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Banks' most pressing problem

Robert Peston | 10:02 UK time, Tuesday, 7 October 2008

A shortage of capital is a big issue for banks, as I've been blathering on about for days (and see my note of this morning on our banks' meeting with the chancellor and request for a capital injection from taxpayers).

Man watching share price on screenBut the really urgent issue is the breakdown of wholesale markets, and the increasing difficulty that almost all banks are having in funding themselves on a day-to-day basis.

The basic problem is that the collapses of Lehman and Washington Mutual have made all financial institutions wary of lending to any bank where there is even a scintilla of risk.

It turns out, therefore, that Hank Paulson and the US Treasury were probably wrong in allowing them to fail.

But that's spilt milk.

The more important point is that, across the globe, there are very few banks that are finding it easy to raise money from wholesale sources.

In other words, all this fuss about insuring retail deposits is beside the point.

We all know that governments won't allow retail depositors to lose money - so that's not something to worry about.

A far bigger concern is that most banks are suffering a progressive erosion of the money they receive from other financial institutions.

To date, that's been replaced by colossal loans from the authorities.

In the case of the UK, the Bank of England and the Treasury have collectively provided well over £200bn of incremental lending to our banks over the past year.

It's what I've described as nationalisation by stealth.

But all governments will probably need to do more.

What the Irish government did, in guaranteeing both retail and wholesale deposits in their banks, may turn out to be something of a model for Europe-wide action.

What we may need is a cast-iron pledge from all European governments that they will fill whatever funding gaps emerge at their respective banks from the seizing up of money markets.

It's probably the best outcome that can emerge from today's meeting of European finance ministers.

Bankers all across Europe are watching this meeting, and keeping their fingers and toes crossed, that the finance ministers understand how fragile they are - and that the finance ministers will pledge to keep them afloat, whatever the apparent strain on public-sector balance sheets.

Comments

Page 1 of 4

  • Comment number 1.

    Clearly necessary, Robert, although putting my faith in Europe's leaders still makes my flesh creep. However after saving the banks (fingers crossed) the Governments surely then need to ensure that banks do actually lend to businesses and not hoard or the Great Depression will be repeated?

  • Comment number 2.

    Not sure how sensible it is to report every comment or meeting - the banks had a 'secret' meeting with the government about funding and its now all over the press causing this mornings massive share falls.

    Its not for us to know every detail of every act taken in this drama - sometimes its better for everyone if some people just shut up and let the banks and government get on with the fire fighting.

    But I guess where does the reporting begin and at what point does it stop?

  • Comment number 3.

    Robert,

    Again, you skirt around the actual problem of Fractional Reserve Banking.

    When will you give us your personal views on it?

    BTW - a shortage of capital is what the people are also experiencing when the banks ATM's stop working.

    Regards,

    FWIW

  • Comment number 4.

    Robert

  • Comment number 5.

    Are HSBC bulletproof, then? Or as close as we will see (the last to fail or the last one standing?).

  • Comment number 6.

    How about the Banks' international creditors taking a haircut? What you are really suggesting is that the EU governments bail out the international banks who lent money to our banks and so forth. After all, they are the winners if Darling bails out the UK banks.

    The Irish pledge is very good but, unfortunately, unsustainable as far as their banks' other creditors are concerned. As you pointed out on the tube recently, the Barclays liabilities alone run into trillions and are beyond the budget of the UK taxpayer.

    Darling fiddles while London burns...

  • Comment number 7.

    Indeed Robert solvency is *the* problem confronting the banks and money markets. The Irish solution looks as if it gets around solvency doubts by bundling it up in 'not dare' to be asked questions about nation state solvency (brought to a head now with Iceland) but that could change. Moreover, the EU has not developed a unified model yet to manage the solvency crisis (forget this talk of liquidity and illiquidity). Should states take equity in banks in return for the exchequer becoming the underwriter of a potential financial armageddon? I think so, but the Irish didn't neither have the Greeks. The Swedes did howwever in teh early nineties. The Chancellor thought so in the case of NR. Does the restoration of confidence require the retirement of existign bank executives. The Irish think not, but the Chancellor, the Dutcch and Germans appear to think yes, and quickly. So with such a mixed bag of responses what is the likelihood of consistency???

  • Comment number 8.

    Again, why can't we just borrow from the BoE direct (via Northern Rock) and leave the rest to fight it out until the largest, best run banks devour the smaller ones? Is that just not practical?

  • Comment number 9.

    I have the highest respect for your journalistic integrity in these hairy times Robert.

    Barclays is denying that it has asked the government for more capital but you are unequivocal in saying that it has. They are not suing you so I believe you - not them.

    Some posters are criticising you for talking the market down. I am confident that you are only reflecting reality in a timely way.

    -

    10pm Hypo = Hippo?


  • Comment number 10.

    Robert

    While I admire your investigative skills and the fact that you clearly have some excellent insider information I do wonder if your actually helping or hindering the situation. Clearly, breaking today's story saying that the major banks are asking for additonal capital only adds to the fear and doom that is engulfing the banking sector.

    Be careful, your words are affecting the lives of real people, and the wealth of real individuals. Now, whether you feel that you have any moral obligation to keep this kind of information quiet - until such a deal can be brokered - is perhaps one which is outside your remit. But it does me pause for thought and I would hope, you as well.

  • Comment number 11.

    Extended Collateral Long-Term Repo Operations that is the answer to everything right?

    Robert, you estimate the current level of BOE financing at £200M with the increase to a 3 month time frame this will keep the bank system liquid.

    The money market is a zero sum game, a few foolish banks (or should that be foolish virgins) are caught short however two thirds (my guess) are OK, but keeping their surpluses in their back pocket (or more likely overnight money markets).

    The latest fall in bank share prices is due to the realisation the HMG may bail out the system but not the shareholders of the "foolish virgin" banks.

    Good

  • Comment number 12.

    i would be very interested if you could provide some details on banks' existing capitalisation (both book capital and market cap) so we can get an idea of how significant the government's recapitalisation plan would be percentage-wise.

    here are some thoughts:

    i can well believe that our banks are not current seriously short of capital. however, it has to be expected that the uk banks are going to experience significant losses on their mortgage loan/security portfolios (and their corporate loan portfolios) as the economy heads into recession and a housing slump. this means fear of future undercapitalisation could well be a big driver for the current liquidity crisis.

    however, it is equally possible that our banks are being undermined by a liquidity crisis that is not really of their making and that does not reflect the fundamental solvency of our banks.

    i suggest that what is driving the current liquidity crisis more than anything else is not merely the collapse in confidence, but also the entire process of global leveraging. hedge funds and certain banks (that have real capitalisation problems) are all having to shrink their balance sheets very very quickly. in order to meet margin calls and to bring leverage down to a level that their capital can support, they are liquidating assets as fast as possible. one of the easiest assets to liquidate in a hurry is an interbank deposit. hence the run on the uk interbank market.

    the implication is that even if the government does all that is necessary to restore confidence in the SOLVENCY of uk banks (i.e. that their assets are worth comfortably more than their debts), the fact is there still may be a lack of confidence in their LIQUIDITY (i.e. their ability to come up with ready cash on demand), precisely because the liquidity crisis is being driven by more than just solvency fears.

    this means that to support the banks, not only is the recapitalisation required, but also guarantees on deposits and even easier short-term lending from the boe. i think if all these measures are taken (both in the uk and across europe), then our banking system should stabilise in the next couple of weeks.

