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Another Black Friday

Robert Peston | 08:58 UK time, Friday, 12 December 2008

There's a great deal of grim news around this morning.

I'm hearing very bleak reports about prospects for Entertainment UK, the wholesaler of music, electronic games, DVDs and books, that's owned by troubled Woolies.

A significant slimming down of Entertainment UK now looks likely, I am told - which would be bleak indeed for its employees, who number well over 1000.

HBOSAlso, HBOS - owner of the Halifax - has reported a significant increase in the charges it takes for bad debts.

If you add together HBOS's investment losses and securities losses with an incremental impairment charges on mortgages, personal loans and corporate loans, there has been a £3bn rise over just the last two months in all these categories of loss.

So that's £3bn of additional loss incurred by HBOS, owner of the Halifax, since 30 September.

Not nice.

The most horrible trend is in lending to big companies. For the first 11 months of the year, the impairment charge on corporate loans is £3.3bn, an increase of 560% since 30 June.

That says a great deal about how the economy has deteriorated since the summer. But it also implies that HBOS's corporate lending department was taking excessive risks.

For the year as a whole, HBOS is also going to suffer a loss on unsecured lending to consumers in excess of £1bn.

As for the impairment charge on mortgages, that's £700m for the first 11 months of 2008 - but rising very fast indeed.

Finally, there's the rejection by the US Senate of the proposed $14bn bail-out of the giant American car manufacturers.

Vauxhall cars outside Vauxhall manufacturing plantThat's causing massive anxiety in the British car industry - and is particularly alarming for Vauxhall, the British subsidiary of General Motors.

Vauxhall employs 5,000 directly and countless others indirectly at suppliers and distributors.

My understanding is that the Business Department views Vauxhall as "viable" - which is its test for whether it should receive state support, if the worst were to come to the worst and General Motors itself were to collapse.

So the moment when we as taxpayers start providing financial help to individual motor manufacturers, to keep them alive through the acute phase of our economic contraction, is fast approaching.

UPDATE 1300 GMT:
: The administrators to Entertainment UK have announced that they are "scaling down" efforts to find a buyer for the wholesaler and are making 750 employees redundant. It looks very unlikely that this supplier to the big supermarkets will survive.

There will be pain for book publishers, electronic games creators, DVD publishers and music businesses. And there will also be disruption to retailers, notably Zavvi, the chain of music stores.

Comments

Page 1 of 4

  • Comment number 1.

    Don't worry the stock markets will rise again.

    I say this because it is now apparent that the Government is commitment beyond the point of no return.

  • Comment number 2.

    A package for the US car makers will get approval before Christmas. It would be a very surprising outcome if the car makers are let to fail.

  • Comment number 3.

    I think it would be a salutory lesson to us all if the American motor industry was allowed to go bust. They need a reality check. The corporate jets are just the most obvious form of pampering. They have not come forward with a offer of massive salary and benefit cuts and redundancies so the industry can wind down gracefully. The also produce gas guzzling cars that noone wants any more. Call their bluff. The taxpayer cannot protect everybody and should not do so because of blackmail. Fortunately I do not live in Detroit.

  • Comment number 4.

    Not sure about the Senate decision. No doubt the Democrats will try again in January with an enhanced majority and a "dynamic new president". I wonder how hard they tried on Bush's watch.

  • Comment number 5.

    Forget Black Friday...It`s Black 2009 I'm worrying about.

  • Comment number 6.

    So the news continues to be bad from business. Fortunately the news from the political arena is better. A debate has started about how best to deal with the economy. The first, encouraging sign that future decisions will be based on winning an argument rather than blind panic and herd mentality. Germany has broken ranks with the prevailing keynesian approach, the Senate has chucked out the auto-industry's pleas for subsidy. Out of argument will rise better solutions, although not painless ones.

  • Comment number 7.

    I see so much contradiction that my confidence in the Government is totally shot. There just does not seem to be a coherent plan of action yet they continue to hose our money at the problem.

    As asset prices are inextricably linked to this problem, and considering the Government have bought the banks; I believe the Government need to state their aspiration for mortgage lending in 12 months time in terms of Loan-To-Value (LTV) ratio, multiples of annual income, and loan duration. If you agree please sign this petition:

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

    We’re either looking at a real crash in house prices (not just flats and apartments) or a return to irresponsible and risky lending. This begs the question; do we believe that the Government has a real commitment to lending regulation and reform?

  • Comment number 8.

    The more losses the banks reveal, the clearer it become just how unsustainable their whole business model was. The problem is that all the years of cheap, easy credit made it all too easy for poor performing firms to ignore their problems and now we see them going to the wall.

    Vauxhall and Opel (GM Europe) are both viable concerns after years of investment and restructuring by GM. Unfortunately the last assessment of the German government suggested that Opel (and by implication Vauxhall as well) would not survive outside the umbrella of another major manufacturer.

    The Opel bosses also went to the German goverment for potential aid and were "shocked" when the Gertman government suggested that Opel provide something in return, or even be nationalised.

  • Comment number 9.

    I'm going back to bed Robert......

    Someone wake me in April please.....

    April 2011!

  • Comment number 10.

    Is it not time we started to subsidise farmers to grow as much food as possible, after all we do not need to replace the car, but food tends to go off, assuming we don’t eat it?

  • Comment number 11.

    And here I was sat at my PC thinking Crash Gordon had saved the world...oh well.

  • Comment number 12.

    I've got it - let's nationalise the UK motor industry! That would safeguard all the...hang on, I think we tried that before once. Remind me what happened then.

  • Comment number 13.

    FromRP:
    "So the moment when we as taxpayers start providing financial help to individual motor manufacturers, to keep them alive through the acute phase of our economic contraction, is fast approaching."

    All on the whim of a discredited prime minister and his bungling chancellor.How can anyone trust these people to manage even a whelk-stall?
    Answer:Because the state organ has been irresponsibly telling the sheeple whatever Brown wants them to hear instead of providing the public with unbiased commentary.
    The government response to the German politicians deriding the governments plans was a joy to behold :)
    It must have stuck in the BBC`s craw to have had to report such delightful comments from the no-nonsense Germans :) :)

  • Comment number 14.

    The American government won't let GM and Chrysler fail, expect to see some 'emergency' legislation to bypass the Senate.

