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How close to capitulation?

Robert Peston | 15:47 UK time, Monday, 6 October 2008

Blimey it must be serious.

Trader watching screens at London Stock ExchangeEvery European Union leader has signed up to the following statement:

"All the leaders of the European Union make clear that each of them will take whatever measures are necessary to maintain the stability of the financial system - whether through liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes.

"While no depositors in our countries' banks have lost any money, we will continue to take the necessary measures to protect both the system and individual depositors. In taking these measures, European leaders acknowledge the need for close coordination and cooperation."

So the mayhem of uncoordinated statements and actions over the past few days by the governments of Germany, Denmark, Sweden, Ireland and Greece was simply an accident.

They're all back on the same hymn-sheet today.

Investors seem underwhelmed: the FTSE 100 index is tumbling and shares are currently almost 8% lower.

If sustained this would make it the third worst fall in the history of the FTSE 100 index.

Does this mean we're close to that fabled moment in stock markets - the point of capitulation - when investors lose all hope and dump their stock at any price?

According to the theory, there can be no sustained recovery until the markets are in the clutches of utter despair.

Not everyone subscribes to the pseudo-economic psycho-babble.

But it certainly looks hairy out there.

UPDATE 17:35PM:

Today was when no one could be under any illusion that the global banking crisis is primarily a North American phenomenon.

There's a mess in Europe too, because European banks were also seduced over the preceding few years into lending too much to cheaply to consumers and businesses.

In the past 24 hours, we've seen bank rescues in Belgium, Luxembourg and Germany, and an attempted rescue of an entire economy, that of Iceland.

We've also had the worrying spectacle of apparent disunity among the governments of Europe, with Germany, Denmark, Sweden and Spain all taking unilateral steps to reassure their savers - which risked destabilising banks in other countries.

And when EU government heads then issued an emergency joint statement promising to collaborate more closely, curiously that served to spook investors even more - presumably because it underlined the fragility of the banking system.

What's also prompted high anxiety among investors and bankers is the mounting evidence that the crisis in financial markets is causing a severe economic slowdown.

And when there's a collision of a financial and economic downturn, well the consequence can be painful - because rising unemployment leads to more loans going bad which further weakens our banks.

So the chancellor's plan to strengthen our banks by injecting taxpayers money in the form of new capital is also an economic recovery plan.

Comments

Page 1 of 3

  • Comment number 1.

    My God Robert 'utter despair' is an understatement.

  • Comment number 2.

    The Federal reserve should employ Nouriel Roubini before its to late, its now one second to high noon

  • Comment number 3.

    If the leaders of the EU are talking in unison, one quote comes to mind..

    "Don't believe anything, until is has been officially denied.."

    (Sir Humphrey).

  • Comment number 4.

    We are a small manufacturing company, and while the events around us are pretty grim, we seem to be ticking over, albeit at a lower trading level.

    What does worry us is the position of our bankers, who may override our local bank manager in respect of loans and overdrafts, causing us problems which we could not foresee.

    The sooner some sort of stability returns, the better it will be.

    Privately, we have no problems at all. house is paid for, kids are independent, etc etc., but we will have to continue working past retirement age to ensure a decent income level, our pensions were savaged by "you know who".

    Peter

  • Comment number 5.

    It does rather look rather like a financial death spiral.

    Somehow, if it is still possible, the relevant authorities have to get a couple of steps ahead of this and set up a firewall.

    It is most unfortunate.

  • Comment number 6.

    We'll all soon find out what Jonah Brown and the rest mean by 'doing anything to save the financial system'. A new 24-hour standing war cabinet will try to tackle the crisis.

    Credibility crises will emerge as clearing banks need bail-outs and huge amounts of taxpayers money has to be pledged in support. When goverments have to pledge amounts greater than their total treasury budgets - that will be the moment of truth for all their promises.

  • Comment number 7.

    Can Robert explain something to me. If all these banks have lost billions of pounds, who's got it now ? It cant just vanish. It cant all be in property that cant be sold.

    How can I get hold of some of it?

    And if nobody has it, because its all about banks lending money that they dont have, then surely the only alternative to a total meltdown is not a national devaluation, but a global devaluation, with the weakest countries paying for the richest.

  • Comment number 8.

    It's got to get a lot worse before it gets better. We as a society have been living on borrowed money for so long, and sooner or later the debts have to be repaid.

    When people stop spending and start repaying everything implodes from there, it's a simple chain reaction. Nothing the EU can do about it, except devalue the currency which stuffs just about all of us.

  • Comment number 9.

    So the US bail out achieved nothing, not did the EU meeting in Paris at the weekend.

    Clearly nothing the west's governments do is going to make an iota of difference so they may as well do one of the following:-

    1. Nothing - let the whole capitalist system collapse in a heap, then rebuild a better one from the ashes.

    2. Nationalise the entire banking system, sack their managements, and put in good old fashioned bankers in their place - supposing they're not another extinct mammal.

    Before anyone suggests it I'm no socialist, but clearly the whole system as it stands is going to hell in a hand cart, and will take a hell of a lot of us with it.

  • Comment number 10.

    Unless and until the root cause of this debacle is addressed, over inflated asset/property values then it will continue. As no self respecting home owner is going to voluntarily reduce the price of his house the 50% or more that is necessary (not least because he then almost certainly be up to his neck in negative equity) then the crisis will persist.

    Oh dear.

  • Comment number 11.

    davidxandrews, the point is that money was created out of thin air and can disappear into thin air just as easily.

    When banks lend money that doesn't really exist and it gets used to bid up prices of everything from gold to property, everything looks great on paper. Then when the day of reckoning comes it's discovered that the "value" of these things isn't as high as people hoped, and the money disappears again.

    That's a monstrous oversimplification, but gives you a very basic idea of how it works.

  • Comment number 12.

    Does Alistair Darling really think repeating this waffle reassures anyone? Is the irrelevant fact that no depositors have lost money yet supposed to be a substitute for guarantees?

  • Comment number 13.

    You wrote last week of the Credit Swaps auctions!

    To restore confidence, should the ISDA not publish every Credit Swap deal, with the signature of the signee, company name and the Credit Swap deal it is netted off against.

