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I sit in one of the dives - as a low, dishonest decade goes splat

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Paul Mason | 11:59 UK time, Friday, 10 October 2008

I sit in one of the dives, on fifty-second street...actually I am in a Madieran fry up cafe in Kennington but it still feels as much the end of an era as in the famous Auden poem about 1939. Tonight myself, Mark Urban and Michael Crick will be giving you our big-picture take on the situation as it stands. Here, heavily influenced by Nouriel Roubini, is mine:

This was spillover week: the crisis spilled into the stock markets; into the savings system; and into the world of anybody who banks with Iceland - from celebrity chefs to local councils to taxicab drivers...

The relentless breaking news, the flurry of financial terms, the shortage of adequate hyperbole make it hard to understand exactly where we are in the crisis. Here's where I think we are...at the end of week four... we're on the brink of a system-wide meltdown of the world economy.

  • When Lehman went bust, that sparked the freeze in lending between banks that has lasted 26 days
  • That led to a wave of bank failures or near failures: HBOS and B&B here, the Benelux giant Fortis, Hypo in Germany and much of the Icelandic system
  • That in turn sparked what they're calling a "silent run" on the banking system. There were no queues. Because one by one, governments moved to give implicit or explicit guarantees to savers.
  • Finally, this week, the inevitable stock market panic began, spreading the pain to Asia...

The stock market crash is being fuelled by several factors:
- First the spillover of the credit freeze to the real world. Airlines, telecoms companies, high street shops - across the globe they've seen bank managers tighten their overdrafts, raise interest rates.
- Second the failure of politicians to end the chaos.
- Third, the realization that the coming recession is going to be longer and deeper than expected.

Today he FTSE100 has fallen 8% so far
The Dow plunged last night 7.3%
And the Nikkei has fallen 24% overnight
All told, several hundred billion dollars of wealth has been wiped out. And this is the kind of wealth that the government does not replace with taxpayers money.

At every stage the politicians have looked behind the curve. Paulson's three page request for $700bn took a week to pass, and still hasn't worked. Gordon Brown's plan - widely praised as the template for the next stage action in Europe and America, so far has not worked. Even in Iceland, where the government has seized the commanding heights of the economy, there is chaos.

There's a pattern emerging: after 20 years of neoliberal economics, almost no politician is mentally prepared for the severe state capitalism they've had to impose. So they've done things reluctantly and late. And in some cases without conviction. But the most striking thing is the lack of co-ordination.

In the 1930s, the different national rescue plans pulled the world economy apart; but today's economy is global. The solution has to be global and co-ordinated.

The successful outcome to the next policy response will be a prolonged recession and a heavily socialized banking system. The unsuccessful outcome could be a depression.

Either way take a long look at the high-debt economy...as I write students are arriving in London to run up an average £30k of debt that will hang around them for a decade, people are paying for drinks on credit cards. Taxi drivers are passing in cabs effectively the property of the Icelandic government. So look around, as Auden might have put it:

"As the clever hopes expire, Of a low dishonest decade"

Comments

  • Comment number 1.

    A heavily socialised banking system will be the price these institutions must pay for their complete and utter irresponsibility.

    Ordinary people must extremely angry that these 'financial professionals' have created such havoc.

    Politicians will not find much opposition amongst Joe Public for whatever they do next regarding these banks.

    They have bought it upon themselves.

  • Comment number 2.

    NB. Yes, I know that the people themselves and politicians must share some of the blame but in the end, the banks (and some building societies) shoudl have known how it would all end.

  • Comment number 3.

    I am one of the few who smells scapegoats when people home in on the bank bonuses. Ultimately that will always happen.

    It was the lack of proper oversight and regulation that did for us.

    My other big query is more people must have seen this coming than are admitting it.

    Who knew what, when and what actions should they have taken?

    I am all for a public inquiry as so far as I can see the whole stability and prospects of the UK have been put at risk.

    It wasn't a novice that got us into this.

  • Comment number 4.

    the big stock market numbers catch the eye but the the market to watch is bonds and libor.

    The govt, in effect, have made a 200m credit default swap insurance for banks to lend to business yet banks are still taking central bank money despite holding billions in deposits means this [in the uk] is no longer a financial problem but an ego banker problem.

    the british bankers assoc has a website. this is the 'black box' of libor. The circle of those in panic is small. Yet they remain not interviewed?

    trust and confidence is about building relationships of honesty. So if there is no trust and confidence then honesty is missing. When honesty returns among the bankers then so will trust and confidence to lend.

    bankers won't lend to each other because they don't trust each other because they do not believe they are being honest with each other. That is the feedback loop to break.

    until they clear the air among themselves nothing anyone else do will unlock libor?

  • Comment number 5.

    Furthermore, we have had quite enough 'financial innovation' from these institutions over the past decade, thank you.

    More than enough, as Buffet pointed out.

    It seems incredible that there are right now, only three completely stable financial institutions of any significant size left in the UK, where one might place deposits and still be able to sleep at night :

    a) NS&I

    b) HSBC

    c) West Bromwich BS*

    Right now, safety is preferrable to choice.


    * which has zero borrowings from the wholesale markets, unlike the 'top' six BS which have roughly 30% borrowings from the frozen wholesale market.

  • Comment number 6.

