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Full deposit protection is nigh

Robert Peston | 17:04 UK time, Sunday, 5 October 2008

The decision by the German federal government to guarantee all private savings in German banks is momentous.

In a globalised banking market, in which money can leak across borders like a sieve, it will be almost impossible for the UK not to follow Germany's lead.

I would be immensely surprised if Alistair Darling, the Chancellor of the Exchequer, didn't announce a similar commitment within the next 24 hours.

The formalisation of full protection for depositors throughout the European Union became almost inevitable after similar decisions were taken over the past few days by the Irish and Greek governments.

But Germany is the biggest economy in Europe, a global powerhouse, with a banking sector that for years prided itself on its conservativism.

That Germany is the first of the major European economies to provide 100 per cent insurance to private savers shows just how fragile its banks have become.

The trigger for the announcement seems to have been the desperate straits of Hypo Real Estate, the commercial property lender whose rescue in jeopardy.

But that's only the trigger.

The underlying cause is a near-total collapse of confidence by creditors to banks and by bankers themselves.

Update 19:16

What an unfortunate mess. Just hours after leaders of the UK, Germany, France and Italy promised to co-ordinate their responses to the global banking crisis, Germany seems to have struck out on its own - by offering 100 per cent state-backed insurance to the country's private savers.

The German initiative - which is long on resonance and worryingly short on detail - caught the British Government off guard. The UK Treasury wasn't expecting any such drastic attempt to shore up confidence in Germany's banks.

And although official statements from the German government are unambiguous that savers money will be fully protected by the state, there's a disturbing lack of detail about precisely how this guarantee would work.

For example, it's not clear whether this is a formal, unambiguous commitment to take the retail liabilities of the German banks on to the public sector's balance sheet - a commitment would add many hundreds of billions of euros to Germany's national debt.

Also, to add an almost comic element to Germany's evasive action, almost simultaneously there's been a statement by the EU Competition Commissioner Neelie Kroes that blanket guarantees on bank deposits by individual members states are "discriminatory".

Kroes added that she was hopeful that Ireland's controversial 100 per cent guarantee - launched last week - would be modifiedn in "a form for which we can together state that it is line with the treaty".

At a time when there's profound unease across Europe about the safety and security of our banks, the spectacle of governments seemingly at odds with each other and with the Commission is unsettling, to put it mildly.

Comments

Page 1 of 2

  • Comment number 1.

    Does anyone know where these huge amounts of money the government have found to bail out the banks has come from exactly?

    If we have tens of billions of pounds just lying around in a spare drawer somewhere can't we fund things such as the NHS more, rather than banks?

  • Comment number 2.

    I don't think the last para of the blog was necessary. The implicit suggestion that Germany's actions may be the forerunner to a return to National Socialism in that country is as ridiculous as it is offensive. I bet if anyone had replied to this blog with a suggestion that Germany was reverting to 1930s-type, our post would be blocked, so let's keep the same standards for your journalists, shall we?

    Back on topic, I think we can expect another plunge in bank shares tomorrow. The Treasury, courtesy of RP's blog yesterday and Ally Darling's comments on the BBC today, have already prepared us for government investment directly into the banks. I suspect the Treasury will see what happens tomorrow, and if there's panic then we can expect to see government intervention overnight Monday/Tuesday.

    Incidentally, if such action is necessary, I hope we'll see similar restrictions and actions as has occurred in Ireland, Germany, and implied by President Sarkozy. It has been confirmed in Ireland that the government is going to appoint Directors to the Boards of the banks it is supporting. I think Chancellor Merkel has called for controls on the earnings of senior managers in firms requiring assistance, and Sarkozy called for disciplinary action for those who have caused this crisis. All reasonable requests in my view.

  • Comment number 3.

    "And I hope you'll forgive my stating the blooming obvious, that there's an unfortunate Great Depresssion resonance in the decision of the German administration to stand behind all private savings."

    Robert, are you suggesting the Germans are going to have a third attempt? That is, after all, what ended the last depression.

  • Comment number 4.

    Robert,

    Most bloggers have been saying this for the past few days ever since the Irish announcement.

    What concerns me most is the seeming inability of the so called experts, the FSA, to appreciate the situation, when amateur, but interested, bloggers can see the writing on the wall. How can the FSA possibly regain some credibility after Friday's announcement of 50000 pounds and a review?

    These people (the FSA) are being paid very well by us to be ahead of the curve - not behind it! Many of the contributors to your blog have proved to be more acutely connected to the real world than the FSA. The FSA needs to seriously consider its position. If they (the FSA) carry on like this they will be the direct cause of a panic, as they were in NRock - have they not understood anything in the last year!

  • Comment number 5.

    If the UK were to guarantee all deposits, what will this do for the overall economy?

    If we are actually in a better position than some of our European friends to weather this storm, despite what some might say, will following suit make our later responses more sluggish and reduce our options?

    Or is it simply the case that not following suit, despite the (possibly) more secure state of UK banks, will damage perception and confidence to such an extent that there isn't any real choice?

  • Comment number 6.

    Lst yer I think I read that most Hungarian mortgages were denominated in Swiss Francs. any news on how the latest events have affected them

  • Comment number 7.

    Robert,

    I don't think I've yet to read one of your posts on the BBC website, or listen to one of your comments on BBC radio, where you haven't been unnecessarily pessimistic.

    Granted, the financial situation we are in is very grave, but I fail to see how, given the whole western economy functions on confidence, your pronouncements can do anything but make the situation worse.

    I heard you recently say on, I think Radio 5, that you didn't feel you had any responsibility in this area. I'd say you have a greater impact then you know!

    The negativity espoused in the media must rub off onto traders, bankers and the average person on the street . I'm glad to see that the media didn't learn any lessons from the Northern Rock shambles! "All we do is report the news".

  • Comment number 8.

    I wish I could share your optimism Robert. Brown and Darling have shown their complete lack of decisiveness throughout this crisis. Indeed, if they had any sense they would have realized when Ireland decided to guarantee all their private deposits that this was the only sensible path to take. Their failure to act then has demonstrated their utter incompetence.

    The irony is, of course, that such a guarantee actually would cost nothing since its objective is simply to create confidence and thus prevent a run on the banks.

    Sadly, the reason they are continually being caught out by these events is because they - along with many of the economists who think Brown is an economic genius - just can't grasp that it was their economic strategy of the last 10 years that has caused this mess. Until they acknowledge this simple fact and instead continual in denial mode then the situation will only get worse.

    However, to be honest, whatever is done will be too little too late. The time for action was 10 years ago, not now. We are heading for a deep depression ala the 1930s and nothing can be done to prevent this.

  • Comment number 9.

    If HMG has covers all deposits, what then is the benefit of Treasury Bills? The difference in rates (6% Vs 3%) has no value, since the lower rate of Treasuries was in return for security. This means that either Government borrowing is going to cost signficantly more or there is going to be a cap on savers rates.

  • Comment number 10.

    Presumably the pound is just about to go through the floor, along with the dollar. Is the time coming to invest in BRIC currencies?

  • Comment number 11.

    Banks used to be thought of as a safe haven for your cash and investments. Not any more, not after the bankers exploits and evolutionay practices of the last 10 or 20 years.

    Since bankers have blown it, and who knows if that genie can ever be put back in the bottle, we need a new institution that takes savers deposits and makes the ordinary loans society needs for everyday activities.