    If there is a $1.5 trillion hole, then let's see who is holding the toxic loans, or what's left once the toxic loans are netted off against each other.

    As it stands the banks seem keen to hold to one another deposits in loo of these loans maturing.

  • Comment number 14.

    I'm not selling, I have a small number of shares, bought in desperation after Gordon Brown savaged my pension, rendering it worth less than the not inconsiderable sum I've paid into it.

    Both shares and pension have already lost so much value there is little point in selling, but I believe that if everyone else thought the same way the problem might just be solved!

    What about someone issuing a plea for shareholders to stop selling - or better still start buying. Would this cure the problem overnight?

    A bit of leadership is required!

  • Comment number 15.

    Thanks to Robert for superb clarity during these torrid days.
    Perhaps the best thing that will come out of this situation is that all who have experienced this insecure environment will never again believe anything that appears to good to be true. I certainly will do my utmost to create personal and business growth based on a solid foundation, any debt I take on will be secured by a quality assett. I have learnt my lesson, I hope others have as well now, and in the future. Everyone has a responsibilty to pass on these messages to those who have not directly experienced these events.
    I wonder what political capital Al Quaeda etc will make of the usury of Western Capitalism versus the practices of Sharia based finance.

  • Comment number 16.

    Is it true that this is actually the relatively straight forward period? I keep hearing that there are a zillion dollars of derivatives of which CDS are looking very dicey.

    Therefore I keep feeling like hearing that the Captain of the Titanic has just asked the orchestra to keep playing whilst he has a good hard think .....

  • Comment number 17.

    It must be serious if the BBC et al are spending so much time speculating ("How close to capitulation?" etc), thereby ensuring a dire situation gets worse. But then, you're right, it's your jobs to do this. Of course. Silly me.

  • Comment number 18.

    Robert wrote:

    > Investors seem underwhelmed: the FTSE 100 index is tumbling and shares are currently almost 8% lower.

    Why are you surprised? Investors are selling to deposit their cash in the banks that are now backed by their Governments!

    But as you also say, when will they come out again and start buying?

    Ian.

  • Comment number 19.

    Probably later this week. Perhaps next Monday.

  • Comment number 20.

    I have been down at my vegetable plot lifting some potatoes, I think I will be needing them in a few weeks. I have got them all in pits.

    The first sign of distress will be Local Authorities running out of money. I would think we will see it soon.

    Brown and Darling were bad enough but with Mandy there it will be disaster.

    regards

  • Comment number 21.


    In fact, the situation is so terrible that I think that within the next few weeks, it'll be a 'no-brainer' buying certain shares.

    And/or wait a bit longer for the avalanche of 'buy-to-fret' properties to appear.

    I suspect that quite a few 'vulture capitalists' are patiently sitting on the branches.

    There is a concept of 'intrinsic value' which seems to be buried in the current febrile atmosphere.

  • Comment number 22.

    The drama really began when the politicians in the States got hold of it and European politicians are now doing the same. The only benefit is that they have accelerated the whole process. Can we look forward to a big rebound tomorrow? What I find odd is that European markets have fallen by similar percentages all day. Does this mean that it is co-ordinated selling by a few big players or does it just happen that way?

  • Comment number 23.

    Personally... I wish they'd stop bailing banks out, stop interfering in markets trying to stop short-selling, let any weak institution fail, and then begin again. Capitalism isn't dead, but it seems that the govts are trying their best to kill it simply to prevent anything else from killing it first. Every bit of government intervention has led to markets collapsing further - see the reactions to the US bail-out plan, the ban on short-selling... banks have gone bust before, and the world kept turning. Why do politicians have to keep meddling? (well, apart from the obvious that they need to be seen to do something.) If they'd let the rubbish banks go bust 6 months ago, the better banks wouldn't be struggling now!

  • Comment number 24.

    Watching Comrade Darling bleating about nobody having lost their savings reminds me of the man who jumped off the Empire State Building. Every few floors he passed, he just muttered "well, so far, so good"

  • Comment number 25.

    Robert,

    Don't forget it dropped faster and further before Iraq war (2003), but doubled soon after.

  • Comment number 26.

    I've been listening to BBC parliament proggy...Well, now we know, AD will listen to views, is very aware of the concerns of individual savers and borrowers, oh and businesses as well, he will consider all the options, and do whatever is necessary, and will come back to the house to tell us what he is going to do just as soon as he considers it necessary. More blah blah, here's the fiddle Gordy boy, can anyone smell smoke.

    Pass the sick bag Alice, we are all doomed.

  • Comment number 27.

    Thought Crime 2008, No 11
    So, you are saying that the money over and above our actual (real) wealth has been artificially created by the banks, for the express purpose of lending it.

    So in other words, we have been printing money that we dont have? Another type of inflation for the economic textbooks.

    I presumably now must put my money into the currency which is least likely to be devalued.

    What is the Chinese currency anyway ?

  • Comment number 28.

    This situation is now so ridiculous, particularly after Germany's actions yesterday, that it is hard to see what point these statements now serve other than confirm what many of us always knew, i.e. when the chips are down every country defaults to self interest.

    Indeed, anyone who deceived themselves that closer European integration would lead to economic stability must be licking their wounds. The collapse of the Euro cannot now be too far off.

    The problem very simply is that the economic illusion of recent decades has finally been rumbled. This was inevitable.

    Our whole economic system has been built on increasingly unsustainable borrowing mechanisms that involved governments, financial institutions, businesses and individuals all spending considerably more money than could ever conceivably exist. It also masked an inverse correlation between incomes, that have fallen in real terms year on year, with day to day costs of living, i.e. mortgages, gas, electricity, council tax, etc. which have risen year on year.

    The net result, as we now are seeing, is first a complete worldwide economic crash to then be followed by a long-lasting and ensuing depression. Sadly, in a very short time we will see businesses collapsing and mass unemployment - we are talking at least 4-5 million here in the UK alone, though probably more.

    Anyone who is deluding themselves that things will just pick up soon and that this is perhaps a good time to set up a business is in for a rude awakening - this is not a recession, but a depression. The problem is not liquidity, i.e. the freeing up of available funds, but insolvency, i.e.not enough money in existence to get the economy going again.