    The stock markets have long been the respectable casinos for the rich; typically using our money for their bets. Even Keynes described the mechanism responsible for share prices as ‘animal spirits’ – now more soberly described as ‘market sentiment’. They are not, I repeat not, based on rational decision-making. Moreover they are only very indirectly based on the corporations they are supposed, according to neoclassical economics, to fund.

    The most important change that resulted from deregulation in the 1980s was that the number – and type – of organisations which could gamble in this way was considerably expanded. In particular, the banks – supposedly risk free guardians of our deposits – gleefully put our money at risk.

    Above all, new games were made available for these new gamblers. Thus the banks were allowed to gamble through the medium of derivatives. Worse still, it was not clear what rules applied to these new games; and even now nobody knows who the winners and losers were. But that didn’t matter, it was such good fun; and the upside was the massive bonuses for the managers, where there was no corresponding downside. You can see why the new great game took over our world.

    The biggest problem, though, was that we all, including those of us mere mortals, took the games seriously. We thought they were part of the real world rather than a fictional one. Hence, we transferred the breakdown of the games to our real economies. This is not necessarily correct, unless we all join in their ‘animal spirits’. Politicians, on a global scale, need to break into our dreams and bring us down to earth.

  • Comment number 7.

    One is tempted to ask - So What ??

    All of this 'money' should never have been in circulation in the first place - it is an illusion created after we came off the Gold Standard.

    It will be a painful adjustment to live without it - but it just means we will have to live within our 'environmental' means.

    So if the end result of this is people have to live without 'gas-guzzling' cars and 'long haul' flights, Well, So What ??

    Those things were never environmentally sustainable from the planet's perspective anyway - and that reality was going to have to be faced. It is just that it is sooner rather than later...

  • Comment number 8.

    At the rate the FTSE is falling we should hit zero in a couple of weeks.

    Will there be a big "going bust" party beforehand with whatever cash is available and where will it be?

  • Comment number 9.

    Paul or Anybody Else

    Please could you give some assistance and help.

    In 2006 having evidence of criminal acts committed with the intention of bringing down the UK and global economies I went to Tayside police (Scotland).

    They were told the economies would crash, when they would and by the amounts involved. The situation could have been avoided if they had been able to act.

    Tayside police knew 2 years ahead of the curve what would happen.

    They could not look at the evidence or mount an investigation as the considered the offences would be criminal, so outside of their jurisdiction.

    The evidence has been placed with Celtic Lion's company secretary at the registered office.

    As a company director I have extra obligations re knowledge of fraud, money laundering and economic sabotage.

    My company secretary took the letter from Tayside police re their decision not to investigate. He told me this was all that was required of me re criminal offences, they had been reported.

    I also contacted Biggart Baillie one. of Scotland's leading corporate law firms. They gave same advice, if the police knew that criminal offences had been committed to bring down the UK economy. That was all that required of me.

    They unfortunately were not a criminal law firm. As I have found many times over Scottish solicitors cannot advise on criminal acts committed in England.

    Biggart Baillie suggested I contact an investigative reporter to assist me and to also break the story.

    Please could you advise on how economic sabotage committed in England is reported by someone in Scotland.

    Also please could you find a reporter to work with me. A successful plot to bring down the UK economy is too big for me to work on on my own.

    When the story breaks it will be a real surprise as to who did it.

    Roger Thomas

    Celtic Lion Ltd

  • Comment number 10.

    #3

    ...and who pushed for the lack over oversight - saying that low level and self regulation would be better - yes the very same bankers who then paid themselves these bonuses!...

  • Comment number 11.

    I think the main problem is collective memory. A decent trader / analyst can retire at 30, so most of these guys have seen the golden age, taken the cash, and never known pain.

    The traders/structurers I knew were on average about 28, so on leaving Cambridge / LSE @ 22, playing the graduate game, and attempting to make huge bonuses with good "upwards" guesses.

    Watch the news now: the younger guys say, well, it can be OK. The older hands, e.g. Soros are saying this is the next apocalypse.

    Ironically, the debt bubble coincided with what, in retrospect, must have been obscene amounts of speculation on oil by funds. The almost 50% drop in price must be them attempting to get cash from any source to pay loans to banks that desperately need cash for their CDS liabilities and capital ratio requirements. And this oil price caused inflation, increasing (in the UK at least) interest rate hikes, damaging the low interest rates that these bets were made on.

    Strikes me like people playing roulette on the back of future winnings on blackjack funded by future winnings on dice. No serious casino would let this happen. Sadly our house seems to be patting these players on the back, while docking the staffs pay.

  • Comment number 12.

    I find it odd that Bernanke, a scholar of the Great Depression, doesn't appear to have a better playbook. I'm completely unsurprised that politicians are behind the curve - getting ahead of this crisis forces them to admit the problem and that they will be swept from power. Not a likely outcome regretably.

  • Comment number 13.

    ABUSE OF REALITY BY 'MONEY-WORKERS'

    When Climate Change was enthroned as real, we were told, by the great and good, that our life-priorities must change. Government went off in all directions with initiatives and targets.
    Now that money marketing has been shown up as an abuse of reality, the great (if not the good) are rushing to RE-ESTABLISH THE PREVIOUS ERRONEOUS STATE, with just a few tweaks that the 'money workers' will get round in no time.

    Is not cutting back on carbon emissions the equivalent of - say - re-establishing the old Building Society ethos? A simple step back, that all can see is a step towards reality?

  • Comment number 14.