    Or a change in the rules to allow GMAC and Chrysler's financing divsion to become Holding Banks and therefore eligible to dip their snouts into the trough of the banking bailout funds.


    I'm not sure why the numbers from HBOS are seen as terrible, after all I thought the market had already priced in the worst case scenarios and this bad loans stuff is old news surely?

  • Comment number 15.

    I'm afraid that we still haven't got anywhere near into the depths yet. Yes, the availability of credit probably can't get much worse and that's a factor, but I believe it to be the symptom of a deeper malaise;

    * our wealth creating activity is, on the whole, pretty much rumbled.
    * our public sector operates to rules unimaginable to real commercial organisations.

    These two factors present almost insurmountable obstancles to recovery. How DO we tackle a £1tn (£1000bn) unfunded public sector pension liability that isn't even on the (awful) books? There will be civil disorder if we try, but try we must.
    How do we get the somnambulent British population to wake up to the fact that they have to work and scrap for a living? We have generations trained to believe it's all there by rights; can they change without the spur of horrible poverty?
    How do we address the horrible fact that British industry is at a monstrous disadvantage in making things; on the one hand we have highly developed, advanced such as in Germany that we can't beat, and on the other hand miniscule wage economies. Then we get the low wage economies becoming high tech and highly educated at the same time, and we're completely screwed!

    I fear there is no way forward without a gigantic step backward. We will, I believe, probably lose much of what we call the NHS and have to make do with a less ambitious aim in terms of our life expectancy and health, probably concentrating on prevention and cure of the economically curable. We will have to look to family to provide care and safety nets rather than the state.
    There is much more, but the point is made.

    There is 40+ years of erosion of wealth creation to make up for and it won't be put right quickly. I think we're headed for Margaret Thatchers revolution, to the power of three. But where is the figure to lead us through this?

  • Comment number 16.

    The news can be summarised that "Big is no longer beautiful" where corporate life is concerned.

    Small firms not only maintain their feet on the ground, instead of issuing disctates from their corporate ivory towers, but have the flexibility to adjust to changing times.

    Its about time small company bosses were given the credit for the stability large firms appear incapable of delivering.

  • Comment number 17.

    We are seeing a lot of Government support for 'viable' businesses which is essential to prevent a landlside of unemployment.

    We are seeing very little to help those already unemployed by this crisis - well nothing outside the usual 'social payments' and mortgage assistance.

    Where is the training help? Up/reskilling is critical to retaining jobs in the UK, especially in those areas that continue to have skills shortages even in hard times.

    If you are unemployed where do you find the money to go on these courses - out of your jobseekers allowance hah hah. Technical training can cost up to 1000 pounds for a week. In Denmark this would be provided in order to keep their workforce viable and paying taxes.

    Oh, and by the way whilst I seek a job I've looked at the salaries being offered in the Financial Services - if anything they've gone up.

  • Comment number 18.

    Dont worry robert......
    The goverment as got everthing under control. The economy is booming plans are going ahead for a second runway to be built at stansted airport, for the extra holidays and business trips, and all the single mothers are being made to go to work because theres so much work out there the country cant manage, and things are that good they are even putting ciggarettes under the counter as we now lead a much less stressful life style. things have never looked so good.

    FINACIAL CRISES........ WHAT FINANCIAL CRISES

  • Comment number 19.

    As far as unemployment is concerned we ain't seen nothing yet and people know it, which is why interest rate cuts and tax cuts won't get them spending, nor will sticking plaster on old jobs solve the problem. New jobs on infrastructure projects that might underpin businesses and enable them to make more profit when the upturn comes amd so pay more tax to pay back government borrowing might and plans in place might make people fell secure enough to startspending which might save some of the old jobs.

  • Comment number 20.

    "...the Business Department views Vauxhall as "viable" - which is its test for whether it should receive state support"

    Translated into real English: "Vauxhall factories are located in or near a lot of Labour marginals"

    Robert,

    I know that your job as Business Editor requires you to attend lots of social functions, as you've acknowledged previously. And I accept this leaves you little time to do any research. So I'll give you a few bits to cover the gaps in your knowledge.

    The global car industry was producing too many cars even in the boom years. With a 20-30% drop in sales, there is now vast over-capacity. In the US, the least efficient (highest cost) producers are the domestic Big Three who, to compond things, don't produce many vehicle-types that consumers actually want. The UK's car plants were, on the whole, built in the 1980s, when Britain was the lowest labour cost location in the UK. There are now much lower cost locations than the UK. Consequently our car plants are relatively costly, and new plants over the last 10 years have been built in eastern Europe. They are thus more efficient as well as lower cost.

    So, a number of European car plants need to close. Some of the most costly are in the UK, so these are the ones that should go. It's regrettable, it will cause hardship, it may even cost GB his job. However, pouring money into organisations to make things nobody wnats to buy is simply a waste of scarce resources. It diverts those resources from other economic activities with a better chance of unaided survival.

  • Comment number 21.

    There will be Black Fridays like this from here until long into the future, as more and more crazy financial situations are revealed - like these two extraordinary stories which might be funny if they were not so serious.

    We have spent the boom years relaxing all sense of financial discipline and the unravelling will be anything but fun.

  • Comment number 22.

    On the subject of EUK, it's in a dying industry. The retailing of music, games, DVDs has moved into the virtual world. Increasingly they're downloaded direct to people's personal electronic devices (iPod, PC, XBox etc). There's simply no need for physical products. Hands up anyone who has bought a physical music CD in the last 5 years, certainly 2 years? Why do you think iTunes isn't going into bankruptcy protection?

    Stop linking death by natural causes to the current economic crisis.

  • Comment number 23.

    I'm wondering what the hidden agenda is behind yet another doom laden blog. Find three pretty unrelated (apart from the fact it's all about the global economy) big bad news stories and lash them into a blog.

    Key phrases: "bleak indeed"... "horrible trend"...."massive anxiety"...."particularly alarming"

    Please try and do something useful with the tax payers money that pays your salary. This "blog" just reads like three cut and paste stories from the Daily Mail.

    As far as the tax payer bailing out car manufacturers, I really hope we don't go there.......

  • Comment number 24.