  • Comment number 13.

    WHY IS THE FRACTIONAL RESERVE BANKING SYSTEM A FRAUD?

    Anyone with an O-level in maths (let alone an A-level) can surely understand that the creation of debt and hence the payment of interest only works (to continue generating huge profits) if there is a geometric growth in debt. The word geometric means non-linear. In other words debt must grow exponentially. It is a physical, undeniable mathematical fact.

    This is why it's a wholly unfair and insiduous way of transferring wealth away from the many to a very select few. It's so simple and devious that when it is realised it literally beggers belief! (for e.g. R. Fuld-Lehman Bros. USD300Mn, H. Paulson-ex Lehman Bros. USD500Mn, T. Blair-JPMorgan USD5Mn p/a etc.)

    Why do you think the EU state and the Euro currency was devised?....I'll tell you why, it's for the expansion of the European state (now 500 million people) in order to create a vessel in which to further expand the FRB system and to further enslave hundreds more millions with debt and debt interest.

    The same is being planned in North America with the union of Canada, Mexico and the USA for the forthcoming introduction of the Amero currency.

    You can bet your boots there's probably a similar plan for S. America and Asia.

    Hence the Western hatred of Islam and it's aversion to the unethical use of usury and charging interest. It is an obstacle they believe that's worth going to war over.

    Hence the lack of no real democracy. It facilitates the subversive transferral of power to a political and financial elite aka Brussels village, Westminster village, City square mile village, Washington village, Wall Street village etc., etc. (pssst - it's the big secret of the of the establishment). Hence the Brussels/Strabourg gravy train, the Westminster snouts in troughs. DEMOCRACY IS A SHAM. Wake up!

    It's why it makes no difference which party is in power. How else could it explain a Labour government presiding over a 10 year orgy of City greed during which they have been allowed to completely privatise the profits.......only to then get away with socialising the losses.

    It's all part of the new world order that is the secret agenda of the 'masters of the universe' for a one world government.

  • Comment number 14.

    Who were/are the 'wholesale sources' of funding to the banks? This has never been revealed to my knowledge.

  • Comment number 15.

    200Bn made available to date is not enough QED. Substantially more needed by definition. A Trillion needed perhaps in the UK. The effect is the same as a industry sector run on the banks, removal of funding. High Street depositor security is a red herring really isnt it. The problem is structural and the hope for the gov' of the BoE is getting liquidity flowing again. Spare us a Trill gov'.

    They have a model 'City of London' sculpted out of 'dog chews' on the News at the moment, quite appropriate, especially as I first thought they said it was made out of 'dog poos'. Could have been a freudian slip I suppose.

  • Comment number 16.

    I wonder if the bankers in the boardrooms can see the irony of their begging for capital as a result of their reckless lending and foolish use of leverage to buy questionable assets as their employees reposess houses and persue people through county courts for ill-advised borrowing and poor debt management.

  • Comment number 17.

    Robert, the banks most pressing problem is that they are INSOLVENT. They created vast amounts of 'money' as debt, and now that debt is unable to be repaid, that 'money' is disappearing.

  • Comment number 18.

    It's time to let this ponzi scheme collapse in on itself.

    A severe depression at best is coming. This depression is not just about money - it's about where we have allowed ourselves to be taken as a society.

    Greed has been the goal, but in a world with a growing population of 6 billion inhabitants and scarcer resources, this path is simply no longer sustainable.

    I'm optimistic for a less grinding and brighter future.

  • Comment number 19.

    Nick,

    Keep up the excellent blog.

    I am a financial lay person, have not studied economics and what have you, though I am wondering whether I might have dreamt up a simple (?) solution to all of this mess.

    In the US and Europe, and also in other markets it's the liquidity that is the problem. The banks don't lend to each other, businesses that don't have enough cash to flow go bust when they can't meet their running costs as their easy source of credit has dried up and so on.

    Why do not governments instead of Bailing out financial institutions instead setup a "National Bank" - and use that as a vehicle to lend money to other banks at a rate thats less than the present LIBOR.

    As banks can now get credit again and the LIBOR is lower - this will cause them to reduce their lending rates to each other and the wheels of the economy get oiled some more and can start turning again.

    The Govt bank charges interest - so the taxpayers who's funds setup the bank in the first place see a return thats more short to medium term than praying that the toxic mortgage backed erroneously AAA rated securities that helped create this mess will someday become profitable - maybe.

    Is this too simple minded?

    This also allows banking institutions that fail due to mismanagement to suffer the consequences of their actions in a free market. New institutions will surely spring up to take their place.

    I always find it odd - that for a thing which doesn't even exist except as a concept in the minds of the people that money seems to cause so much trouble.

  • Comment number 20.

    No Robert they were right to let Lehman and Washington Mutual go under. They should have let others suffer the same fate. We shouldn't be subsidising these banks, full stop. This idea of an imminent global financial meltdown is just a scam, a useful device for ripping-off the taxpayer in order to secure massive subsidies to support failed and failing banks. The taxpayer is becoming a cash-cow for rogue bankers and large investors who've fundamentally undermined many of the 'financial structures' they've built to support their 'shadow banking' activity.

  • Comment number 21.

    Since the problem is said to be that banks lack the confidence to lend to each other (boo-hoo), and the deleterious effect is that the "real economy" (at last, implicit acceptance that the financial sector of UKplc is and was all smoke and mirrors) cannot easily borrow funds to do its business, why don't darling Alistair and gorgeous George instruct their own banks (NRock and BofE) to lend money directly to these non-toxic borrowers, instead of wasting my tax money investing in failing banks?
    Or does this require them to show better economic judgement than the present crop of bankers? They could always ask Gordy for some tips.

  • Comment number 22.

    What about the 2% of savers who collectively have over 40% of savings? They may be interested in fleeing to a banking system with an unlimited guarantee.

  • Comment number 23.

    One final thought - going back to my point about this information being leaked to Robert on such a freely given basis. I work in the City and I would be amazed if the person doing the leaking didnt also have a vested interest in the financial consequences - ie shorting the FTSE if not already carrying a short on banks (remember you can't take out new shorts, but you can run the ones you originally had).