    Auden wrote his poem on the eve of war, of course, and the decade he was talking about was the one that followed the Great Depression. Shortly afterwards we were hoicked out of wartime difficulty by the Americans. The war turned out to have been just, and life got better.

    This time there has been no depression, but it might be on its way. I wonder if we aren't in a kind of Auden-in-reverse kind of nightmare. We aren't going to be hoicked out of anything by the Americans this time. They're going to have to find a lot more money for Mr Paulson, and it is not at all clear his efforts are going to work. They are already stretched militarily and now they are beginning to be overstretched financially. So are we, and it is unlikely we have the wherewithal to back a losing hand.

    What a great time to strike at the West. I'm wondering if war isn't just around the corner. Has anyone checked Al Jazeera's coverage?

  • Comment number 15.

    Paul,

    Who the hell permitted or even encouraged local authorities, police authorities and charities to invest their surpluses in Iceland? The banks are severely under capitalised and yet we have public authorities with vast sums - 70 million plus from Wales alone - invested outside the UK.

    Some time back when you were in the States, you posted that a significant number of American electors believed that greed was at the root of their problems. I agreed and I still do. The extra half percentage point dangled carrot like before the noses of mortgage lenders, bankers and now - it seems - public bodies was just too tempting.

    In an age when the media are publishing figures that make phone numbers look like loose change, it may well be that it has been Mr. Halfpercent that has done for us. In the meantime, it looks as though it is not just the bankers who need regulating.

  • Comment number 16.

    bankers and speculators can have all they bonuses they want, no problem. But the state should take all the tax it needs to clear up their mess. Back to 89% for the super-rich anyone?

  • Comment number 17.

    #9 You're entitled to your opinion, but I'd be interested to know how some individual/group could bring down the UK economy? You may wish to explain that before getting an investigative reporter.

    If there is a conspiracy I can imagine what it is though: the people who actually run the banks know that under fractional reserve banking there comes a point when credit expansion retracts or we face an increasingly ridiculous propspect of continously rapid monetary expansion, an absurd level of inflation kicks in and everything is de-stabilised, which, incidentally, wipes out the paper wealth and the system of capitalism that we 'enjoy'.

    So...there has to be a point when time is called on credit expansion. All the banks stop lending on one day - August the 9th.

  • Comment number 18.

    # 15

    That is relatively straightforward to answer.

    These local and police authorities, charities etc are mandated to obtain the highest posible return, commensurate with a 'reasonable' risk.

    As those cursed 'ratings agencies' such as Moodys and Fitch had given these Icelandic banks AA or AAA ratings, then that appeared to suffice.

    Nobody seemed to have learnt that these ratings agencies are actually unreliable.

    Especially following the dot.com bust where the ratings agenices did'nt exactly cover themselves in glory.

  • Comment number 19.

    #13 Barry Singleton

    The Myth of Climate Change

    This is the background. I was one of the scientists at a meeting in London in Dec 2002 that was the working group that set set up the new generation of UK climate models. This was the UK contribution to the UNEP IPCC Nobel Prize last year.

    We were being guarded by machine gun toting ant-terrorist police. I thought bizarre when we were supposed to be saving the world.

    Having just had still born twins I was frustrated at people could even considered dropping bombs on Iraq and kill more children.

    One week later I wrote an anti-war protest. Recommending policy be climate change and Africa and that climate change was a greater threat than terrorism.

    This was in a UN report commissioned by the UK gov.

    The Gov chief scientist Sir David King gave my risk assessment global publicity and the agenda of the G8 of climate change and Africa taken from my work.

    Then as you correctly point out the world went climate change crazy. A complete and totally dangerous idiocy which will probably kill billions.

    Sir David pretended he was the original author so the media never interviewed me. Now BBC News planning knew I was the author and admitted I was better informed than Sir David.

    Yes you reading this now.

    The BBC decided that I was not a media personality or celebrity like Sir David so carried on pretending he was the author for as they admit, 'ratings'.

    I only intended to use climate change as an example of how the environment was a greater threat than terrorism.

    Sir David and the media between them have got the world believing in the wrong thing.

    Climate change is a symptom (a dangerous one) but only a symptom of the most important danger-the collapse of the Earth's ecological life support system.

    The BBC and Sir David must have some responsibility for the present crisis.

    Climate change became the mantra and the politicians come up with green taxes and the rest of the rubbish sound bites and tat that went with it.

    Stupidly they tried to to add the solutions to climate change into the economic system.

    This was never the problem, that is in part due to the BBC and other media talking to the oily rag and not the engineer.

    Had the media and Sir David done the proper thing and cited me as the author. This nonsense of climate change would have been replaced by ecological life support system collapse.

    The solutions to this implemented, would also have gone along way to avoiding this economic nonsense that has gripped the media.

    I wrote the initial climate change / Africa agenda for the G8 and the climate change /terrorism risk assessment. These were only short hand pointers to the real underlying problems.

    Yet the BBC admit as a I am not a media personality, they would rather present the public with pap just for ratings.

    Paul Mason says tonight Newsnight will devote a programme-to what is in truth only the symptoms and consequences of a deliberate criminal act to collapse the UK and global economy.

    Discussing the symptoms and consequences of a criminal act will not solve the economic situation. Until the criminal act is exposed.

    Neither will the global insane obsession with climate change solve the environmental crisis.

  • Comment number 20.

    If this crisis doesn't stabilise very soon, then we need to start thinking about what can be saved and what can't, and then if necessary amputate that which can't be saved while there is still time.