    If banks want to engage in more exotic activities and keep their prospects secret they should be cut loose, not given any government protection and allowed to sink or swim with their shareholders and customers. But also the swashbucklers should be prevented from taking deposits from ordinary people and issuing mortgages and the like.

    You wouldn't allow Mr Bean to run an electricity company, so why allow a banker to run the essential public service of taking deposits and making mortgages.

  • Comment number 12.

    Does the UK's level of debt versus GDP not have some say in whether we can "guarantee all bank deposits" or not?

    And is it really necessary in the UK? I think the major valid reason is consumer confidence. If some countries guarantee unlimited deposits, then to retain money in UK accounts the UK must do the same.

    The banks that are still operating in the UK have all had rights issues...

    If Darling is to follow Germany/Ireland/Greece, he should do so before the stock market opens.

  • Comment number 13.

    Indeed, how is this to be accounted for if it comes to pass?

    As a huge asset on state books with accompanying liability?

    Will the government be buying CDS to cover its positions? After all that is what the market would do to reduce the risk.

    If all the banks go bust, which is what Robert is really implying then it implies that the Government thinks we are about to be in great Depression too.

    All bets are now off in this case and only a madman would be an investor...

  • Comment number 14.

    #2

    The sooner the government appoints monitors to uncover the situation at all banks the better IMO. These monitors should be given access to all bank information.

    Now granted, the banks don't have all the information themselves on how exposed they are (hence the current state).
    However, even if the government gets only a tiny bit more information than it has currently then it is better equipped to make decisions for the collective good.

    We certainly shouldn't rely on the banks to act in harmony to save the system. The German experience illustrates this.

    Of course, given the governments recent record on safeguarding information the banks might be a tad reluctant to allow this to happen...

  • Comment number 15.

    Interesting to see the last paragraph has been removed, is this an editorial decision?

  • Comment number 16.

    Robert, why don't you explain to your readers about the Fractional Reserve Banking System, how money has been created out of thin air by writing debt?
    This simple video explains it all.
    http://video.google.com/videoplay?docid=-9050474362583451279

  • Comment number 17.

    Am I watching a Hollywood disaster movie or is this really happening? I'm looking forward to the day when the BBC (??) spends, say, a day on TV or the radio airing this global financial crisis in full - cutting and dicing the problem from all angles and setting out the true economic and social consequences of this thing blowing up in our faces (as surely it will).

    This is the usual way that the BBC and other news organisations deal with a major crisis (eg Twin Towers, London Tube Bombings etc). Why is the BBC so reluctant to explore this crisis in detail? Could it be that the potential consequences of what's happening at the moment are so alarming that the BBC's decision-makers (like our impotent politicians) are caught like rabbits in a headlight?

    This tendency by our politicians and the BBC to respond to each new astounding revelation on an event-by-event basis smacks of panic. Let's take time out to step back, inhale a deep breath and take a long, hard look at what is really going on here. Then, let's hear some credible experts (not politicians, for God's sake ...) give us some objective, hard-nosed views on what lies ahead and our options for dealing with the situation.

    Frankly, I'm now more interested in the strategic geopolitical and social implications of all this rather then whether or not this or that bank will be saved by yet more debt and money printing. It's time to look at the big screen scene.

  • Comment number 18.

    # 1

    James,

    How the Treasury funds injections into banks depends on the structure. In the case of a guarantee of deposits, there is no cash (or anything else) involved. Basically, there will only be a cash payment from the Treasury in the event that a bank cannot repay its depositors as and when they withdraw their money. The thinking behind it is that by guaranteeing the deposits, people will feel more secure and not withdraw the money in the first place.

    The money that we keep hearing about the BoE making available to banks for liquidity purposes takes the form of short-dated Treasury bills. Governments have the unique ability to print money, so that's what they have been doing (as T-bills rather than GBP 50 notes), and swapping them for banks' assets, such as mortgage backed securities, and now securitised car loans and other similar paper. Printing money is generally not a good idea. It's inflationary. Done in extreme it causes the kind of inflation we're seeing in Zimbabwe (11 million % the last time I looked). However, the assumption with the bank funding we're seeing now is that it ought to be short term, and hence the extra money in the system will be withdrawn once banks regain some confidence in each other, and hence it shouldn't be inflationary.

    If the Treasury does end up making a capital investment into banks, I suspect they'll fund it by issuing longer-dated bonds (5-10 year gilts I would guess - all depends on how long they expect to hold the investments) and selling them to institutional investors. There will be a good market for them. This would actually be a great carry trade. The Treasury would probably have to pay about 5% to borrow the money, and be able to demand 10% on any issue of prefered shares it bought in the banks (based on Buffett's deal with Goldman Sachs), so the Treasury makes 5%. The obvious proviso here is that the bank(s) it invests in survives. Hence any investment like this should only be made into a probable survivor and not the lame.

    Anyway, that's a long way of saying there isn't a big pot that's been lying around for years instead of being invested into healthcare or education!

  • Comment number 19.

    Rob, do all of these guarantees actually mean anything? Where is the money to back them up coming from? If multiple banks collapsed, how would governments be able to afford covering the cost of everyone's savings?

  • Comment number 20.

    Robert

    I think that in saying German banks are renowned for conservativism you're inadvertently bringing in British party politics -- surely it's just conservatism they're known for.

  • Comment number 21.

    If the Treasury/government were to recompense the shareholders from Bradford and Bingley and Northern Rock at £2 or £3 pound a share, but payable in shares in Barclays, Royal Bank of Scotland or Lloyds/TSB/HBoS, it would put a solid floor below the share price of those banks,(and prevent the certain litigation in the future, regarding their nationalisation)preventing any self perpetuating downward spiral on the share price of these remaining banks.
    With this level of support , those same banks should be compelled to undertake huge rights issues, underwritten by the Treasury.
    If you were an investment fund manager , surely you would want to take up your rights in a government backed bank rather than in any other sector about to be walloped by the credit crunch.
    Private investors would see that the government were treating loyal bank shareholders almost generously and hence there would be demand for the new shares.
    If the rights issue is fully subscribed without recourse to the Treasury underwriting, then immediately repeat the process.
    If on either issue the Treasury is left with some stock, then that would only enhance the rock solid nature of the newly fully capitalised British banks.
    Would then all the British banks be given AAA ratings by the wholesale money markets.
    Perhaps then, our Banks would be in a position, like Santander, to be picking up bargains, rather than waiting for the vultures to pick off the next British bank victim.
    Otherwise, we have only the option of a further British Bank nationalisation or the further consolidation down to just three big Banks.
    I am sure that Gordon Brown would prefer to be seen as the clever Prime Minister who turned things to our advantage, rather than the man who "pinched" our shareholdings in Bradford and Bingley and Northern Rock.

  • Comment number 22.

    Im sure the moderators or some liberal mamby pamby will block this post but here goes....I have said for years when discussing the run up to the WW2 that there could be a set of circumstances however unlikely that could lead to Germany adopting very right wing ideals again and starting the descent into them reverting to type...I will apologise to any one this has offended but watch this space.

  • Comment number 23.

    Why is the UK always following behind other countries in Europe... We elected this government to lead not to follow. The FSA need to act immediately and gaurantee all savings.

    Has the FSA been sleeping again!

    is the first few step to protectionism?

  • Comment number 24.

    Having worked in public service all my life, I knew the penalties for failing to act properly. Had I wilfully committed acts of gross carelessness, I would have been fired with no redress, possibly prosecuted.

