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First Septic Bank (revisited)

Robert Peston | 10:40 UK time, Friday, 16 January 2009

Bank of America did the world a favour by acquiring Merrill Lynch last autumn, at the height of the global financial terror about whether any bulge-bracket Wall Street firm could survive.

So the US government was never going to cut up too rough when the biggest lender in America asked for a bit of additional help in absorbing the losses incurred on Merrill's holding of poisonous assets.

But the overnight announcement on the bailout of B of A would have been viewed as the stuff of public-finance nightmares a year ago. Today, it's almost par for the course that US taxpayers are injecting $20bn of new capital into the bank and promising to absorb most of the future losses on $118bn of radioactive investments.

Those financial commitments are peanuts of course in the context of $14,000bn-and-rising of financial support that taxpayers have provided to banks all over the world. What's gone wrong with our banks is without historical precedent - but then, you knew that.

One manifestation is banks' results for 2008. What till recently was the world's biggest bank, Citigroup, will disclose horrible losses later today. And next month, we'll see unprecedented losses from Royal Bank of Scotland and from HBOS.

At those banks that have managed to remain in the black, profits have collapsed.

But have no fear. They can't collapse - because we as taxpayers are implicitly underwriting the lot of them. Full nationalisation remains the economic insurance policy of last resort (as shown by Ireland's nationalisation of Anglo Irish Bank).

So what are the interim measures that governments can take, to keep banks afloat and stave off full nationalisation?

One element - but only an element - is to take further steps to improve the flow of funding to them.

We'll probably see some of that announced by the Treasury and the Bank of England next week - partly because there's a deadline set by the end-of-January closure of the Bank of England's Special Liquidity Scheme, which allows banks to swap hard-to-sell mortgages for easy-to-sell Treasury bills.

A new scheme will be put in place that is likely to permit banks and other financial institutions - probably to include the finance arms of motor manufacturers - to exchange all manner of loans to homeowners and consumers and businesses for Treasury bills.

In simple terms, you can see it as taxpayers lending to individuals and companies, or taxpayers financing the real economy.

And on top of that, a sovereign wrap is expected to be put around certain categories of bond - including debt issued by certain big companies (see "Taxpayer support for big companies") and bonds created by packaging together mortgages.

You should view that initiative as taxpayers providing an insurance policy to purchasers of those bonds that they won't lose out if the borrowers can't pay or won't pay.

The details should be nailed down in the coming days. But the broad thrust, bankers tell me, is useful.

That said, as we've seen with the Bank of America debacle, there are two other issues confronting all banks.

Have they got enough capital to absorb the losses being incurred on loans that are going bad?

And can they be remotely confident that they can estimate quite how many loans will go bad, and how big the consequential losses will be?

The arrival of a painful recession, of uncertain length and depth, makes that calculation almost impossible.

Guess what? We as taxpayers are going to have to ride to the rescue yet again.

As I've been saying for the past few weeks, one option under consideration is the creation of a state-owned toxic bank, into which our banks would transfer their stinky assets.

As a concept, some City chums and I branded it last autumn as the First Septic Bank.

septic432.jpg

It was top of the US Treasury Secretary's agenda in September, but was never implemented in the US because the technical obstacles are huge.

As it happens, Obama's team is having another go at creating the First Septic Bank, and a British version - the Royal Septic Bank - is also under consideration.

But the First Septic Bank of America and the Royal Septic Bank of Great Britain may yet fail to be born.

Because there are huge difficulties in valuing the assets to be placed in them and in defining the assets that may be placed in them.

If you put too high a price on the stinky assets, taxpayers end up massively out of pocket.

If you undervalue the assets, banks are mullered.

It's a nightmare.

There are other ways of exploiting taxpayers' deep pockets to achieve the same outcome - such as the guarantee being provided to Bank of America (which had already been given to Citigroup) that taxpayers would underwrite a proportion of losses on toxic assets retained by the bank.

