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How our banks were rescued

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Robert Peston | 20:30 UK time, Monday, 22 December 2008

The main story of tonight's Panorama is quite how close we came to the collapse of two banks - Royal Bank of Scotland and HBOS - in the second week of October. RBS in particular was alarmingly close to meltdown.

For Royal Bank of Scotland, the owner of NatWest, it was all hands to the pump from Tuesday 7 October until the end of that week.

This giant British bank, which has just under £2000bn of loans and other assets, was having enormous trouble hanging on to vital deposits and loans made by money managers and other financial institutions.

Without these deposits, it would have been insolvent.

The head of RBS's corporate bank, Johnny Cameron - who has now left RBS - was summoned to the Bank of England for crisis talks.

The Bank of England itself contacted Royal Bank's creditors in New York and Tokyo to persuade them to keep faith with the group.

By Friday, RBS was a weekend away from disaster. And the troubles at RBS were being replicated at HBOS, which by 10 October was perceived by the Bank of England and the Financial Services Authority, the City watchdog, to be almost as vulnerable as RBS.

So on Saturday 11 October and Sunday 12 October, crisis talks were held at the Treasury - led by the Chancellor of the Exchequer, Alistair Darling - that forced all our big banks to raise additional capital to strengthen their balance sheets.

And in return for this additional capital, the Treasury and the Bank of England provided banks with £350bn of loans and guarantees from taxpayers.

A trio of banks received a direct investment of capital from taxpayers. Royal Bank of Scotland has received £20bn from the state and is now 58% owned by taxpayers.

There is £17bn of our money that is expected to go into HBOS and Lloyds TSB, with most of it going into HBOS. Lloyds TSB is buying HBOS and taxpayers are likely to emerge with a stake of more than 40% in the newly formed retail superbank.

This rescue package has prevented RBS and HBOS from collapsing and has stabilised the banking system.

This extraordinary story is told on Panorama in interviews with a quartet of the leading actors in this drama: the Chancellor of the Exchequer, Alistair Darling; the deputy governor of the Bank of England, Sir John Gieve; the chief executive of the Financial Services Authority, Hector Sants and the chief executive of Barclays, John Varley [all pdf links].

panorama_gieve203.jpgHere are some of my questions to these four, with their answers from a verbatim transcript. First, Sir John Gieve.

Peston: I was talking to a big bank yesterday actually and they were saying to me it was extraordinary - their department, their treasury department, which you know exists basically to get them the funds they need on a daily basis - I mean every night the sums of money they had to raise just to keep going for the next day got bigger and bigger. The chap I was talking to just said that they'd never experienced anything, anything like it. How many banks do you think in the UK were in this position? Were they broadly all in this position of just seeing the availability of long-term funds just drain away?

Gieve: Well, I mean each bank is, is different and some of the banks were benefiting from this. They were attracting, they were seen as the safe havens and they were getting an inflow of deposits and their problem was: "what do we do with this money we don't need?" And they started looking to deposit it with central banks, in fact. But several of our large banks, and I mean I don't want to go into names, were, were in real difficulty and you know, were having hour-by-hour minute-by-minute to balance the books at the end of the day, and obviously we were talking very closely, but it wasn't just happening here. It was happening in the States, it was happening in Europe...

Peston: I mean, I suppose what I found profoundly shocking at the time was the difficulty that an enormous bank, Royal Bank of Scotland, was having in rolling over its short-term funding. I mean that seemed to me at the time to be momentous.

Gieve: Well absolutely, and you know it, it always rolls a large amount of funding but normally this is routine. You know you've got it arranged pretty much by the middle of the day. There's no panic about it but as I say, it became a nail-biting business right up until the end of the day and obviously we were talking to them on, on a daily basis. So that was one factor, but it wasn't just RBS. I mean, remember what was happening in the States, what was happening in, in Europe as well. You could see that the banks were falling over.

Peston: No, totally - and of course, HBOS was in a very similar position before the merger with - the takeover proposal was announced by Lloyds TSB. Now, you came together with the banks over the weekend to, in a sense, allocate the capital and to negotiate who would get what. Give me a flavour of what those negotiations were like with the treasury, with the FSA, with the banks.

Gieve: Well, we made the announcement of the plan - the availability of capital and so on - on the Wednesday. What became very clear on the Thursday and Friday was that we needed to get on with it. You know, we'd offered the cash. We needed to actually get it out there and RBS quite honestly was the leading candidate but we were also clear that if you just dealt with one, you'd leave the others in a rather exposed position, you know, the caravan would move on and the searchlight would pick out Lloyds and HBOS and even Barclays. And so, really, Friday and Saturday we began to get, and the treasury in the lead on this, but again I think it was a joint effort with the FSA and the Bank, we began to sort of line people up in different rooms on different floors for a series of meetings, and it was an extraordinary, it was an extraordinary weekend. There wasn't that much negotiation because someone described it as more a drive-by shooting.

Peston: Yes - Fred Godwin, the famous phrase, the negotiation was a drive-by shooting.

Gieve: And that, you know it had to be like that. There was very little time. The government was announcing the terms on which it was prepared to come in and the banks had to think about it, but they broadly had to accept it.

Peston: As I understand it, Fred Goodwyn, his famous phrase about the drive-by shooting, what he meant was banks were told [by the FSA] "we've done the sums, this is the capital you need". Is that broadly, you know, how it happened? I mean, that's certainly what he's been saying.

Gieve: Yes, that's right. We had done some sums and between us we'd, we'd come up with what we thought was necessary and really there was only one provider [the taxpayer]. Now, for Barclays they were, they chose a different route. They thought that they were given the number and they, they said "no, we can raise this ourselves on the market," so they took a different route to the other three.

panorama_darling203.jpgNow, Alistair Darling.

Peston: Now, my recollection of the day and night where you put together the shape of the rescue plan prior to the announcement the following morning, I think you were in, in Brussels I think, in the morning, weren't you? I think there was, I think there was an Ecofin that morning and then I think you then came back and then there was a great sort of working through the night to get, to get a package together. Did you know when you were in, in Ecofin, in Brussels for this European meeting, that you were likely to come back and have to put this thing together very fast?

Darling: During the weekend before that, there had been a lot of speculation about whether or not the banks would be recapitalised and the markets were very very febrile on the Monday morning. I wasn't surprised when I was called early on on the Tuesday that one bank in particular really was in difficulties and I decided that you know whilst there was a bit more work to be done, we needed to get our plans out and so I decided we'd do a statement in the House of Commons on the Wednesday which I did. It was obvious it would always have to be a two-stage process, because you had to announce the principles, then sit down with the banks and of course I then had to go to Washington to the IMF meetings when I took the opportunity of course to speak to my counterparts, to say "look, we're doing this, you know I hope you can do it too". And then the final deal was done on that Sunday night and announced the following Monday.

Peston: I mean that bank in difficulties was the Royal Bank of Scotland, having tremendous difficulty renewing its short term borrowings on wholesale markets. Was this irrational, was there any fundamental reason do you think why Royal Bank was having such difficulty?

Darling: There's lots of things been happening over the last few weeks and months that are you know, on one level you can say they're irrational [I think he meant "rational" here] because as it turned out, RBS needed an awful lot of capital. It's one of the biggest banks in the world and we now own 57% of it. And when people had seen, you know, giant banks in the US collapse, everything that, that's happened, you can say on one level it's irrational. On another, another, the other level you can understand why people began to lose confidence. What we had to do, though, is to say "well never mind that, let's you know really take some decisive action - let's make sure that we can maintain the banking system" - and that's what we did.

Peston: I mean, I found it profoundly shocking, I must admit, at the time. I mean, here was the owner of NatWest, this enormous bank, that one just assumes couldn't possibly fail, having these difficulties raising short-term funds. You announced the structure of the rescue, but then again on the Thursday and the Friday they've still got these difficulties. There's a fear also that it's going to infect other banks like HBOS which was beginning to have difficulties of these sorts. You then come to the Friday of that week. Was it obvious to you again on the Thursday and the Friday that what you were going to have to do was negotiate with all the banks through the weekend to put together the detail of the rescue package, or in a sense did you decide quite late on the Friday that if you're going to do Royal Bank, maybe you should do all of them?

Darling: I was very clear even before the turbulence of that week that whatever we did, we had to do it for the entire banking system. We couldn't get ourselves into a situation where you're simply fixing one problem because the problem was then moved to somebody else and, you know, we just couldn't allow that to carry on happening. We'd seen it in America where they, no sooner had they sorted one bank's problems out than the problems transferred to the next. So on the Wednesday, I announced a general overall plan - the scheme, if you like. Things did get worse during that week because confidence was just draining out of the system and in some ways, that made it easier for us to talk to the banks and say, "look, we're all in this together. No one's got any choice. Everybody's going to have to recapitalise. The only choice we'll give you is you either do it through us or you raise the money on the markets yourselves" - and you know, that's precisely what happened. But on the Monday when we'd done it, it did actually, there was a sense of calm and the fact it then became clear that it wasn't just us. The Americans were going to do something, we had, Gordon Brown had been in Europe on the Sunday before and he'd got agreement, you know, surprisingly quickly right across Europe that central banks, governments would do the same sort of thing...