    Banks are effectively public services managed in the private sector. Those who work for them should be in no different a position than any other public servant.

    As a last point, despite having met and usually exceeded set performance targets, I never received nor expected a financial bonus. My reward was the job well done.

  • Comment number 25.

    So that is the end game. All deposits guaranteed at some truely humungous figure which could never be produced if it was needed, coupled with some sort of buy in on the banks by whatever mechanism, at a truely humungous sum which somehow will be magic'd out of the air, probably in stages with the same money revolving around by sleight of hand. Not going to have any negative impact at all. What a brilliant conclusion to the Brown delirium. Not that any of his policies or concepts are bankrupt. I think 4000 monkeys with 4000 typewriters and 4000 years could do better.

  • Comment number 26.

    Robert Preston:
    i think it is a good idea to protect the "customers" money to a reasonable rate....not at 100% coverage!

  • Comment number 27.

    @ comment 2 -

    I certainly did not read into Mr Perston's blog post any "implicit suggestion that Germany's actions may be the forerunner to a return to National Socialism in that country" whatsoever.

    Indeed I suggest that the patently ridiculous comments are not Mr Peston's but yours!

  • Comment number 28.

    I can see the future. First, it will be Europe, then Asia, Central and South America in quick order and by the end of the week even certain states in the US.

    Wonder will they call this the "Irish Gambit", or even the "Cowen Commitment"? Will Cowan win the Nobel Prize for economics?

    Seriously, it will take national level efforts such these to stop the bleeding. There will be boardroom level bleeding of course...but that blood letting will be the medicinal sort.

    I hope that once the support structures are in place, they will then re-work the mechanisms to ensure this never happens again. However, I can never exactly trust a politician or a civil serpent to do the proper job!

  • Comment number 29.

    Trust and confidence is the issue, and by all counts (the regulators) have said the Irish banks were well capitalized. As an open economy of 4 million people million they had every right to bring in legislation to stop a run on 1 or 2 of their six major banks. I think the Greek and German actions have shown their actions to be correct. Leaving those banks fail who have created a domino effect on the others. Those at the BBC (newsnight) who seemed to have taken a very negative view of Ireland and its 'anti-competitive' stance should think again! I have no doubt they will be applauding the 'decisive' actions taken by Brown if he follows through with similar legislation tonight!

  • Comment number 30.

    #8 XCAnderson

    I agree with the general thrust of your comments and conclusions, save in one particular.

    You seem to be under the illusion that it is the policies of the last 10 years that have caused the problems. Here I disagree with you - it is the policies of relaxation of regulation that date from the 1980s that are the real cause of the problems. These policies were put in place by the government of the time and carried on by subsequent governments. (Subsequent governments, both Tory and Labour, made it a point of their manifestos that they going to continue with the existing economic policies.)

    So if you want to blame anyone I believe that you should blame the Prime Minister and advisers of the time who changed the regulation policy- Mrs Thatcher (and her mimic Ronald Regan)

  • Comment number 31.

    Does this mean that we can now stop dancing around the handbag and talk about how we're going to deal with the economic and social consequences of a depression?

  • Comment number 32.

    "Does anyone know where these huge amounts of money the government have found to bail out the banks has come from exactly?"

    Sigh. Governments don't have money of their own. They get it from tax revenues. So what they use to bail out banks, they will not have available for the NHS. So expect your taxes to rise.

  • Comment number 33.

    This depositors protection is becoming a showman's racket, although serves to highlight the lack of confidence and total infidelity of the finance market, I suppose Anne Robinson's programme "the weakest link" would be a good runner in predicting the highest stakes which country would be the next to cop it.
    My guess, the finance market is now looking for a scapegoat i.e the UK.

  • Comment number 34.

    I thought that Germany, with it's relatively low home ownership, would have weathered this storm. Unless of course that their banks have been up to no good in the USA/UK housing markets, but I haven't heard anything - unless I missed it.

    Is there something else going on? Are decreasing house prices a symptom and not a cause.

  • Comment number 35.

    No 5, I am one of these "some" that do not quite understand why the UK should be in a good position "to weather the storm". The storm has been created in the US and here and it's center is right over the US and here. All those who have abandoned traditional banking are the ones who face the immediate outfall of the bubble deflation. Technically it means cold turkey for the debt junkies and plunging retail sales and rising unemployment will be some of the immediate symptoms of the hangover that will last for years. Real economy can eventually be rebuilt but it will take time.

  • Comment number 36.

    In the event of a major collapse of the banking system in the UK what happens then? Does the government just print paper money and we end up becoming a second Wiemar Republic or Zimbabwe with hyper-inflation?

    We are nearing the end of capitalism as we knew it and good riddance to it if the greed and stupidity of those in the banking system that propped it up is anything to go by.

    Let's look forward positively to a sunnier world in which wealth is better shared, hard work is rewarded and those less fortunate than ourselves properly supported.

    A grossly unfair and arguably corrupt financial system cannot be sustained and something better will inevitably take its place.

    I for one look forward optimistically to a BETTER future!

  • Comment number 37.

    # 7

    John,

    You need to appreciate RP's agenda. He's best mates with GB and Ally, and they want him to portray the situation as bleakly as possible. Why? Because then when the world doesn't end, and we don't end up with the Fourth Reich, GB and Ally can go to the electorate and claim they've done a good job and saved us from disaster. Incidentally, I'm a supporter of New Labour, so don't read anything remotely pro-Cameron into this. I just share your view that much of RP's writing is spoiled by its one-sided bias.

    Anyway, why do I think GB and Ally are taking this approach, and using RP as one of their preferred outlets? Well I think they have Norman Lamont etched on their brain. You may remember that he had the unenviable task of standing on the Treasury steps and announcing Britain's forced withdrawal from the ERM. The Conservatives immediately lost their credibility for economic competence built up over 12 previous years of government. Major and Clarke actually did a pretty good recovery job, yet never recovered their lead over Labour on the economy. The same has happened to Labour since we had queues round the block to take money out of NR.

    So, GB and Ally need to set expectations extremely low, ie the world is going to end, so they can claim it didn't because of their ability. Will it work? I very much doubt it. I think Cameron just has to turn up on election day, just as Blair did. But that's why RP is as negative as he is.

    For every bleak banking story of his, I can actually show you an upbeat one. The market is beginning to return to a semblance of normality in respect of banks, otherwise the likes of Goldman Sachs, Morgan Stanley, JPMorgan Chase would not have raised more capital in the last couple of weeks, often raising sums at the top end of their requirements. We now have a bidding war in the US between Citibank and Wells Fargo to takeover Wachovia, a failed mortgage lender. Hardly a sign of impending failure of the entire banking system. And UBS's announcement last week of a profit for the first time in over a year has been drowned out by the news of further support required by Fortis, Hypo Real etc.

    It might seem hard to believe, but investors are now doing a pretty good job of identifying the lame and dealing with them. Yes, that throws up challenges for governments in putting the lame down humanely. And until lenders are sure all the lame have been dealt with, kick-starting interbank lending will remain a challenge.

    I think there is more drama to come, especially tomorrow after events with Fortis and Hypo Real this weekend, but RP's total gloom view is overstated.

    If you want an alternative view, check out Bloomberg (no, I don't work for them), at www.bloomberg.com. They report the good stuff as well as the gloom.

  • Comment number 38.