    Has Robert checked his sources to ensure they are not profiting from any information given to him? Wouldn't be very smart if we all found out that Robert was being used for other people's gains, if not his own.

  • Comment number 24.

    There's speculation that there wasn't a request for capital made by the banks to the Chancellor during the meeting, as orginally speculated that they had. But the damage has already been done. Spilt milk so to say. So much depends on the confidence in the markets that surely during this time, the media must be responsible in it's reporting and ensure that the details are verified and true? If confidential meetings cannot take place, how can the required frank discussions be made to formulate an effective plan without share prices dropping some 38% prompting further panic?

    I respect the reporting the BBC does much, much more than other sources but I do think this mornings report was highly irresponsible.

  • Comment number 25.

    I don't understand why nobody is able to say clearly what the situation is:

    1) UK economy and consumers have been over-reliant on credit aka debt. This is a fine way of financing economic activity -- as long as there is a reasonable expectation that the credit will be repayed with interest.

    2) Now the international money markets have realised that it is unlikely that the UK, UK banks in particular, can meet their obligations and they have turned off the money tap - understandably so. So the UK for the first time in a long time has to stand on its own financial feet rather than drawing in funds from abroad with the impression of a booming economy fuelled by the house price bubble.

    There is nothing really that the government can do.

    Nationalisation can preserve the status quo of what each of us owns, but it won't mobilise funds from abroad. I don't understand why otherwise intelligent people think that the government can help. People who have made unwise lending decisions will have to be burned, how else will they learn? There is also nothing the BoE can do. Intervention will lead to inflation.

    The problem is also not a 'lack of mortages'. What needs to happen is that house prices fall back to realistic levels, if necessary due to massive repossessions, then the market will pick up again.

  • Comment number 26.

    "Bankers all across Europe are watching this meeting, and keeping their fingers and toes crossed, that the finance ministers understand how fragile they are..."

    But do they understand? This crisis has shown how inadequate 'professional' politicians are. A background of being a party hack, a researcher or the like fails to prepare them for big issues that can't be triangulated.

    It should also be said that the BoE hasn't covered itself in glory recently - along with the ECB. Interest rates must come down sharply.

  • Comment number 27.

    The statement: "We all know that governments won't allow retail depositors to lose money - so that's not something to worry about" must surely come either from a Government press release or from the offices of some City lawyers.

    This can only be true if the words are defined so narrowly as to be devoid of their ordinarily understood meaning.

    What happened to Equitable Life?

    Is it not true that Icesave have this morning prevented internet customers from either depositing or withdrawing funds from their accounts? OK, so maybe they haven´t lost money permanently, but they have lost access for the time being - one could argue that this is a necessary first step to any ultimate permanent loss.

    How can depositors money be protected? Only by taxpayer assistance. If we assume that there is some overlap between taxpayers and depositors then they still lose - albeit not directly.

    Why don´t you explain what makes the "Governments" (by which I assume you to mean EU, Australasian, Japanese and North American Governments) so special compared to say Latin American Governments?

    Why don´t you explain that one potential outcome to this crisis is the creation and generation of inflation, and that inflation by definition devalues money and by logical consequence means that retail depositors lose money?

    You´re obviously connected to the Goverment - and if, given the circumstances, this spinning, twisting and turning is the best that they can do then the common man will reach his own conclusions as to both the motives and likely success of any Government inspired rescue initiative.

  • Comment number 28.

    @ no. 5 - no, HSBC are not bulletproof - they are simply the largest bank, with the greatest exposure to all these dodgy 'assets' - and therefore CANNOT be allowed to fail, since their collapse would trigger the end of the financial system.

    However, in the end, fail they shall. This is inexorable. The worlds' banking, pension and insurance systems are stuffed full with at least $200 trillion (and I've read up to $1100 trillion, no one really knows as the banks won't own to what they have on their books) of dog-turd derivatives, swaps and bad debt.

    A new financial system is required.

  • Comment number 29.

    #2

    Do you honestly think that the same information is not already out in the financial market place, all Mr Peston has done is to allow everyone else know.

  • Comment number 30.

    Have I got this right?

    The BoE *lending* money is not enough. The banks now realise that they are never going to be able to repay all the money they need, so are now directly asking for money from the government. Money that it will never repay. An unspecified sum, since none of them know their real exposure to these bizarrely-packaged bad debts.

    Unlimited free money, basically. Money that I will be paying.

  • Comment number 31.

    It has become clear that politicians throughout are supremely incompetent to deal with such a complex crisis. That they understand little of the what has been going on over the past years, is evident in the lack of effective regulation structures. Governments should have realised that the whole investment banking industry was built on greed and short-term speculation. They must cut interest rates immediately and follow your advice, Robert. Peston for Chancellor!

  • Comment number 32.

    It's nonsense to blame RP for tumbling bank share prices. (They also tanked yesterday, before the post on the 'Big Three' approaching HM T - and no doubt before the approach itself.)

    The approach happened. If the media learn of it and are confident in their sources, they have a duty to report it.

    Withholding news of this event would have been a manipulation, not the other way around.

  • Comment number 33.

    re #19,

    DOH!

    I of course mean Robert and not "Nick" .

  • Comment number 34.

    As a simple afterthought to my comment #25 above:

    What is wrong with funding bank loans from bank deposits? That way, all this mess could have been avoided.

  • Comment number 35.

    The only bailout these *ankers should be allowed is from the top of their ivory towers.

  • Comment number 36.

    I would also echo the comment as to whether your reporting is helping or hindering the situation

  • Comment number 37.

    Well you got there in the end Bob - yes of course the wholesale markets need to be rebuilt - sooner rather than later.

    The other 'stuff' is the basic short term requirements to even stand a chance of rebuilding teh wholesale markets e.g near term needs: stabilise banks through liquidity and capital injections (dont skimp on a major restart (ignore ignorant nattering about toxicity and bankers benefitting - part is tru but the bigger risk affects everyone), backstop the value of the structured assets (and by the way craft a more holistic framework for assessing the risk and value), reduce UK interest rates by 2%and force banks to pass on the rate cuts. Accept national interests will be paramount in the short term , but work at the margins to coordinate.

    Then sort out how an independent view of risk transfer / distribution can be assessed. The current crop of CRAs need to be replaced with more diverse opinion not in a controlling oligopoly. Key is that real investors get the relevant information and actually know what they need to assess and how.

    BW

  • Comment number 38.

    #19......who is Nick?

  • Comment number 39.

    "It's what I've described as nationalisation by stealth."

    And is that a bad thing?

    Please explain why we should RENT our money from banks? Why exactly should they alone of all private companies be allowed to create and destroy money?