Peston: Did you get any sleep that weekend [of 11-12 October, when agreement was reached to inject £37bn of taxpayers' money into RBS, HBOS and Lloyds TSB], in fact?

Darling: Yes, I did. I had to go to Washington on the Friday and Saturday and so I came back on the Saturday night overnight and you know, there's a limit to the amount of sleep you can ever get in an aeroplane. Then I had meetings all day on the Sunday and then at ten o'clock on the Sunday night, just when you know everything was agreed as far as I was concerned, inevitably when you deal with a bunch of bankers, they started trying to re-open it. So I said about one o'clock - "okay, re-open it if you want. I'm going to my bed. If you haven't agreed it by five o'clock, then you're on your own". So happily, when I woke up at five o'clock, we'd got an agreement.

Peston: Crikey, and was the agreement very different from the agreement that you'd had at, you know, or where you thought it was going to be when you went to bed?

Darling: Not fundamentally, not at all. If you - look, you're negotiating with people who are running multi-billion pound businesses and who, you know, whose world had changed and of course they had one or two legitimate points that we were ready to talk about and you know, I talked to, to them about it but you know, what I wasn't going to have is someone trying to unpick the deal, basically ask for the bits they wanted and not the bits that I wanted. It had to be an all-encompassing deal. The deal was done you know, and completed, on you know, the early morning of that Monday and it had to be, because we had to make a market announcement when the markets opened at eight o'clock on the Monday morning.

panorama_varley203.jpgFinally, John Varley.

Varley: What was clear was that confidence in the system was, was suffering very badly [in the week of 6-10 October]. It was, the circumstances were as extreme as anything that I can remember. And if I put it in context, it seemed increasingly likely as the week went on that one or two of the British banks would not be capable of opening for business the following week, and it doesn't get much more extreme than that. And as you know, the government stepped in and took action, and came to a decision about a system-wide remediation that I think was very helpful for the regeneration of confidence. But it was a, it was a surreal week because the markets were extremely skittish, the media was very extreme in its commentary and it was a challenging week for all stakeholders of banks, and indeed the employees of banks.

Peston: I mean, the two banks in question were Royal Bank of Scotland and HBOS. Do you think that their vulnerability was irrational or, you know, were the markets behaving rationally in the way that they were finding it difficult to raise money. Were they actually fundamentally weak?

Varley: Well, I'm not going to make a comment, least of all on Panorama, about our competitors. It wouldn't be appropriate for me to do so. But what is clear is that there was a crisis in the market that week and it had to be addressed because what you couldn't have was any big bank being in a position where it wasn't capable of opening for business. That, the systemic consequences of that, would have been too awful to contemplate. And I think it was, the week was symbolic in the following way which was that up to that point - I mean, over the preceding twelve months, put it like that - a lot of what had gone on in the United Kingdom and elsewhere around the world was what I would think of as national firefighting. Individual bush fires broke out and they were doused by the authorities. What was very clear in that week in October was that something much more system-wide - much more generic - needed to be applied both in the United Kingdom and elsewhere. And market-wide solutions were put in place in that, in that week in October and since then, and I think actually, actually it's been very positive for the world, because it seems to me as though the national firefighting forces have now been overtaken by the international fire brigade. And the international fire brigade I think is doing quite a good job in managing banking systemic risk.

Comments

Page 1 of 4

  • Comment number 1.

    The best compliment that was paid to Robert Peston, was to compare his status to that of Madonna!
    I have been watching Panaroma since the '60's. and I find it very surprising that an entire show has been devoted to a lightweight such as Peston; but then again, as a lightweight, he's in good company (the CEO's of major banks). I'm obviously getting too old!

  • Comment number 2.

    All their offshore operations were mainly money market deposits

  • Comment number 3.

    Bravo Robert. I have waited for years - my internet information society began in 1995. This blog has certainly bought serious reporting to the web. In some ways it is awful that it had to happen under such circumstances, yet for those who have watched from afar, it is high time that the public are given the immediate truth.... however difficult it may be to stomach. Shame that 12 months in we are all still feeling the pinch..... information rules.
    Happy Christmas all.

  • Comment number 4.

    Reducing interest rates punishes savers and rewards borrowers.

    Not the most obvious response to a problem caused by too much lending.

    Unless you believe that government intervention can overcome pressures for a global recession. Or even mitigate the effects on Britain.

    Why not start reporting inflation honestly (rather than understating it) and then it will be clear that interest rates must rise?

  • Comment number 5.

    I've followed your Blog for the past two years and believe that you have called it right time and time again Robert.

    I also believe that the reason you are getting so much critism about your reporting, is because you are actually reporting what is going on. For too long business and the Treasury have tried to hide what they were doing, as if economics is hard, or that the world economy should be shrouded in some secret to stop jo average understanding what is actually going on.

    Perhaps if the average person was actually informed about what was going on, we as ordinary people, could make a few simple steps to not get into quite so much trouble.

  • Comment number 6.

    Rug pulled out. But this is what the banks do everyday day in day out to businesses or individuals. They say we think you are in a bind, you may well be viable very shortly but you cannot meet your debt today. Computer says NO. Being clever bankers we want to withdraw the line of credit you have been granted before, immediately, forthwith. So the question is - if they are so quick to make this assessemnt on the many accounts they handle why do they not do the same proactively to their own position. It is not as though they do not know the rules that apply. They cannot say they do not understand, that they are not well informed. If it was not for the impact on the economy it would have been the correct decision to let them go. And they still are not playing the game are they. The message should simple - Get on with playing it straight or a move will be made that you will not like but the public will support.

  • Comment number 7.

    Peston takes much glee in assuming the moral high ground when denouncing the restriction of information dissemination to the public that may act against their common good (in this case, the posibility of triggering multiple runs on commercial banks funded predominantly by retail deposits).

    He subsequently explains in particularly smug fashion the 2 ways in which banks may ultimately fail - one of which being the rapid and almost immediate withdrawl of primary sources of funding.

    Clearly for investment banking institutions these sources will tend to come from a wholesale source. But for the more retail orientated institution, of which the traditional building society is surely one of the best examples, the retail market is a crucial provider of liquidity.

    How can Peston claim for one second to defend the rights of retail investors to all information that he deems pertinent to them, when his very actions accelerate the panicky ill-informed over-reaction from the very same investors that would (and did) lead to the collapse of financial institutions serving the retail sector.

    He spouts hypocritical , self serving , contradictory nonsene. His contacts are undeniably of the highest quality, and his knowledge and understanding of the economy and financial markets greater than that of most of his peers. But his attempt to intertwine his notion of moral stewardship into his past actions leaves a particularly bitter taste.

  • Comment number 8.

    In the programme the only guy that has had it right all along is Vince Cable who really should become PM as we are fighting an economic war right now.

    However, governance is conducted by Government's so the buck must stop there for this utter disaster.

    I still trying to find an economic/business editor who has the ability to predict the current economic position of the country had Gordon Brown followed exactly the tax, spend and borrowing and monetary policies of Ken Clarke for the last 12 years. It would be fascinating to learn whether Britain would have been better prepared for Bankrupcy under Ken's policies or Gordons. Robert please can you have a stab at a comparison because the next election is going to be based on more of the same from Gordon or back to the future with Cameron.

    Please inform us about the consequences of both economic policies from the Conservatives and Labour as poor old Vince isn't going to get a look in however deservedly he should!

  • Comment number 9.

    So when are Fred the Shred, Adam Applegarth and the rest of the giants brains going to be banged up?

  • Comment number 10.

    After watching Panorama my first impression was how close Robert is to Alistair - good mates at least. One wonders who was the source of many exclusives claimed by the BBC business team.

    The next thing that comes over is how non judgemental Robert is regarding who is to blame for the crisis.

    Bank bosses certainly admit failings and some even apologise. The FSA did not realise the severity of the situation in our economy and even so did not have the power to affect events.

    As regards the government and the role of Gordon over the last eleven years. Little or nothing.
    This aspect of BBC reporting is what leads some of us to believe that the BBC is very selective and in awe of the people in power.
    Like a team in sport, one can have to much respect for your opponents.

  • Comment number 11.

    Just watched the peston show eeer i mean panorama.

    Shows the real power of the web.

    But given we now know the powers that be and the big business guys also read this blog, this could end up being a troll magnet.

    You should keep a bit of control on it, we don't want to end up like the shame antics on Nick Robinson's blog and thus ruining it's civilised informative rep.

  • Comment number 12.

    I'm a Peston fan. So much so that I'd probably turn on to watch him read the phone book in Albanian. But tonight's Panorama was not good. You just can't squeeze a coherent account of October's meltdown into a half hour, especially when you have interviews with all the very top players. I for one was desperate to hear more from them than the snatched and often anodyne bits of sync we got. To try cramming a biopic of Peston himself on top of all that was absurd. No offence, Robert, but when Alistair Darling and John Varley are telling me how the world nearly ended, I'm afraid I don't want to hear about your father's views on comprehensive education or see pictures of you as a long haired student. And rather than hear your own opinions on the unfairness of the bailout to the thrifty I want to see you put Darling on the spot about it. Also how could you let the very lightweight looking Hector Sants get away with the assertion that last autumn's interventions have restored confidence and banished the thought that banks could now collapse.