    I am not sure if this German guarantee is just a reaction to the unilateral Irish move. The fact that the government tries to preempt a possible panic could actually cause just that, panic. And I don't think that it is necessary anywhere in Europe. Except some lousy and useless examples like Hypo Real Estate that have tried to copy their American and British peers by stupidly counting on wholesale money, most European banks are awash with cash and should be able to cope.

    Actually many German banks guarantee savings of considerable size because they have a joint fund to insure the deposits. One good thing about the general guarantee for all European savers would be that it encourages people to save more. Whilst this is short-term bad news for Highstreet, it's the base of any long term rebuilding of the economy where it is most needed, like in the UK.

  • Comment number 39.

    We have lost the reason to have a private banking sector with private sector pay levels.

  • Comment number 40.

    No. 8 states:

    'they - along with many of the economists who think Brown is an economic genius - just can't grasp that it was their economic strategy of the last 10 years that has caused this mess.'

    Come on! This all dates back to Thatcher and her get-rich-quick philosophy. The mistake of the Labour government was to stick with a system many of us saw as leading ultimately to bankruptcy - social, moral and economic.

    But would the wanting-to-be-seduced electorate have allowed any government to opt out? Have you ever tried taking sweeties from a toddler?

    Let's not make claims about this crisis dating back a mere ten years. This is capitalism. This is what the Conservative party believes in. this is what Thatcher started. Labour's mistake was not to move away from it.


  • Comment number 41.

    Without wishing to pour oil on the embers, being Jewish i feel that some of the comments directed at RP are unfair and unfounded. Germany has more than any other country tried to rebuild its infrastructure and be a very good 'European'. Within the EU we need globalisation and commitment to unity.
    The present modern-day Germany in no way resembles the 1930s. The support Angela Merkel showing to her citizens by pumping money into their Banking system surely will ensure that mass unemployment does NOT follow a wholesale decimation of their main industries through lack of available capital for investment. Bail-outs are only one short -term way it can be done. Am sure with proper safegauards and a committee with teeth ( unlike our own failed FSA whose relationship with the treasury is part of UK problem vis a vis Northern Rock etc.
    Without unity Germany would lead Eurozone in to deep recession and our own over-reliance on service industries, Banking and insurance will manifest itself even more. Surely boom will turn to bust quickly. We need action NOW on interest rates ( 1% minumum over next month downwards )
    As for your readers who suppose that by increasing public spending on Health in lieu of helping all the institutions lend to each other at lower rates, is it not this policy by New Labour which has exacerbated our need to print money? Although i fear the government has already sold a lot of our gold and foreign currency reserves - does anyone out there have any knowledge of this?

  • Comment number 42.

    I predict that the average price of a house will fall to approximately £60,000 as this is 3 times the average income, and therefore affordable. Once this happens, the housing market will pick up and banks will be able to lend on a secure basis.

  • Comment number 43.

    # 27

    Check the blog now. The last para has gone. I think that says it all.

  • Comment number 44.

    Next step full nationalisation of each countries banks! At which point the liquidity crises of UK Bank PLC is resolved.

    Europe Bank and China Bank still wont want to lend us any money though, so we will need to print some more money. Just like the good old days.

  • Comment number 45.

    # 30

    I think the issue with the Irish guarantee is that it extended to all depositors and investors in subordinated debt (a form of capital in regulatory terms), not just retail depositors. Not sure about Greece, but Germany's guarantee is just 100% of all private deposits, ie it doesn't cover interbank deposits in theory at least. So Germany's approach actually complies with EU competiton law, which simply sets minimum protection for retail deposits but no maximum. Ireland's approach strictly speaking doesn't comply.

    Personally, I don't see the big deal. Irish banks are pretty small in terms of capital, hence couldn't take in huge amounts of new deposits from non-Irish banks anyway. They simply wouldn't have the capital base to put risk assets on the other side of the balance sheet. I think the criticism arose because there is a risk of marginal leakage of funding from weak banks in the UK to Ireland. Overall, though, it won't have a huge impact. And I agree the Irish had to do it (I live in Ireland). There was a danger of overseas funding drying up last week, which would have required wholesale nationalisation of the banks. What the government here has done buys them time to restructure the industry. Expect to hear that Goldmans or someone have been appointed to assist the government with this process sooner rather than later.

  • Comment number 46.

    the whole point of a 100% guarantee is to ensure it will not be needed, is it a pre-emptive move. As usual messrs brown and darling are behind the curve, when are they going to be pro active instead of reactive? It was clear as soon as ireland and greece offered 100% guarantee that Uk would have to follow suit , but Brown "you can rely on me in an economic crisis", dithered yet again!

  • Comment number 47.

    to No 2 and others... I think Mr P is suggesting Wiemar Republic rather than 3rd Riech ...to suggest otherwise is simply scullerous.

    The question is, given the Poulson Plan is doomed to fail, if only because they ain't borrowing enough! (Lord help us) and that the European part of the financial system is going down the toilet as we speak, where goes the markets tomorrow?

    500pts ...atleast... down. £/Euro up.

    Ftse and the Dow.




  • Comment number 48.

    #1 "If we have tens of billions of pounds just lying around in a spare drawer somewhere can't we fund things such as the NHS more, rather than banks?". Sod the NHS - what this country needs is infrastructure spend. In any case, there are not 10s of billions to spare - no money has changed hands, it is just a guarantee - the interesting question will be to see where the money comes from if the guarantees are called in.

  • Comment number 49.

    RP> The underlying cause is a near-total collapse of confidence

    "A confidence trick or confidence game (also known as a bunko, con, flim flam, gaffle, grift, scam, scheme, or swindle) is an attempt to defraud a person or group by gaining their confidence. [...] Persons of any level of intelligence are vulnerable to deception by experienced con artists. Confidence tricks exploit human weaknesses like greed, dishonesty, vanity, but also virtues like honesty, compassion, or a naïve expectation of good faith on the part of the con artist."

    http://en.wikipedia.org/wiki/Confidence_trick

  • Comment number 50.

    #37

    Your tailcovering and verbosity fools no one ..not even yourself I suspect!!!

  • Comment number 51.

    If we get through the next week without more collapses of bank sand companies we'll be lucky.

    The "domino effect" is about to rush through the economy like a tsunami. We'll have seen nothing like this before with mega failures.

    And what does Crash Gordon do? He sets up a committee to run economic policy! If ever there was a body that was going to dither and delay this is it! Headed up by the great ditherer himself!

    If he wants some good advice because he doesn't trust his own judgement and wants the blame for bad decision to be diluted amongst the others then why not look at the other parties?

    The NATIONAL economic committee needs to consist of just 3/4 people.....GB , AD, Vince Cable, George Osbourne and Alax Salmond. It is time for an economic privy council of economic war.

    Cable was right this morning on Andrew Marr's show. The BoE needs to get a new re-mit.................slash, slash , slash! Forget the legal niceities....... poeple jobs and homes and seriosuly at risk...........perhaps it is already too late???

  • Comment number 52.

    Glancing at the short gilt prices looks like big interest rate cuts coming. So I'm not sure what's guaranteed consumer price inflation greater than the base rate by end next week ?

  • Comment number 53.

    Here's why this matters:

    1. It removes the threat of a bank run as a means to 'monitor' banks and similarly reduces the incentives for customers to deposit funds with banks assessed as safe and well run.

    2. It puts upward pressure on interest rates as UK plc now appears less solvent due to the potential claim running to many times GDP.