    This is a *fundamental* question of sovereignty and democracy.

    The world is in need of monetary reform.

    "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."- Lord Acton

  • Comment number 40.

    Does anybody believe that one of the architects of this mess, our PM, Gordon Brown, is capable of unpicking the mess. It is just going to be more muddle along.

    Any solution, if there is one, will come from the BoE, the politicans are out of their depth, it is written all over their faces coming out of meetings. Politicans talking about it and making soothing noises doesnt make the problem go away.

    A politican saying to the person they want to put money on the table, at risk, - you are overstating the risk - has no impact when that person is looking for some sort of action.

    What is going on at the BoE that is the important thing, something has to give in the next few months, sooner rather than later probably.

  • Comment number 41.

    Dear Robert

    Cap in hand , AGAIN ---- its a three way operation, Politics, finanace and the economy, take one away and all fails, ah, but the compounded issue is that they all started the rot.
    However, there is definate blame to be aportioned here and that blame lies squarely with this three,
    Politicians, Bankers and the regulators, they caused the Economy to fail, so the creaters of this crisis and fiasco are Politicians and Bankers, no one else.

    Lehmans Brothers directors personify the reason GREED, pay them selfs $10 million dollors and run, going back to the Public to be bailed out.The cretins of the banking world are are leeches of depravity, who have no respect for the ordinary man and women desparately hanging on to what ever they can salvage form the second Great Depression and recession, Black Fridays used to be once every decade or so, now they come as often as double decker bus, AND it is wholly down to speculators in the stock markets who are doing this, the exact men and women who were directors of Lehman Brothers,who went home with money taken from a liquidated compamy thinking only of themselfs and not one iota about the consequencies, and the harm they have done to ordinary people who trusted them with their money and life savings,
    It is in the hands of thses same individuals to sort this crisis out, but dont hold your breath, no of them can agre to work unilaterally.

  • Comment number 42.

    Reported elsewhere on the BBC website:

    Isn't this making the news Robert, not reporting it? A self-fulfilling prophecy..:

    "Banking shares have fallen in London amid news that the bosses of big banks had met Chancellor Alistair Darling to discuss fundraising.

    Royal Bank of Scotland fell 32%, Barclays and Lloyds TSB were both down 9% and HBOS fell by 14%.

    The banks called on Mr Darling to come up with rescue plan proposals, BBC business editor Robert Peston said."

  • Comment number 43.

    Of course the banks must have cash liquidity somehwere: they would have got it from us, their customers, in the first place.

    Perhaps they have bought securities and other investments with them, and in that case they need to get off their backside and pull those investments back in. If they take a loss they take a loss, but they had our money to start with and they should get it back. We shouldn't have to give them any more cash.

    Cash is the fundamental basis of our relationship to our banks as customers. It was ours, we loan it them to keep on deposit for us. Or are we facing the reality that our banks have p***ed away our money chasing shareholder returns?

  • Comment number 44.

    "...across the globe, there are very few banks that are finding it easy to raise money from wholesale sources"

    "...most banks are suffering a progressive erosion of the money they receive from other financial institutions."

    Could you please explain who these "other financial institutions" are and where they are now putting their money if it's no longer being lent to "most" banks? Is the real issue here that the money is being repatriated to Asia. If so, this seems the real key to this whole liquidity issue.

    #6 suggested "How about the Banks' international creditors taking a haircut?". Can this be arranged? It seems like the only way to regain stability.

  • Comment number 45.

    You are well sourced
    However, did or did not Barclays ask for capital? If they did, and they are saying they did not, this is a real problem of trust for Barclays who have been accused of a lack of transparency in the past. If they did not...Well The Hon Robert I can't believe you would be wrong.
    Credit means "He believes/ed" does it not?
    Important right now.

  • Comment number 46.

    Don't you get the feeling that you're being used by some unscrupulous City types Mr Peston ? I look forward to your reports of the FSA/SFO investigation.

  • Comment number 47.

    As a previous comment alluded to Robert, you are (IMHO) in grave danger of creating news rather than just reporting it. This is a very dangerous avenue for you (and the BBC) to go down. Your comments have been freely interpreted as "Banks go seeking funding" and we see the fall-out from that this morning.

    I understand your objective to be "first" with the news (kudos etc.), but please try and think through the implications of how and what you report.

  • Comment number 48.

    Robert

    While I object to the treasury (aparantly) using you as their press officer, I certainly don't think you should (as others have suggested) keep anything back.

    Lack of transparency is never the right approach - while it may seem attractive in the short term, that way lays disaster.

    It still isn't clear to me what the *real* problem is...

    - Share price down? So what? Surely that is a reflection of the state of a bank, not a cause of it...

    Is it just that banks need to pay interest on interbank loans they have taken out and haven't got the cash?

    Normally the cash would be retail deposits that they receive, and they would take out new loans to cover the rest - and now those loans aren't available?

  • Comment number 49.

    Peston for chancellor!! What a pleasure to have a clear head giving clear explanations.

  • Comment number 50.

    Why don't the government just say it?
    Yes they will recaoitalise the banks and sort out the detail later.
    Yes they will guarantee all savers deposits and sort out the detail later.
    That's what everyone needs to hear to restore some iota of confidence.
    If they don't then questions will be asked about the solvency of the country as a whole.
    Panic will set in like we've never seen before.
    The depression of the twenties will look like a practice run.

  • Comment number 51.

    I hope your mole, either within the banks or the Treasury, is accurate.

    If not you will have made, and unnecessarily contributed to an earthquake in bank stocks this morning which will impact on normal everyday people, businesses and tax payers in the long term.

    Don't forget that whilst you have power without responsibility you still have to look at yourself in the mirror.

    Think about it.

  • Comment number 52.

    It is, I think, entirely correct to complain about the manner in which every twist and turn of this sorry saga is reported by the BBC and, I am afraid, Mr Preston.

    I'm not suggesting that the reporting is the root cause of the banking problems, but the sensational way in which every problem is broken as a scoop, the choice of language used to report those scoops, the focus on stock market losses (rather then their subsequent, inevitable, rises) (and again the choice of vocab to describe those losses) is, in my opinion, adding to the sense of unease which we all feel.

    True, these things ARE scary. However, the BBC ought to report them in a measured manner.

    Also, please keep your dire predictions to yourself - predictions may or may not come true, but they are NOT NEWS.

  • Comment number 53.

    Robert, I have to wonder at your comments. You seem to have no idea about banks, economics or anything. Why on earth did the BBC choose you for this job? What are your qualifications for this job? Maybe a degree from some pumped up University which used to be a college? Sorry, but to say you are incompetent is an understatement. Your hand-waving does nothing for your credibility. It just shows that you have no idea what you are talking about. But then again, no doubt the BBC will keep you on, as they do such incompetents as Justin Webb in the US. Shame on you BBC.