    I suspect that much of the banking "industry" is getting to be a lost cause. And I fear the bulk of money in our pension funds is going to be lost forever too.

    But the rest of the work-force around the world is still carrying on as before, producing real goods and services which people need. We must prevent the financial crisis affecting this real economy.

    I wonder if it would be possible to ring-fence that part of our banking system that is actually needed by the real economy, by enforcing an immediate de-merger of each of the banks. Make each bank float off the branches, deposit base and bits that do loans to small and medium-sized businesses into a new separate bank (similar to how those bits of Bradford and Bingley were sold off to Santander). Then these new banks could continue operating as normal, untainted by the dodgy derivatives, CDSs etc.

    Meanwhile what's left of the original banks (the investment banking parts etc) are left to cope as best they can, and if they go bust then they go bust.

    No doubt our pension funds would take a huge hit in this scenario as I suspect they would be major creditors of the failed investment banks, but that would just have to be looked at in the longer term.

  • Comment number 21.

    THE AGE OF LOOSE CHANGE

    I still don't think anyone is looking at the bottom of this bog.

    One simple illustration: Last night I watched the, highly regarded, Kenneth Clarke, who made much of his wealth out of sale of tobacco products to addicts (and defended his part in this vigorously, when challenged) pontificating about MONETARY PROPRIETY on a 'prime' public platform.

    While we remain a society that cannot see the relevance of this to our daily life and culture, corruption of every sort will live in warm, damp, fetid comfort in these islands.

  • Comment number 22.

    The banks must understand the cycle that has been started, i.e. the banks won't lend, the economy goes into recession, asset values diminish, the banks position gets worse, etc. If the banks won't lend with this knowledge then what does it mean? Are they waiting for more Govt intervention, are simply waitin and preying or do they believe that we are in a hopeless position? If the banks fail are we going to see the Govt having to provide credit lines directly to key institutions, e.g supermarkets? Do I need to stock up with tins of spam?

  • Comment number 23.

    #17 Grouchomarxist 1

    You are so far from the truth in how you believe it was done.

    The amount of evidence fills two large file boxes.

    Do you really think I can present all that in the comments here.

    There should be a criminal investigation, therefore the evidence cannot be made public.

    I have been told what will happen to me if a pursue the matter. I have had death threats, hence the crimes were committed in England I now live in Scotland.

    Even though I have had death threats Tayside or Scottish police cannot provide my family or myself with any protection, as the offences are criminal and outside of their juristiction. Scottish solicitors cannot deal with English legal matters.

    The difference between Scottish and English Law is a bad dream and allowed the UK economy to crash. Even though the authorities had two years notice in which to prevent it.

  • Comment number 24.

    So, does this mean we now switch Bloggers from you economist types to, er, social workers as we all start furiously blogging about civil unrest and the collapse of society?

    Seriously though, this is now getting a bit hairy. What's the historical precedent? What will the UK look like in, say, 6 - 12 months hence as our government carries debt and contingent liabilities to the tune of 85% of GDP whilst grappling with a recession/depression? How does that work please?

    Anyway, must fly to go buy some gold sovereigns; I think we may be going to back basics.

  • Comment number 25.

    WE NEED A HERO (#19)

    It isn't Newsnight. Nor the BBC. (Public service is only a 'target' I suppose.) Nor the Folks on the hill.
    In 2005 I stood for Parliament - a sort of 'Newbury-sized, would-be hero'. A maximum of 86 people spotted why my mantra was: SPOIL PARTY GAMES. I stood up because I had said: "Somebody has to do something." (And I was the only one who took any notice.) But walking your home town, over and over, with a silly hat that has slogan pockets in it, is do-able; the impossible takes a little more je ne sias quoi.

    As Phil said, in Groundhog Day: I'm thinkin'!





  • Comment number 26.

    moraymint (#24) Have a look at Behavioural Economics. Kahneman made his name essentially by cognitivising much that was originally done in The Experimental Analysis of Behavior (largely at Harvard) the 50s, 60s and 70s on reinforcement parameters using rats and pigeons (see Hyperbolic Discounting and The Matching Law). I'm not sure everyone deserves prizes these days. Then have a look at the normal distribution of abilities and how that's been socially engineered at the population level. Ask why politicians of different persuasions (or more likely, their sponsors) might have a vested in interest in implemnting such policies whilst spinning it as something else. If you look at what's politicaly incorrect, you'll find what's most threatening to their interests.

    It's just politics, and money.

  • Comment number 27.

    IRONY AND AGONY (#24)

    Near enough. The fundamental problem is a degree of corruption so all-pervading, that it just doesn't show and 'evil doers' have no need to disguise either their activities or their wealth, and are best chums with government and politicians generally. This is why it is presented as 'politically incorrect' to spotlight an individual politician's character. By their character shall ye know them. Character is as character does.

    Here's a general starting point: do you know of ONE politician who does not feel it is OK to avoid answering questions OVERTLY AND CYNICALLY? Would you vote such a person into Parliament to represent you and your needs? So what went wrong?

  • Comment number 28.

    #18 - JohnConstable

    Agreed - which makes the pursuit of the highest possible return somewhat eccentric if it means sending vast sums of money overseas. In other words, chasing the half percent was actually harmful to the wider economy because it was taking large amounts of liquidity out of it.

  • Comment number 29.