    The one point where I stood up and cheered was where you defended the journalist's right to publish. It is indeed paternalistic, patronising and dangerous to keep information from the general public that is available to the financial system. You would lose all trust were you ever to allow yourself to be cowed into not reporting a story fully and honestly. I'd be the first to the barricades.

    Happy Christmas, Robert. Get some decent rest over Christmas cos I have a feeling we're going to be needing twice as much from you in the New Year.

  • Comment number 13.

    I've just watched Hector Sants on Panorama saying there was nothing that the FSA could have done.
    It used to be a golden rule of banking that to lend long and borrow short was the way to perdition. Northern Rock demonstrated that in spades. The FSA is supposed to review bank business plans. Presumably there were no prudent old timers reviewing Northern Rock's plans.
    Who is responsible for taking away supervision from the Old Lady? The man who saved the world - has he no sense of responsibility?

  • Comment number 14.

    Tonight's Panorama: 10% serious content, 90% celebrity adoration. What a missed opportunity to provide some serious analysis of this huge crisis - instead we were fed a load of self-serving tripe around the cult of BBC's latest star - young master Peston. No mention of key root causes of this crisis and a clear description of the list of players who colluded to keep this great boom going for almost 20 years, instead a few trivial sound-bite summaries of interviews with some UK players. It seems that the x-factor and the general focus on celebrity seems to removed serious reporting - even from Panorama. Today R4 (where at least Peston is allowed to make some serious points) manages to provide some decent insight. I suggest you might want to read Michael Lewis' (of Liars Poker fame) recent analysis if you want some insight before your 2009 broadcasts. Simon

  • Comment number 15.

    What happened to Panorama this evening?

    I tuned in expecting to get a quick dose of current affairs. But it appeared that the programme had been pulled and replaced with a nausea-inducing hagiography of a self-important business reporter who managed to get a scoop.

    Was I interested in which school Robert went to? No. Is it important what Robert’s dad did for a living? Nope. Do I care what time Robert rises in the morning? Fascinating as it may be, the answer is no.

    The biggest shame about tonight’s Panorama was that there was a half-decent programme fighting to get out there: the inside story into the events leading up to the bank bailout. But instead most of the programme was devoted to a bit-part egotist talking about himself.

  • Comment number 16.

    Great post crash piece. But as to why, there is a big wider point missed. Put simplt - it is the way bankers are paid. Bonuses for how they they did after just one year - with no comeback if anything goes wrong. Unless this is changed - it could possibly happen again. Bonues should reflect what ends up happening to the investments over a longer period of time. We believed too much in capialistism. All things can go too far.

    And let's not forget the media played a pretty big part in this. Far from foretelling it as was suggested in this piece with Northern Rock - the reality is that media completely missed it. Yes Northern Rock should have been handled with more sensitivity. The dramatic way it was reported did make the problem worse. with a sudden a massive run on the bank. of course it did. But the real problem is that the media continued to paint the picture of a rosy general economy EVEN AFTER this. As they did before it. This lead to people taking out yet more lones. Everybody - the media, the banks, should have been asking questions much earlier. This point was missed completely. Convienient?

    You see, it's not just a matter of having contacts that report something 5 minutes before someone else, and when it is obvious anyway. And then claiming this makes an amazing journalist because that personal got there "first" - literally often by a few minutes, or days, at the most. It's about DOING INVESTIGATION OF WHAT IS GOING ON - HOW BANKS ARE MAKING THEIR MONEY - INVESTIGATING THE SYSTEM AND POINTING OUT THERE MAY BE RISK - OR ERRORS - IN THE SYSTEM. Having your "insiders" and "contacts" look to this instead. Not short term "I got there first" mentality. But proper long term big picture thinking. This is what journalism should be about. Then this may never then had happened. I hope you take this in a mature manor, listen to these points and learn some lessons. It's not just the banks that need to as you pointed out so many times. It's you. Please look to yourself and your system. Don't try and rationalize it. Try and listen. It takes a great person to look at their own faults in a climate where mistakes are pointed out all the time and people condemed. "It's nothing to do with not me, bc.." "I already did the right things, bc.." "This expert says it's their fault (not mine) bc..".

  • Comment number 17.

    Not the old investigative panorama. Eg Northern Rock not looked at in any detail.Why was Derek Wanlless ,knighted by Gordo not interviewed?He was the author of the Wanless report into National Health.Former CEO Nat west prior takeover by RBS.Responsible as non exec for Risk Management & Remuneration!
    LLoyds were invited to run rule over Northern Rock August 2007 when their funding model was known by the Treasury to be flawed. Northern Rock shares went up as LLoyds due diligence became known.Why were shares not suspended as clearly there was a false market.
    Will Quick/slow of the yard be looking into Pescod leaks? I doubt it

  • Comment number 18.

    I find you rather weird Robert and how can you be impartial when you are the son of a Labour peer?

    Nonetheless, I note you are left handed. Good tennis players!

    I still take what you say with a pinch of salt and vote Conservative.

  • Comment number 19.

    I was fascinated to see the DVD "The Crash Course" produced by Chris Martenson.

    It explained (inter alia) how the U.S. had 'fudged' inflation figures using a technique called 'hedonics'. This allowed inflation to be understated and so allowed reported 'growth' (the change in GDP adjusted to remove inflation) to remain positive.

    Politicians derived some (obscure) pleasure from being able to say there was no depression. Forget the fact that oil production will be falling from 2008 onwards.

    Hedonics is the fascinating thing - if you have a flat screen 24" TV that costs £300 this year and it costs £300 next year but also has a faster response time (say) then this technique splits the £300 down into £250 plus the extra 'notional' benefit [not cost] valued at £50 in terms of 'better life experience' of having the new feature.

    The 'inflation basket' now contains a TV that has *reduced* in price from £300 to £250.

    A Freedom of Information request to ask whether the UK CPI and/or RPI statistics use 'hedonics' (google this word to understand hedonic regression) might be revealing?





  • Comment number 20.

    The thing I find amusing in the blog text is that AD is reported as saying 'irrational' and Peston reports that he thinks AD meant 'rational'. So what is reporting about these days, 'translation', 'correction' of the message without reference. Or reader, take your pick, whichever interpretation suits you sir. And this is the 'standard'.

  • Comment number 21.

    Your critics are in a mess! The market theory to which they have cleaved for nearly 40 years demands perfect information flows, which is what you have been helping along. If they don't understand that they need to go back to school. If they want you to sit on your news, then they essentially don't accept the free operation of the market, and have to reject all they hold dear. Oh isn't it interesting when those who have been making a packet out of manipulating the market cry for mummy when the going gets tough. Despite the results, we need you to keep shining a light, because even worse things will breed in the dark. Hold on to your seats, it's a wild ride and some of those who get hurt thought they led a charmed life. Remember to spend Christmas with your family come what may.

  • Comment number 22.

    The point that you raised at the end of Panorama and left hanging - that essentially we are left with a situation of 'moral hazard' where there is no penalty or cost for unwise or profligate borrowing and no value in saving - is at the heart of the current policy 'solution' to the Credit Crunch - just as the Archbishop of Canterbury indicated.

    It is vital to diligently pursue this point. Any 'solution' that does not tackle this problem is NOT a 'solution'. We thus have the policy-makers pursuing a policy agenda that is critically and absolutely false.

    I repeat the point that I have been writing about for some time that borrowers must be prepared to pay a fair price and savers must expect to receive a fair recompense. When will this happen - 6 month or a year away - any more and the bubble re-inflates and complete financial collapse is absolutely unavoidable and inevitable. The path we are pursuing is heading towards the total destruction of money. We must turn, and turn soon.

    I also want the see all of the men who ran the banks and the regulators dismissed immediately.

    I also think that Sir John Gieve knew that the bank should have raised interest rates long ago - his and his colleagues pusillanimous attitude makes them absolutely culpable and should ensure their dismissal!

  • Comment number 23.

    fact is, your 24" flat screen is going to cost 150 quid next year in nominal terms...we are not going to need to rely on hedonics for some time to come...

  • Comment number 24.

    A truly facscinating vignette of the past three months in the City: thank you, Mr Preston and Panorama.
    I agree that Mr Cable's observations have been most perceptive: not much surprise in that when he's dealing with economics.
    It seems to me that the banks are merely piggy-in-the-middle in this amazing crisis. What has happened, in fact, is a rapid and massive write down -- impairment, to use the more fashionable term -- of property assets, of about £50,000 per property according to one commentator. If so, the absurd UK property bubble has well and truly burst.
    The consequence of this impairment has been a correspondingly drastic write down of increasingly illiquid bank assets, which themselves were financed by money market liabilities that were callable short-term. This bad matching of maturities sounds like the worst of all possible banking worlds, for which the banks themselves must take their share of the blame, together with home owners/buyers who were reckless enough to blow the bubble in the first place.
    The present lending terms quoted by banks suggest that they have been caught by the property bubble once, but they won't be caught a second time any time soon. Median UK property prices will have to fall a lot further before long overdue sense is knocked into property and credit markets. Short term this is a scary prospect: longer term it's got a lot of promise. Until then, the transition looks like being painful, for too many a wipeout.

  • Comment number 25.