  • Comment number 54.

    Does Robert Peston ever read this blog, or is it a write only medium?

  • Comment number 55.

    I'd imagine that the reason that Mervyn King is not happy about bailing these idiots out is that despite their almost constant meetings for the last 6 months it's now clear that they've been very economical with the truth to him. Had he known the full extent of the problems at the beginning it would have been easier to do something about it.

    The very least price they should pay for their rescue is full and public disclosure of their books on pain of criminal charges against the directors.

  • Comment number 56.

    Robert

    The bigger concern is the inability of Mr Brown et al. in failing to recognise the signs well in advance.

    In this case the horse has well and truely bolted and all the government is doing is delaying the pain for future generations.

    I find it laughable that anyone should believe Mr Brown is the 'man' to lead us out of this mess when he clearly got us into it.

    He should forever be known as the 'spend spend spend, lend, lend, lend' chancellor.

    His failure to ensure banks are appropriately monitored and regulated is astounding for someone who is supposed to be a world leader in finance. And his lack of prudence in putting funds etc. aside during the 'good' years also shows a lack of judgement.

    In any other walk of life he would have been removed from post some time ago, along with Mr King of the Bank of England. Their combined ignorance and gross negligence has cost us all.

    I believe many people are continuing to scaremonger and will make a lot of money from current events.

    Once the Northern rock was 'saved', all banks now consider themselves 'safe' from failure, whether they admit it or not.

    Banks such as Barclays are simply protecting themselves, even though their Balance Sheets are relatively sound in comparison with some other institutions.

    Banks are so last season and need nationalising as its clear they can't be left to their own devices. My tip? Buy BT - just check out their current yield!

  • Comment number 57.

    Apologies if this has already been said:
    If the taxpayer is to "rescue" a bank, then, at the very minimum, we should be doing this in the same way that the bank would do.
    If an RBS customer gets into trouble they pass this distressed lending to a special department. It used to be called (it might still be) Specialised Lending Services ("SLS"). At this point bank charges would usually increase astronomically and in many cases, if SLS considered the customer viable, they would take large slices of equity in the customer for future support. Also SLS would probably insist on restructuring - cutting costs is a given
    So this is the model we should copy - huge charges for our support and as much equity as we want. Slashing executive bonus schemes would be popular start.

    This is not aimed solely at RBS but at any financial institution that we end up bailing out.

  • Comment number 58.

    Naive question: instead of attempting to guarantee deposits, or making actual loans to banks, why don't governments consider guaranteeing inter-bank loans (within limits) and thus re-starting the wholesale system?

  • Comment number 59.

    It is in no small measure owing to Robert Peston's clear and ordinary language that mere mortals such as many of us can keep up with what is going on.

    I for one thank him warmly and I hope that the carpers who have been critical of his delivery desist. The difference is a welcome relief from some of the smarminess of other commentators. It is the content which matters - and that, in robert's case, is just fine.

    When all this subsides, I hope he has along and restorative holiday.

  • Comment number 60.

    #21

    ...and who do you think is the ultimate funder of the BoE and NR if not the taxpayer?!

    Like it or not, the tax payer is going to have to stump up the means to sort this unholy mess one way or the other, what is of more concern to me is were we go from here - a return to the past 25 odd years of magic-money and far fetched mathematical models that even their creators don't fully understand is just not an option, it's funny who the person who claimed to be a house-wife never seemed to understand that you can't spend what you ain't got!

  • Comment number 61.

    @RobertCuk

    "Its not for us to know every detail of every act taken in this drama"

    Utter rubbish! When taxpayers money is required to bail out these these (b)ankers then they have EVERY right to know the minutiae. Let's not forget, the bankers created this mess, and by hording money are perpetuating the problem.

    I for one, as perverse as it seems, think this unfolding disaster should continue. Nothing grabs you by the goolies harder than the memory of a very painful history. Should we come out of this relatively unscathed, I predict the same problem rearing its ugly head a few years down the line.

  • Comment number 62.

    "We all know that governments won't allow retail depositors to lose money - so that's not something to worry about."

    Do we really know that? Just because no retail depositors have lost any money yet doesn't mean they won't if more excrement hits the fan. If the government were really serious about not allowing retail depositors to lose money, then they could offer an unlimited guarantee. They haven't done so.

    So forgive me if I worry.

  • Comment number 63.

    The solution to the banking problem?

    Send RP to Iceland.

  • Comment number 64.

    A problem is the forthcoming cash calls under the Lehman and FMae/FMac CDS'. These could well be $400bn - $500bn payable to the bondholders, many of which are Asian investors. It is far from clear where these calls will come to rest, but in any case cash will have to cross the exchanges through the main banking system. To the extent that the calls fall on the banks, they will not be able to honor them.

    If Asian reserve holders do not start to recycle these and similar flows back to their western counter parties, the system will break. Of course the "real transfer" through trade will eventually be made at significantly lower exchange rates, and the real terms of trade will crush western economies over the next few years, and Asian economies, especially China, will suffer terribly as western real demand shrinks.

  • Comment number 65.

    One of the difficulties here is that banks who are being observed going cap-in-hand to the BofE are, rightly, perceived to be 'weak'.

    So out of the 'big four', only HSBC seems to be not in any particular need for Government handouts.

    It is quite amazing that it has come to this.

    Dad opened me an account with the Midland all those years ago, looks like it might be time to return to the fold.

  • Comment number 66.

    The best thing the Euro finance ministers could do is tell the banks to get their own houses in order and stop pleading like irritating children.

    Failure to comply means the rugs are pulled. The one thing we are not short of is banks.

    The sheer irony, gall and cheek of banks pleading special cases when every customer be they commercial or private, is truly insulting.

    Aren't all the banks customers also special cases or just there to be abused.

    Prudence Brown harks on about morals, well he has opened a can of worms there. Who gave Prudence the moral authority to allow government debt in the UK to be so out of control handicapping teh next 2 generations.

    The man has totally lost the plot and the sooner these loser go the quicker we will get a resolution to all the mess presently going on.

  • Comment number 67.

    Some recent research comes to mind, and these extracts from Philip Ball's book entitled 'Critical Mass: how one thing leads to another' might raise a wry smile:

    "Market traders buy and sell on the basis of beliefs about the market: whether the prevailing feeling is optimistic (so that others will buy) or pessimistic (when everyone wants to sell). But whether prices actually rise or fall depends on what everyone decides, largely in ignorance of what everyone else intends to do. Arthur pointed out that while economists have traditionally assumed that traders use deductive rationality - that they make decisions on the basis of solutions to well-defined problems - in fact they are in general facing a problem which is ill-defined. There is no right answer - except retrospectively, which is not much use. In this situation one can only apply inductive reasoning, based on subjectivity and experience."