    3. Likewise, downward pressure on sterling and thus upward pressure on inflation and interest rates.

    Ram

  • Comment number 54.

    having just watched Harry Potter on the telly, I'm thinking Gringotts, the goblin bank, might be the safest place for my pile at the mo...

  • Comment number 55.

    Its interesting that several people have suggested that the current economic crisis could echo that of the 1930s by precipitating the emergence of a right wing totalitarian government.

    I myself have wondered whether George W. Bush might be about to suspend the imminent American election due to the economic crisis, effectively installing himself as President for life.

  • Comment number 56.

    This shows that Brown, Darling are well behind the curve... their ATTITUDE is wrong. It could well be argued that the tax paid over the years on interest accrued by depositors is an insurance, proportional to amount deposited, against just this sort of event. Yet having taken that tax, the UK Government are happy to WALK AWAY from high-level depositors. The Irish and now German Governments at least TRY to support people who have made or are making a contribution to the country's balance sheet.

  • Comment number 57.

    The banks are falling on a daily basis in Europe and the USA; the pack of cards is collapsing before our eyes. At the present rate it won't be long before they are all gone so a return to the 1930s now seems inevitable.

  • Comment number 58.

    Well, at least the Germans had the balls to admit that the financial system is dead.

    It's time for the public to wake up and realise that these 'guaranteeing of deposits' is a sham, just something to stop panic.

    Get some extra tinned and dry goods in your cupboards NOW.

  • Comment number 59.

    However much governments 'guarantee' deposits, the fact is that nobody has any confidence in the banks any more.

    When people lose confidence in banks they simply cannot survive, whatever governments say.

    When you start getting Force Majeure politicians can say what they like, but events just blow them away. The game is over.

    It is probably quite literally true now that you are safer with your money in your mattress - unthinkable until a few days ago.

    However, it may be that even paper money, if it is in sterling, euros or dollars, might rather soon become just bits of paper. This sounds crazy, but let's see where we stand by Xmas.

  • Comment number 60.

    To blame Thatcher for all of this is pointless.

    You may as well blame the person who started the big bang (the universe - not the stockmarket one).

    Thatcher did what she thought was appropriate for the time.

    No economic policy is appropriate all the time. Policy needs to evolve as time passes and as new situations arise.

    New Labour watched for 10 years while these problems were evolving and did nothing. They have to bear responsibility.

    I cannot understand why people are asking for lower interest rates. The banks have stopped lending, full stop. Lowering rates isn't going to start them lending again. Only confidence in the marketplace will do this.

    Of course increasing rates will be very painful for everyone and may be political suicide. But its the right thing to do. Take the pain in the short term for the long term benefit.

  • Comment number 61.

    There is so much to comment on but the main
    There is a difficulty in seeing whether there was ever full backing with real assetts for our finance providers. A line of credit for either personal or business has become a branded product to be sold on, the value of a credit provider may have been estimated on there ability to sell credit products. A wise old sage once said to me "if you can't touch it, don't invest in it", well he may have been right (houses now?) but it would appear that "confidence" and "trust" had been the commodity represented by bits of paper. There is definitely more to come, for the first time I am having trouble getting a new customer account insured on my sales ledger which could lead to me making a bad decision against a good credit risk, the difficulty decision being is the customer or the insurer at risk? In truth only time will tell, no one gets it right consistently. As long as one doesn't put it all on the line for one deal, and I think this could be where the whole problem started, essentially too many have bet other people's cash on black, its come up red and they are hoping for a free spin of the wheel.

  • Comment number 62.

    #36, rlapthorn wrote:

    We are nearing the end of capitalism as we knew it and good riddance to it if the greed and stupidity of those in the banking system that propped it up is anything to go by.

    Let's look forward positively to a sunnier world in which wealth is better shared, hard work is rewarded and those less fortunate than ourselves properly supported.

    A grossly unfair and arguably corrupt financial system cannot be sustained and something better will inevitably take its place.

    I for one look forward optimistically to a BETTER future!


    It is with sadness that I note yet another post with no point on this subject. It is all very well for somebody who has (presumably) not made the capitalist system work to their advantage to decry it and hope for something "better", but that is useless without any suggestion of what that "something" actually is. For clarity, I run social enterprises, not "capitalist" enterprises, so I'm not some sort of fat cat.

    The capitalist system has worked well for many hundreds of years. It is entirely possible that it needs to be modified in some way from a regulatory perspective, but without it all of the things that you take for granted in life - including the computer you used to make your non-contribution - would, in all likelihood, not exist. It is also entirely possible that there is no perfect solution.

    The economy is made up of millions of individuals making financial decisions. Buy or not, invest or not, and so on. What is needed is refined regulation coupled with much better education. Some people are, frankly, too stupid to be allowed to make complex and life-changing financial decisions, but does that meant that everybody should be prevented from doing so, or do we need ways to help those who are disadvantaged? If you were offered a higher deposit rate or a lower mortgage rate, would you pass up the opportunity to participate? Do you invest in a pension (rather than, say, running a self-administered scheme)? Have you studied the pension fund's investment strategies and agreed they meet your needs? Did you vote for Labour at the last election, and agree with Gordon Brown's economic strategies that he had made very clear along the way?

    To dump capitalism implies, sadly, dumping democracy. Are you comfortable with that? If you remove risk, you remove the ability to create wealth, take risks and make rewards, and - in fact - place even greater reliance upon your future prospects in the hands of other people than in the system you apparently despise (but about which, sadly, you offer no specific problems nor propose any solutions).

    The problem with the viewpoint you've espoused in your post is that, along with so many others, you're simply inviting the population to be "taken for a ride" once again, perhaps next time by somebody with a "new" idea of how the world should work coupled with the charisma to gather some supporters about her/himself.

    Instead of this non-specific angst, I would recommend that you do what every citizen has an obligation to do - gain as much education as you can about the way in which economies and democracies function, and then form some conclusions as to what is actually wrong and what can be done to ameliorate the deficiencies you identify.

    The trouble is, I'm afraid, too few in the UK population are actually willing to invest even a tiny amount of time in such activities as educating themselves to protect their own futures, preferring to rely upon the munificence of "rulers" coupled with some sort of knee-jerk "oi, this is wrong" reaction when circumstances don't quite pan out in their favour.

    Hmm, actually, on that basis, ditching democracy might not be such a bad idea, after all...

  • Comment number 63.

    I understand that the big UK banks owe circa £650B. A proportion of this money falls due each month and under normal circumstances the debt would be rolled over. In the present climate this is not happening as lenders pull the plug. Thus ecah month the banks have to stump up circa £50B which they don't have. Thus their need for Govt loans to prop them up. They are having to trade-in increasingly poor assets to cover these govt loans. Clearly they can't do this for too long - there won't be any assets left!

    The above explains why you can't go out and get a mortgage! This talk of the loans being to free up the markets is rubbish. All the money lent by BofE is already spent repaying the next months loan to foreign entities.

    Can anyone identify to whom the banks owe money - by country and type of loan eg

    USA - private (prime)
    - private (sub-prime)
    - wholesale banks
    - retail banks
    - any other pertinent category

    and as above for the following and other important countries

    China
    Saudi Arabia (and other gulf states)
    EU
    Russia

    This would be very interesting and would reveal WHERE the pressure is coming from and possibly some hints to motive.


  • Comment number 64.

    It seems to me that the countries busy guaranteeing all bank deposits are the ones most in fear of wholesale banking collapse.