    In this recession we have an ideal opportunity to focus on proper investment for the future: invest in infrastructure, energy and the environment to develop what our UK society really needs. Saving the car manufacturers may help short term - but if they are aided ensure they develop eco-friendly vehicles. Do we still need aircraft carriers - invest instead in local infrastructure - build up our communities.
    Also, politically get rid of the idea of building 2 million new homes - for what? Finally, we need to address the population question - forecast poulation growth in the UK to 75 million by 2050 - why? We need to cut our cloth accordingly, now and rebuild a healthy and sustainable world.
    Please, politicians start looking long term.

  • Comment number 25.

    "So the moment when we as taxpayers start providing financial help to individual motor manufacturers, to keep them alive through the acute phase of our economic contraction, is fast approaching."

    This country has no home grown motor manufacturers. Why do we have to support companies who export their profits but don't repatriate their losses?

    Halifax used to have the reputation of being the first to repossess, but our government seems to find the lesson of having the mat pulled from under it not worth instructing.

    I think it sad that no-one will buy either Woolies or the Entertainment division until it has gone bust, but I can understand why no one would wish to take on the liabilities caused by this governments reckless pension policies.

  • Comment number 26.

    And two German politician Steffan Kampeter and Peer Steinbruck have openly criticised Gordon brown.

    I wonder how many more are out there lurking behind diplomatic protocol.

    At the moment it shows divides have started to come to the surface in one of the key member states of the EU.

    If Angela Merkel finds growing hostility within the German government, she will drop support of brown like a hot potato.

  • Comment number 27.

    "...it also implies that HBOS's corporate lending department was taking excessive risks"

    Have you only just realised this? Or are you still being asked to justify the Lloyds/HBOS marriage? I thought that one had run its course.

  • Comment number 28.

    Its ok Superman is in Brussels now telling them how to spend more money we havent got.

    The pound falling to parity with the euro is a given now..........in the next few months it will be on a par with the dollar at current rates of fall....

    Brown is quite true when he said he had personally put an end to boom and bust with his policies.There has been nothing like this since the 30's.He can be rightly proud to have presided over a catastrophe of biblical proportions and his policies will be studied for decades to come....under the title "up to your neck in the Brown stuff and still digging"

    Soon many countries will start distancing themselves from our leader the Germans have set the ball rolling there is no public confidence worldwide in him or his ministers or his policies.

    If one of the big 3 go in America be ready for a wall street crash.

  • Comment number 29.

    Did anyone else cough and splutter at David Milliband's comments on the Today show this morning?

    "Labour has delivered
    - high employment
    - low inflation
    - stable growth
    over the last 10 years"

    This statement is breathtaking in its naivety - John Humphries should have really picked him up on it.

    Stunning!

  • Comment number 30.

    According to the London Gazette, Entertainment UK filed for administration on December 3, so it's no wonder you're hearing they're in trouble now, nine days later.

  • Comment number 31.

    According to the London Gazette, Entertainment UK filed for administration on December 3, so it's no wonder you're hearing they're in trouble now, nine days later.

  • Comment number 32.

    According to the London Gazette, Entertainment UK filed for administration on December 3, so it's no wonder you're hearing they're in trouble now, nine days later.

  • Comment number 33.

    He cries oh, girl you must be mad,
    What happened to the sweet love you and me had?
    Against the door he leans and starts a scene,
    And his tears fall and burn the garden green

    And so castles made of sand fall in the sea, eventually

  • Comment number 34.

    An interesting moral dilemma,

    As the bank of England continues to make huge cuts in interest rates without any real evidence that this will stimulate our flagging economy. What will happen when interest rates reach 0% as is predicted? One must remember that savers outnumber debtors by a ratio of 7 to 1 so in theory seven people will be worse off for every one who gains. This then removes far more spending power from the economy than is in reality put in. One could argue that the debtors on average gain more than a lot of the savers lose but I would imagine that most debtors spurred by their own risky situation will use any relief that interest rate reductions give to their finances to reduce their present exposure. Whereas those with savings who have used their interest as a form of income will have a greatly reduced spending power. On balance then one could reasonably argue that such a scenario would shrink rather than stimulate the economy.

    Faced with this cut in income it is unlikely that savers who rely on this money will leave it in the banks and will no doubt look for alternative ways to invest thereby reducing even further the banks ability to make loans, for their depositors base will have shrunk considerably. I for one would rather have money in a safety deposit box at 0% than have it at 0% in banks that under such circumstances would all be vulnerable and I fear many would do likewise.

    If or perhaps more likely when we arrive at this point in the economic downward spiral there is plenty of evidence to suggest that house prices will have slumped an unimaginable amount. However banks will be in no position to lend for mortgages to any who do not have an excellent financial history plus a very large cash deposit. At this point those savers earning 0% on their savings will snap up cheap properties without mortgage to rent for a sustainable income and who could blame them for doing it.

    The government seems to overlook the simple fact that those who have considerable financial commitments are hardly likely to take on more debt and those who are solvent are not in need of sudden purchases for they are in a position to have purchased whatever they want when they wanted it without the need for credit.

    We are in interesting times, how will it be resolved that is the issue?

  • Comment number 35.

    Dear Robert,

    So HBOS is starting to reveal its true losses. And in the future, when its true losses are known, its solvency now will be able to be judged by all and sundry.

    Will you therefore please stop presenting current lending to banks as a possible no-cost taxpayer investment which may be repaid, and instead report it for what it really seems to be......

    UK taxpayers giving massive amounts of our scarce free money to (many foreign but some UK pension) bank bond-holders and other bank investment holders, in return for their probably worthless bank investments.

  • Comment number 36.

    According to the London Gazette, Entertainment UK went into administration on December 3. No wonder you're hearing grim news about them.

  • Comment number 37.

    So HBOS alone have lost over £3 BILLION on corporate loans in less than a year.

    And Gordon Brown's solution is for the taxpayer to underwrite corporate loans, thereby meaning we'd shoulder the loss?

  • Comment number 38.

    The whole tone of this report is decision done and dusted. So is this soft messaging to prepare the public or is it opinion. This is a completely different level of activity to loaning money to a bank(s) with a cashflow problem with 12% return. This is moving into the wider private sector to subsidise inherently declining multinational businesses which have difficulty selling their products, and the two should not be confused. Just how many large businesses are forming a queue to see Mandelson. Just how long is this subsidy going to last and where are these businesses going. Just why should the taxpayer want to get involved with a declining business.