    In the 1930s the problem was eventually solved, but not as is often thought, by Roosevelt's New Deal, but by WWII. The question we face today is what the hell will solve this one?!

  • Comment number 29.

    The scary thing right now is the sense of acceleration, with each market following its predecessor downwards. At the same time I still have a feeling that we're waiting for The Big One - a major bank (or maybe a government?) hitting the rocks.

    I don't get the sense that governments have got a grip yet, though there are some tentative signs of progress. First, banking is about confidence, so the wave of depositor protection initiatives has to be a positive. Second, banks are under-capitalised, so suggestions that government may recapitalise banks (in return for equity, warrants, etc) are welcome.

    But the root problem is the slide in asset values (principally in housing) to levels far adrift of the dents 'secured' against them. No-one seems to have quantified this gap yet. We know who loses this money - homeowners, bank shareholders and governments. But this crisis has been going on for a year - why has no bright economist (in government or elsewhere) actually managed to quantify the damage yet?

    It seems fairly obvious that you cannot begin to deal with a problem effectively until you know quite how big that problem is.

  • Comment number 30.

    I am reminded of the joke that if Alastair Darling is reassuring you, then it really is time to panic.
    This is the first real crisis of the age of instant communication and capital markets all over the world including Russia and China- are we making it worse by all having access to the data throughout the day and with always knowing when London is shut what is happening in Asia or the US. It is unbelievably fascinating how this is unfolding but so unpredictable.
    It is also the first time that many bankers have faced movements in the markets that are so large- a few basis points is normal volatility so what on earth do they call it now.
    I am sure we will all be much wiser for all this- just a shame that so many of us will have lost such a lot of our savings- still who really wanted to retire and have a good time anyway.

  • Comment number 31.

    ".... leaders of the European Union make clear that each of them will take whatever measures are necessary to maintain the stability of the financial system."

    "Maintain the stability", by definition, requires that there is something out there which is stable and is possible to be maintained in that state!!

    Might I recommend the following:

    "If you are keeping your head while all about you are losing theirs; you probably haven't grasped the seriousness of the situation!"

  • Comment number 32.

    14:

    Nice idea, but the precedents are not encouraging. This was tried in 1929, when a group of three US investors bought huge quantities of US Steel stock above the market price. This gesture rallied the market briefly, but failed to stem the slump in share prices.

  • Comment number 33.

    For the past 14 months Brown and Darling have continually proclaimed that the Governmet will do anything to maintain stability in the financial system. However, over this period we've been in a deteriorating decline yet all the while we get, "the Government will do anything to maintain stability in the financial system". What have they done and where's the stability?

  • Comment number 34.

    I said we need to let it crash. Any money put in by Governments will just disappear into the big black hole.

    Save the money let it crash then use it to rebuild afterwards

    or

    just cancel all debts world wide and start again.

  • Comment number 35.

    How many more times are we going to hear a politician or economic guru/commentator say that they are "going to do whatever it takes to bring stability to the financial system".
    They clearly do not know where the problem lies nor how to shore it up !!
    Does anybody remember the ERM Mechanism and how the Central banks would do "whatever it took" to keep the currencies between predetermined bands against each other.
    This was broken by George Soros and others and the current proposals will go the same way.
    The "professionals" within the markets will benefit and the taxpayers and the ill informed individual investors will be left to foot the bill.
    Throwing money into a "Black Hole" will not clear the problem.
    Liquidity in the LIBOR markets (3 month rates) are the key barometer.
    Force the moneys to be lent to allow people to trade and survive not shore up balance sheets and the run on deposits.

  • Comment number 36.

    Food rationing ! Martial Law ! Declaration of State of Emergency ! Troops on the streets !

    Which will be first a run on a bank or the shelves of the supermarkets ?

  • Comment number 37.

    #7 davidxandrews

    "If all these banks have lost billions of pounds, who's got it now ? It cant just vanish"

    Good question. Each debt must have a creditor as well as a debtor. The banks aren't the ultimate creditors. I'd like to see some breakdown of who is. Asian Sovereign Wealth funds and Banks? Hedge funds? Pension funds? Presumably these are the sources of the "money market" funds which have been pulled out of our banking system in recent weeks.

  • Comment number 38.

    Being what I like to consider an "older hand" having worked the City for over 30 years, I've seen all this before. This is without doubt the worst I've seen, but everybody should look on this as a golden once-in-a-lifetime opportunity.

    Top up your unit-linked equity pension fund, increase your savings in unit trusts and pile up as much cash as you can whilst interest rates are still nominally "high".

    Those who increase their pension savings (linked to the markets) now will look back on this period as a godsend.

  • Comment number 39.

    Bailout? What Bailout?

  • Comment number 40.

    No matter how you try to spin it today was one of the most farcical and damaging performances of a chancellor I have ever seen.
    Reassuring one reporter put it. That must have been the government line he quoted.
    Totally negative boring and useless
    They are peddling backwards.
    Being totally impartial over this the real plan for action came from the Conservatives.
    It was obvious from the goon like smirk on GB's face he has no intention of listening to anyone but himself.
    Heaven knows where that will take us.
    The bawling and crazy behavior coming from labour back benchers during Vince Cables sensible speech beggars belief. Although I don't agree with everything he says he certainly deserves a hearing.
    Watching Alistair Darling drolling on as if we have all the time in the world as the footsie was dropping like a stone on screen just about sums up the dire situation we are in.
    It's time for the men in white coats to take them away.

  • Comment number 41.

    It certainly looks hairy! Over £200 billion disappeared today. Ouch!!!! This can't go on for ever otherwise the economy will fold and we can all go home and dig turnips.

  • Comment number 42.

    Hair-raising !

  • Comment number 43.

    What the heck is all this doom and gloom ... the current drop puts us back to where we were in 2005, not 1905 ... its not the end of the world ...

    Remember (most appear to forget), stocks can go down as well as up ... when going up, we forgot the "down" bit ... and now that its going down, are we forgetting the "up" bit.