    I watched Panorama and I was horrified at the suggestion that Robert should have kept quiet about some of his scoops so as not to have made worse the situations he was reporting.

    As someone who, like many, has lost a lot of his investments by not bailing out of stock market funds earlier because I didn't understand the seriousness of what was going on, I totally disagree that this kind of information should be restricted to insiders.

    Thanks to Robert's reports, I now have a much clearer understanding of what is going on in the financial world, which I think all ordinary small savers and investors will need to do if they are not to lose even more before we hit the bottom of this economic cycle.

    More power to you, Robert, and a Merry Christmas!

  • Comment number 26.

    #15

    I agree - there was more new interesting insight in this blog piece than the whole 30min Panorama. I thought I had switched to the Biography Channel by mistake.

    Poor showing expected better.

  • Comment number 27.

    A worrying scenario when none of the major players in this dreadful situation foresaw what what was coming. All they did was to blame someone else. How much were/are these people being paid?
    30 minutes was wholly insufficient & the programme should have included penetrating questions to Gordon Brown with a detailed follow up when he had given his normal wishy-washy answer combined with the sickly smile which accompanies every meaningless answer.
    Also a shame there was not time for a report on the Madoff affair so we could also have had Nicola Horlick continuing to defend the indefensible.

  • Comment number 28.

    This is such a sad joke, the problems in the financial sector were inevitable. Of course the banks were to blame for reckless lending and excess speculation, but that was inevitable the easy money that was generated by the low global interest rates and the access of cheap funding through the carry trade forced the banks to try and generate more yield. We haven't heard much from Greenspan, lately have we?

    The growth in assets for the big banks was far in excess to the growth in deposits so leverage was inevitable, the regulators were clearly asleep at the wheel but not just in this country. The international banks have shown the way that if their domestic regulations make something difficult simply offshore it to a less regulated territory. In America, Sarbanes-Oxley was supposed to avoid a repeat of Enron, instead more banks utilised offshore funding than ever in the form of SIV's just ask Northern Rock with Granite and HBOS with Grampian. The BIS even decided that the banks were best placed to decide their capital requirements under Basle 2 as they had such large investments in IT. Even though the banks have proven time after time that their vaunted risk models have been discredited.

    So if the worst of the problem is over, where does that leave us the huge liquidity injected into the markets will create fiscal problems for decades to come. The financial analysts, (why should we take them seriously), seemed confident that the emerging markets could carry the financial baton. Unfortunately all those economies are proving tragically susceptible to the economic crisis. Pointing out that China will have growth of 9% may make for comfortable reading until you realise that the economy needs to grow at 10% just to absorb the millions of new workers each year, including an estimated 11 million graduates next year.

    I look forward to Panorama reporting on the effect on small to medium businesses next year. Small businesses such as Chrysler which according to some press has been offered by Cerebrus for nothing or Ssangyong, the smallest Korean car maker which has today said it can no longer pay salaries and asked for a cash injection from its Chinese owners which they rejected, (may you live interesting times)! Bloomberg was today reporting on the $70bn in aid the oligarchs have requested from The Russian government, looks like much of those assets will soon end up back in state hands. And back here in the UK, whilst many people may be happy to see a lot of the banking sector lose their jobs they should consider the financial waterfall effect of losing those high earning jobs. Everyone from teachers in fee-paying schools to workers in the fast growing adult entertainment industry are likely to find pickings slimmer.

    Its not all pessimism, perhaps the coordinated liquidity injection will work. It seems that the governments are just printing money in the hope that assets will recover in value, I suspect that even if that plan works we are just increasing the chances of bigger problems in the future. The US treasury had a 2yr note auction today and the yield ended at 0.98% Who would have thought people were so scared that they would pay to lend the US government money.

  • Comment number 29.

    Oh dear Robert I have just watched Panorama and then stopped to reflect before writing.

    I had turned on Panorama in the hopes of some insightful words and thoughts from you about the current economic situation, sadly I got a BBC and Robert Peston aren’t we clever programme

    Well most of us agree that you and the BBC both are, most of the time, clever talented and insightful but I fear not on this occasions for many, many reasons.

    I am sure you can take a deep breath about the transmitted programme and reflect on how people troubled by the recent events may view what they have just seen in the light of what they have personally experienced.

    No what I am most upset about is this because it is one of my mothers truisms so please beware she would have said. First is vanity, vanity, vanity - then puff and it is all gone.

    I hope not.

    We need a BBC and an editor that tells us what is going on, not telling us how good they are at teling us, proof of the pudding is in the eating, that is a truisum from most mothers.

  • Comment number 30.

    All credit to RP, but I'm amazed how boastful and forthcoming Alistair Darling and John Gieve are about their brilliant negotiating abilities and how willing they are to disclose how clever they were.

    This is only a couple of months after a near disaster. They talk as if everything is fixed, but they may have to deploy their negotiating prowess again.

  • Comment number 31.

    Robert Peston's much trailed Panorama debut was not a piece of investigative journalism into "The Year Britain's Bubble Burst" as expected, but turned out to be the Robert Peston story

    It was all about the singer not the song.
    Varley, Gieve, Darling were but bit players in a Robert Peston biography.

    On Robert Peston's blog he said, "The main story of tonight's Panorama is quite how close we came to the collapse of two banks .........".

    No Robert, the main story was you!

    However, Robert Peston has let the cat out of the bag as regards to his political leanings. It is socialist and of an old school, long defunct.

    On 25 September 2008 Chelyabinsk asked (perceptively) is Robert Peston the harbinger of the nationalisation of the banks, as he gleefully reported on their difficulties.

    Recently Robert Peston advocated the nationalisation of what remains of British industry.

    Now we learn from Panorama that Robert Peston's father, Maurice Peston is Lord Peston of Mile End a labour hereditary peer since 24 March 1987.

    The BBC prides itself on being an impartial broker and commentator of the news, and that's what we trust it to be.

    Robert Peston's comments must now be viewed as slanted and coming from a political agenda.





  • Comment number 32.

    The smart thing to do is get smarter.
    Evolve or die!

  • Comment number 33.

    PS to No 22 above

    Why is it OK to pre-announce that VAT will go back up to 17.8 or 18.5 percent (or higher) but it is not OK to pre-announce that interest rates will go up to 6 percent in six months or a year's time?

    The Bank is not capable of running anything and its senior staff should go, and go now!

  • Comment number 34.

    Enjoyed the prog.

    I have to say that I don't think the banks' problems are over - not by a long way.

    The natural result of bailouts/defecit spending is ZIRP and the natural result of that is the end of fractional reserve banking..

    I expect full nationalisation for most od them some time next year.

  • Comment number 35.

    Seems I'm not the only one tired of RP's constant self-publicity fed by the Beeb's willingness to give airtime to their - perceived - star turn.Good to see Rory Bremner taking the mick on the Andrew Marr Show yesterday morning.Also good to see Vince Cable getting the recognition he deserves.

  • Comment number 36.

    WHY SAY THIS NOW ?

    It seems the crisis was every it as serious as some of us have been stating. Even allowing fror the ass covering and PR it seems we were right on the knife edge.

    However, we are hardly out of the woods yet. Why are those who are still active in trying to resolve this crisis going on the record to expose how piss poor their management has been ?

    I hope against hope that this is some clever strategy to get the public on board for radical changes to the structure of the economy.



  • Comment number 37.

    With all the trailing of the content of tonight's programme - maybe Bob Quick could be invited to investigate such leaks - I wanted to wait to see its real contents first. Some interesting insights but watching extracts on the BBC News at 10 confirmed my earlier conclusion that the real motive was to show the govt had no responsibility for the debacle. What we got was the Chancellor showing how he was the hard man that tamed the Banks and rode to the rescue of the country - a complete whitewash of the govt's role in how we got into this mess. I'd be interested to see if RBS go public as with John Varley that lending won't recover for 2 years or will that be a breach of their bale out?

  • Comment number 38.

    Watch your back Robert! They will try to silent you very soon. Keep it up ;o)

  • Comment number 39.

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

  • Comment number 40.

    #37 distressedone

    I suspect you are right

  • Comment number 41.

    So you went to a comprehensive, eh Robert? How very egalitarian! ... but no mention of Oxford - come on, now, don't be bashful.... even though it was only a 'minor' College.

  • Comment number 42.

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

  • Comment number 43.

    The banks is just part of the plan. Currency next.

  • Comment number 44.

    Evolutionary Agents
    1. Learn to be comfortable with the idea of change
    2. Anything that destroys bureaucracy enhances evolution

  • Comment number 45.

    One thought / question:

    How much do we understand today of what truly caused the liquidity crisis? How much did the CEOs of these various banks. I fear very little. This would be a more valuable topic for debate and research than the focus on characters.

    We need to understand the correlations between differing events and reassess probabilities - simple and boring. This was the foundation of the risk mitigation securitisation sought to bring about and the principle still stands as our best line of defence against risk. We just need better inputs into the models that were used.

    We canot afford the delevering that would be needed to bring medium term stability if we revert to 'old fashioned' zero money market banking. The world economy can not withstand this. We need to look creatively at taking the best of financial technology of the past decade and applying this with more prudence and more experience behind us.

  • Comment number 46.