    Celticlion - Like everyone else on this blog, I have no idea whether or not what you keep repeating is true. I cannot see why you cannot take your boxes of evidence (or copies, if you wish to keep the originals safe) to an English police force. As far as I know, there is no Scottish or English law that would prevent you from doing that.

  • Comment number 30.

    It would be nice as part of your piece tonight to hear what happened in the Lehman's CDS auction and whether it was a good or bad thing! Sitting at home all I've managed to gather is that's it's hugely important and happening today........

  • Comment number 31.

    'MILTON BROWN' EXPLAINS 'THE WORKS OF GOD TO MAN'

    It would seem the new relaxed Brown is blatantly 'doing a Tony'. Tony was the 'Great Communicator' (in the eyes of those who did not read the transcripts of his garblese). And Tony used to put himself fearlessly in the firing line, when things were dire, protected by the certainty that the right and righteous do not die. I have always said that poor J Gordon Brown WANTS TO BE TONY. He craves the adulation that Tony had; he wants us to touch the hem of his garment; he NEEDS - oh how he needs.

    This defines the man. Is this the character of a competent national leader?

  • Comment number 32.

    Where IS Gordon Brown borrowing from?

    Seems a simple enough question

  • Comment number 33.

    AT THE HEART OF EUROPE - BRITAIN AND CORRUPTION

    Another aspect of MAC (mutually assured corruption) is the EU. (And look who's back!)
    Massively fiddled expenses, and accounts that accountants blanch at, year on year.
    This is not to mention all that shuttling, that no doubt hides a lot of dodgy money, and paid idleness. But just as not one of our politicians berates OUR parliamentary charade, so our parliament, as the voice of Britain, bows to the EU and makes no audible protest at its iniquity.

    We need a hero.

  • Comment number 34.

    ...At the rate the FTSE is falling we should hit zero in a couple of weeks....

    my target [posted on here a few weeks ago] is still a 50% drop from the highs to 3350 ish. So we are not far off.

    why 50%?

    because that is about the figure funded by short term lending. Most the stock market trading is funded with short term lending with no assets. Now the banks are calling in the loans so people have to sell. CDS are also being triggered because of failures [lehman] which further causes forced liquidation as people raise cash to pay those off.

    an individual stock might get to zero but never an indicie because every asset [like buildings, inventory, cash holding, patents etc] a firm has has a value so is worth something which is one reason why i take as a sign of ignorance those blogging the 'end of the world'.

    traders are waiting and looking for opportunities for one in a [many?] lifetime chance to buy. Some aggressive buyers say monday is the day.


    but you normally get a reversal day first and we haven't had that yet. Also the first sign will be in the bond market and libor.

  • Comment number 35.

    Global Economic Systemic Collapse

    Oh my God . . .
    Make no mistake about it – we are in ‘full on’ economic systemic collapse – and will be far further into this process than anybody actually thinks. It’s a Tsunami situation – inevitable and unstoppable.

    The heart of the problem is the abuse of the credit-creation process that has occurred over the last 20 years since deregulation of ‘big bang’. Basically, an abuse and corruption of what the concept of money is for – primarily as a medium of exchange for goods and services. Strictly speaking you have not actually been paid for whatever until you have spent the money on something real in return. Accumulation of money for its own sake is futile – you can’t take it with you.

    As mentioned in an earlier comment – money is not real. It is an abstract concept, a figment of our imaginations, created from thin air, to enable economic activity. We needed this system because there just wasn’t enough gold in the world to enable a modern, economical and technological society to function. Accumulating money for its own sake was not what the system was designed for. If this collapse runs out to its full conclusion – all economic activity stops – we starve.

    The problem is simply too much debt, too much of which is bad – the capital on too many loans just cannot be repaid. Yes read up on Minsky Moments and so on. But things are different this time. This time it is the general population at large that has been caught up in the speculative frenzy of the property bubble, rather than a few hedge or investment funds. The bubble is like no bubble we’ve seen before – just ever so slightly bigger and affecting just a tad few more people. People who are consumers – the fuel of economic activity.

    Too many people in the population at large are insolvent. Their entire income and then some, is going on debt payments – they have no money to spend. Retail sales have gone off a cliff. Retailers cannot survive double digit falls in sales. Stuart Rose (M&S) was on TV with no plan but ‘hope’. He looked like he was ‘passing bricks’. There is carnage to come on the high street – retailers bust, their suppliers bust, their suppliers’ suppliers bust – no jobs.

    Consumers are going bankrupt in the thousands per month. They have been surviving by borrowing more and more – that credit has been turned off. Result – mortgage defaults. Property values are coming down by half, at least.

    No way in hell can the banks survive this level of bad debt. The banks are insolvent – every bank on the planet is going under. Governments can’t bail them out. As the IMF warns – countries themselves are going to be bankrupted – Iceland is the first. What hope for America, with its national debt? Depositors are going to lose everything.

    The cause – abuse and corruption of the credit creation process. It’s Pandora’s Box – we don’t understand what we’ve been playing with. How do we get it back in the box? We know that where there is economic corruption you get economic ruin – the whole world has been at it.

    We need a hero, another comment says. His name’s Robin Hood:

    Write off the debts by writing down the bank deposits. Consumers remain solvent and the banks remain solvent. Undo the credit creation process – reset the clock to zero.

    Whose deposits? – Well money’s not real. You can’t take it with you. Start with the billions in the bankers and traders private accounts. As all the banks go bust, they’ll lose it anyway. Lose it and save the world, or lose it and starve.