    We are in a down cycle as the credit bubble unwinds ... and when done, the stocks will ... gasp ... go up again.

    So ... if you are day trading or recently in ... alas, its not good, but on the other hand, if you treat this, not as a casino, but as an investment and go long on your holdings, then you will be OK.

  • Comment number 44.

    23:

    Quite right, you do need to let bad banks fail - we won't see an improvement until this has happened. But I also think that, politically, you need to protect depositors in such as situation. Uncertainty is massively distorting the market, and represents the principal route by which the crisis in the 'financial' economy is spilling over into the 'real' economy.

    Bring in 100% deposit protection, then let the weakest banks fail. This is probably the denouement of this process.

  • Comment number 45.

    This is getting rediculous,and its being made worse not better by the 24hr news coverage..case in point being the BBC snazzy "Global financial crisis" logo incorporating the big red downward arrow ,which half wit thought of that..subliminal suggestions are outlawed by the advertising standards agency for good reason..they are highly effective. If what the majority of correspondents want is to be a fly on the wall at the end of the western world as we know it then great have a good one mate..however some of us are more concerned with mundane things like preserving a way of life.

    Its time to censor the output of news channels and close the markets in banking stocks until such a time as their capital funding requirements have been ordered in a environment where planning past the next 5 minutes appears possible.
    When joe public gets scared..he has a limited number of options,the main one being to take their money out of the bank and hide it in the house, this is the only action that if repeated by enough people can actually guarantee financial disaster..nothing else can.

  • Comment number 46.

    AND STILL THE CEO's OF OUR BANKS REMAIN IN OFFICE!!!......what do they have to do before they are kicked out and prosecuted?.........I can only think they have to comit MASS MURDER before the authorities go after them!!!

  • Comment number 47.

    For 'CAPITALISM WILL EAT ITSELF!'
    read
    'CAPITALISM HAS EATEN ITSELF!'

  • Comment number 48.

    I wrote yesterday that this week will be decisive in many ways. There are some serious issues to be resolved or not that will simply tell whether the western financial system can remain in its current form or not.

  • Comment number 49.

    Please, Robert Peston, do not aggravate the situation further by taking an ego trip. Your coverage is impressive, your reporting crisp and stylised, but you are beginning to talk things up by dramatising the current state of affairs.
    People need to keep their nerve; we have been here before with the stock market, and we need to be sensible. Your very influential reporting is becoming alarmist, more colourful, and clearly unhelpful - and no longer, I believe, completely neutral. Neutrality is expected of the BBC.

  • Comment number 50.

    For another perspective on this, it's well worth reading what Robert Prechter has to say about the current situation. For those who don't know him, he is the guru of Elliott Wave theory, and applies it through what he calls socionomics, a combination of economics and social psychology. I have been reading his works for about 5 years during which time he has been predicting a depression worse than that of 1929, while enduring derision from all sides. He also called the great bull market of the 1980's while everyone else was in despair. He has some suggestions for preserving wealth in the most turbulent of times as well.

  • Comment number 51.

    In a few months or so, buy bonds. the gold/silver rise will stop soonish.

  • Comment number 52.

    I posted in an earlier entry about how I thought that perhaps this wouldn't be so bad had access to such vaste amounts of information not been so easy. New car registrations are down by 21%, of course they are, I should imagine that most new cars are paid for with some sort of loan and those people still able to get such loans might just be thinking that now might not be such a good time to commit to three years worth of £500 a month payments. People are panicking, or at least being a whole lot more cautious because of what they're seeing in the media, constant streams of the FTSE and Dow plunging the depths, Robert's constant stream of news, Micky Clack and Andy Verity giving it doom and gloom every single morning. I was planning on buying a new car, and a new push bike around this time, but I'd be foolish, or so the media would have me believe, to do so at present. Isn't this becoming self perpetuating?

    My second point was to those who say, "Let the banks fail", "Greedy bankers" etc. I should imagine that there aren't that many people who work for banks who actually make the decision to borrow more than they can afford, about 1000 in the world? Most of the 'bankers' are back office staff, branch staff, IT staff, call centre staff, like you and I and these number millions, nothing flash, no massive cars, no swimming pools, bonuses, but not massive bonuses. I work for a bank, I'm paid well but not stupidly, I live in a terraced house, I drive a seven year old car (which I admittedly bought when it was 3 years old), I holiday under canvas in this country. I certainly don't roll around naked in a swimming pool full of cash as some would portray us 'bankers'. We're the ones that will ultimately suffer should "The greedy bankers be punished and allowed to fail". Everyone is crying out that there's a problem with banking, would there have been such a problem people not stretched themselves on credit cards and store cards, mortgages and car loans chasing something? Banks didn't give it away, and they can't be held entirely accountable, yes their practices were clearly wrong, but if you're going to borrow money from anywhere that you know you'll struggle to pay back then, in my opinion, you have to take some responsibility. I think there's a problem with society.

    If you're on a diet and someone offers you a great big cake are you going to take it just because it's there? Yes? Well take responsibility for getting fatter then.

    I'm fully prepared for this comment to be taken apart by the more knowledgable among you, because it's reactionary, hastily composed and probably all wrong.

  • Comment number 53.

    I think based on the chaos and panic that has griped the markets the world stock markets are close to capitulation.

    I can't se any light at the end of the tunel, by nationalizing banks and taking over their extrem debt is no way to calm or balanc the markets.

    No one mention that all the accumulated debt has to be payed one way or the other but where is the money couse I see none

  • Comment number 54.

    #19 Johnnie-london

    Great post on the other thread about jap banks - slipped past the moderator for a few minutes! I think it is essential we all maintain a sense of humour at the current time, so carry on watching AD and the f...lying Scotsman.

  • Comment number 55.

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

  • Comment number 56.