    One of the many questions that remain - WHY DO SO MANY OF THE EXECUTIVE AND NON EXECUTIVE DIRECTORS REMAIN IN PLACE ?

    It is due to their accountability or almost complete lack of it.

    A typical small business is either owned solely or by a small number of shareholders, either family or a group who will decide together.

    If a chief exec or management team are brought in to run the company and successfully run it into the ground, whilst receiving huge rewards for doing so, then they will be swiftly removed by the shareholder(s) or owner manager, assuming the owner manager is not the one at fault.

    The problem for HBOS/RBS and the like is that they are owned by a vast number of shareholders with even the largest institutions never holding more than 2-3 percent.

    HBOS and RBS are run by the all powerful directors who are not held accountable to the shareholders because the shareholders are a disparate grouping. In addition that disparate grouping is very often other large institutions such as an insurance company investing pension monies, which in turn are run by directors who are owned by large institutions.

    They make up their own salaries, their own share options, their own contracts, appoint incompetent non execs and detach themselves with a smug air of superiority from those who own the company and those whose monies they use. There are superficial window dressed independent entities which keep a cursory check on them, but ultimately they do not answer to the individuals (most of the private sector pensions and others) who provide them with a job and entrusted them to use that money responsibly.

    This would not happen in an owner managed business where one or one common voice would dictate that feckless and incompetent management must go.

    In the large PLC environment, there is no effective shareholder check on the management, short of ensuring some opaque disclosure rules are properly presented in an annual report.

    And what's going to change this ?

  • Comment number 47.

    I have for some time thought that Panorama was not the programme it used to be. It's now shallow and sensationalist compared to past decades. Tonight's episode confirmed that view with a vengance. Peston himself is sensationalist and the programme's focus on him and his career brings little credit to the BBC.

  • Comment number 48.

    So we have saved the banks -so what? They are now in a position where they are of no use whatsoever in helping us to ride the coming storm. In fact they will be more of a hinderance as they attempt to shore-up their own positions before even considering that of the rest of the country.

    So, sod those who fixate upon MONEY. Let's start focusing upon the other aspects of wealth - natural, educational, production and pure skills. The days of the financiers and their bean-counting familiars calling the shots has to be ended

  • Comment number 49.

    RE BANK stability

    Mr Peston

    I own a business that trades in the on a Global Basis.

    We turnover circa 680 plus million
    per annum.

    I HAVE NO FAITH IN THE UK BANKING SYSTEM.

    I HAVE MOVED ALL SUBSTANTIAL
    DEPOSITS FROM THE UK.

    I will not accept any assurances from either King Darling Brown
    Mandelson or any senior bank executive as to the safety of depositing monies with any UK
    Bank.

    In my view HBOS should be in administration aswell as RBSNATWEST.

  • Comment number 50.

    MASS SACKINGS & PROSECUTION
    are long OVERDUE.

    THE "CITY" MUST BE PURGED AND
    CLEANED UP.

  • Comment number 51.

    Shame the Panorama programme seemed to be filmed and edited by the Robert Peston Appreciation Society!

    Less than 5 minutes of Panorama quality coverage, or perhaps like rest of BBC it's dumbed down

    What you failed to get across was that a reporter like yourself could hardly knock out the banks if what you were reporting wasn't true.

    Shame you didn't focus more on those of us who are now suffering as a result of drop in interst rates and were being sensible. Fastest way to re-capitalise banks and get them creating profits is to encourage deposits which can only be done by rasing interest rates. Let those businesses that were silly go to the wall and the eceomomy will be more solid much quicker.

  • Comment number 52.

    Many of us have often said that we just cannot trust any politician - as we never believe anything they say.
    On the other hand, Banks - in the guise of their CEO's and Directorates have (hitherto) always embraced our absolute trust.
    That trust was ever priceless - and the tragedy now is that they never appreciated it nor did they value it. If only they knew it, trust was the best factor outside their Balance Sheet.
    By their actions of passed months, the Banks have tossed all this trust to the winds.
    Those Executives have shown themselves to be totally inept and unqualified for their posts. Charged with such immense responsibility for their clients' monies, surely the FSA should be looking to the accounting and business abilities of all Bank Executives.
    I speak as one lesser mortal - retired after spending 40 years in Branch Banking Management - and I am thoroughly ashamed of our so-called pillars of the Banking Industry.
    Excellent program - by the way !!!

    geofband

  • Comment number 53.

    Robert

    Was I alone in getting the distinct feeling that your scoop re the recapitalisation of the banks was very useful to the Treasury in setting up the banks for the "drive by shooting" ambush, disguised as negotiations ?

    I was struck by the comment by Vince Cable during the programme regarding the bad behaviour of the Government in relation to the leaks and their use of the media.

    Couldn't help thinking either how interesting that such very serious leaks with such huge impact should pass with no visible leak enquiry by the Government and certainly no arrests.

  • Comment number 54.

    Robert - conned tonight, thought it was going to be a serious piece - but got a BBC/Peston answer to the critics, didn't need the CV thanks or any justification for breaking stories....

    Early poster right - 10% useful - 90% useless!!!!

    Buck up.....

  • Comment number 55.

    No.45,
    perhaps their are some useful aspects of the past valuation models. In the past the banks thought that market risk management was the solution to their problems, and sure enough lots of quants were hired at excessive salaries, hundreds of millions were spent and a whole section of the IT industry was created. Then there was the Asian crisis, followed by the Russan default and the collapse of LTCM. The banks decided that perhaps market risk wasn't the complete answer as their VaR models proved useless and someone remembered that the nobel prize winning Black-Scholes model assumed constant volatility. Suddenly the banks decided to throw money at credit risk, previously the ugly sister of risk management. The banks had some models, but unfortunately the data inputs were limited and once again made rash assumptions. The rating agencies sprinkled their magic dust on the leveraged products and everything seemed fine. All the time the banks increased their usage of unregulated products in order to avoid revealing their lucrative spreads to their clients. Of course, the rating agencies had proved the value they added during the Asian crisis when they downgraded Korea after representatives had summoned the banks to a meeting where they threatened to declare national bankruptcy if the banks didn't maintain their credit lines.

    Don't blame some 60 year old board member for not knowing how a synthetic CDO works, a lot of the traders and fund managers who purchased them had to phone the investment banks that sold them for valuations while the highly paid risk management professionals sat in the corner of the trading rooms crouched over their bloomberg terminals.

  • Comment number 56.

    Two people have come out of this sordid mess with their reputations enhanced:

    Robert Peston and Vince Cable.

    Cable is that most curious of creatures - a respected, popular and trusted politician.

    Peston has broken some of the biggest financial stories of all time. Who cares who those sources are; the reports have proved to be spot-on.

    There are three bank holidays coming up. Get some rest Robert, I have a hunch you're going to be rather busy in 2009...

  • Comment number 57.

    It makes my blood boil to see these overpaid conceited idiots
    brag about how clever they are.

    HAVE NO DOUBT WE WILL ALL

    PAY A VERY HIGH PRICE FOR

    THIS MESS.



    Whatever economic growth (so

    called) will be swept away by the

    contraction of the economy,

    the huge losses, job losses

    and TAX INCREASES to follow in

    the DECADES TO COME.

  • Comment number 58.

    What were you trying to tell us? We were expecting a penetrating expose by Panorama, and you did not deliver. That this is the biggest recession we are about to experience we now know. It was caused by an enormous glut of easy access to money is for sure. Trying to recycle that debt, borrow short and lend long....never a good idea. We know our banks bought the packkkages, no one held a gun to their heads to make them do it, they bought what they not understand. The UK also has its own sub-prime, and we do have massive credit card debt, and we have a government that has borrowed, and borrowed, and borrowed, and borowed. And what is the solution?
    To borrow more. Can not really figure that one out. Yes, I get the bit about liquidity, but somewhere there has to be a reconcillation of the books. This is going to get a whole lot messier andit would be nice to have some robust interviewing of the parties involved, including the current government. So far we have had very little offered in that direction rom any part of the BBC.

  • Comment number 59.

    It would have been nice for the programme to focus more on the topic than the journalist. The whole sorry tale of how we got into this mess and details of those responsible needs to be made public. They should never be allowed to work in the markets again. Having said that, it is good to know that there is a journalist with such excellent sources reporting on Finance stories. If we are to avoid a repeat of this crisis then it is vital that those with such an influence on our lives should be subject to effective media scrutiny - obviously no one in Government was bothering!

  • Comment number 60.

    The more i hear and read about

    HBOS it is abundantly clear that

    I should have proceeded to serve

    my Winding Up Petition on their

    subsidiary HALIFAX PLC in JAN

    2007 there was no doubt as to

    their status then.

  • Comment number 61.

    RE BANK DIRECTORS PAY


    In recent months i have researched all the listed directors
    of the main banks.

    Its interesting to see how many have purchased properies over the last 5 years at prices between

    2 million pounds up to 11 milion

    with what appears to be OUR

    MONEY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • Comment number 62.

    svrsig Re: Hedonics.

    No need to Google, search the term on the National Statistics site and you will find that this measurement was introduced for a limited range of products a few years ago.

    http://www.statistics.gov.uk/CCI/article.asp?ID=290

  • Comment number 63.