The most creative solution I've come across has been made by Sir Peter Burt, the veteran Scottish banker who was chief executive of Bank of Scotland in its glory days but recently failed in a campaign to keep HBOS out of the clutches of Lloyds TSB.

Burt is proposing a sale-and-leaseback of toxic assets. Which probably sounds like gobbledegook to you. So I'll address it in more detail in a forthcoming note.

Suffice to say for now that a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years.

The Treasury is reviewing the options and I would not expect it to opt for one or t'other for some time.

But the bad news or good news (depending on whether you're a taxpayer or a banker) is that we as taxpayers will end up in some way paying for the stupid loans and investments made by smart bankers.

(Note from BBC blog admin: apologies for the hiccups in publishing this post this morning.)

Comments

Page 1 of 3

  • Comment number 1.

    It looks like you're going to to be right on the toxic bank idea Robert. What else do you know?

  • Comment number 2.

    it gets more confusing when you realise
    big banks have big shareholdings in all the little banks

  • Comment number 3.

    Let's just nationalise the whole lot now. Whatever we do we shall end up paying for the failed business model of Wall Street and the City. The barons of high finance had a quarter of a century during which time they told us how to run our lives and now expect us to pay their debts. No way.

    In the Middle Ages the "over-mighty barons" claimed their liberty to ransack and pillage and expected the peasants to cough up for their ransoms when captured.

    Nothing has changed then!

  • Comment number 4.

    a) There must be a point at which the tax payer cannot pay these debts.

    b) What will future governments do about taxation policy when we have been saddled with so much debt, so they will have to be a new radical fiscal policy - possible Thatchers policy of kitchen tale economics, only spend what you earn.

    c) It looks like a very bleak year(s) are ahead.

    d) Why has the stock market ignoring these events?

  • Comment number 5.

    "So what are the interim measures that governments can take, to keep banks afloat and stave off full nationalisation?"

    Can someone please explain why full nationalisation should be staved off?

  • Comment number 6.


    I'm not sure whether all this public money being pumped in, to stave off collapse, is a monetarist "expansion of the money supply" or a Keynsian "new deal".

    I'm not sure whether it matters. For better or worse, the money is being pumped in almost everywhere. The question is whether it is going to work; and what will have to happen for it to work.

    To try to answer this I started to read up on the "new deal" recently. Having been brought up believing that it save the USA from the Depression, I was surprised to find that unemployment in the US did not really start to fall until the war - and that people back then were saying that the new deal had achieved nothing but saddle the Government with debt.

    If that is right, then we are in trouble unless and until all this money provokes a, hopefully peaceful, increase in demand. Is there any sign of this?

    And is anyone, anywhere in the World, offering an alternative strategy: eg a willingness to maintain a strong currency and let the market sort itself out?

    If not then all our money is already on one horse; and there's nothing we can do about it.

    The die is cast.

  • Comment number 7.

    Governments promising financial support is not the same as actually handing over the cash to the ailing firms. Governments can promise but can they deliver?

    Many pledges of support have been made, but how much cash have governments really handed over to date?
    I think they have only stumped up small amounts of real cash, relative to the enormouse size of all the promises.

    A bird in the hand is worth two in the bush, and all that......

  • Comment number 8.

    Nearly forgot. A big problem with a 'bad bank'is that the banks'll have to come clean about what dodgy assets they hold. If they've been holding back on us there's more brown stuff to fly.

  • Comment number 9.

    Well here we go again.

    It doesn't matter about the technical details of how ie leaseback, loan, toxic bank

    indeed do we care any more !!!!

    This is not "taxpayer" money, thats far too impersonal, this is my money and your money. May be not today, but tomorrow when all our tax bills go up by a lot. It wont just be the 2.5% back on VAT. It will hurt those who work really hard in the middle range. Kiss your state retirement pension goodbye now, it wont exist in 25 years it will just be a toxic asset/share in a toxic bank worth nothing.

    Flash, Mandy and Darling will of course let us know they are saving the WORLD again and that its a GLOBAL CRISIS. How come I havent heard of any Banks failing in Poland or Russia or Spain or China for instance ???

  • Comment number 10.