    People keep asking where the money comes from and where does it go. To boil it down to basics, a commodity is only worth what someone will pay for it. If nobody wants it, it is worthless. Now to put this into context vis-a-ve the money markets, it means that share prices drop as more and more people realise that banks and institutions are high risk, companies will come to a grinding halt without cheap cash and personal spending is limited to the esentials of food, warmth and shelter. So all the rich kids dump shares at lower and lower prices, hoping to jump before the real crash happens, ie when no one will buy any share at any price. But you say, 'All this money has to go somewhere', Normally (1929) it would, into bricks and morter , but not this time. Perhaps gold? not this time as the world has no gold standard anymore. So where? Nowhere. It goes nowhere. Money itself becomes more and more worhtless.

    This crisis will devalue all the world curancies. Protectionism will cut in and countries that are not self sufficient will hurt very badly.

    The illusion that printed paper has intrinsic value will become harder and harder to maintain.

  • Comment number 57.

    # 21

    John,

    You're right. It certainly will be a no-brainer soon about buying certain shares. Valuations of a number of stocks suggests we're already there. However, in the kind of panic we have now, nobody is willing to re-enter the market for fear of "catchng a falling knife". If you want a good macro signal about buying UK stocks, it's when the yield on the FTSE All Share Index is higher than that on 10 year gilts. It's well above already, so even if we apply a discount to the FTSE yield to cover possible dividend cuts, we still have a clear Buy signal. However, that all assumes we have a banking system, and at the moment the market still doubts that it won't all come crashing down.

    As for "vulture capitalists" you are again totally right. There will be plenty of private equity funds looking to invest, though they typically need debt finance as well to make deals attractive, so nothing can happen until bank lending restarts. Worth noting that Lehman's asset management businesses were bought up by a private equity consortium last week. They appear to have paid 0.01% of the businesses' assets under management. Until the recent crash, the going rate for purchase of an asset management business was 0.03% of funds, so a two-thirds discount here.

    The loss of focus on intrinsic value in today's febrile atmosphere is palpable. The one proviso I'd make again is that we need a functioning banking system to realise that value. So until confidence emerges that the banking system (though not necessarily any particular bank) will survive, fear of collapse will outweigh intrinsic value. It manifests itself in a 100% weighting to any bad news and a 0% weighting to any good news, which is what we're experiencing now: bad news causes share price falls, good news gets ignored. There's a (share) buyers' strike at the moment.

  • Comment number 58.

    davidxandrews

    Money doesn't exist in that the moment we moved away from the gold standard it wasn't backed by anything. If you look at your £10 note it's actually a promise by the bank of England to pay the bearer of the note £10. That used to be £10 in gold, now they can't give you anything.

    It's an oversimplification, but money at the moment has value because we believe it does. Therefore you can create it by convincing people it's there. That's what cheap credit did, we all thought we could borrow much more than we could afford based on the fact that our houses would be worth more in the future so everything would work out.

    What we are experiencing now is what happens when everyone collectively snaps out of the delusion.

  • Comment number 59.

    I must admit, I can't help but admire the russian solution to a large sell-off ... just close the market until the panic passes :-)

  • Comment number 60.

    The banking system is going to go down - we all know that - and, to be honest, I would prefer it to be sooner rather than later and that governments didn't continue to waste billions of our taxpayers money trying to prolong the agony and merely create even greater debt for the future.

  • Comment number 61.


    Robert please can you explain why this is so serious?

    I must be missing something but all I can see is that borrowing money for everyone is going to be a lot more difficult

    This doesn't seem to be a bad thing.


  • Comment number 62.

    Where does the Bank of England get all this money?

    Is it just printing out cash like Zimbabwe or do they act as a building society.

    Bank 1 gives Bank of England 10bn on deposit
    Bank of England give out
    3bn to Bank 2
    7bn to Bank 3

  • Comment number 63.

    I run a small UK firm and this situation is, frankly, terrifying!

    I think Brown and Darling have been actually looking the wrong way. The money that feeds the banking system (when it works properly) is made at desks like mine and on telephones like mine. I make and sell things. They just don't get it, do they? What's happened is consumer confidence plummets. When that happens people stop spending, immediately. I've seen this happen loads of times when interest rates go up, our phone stops ringing and then after a week or two confidence returns.

    Not this time!

    The govt needs to put a moratorium on the usual bank responses of repossessions and foreclosures pretty quick because otherwise a heck of a lot of people whose livelihood has suddenly been withdrawn are then also going to get 'punished' in the courts, for something that is NOT their fault. Might go someway to placating folk who feel that banks have had the 'lion's share' of govt help.

    I should have though that MPs would be out and about canvassing people's views and ascertaining their needs, then feeding these concerns back to Parliament, but they aren't. That's what MPs are for isn't it?

    GC



  • Comment number 64.

    Will someone tell me why we have not been told to simply place savings into a good old building society. Seems to me they are not carrying the same risks as banks which have exposed themselves to the derivatives markets.

    Banks as companies have shareholders, shareprices etc and are thus subject to the usual vagaries of the stockmarket ie they can go up as well as down.

    Building societies may have problems with the reducing value of their main assets ie property, residential , commercial, land etc - but as long as savers put money into their accounts they will at least be solvent and the more money we put there the safer our savings will be regardless of depositer protection.

    Then the main risk/issue will be devaluation of the currency !!

  • Comment number 65.

    Out of all this will (eventually!) come a better way of running the show ... it's a GOOD THING.

  • Comment number 66.

    52

    "would there have been such a problem people not stretched themselves on credit cards and store cards, mortgages and car loans chasing something?"

    Yes there would. Uncontrolled consumer credit is merely the smokescreen perpetrated by the banks - it wouldn't bring the entire financial system down.

    What is going to bring the system down are the CDSs and CDOs and the absurd, unsustainable leveraging - all things that that banks have created themselves over the last ten years to boost their own profits and bonuses.

  • Comment number 67.

    A sense of perspective is crucial. But that is difficult if you are in a white out!

  • Comment number 68.

    The current crisis will not be resolved until the impetus within the press and media has peaked - yes, it is a noteworthy news story but it has become self perpetuating for the time being - whilst 'experts' predict house prices (on which our economy has become considerably more dependant than the Bank of England considers) will fall 25%, the fact is that they climbed some 100% in the preceding 4/5 years.
    Public confidence is the key - whilst the Chancellor and Prime Minister promise that everything will be done to protect the economy, in truth there is no 'magic pill' (the promise of $750bn hasn't produced a magic response yet) - only time will see this one resolve itself.
    Sadly, the last recession took 5 years - let's pray this one sorts itself sooner

  • Comment number 69.