    Good programme but as someone else said I felt that the Darling/Preston relationship seemed a little too cosy for my liking.

    I've never trusted Darling since he told the FT that he didn't believe in Economic Patriotism.

  • Comment number 64.

    Robert's plain speaking reporting style has been an invaluable resource to many of us worried at the emerging financial crisis over the past year. In my view he rightly earned respect for cutting through vested interest spin and exposing financiers and politicians for the self serving parasites that they of course always have been. It was therefore all the more disappointing to discover that this evening's Panorama was really just a programme about Robert, and therefore for the most part simply egotistical self centred nonsense. I really don't want to know that his Dad was a 'Lord' or indeed how he looked at various stages since early childhood. You do a great job Robert, it is really appreciated, but please, you aren't Richard Dimbleby just yet.

  • Comment number 65.

    Very interesting programme tonight. There is a much more alarming picture underneath the financial shenanigans.

    Put bluntly, the failure of the UK banking system is too awful to contemplate. THe UK as we know it would have been severely damaged, to the point of potential insurrection. Our whole economy is built on trust and "word is my bond" ethics over hundreds of years, like the stock exchanges worldwide. A failed banking system would create a "vote of no confidence in UK plc", potential for default on UK Gilts, and then...

    No Government would be able to face its citizens with any sort of mandate with that outcome.

    As a taxpayer it really upsets me to have to bail out a privately owned company, at the expense of my children's future, jobs, pensions etc, etc. It is morally and policitcally bankrupt.

    Interestingly, the small businesses and thirfty hard working indivuduals who have been trampled on by the unholy mess of "our leaders" in this latest crisis is beginning to show through. Perhaps, we as a country should now strike home with this advantage and press harder for what we want.

    I read a quote from Thomas Jefferson, which I think says something along the lines of:-

    "If people fear Government, this is tyranny, If Government fear people, this is liberty".

    A good maxim for our leaders to take heed of!

  • Comment number 66.

    At last Mr Peston ...at last... you now seem to be asking raw questions. Thanks. Perhaps now you could also ask for
    some raw solutions.

    Eva Hoffman in her book 'Shtetl' ,subtitled, in part, 'The History of an Extinguished World' has a
    n illustration of a 16C drawing of 'The Death of Credit' ...opposite p48 in my edition.

    Trust has been destroyed now as it had been then. It is TRUST that has been turned to ashes Mr Peston..is it not ?

    Through the BBC, please encourage Mr Darling to spend any of the little public money left in building new Debtors' Prisons and new Workhouses . The Govt, BoE, FSA, Parl Committees, Auditors, Accountants, Bankers (sic), Institutional Investors, and the Media would provide many able candidates to fill the available places

    There are buildings off and in Parliament Square..and others in upper Regent Street and Marylebone High Street which would make marvellous conversions.

    I did not vote at the last general election and most politicians of all the Parties sicken me to death and beyond.

    Irony and contempt are not wonderful virtues to have...but I am ashamed to say they are all this blogger seem to have left.

    Anlgo Saxon expletives are not enough. I just wish they were.

    Froeliche Weinachten

  • Comment number 67.

    it seems to me after months of struggling the BOE / government are pushing a version of events which is being swallowed now byyour good self and other commentators and that is that the fundemental problem wasn't US and UK monetary and fiscal mismanagement or a failure of regulators but it was all the fault of the Chinese and Saudis investing their excess cash into our financial markets.However, the questions that remains is that in fact the highly leveraged derivitive markets swamp the chinese inflows.
    The government and BOE in opting for the CPI measure of inflation excluded house price inflation from their calculations.at the same time as inflation was bouncing around 2 to 3 % the M3 money supply was accelerating to 15% per annum. so the asset price bubble was nothing to do with this or Hank Paulsen as chairman of Goldman Sachs was lobbying from 2000- 2004 congress and the SEC to relax the rulers on disclosure and to protect directors from law suits by shareholders for withholding information which may affect the share price which we seemed to go along with including the exclusion of derivitive traders from regulation and the repeal of glass Stegal act. Not sure how you explain these away Robert but the creation of a myth that excuses the treasury,BOE and the FSA because its really all down to China is really not helpful.

  • Comment number 68.

    Like most people I am appalled and shaken by the systematic inadequecies underpinning the banks collapse. However, while the focus remains on the banks the conseqences to 'real' people are generally unattended to.

    Questions out here (the real world) include:-

    What pay back will taxpayers have when the banks again start declaring 'rude' profits and how will government ensure that they are better regulated and less trusted in the future?

    How come the government is not approaching banks to reduce their interest on credit cards, this would help a lot of consumers who the banks have encouraged into dept out? (This is something that MUST be discussed as banks are again being allowed to make ridiculous profits)?

    How will consumers manage when banks reduce or call in overdrafts? Is the government taking steps to ensure limitations on their ability to do this with good customers?

    Similarily, is the governement taking steps to ensure credit card companies can not suddenly reduce credit limits to good customers with a good track record and still in employment?

    Answers to these questions, or at least attention to them night increase consumer confidence and have a positive effect on the economy.

  • Comment number 69.

    Welcome to America
    It's one Global World

  • Comment number 70.

    Any expanding going concern faced with a sudden unforeseen setback is bound to have problems .....but that's life .....like a bicycle,you are either moving forwards or you stop; and if you cannot put your feet on the ground, you fall over.
    But they were doing so well before the crash that they deserve lots of support ,not our blame, because when this disaster turns round ,these very same nightmares are the very people who will produce the profits that will increase the value of the government's holdings in these banks by a factor of 10. Think about it.....the percentage margin on a mortgage is now on average 3% above base when it used to be nearly on a par....that is one hell of a profit even after a one percent Libor premium.
    Credit cards are much dearer, and the high riskers are no longer being offered loans.Savings rates are rotten compared to what mortgages are being charged at.
    And which bank had to turn customers away as it was attracting too many....another ex-basketcase, Northern Rock, now criticised for charging too much interest and being too risk-averse.
    Things are already moving on.The current price of the bank shares already takes all of these downsides into account,but why are the experts predicting a 225% increase in nationalised bank share prices in the coming year? Strikes me that those in the know are not telling us the good news because there is big money to be made out of the doomthinking of share sellers and pundits.
    The big story is really about the way that people's expectations change cyclically,and how those who succeed are those who saw ahead and sold their shares in HBOS at £12 or bought their dollars at 2 to the pound when all the commentaries were predicting the further decline of the dollar.
    Now all we read about is the crash of the pound.
    But life is strangely countercyclical .
    The next big thing will probably be the relative crash of the Euro which is going to fall to E1.5 to the pound. But who is brave enough to take out a Euro motgage?

  • Comment number 71.

    comment 21 / no way out said "If they want you to sit on your news, then they essentially don't accept the free operation of the market, and have to reject all they hold dear."

    That's not even the point, just the criticism they mentioned on the show. To see real critics in action read the comments here. My comment no. 16 for example, I did not even make this point, but had serious issues to point out. Read it, and the others, please.

  • Comment number 72.

    "How our banks were rescued"
    What a smug headline.
    They have NOT been rescued! They are being temporarily held together with a few peices of frayed string and old sellotape. Who is this mythical 'tax payer' who has so kindly underwritten' the banks to the tune of £350 BILLION?
    Not those shortly to leave Woolies or Jugular (owned by Tata Motors). Presumably not those whose retail bosses are currently offering massive pre-Christmas sales. Unemployment now at 1.8 million and rising (rapidly). It certainly won't be those smug b***ds greedy and selfish enough to keep their money in offshore tax havens.
    If the participents in this Panorama programme were on fire, I would certainly NOT bother p***ing on them.
    The rest of my feelings at their collective, self-congratulatory, back-slapping smugness can only be expressed in Anglo Saxon.

    To paraphrase Queensbury : "Bankers, politicians (and sycophantant journalists), I believe I once trod in some"

    #48 ForeDeckDave - one of the few sensible comments here. Well said.

    Old Groucho

  • Comment number 73.

    Hello, Mr. Peston, and thanks for these excerpts.

    Any possibility the programme could be made available to the American audience via the web or BBC America? Perhaps arrange to have it aired on a business channel here?

  • Comment number 74.

    Saw the program and Robert is a great reporter of our time, yes, but I also think for him to get the people he did get to talk on the program, he must have sold it to them as a bit of an opportunity to say how great they were in ''saving the day"

    I mean surely other noticed just how Mr Darling seemed to be so pleased to tell us all about how he was so cool in last emergency negotiations with the heads of the big banks?

    Brown likes to do that too, remember his Freudian slip about 'saving the world' last week?

    Anyway that's all a side show, Brown, Darling, the Bankers etc are all just the latest in a long line of puppets, who, when the boom was going on, had to dance to flute played by big banks, big business and IMF (by extension, the US).

    I'm no raving socialist, but I believe the rot started 30 years ago when the whole movement toward Neo-conservative doctrines started in earnest, started by the Mrs T Continued on by "New Labour" in the UK

    With Mrs T in the UK and Reagan in the US, oh yes i'm going way back, a new age was born, basically policies of weakening union power, reducing worker rights, running down the manufacturing base (because it was a base for union power).