    The question is are these countries able to take on that responsibility or are we looking at the prospect of national defaults?

    For the life of me I cannot see why this should be the case.

    I think it is time the banks were nationalised without compensation to shareholders as in their current inability to function independently of taxpayer support they are destabilising the rest of the economy.

    I also think it is time a National Government be formed in which our best brains can be focussed on finding the most practical solutions to this appalling matter without the limitations of party political dogma.

  • Comment number 65.

    Come on people. All the banks which are having liquidity problems are having just that... LIQUIDITY problems. It does not mean that these banks are fundamentally unsound.

    Just like any business depends on bank overdraft to finance working capital, banks depend on interbank money markets for working capital. There is no business in this world that can survive if working capital finance (liquidity) is suddenly closed.

    The classic analogy is that fixed assets are the skeleton of the company. But working capital is the blood. No matter how strong your skeleton, if your blood supply is squeezed off, you will die.

    In case of banks, the loan book is skeleton while interbank borrowings is the blood. Central banks have tried to infuse blood.. the US legislation plans to take care of the decaying skeletons.

    But in the following witchhunt, penalise only the executives/ shareholders which are responsible for decay of skeleton, not the ones who are having blood circulation problem.

  • Comment number 66.

    If the problem is liquidity and inter bank borrowing drying up through lack of confidence then can B of not act as intermediary. Treasury raises funds needed by borrowing from banks so they are secure and then lends to instituitions and other banks that are deemed good risk. B of E charges a premium to reflect the risk of 0.125% so taxpayer benefits. market freed up confidence restored. Once markets freed up B of E borrowing no longer required so much. Then regulate to maintain adequate capitalisation etc

    Must be too simple to work but the answer is going to be a simple one in the end!

  • Comment number 67.

    #40, magigibson wrote:

    Come on! This all dates back to Thatcher and her get-rich-quick philosophy. The mistake of the Labour government was to stick with a system many of us saw as leading ultimately to bankruptcy - social, moral and economic.

    But would the wanting-to-be-seduced electorate have allowed any government to opt out? Have you ever tried taking sweeties from a toddler?

    Let's not make claims about this crisis dating back a mere ten years. This is capitalism. This is what the Conservative party believes in. this is what Thatcher started. Labour's mistake was not to move away from it.


    Hmm. Thatcher needed the UK to "get rich quick" because Labour had made us "get poor quick" and it needed to be reversed in a hurry. Whether the way she did it was perfect is moot, but she dug us out of a damn big hole.

    I simply can't imagine being immersed in the quagmire of the pre-1980s Britain. Outdated industries, over-manning, rampant and overly-powerful unionisation, knee-jerk nationalisation, going to the IMF for hand-outs, and so on.

    Labour's mistake was in trying to be Thatcherite and at the same time old-Labour - the "third way", if you like, a mongrel cocktail of left and right.

    Contrary to your view point, the toddlers (us) did vote for our sweets to be taken away. Labour were re-elected despite Brown feeding a housing bubble, taxing our pension funds to the extent that they had to take bigger risks, presiding over insane increases in Council Tax, selling off the country's gold reserves, dumping billions into fighting pointless wars which we had no compulsion to be involved in, ramping up the minimum wage without helping businesses to pay for it, and indeed increasing taxation and spending without any matching initiative to boost the economy.

    There was nothing "hidden" from the Labour manifesto at their re-election. The turkeys (us) really did vote for Christmas.

    Instead of trying to turn this into a Thatcher debate, how about you hold your hand up, admit the responsibility you have as a citizen for the problems we have, and come up with constructive ways forward? Or are you, too, waiting for some "ruler" to come along and lead you to the (new) promised land?

  • Comment number 68.

    "Does anyone know where these huge amounts of money the government have found to bail out the banks has come from exactly? "

    The answer is we don't. It all goes on the taxpayer's credit card, which the Tories are gonna have to pay off by raising taxes and slashing spending.

  • Comment number 69.

    Gordon wanted to leave a safety net so he could let anyone that went insolvent fail. The Germans didn't like that concept.

  • Comment number 70.

    Over an early evening pie and mash at Tubby Isaacs Mandy has started to direct the damage limitation operation. Ally D could barely contain his delight as Mandy reminded Mother Brown that amnesia is quite useful. We were always in favour of doing whatever it takes to protect UK depositors so in the spirit of European unity we are going to follow Frau Merkel's brave decision. The increase from £35,000 to £50,000 planned for next Tuesday was always an interim measure. As you would expect from the strong and experienced leadership of Mother Brown decisive action has been taken. When Ally D reminded Mandy of what he had said about the Irish in todays broadsheets he was given the evil eye. Amnesia Uber Alles. We can rely on the BBC not to delve too closely and the Titanic is clear to sail on.

  • Comment number 71.

    Post 30. John from hendon

    You are wrong.

    Hugh Pym from the BBC reported about 2/3 days ago that at the turn of the Millenium this Labour Government allowed banks to borrow on the wholesale markets well beyond what their deposit ratios would normally allow. He said that ( I think from memory) in 2000ish the relevant banking ratios were in balance as per the the previous 20 years including the Thatcher era.

    However he then went on to say that Uk banks had since around 2000ish borrowed on the wholesale markets £625Billion which they had then lent on credit cards, loans, mortgages and car loans. Hence the amount of easy credit we have all been used to over the last few years. This has EXCLUSIVELY happened under a LABOUR Government controlled by the economic decisions of Gordon Brown.................and he thinks he can solve the problems that his misjudgements have created? All this has happened on HIS watch. The Aussie's aint gonna be troubled so much by this credit crunch because their financial system has been run conservatively for many years under the Conservative Gov't of John Howard (do some research!)

    Anyway, the point is that todays problems and nothing to do with Thatcher or Reagan.

    They are ALL GB's doing..............and by GB and I mean Gord and Bush!

    Quite simply if Gordon has followed Ken Clarke's spending and tax plans for the last 11 years and had not alllowed such prolific debt in the private and public sector to occur then we would be now be laughing like the Aussie's!

    Instead the Goverment of the Living Dead are about to bury us all in the same coffin of depression !

  • Comment number 72.

    As expected in the first real crisis the EU has had to deal with they show themselves to be totally incompetent. The workings of the EU have been far too slow and cumbersome to make any real impact in the short term.
    It's everyone for themselves now as Germany has just endorsed.
    It's impossible now to even try to save everthing so the best must be selected and supported without further delay. Savers money fully guaranteed and moved into saved retail banks before the whole system collapses completely.
    Nothing else can be done until the whole thing plays out and the bottom is reached.

  • Comment number 73.

    #30 and #40

    I agree with you both - Brown was indeed only following on from Thatcher. My point here is that he has helped make a lousy problem, i.e. deregulated financial system a damn sight worse!

    Labour were stupid enough to believe that by sucking up to the city they could get them to play ball.

    The system is broken and no amount of fiddling will change that.

    Unfortunately, thanks to Thatcher having decimated our manufacturing industry our economy will suffer a complete collapse. The folly of relying on a service sector economy will fast unravel.

  • Comment number 74.

    So, ze banks are going out all over ze Europz I am zinking!

  • Comment number 75.

    How come when UK banks and building societies have bad loans they have to be bailed out ultimately by the taxpayer whilst at the same time hedge funds and private equity funds are making millions buying bad loans from such institutions?

    The UK government should set up fund to manage the bad loans and use the money (that others are now making) to give back to the taxpayers who are bailing out the banking community.