    Phillip Ball, Critical Mass: How One Thing Leads to Another. London: Random House (Arrow), 2004, 416-417


    " The crucial aspect of all these activities is that in conducting them we are influenced and affected by the choices other people make. Furthermore, we have to make our own decisions on the basis of imperfect knowledge about what others are doing or intend to do. This interdependence is what makes group behaviour different from a trivial extrapolation of individual behaviour."

    ibid, 390

    "It goes without saying that market fluctuations, particularly recessions, have serious social as well as economic consequences. Economic growth is linked intimately with employment: in a slump unemployment is high, and in a boom it is low. Keynes advocated that during a major, extended slump like the one that followed the Wall Street Crash, governments should inject money into the economy to stimulate it back into a growth phase. Keynes feared that, left to itself, the economic system might spiral into a decline which would ultimately leave it frozen, unable to bounce back through the normal business cycle.

    There are good reasons for believing that Keynes was correct: government intervention may be the antidote to a recession. Certainly, it seems that by pumping money into the economy after the 1987 crash, the US Federal Reserve may have helped to avoid a slump. But the questions about precisely how Keynesian intervention might (or might not) work are complex, hingeing on such issues as the lags between increases in monetary supply and their effects on the market, the question of how to define 'monetary supply' in the first place, and the expectations generated by interventionist policies. These complexities are beautifully explained in Paul Krugman's Peddling Prosperity (1994)."

    ibid, 273 -274

    Is Keynes about to be rehabilitated?

  • Comment number 68.

    It's OK everyone, I see that Gordon has asked the banks nicely to stop taking huge risks with our money and to adopt a 'work ethic'.

    Nice one GB - I'm sure that will solve the problem.

    Next you can try asking criminals to 'stop committing so many crimes and start being a bit more responsible'

    ....or tax evaders to 'please pay up what you really owe and be more honest with the Inland revenue'

    ....I could go on - and I'm sure he will.

    I wonder what combination of the following Richard Fuld (ex Lehmans Boss) is thinking today

    Monkeys
    Give
    a
    couldn't

    At least the states are trying (in vain) to bring some of these crooks to book. We're just planning to give them more of our money.
    Any CEO of a failed bank should have their wages recovered under the proceeds of crime act - starting with Applegarth and his merry band of thieves.

    ...but of course that can never happen, because they will simply cry and blame the government for letting them do it in the first place. Plus the fact that the government hope to get non-exec posts in these banks when they're finished running our country into the ground.

    Cost of bailing out the US banks - $650 Million
    Cost of re-insuring the CDS market - $53 trillion
    Cost of a CEO parting 'gift' - $300million
    Cost of watching the capitalism fall, food riots in the streets and the end of human civilisation? - PRICELESS.




  • Comment number 69.

    Robert Peston like every other journalist, is a story-monger. He does not have the credentials or the experience or, one imagines the will, to be a financial pundit (see his Wiki entry). Fear and hysteria are two of the principal stocks in trade of journalism; and he is very good at deploying them in his chosen field. As has been very clearly demonstrated by science, chimpanzees are slightly better than journalistic pundits at predicting the outcomes of current events, if presented in a yes/no scenario. So Peston's work should serve as a stimulating tonic for hypothetical discussion rather than, as so many bloggers seem to think, any kind of actual analysis of how things really are, or how they might turn out.

  • Comment number 70.

    Re 25 HousePricesWillFall

    The problem is when a bubble collapses it will do substantial damage, widespread, negative overshoot. Better never to have the bubble but that is where we are. The bubble was engineered. There has never been a bubble this big with the global interconnectivity and speed of communication. The fear present is the realisation that things have to drop to a realistic sustainable level, a thinning out process which will hit the top predators. This process is also starting to bite in environmental issues. You are watching the collapse of an entire concept, the American Dream.

  • Comment number 71.

    Are the banks becoming more panicky as Friday looms, in expectation of pay-outs on up to £230bn of defaulted credit derivatives linked to Lehman Brothers?

    According to today's FT, Michael Hampden-Turner, a credit strategist at Citi, estimates that there could be $400bn of credit derivatives referenced to Lehman.

    These contracts will be settled on Friday and ... the pay-out by banks and other sellers of credit protection on Lehman could reach a gross $360bn.

    UK banks' exposure or otherwise to this hasn't been quantified or explained in any article I've seen.

    Perhaps one for Robert Preston to tackle.

  • Comment number 72.

    If Western governments now have to guarantee that the money markets will not lose money by lending to banks then we will have reached a point in which most major banks are explicitly 'too big to fail'. Whilst we may have to swallow this to prevent total meltdown of the economy, it should not be forgotten once (if?) we get out of this crisis, and any bank given this protection should be broken up so that it is no longer to big to allow to go to the wall.

  • Comment number 73.

    I'm a retail depositor with my family savings (greater than the current guarantee limit) in IceSave. Is that not something to worry about?

  • Comment number 74.

    #40

    Gordon Brown is not one of the "architects" of this mess, he might be a bricklayer though, blame were blame is due, Thatcher, Reagan and Friedman - those three are the true "architects"...

  • Comment number 75.

    I've posted this before, so apologies.

    The only solution which will work is to join either the dollar or, more realistically, the Euro.

    I really hate to suggest this, but the only way to prevent sterling being picked on (following any necessary interest rate cuts) is for it not to be around any more.

    If we could just join it now at about these levels, and benefit from the size of currency bloc we'd be joining, the problems facing our banks and economy would gradually fade away, and the markets would pick on someone else.

    This problem is a matter of trillions, and is too big for any individual country, even the US, let alone to UK, to fix.

  • Comment number 76.

    Many savers will be rejoicing over the increase guarantee of £50,000. However, what I wonder does this guarantee cover? For example a saver invested £45,000 on a fixed term for one year three months before the bank went down. The interest would have been due at the end of the term. Will that investor get just his/her capital back or the capital plus three twelfths of the interest they would have received had the term been completed. Scenario two would be where the investment was same except monthly interest. Would the amount covered include the monthly interest that had already accrued?

    In all cases it is clearly going to be months, if not a year of more, before investors get funds returned, will they be getting any interest on the funds during the period between the bank failure and the repayment? If not who will be benefitting from the use of those funds – the Treasury?

    Where investors have funds with foreign banks covered by the European passport scheme, will they be able to make concurrent claims under that scheme with the FSCS guarantee. Or will they have to wait on the European claim being processed before applying under the UK scheme? If so there will be an even further delay in obtaining the funds.

  • Comment number 77.

    I think we should adopt the model proposed in #57.

