's to blame' did not include the mortgate retailers. On You and Yours today, it was reported that possibly 50,000 people in the UK have been sold mortgages which were beyond their means to repay (sub prime). Who was behind this? Not our banks directly, but unscrupulous mortgage and money lenders, greedy for commission, who then quickly passed the debts on or fed off the desperation of the borrower.

    An acquaintance, a mortgage advisor, recently told me that his portfolio of lenders (25 of them in 2007) had reduced to a trickle in the summer of 2008. The ones who'd stopped lending were mostly American companies who had simply pulled out of the country.

    There needs to be a swift and thorough investigation into who these people are, and who's been backing them. Obviously everyone in the system, from bankers, to regulators, to governments, should have, and probably did know that there were unscrupulous and criminal trading malpractices going on, but no one with the responsibility or gumption to take corrective and/or punitive action at the right time.

    So, also on your list, no mention of Keynes or Thatcher, but, as your colleague, the dolorous Robert Peston observed a couple of days ago, the selfish gluttony of Thatcher's capitalism is now vomiting up its overindulgence, in full technicolour spectacle.

  • Comment number 40.

    There is now little good reason for either Lloyds to take the gov'ts shilling or for HBOS to merge with TSB.

    The reason Lloyds is going along with it is surely because taking the money from gov't guarantees the group to come out of nationalisation in a few years time with a market position so strong that the interim restrictions are a small price to pay.

    In the meantime, we the taxpayers are currently some £2bn down on the deal. Perhaps the Lloyds shareholders will object. I hope so.

  • Comment number 41.

    It was quiet revealing on Newsnight yesterday to hear the lady journalist from the FT say that she found an appalling level of ignorance in Westminster regarding the workings of the City.

    Even those politicians who one would expect to fully comprehend the outcomes of their actions seem to have allowed politics to over-ride economics.

    For instance, Mervyn King apparently wanted house prices to be included in the inflation index, which would have resulted in 'adjustments' to keep house price inflation under control over the past decade.

    But it seems that politician Gordon Brown refused to countenance this ... and we can now see the disrupting results of that ... and property prices still have to 'unwind' quite a bit before we reach a floor.

  • Comment number 42.

    I have to agree with post 4 by celticlionltd

    This exercise is the most massive waste of IMAGINARY MONEY conceivable. Whilst economists and politicians (One and the same no?) compliment the ingenuity of this short term fix we are simply setting ourselves up for the inevitable.
    The current system does not work and should have been allowed to fall over now rather then later where it will be considerably more detrimental to the majority of the worlds population. This monetary system is as corrupt as the worst despot regime out there and believe it or not is not the only system we have available. The trillion would have been better spend alleviating debt rather then buying into it (although this is a fallacy) but seeing as the current system does not allow any kind of reprieve from the cycle of debt let the system burn

  • Comment number 43.

    Enjoyed your 'trial' piece on Newsnight last night most of which echoed themes that have been aired on your blog. However I was rather intrigued by a throw away line from Will Hutton on the subject of derivatives . He seemed to intimate, at one point, that derivatives were originally designed primarily as a mechanism for facilitating the flow of OPEC and Asian capital into the banking system. Given the importance of derivatives in contributing to the current mess, and the fact that neither politicians nor senior management in Banking appeared to understand them, can you perhaps enlighten us on what Will Hutton was referring to and offer your view on this ?

  • Comment number 44.

    You presented the case well for the prosecution, but Irwin Stelzer has now become a severe liability to the programme. He is completely unrepentant and intransigent regarding the error of his ways. Surely, the producers of Newsnight can find some more compassionate neo-con who can resist sneering at the litttle people. Stelzer demonstrates the stereo-type derived from money-changers in the middle ages, and this does not benefit reasonable consideration of the defects of Friedmanite prescriptions. One glaring omission was prosecution of Stelzer and his ilk rather than pretending he could be a suitable judge. Please, at this point, desist forthwith from his employment as a commentator, except at the indictment of the masters of the universe, for whom clearly he is a shill, with access to the highest political circles, as was disclosed in his reference to "they" and Robinson's deference to a man with higher connections than a mere Labour MP.