  • Comment number 39.

    As i understand it it was the Unions refusal to budge on a pay reduction that scuppered this.

    Thats the trouble with Unionised US of A. They never had Thatch and the unions are still too powerful.

    The Unions in Corus set the example saying a 10% reduction is more acceptable than no job.

    In the US car makers the Unions have gone for the "No Job" option.

    "So long, farewell, Auf wiedersehn, Adeiu." To quote the sound of music.

    Let them fall

  • Comment number 40.

    I’m afraid the gloom will continue for the real economy throughout 2009 and Nu Labours 2.5% VAT cut will make no difference as people fear for their jobs and sit on their cash.

    Unemployment will also hit the public sector. My local authority is already reporting a significant drop in revenue from land searches and planning fees as property transactions have dried up.

    Property prices have further to fall in the US, UK and Spain before a healthy relationship between incomes and borrowings can be restored.

    The senate decision was correct. The US auto industry is simply making the wrong type of cars with the trend away from gas guzzlers.

    On a brighter note the US will be the first to emerge from recession later in 2009 with the UK and Euroland following later.

  • Comment number 41.

    Shouldn't a BBC blog mention that Entertainment UK is half owned by the BBC? Or does Woolies have two DVD distribution ventures?

  • Comment number 42.

    I would buy Vauxhall/Opel for 10 pounds

    I missed out on MG/ROVER.


    NO STATE SUPPORT REQUIRED OR WANTED.

  • Comment number 43.

    Drink beer & wine, it works for me. Depression is a state of mind :)

  • Comment number 44.

    Robert - why are you totally ignoring the biggest economic issue of this week, month and year - the devaluation of the pound.

    If devaluing our currency made us richer then Zimbabwe would be the richest country in the world.

    The pound is devaluing because of the total failures of Gordon Brown's government.

    Anyone remember Jilted John's song - Gordon is a ...

  • Comment number 45.

    Back on HBOS.

    I got to the BRINK on Serving A Winding Up

    Petition on HALIFAX PLC.

    In my view HBOS has had solvency issues

    for 6 plus years.

    I still feel Administration and closure is

    the correct path,cheaper for the taxpayer in

    the long run.

    So GORDY/MANDY?????

    I would buy the Branch Network at a low

    price and start a new bank.

  • Comment number 46.

    @44 jilted

    I agree with your name.

    I wonder who his julie is? Harriet or Jackboots

  • Comment number 47.

    Re HBOS write downs.


    From my knowledge of HBOS accounting

    these write down will be understated.

    This is just the BEGINING.




    If the DIRECTORS OF A BUSINESS IGNORE

    A STATUTORY DEMAND they PROVE they

    ARE UNFIT to HOLD OFFICE/TRADE.

  • Comment number 48.

    David Cameron must rue the day he said that 1980s solutions would no longer work. With the 1970s returning at an accelarating pace, 1980s solutions may be exactly whatr UK needs

  • Comment number 49.

    Silly little MILLY doesnt THINK the value of

    STERLING IS AN ISSUE.

  • Comment number 50.

    Re 12

    Corporate memory cannot think back more than 10 years. So.. nationalising Vauxhaul is *not* excluded.

    We can't choose the colour, but let's choose the name. 'British Motors' has a nice ring to it. Some people may even think that the 'British Motor Company' sounds better and more prestigious. You can't copyright an abbreviation.

    Let's see CBM? No, that sounds like a medal for the Chairman. BMC - that sounds nice, almost like BMW. What about 'British Motors Wrexham' - noone would abbreviate that to BMW would they?

  • Comment number 51.

    Can we afford to bail out the car manufacturers?

    Before scattering money at all and sundry and asking us the tax payers to finance it, could the government please issue its detailed calculations of how much we are spending, how we are going to pay it back and how long it will take us to pay it back?

    This would make sense because it would mean that we have some kind of understanding of and control over the national funds. I appreciate that most people in the UK are against planning and keeping books but we could get someone from Germany to do the calculations for us? I know the Germans can be strict at times but I am sure they would be happy to help.

  • Comment number 52.

    Re 44

    But there are lots of millionaires in Zimbawe-Rhodesia.

  • Comment number 53.

    Silly me - of course the corporate colour for the new nationalised Vauxhaul - brown!

  • Comment number 54.

    The decision by the Senate to oppose the Motor Industry Bailout is a step in the right direction (although as pointed out it will probably be overturned by the new President who must be seen to save the jobs of an electorate who backed him)

    Nationalisation of failing companies is an extremely damgerous precident to set. These firms are only 6 months into a downturn that will probably last at leat another 12 months, and already their foundations are cracking. This is because they have been poorly run and relied on heavy borrowing to make their Business Models succeed. They are operated on such a short termist attitude that nothing is saved to help them through periods of slowdown. What happens to their profits from the good years? A small percentage may be invested, but the vast majority ends up in the pockets of shareholders and investors, so is not in the Companies hands when it needs it most.

    We cannot start bailing companies out, while others are allowed to fail, this cannot work. Survival of the fittest has to be allowed to prevail, otherwise we will be in a malaise for decades rather than years.

  • Comment number 55.

    47. At 10:24am on 12 Dec 2008, alexandercurzon wrote:
    "If the DIRECTORS OF A BUSINESS IGNORE A STATUTORY DEMAND they PROVE they ARE UNFIT to HOLD OFFICE/TRADE."

    At last someone has written what should happen immediately - ALL of these Directors of these failed companies should not be asked to resign - they should be sacked for gross negligence immediately !!

    HBOS is having an extraordinary meeting in Birmingham not to kick out these failed directors, while they continue to receive their over the top salaries, but to vote to allow them to hand over the HBOS keys to Lloyds TSB and get their exit packages sorted for the wonderful job they have done steering the HBOS Titanic !!

  • Comment number 56.

    Hi everyone. I am an avid reader of these blogs but have never commented before, largely down to my ignorance in economics. I am beginning to get a better understanding of the core reasons behind the downturn, I have started to read up on Keynes etc and get an understanding of fractional reserve banking but am still very much a novice!