    Sure, use taxpayer money to save the banks, but then charge a near illegal rate of interest, threaten the banks with court action and eviction, before rolling some bailiffs round there to remove goods.

    Shoe - foot - other.

    Let them see how it feels. That would be true justice.

    However justice is designed from the government and they have already shown their loyalties in this.

    Anyone who has their savings witheld and prevented moving them (like the icelandic bank) should immediately send a letter to the bank headed 'NOTICE OF IMPENDING LEGAL ACTION'.

    It's time the law protected the majority - and not the minority in this country.

  • Comment number 78.

    #50

    Paulson tried that stunt, it lead to the largest single dip in the US stock markets since (probably) 1929... Sorry but the information is in the details, those details need to be known before anything is announced - otherwise it's called making policy on the hoof.

  • Comment number 79.

    I just get the feeling that all we are doing as taxpayers is giving Banks more of that stuff (money not liquid) to throw about - where is it all going and if it doesn't exist as some of you say why should we give them more to do it again! Surely this is a never ending cycle promoted by fear by the government?

  • Comment number 80.



    Mr Peston, i have seen you on the TV and I am saddened to say, you dont have a clue!!! People like you are causing undue panic and apprehension, your sensationalism form of journalism is amateur and distanced from the real issues.

    Get off the BBC as a licence payer I am sisckedn to think people are taken in by why you say,

    God help the BBC with Mr Peston as the business editor

  • Comment number 81.

    "43. At 11:04am on 07 Oct 2008, amckuk wrote:

    Of course the banks must have cash liquidity somehwere: they would have got it from us, their customers, in the first place."

    What do you think banks do with the money? Put it in a vault?

    No, they lend it out at interest. And they collectively lend out MORE than existed in the first place.

    e.g. Lets pretend the reserve ratio is 20% (they have to hold on to 20%)

    Bank A starts with 100, lend out 80. It goes to Bank B.
    Bank B starts with 80, lend out 64, 16 reserve
    Bank C starts with 64, lend out 51, 13 reserve
    Bank D starts with 51, lend out 41, 10 reserve, it goes to bank A
    Bank A etc etc

    Bank A has 100 deposited, 80 lent.
    Bank B has 80 deposited, 64 lent.
    Bank C has 64 deposited, 51 lent.
    Bank D has 51 deposited, 41 lent.

    295 money, only 100 was originally there.

    Do you see how banks create money... How the credit and debt winds up, and how it will unwind?

    Thing is, the debt... is exponential. It pays interest, it consumes the credit as it is paid. You get a financial boom as the credit is created, and a financial crash as the debt consumes the credit. It's inevitable.

    The only thing you can do is change the timing through varying interest rates, try to make your political opponent look bad when it crashes.

    And that, is the nature of our society and of our politics. It is an ugly system which rewards the wrong people and it should be replaced.

  • Comment number 82.

    How different is this crisis to the 1970's secondary banking crisis? How did governments get that sorted?

  • Comment number 83.

    What about London as a financial centre now, Robert? Will foreigners lift their money and go away.
    It seems to be beyond the pale of the Eurozone rescue, because London's accounts are denominated in sterling.
    Is this the series of nuclear explosions that finally wipes out England's rotting institutions.
    A catharsis that the rest of Europe and Japan benefited from as long ago as WWII.
    Any thoughts Robert? Or do you think the English will continue to put their blind eye to the telescope and try to bluster and bluff on. What do you think Robert?

  • Comment number 84.

    Why not tap shareholders for money with the taxpayer taking up whatever shareholders dont subscribe for?

    This ensures the government is only plugging what it has to plug.

    And shareholders have the incentive to protect their holdings.

    With so much going on, the government should be minimising the call on its own funds.

    Especially as maximum leeway in the public finances may be needed later on.

  • Comment number 85.

    #54

    I suspect many reporters that "write" blogs are in fact just transcripts of their pieces that are published elsewhere (Robert is a regular contributor to Radio 4's "Today" and "PM" programmes at the moment".

    As such, I wouldn't be surprised if they are written on to the blog programme by someone else, a junior of some description.

    Whether the author reads any of the comments is probably down to personal choice.

    And time.

    The latter item is in short supply for Robert at the moment I would think.

    I will be happy to be proved wrong. :)

  • Comment number 86.

    That the chairs of the banks should meet with the Chancellor seems entirely unsurprising at the current time.
    Presumably what was discussed was leaked out of the meeting by someone not for the greater good but for their own ends, politival or financial.

    Perhaps as seems to be happening forcing the next most vulnerable bank towards the brink to permit a state sponsored take over by another bank - RBS as would seem to be.

    Being first to report on the sinking of the Titanic may be the journalistically holy grail - just so long as the reporting beforehand hasn;t contributed to the captains choice of course.

  • Comment number 87.

    Peston, seriously, belt up. As far as most of us can gather you are one of the prime sources of information in the market at the moment - lord help us - and you are materially responsible for the current misalignment between financial fundamentals and investor perception.

    Save it for the dinner parties.

  • Comment number 88.

    Robert,

    Don't you think it's about time you reported more responsibly and use your judgement on each issue as it comes up!!! Thanks you you and other reporters this "secret" meeting with "The Big Three Banks" is now splashed all around the world and people are panicking!!!
    I spoke to my financial advisor yesterday at Lloyds and he was going mental and was completely fed up at you and other reporters over this irresponsible reporting. He said that Lloyds has LOADS OF MONEY, that savings are safe and if you stopped panicing us all, this whole thing would be a lots less worrying.

    PLEASE THING BEFORE YOU BLOG!!. You're getting VERY annoying

  • Comment number 89.

    No more bailouts. The false inflation of assets got us into this mess: using taxpayers money to underpin the system is only going to create vast inflationary pressures we'll feel in a couple of years.

    We stoked the fire too hard on cheap credit. It's time to let it all fall back, possibly with a brief period of utter anarchy. The banks must learn some degree of responsibility again, and this can only happen if they are allowed to fail utterly.

  • Comment number 90.

    Robert,

    At present it is far from clear that governments will protect all depositors.

    I, along 350,000 people from the UK and the Netherlands have money in Icesave, the Landsbanki internet bank.

    This money is garenteed by a passport system, that is, the first 20000 euros is garenteed by the Icelandic governent, not the our FSA.

    Landsbanki, now nationalised, has many billions of UK (and Dutch etc) savers money. This is a substantial chunk of a now collapsing Icelandic GDP.

    I agree that contagion from Landsbanki could cause macro-economic problems, but for thousands of UK savers (and Dutch etc) it is far from definite that their savings are safe.

    Alaster Darling should make a statement to confirm that they are.


  • Comment number 91.