    "And can they be remotely confident that they can estimate quite how many loans will go bad, and how big the consequential losses will be?"

    The other worry is that some will decide as a matter of policy to ensure their loans will never be repaid as we , the good ol' taxpayers, will guarantee the banks the money instead. Why should any pay back outstanding loans, whether they can or not?

    This is simply the next logical stage of the original "Moral Hazard" question

  • Comment number 11.

    ENOUGH IS ENOUGH JUST NATIONALISE THEM ALL AND GET IT OVER WITH.

  • Comment number 12.

    There is no doubt that given time a proper formula will be devised to resolve the toxic debt issue.

    What does concern me is that the people who caused this disaster seem not to be held to account. Indeed some are trying to establish a reputation as the saviours of the world.

    I want a full public enquiry, I want names named and civil and criminal penalties imposed.

    At the very least lot of decent, innocent people are going to be ruined by these events and the taxpayers are going to have a burden to carry for decades. Justice cries out!

    The bankers, regulators and others responsible for this shambles need to be put before a court of their peers and judged.

    It is now time to send in the auditors and gather evidence.

  • Comment number 13.

    "Septic Bank"!

    Quite obviously despite all of the talk to the contrary capitalism has collapsed, money is worthless and there is no longer any market mechanism to manage the distribution of capital.

    Economic Armageddon has arrived!

    A septic bank as a repository for duff 'assets' has one gigantic and insurmountable problem - how on earth do you value the assets that are transferred to the bank? Zero interest rates have made money worthless so I know of know of no mechanism to value the assets.

    Put interest rates up and then the cash flows from the debts can be valued and a transfer value can be determined. Zero interest rates have destroyed any market valuation mechanism.

    The values are thus only definable by political actions by the the centrally managed state planning bureaucrats - I suggest some retired Soviet era economists could usefully be asked to comment on the efficiency and effectiveness of such a system.

    It is almost beyond belief to that should be being contemplated.

  • Comment number 14.

    It is all well and good for the government to bail out the banks, as without the banks the whole ecomony fails. What bothers me is that the very same banks that made stupid childish decisions are still full of the muppets that made the original mistakes. For trust to come back, new management is needed.

  • Comment number 15.

    RBS predicted loss this year ?£28 billion
    2007 profits £10 billion.
    These bankers are the best in the world, or were until Cyclone Crunch hit town.
    So times have been really hard,and the bailouts are necessary.
    At least our government are doing what it takes to weather this storm.

  • Comment number 16.

    As you've said before, Robert, there is a lot of blame to go round. Who's the more to blame, the "smart bankers" who made dumb loans, the people (who are also taxpayers) who took out those loans or those of us (also taxpayers) who were quite happy to benefit from the boom in the economy driven by the availability of this borrowed money?

    As you've also said, what we have now is a socialist system of a communal mutual guaranteeing of loans. As someone who works in a mutual insurance company, I have to say that I am quite comfortable with that thought.

    We have to get the money flowing again, so if we have to have a state owned Sceptic Bank or buy-back system to do so, then so be it.

  • Comment number 17.

    I am concerned what business practice would be in place to achieve this

    Suffice to say for now that a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years.

    It sounds like an agreement to stave off accountants looking too closely at the books and actually recognising that it will take over 10 years of banking income to come close to wiping out their mistakes.

    So technically why should we, the taxpayer, keep these insolvent edifaces alive?

    Will the banks be free once to gouge for every penny they can?

    Who is going to be held to account for the whole mess?

    Who took those decisions to buy those toxic debts?

    Who packaged and sold those toxic debts?

    I would simply visit the banks and say "we are withdrawing your overdraft next month. You have this time available to yourselves to pay off the overdraft before we foreclose on your business"

    Insolvent = Bankrupt

    Goodbye

  • Comment number 18.

    So what you are proposing (or reporting somebody is proposing) is that the customers of businesses - who are part of the taxpayer base, and individually provide the income to the businesses and in turn the profit to the businesses - also enable en mass (and involuntarily) the provision of operating cash to the same businesses. Do you not find this a bit odd, and in what way does it allow the marketplace to operate with market forces. In what way does this provoke customer demand. Could you take the time out to explain.