    I’m sure the public will buy it. How do you get that idea past the worlds politicians? Total global cooperation required.

    Oh, read up on ‘The Tragedy of the (unregulated) Commons)’. Economists and those with knowledge of Game Theory will know what I mean. The common of course is the world – a truly global community – ruined.

    I will leave you with Einstein – there are two things that are infinite. The universe and human stupidity. If I really think on it, I’m not absolutely certain about the former.

  • Comment number 36.

    “If at first, the idea is not absurd, then there is no hope for it” Albert Einstein

    The above quote is also from the car avert.

    A researcher from Newsnight just telephoned me and said that criminal acts to bring down the economy involved so many steps, they were beyond coincidence.

    Perhaps Barrie Singleton will tell me what the Heart of Gold spaceship was powered by.

    This is a article some have read. DEFRA, UNED and Policy Studies Institute will be able to confirm is genuine and unaltered.
    Three years ago a intellectual property lawyer discussed it with me.

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

    In December 2002 what was the probability that I would know climate change and Africa would be the agenda of the G8?

    What was the probability in 2002 I would know the Governments Chief Scientist, Al Gore when he got his Nobel, most environmental organisations and world leaders would use the climate change/terrorism risk assessment.

    What was the probability I would know about the dangers of consumer credit?

    What is the probability I would know the Chancellor would back Africa, LIve8 and the amount he would give 3 years later?

    What is the probability or degree of coincidence that I would know all these things in one article?

    This is the model of FMD sent to the PM in March 2002 to decide the timing of the 2002 election.

    http://celticlion.wordpress.com/2008/01/15/foot-and-mouth-assessment/

    Go to timing of election. What was the probability of me knowing the date when the epidemic would be under control?

    Downing Street will confirm it is a genuine unaltered document.

    This is a page from a 10 Downing Street website placed there in 2006. Downing Street will confirm its authenticity.

    http://petitions.number10.gov.uk/ecodome/



    In 2006 I gave the shortfall in the UK economy as £250 billion, accruing at £50 billion per year ie in 2008 it would be £350 billion.

    This week the Government put £400 billion into the economy to make up a shortfall.

    What was the probability I would only be 12.5% out on that figure from 2 years before?

    None of these were coincidence. They were known certainties.

    Lewis Hamilton could drive around Silverstone as quick as possible. Even if he did it out of my site. I could walk round the track with a spray can and mark out the route he took. This would confirm with almost 100% accuracy, the faster you go, the nearer you must conform to the optimum 'racing line'.

    Evolution is a journey to the future. The path is determined by information points which determine the 'racing line'.

    We all know what happens to a racing driver or bobsleigh when it does not take the optimum line at a given speed for a given corner. It crashes!

    Government's and global institutions have not driven the evolution of the socio-economic/ ecological interface of the planet along the optimum line of evolution.

    Newsnight are correct in their analysis of the current situation. But only correct within the existing reality paradigm they operate within.

    As was said in a previous post by Einstein "“We can't solve problems by using the same kind of thinking we used when we created them.”

    The present global situation was caused by criminal actions.

    In the present belief system world leaders and those who share their view will only succeed in crashing the global system.They are blind and cannot see the racing line to the future.


  • Comment number 37.

    50% seems like a good enough figure but it is slightly arbitrary. It could go much lower, probably will but anyway, it is only the stock market price, which is only one indication of how the economy is doing. Here is my prediction for the next period:
    1. This is a winter slump on a fairly standard Kondtratieff index and will last until around 2018. During that period there will be a short-lived mini-boom at around 2012 followed by a further slump.
    2. The shakeout will result in the closure of major parts of the industrial (mainly automtive) capacity of the west and some considerable disruption of the Chinese and Indian economies.
    3. China and India will lead the move out of the slump in 2018 on the basis of low wages and investment in new technologies, largely in the energy sector, in a way similar to that brought about by Germany and Japan in the 1950s.
    4. A new spring and summer boom (with short-term 5 year cyclical downturns) will come about which will last until about 2045, when there will be a primary summer recesssion followed by a further autumnal credit finances asset bubble boom until about 2065when there will be a 2008-style crash.
    Anyone want to give me odds on these numbers?

  • Comment number 38.

    Paul,

    Second the failure of politicians to end the chaos.

    The perception that anyone can end the chaos is perhaps flawed. Let me look at the logic behind the idea.

    If they were capable of ending the chaos wouldn't they have done so? The fact that the chaos continues indicates that the politicians are unable to end it.

    Generally:

    Suspend the listing of all financial stocks worldwide until their assets and libilities can be confirmed.

    Refinance the banks and force merge others.

    Get rid of all of the toxic derivatives.

    Close down all hedge funds and all oprtion and futures trading and pass laws that only the owners of an asset or liability can insure against its default (kill CDSs - credit default swaps). All insurance products should only be written by insurance companies.

    (I would love to punish the perpetrators of these 'frauds' against the people - but alas I guess that there will be no law that will permit it.)

  • Comment number 39.

    #32 Staying Cool

    "Where IS Gordon Brown borrowing from?

    Seems a simple enough question"


    Yes, it is still borrowing. The problem isw it is borrowing from the future to maintain the present.

    It must be paid back over some time period into the future. Prior to this we have alreeady been told abot the future, problems of global ecological life support system collpase and its symptoms such as climate change.