    Most important, pumping up of and deregulation of the the financial sector. This made the neo-cons and his/her friends in high places / big business very, very, very rich.

    But made the economies of , the UK and US especially, so ridiculously over reliant on (deregulated) banks and financial industry.

    Now we see the result. More financial scams, more fraud, more bubbles, more instability.

    The 'financial industry tale is wagging the whole economy dog'. Now the financial industry has become our master not our servant.

    Again, I'm not a raving socialist, but I say all this from a centrist viewpoint. I believe that any imbalance or doctrine driven policy, on the left or right, will always lead to disaster.

    This has been proven over and over in history. Whether its the failure of communism and total stat control. Or the failure of totally free market, unregulated capitalism.

    It is a historical and present day fact, that all these extremes have been tried over the last 100 years, and none of them worked!

    The evidence has shown that the only systems that have stood the test of time and remained relativity stable, are the countries that have pursued , centrist, mixed economy style systems. (science and technology driven, mostly secular states, but that's another subject)

    Such countries are post ww11 Japan. Germany, France (just) , Canada, the Nordic Countries. I could name more. Oh. and the UK in the 1960's well before Thatcher came in.

    Sorry to sound so boring and and non-idealistic, but the evidence is there!

    I think this is maybe what Peston really means by a 'New Capitalism', he maybe means just getting back to a more centrist, less extreme, less ideologically driven (on the left or right) type of capitalism?

    Capitalism is dead, long live Capitalism!

  • Comment number 75.

    Robert,

    The New Capitalism will be be "State (authoritarian ) Capitalism.

    This new economy will be driven by a blend of communist and and capitalist ideology - a half-way compromise between the two.

    This new capitalism will be regulated by genuine businessmen and not bureaucrats or politicianswho have never arranged a business loan or done business in their lives.

    Sharks must be supervised by sharks. Gamblers (entrepreneurs) must be supervised by gamblers.

    The regulators must be answerable to the State which will have ultimate control of virtually every facet of the macroeconomy.

    This is the only realistic way forward!


  • Comment number 76.

    The financial system needs a clear out......investigation by fraud squad.....blood on carpet......back to old values where the bank manager actually knows his customer(remember that?...pre late 70's).....restart manufacturing by Britain for Britain.....more export/less import.....keep military for defence of the country as opposed to occupiers of other countries.....and finally overthrow this government and elect a cross party government without Brown or Darling or Mandyson!

  • Comment number 77.

    # 61 alexandercurzon

    Alexander, don't take this the wrong way, but perhaps you need to get out more?

  • Comment number 78.

    "There is £17bn of our money that is expected to go into HBOS and Lloyds TSB, with most of it going into HBOS."

    And there were the Scot Nats shouting about the new financial centre is to be situated in Scotland !! I wonder how deep into their sporrans they will have to dig if the rest of Britain didn't have to stump up for the bailout of these two "truly Scottish" banks !!

    "Well, I mean each bank is, is different and some of the banks were benefiting from this. They were attracting, they were seen as the safe havens and they were getting an inflow of deposits and their problem was: "what do we do with this money we don't need?" And they started looking to deposit it with central banks, in fact. But several of our large banks, and I mean I don't want to go into names, were, were in real difficulty and you know, were having hour-by-hour minute-by-minute to balance the books at the end of the day, and obviously we were talking very closely, but it wasn't just happening here."

    There is still an irrational ignorance on the part of some people that the government bailed out *ALL* the banks !!

    As stated above, there were some banks that didn't need the government bailout, either because they got better commercial terms, and/or lack of politically motivated ones, from elsewhere (ask John Varley) or they just didn't need it because, again as stated above, *They were attracting, they were seen as the safe havens and they were getting an inflow of deposits and their problem was: "what do we do with this money we don't need?"* (a bank with a strange Far Eastern sounding name comes to mind) !!

    "Yes, that's right. We had done some sums and between us we'd, we'd come up with what we thought was necessary and really there was only one provider [the taxpayer]. Now, for Barclays they were, they chose a different route. They thought that they were given the number and they, they said "no, we can raise this ourselves on the market," so they took a different route to the other three."

    They probably took one look at the political agenda and they said "forget it, we want to survive into the 22nd Century" and they are right !! It is now expected that NR and B&B will not survive as viable *commercial* banks and they will just be some political football to be kicked around by their political masters and trotted out as the scapegoat at need !!

    #28 "Small businesses such as Chrysler which according to some press has been offered by Cerebrus for nothing or Ssangyong, the smallest Korean car maker which has today said it can no longer pay salaries and asked for a cash injection from its Chinese owners which they rejected, (may you live interesting times)! Bloomberg was today reporting on the $70bn in aid the oligarchs have requested from The Russian government, looks like much of those assets will soon end up back in state hands."

    More shameless attempts to obtain money with menace by the car makers !! Firstly, Ssangyong is *NOT* owned by the Chinese !! They are a totally Korean company !! They do have a joint venture operation in China with some Chinese partners. For them to demand money from their Chinese partners while withholding cash in their main empire is akin to Tata demanding money from the government while withholding their cash within their empire !! Perhaps if they did not repatriate so much money out of China to their parent empire, they might have some left locally to pay the salaries !!

    Chrysler is a busted flush and they are dragging a venerable name, Daimler, down into the muck with them !! I shed no tears for them when they have square mile upon square mile of unsold vehicles gently rusting away !! And they want more money to produce unsalable vehicles ?? Why ??

    Would it not be more profitable to support those companies that are *still* selling than to support producers of unsalable products ?? Is it better to support a few thousand employees of failed car makers or a few million employees of still profitable SMEs ??

    #48 "So we have saved the banks -so what? They are now in a position where they are of no use whatsoever in helping us to ride the coming storm."

    Not *ALL* banks were "saved" by the government (see comment above). Some are still doing business and are blithely ignoring the government dictats that they lend money at commercially suicidal terms !!

    Finally, the Panaroma programme last night seemed to be produced by the biography department, not the economics department of the BBC !!

  • Comment number 79.

    Looks like people on here are not very happy ROBERT.... but its not hard to understand why. Many people are going to lose there jobs and homes savings,while A.D sits smiling away on tv.You said you believed in freedom of speech, And yet the very people you work for do not. The day the BBC attacked the people that pay there wages is the day democracy once again started to live in our great nation.

    THE SAYING GOES NEVER BITE THE HAND THAT FEEDS YOU. BUT THE BBC DID.

  • Comment number 80.

    Interesting programme. It was good to see important people acknowledging all the cock-ups and peek inside the corridors of power. Darling came across well. It was particularly good to see you saying on prime-time TV that the wrong people are being punished, but how are those that were responsible for this fiasco going to go about putting that right for me. As I didn't have any debt and the problem was not of my making, I expect to be compensated for my losses....

    The other thing that occurred to me was that if Journalists (in general) hadn't reported Northern Rock, the mis-management that caused the problem would probably have been covered up and it would have continued. Anybody questioning the numbers would continue to being portrayed as cynical/naive doom-mongers by those in the positions of power. Things would have collapsed eventually, but would the situation have been retrievable if it occurred in 5 or 10 years time ?

    So it was actually a very important piece of journalism, even if it has cost me money.

    That piece of reporting has identified an important issue that the regulators and politicians had failed to address, that they either couldn't or wouldn't address because of the inertia that prevents such changes when people in positions of power (i.e. Businessmen) are making lots of money for themselves and political parties are dependent upon those businessmen for funding....

    Without it all coming out into the open, we'd probably never have had a chance to put things right...

    Bob Peston O.B.E in the New Years Honours list .... ?

    Last but not least. I haven't been tearing my hair out over this. There's none left after worrying about paying my mortgage 20 years ago, at the much higher interest rates that prevailed at the time...

    But by not having flash cars, all the latest gadgets and expensive holidays I did manage to clear that mortgage. I've managed to save a bit for my retirement since then, but what happens now. Just when I should have been in a position to do all the nice things I see a complete reverse. I see 0% interest rates just when I wouldn't mind them being at the levels they were at 20 years ago...

    Stability and confidence is what the economy needs, instead of greed, arrogance and stupidity.

    We might be able to plan our lives a bit more effectively then...

  • Comment number 81.

    I fist became aware of the impending credit crunch through Robert Preston's blog and since then I have read all his subsequent articles, on the unfolding problems in the money markets, with a great deal of interest and fascination.

    Robert Preston was ahead of most other reporters (and bankers) in his assessment that the finacial crisis that first affected the USA and UK finacial markets would develop into a truely global problem that would seriously affect every economy around the world.

    Some people claim that his early revelations about the problems confronting a number of large UK financial institutions and about what was being discussed at very senior levels to try and resolve those problems were alarmist and simply helped to fulfil some of his prohersies. others say that he is little more than a reckless and lightweight reporter out to make a name for himself.

    Having read his articles and listened and watched him on television I believe he is neither receless, alarmist or senationalist when it comes to reporting what he knows and hears is happening in the financial markets. His revelations and assessments on the credit crunch have been surprisingly candid and accurate and that suggests his sources have been well briefed and are well informed.

    He is quite right when he says his job is to inform the Beeb's readers and viewers of the facts as they unfold and this information should not be solely for the rich and powerful. Most ordinary citizens are just as capable, as the rich and powerful, when it comes to digesting information that affects their lives.