  • Comment number 45.

    Will Hutton raised the issue of Asian and Middle eastern money being saved, and invested in the west. The Economist this week refers to the couple of trillion dollars now in the emerging economies since the Asian bubble burst ten years ago, when dependence on western investment taught them a short, sharp lesson. The big picture of financial services in UK/USA sloshing around with the money from these countries with one bubble or another to keep the parasitical scam going with big pay for the big cats, has yet to be explained to Joe and Mary Bloggs. Tell the story of how we, the people have been sold a system incapable of sustaining life as we have come to expect it.

  • Comment number 46.

    This is a moment of historical potential for people to learn severe lessons about their idea of how things work. This shift is happening and your programme has to get ahead of the curve. In three weeks, Obama will be elected with a landslide and the battle will begin in earnest between the reactionary neocons and the progressives who have taken the banks, and now will move onto the big agendas of substantial cooperation worldwide on equitable and moral applications of skills and systems for sustainable living, with regard to the Universal Declaration of Human Rights.

  • Comment number 47.

    The ultimate failure of competition requiring military domination in the service of wealth for an elite must now create an opportunity to work with Russia, China and India to create sustainable development from known resources for sustainable and dignified human existence of perhaps 8 billion persons. The reckless capitalisim of Anglo-American exploitation and profiteering has now absolutely demonstrated its disastrous consequences for long-term sustainable society on a global integrated basis. Nothing less is now needed and the world will now move in that direction.

  • Comment number 48.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 49.

    Barrie, Big shaolin, Buddhaman et al

    There is something on BBC4 now

    High Anxieties

    which should interest you

    if you miss it I will see if its on iplayer and post link if it is any good

  • Comment number 50.


    I would hazard a guess that recent programme guest Irwin Stelzer, along with Alan Greenspan and Gordon Brown (indirectly), have all supped far too much from the cup of Ayn Rand (Atlas Shrugged).

    Yet another piece of dogma bites the dust.

    It is a pity that Nassim Nicholas Taleb was such a poor TV guest (too much disconcerting arm waving plus ranting rather than answering some of the questions posed) as his books are very interesting, in a random sort of way :-)

  • Comment number 51.

    ORGANIZED WHITE COLLAR CRIME BY ANY OTHER NAME..

    More analysis of the AIG London connection for anyone who hasn't read it, along with Richard Fuld of Lehman Bros being (presumably until recently) on the board of the Federal Reserve Bank of New York, the most important of the USA's twelve Federal Reserve Banks...

  • Comment number 52.

    My comment #48 has been referred to the moderator.

    House rules say I get an email. Why has it been referred and where is my email?

    It is now over 4 hours since I posted it, how long does it take?

  • Comment number 53.

    The broad themes that newsnight explores are quite revealing.

    As per last nights programme, countries such as Germany will come through this crisis much easier than the UK because the Government there did not allow the economy to become unbalanced as has happened here in the UK, with the emphasis on 'financial services'.

    It seems very sensible and prudent for economies to be broadly 'diversified'.

    PS. It made me smile to see Yvette Cooper followed by the chap who stated that HIPs were a waste of time and should be scrapped. Cooper and partner Ed Balls appear to add very little value to our society and possible do more damage than good.

  • Comment number 54.

    PROVIDING EMPIRICAL SUPPORT FOR WHAT'S (PAINFULLY) OBVIOUS

    1) Think 'The Apprentice' nonsense (and much else which we are inundated with these days). It'a all a sad sign of broken family life times as a consequence of the predatory two-person income and ...'sex-equality'...

    Only a dysgenic population would ever buy into patent nonsense that the sexes and ethnic groups are genetically 'equal' as it is contrary to all of the available evidence. Perception is only more important than reality to the very naive and gullible, i.e. the young in mind, and those of arrested development (who tend to be narcissists).