    What we have now done in the UK is now impose another £400 billion of economic loading on future planetary systems.

    Barrie Singleton see this as the conversion of ecological stability into the economic system. Perhaps Barrie will expain that better than me.

    Add the US $700 billion of borrowing from the future, plus the existing demangs of global socio-economic development and we have the potention of collapsing planetary ecological systems in a few years.

    World leaders have panicked and made some very dangerous decisions. We wake up one morning and global financial markets have collapsed, we discuss our options.

    We wake up one morning and planetary ecological systems have collapsed-we die. It will be just as quick as the markets went.

    Whatever the source it is borrowing from our future.



  • Comment number 40.

    Looking forward to tonight's show and hope you can provide some much needed insight.

    A recurring theme is the lack of transparency and understanding of what exactly is the problem we are trying to solve, moreover the chance of success.

    The way I understand it is:

    a) the banking system, in collusion with insurers and credit agencies has created a vast edifice of notional (i.e. ficticious ) wealth based on lending and inflated asset prices.

    b) This in similar fashion to notorious pyramid ( ponzi) schemes is now unravelling at an accelerating pace.

    c) governements are desparate to deflate the bubble at a managed pace, and preserve the banking system and economy in the process.

    d) In order to do this they have to resort to providing real wealth ( future tax receipts generated by work) in place of the ficticious money in the system.

    Unless the banks put there books in the public domain there can be no realistic assesment of the likely success of the proposed method of bail out.

    Please find out as much as you can.

    In a separate note to conspiracy theorists why not read Umbert Eco's Foucault's Pendulum . In times like these it should be on everyones reading list !

  • Comment number 41.

    'Greed Is Good' Is Bad

    That's one thing settled at least.
    The future's down to social altruism and common sense. And if Britain can gamble a third of its GNP to save a banking industry which still might collapse, it can devote as much energy into creating a society in which toilet cleaners are treated with as much respect as merchant bankers used to be. We need to look for new definitions of respect, success, and happiness. Granting status according to wealth was never going to work.

  • Comment number 42.

    #35 SmithWilcox

    Agree with most you say, apart from we don't stave this time. We can still grow food without an economic system.

    We stave when the next system collapses, the global ecological system.

    Game theory: can cope with Von Neumann. Nash had flaws which were not pointed out to him which herein lies the present danger.

    The competition aspect can only apply with theoretical infinite resources-we don't have these.

    I refer to your Tragedy of the Commons. We cannot 'afford ' to allow the economic system to destabilise the ecological

  • Comment number 43.

    ABSENCE OF WISDOM

    When wisdom has been absent for a few generations the concept, surely, is lost?
    Isn't that where we are now?

    Zimbardo shows, elegantly, how circumstances bring out latent behaviours.
    I suggest absence of any awareness of wisdom, as a 'force for good', frees a society to 'go bad' on every level from degrading entertainment, to gambling, and preemptive war.
    The little folk have the 'National' Lottery to habituate them to OK gambling. The aspiring intelligencia leave university imprinted by state-sponsored debt. And the bankers just splurge.
    I suspect we are in the kind of bog where, trying to get out, sinks one further.

  • Comment number 44.

    THE APE CONFUSED BY LANGUAGE (again)

    Humans are hybrid. Sometimes we are simply animal (particularly with the help of an attractive partner or alcohol - or both).
    Sometimes we are, almost exclusively, cerebral (Einstein at his scattiest) but most of the time the 'play' switches around, and each even hijacks the other for its own ends.
    It's like a football match. I like to call the two teams: 'Cerebral Academicals' and 'G n tals United'. And most of the time, life is about scoring - one way or another.
    I suggest this is a bit of wisdom that is required if are to get the best out of a very dodgy piece of kit - us.

  • Comment number 45.

    Anyone who thinks that governments can do anything significant to avoid the problems looming in the future is too optimistic. The governments are just trying to retain some credibility with their electorates by seeming to do things. Those really in the know must realise there isn't anything they or anybody can do to put it right.

    What has happened is that a lot of false wealth has been created and mixed up with the real wealth. The only way to get rid of it is for a lot of people to get poorer by losing their jobs or their homes or both.

    The government printing more money and dropping interest rates will then cause those that don't lose directly to lose any wealth they have through inflation. As the currency loses value the government will have to increase taxes to cover rising benefit costs and to pay interest on all the defaults they have bought out with taxpayers money. 25 percent annual inflation for a few years is perhaps the most painless way out of this, but the downside is that the most vulnerable always lose out most.

    Whoever wins the next election will have to do a lot of very unpopular things - rationing, etc. I wouldn't want to win it, but then I'm not a power-mad politician.

  • Comment number 46.

    Whats all this in the 10.00 news about affecting the "real economy".

    Does this mean all the problems have been caused by an 'imaginary economy'?

    So we didn't need them anyway.

    Why didn't somebody put them on a 3rd ark and blast them into space before they did any real damage?

    croydo. I'd love to sort the whole bloody mess out, but no way would it be done through some political process.

    I am an engineer and an ecologist, politics and economics don't interest me.

    It will cost £2 billion, not £400 billion or $700 billion or whatever figure the politicians decide to come up with.

    Don't worry about the problems, the benefits will astound you.

    Its not that I am power mad, I'd rather be a window cleaner, work on old cars or look after animals.

    I just don't trust power mad ******** and egotists with my families life, my friends lives, my life or the future of the planet.