    Clearly a big part of the problem now is the media feeding frenzy that you (Robert) are a big part of.The amount of (ill informed?) comment on radio ,tv and print is incredible as you all vie to tell us ''what the problem is'' and ''how we should deal with it''.The reality is no one knows the answer because its not simple enough to put it in a 1000 word piece in the paper,on your blog or a 2 minute soundbite on the evening news.
    In fact all I hear from ordinairy people is please shut up,we can do nothing it,but you make us all feel worse and induce panic among small investors which in turn make s it much worse for the banks.Blowing the Irish Bank ''Gaurantee'' out of all proportion iwas a case in point,short term headlines to get (you) more exposure and achieve absolutely nothing (the Irish CGovernment cannot even cover all their banks savings accounts anyway) .Take holiday please and save us all the hand wringing,leave that to those who can make a difference .

  • Comment number 92.

    Mr Peston
    Surely it's just a instinctive extreme reverse action. They didn't understand the risks before hand they still don't understand the risks and how to estimate it so they won't lend fulfilling their own worse fears about risk. Basically we're still in a bit of a headless chicken panic phase but at least some governments are trying to calm things down and who knows Europe might manage it. For those wanting to know about Fractional Reserve Banking (FWIW_FWIW), apparently it is the basis of all our modern deposit type banking. Apparently stems from gold and silver smiths and a way of starting paper currency. From my understanding the system is vunerable to panic situations that exascerbate a problem e.g. Northern Rock, would have been ok if people hadn't needlessly panicked. The idea behind backing all deposits is in a way to stop the potential runs we saw with Northern Rock and to allow lending (probably mainly small scale) to prevent the flow of money from stopping. In a way such 100% backing takes banks out of the fractional reserve banking system as they will have sufficient funds to meet depositers demands. The problems started in those that probably did a different form of FRB i.e. mainly lending to each other or purely investment type banks. Hence the hoo-ha surrounding Goldman Sachs and Morgan Stanley (wasn't it?) who became depositor banks.

  • Comment number 93.

    So Barclays, HBOS and Lloyds TSB have categorically denied that they asked for Government capital and RBS have declined to comment. I doubt you’ll report this.

    You got it wrong.

    In the mean time, following your LIES this morning, bank stocks crashed ensuring the liquidity crises will be prolonged. Whilst good banks, caught up in this mess will be able to rely on BOE funding, small businesses like the one I work for will struggle to survive.

    I’m sure that you think that your career with an unaccountable state owned broadcaster is more important than the 30 or so people and their families that I work with, not mentioning the hundreds of thousands of the other families in the same situation, but I can assure you that it is NOT.

    Stop your ego trip and get on with reporting facts not peddling lies.

  • Comment number 94.

    "72. At 11:36am on 07 Oct 2008, afcone wrote:

    any bank given this protection should be broken up so that it is no longer to big to allow to go to the wall."

    Isn't the definition of "too big to fail" basically that the national interest will be seriously harmed if it fails? And if that is the case, shouldn't it be nationalised to make sure it can't fail?

  • Comment number 95.

    Slowly coming to the conclusion that Robert Peston is more concerned advancing himself than decent reporting;
    1) Providing the facts.
    2) Providing decent analysis.
    3) Objective rather than subjective.
    4) Having something worth reporting in the first place.

    The problem I think the BBC, and all other news channels have, is there is simply not enough "news" to fill a 24x7 service and so you end up with noise being presented as news.

    Yes there is an issue here and it does need reporting but it would be good if we could focus on the quality of the reporting rather than quantity.

  • Comment number 96.

    Lack of cash flow in banks? Negative balance sheet? Debts outweigh credits? How many small businesses have been in this situation, gone to their bank for support via overdraft/loan having to give their houses as security, been turned down and consequently gone bust?

    SURELY THE BANKS ARE IN THE SAME SITUATION? THEY ARE TRADING INSOLVENTLY. It's about time that they had a taste of their own medicine - get the CEO's to put their own money back in, put their property up as security, and if that doesn't work, let them go bust.

    Yes, it is vindictive, but why should those who they have made suffer badly over the last year bail them out? All the government is doing is paying them to break the law - if the banks can trade whilst insolvent, then why can't small businesses!!!!

    I AM SICK TO DEATH OF THEIR BULLYING AND ARROGANCE BEING ALLOWED TO CONTINUE. Let them fall then we'll pick up the pieces.

  • Comment number 97.

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

  • Comment number 98.

    Since one of the justifications I have heard for large salaries in large risk, if the banks get nationalised so that the high flying city types are effectively glorified civil servants, can we expect to see them drawing civil service salaries....

    Say "SO2" grade, if I remember my civil service days :-)

    Just doing my cynical bit....:-)

  • Comment number 99.

    Robert says -

    - We all know that governments won't allow retail depositors to lose money - so that's not something to worry about.

    Where on earth did this one come from ? One of the dozy Bankers ?

    OK so Robert and his dozy Banker buddies say that the Banks can just forget about having a solid foundation of safety first depositors.
    Forget about them and don't worry.

    So instead, let the Bankers have a foundation built on a bed of shifting sand of unguaranteed depositors.

    Then let's see how long they stay in business when the money gets withdrawn.

    Sound deposit base first and then the rest can follow.
    No sound Deposit Base , no Bank.

    To say ''That is not something to worry about'
    is simply dangerous, opinion based, unfounded hollowness.

    The Treasury would be wetting their pants if they actually understood why there is a need to guarantee deposits.
    Too many Government and Banking people working around this problem are simply too dim to understand the underpinning basis of the Banking System.

    The Incompetent leading the Don't Knows into Russian Roulette with our money.
    Shame on them.

  • Comment number 100.

    I posted something similar to this on Justin Webb's blog: As the British Post-War Consensus came to an end in the mid-seventies; the 'Thatcherite' (though monetarism in the UK started with Labour government in 1976) consensus that followed it is now coming to an end. Both lasted for about thirty years. For each of these consensuses to work both main political parties have to base their policies and political world-view on it. So I agree with Justin that no one single party is to blame - it's the thinking used during the last couple of decades that is to blame. Who started this 'thinking'? It doesn't matter; the point is it worked at that time. If something works don't change it.

    I don't think the Recapitalisation programme that Japan used will work this time as the economics that underpins current thinking is failing. If it does work, I believe it took Japan ten years to recover. I don't think the global economy can wait that long - history tells us what happened in the Thirties and this is something that is to be avoided at all costs. The immortal words: 'Never again' spring to mind.

    Call me an old British Leftie, but the only alternatives to me are either a 'mixed' economy (Keynesianism), or nationalise all the banks (both options will get banks lending to each other, to businesses, and to us again). When the economy improves, privatise them so the taxpayer gets their money back. Then do the same thing thirty years later.

 

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