    I wanted to ask everyone's opinion on to what extent this has been a self fulfilling prophecy? I'm probably being naive but do you think this has had an effect? Everyone I speak to seems to be able to buy a car/tv etc but is CHOOSING not to. This is true of myself. I have been looking at cars recently, I have a good credit rating but seem to be opting to not consume for the sake of consuming. I have a large amount of student debt to pay off too!

    Any response would be appreciated, please excuse my naivety, but I am making an effort at least!

  • Comment number 57.

    The global consumption of grain exceeded production of grain last year whilst we have hundreds of thousands of excess cars. Peak oil is behind us and two totalitarian states (China and Russia) are teetering on the brink of a catastrophe as western economies retrench into isolationism.

    World War 3 anyone?

    Only kidding. But it really is time to stop talking about where best to put money, looking at futures and talking about when things get back to normal. In case anyone has failed to spot it:

    The paradigm has shifted!

    All the accumulated knowledge and skill of the old paradigm is useless. We have all been set back to a zero position. Once again, the very cleverest among us will quickly understand the new paradigm and the opportunity it presents for them to exploit the rest of us and become the ruling elite again. To paraphrase Henry Ford, if you ask ten capitalist economists what they'd like to replace captalism, they'd all answer better capitalism.

    The Model T was better than a better horse all those years ago, but who is offering the analogous alternative to Obama and Brown's "better capitalism"?

    Politicians are like mayflies in the great flow of history. We should bypass their rhetoric and work out what we really need to live meaningful lives, raise children well and die peacefully. Buying new things to please ourselves is childish and unnecessary. Been there, done that. Let's move on.

  • Comment number 58.

    Robert

    If we start from the position that HBOS is bankrupt and that is why it is being taken over in a shot-gun wedding by Lloyds/TSB this news is no more than expected.

    It is only news to those who have attempted to argue that HBOS has a good book of business and a future. They have not and do not. They have £240bn in CDO's which needs to be refinanced over the next 2 years from non existant money markets. No one anywhere wants a slice of our mortgage market. We have some of the most over priced property on earth owned by the most personally indebted population in the history of earth, at a time when we are entering the worst recession in living memory. You do the maths.

    The US situation is no better. Watch the dollar collapse as Obama tries some 'quantatitive easing' and turns on the money press to full speed. Well its that or admit American society is very ill and continuing to pay people to make the wrong things in an inefficient way funded by a overgrowing national debt is not sustainable and that perhaps being an obese selfish greedy gun toting society must end.

    Watch what China does with its dollars. They will quickly see that a low dollar will mean low prices for the oil and other raw materials that they still need. They have quickly grasted how simple our capitalist model is to copy and learnt how to make things cheaper than us. They understand that there is no absolute freedom and they are willing to pay this price together collectively.

    The time for action has been and gone.

    We lied to ourselves and empowered empty politicians with fluffy messages instead of looking for leaders who dared to speak the truth. We grew fat, we became obsessed with celebrity and a world in which each saturday night we would elect another pointless nobody dressed like a clown to "King or Queen for a day".

    Even now as Woolworths convulses in its final moments we rush down on mass for one last vulgar blowout on cheap tat, made in China, that we absolutely do not need, just because it is cheaper and its christmas; when what christmas really means has been completely forgotten by most.

    The new world order is beginning. Our lives are going to change and it will be better after the pain.

  • Comment number 59.

    Who said this:

    'A weak currency comes from a weak economy which is in turn the result of a weak Government'.

    Gosh, it could not have been the saviour of the world aka Gordon Brown, could it?

  • Comment number 60.

    How long does this charade have to continue before the Puppet Labour MPs get Brown and his policy OUT

    However, we cannot blame Government for the situation lots of companies (Wollies being one) are now in, they have been raped of their assets by buyouts, mergers and Vulture Capatilists. They are saddled with massive rents and huge debts. Not only in retail either, pub co's have paid billions over the years almost valuing every pub over £1million. Many of those pubs are being sold for less than £200k
    Brown enjoyed his BOOM on false profits.

    Months ago we predicted massive job losses here on Roberts blogs but in Government it was ignored.
    A bad 2009 and beyond I fear.

  • Comment number 61.

    Robert Peston,

    You are becoming quite the doomsayer of late. Why not do a piece on companies that don't appear to be being affected by the crunch, and look at how or why they have avoided it.

    I know news of failure gets people reading, but surely some balance is needed.

  • Comment number 62.

    A scintilla of good news in your last paragraph, Robert. Our economic contraction is to become 'acute' rather than 'chronic'.

    Good news, indeed!

    Acute conditions are severe and sudden in onset. This could describe anything from a broken bone to an asthma attack. A chronic condition, by contrast is a long-developing syndrome, such as osteoporosis or asthma.

    Or is your command of English just poor?

  • Comment number 63.

    The king is gone but he's not forgotten
    This is a story of a Johnny Rotten
    It's better to burn out than it is to rust
    The king is gone but he's not forgotten

    Hey hey, my my
    Rock and roll can never die
    There's more to the picture, than meets the eye
    Hey hey, my my

  • Comment number 64.

    "...it also implies that HBOS's corporate lending department was taking excessive risks"

    Why is Sir James Crosby, ceo of HBOS 'til 2006 still allowed to be at the helm of the FSA?

    Why is the government taking his advice?

    From the FT on Tuesday: "Sir James Crosby, former HBOS chief executive, has advised the government to support a resumption of the mortgage-backed securitisation market through a guarantee scheme. That market has been closed since August last year."

    MAD!

  • Comment number 65.

    "...it also implies that HBOS's corporate lending department was taking excessive risks"

    Why is Sir James Crosby, ceo of HBOS 'til 2006 still allowed to be at the helm of the FSA?

    Why is the government taking his advice?

    From the FT on Tuesday: "Sir James Crosby, former HBOS chief executive, has advised the government to support a resumption of the mortgage-backed securitisation market through a guarantee scheme. That market has been closed since August last year."

    MAD!

  • Comment number 66.

    Although it's obviously bad news for the employees if a big company goes bust, I don't think we should be regarding it as the terrible news that seems to be the mainstream opinion.

    Many big companies are shockingly badly run. I run a small business, and if I treated my customers the way I am treated by, say, my phone company or my bank, I would be out of business in no time at all, and it wouldn't be considered a news story in the slightest.