    The real issue is the willingness of the banks to lend to each other and if you think about it - would you lend money to the same people who are the cause of this mess in the first place. I think not

  • Comment number 70.

    I propose that Mr Peston asks for an interview with the leading British bankers, and asks them collectively to come out and tell us where they believe they stand. The facts. If they won't, then as public businesses they totally deserve the lack of faith that the public now has.
    They are still now playing poker with our lives.
    This will eventually lead to not only less money deposited, but also many more unpaid debts as the public lose yet more confidence - or in reality lose their jobs. The perfect storm.
    The last year has seen many empty promises, so where are the facts? I presume they do employ accountants... even for their off sheet accounting. They can all turn their cards over at the same time.... it would make for a great BBC prime time program, much better than waiting until the system free falls.
    I am certain that I have never failed to pay my dues..... and I will not be paying the dues of my bank because they couldn't. They are the "experts", not I. Sadly, the politicians have a habit of doing the wrong thing.

  • Comment number 71.

    Your financial commentary is simply the best Robert.
    I believe we are going to see a massive revaluation and devaluation of Western assets and currencies as the bubble of the last 15 years bursts.
    If I'm right there will be a concerted rush to gold at the end of all this as paper money loses its value/purchasing power.
    Hang on to your hat.

  • Comment number 72.

    What are you all talking about? This is great!

    It's like being in a sweetie store. I don't know where to start first!

    Probably banks and property, or maybe emerging markets.

  • Comment number 73.

    Surely the sell off in the stock market is a good thing in current circumstance. Shares are sold, converted to cash and this will increase liquidity in the banking sector as this moves from trading accounts to the banks.

    When / if the money moves back to the market the "lost" value will be restored.

    Or am I missing something?

  • Comment number 74.

    Hairy indeed, very hairy :-)

  • Comment number 75.

    Robert,

    That's not how I read it at all. I think that large institutional investors and the likes of Mr Soros think that they can push the governments further into making the concession of unlimitred compensation or cover for savings (and debts...and anything else?) before sinking banks end up on the market for next to nothing. They'll snap them up, asset strip them and let government (that's you and me as taxpayers) pay to clean up the mess.

    Enough is enough. We have to call the bluff of these guys. Governments should agree to underwrite savings ONLY for banks that remain BOTH solvent AND with a credible takeover in prospect. Savers can leave with their money from the rest, and those banks will at least have a quick death. The likes of Mr S and others would then have to second guess which banks would stay and which would go - and that would prevent this concerted effort to force down the price of all financial stocks.

  • Comment number 76.

    Hi Rob,

    We haven't reached the bottom yet!There is still a hell of a long way to go and that is without the moderating influence of the short sellers booking profits.

    Dow Jones 7000 is probably a good buying point.

  • Comment number 77.

    I've read about 1929 but I never thought I might observe a sequel! This seems to signal the end of laissez-faire free-market capitalism. If only the 'roundabout' could stopped whilst a new economic ethic is constructed!

    Perhaps our politicians will now accept that public-sector values are preferable to those whose aim is solely to maximise profits? Maybe too, the culture of greed could be tamed by a progressive income tax?

    Things really do have to change!

  • Comment number 78.

    2008 = 1930

    Everything always happens in the autumn/fall!

    So what are the lessons of history?

    I think we can expect to see wage cuts in the public services and private sector in 2010. (And the Olympics of 2012 will become known as the austerity Olympics.)

    The banks will be de-facto nationalised with a total loss to the existing shareholders.

    Peripheral financial gambling business will simply fold. (e.g. hedge funds and private equity/venture capitalists.)

    Interest rates will rise and borrowing will be almost unobtainable for a decade. Loans will be called in. (Mortgages that come to the end of their term will be required to be repaid and a new mortgage will not be available. House prices will halve.)

    I would not be surprised to see a rise in protectionism and exchange controls.

    The UK will adopt the Euro for its own protection sometime in the next 2 years probably as the first act of a Tory / or National government. The Euro will remain as a viable currency as it provides certainty for inter-country European trade. Indeed the Euro will prevent the rise of competitive economic policies between European countries and so prevent a European war. If the Euro collapses all bets are off and the probability of a European war is far far higher.

    The US Dollar's and the USA's hegemony is over, as is the current structure of the IMF (by the way why haven't we heard from the IMF in all of this ?!!!!)

    Reganomics and Thatcherism will be seen as the direct cause of this depression and a new more regulated financial World will result.

    Until about 2058 when a new Thatcher will be seen as the saviour of the stagnant (hopefully not post WW3) financial sector and when it bubbles again - to collapse again in the autumn/fall of 2086.

    That's my view anyway! In a sense it is not all that depressing as I see light at the end of the tunnel, a long tunnel.

  • Comment number 79.

    "7. At 4:12pm on 06 Oct 2008, davidxandrews wrote:

    Can Robert explain something to me. If all these banks have lost billions of pounds, who's got it now ? It cant just vanish."

    Yes it can.

    No it can't!

    Yes it can! it can it can it CAN!!!


    That's exactly what happens. It vanishes in a puff of debt.

  • Comment number 80.

    As the soveriegn wealth funds, mainly in Asia and the Middle East seem to be the only ones who have any cash left to spend, how low does the market have to fall before it is not just football clubs that are being snapped up at bargain prices, but the bulk of the FTSE 100?

    As to that being a good thing or not depends on your world view and belief in letting the markets make their own way. We can't bleat about free markets being the only way forward when things are rosy, and then getting protectionist when the middle and far eastern cavalry comes riding in with cash in abundance.

    Perhaps they are right now sitting in the wings, sipping very strong, sweet tea, reading Robert Pestons blog and waiting for him to proclaim the bottom of the market has been reached!

  • Comment number 81.

    @davidxandrews - I've got lots of that lost money. If you want some, send me cheque for as much as you want and I'll send you nothing back. How about a house too? I can let you have mine for 40% more than anyone else will pay for it.