  • Comment number 19.

    Excellent article, but complicated stuff (for me, anyway!).
    Can anyone answer these most basic of questions, please. Sorry if they are naive, but I genuinely don't understand:
    1. Why is the taxpayer acting as an insurance company? What is wrong with businesses using proper insurance firms for this purpose?
    2. Are all these measures permanent, or just temporary until 'normality' resumes.
    3. Rather than the Bank of England lending money to banks, to lend to us, why does the BoE not lend directly to us. Why not change all branches of Northern Rock, RBS, HBOS etc into high street branches of BoE. Cut out the middle man.
    4.Presumably the government would only consider a 'Royal Sceptic Bank' if it thought it could make money out of the toxic debts. If the govt can, why can't the normal banks.
    5. If the whole banking mess turns out not to be as bad as currently thought, will the banks actually sudeenly be sitting pretty and set to make HUGE profits?
    6. As unlikely as it is, if the bail-outs fail totally, the consequences to the national economy are simply huge. Do we have a plan for this scenario?

  • Comment number 20.

    I note a separate headline regarding the proposed split up of Citigroup - "Citicorp will handle the company's traditional banking work, while Citi Holdings will take on the firm's riskiest investment assets.".

    Why not take this as a model for each of our stressed banks? Each can split into a separate "toxic" bank (that hangs on to the dodgy, hard-to-value stuff) and a "non-toxic" bank that can get on with the day-to-day banking business without being weighed down with all this stuff.

    That seems like it would get the banking system working again without the taxpayer ending up being massively out of pocket.

    Alternatively, just nationalise them all.

  • Comment number 21.

    As far as I can see, we have only 2 ways out:

    1. 40% drop in asset values across the board, followed by business as usual apart from the fact all banks will be nationalised.

    or

    2. Inflate away those bad loans.


    Which will it be ?

  • Comment number 22.

    I think this is the kind of stuff which destroys faith in institutions for generations.

  • Comment number 23.

    For problems that are global (© G.Brown 2008, 2009), what's needed is not so much a septic bank as a septic country to offer itself as a sacrifice.

    Iceland ? Zimbabwe ? This septic isle ...?

  • Comment number 24.

    Lets be honest whats going on here, is purely politicos trying to save their jobs now and foist the blowback onto their opponents when they take over.
    Im not sure wether its a good idea or not, but it doesnt really matter. Either the politicos do nothing, the banks fail, the economy crashes and i end up with nothing.
    Or the politicos buy up all the debt, saddle me with huge tax bills for the next thirty years and i end up with nothing.
    Great choice, From a selfish point of view if im gonna suffer id like to see the bankers crash and burn cos my futures probably gone either way.

  • Comment number 25.

    The demerger with Citigroup: Is this just a U.S. ploy to effectively allow the indebted part of the company to go bankrupt. Surely it would make sense, the commercial side could remain and if nessesary receive some (smaller) funding, and the failed investment banking side of the firm could just quietly go into administration as if it had nothing to do with Citi saving the U.S. taxpayer millions just by screwing over a few investors and other banks?

  • Comment number 26.

    Tell me Robert, does anyone still talk about "Moral Hazard" these days?

  • Comment number 27.

    There is a common misconception among bankers, economists and politicians that government debt is guaranteed because it has control of the nation’s tax quotient. What they forget is that although theoretically they can raise taxes as much as they want to pay off the debt, there is a limit that subjects will pay before they rebel on mass.

    The utter stupidity of borrowing on top of debt and bailing out the banks regardless of the amount will not probably fall as a burden on the taxpayer as many think. Primarily because the UK will soon realise that there is nobody left that will, can or want to buy up the gilt wrapped kucca and come March most auctions will probably fail.

    Where will that leave HMG then with all these guarantees’ and nothing left in the tank to honour them? IMF and the banknote printing press is looking the most likely outcome IMO.