    There seems to be some idea that big companies shouldn't fail. I absolutely disagree. Some big companies deserve to fail, and when they do, it's simply a bit of economic Darwinism in action. Although I have every sympathy with those who are losing their jobs now because of the poor decisions of their senior management, in the long run, I think a bit of natural selection will be very healthy for all of us.

  • Comment number 67.

    Re 60

    Did you mean 'false profits'or 'false prophets'?

  • Comment number 68.

    Is it only 12 months since I was trying to remember if a Billion was a Thousand Million or a Million Million

    Now my 3 year old knows what a Billion is!

    I thought it only right to tell her as it's likely to be her problem!

    I for one, as hard as it will be, would rather take the bad now and not pass it on to the next generation......

  • Comment number 69.

    My dad thinks I’m a pessimist however, a few months on this blog has taught me I’m actually an optimist.

    Well done Mr Peston!

  • Comment number 70.

    56. At 10:35am on 12 Dec 2008, lawyer4justice wrote:
    "I have been looking at cars recently"

    How about go and buy a second hand Rolls Royce, then drive around like a millionaire just like these bankers and financiers. It may be false but at least you will feel wonderful for a while until the crunch really hits you.

    Then when you cannot afford to pay the repair bills or your student loan, declare yourself bankrupt and you will have a clean slate to carry on - why burden yourself with a student loan for years in to the future ??- the tax payer will pick up the tab !!

    - isn't that what these firms have been doing and now they want the tax payers to bail them out !!

  • Comment number 71.

    Maybe the citizens of the UK are as prone to brainwashing as the citizens of the DPRK.

    A few weeks ago the taxpayer stepped in to support a bunch of banks, and to effectively guarantee all retail depositors, yesterday there was discussion of propping up the steel industry, today there is talk of propping up US car manufacturing subsidiaries. Tomorrow? Who knows...

    The UK taxpayer is not the mythical Hercules. People, can you not see this is an impossible dream that if pursued can lead only to wailing and the gnashing of teeth quickly followed by the smash of glass and the rumble of boots.

    I foresee blood on the streets.

  • Comment number 72.

    To repeat with boring monotony:


    PROSECUTE PROSECUTE PROSECUTE!


    Senior Bank Directors must be subject to

    THE LAW OF THE LAND.

  • Comment number 73.

    #56 Try J K Galbraith "a short history of Financial Euphoria" available from a well known online bookseller. Very entertaining; about two hours to read.

    His "The Great Crash of 1929" is very good too - in fact, all his stuff. JK was a Harvard economist who was part of FDR's New Deal administration. Broadly speaking he was a Keynesian, but not an ideologist. (Nor indeed was Keynes.)

    Economic problems over the last century or so have usually arisen when belief systems have overridden the facts.

  • Comment number 74.

    We need to do rational things: stop all non-essential government spending immediately. Non-essential spending includes all overseas wars, all new IT systems all marketing and promotion done by government or local government, all civil service and quango bonuses, oh and the 2012 Olympics!

    The things we need to concentrate on are making sure the British people are kept warm and fed adequately.

    What we are doing is keeping the bosses of private companies in the style they have become accustomed to whilst they sack millions of workers - this is unsustainable and will cause social unrest.

    Ford, GM and Chrysler need to go bust an be restructured as the companies have refused to evolve and like the dinosaurs of old are bound for destruction - the Republicans have at last caused the US administration to think things through. The 14Bn was only the first small part of a far larger (un-repayable) loan from the American taxpayer.

    The aim should be to get the country back to the position where money has a proper value - borrowers pay a reasonable sots and savers get a reasonable return.

  • Comment number 75.

    Re 68

    (which oddly appears out of sequence)

    Billion is £1,000,000,000,000 here in Britain and £1,000,000,000 in America. If only our assets were expressed in 'billions', we could pay off our liabilities, in small chunks at a time.

    Worth a try?

  • Comment number 76.

    There is something alarmingly 'Stalinesque' about the way Brown's govt are running this country, that is insofar as they are 'running' it at all.

    Statements of intent, assertions of correctness, grand strategies that amount to nothing in the end, denial of any kind of irresponsibility, reassurances that mean nothing, the whole infrastructure creaking under the strain but still the gloss that everything's fine and always will be when everyone knows it's not, nothing gets done and still yet the govt plodding blindly along each day rolling out legislation and 'measures' that mean nothing and achieve less, no-one can get near them nor counter them...

    Brown will take us back to the stone age the way things are going. He's some kind of megalomaniac this one. Quite untouched by all the redundancies and personal misery.

    Those on this blog who own their own firms - are you as confused about the future as I am?

    Where is this all going apart from some ghastly survival/end game? I find myself quite unable to look ahead more than one day at a time.

    I'd like to know if anyone feels the same.

    GC

  • Comment number 77.

    @ 70. I'm not sure if you actually read my post. I was just giving an example of how our mindset appears to have changed. I did look at cars but opted against it, I don't really know why. I could afford it but just chose not to and I am not alone in this. I was merely asking if anyone thought that this change in attitude has deepened the problem as I am a novice in this area.

    P.s I cannot declare myself bankrupt as it would prevent me from working in the profession I have worked very hard to get into!

  • Comment number 78.

    It appears to me that the government is soon going to have a serious look at the UK joining the Euro.

    For despite the major devaluation of Sterling, manufacturing exports are not picking up and the banks are continuing to haemerage cash out of the UK Money supply system.

    For Gordon Browns/Alistair Darling's plan to work, the government has to avoid an inflationary devaluation of sterling and given the size of the governments borrowing plans (combined with the rescue packages it has also got to fund), it needs to fix sterlings value to the euro as a precurser of us joining the Euro club. In order that our borrowing plan is shared by the whole of Europe and not just the UK.

    This is because for an economic recovery plan to take place, the banks need to become profitable and thus be able to inject money into the UK economy on top of a buyback of their goverment backed preference shares.

    Until this happens, the overall money supply in the UK will continue to shrink and International asset values fall. For only when there is sufficient natural money in the economy to finance the UK's current level of economic activity, can the government hope to get the country out of this mess.

    So how can the goverment achieve this without watching a major implosion take place in the UK Economy? - Join the Euro and let europe share the burden.

    It really is a Non-brainer.

  • Comment number 79.