  • Comment number 82.

    The US bailout has not had time to have any effect and will not have any effect in establishing a market for toxic paperwork for at least a month, probably longer.

    There is no real difference in the situation. The US politicans stalling in the face of adverse US public just whipped up the fear, that was the process.

    The US bailout is intended to be a firebreak, not stop the fire, the fire is still burning. In Europe nothing really has been done, just the odd intervention on individual banks. It is all still a fire in progress. Banks are still expected to get in trouble for months. Months not days.

    Investors with money sitting on the side will not move until they consider the bottom is approaching or reached. There is no sign of the bottom. Jump in too quickly and you just join the damaged goods

    As far as the banks go, we have already seen diffculty in reaching decisions quicker than the situation develops. Lehman Bros turned down a rescue offer a day or two before collapse (26 dollars a share was reported I believe) because it was seen as too low, better than zero but they baulked and wanted to try and wriggle through.

    The question is - do the banks still want to try and get relatively cheap liquidity from the taxpayer rather than giving up independence.

    At what point will the banks give up independence, not until the last minute. At what point does the government in an affected country intervene, not until there is absolutely no option. We are still seeing the same problem as surfaced with the US bailout, there is predominately fear on both sides, there is little greed to balance the fear so progress is slow.

    If a part nationalisation is the solution it is not even clear at this stage that the all the parties, and it has to be all of them, can sit down around the table and talk sensibly about a deal. you cannot have repeated deals made, stop, add new parties, re deal, stop etc. If the solution is sector wide the discusions have to be sector wide, that is the problem. If there has to be EU wide action it is that much worse. When banks are international businesses with activities in multiple countries it is that much more difficult.

    In the meantime the fire continues to burn and damage will rapidly develop in the UK economy, particularly in any sector which was bouyed by the property boom. The issue is not recovery because that occurs at some point, it is when recovery will happen and what happens in the meantime.

  • Comment number 83.

    Dear Robert,
    Could we please have some grown up journalism. You constantly refer to the Federal reserve as America's Central Bank, a fallacy engendered by lazy journalists. It is not Federal It has no reserves and it is not a bank. Please do not make this mistake again. Whilst you are at it you should look at who the beneficiaries of this current crisis is, as a very basic, if not always correct starting point I suggest you read Naomi Kliens "Shock and Awe". As a highly paid and regarded journalist please take it from there. I for one am getting fed up with non factual reporting.
    Hoping for better things from you.

  • Comment number 84.

    There are rumours (again!) of the fact that the US has begun minting the Amero, the new "supposed" pan-american currency somewhat akin to the Euro for when the dollar bombs and becomes less useful than loo paper.

    Will we see a time soon when all commodities are traded not in the US dollar, but in the Euro? Hasn't Iran and Venezuela already begun to settle oil in Euros?


  • Comment number 85.

    I thought the saying was about 'chickens coming home to roost'. I did not realise it was referring to 'headless chickens'. I thought that the European Union was supposed to act as a body, not one by one like sheep. What was the purpose of last week's meeting if afterwards they were to go off and act independently? Is there nobody in the driving seat to bring this runaway train to a halt before it hits the buffers?

  • Comment number 86.


    #78. Reganomics and Thatcher as being the cause of all this?

    What about the mortgage/housing boom encouraged by Clintonomics or the consumer led boom encouraged by the Gordonomics?

    And the scrapping of the specialist sector regulators in favour of the one super-regulator, the FSA, in the UK? Courtesy of Gordonomics. And the removal of banking supervision from the Bank of England? Courtesy of Gordonomics.

    We have this problem because Banks have lent too much money to people who cannot afford to pay it back. This doesn't date back to the 1980s. It has grown out of all proportion since 1997.

    If you really want to blame Thatcher then why not take the extra step and blame her parents - and theirs too. The argument you have used is illogical.

    Greed, encouraged by a lack of regulation, has been the problem.

    In 2001, the new FSA said in their guidance to the Training and Competence rulebook that firms should link remuneration packages to performance and adherence to market conduct and regulation.

    So what went wrong?

  • Comment number 87.

    Can someone tell me why I earn three times the average annual salary and can't buy the average house in this country??? And I am 28 so my mortgage can be loooong...

  • Comment number 88.

    #13

    "To restore confidence, should the ISDA not publish every Credit Swap deal, with the signature of the signee, company name and the Credit Swap deal it is netted off against."

    Hm... now who would you expect to be on that list?

    You see one of the principal features of Single Name CDS is that it can be used as protection for junk bond. Junk bond + CDS is AAA that would have been a 'reasonable' investmment for a low risk appetite Pension fund etc.

    or maybe not.



  • Comment number 89.

    There are two opinions that matter in the world today.....

    The first is the opinion of bankers, politicians and the like, all of whom are trying to convince each other that liquidity, stock prices, market confidence and the like can be somehow rescued. It just takes the right "words" such as "we will do everything we can to avoid disaster".

    Then there is the opinion of us foot-soldiers who live and survive here on "main street".

    Today we get news that the motor industry is down 20% in the month of September. Is that a result of the credit crunch? Sort out the banks, drop interest rates and we will all gladly go out and buy a new car?

    Or, is it the result of us infantrymen VOTING WITH THEIR FEET?

    Maybe the man in the street appreciates that the age of of austerity is once again upon us. Its a very natural reaction after sensing danger to start taking avasive action. We stop buying and conserve our funds. We have families to house, clothe and feed. The new car can wait another year (or two), so can the bigger house and the holiday.

  • Comment number 90.

    "51. At 5:00pm on 06 Oct 2008, Mandricard wrote:

    In a few months or so, buy bonds. the gold/silver rise will stop soonish."

    lol. no. Completely backwards...

    Oh wait... Yes, buy bonds, sell gold and silver.

  • Comment number 91.

    The economic slowdown was occurring before this financial crisis. No rational person believed government or analysts' recent predictions for the growth in corporate earnings for the next 12 months. Credit contraction followed by economic contraction has always been the cycle.

  • Comment number 92.

    I think a major problem is not only depositor confidence but investor confidence which has taken a battering by the handling of and subsequent stealing of NR and BB by the government.