  • Comment number 28.

    #12 stanilic,
    I think the time for auditors to make an appearance has been and gone. We still haven't heard much of their shortcomings in this farce.

  • Comment number 29.

    I think its about time Mr Peston started to act a bit more responsibility. Everyone knows what the problem is. Perhaps Mr Peston should think of a few solutions rather than banging on ad nauseam about "radioactive investments" "poisonous assets" "stinky assets" etc.

    All he does is to talk down which at best does nobody any good and at worst greatly exascerbates the problem.

    The main issue confronting everyone is a lack of confidence emanating from loss of jobs etc. The economy needs to be talked up rather than down and people recover the confidence to carry out their business plans and lives generally. This is something that Mr Peston (and other members of the press) do not seem to be very adept at

    Perhaps Mr Peston should review what pulled this country out of previous recessions and put some positive points forward

  • Comment number 30.

    This is beginning to sound like the rocket scientists are at it again.
    You know the ones whose equations turned all this into rubbish in the first place.

    Talk about baffling everyone with science.Only this time they seem to be making it up as they go along.

    I think most of us have given up on the idea that there is anyone out there who really knows what they're doing.

    Trying to stall the inevitable is only going to make it even more difficult to see clearly when we are at the bottom of all of this.

    Sounds like all the toxic debt should be moved to the most dire bank and the whole lot liquidated and wiped off the face of the earth.

    They can't save everything there aren't enough taxpayers.


  • Comment number 31.

    Out of all of this, we must ensure the banks do not escape the rotting fruits of their labour.

    Its all well and good intervening to prevent a complete monetary collapse in the wider economy.

    But The Banks have to eventually face up to the consequences of their folly. else it will be seen as not just bailing out the banks, but robbing the taxpayer to reward the bankers.

    I would much rather have seen the government buy market rate shares in the banks when their shares were closely reflecting their worth (ie after all writedowns) and then as a majority shareholder, or 100% owner, supporting the bank until the crisis can ride its course, be that 2, 5 or 10 years.

    In the future the government can then sell the now recovered bank and make much profits for the taxpayer, and then reward the taxpayer through lower taxes for the hardship endured during this crisis.

    At present it feels like we are suffering ALL the hardship and the bankers are being rewarded by dodging bankruptcy.

    Lets hope Northern Rock can be rebuilt from the ashes and sold on for even a small profit to the taxpayer!

  • Comment number 32.

    This is just the beginning. The US dollar will collapse soon because of the bailouts being implemented by Obama and Bush. They've lowered intrest rates so far that the only thing they can now do is print more money. People will run from the dollar and dump their reserves lowering its value even more.

    A result will be the UK and the rest of the world being hit even harder by drops in demand of everything. Unemployment will rocket and tax revenues will collapse, leading to a bigger defecit for the UK, resulting in the UK pound becoming worthless and the UK completely bankrupt.

    I really hope I'm wrong.

  • Comment number 33.

    "smart bankers", is that Cockney Rhyming Slang Robert? Couldn't resist having a Giraffe :o)

  • Comment number 34.

    The more the fixes don't work, the more bizarre the solutions become. This isn't going to fix anything.

    I really think we need to start to look at seriously saying "enough is enough". We cannot risk paying

    Can anyone tell me today what the function of a bank is? They don't lend, they don't reward savers, they don't give mortgages and they are a parasite on the country. So what's the point in propping them up anymore? They haven't been honest with their balance sheets, not honest with their due diligence and their scams have been shown to be worthless. Why should they now start being honest?

    Let the weak banks collapse and have one bank for the time being. The days of the old style capitalism have gone and the more we keep trying to get back to how things were, the worse it is for everyone. We are NOT going to return to how it was - the model and arguments have been shown to be wrong.

    Whether this government likes it or not, eventually there is a line to be drawn around this. I don't have children yet, but I do not want them to pay for the greedy, selfish folly of this filthly lot.

  • Comment number 35.

    same old load of .
    they always change the rules whenever
    they start to lose

    all we are asking for
    is a level playing field
    and to stop moving the goalposts

  • Comment number 36.