    Re 62

    In case you haven't traced the remainder of the quote:

    Acute conditions, such as a first asthma attack, may lead to a chronic syndrome if untreated (or mistreated).

  • Comment number 80.

    Surely the real economic story for this black Friday is once again the pound with yet more record lows as the markets share the German views on our economic management. The rational response to such a run on the pound would be to increase interest rates, particularly when the country as a whole and the Government in particular are totally dependent on foreign borrowing to fund the next 18 months.
    That would be too humiliating for crash Gordon to consider but we cannot go on like this. The Government has pitiful reserves and too much debt to intervene credibly in the market place. Maybe some of our nationalised banks can be "encouraged" to support sterling. Crash's response seems to be to put his hands over his ears and say he can't hear anything. We face a risk of a major withdrawal of foreign capital forcing the sale of assets such as stocks and bonds at basement levels throwing the country and our finances into chaos. For God's sake Brown wake up!!

  • Comment number 81.

    #34.

    Didnt the japanese economy run at 0% for years without any serious detriment to the economy?

    What that caused was the economy to stabalise.

    In this country, we have been brainwashed over the years tothink that becoming a homeowner was the be all and end all of our life. Yet if there was more building of "council houses" rented out to the population at a sensible rent,say max £100 per week, then there would be less pressure on savers to offset borrowers, the building trade would flourish, interest rates would be at a sensible 4-5% to allow those that wanted to own their own homes to do so without being beaten up about morgage rates.

    Also, why dont the banks allow longer "family morgages" over 40-50 yrs as they do in Germany, and maybe even have it at a fixed rate for that term. This would give the benefit of stability to the market and there would be more money available to spend in the shops, thereby stimulating the economy.

  • Comment number 82.

    Someone who saw it coming and has a theory to explain it:

    http://home.earthlink.net/%7Elrgoldner/imperialism.html

  • Comment number 83.

    "the Business Department has deemed Vauxhall to be viable"

    What expertise and information do you suppose the Business Department has to enable it to make an accurate diagnosis? Forensic accountants? Market experts? Detailed information about costs, funding, profitability, investment plans?

    None of these. This is an organisation that gave more money to the lawyers on the coal compensation scheme than it did to the compensation seekers. They have to rely on what Vauxhall tell them, which will be managed information to present the case Vauxhall want.

    On top of that, vauxhall assembles cars from parts largely made in Europe, which have got 30% more expensive in the last few weeks, thanks to the exchange rate.

    And finally, why would we give any money to them while the outcome of US decisions is still up in the air, pending the new administration's arrival in Jan / Feb.

  • Comment number 84.

    i agree that vauxhall is viable. now that financial services is dead, the related dutch disease - inflationary pressures in southeast, excessively high interest rates, overvalued currency - will cease as well, making manufacturing in the uk viable again. having said that, it is clear that 1/3 of auto industry capacity worldwide needs to go. my prediction is japan will be hit the hardest, though gm failure will do a lot to alleviate the problem.

    btw robert, i just moved my savings into euros. so feel free to start talking up the risk of a sterling collapse.

  • Comment number 85.

    Here's something GB could usefully get involved with. I think this report on Bloomberg is truly shocking, and indicates an area where use of economic assistance would be both justified and make a difference. The link is:

    http://www.bloomberg.com/news/exclusive/

    Click on the story: "Wasting Enough Rice to Feed 184 Million Is Worldwide Habit Only Rats Love"

    A few points stand out in the story. Firstly:

    "The world is wasting enough rice this year to feed 184 million people, about a fifth of those who are undernourished, based on estimates from the Food and Agriculture Organization of the United Nations in Rome. The amount lost between harvest and consumers globally totals at least 48 million tons, says Concepcion Calpe, a senior economist with the FAO."

    Secondly:

    "The lack of investment in shoring up the grain- delivery chain was among man-made causes of the food crisis of 2008. Other ingredients in this recipe for famine included trade policies that pushed developing nations into global markets and speculators who drove prices higher by doubling bets on grain"

    Finally:

    "the UN estimates that at least 15 percent of all staple crops, including rice, corn and soybeans, will be consumed by pests, spoiled by water leaks or otherwise go to waste after harvest this year"

    I strongly recommend checking the full article. There's an informative graphics tab that shows the causes of increased hunger in 2008, starting with the statement:

    "The 2008 food crisis was man-made"

    The article puts our problems into pretty stark perspective.

  • Comment number 86.

    #56. lawyer4justice wrote:

    "Everyone I speak to seems to be able to buy a car/tv etc but is CHOOSING not to"

    I think you may find that unless they have the spare cash the 'CHOICE' is being made by the lack of availability of loan finance for car buyers.

    Also the student debt 'scam' that you suffer from will as you imply act to further depress the economy for decades to come. Any half witted economist must have realised this as soon as the scheme was advanced but they all kept their mouths shut!

    When I was at university we had grants and some people even managed to save money as a student! (Of course under 3% or so went to University!) You have my sympathy, but you have been 'had' by the state as have all of you fellow students - you should have moved to Scotland! The problem for all of us is that there are now a large number of severely indebted younger people who are not as economically active as we might hope - but isn't that the result of us all voting for the government who advocated the policy - problem is all of the major parties wanted to do the same thing (I recall)! - so much for democracy!

  • Comment number 87.

    #74 correction of typo

    reasonable sots = reasonable costs -oops

  • Comment number 88.

    #56

    My strong advice is forget Keynsian nonsense and all other economic dogma. Those things are dreamed up by academics with their nose in a book and their hand on a slide rule and work on paper and nowhere else. If you want a joined up thriving country there is only one way to do it:

    Use and develop as much home-produced material as you possibly can. Give every encouragement to British-owned firms who get out into the world with their products and bring money into the UK on the back of the excellence of their products.**

    Now of course China successfully developed this logical approach (excepting that their products were complete junk from top to bottom), - successful because plenty of undiscerning get-rich-quick types in the West lapped it up for the sake of fat profit, setting aside the quality ethic that should underpin any manufacturing. China is rich, we are poor. QED.

    ** Unfortunately that means putting the country almost on a war footing and I will no doubt be deeply unpopular for saying so.

    GC

  • Comment number 89.

    If GM goes into bankrupty and GM Europe (aka Vauxhall/ Opel) is viable, then GM Europe will end up getting sold by the parent company, and will carry on either independent or as part of another manufacturer. If GM Europe isn't viable, then why on earth would we want to spend taxpayers' money subsidising it?