    Although relatively small banks, pictures of the first run on a British bank in 160 years flashed across the world repeatedly did not inspire confidence in supposedly the world's premier financial centre.

    Talk of nationalisation or part nationalisations over the weekend of more banks certainly is prompting me to sell what shares I have left. After a lifetime of frugal saving and "blue-chip" investment it is devastating to see 50% of the value of my investments wiped out in a year - I am beginning to think I would have been better off spending what I had and relying on the state.

    It was even suggested this morning on the Today program that it might be highly profitable for the government to nationalise the banks and refloat them in 5 years at a huge profit. This would be further theft of investors' shares, including of course many pension funds. I assume at the BBC many people have final salary schemes so it will fall to the licence payers to meet the shortfalls!

    Darling does not fill investors with confidence when he says he will support banks and then nationalises Bradford and Bingley. During his short speech this afternoon the market fell another 100 points - he and the BoE have done an excellent job in destroying confidence and ultimately our economy.

    I'm not sure whether Cable in his musings on housebuilding is implying the country's major housebuilders should be nationalised. Where will it end - the Government owning all key industries?

    This scenario is leading to total lack of confidence in the UK as a safe place to invest not only among UK investors but also among foreign investors - I wonder what the sovereign wealth funds which invested in Barclays think of the idea of nationalising Barclays?

    The long term impact of shattering investor confidence will be zero or negative growth and declining living standards for years to come in the UK, which will be particularly hammered because of its dependence upon financial services.

    A million more unemployed? - make it 2+ million more.

  • Comment number 93.

    I am tired of hearing leaders say "they will do whatever is necessary to ensure the economic stability, blah blah....." . The fact is they dont know what to do. Therein lies the problem.

  • Comment number 94.

    Friedlycard, 44: You're right, ordinary savers mustn't be punished (the irony, given that debtors got them into the mess in the first place!). BUt... most of the banks causing the trouble aren't retail banks, they're investment banks. Retail banks have got drawn into it now because they also need funding to run their businesses (as does the rest of the economy, which will be the next domino once Q3 earnings start coming out). If the IBs had been punished early and severely at the start, the retail banks that most mortals have their savings with would not have been affected - there would have been a few weeks or maybe months of confusion and then other institutions would step in to fill the niches in the market - that's what happens when you give the market as much freedom as you can. But the not-at-all cowboys in the White House etc. decided that no one was going to fail and everything would be fine, like it was a Disney film. And now we have a right mess. And now suddenly it's not so easy to let banks fail because they'd ALL (almost) fail if you cut the parachute strings, good and bad. So now we have massive wealth-destruction out there simply because no one wanted to take their medicine 12 months ago... very sad for the innocent people caught up in it, and outrageous that the guilty ones aren't in jail!

  • Comment number 95.

    It is a mess but never the less we should all stay calm. Like an hurricane or a tornado it could get worse and probably will but it will blow over. The ship of Capitalism will sail again perhaps not in its past form but sail it will. And remember the infrastructure is still there; the hospitals, schools, roads and we have water a scarcity in some parts of the world. A quote I read the other week I think is appropriate, "Buy on the sound of gunfire and sell when they sign the truce".

  • Comment number 96.

    Dear Robert,

    This is an mirror image of the way the Financiers and Bankers created the Great Depression, and the money crisis through the thirties. it is an exact copy, of reducing the worlds wealth to unmanable assets. This will force dire action in the months and years to come AND it is a precursor to world war.This is what wars are made from, and it is right up a poilticians street to compensate for mass unemployment.Beware the Prophesy.

  • Comment number 97.

    Where has all the money gone? Simple. Back from whence it came. Nowhere. It never existed. It was mainly invented to keep the bubble endlessly expanding. But ask any astronomer - nothing expands forever. Eventually you will end up with black hole.

  • Comment number 98.

    I know at the end of the day this is just journalism, in other words (at least in today's world) a form of light entertainment, not to be taken serious. But I am still a bit disappointed by your last few blogs, bearing in mind how many people, including myself owe the little knowledge they have about these monstrous banking bubbles to large extent to your informatory skills. But todays misinformation about the German savers protection and now your declaration of the nearing of the end of the world are not very helpful to maintain your record. The markets fall, so let them fall for goodness sake! It's there good right to fall, as every child has the right to develop fever when it is ill. It's a good sign, as it means healing (or correction in financial terms) is underway.

  • Comment number 99.

    I feel a bit happier now that I have worked out where this will end...

    The crisis is now being driven by depositors who are utterly determined to place their funds where they will be the safest. The inability of national Governments to exactly co-ordinate changes and levels of protection means that there is an inadvertent bidding war developing.

    The end point will have all banks in the developed World in the hands of Governments and primarily backed by tax receipts - not deposits. Once this point is reached, I don't see any way back to the old system.

    The faster we get to this point the better for the rest of the economy.

    The economic slow-down is happening because people and businesses are scared witless by what is happening in the Banking sector. The faster we get to a stable equilibrium - whatever that is - the better for us all.

  • Comment number 100.

    Why do we keep saying we are going into a recession- whatever the statistics say- we are in one- rising unemployement-falling tax revenues- falling sales and falling profits- that is what it means surely. The glimpse on the horizon is that commodity prices are falling so the sting should be taken out of inflation and there will be sectors that keep expanding- green industries for example. Stock markets will continue to fall because the expectation of growth in value and dividends is non-existent. I think it will be made worse by tracker funds and computers that will not have been programmed to deal with what we are seeing now. What really matters now is stabilising the banks- then getting cost structures in banks right which will mean massive job losses- then having a good look at what our economic strategy should be- what we should support as sectors and reducing our dependence on financial services- and I think planning on less population growth and the social consequences that will bring. This is going to last for at least two years- past the next general election - and possibly for five years or more.I think what will kick start the economy will be a scheme similar to BES for environmental investment and to create ownership pools for housing so that we can help buyers come into the market but we will need landowners to reduce their expectations and for LAs to forget using 106 agreements as a source of infrastructure goodies. Also if we are to invest in these projects we must be willing to accept sensible returns even though there is risk.

 

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