    When you look at the Times Rich List next year watch out for the hedgies who have made fortunes from the housing/mortgage market crisis.

    Also, proprieters of mortgage lenders who have contaminated the market with sub-prime bad loans should be banned from setting up new mortgage lenders. Once the mortgage market returns I am sure you will see some of the old UK sub-prime guys back in the market to make another killing. This happened in the US with the Savings and Loans crisis - a number of the people involved were also leading players in the US sub-prime mortgage business and unless stopped by the regulators will probably make more money from the bailout.

    We need to have proper regulation of the UK mortgage industry. Only properly capitalised instituions with a strong track record should be allowed to lend - not fly-by night bucket shops who are built on leverage and an abiltiy to flip loans - optically it looks like they are big lenders but once problems come they disappear and leave us , the taxpayer, to pick up the pieces.

    How can the FSA have any credibility when it allowed (and still allows) these lenders to operate as regulated lenders. Watch out alos for the unregulated businesses that will try to expolit distressed borrowers through credit repair, or purchase at a significant undervalue and rent back - where a borrower is saved on his mortgage, pays rent but ultimately the "provider" makes money on increases in the house value. The borrower becomes aa assured tenant on a short lease and can be evicted if they can't keep up the rent leaving the "provider" with the property to sell. These unregulatd schemes are going on today right under the nose of the FSA and more will emerge - there is a lot of hedge fund money chasing high returns from the market turmoil and a lot of displaced sub-prime mortgage lenders who are clever enough to make money at the taxpayer's expense.

  • Comment number 76.

    Stoke it up, Robert.

    Media sensationalism seems to be more important in these crazy last few months than the mandate you have been given as an employee of the BBC (not the Sun) to report the facts as they happen – not salivate as another story presents an opportunity to damage the system that all of us (yes, you too) need back to a state of repair ASAP.

    Matthew
    Edinburgh

  • Comment number 77.

    Here in Israel it has been said on prime time TV News that The Government will not announce protection of Banks and Savings as Israeli Economy is Strong but we have a weak Government...
    But The Economic Anaylst said they would Intervene.
    I as an Optimist Believe that we will Overcome...

  • Comment number 78.

    Curious. I've just had a quick scan of the French online press and they cover the story but there doesn't seem to be any hint of Merkel having suddenly changed direction or of having somehow cut loose.

    Has the British press misread the outcome of yesterday's mini-summit in France or is it a sudden panic move in Germany?

  • Comment number 79.

    How come post #9 is still awaiting moderation when we're at post 78?

  • Comment number 80.

    "the interesting question will be to see where the money comes from if the guarantees are called in."

    Simple, the Bank of England will print it.......thereby devaluing all of our assets.

  • Comment number 81.

    The Minsky stuff to which Paul Mason refers in his Newsnight blog does sound (horribly) convincing, to me at least.

    This makes a lot more sense than blaming any politician!

    Government taking equity in the High Street banks seems a real possibility.

  • Comment number 82.

    markanash 17.

    I Fully agree with your observations.

    The Niel/Skidelski interview is well worth watching though.

    http://www.bbc.co.uk/iplayer/episode/b00dywx9/b00dywwl/

    See what you think.

  • Comment number 83.

    Sell Sterling, sell the Euro and the US Dollar and buy Gold Bullion.

  • Comment number 84.

    I beg to point out that 'Sir Wallace Mercer' at Post # 76 is naive if he thinks that this crisis is a somewhat minor affair being stoked by the media, including the likes of Robert Peston. I suggest that 'Sir Wallace' dips into a few of the websites and blogs being run by relatively dispassionate observers like 'Financial Sense', 'The Levy Economics Institute', Nouriel Roubini's 'Global Economic Indicator', 'Simmons and Company' and many others.

    In fact, the BBC is underplaying this subject by a long chalk for fear of being labelled a scaremongerer. I can assure 'Sir Wallace' that we've barely started watching the collapse of our beloved, debt-fuelled, inherently flawed global financial system.

    The consequences of what's happening right now are barely comprehensible to most of us, and our politicians are lying through their teeth about how soon and how easily we'll pop out of the other side of this mess. We're facing geopolitical ructions on an unprecedented scale as well as severe and unpleasant disruptions to our society here in the UK.

    This is really bad and Robert Peston is certainly not part of the problem. May I politely suggest 'Sir Wallace' that you do your homework on this subject. Watch out first for a downard spiral of economic nationalism and disintegration of the EU mirage.

  • Comment number 85.

    Not sure that the Heads of State and EU are at odds with each other. They are merely behind the curve. They left their meeting in complacent agreement and returned to reality.

    Some nice food and some fine wine over the weekend have persuaded them that all is well and the storm is contained (how overused has this word been). But they were in the lull that is the eye of the storm, come Monday its going to be very windy again.

    I was very hopeful for this weekend that we would see a concrete solution to Iceland and some clear statements that the Governments were implementing the across the board guarantees that are now (with regret) necessary.

    If they do not get ahead of the game the European taxpayers are going to be owning a lot of banks and the markets will move from looking for which banks will fail to which sovereign names are most risky, afterall there is suddenly going to be a lot of new Government debt to choose from amongst investors. Worrying.

  • Comment number 86.

    The funny thing about democracy and politicians making laws to "benefit" people:

    -If a person has money problems is his/her problem.

    -If a bank has money problems, governments give them people's money to solve its problem.

    -If a person has to pay a mortgage and can not, no matter if he/she declares himself/herself in bankruptcy he/she must return the money.

    -If a bank collapse you lost your money, if you had some, but if you had a debt with the bank still need to pay it to the company that buys the bank customers. But this company does not take the debts.

    Funny world and we think this is democracy!

  • Comment number 87.

    #65, excuse_me wrote:

    Just like any business depends on bank overdraft to finance working capital, banks depend on interbank money markets for working capital. There is no business in this world that can survive if working capital finance (liquidity) is suddenly closed.

    I'm sorry, but where on earth do you get this "wisdom" about every business? You are right, many businesses choose to operate in the way you describe. They believe they can make a better return on the working capital they borrow than they will have to pay in interest on that money. Alternativelty, some businesses use the availability of, say, asset-based finance (such as factoring) to allow them to ramp up to cope with large orders / increases in demand very quickly.

    That is not, however, the only way to run a business. If you don't want to go down that route (as many, many businesses do not), you use external funding (either borrowed from the bank or just borrowed from yourself) at the start of the business, don't pay that out to shareholders as an early dividend, and thus generate some working capital in cash.

    As with every business decision, it depends upon what risk you're happy to take. In your world, there is always a risk that you can't get credit, so you can't carry on. For some that risk has always been too high, and so they choose a different path. Neither is "correct", but neither is your contribution!

  • Comment number 88.

    Don't knock the populus too quickly, people have a knack of making quite clever decisions with money. Easy credit has been a gift to many who would never have obtained goods or cash by any other means. This has been the most generous social act and redistribution of wealth in living memory. The banks will take a balance sheet bashing but have done more than the government could ever have hoped to achieve.

  • Comment number 89.

    #86: it is democracy, you may simply have not worked hard enough to get out the vote for the right people over the years. We get the governments we deserve, in general, and the effort that most people (don't) put in to the issue is the reason we're here.

    As to your other point, the "ditty" I prefer is this: if you owe the bank ten pounds and can't pay then you have a problem; if you owe the bank ten billion pounds and can't pay then the bank has a problem. The latter is where we seem to be now.