    2) For the driver of the current mess, one should look at the Community Reinvestmnent Act of 1977 under Carter which was an attempt to improve the lot of degenerating USA communities which were being redlined by lenders because of their high risk of default. Look at the Act's developments cummulating in the Gramm-Leach-Bliley Act (199) under Clinton's presidency which removed the firewall between investment and commercial banking and led to the explosion of slicing and dicing in securitization so risk could be spread, hopefully, no doubt, elsewhere across the world

    These are the consequences of the irrealities of moden Political Correctness, Equalities, Civil Liberties legislation, uncontrolled immigration and differential fertility.

    Another way of looking at it is as a consequence of 'light touch' i.e poor governance and too many people's inability to value reality higher than their own narcissistic perceptions.

    See sex/ethnic differences in cognitive ability covered elsewhere.

  • Comment number 55.

    here is the link to last nights programme.

    High Anxieties

    http://www.bbc.co.uk/iplayer/episode/b00dzypr/High_Anxieties_The_Mathematics_of_Chaos/

    It is worth watching as an introduction. But it is based on standard chaos and entropy models.

    Using negative entropy would produce a mirror image of the programme and show how things they say can't be predicted can be, and hence the solutions implemented.

    A main contributor was Peter Cox, we were in the working group to set up the next generation of climate models, which was the UK contribution to the UNEP IPCC Nobel Prize last year.

  • Comment number 56.

    #54 JadedJean

    'Only a dysgenic population would ever buy into patent nonsense that the sexes and ethnic groups are genetically 'equal' as it is contrary to all of the available evidence.'

    I can't comment on US law but UK and EU 'equalities' legislation is NOT predicated on an assumption that people are genetically equal. The point of that legislation is to try to help develop a more level playing field for everyone, regardless of their sex/gender, race, disability etc. It's about equal opportunities not equality.

  • Comment number 57.

    I think we urgently need to hear a lot more about the shadow banking system and the apparent tsunami of credit default swaps (CDS) which are due very shortly.

    If this is true, then maybe the global financial system will actually fold despite Governmental attempts to prop it up.

    I have no idea, but it is alledged that the CDS sums outstanding are immense.

    Forewarned is fore-armed and it would be helpful if ordinary people actually got to hear about it sooner rather than later, and could then take the appropriate steps to protect their savings (which is usually the priviledge of the wealthy who invariably hear about these things first).

  • Comment number 58.

    wontbedruv (#56) I know it's not overtly premised on that, but look at how it all works in practice. Think back to James Watson recently (and there are many others), not all as salient as Larry Summers. It's an egregious game which is being played here, making out it is all about human rights, when in fact it is all about predatory lending.

    If anyone says anything to the equalitarian contrary they risk being disciplined. People do lose their jobs over this, and unrealistic quotas are put in place, especially in Public Services (which renders them less effective, which makes them easier to privatise etc).

    Be sceptical.

  • Comment number 59.

    MINORITIES AND GAUSSIAN TAILS

    wontbedruv (#56) Look at the Race Relations Act. Who was behind that? What does in practice dpes it deter? Look to the USA for something very similar.

    It's been argued that this is not about looking after the interests of oppressed minorities (which would not a bad thing if it were true), but instead is really an instance of intra-group competition where a minority sub-group has secured an advantage through Race Relations legislation but is using equalities legislation in order to use other minority groups to secure yet further political and financial advantage (hegemony) for itself. See NYC demographics #5. This is legitimate politically, but whether it's ethnical, or even strictly democratic, is perhaps another matter. Look to the cognitive elite in the USA and think in terms of analysis of the Gaussian upper tail (it's a leveller)...vs the lower tail, say at least -1SD below the mean (this requires some thought in our PC times). One can legislate for equal opportunity, but if there are marked group mean differences?

    The critical difference here is up to 2 Standard Deviations. Check out which is the real minority group in NYC and which dominates.

 

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