    "If you undervalue the assets, banks are mullered."

    I thought this article was really important and really interesting and I really wanted to learn from this post, but all that's running round my brain still is : why does Robert keep using "mullered"?

    Does it mean hammered? slaughtered? Any of a host of words meaning "having a good night out on the town of which I will remember nothing"?

    What's the epistemology: cockney, German or Tom & Jerry?

    I know its been raised before on here but I cannot recall a really good answer? Help!

  • Comment number 37.

    I am guessing that exploiting taxpayers deep pockets is exactly how the government sees it as well. The problem is that taxpayers pockets don't remain deep if unemployment increases significantly as it is forecast to. That of course should really read exploiting future taxpayers deep pockets or just plain stealing our grandchildrens money because as yet no tax increases have been annouced or significant curtailments in government spending.

    In yesterdays post Robert talked about bailing out big firms as they struggle to roll over debt. What has become obvious is that the big companies that are in difficulty are the ones who racked up the debt while selling of the assets. Those companies would be far better off being restructured, the debt written off , management kicked out rather than being lumbered with the debt in a downturn. Bad business models need to be purged and supporting debt is not the way to achieve that.

    Banks are the exception as they are everyone's go between, and if all the UK banks fail then the amount owed is so large internationally that nobody could sort it out. Lets not forget that british banks are international and probably do trillions in business each year so nationalising them totally would put our tax payments for the next few decades on the line. We should be asking what those toxic assets that the banks have are. Some of it is loans to US house buyers who are allowed to just walk away from debt. Perhaps we should ask our american friends to think a bit about non recourse mortgages.

    In every city center across the land new apartment buildings have sprung up and it does not take a genius to work out that the finance for these would all go pearshaped once the market was saturated. It is pretty basic banking sense and it is becoming pretty obvious that many of the lending operators in the UK were not really using a proper banking business model. Criminal loan sharping seems nearer to the mark for some of the foreign lenders.

    Making the assumption that taxpayers can afford to pay of these stupid loans is a big assumption after all no tax increases have been annouced yet and every government is trying to borrow to pay their own banks stupid loans.Smart bankers and investments seemed to have been in very short supply recently and about the only smart thing they have done is to sucker us tax payers. I am not against banks being bailed out and the better and quicker we do it the sooner we will come out of recession but as usual plans seem half baked without proper detail and that pretty much applies to the plans from all politicians. Getting a banker who knows a little about banking is perhaps a good start so there are at least one move in the right direction.

  • Comment number 38.

    Preston can you tell me what meaning of the word "Till" you are using in this sentence "What till recently was the world's biggest bank"?

    I don't think it is "unstratified soil deposited by a glacier", or "work land as by ploughing, harrowing, and manuring, in order to make it ready for cultivation" or even a "cashbox: a strongbox for holding cash"

    You can't possibly mean some sort of slang contraction of "until" as that would be something like 'til, yuck.


  • Comment number 39.

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

  • Comment number 40.

    I am being unfair to a degree but Gordon saved the world and New Labour can see little green shoots of recovery.

    They are still riding relatively high in the polls - if you believe that they had a significant hand in our doom and the "global problem" that they vaguely blame. Possibly that is because people fear free market Tories more than New Labour.

    But nobody believes this could not happen again and there is no new regulatory regime emerging.

    But with all of this burdening toxic debt and the probability that this is a crash and not a severe recession (why are people still debating that?) Labour can only spin this out for a few months.

    Then it becomes clear that we are heading for a long slump lasting probably years.

    But because of the skewed political factors once that becomes clear perhaps a new regulatory regime will emerge (go Barak, go Barak) and then confidence will start to return.

    So in my world if we had politicians (including Tories and Lib Dems) who set to identifying all mistakes and rectifying them apolitically we would be ahead of the curve.

    Instead there is always the possibility that we get political meltdown and global instability as we head into a climate-changing future.