  • Comment number 90.

    #72, virtualsilverlady wrote:

    As expected in the first real crisis the EU has had to deal with they show themselves to be totally incompetent. The workings of the EU have been far too slow and cumbersome to make any real impact in the short term.
    It's everyone for themselves now as Germany has just endorsed.


    With respect, you're wrong. The EU is doing precisely what it is supposed to do, and precisely what the Treaty of Rome said / implied it would do. The fact that you (or your parents or whatever) voted to be in the EU in 1974, perhaps without reading said Treaty, is not germane; the EU is not failing, but the whole principle of the EU as constituted has (finally - at last - hoorah!) been shown to be fundamentally flawed.

    I don't believe a European Union is wrong; I simply believe this European Union is wrong, and has been since it was first envisaged. Unfortunately I don't think enough of the population took their responsibilities as citizens seriously enough to understand this.

  • Comment number 91.

    To hitthebid at Post # 87

    Thanks; good interview - a tad too optimistic in my view. By nature, I admit to being more of a pessimist (realist?) than an optimist, but my various readings into this crisis have a common theme. Our current debt-based financial system is flawed, has been exposed for what it is, and WILL collapse. Government attempts to shore it up today (more debt, more printing of money ...) WILL come unstuck - we're just chucking good money after bad.

    The law of unintended consequences will come to pass and this global financial failure will impact in two significant areas: the undermining of our relatively ordered society here in the UK (after alll we're bust!!) and tectonic shifts in global power as western nations are forced to yield power and influence to the likes of Middle Eastern countries, Russia, China and others.

    There is absolutely no way that the consequences of this mess can be painless. Thanks to the crass incompetence of our socialist and economically illiterate government of the past 10 years, the UK is shamefully badly postioned to deal with this. The world's biggest chicken is coming home to roost.

  • Comment number 92.

    #73, XCAnderson wrote:

    Unfortunately, thanks to Thatcher having decimated our manufacturing industry our economy will suffer a complete collapse. The folly of relying on a service sector economy will fast unravel.

    I don't want this to become a pro-/anti-Thatcher debate, but this old chestnut keeps cropping up. Thatcher did not destroy our manufacturing economy - it did that all on its own. There was a great Robert Peston blog a couple of months ago (from memory - might indeed have been a different BBC blogger) in which he commented that it was only relatively recently that he interviewed senior British managers and thought them up to the job.

    The quality of management in the UK was awful for decades. The excessive unionisation of the sector was also disastrous, as were currency changes, under-investment in education over many decades, the loss of so many young men in the World Wars, the class system, the loss of Empire (who bought our goods) and a myriad other factors.

    Thatcher identified a way of urgently boosting the economy as she found it and pushed it heavily. She also inherited some (wrongly) nationalised industries which she did not manage well. But to blame her for the mess that industry was in at the end of the 1980s is to totally ignore history and the very, very low point it was in at the end of the 1970s.

    Sadly, the reforms she pushed through and the prosperity that was created should have provided time and resources for UK manufacturing industry to regroup, recover and prosper. In some cases that happened - during her tenure, the UK was a world leader in computer technology, for instance - but I fail to see how what she did prevented that from happening. That was, on the whole, down to crushingly stupid and short-sighted management.

  • Comment number 93.

    Please can someone explain where exactly all the money is coming from which these Governments say they will use to guarantee depositors savings and where the money is coming from for the British Government to supply liquidity to the market to the tune of £40 billion? Are they going to print it? Will that not lead to inflation and will that not wipe out the value of the very savings they claim to be protecting?

  • Comment number 94.

    #71 NorthernThatcherite

    I apologise for be so direct but, no, you are wrong. Wrong in the area of facts and wrong in the way you wish to rewrite the history of the time you still live in.

    I am referring to the concepts of light and self regulation of the financial system that was, as history shows, introduced by Mrs Thatcher - your goddess. Without the abandonment of sound banking (and exchange control etc. etc.)- which happened under your goddess the banks could not have developed in the unregulated way that has caused the credit crunch.

    We can both, I think, agree to criticise the slavish following of the schemes she introduced by the Tory (and here I include New Labour) governments, but she, your goddess, your leader, introduced the whole idea of financial deregulation.

  • Comment number 95.

    When all this Credit Boom started some of us realised that much of the money that was being spent did not exist!

    Now the whole world has found out!

    As it appears that it is our Government's intention to Nationalise or merge any more financial institutions that fail ~ they may as well guarantee all Accounts 100%.

    Not doing so ~ leaves much of the Country without peace of mind and the door wide open for investors to flee to the Banks of Germany, Ireland or Greece.

    Of course, if Darling to underwrite accounts 100%, we would have to accept that in the unlikely event ALL Banks went bust there would be insufficient funds to go around ~ but we are 99% sure that won't ever happen.

    Sadly ~ if Darling had guaranteed 100% all Bank Accounts in UK on the eve the Northern Rock hit the its final Rock ~ things may have worked out better ~ it certainly would have restored peace of mind to quite a few.

    Much of this could have been avoided if in early 2000 the Government had barred 100% Mortgages and specified no more than four times income could be lent.

    But that is another story.....!

  • Comment number 96.

    latest german government bail out hypo bank and bnp paribas take over fortis..... who would like to predict the next one?

  • Comment number 97.

    #95, Moriconium wrote:

    Sadly ~ if Darling had guaranteed 100% all Bank Accounts in UK on the eve the Northern Rock hit the its final Rock ~ things may have worked out better ~ it certainly would have restored peace of mind to quite a few.

    If Darling (err, cough, Brown) had the clarity of mind to do that, he/they would have had the clarity of mind to do other things to head off the whole sorry mess.

    Why is it surprising that idiots who get it wrong in the first place don't suddenly turn into seers who can get it right in a crisis?

    At this rate, we're going to need another Churchill :)

  • Comment number 98.

    #82

    Thanks very much for the interveiw link, very interesting.

    My biggest concern now is exactly how much debt have the banks created with these financial vehicles.

    A mention of a huge pyramid of debt with fancy structured debt holding it up was mentioned (Thanks to our wonderful university economists).

    Just how bad is it ?

  • Comment number 99.

    #50

    You might be interested to know that the two bank failures this weekend have both now been resolved. The Hypo Real rescue has itself been rescued, and Fortis is being 75% acquired by BNP Paribas.

    I wasn't trying to suggest earlier that everything is rosy. All I was doing was showing that not every bank story right now need be unmitigated gloom. The above highlights the fact.

    We'll have more bad news before we can talk in terms of having solved the crisis. However, I have no doubt that we're actually in a much better place now than we were a couple of weeks ago. Whether that's thanks to Gordon B and Ally D or in spite of them is for others to judge. I don't live in the UK so won't be voting for or against them in the next election.

  • Comment number 100.

    John_Lloyd_UK,

    There is nothing wrong with Robert expressing his pessimism if pessimism is a natural state to be in due to fiscal ruin all around.

    He has no responsibility than to tell it as he sees it ... Surely as a reporter this is his job and his view of events is why he was given the job rather than someone else who's view you would have gotten in his place.

    As for confidence being the key to our economy, I disagree. It is important in decision making, but, our economy is purely and simply based on valuations. These valuations have in recent years inflated and are currently depreciating.

    This is the cause of the lack of confidence not the lack of confidence causing the revaluations.

 

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