    Well done Robert I take my hat off to you and your reporting style and let me sign of by wishing you and all the other bogger's A Merry Christmas and A Happy New Year

  • Comment number 82.

    Perhaps this years CHristmas no 1 should have been;


    Last Christmas, I gave you my cash
    But the very next day, you gave it away ....


    Perhaps 2008 will prove to be our last Christmas

    If the predications for 2009 are right, nobody will be able to afford it nexxt year....

  • Comment number 83.

    "inevitably when you deal with a bunch of bankers, they started trying to re-open it."

    Are you sure AD really said "bankers"? :-)

    The points I take from this are that obviously some people in the civil servcie knew just how bad things were going to get when they set the new capitalisation standards. At the time they were strongly criticised but have been borne out. Why weren't these people given more decision making power earlier?

    The other is the complete lack of any inclination from any side that the people who got us into this mess should actually take some responsibility and resign/be kicked out.

    Also, there was never a single mention of HSBC, or did I miss it?

  • Comment number 84.

    Robert

    I suppose a degree of post-rationalisation is inevitable in a situation like this and it was certainly evident in last night's piece - not least from Alistair Darling, aided and abetted by you.

    It would have been interesting, and I think appropriate, has those interviewed included the then CEOs of RBS and HBOS.

    Also interesting would have been a questions to Darling on his views on the leaks and his response to Vince Cable's assertion that the Government had sneered at and swept aside his warnings in 2003.

  • Comment number 85.

    Nicely done Robert. Not too deep, not too shallow.

    You know you are doing well when people in high places start spinning your role.
    Apparently, and by their own admission, they are powerless and you are powerful. A mover and a shaker. A deal maker and breaker. Billions made and lost on your word.

    I bet you never thought that shining a light when all around want darkness would cause such a fuss.

    It has been a pleasure to read and listen to your take on the world of finance and robbery, but please do remember that they will came at you when you least expect it.

    Bravo Robert, Barvo.

  • Comment number 86.

    Re: 83
    Actually, I don't want sackings/resignations.

    We'd just get a set of fresh faces without the benefit of this experience who would go on to make other mistakes or contrive to make the same mistake again...

    What's important is that the people reponsible, recognise ALL their reponsibilities and failings and do their jobs properly in future. They should not moan about regulation or try to undermine/circumvent it all the time, but embrace it, adhere to it and be willing to extend the regulations where new risks are identified...

    We've seen what can happen and can't afford to repeat the same mistakes again...

  • Comment number 87.

    The major untruth that is at the heart of the problem

    INFLATION

    Why was asset price inflation (house price inflation) left out of the inflation indices?

    Sir John Gieve said words to the effect, that we (the Bank) couldn't raise interest rates when inflation was so low and stable even through we wanted to, as the country would not have understood.

    The key to this folly was to keep asset price inflation out of the indices - here is the huge and utterly predictable cause of the credit bubble. (They also relied on imported deflation from China to keep the indices low.)

    1. Who did this? (Ans. The National Statistical Office)

    2. Who kept quiet about this? (Ans. The Bank and the Treasury)

    They all need sacking for incompetence. We pay these people for professional competence - they plainly failed and they should go.

    I leave out the politicians who presided over this folly - as they are amateurs who rely on the advice of the professionals and it is these 'professionals' who have messed up through a deadly combination of cowardice (see Sir John Gieve's remarks above) and ignorance.

    However what must happen now is a return to a stable and sustainable monetary management regime where money regains it value. (See my previous arguments about the value of money.)

    Otherwise, if this does not happen PDQ (within the year) there is a huge and definite risk that the whole system of money will be damaged if not destroyed and this CANNOT be allowed to occur.

    We need new people with a sound economic understanding and guts to insist on correct policies, - not these people who gave us the credit bubble.

  • Comment number 88.

    living in france i was unable to watch the peston programme, but i do have a pertinent question. Why were the banks "saved"? All the government had to do was guarantee deposits (which they have done anyway) then let the banks and their army of mismanagers go to the wall. As it is the banks are not functioning and the directors are still drawing huge salaries basically propped up by the taxpayer....the world is truly insane!

  • Comment number 89.

    Another poor piece of journalism, used as yet another soap box for Peston. Why we needed his CV and the 'Day in the life of' format for what was meant to be an informative programme is beyond me.

    Years of good programming from Panorama was lost last night. A very sad evening

  • Comment number 90.

    Re: 89
    Yes, I had the same though at various stages when I was watching the programme.

    But in view of the criticism levied at Robert, I took the view that this was an integral part of the story and it was therefore reasonable, if somewhat unusual, to do that...

    So long as Panorama doesn't make a habit of it....

  • Comment number 91.

    #80 "I see 0% interest rates just when I wouldn't mind them being at the levels they were at 20 years ago..."

    Don't worry !! Interest rates *WILL* return to the level 20 years ago when the rest of the world stops lending money to Britain and the pound goes through the floor and the government will have to raise interest rates simply to attract more money to pay the interest on their borrowings, let alone their debts !!

    It happened 20 years ago when Labour bankrupted Britain and it will happen soon because Flash Gordon bankrupted Britain *AGAIN* !!

  • Comment number 92.

    #83 "Also, there was never a single mention of HSBC, or did I miss it? "

    No, you didn't but why spoil a good spin with a few inconvenient facts ?? Of course, Gieve sort of "hinted" at *banks that attracted the cash as safe havens* without naming the guilty !! :-)

    By implication, he "hinted" at the fact that the others were perceived to be "unsafe" havens for our cash !!

    Why, oh why, didn't the government take up the offer of those 2 tartan knights and dump that mess on their laps without wasting good taxpayers' money trying to bail HBOS out ??

  • Comment number 93.

    Re:91

    Yes. You're right. I'm fully expecting to see hyper-inflation, which is why we might get an election early in 2009.

    But by the time interest rates are high again, I won't have any capital left as I will have been forced to live off it. And then I'll be in the situation of borrowing money again - at the higher rates. I reckon I must be one of life's losers...

    What was that famous Christmas film called, "It's a wonderful life ...!"

    I'll probably have to watch that every day of the festive period this year, just to make sure that I get as far as 2009....!

  • Comment number 94.

    #88 "Why were the banks "saved"?"

    Politics, old chap !! Purely and simply politics !! I would think that if those unsound banks went to the wall, the other sounder banks will pick up the pieces at fire sale prices and carry on as normal !!

  • Comment number 95.

    If the Bank of England had acted properly as lender of last resort, many Pension Funds would be far better off now.

    And several UK Banks would still be independant.

  • Comment number 96.

    The programme told us nothing the public did not already know apart from an insight into Roberts Pestons background.
    The BBC should have journalists who present the news as news. Sensationalism and scoops should be left to commercial news gathering organisations.
    The BBC should be mindful of their privileged position in opinion forming in the UK.
    RP did not cause this financial crisis but he has not helped mitigating it in the UK.
    It would be very useful given RP's impact however to give an in depth account of how banks drove up commodity prices by speculation which I believe is the root of this crisis.
    All major commodities are now at least 50% off their peaks this cannot be due to an equivalent fall in demand.

  • Comment number 97.

    Of course the leaks and mishandling of the situation has damaged Britains reputation as a safe haven for money.

    This is one reason why the Euro Pound exchnage rate has fallen so far.

    It has also shown up the Accounting Profession.

    The Regulators have clearly not been allowed to do their jobs.

    And the Ratings Agencies are clearly a waste of time.





  • Comment number 98.

    #94

    "#88 "Why were the banks "saved"?"

    Politics, old chap !! Purely and simply politics !! I would think that if those unsound banks went to the wall, the other sounder banks will pick up the pieces at fire sale prices and carry on as normal !!"


    Not only politics but also because of the idiotic, herd mentality of most of the UK population - if one bank had been actually allowed to go under everyone would have pulled their money from all banks (to hide under the bed) and all of the high-street banks would of gone under one by one.

    The public is too easily panicked and not discerning enough to decide between a good and a bad bank.

  • Comment number 99.

    #86

    Are you really suggesting that you couldn't find someone who recognises that massive long term lending on over appreciated assets funded by short term borrowing is bound to blow up eventually?

    It was clear for years that the UK was too deep in debt based upon haouse prices which were unsustainable. And for chief executives to condone loosening the requirements to borrow even more under these circumstances is at best short termist and at worst negligent. In either case such behaviour shows that these people are NOT the people to have in charge of a major bank. The fact that they now know how to negotiate a bailout doesn't inspire me with confidence - they should never have got themselves into the situation where it was needed.

  • Comment number 100.

    It is worth noting the Banks weren't saved.

    Millions of small shareholders and pensioners have lost out, and thousands of ordinary jobs in Banking will be lost.

    Competition in the High Street will reduce, as the number of Banks (and soon enough their Branches) reduce.

    Of course the long term policy of keeping Wage rises below the real rate of Inflation has led to a collapse in consumer demand.

    So who in their right mind would invest in any British business relying on selling to a weak consumer market ?

    If the Govt lends money to Tata it should be under the same harsh, shareholder fleecing terms it used on the Banks.

    But perhaps they fear an Indian Billionaire more than British Pension Funds.




 

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