  • Comment number 47.

    Sorry Paul

    Newsnight was just drivel and rubbish.

    Anyone who has made a comment here could have done a better job.

    What did Newsnight do?

    Got some researcher to phone me up me up to tell me his friends have done bigger rock concerts than me. Well whoopee do.

    You seem to forget I contributed to TWO Nobel Prizes last year.

    You have studio guest saying what the G7 should discuss. In 2005 the G8 discussed what I told them to discuss.

    Newsnight was a massive disappointment and let down the contributors to this site.

    Just what gibberish was the author of the 'Black Swan' talking.

    OK I did know what he was saying, see post #42 (that was for you Barrie).

    So knew it was gibberish.

    What a disappointment.

    Attack the paradigm that caused the problem and present the alternative. Don't argue within in. Move on.

  • Comment number 48.

    celticlionltd

    You are deluded.

  • Comment number 49.

    #48. JadedJean:

    absolutely! well said. my invisible singing cat from Saturn also agrees! lol

    Have fab weekend off Paul. Fab summary of situation 2nite. made me feel i understand all this nonsense. genius.

  • Comment number 50.

    "only those who attempt the absurd can achieve the impossible."

    Albert Einstein (again)

  • Comment number 51.

    but sometimes those who maintain the impossible simply seem absurd

    citizenthompson (again)

  • Comment number 52.

    GRAVITASS and DERIGUEURAMA

    My heart sank as both Paul and Gavin became artistic props in a 'never mind the gravitas sense the art' video deriguerama.

    What wouldn't Nero have given for an award-hungry camera person backed by 'creative programming'!

    Carry on Crassing.

  • Comment number 53.

    A simple analogy would be the middle ages the state/church believed the Earth was the centre of the solar system and universe, the heavens supported on crystal spheres or whatever.

    Galileo et al believed this was not the case. They were ridiculed and threatened with death etc. It took Newton to come up with the mechanics to show how Galileo's observations actually worked.

    Some comments in this blog have mentioned Darwin. Darwin was subject to ridicule. He was thought absurd.

    Those who move a paradigm on or strive towards a more accurate model of reality are always subject to ridicule or are considered absurd at the time or more simply a lack of comprehension or understanding by others. Some people are comfortable in believing what they have been taught to believe, they don't like that challenging. Others like to challenge and test what they have been taught to believe.

    The economic system is a sub system of the planetary ecological system. A new Bretton Woods, should be for all policy and strategy to first and foremost stabilise and/or enhance planetary ecological systems.

    Automatically socio-economic systems will stabilise as a consequence.

    Little actions such as being kind to insects, not buying weed killer to destroy wild plants in the garden or path will all contribute. The accumulation of all these little actions will bring the systems back to stability and a sustainable evolution.

    Someone wrote about all the universe being extrapolated from the atoms from a crumb of fairy cake. Chaos theory is part of the world of entropy where the beat of a butterfly's wing can move a atom of air and turn a stable air mass into an unstable hurricane or whatever.

    In a paradigm of negative entropy small ecological actions can stabilise planetary and socio-economic systems.

    Priority now is to stabilise planetary ecological systems before they collapse, do that and the economic system will automatically fall into line.

  • Comment number 54.

    How much of this trade today was hedge funds dumping shares for any price to get cash to pay their dues.

    Heard comments that a lot of the trade was programmed.

  • Comment number 55.

    the butterfly wing theory is actually part of the problem. The idea that things are weightless and simply an adjunct of a chaotic and incomprehensible set of contingent circumstances is a fundamental part of the ideology of weightless capitalism. Nothing apparently has a cause, merely contributory factors, non of which appear to be linked. This means that causation itself as a mode of investigation became seen as outmoded. This is the absolute corollary of the post-modern mindset produced by late capitalism. What we actually know is that hurricanes are caused by dirty great amounts of solar energy driving down on to the surface of the planet and causing mass movements of water vapour etc. The butterfly, no matter how vigorous in its flapping is completely irrelevant to this process. What this economic crisis is showing us is that it is a critical mass of real force, capital, labour, class etc. which moves things and not flimm-flammery, mumbo jumbo and hocus pocus (which sounds like a firm of city lawyers). The point is to understand what those forces are and not worry about the odd bloody butterfly.

  • Comment number 56.

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

  • Comment number 57.

    This collapse has been engineered by those who undid FDR's regulations, they also destroyed the possibility of Keyne's theory enabling a recovery. That posibility destroyed by Politicians who have built inflation into the system. They did nothing to revalue money when things were good.

    This collapse was created by inflation, people behaved logically as Government Policies assured ongoing inflation. It was built into their Budgets.

    Thatcher sold the family silver, and doubled the National Debt, Brown sold the British Gold.

    Those criminal inflators think that they can get out of inflation induced trouble by further inflation.

    Go see The Negative Outcome of Economics http://www.iww.org/en/node/2583 (1991).

  • Comment number 58.

    As Auden also said,

    ... how everything turns away
    Quite leisurely from the disaster; the ploughman may

    Have heard the splash, the forsaken cry,
    But for him it was not an important failure; the sun shone

    As it had to on the white legs disappearing into the green

    Water; and the expensive delicate ship that must have seen

    Something amazing, a boy falling out of the sky,

    had somewhere to get to and sailed calmly on.


    Revolutions don't have to be aboutr barricades and secret police. They can be as natural as childbirth.

 

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