    A repeat of the British Leyland fiasco would just about complete Gordon Brown's project to return us to the horrors of the 1970s.

  • Comment number 90.

    No 14 response

    I agree re the public sector pension defeict.

    A brief example Strathclyde Pension Fund (The 5th largest public pension fund in Europe) posted losses (reduction in value) of £270 million in their last financial period ie before the proverbial hit the fan.

    They stated in their Annual Report that contributions to the Fund paid the pensions due in that period. They proudly announced that the did not need to dip into their (sic) Capital Reserves.

    So the future pensioners of the scheme bear all of the loss.

    Robert

    Please address this issue in your blog (and elsewhere).

    Some pensioners are relatively poor (ie State Pension receipients)

    Others are really very comfortable and are well placed to share some of the burden of the necessary adjustments to real life

    I worked in the public sector for 16 years and have run my own business for 10yrs.

    I am not a public sector basher but they need a reality check

    What about the NHS?

    I have been involved in it for 30 yrs both inside and out.

    Where did all that money go? Really where did it go?

    Renegotiate Consultan Salaries

    I know from the Negotiators of the GMC that they came out of the first meeting with the government in disblief about the complete level of ignorance on the govt's part of what the medics did for a living. The GMC proceeded to tell them and basically wrote their own contract and remuneration package.

    RENEGOTIATE that package now. Where are they going to go?

    If they don't accept it hit their pension. Where are they going to go?

    It is time for a serious reality check for all of the public sector. Where are they going to go?

  • Comment number 91.

    "One must remember that savers outnumber debtors by a ratio of 7 to 1"

    Where does this statistic come from?

    I am a non-pensioner saver in full time employment and having seen the interest plummet to 2%. As a consequence of this I have started spending less.

    If this is multiplied out then the net affect is less spending not more! Unless the rest of my fellow savers are rushing out to spend pounds before they are inflated away to nothing.

  • Comment number 92.

    when you are go out to sea
    don't swim against the tide
    go with the flow and always
    stay in reach of the beach

  • Comment number 93.

    Miliband says Germans support UK policy.

    Mugabe says Cholera oubreak over.




    Spot the difference?

  • Comment number 94.

    Idle responses and one question

    # 6 It's only Keynsianism if you have built up a reserve in the good years. Otherwise, the Germans seem to think, it's just reckless spending.

    # 12 & 50 & 51
    It is possible to learn from past mistakes - sureley ;-)
    And as I've posted before, something must be done to salvage the GM Volt.
    (There again we need infinitely harder nosed Gvt. oversight than the jokers who paid doctors more for doing less, and oversaw the Gvt. side of the miner's compensation scheme
    http://news.bbc.co.uk/1/hi/england/south_yorkshire/7777957.stm )

    # 15
    The down to earth leaders with a no-nonsense approach seem to be David Davis for the conservatives, Frank Field for Labour, Vince Cable for the Lib dems.

    And, dare I say it, there is one party which has long been saying (among its more silly ideas) what the mainstream parties are only now beginning to cotton on to, about peak oil, food security and the inability of this island to absorb unlimited numbers for ever).

    Then there is Barack Obama, who whether we elected him or not will have an influence on what happens throughout the world and, so far, seems to be playing a poor hand quite well.

    # 33 & 63
    Whenever I see your byname, I jump straight over. I think you're on the wrong blog.

    #45 & 47 & 49 & 72
    Nice to SEE you AGAIN this MORNING, aLEX.

    #84
    You are still taking a risk. Whether you are right or not depends on what may be currently hidden problems in the Eurozone. Of course you could always hedge (in the original sense of the word) by holding part in Euros and part in sterling. (And why not the Rupee and Renminbi, come to that).

    And finally,

    As the nearest thing we have to a Schumacher "Small is beautiful" experiment, does anyone know how the economy of Bhutan is doing in these "interesting" times?

  • Comment number 95.

    I think this is a golden opportunity. Our manufacturing base is wholly weak not just in current economic terms but also on its foundation as a viable financial revenue. We are predominantly reliant on niche manufacturers but as a country we have very little global manufacturing and clout which does not translate into large global exports.

    With the failed bail out the US car makers surely our Govt with private equity firms should buy Vauxhall, it may not be profitable now but it will be in the future. I know we have been here before with Rover but realistically Vauxhall is a global brand that we can look to produce in the UK and sell in India, China and Europe. Something we can eventually call British. I have no idea as to the costs but I would rather buy out Vauxhall than bail out the banks.

    I appreciate that this is all stoic and patriotic stuff but it is clear to me that we cannot be reliant on financial services as our core export (we are second in the world after the USA). We have to strike a balance between all revenue streams.

  • Comment number 96.

    @93 Bog

    None, I claim my prize.

    Actually Mugabe is more likely to be right

  • Comment number 97.

    Re 59 - excellentcatblogger

    David Cameron quoting Gordon Brown:

    "A weak currency arises from a weak economy which is in turn the result of a weak government."

    As Labour MPs pointed at the Tory frontbench, Cameron added:

    "I don't know why you are pointing at me, that wasn't my honourable friend [the shadow chancellor, George Osborne] this week, that was the prime minister when he was shadow chancellor."

    http://www.guardian.co.uk/politics/2008/nov/17/brown-tax-cuts

    Quotes like this are as good as it gets, hope it helps.

  • Comment number 98.

    #88

    It needs fleshing out, but I agree with the thrust of what you're saying.

  • Comment number 99.

    Didn't Blair and his crew abandon Manufacturing and Agriculture to make us the Financial Services hub of the EU - whoops

  • Comment number 100.

    @ 73. Thankyou, I will definitely buy those books.

    @86. I would have had to get credit to purchase the car but was accepted and decided against. It just seemed wrong for some reason. I'd be interested to see how many people are applying for these type of loans and being rejected. Surely people with poor credit ratings or no prosepects of repaying should never have been leant money anyway and therefore should not be effecting the system so drastically. (Naive again I fear!)

    My fiance and I both pay around £300 pcm in student loans, that's not to mention our privatedebts. On top of that we purchased a house in Nov 06, probably in negative equity too. That's what you get for trying to get on in this country I suppose.

 

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