    Excellent. The Iron Chancellor. The man who can't put a book down - sadly its the cheque book and its money wasted on VAT stimulation at the wrong time.

  • Comment number 41.

    “Owners of capital will stimulate working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable.

    The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and State will have to take the road which will eventually lead to communism.”

    — Karl Marx, 1867

  • Comment number 42.

    The situation now in the Globe is so similar to the 1920s it is worrying.

    Replace 1920s Britain with the 2000 US and 1920s America with 2000 China and the parallels are uncanny.

    Massive increases in the money supply in 20s US and 00s China, British pound used as a reserve currency and artificially high in value, ditto today's dollar.

    In 20s terms Britain had few savings, a large and increasing national debt and was being financed by the rest of the world - primarily America. Not so dissimilar to 00s: America with few savings and high and rising national debt being financed by the rest of the world - primarily China.

    Add to this the fact that China money supply has gone through the roof (like 20s America).

    China is heading for a mighty fall (Dow fell by 90% in the 30s and GDP by 40%). The trouble is with globalisation an awful lot more countries will be hit by the fallout of this.

    Creating bad banks, slashing interest rates and every other fix foistered upon the system will not work. The New Deal didn't work - the US had another recession in '37 and the Dow didn't begin trading above 1929 highs (consistently) until 1954 - 22 years AFTER Roosevelt was elected.

    What the governments are doing is akin to stopping a volcano from erupting with the worlds most expensive fire blanket.

    $14 trillion of future wealth spent and she's still gonna blow.

  • Comment number 43.

    #11
    ENOUGH IS ENOUGH JUST NATIONALISE THEM ALL AND GET IT OVER WITH.

    I agree.

    The system is now unworkable. It is now clear the level of government intervention in banks once this is over will be at such a level that there will be a 2 tier system.

    Government banks
    Which will have to act in a morally responsible way or risk getting the governbment of the day thrown out.

    Commercial banks
    Which will never be able to compete with the government banks on a level playing field after this massive systemic failure.

    Free market capitalism in the banking industry HAS FAILED.

    Properly regulated it may have had a chance, but human greed will always find a way through eventually to corrupt the system. As has been said before '' capitalism holds within it the seeds of its own destruction'' That goes double free market capitalism in banking.

    There is another good reason to nationalise the banks. That way the people may have a chance at seeing some justice being done for thier suffering.

    The greedy bankers whom have bestowed this catastrophy upon the people through personal greed (there is a lot of real suffering out there at the moment and much more to come) will have thier salaries slashed thier bonuses revoked (hopefully retrospectively) and thier future salaries worked out on the basis of what VALUE they bring to society.

    No doubt they will continue to be paid well but not to the sickening levels of before.

    It is not communism, it is just a realisation that for banking, human nature on an individual or an institutional basis can not be trusted to keep greed under control. Only banks responsible to the people via democracy can now do that.

    Lets get on with it and have done with it.

    Jericoa


  • Comment number 44.

    "So what are the interim measures that governments can take, to keep banks afloat and stave off full nationalisation?"

    I'm with blefuscu and 25_and_no_hope.
    Robert, you continue to assume that full nationalisation is to be avoided. Why? You never attempt to answer this question. I guess it's fundamentally a religious matter: capitalism itself remains beyond question.

  • Comment number 45.

    Another awfully written and utterly misleading blog from the BBC's resident 'it's all an organic economic cycle' merchant.

    This is a manufactured economic crisis, just like every economic crisis since the birth of central banking. Look at who owns the banks where the 'crisis' first started, and who owns the banks that have had their takeovers of failing banks underwritten by the taxpayers. They brought this about for profit and control. Same story, different day. I can't write their names here because there's no way the BBC would publish this post if I did, but they aren't hard to track down.

    Financial assets do not become 'radioactive', either literally or metaphorically, but in using naturalistic metaphors Peston upholds this same view of an economy where no one is ultimately in control.

    As to starting a sentence with 'Because' - this is elementary stuff Robert, and just because half of this country is illiterate doesn't mean you as a senior journalists can just shrug your shoulders and write whatever you please.

  • Comment number 46.

    Robert

    Has anyone addressed the issue of prison for the culpable and reckless bankers who put us in this mess. It is not rocket science to get/subpoena the banks for lists of the idiots who are responsible. No doubt they have salted their assets away or the assets will have declined in value so no way to recover the excessive bonuses/salaries. Therefore prison it is. Even Osama didn't manage to wreck the world financial system at 9/11 and he will end up in prison or dead. What about the bankers?

  • Comment number 47.

    I thought you meant 'septic' as in cockney rhyming slang!

    'Septic tank' = yank

  • Comment number 48.

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

  • Comment number 49.

    'Toxic'...'radioactive'...'septic' are terms that stir up emotions almost at visceral level.

    ....your constant use of hyperbole Mr Peston may make for readable journalism BUT it may also add to a further deterioration of confidence amongst the general public .

    The assets are 'compromised'. Many if not most of them are yielding some kind of income are they not ?

    Confidence and trust are being eroded by events . Why then try to destroy them completely with awful, unbalanced. almost vindictive vocabulary ?

  • Comment number 50.

    #12

    'It is now time to send in the auditors and gather evidence.'

    I agree with your need for some 'blame' and pain to be felt by those responsible but its going to be like buying a kitchen from someone who gets subcontractors in to fit it - when something goes wrong the fitters say its not made right and the kitchen maker says it wasn't fitted properly.

    Also auditors aren't really very good at pointing fingers anyway - they're best at big bills & cosying up to the people who pay them!

  • Comment number 51.

    I was against the idea of nationalisation but I have now concluded that it is the only way. The alternative is the tax payer being left with the bill whilst the banks continue on their merry way. Ultimately I want the banks to be independent but not at the expense of paying their dues. The impossibility of valuing their dues makes nationalisation inevitable. This will take a decade to play out.

  • Comment number 52.

    I was pointing out all these problems

    eight/nine years ago ie:INSOLVENCY.

    When will the UK wake up and prosecute those who are responsible.

    WILL IT BE WHEN THE CASH

    MACHINES PACK UP OR WHEN THERES

    NO FOOD IN THE SHOPS?????????????

  • Comment number 53.

    The importance of banks is being blown out of all proportion. For thousands of years businesses thrived without banks. Indeed banks were only created as a safer place to put savings than under the bed.

    People and businesses saved before they spent. If a short term cash requirement existed they borrowed from friends. Our current problems have come from people finding it easier to make money from manipulating it or betting than through manufacture or agriculture.

    Build an effective real economy and the banks will become unimportant. If we had put the taxpayer funds we spent on the banks into improving our business infrastructure we would now be outcompeting the world and setting foundations for exceptional and sustained future growth.

    Gordon - No more wasting of our money on subsidising gambling by our banks!

  • Comment number 54.

    22 spur22

    Quite - in what way does this encourage customer demand. Some of these business may even see boycotting.

  • Comment number 55.

    I give up........

    I got a bit of money, I was careful... take it all Gordon and buy your votes.........

    Then bend me over and finish the job properly!!!!!!!!!!!!!!

  • Comment number 56.

    Robert,

    The bad bank will one day become a reality though the extent to which it will be beneficial to the public is debatable. It will however enable banks and building societies to fund the repositioning of liquidity portfolios as they will be required to do under FSA rules, currently under consultation (see CP08/22), from October this year. In short a part of this new section of regulation is to force banks to hold a larger amount of highly liquid, highly rated government debt to enable them to survive a Northern Rock type scenario without the need to approach the Bank of England.

    Any thoughts that this cash will stimulate lending to the public is ill-conceived. Rather, it guarantees the government a whole number of willing buyers of its own debt at a time that the government needs them most. The cost of this is such (and the FSA acknowledge as much in the document) that the cost to borrowers will increase and returns on savings decrease as banks and building societies seek to protect margin. It's likely also to be the straw that breaks the camel's back amongst many of our smaller building societies who are already suffering to pay the FSCS levy.

  • Comment number 57.

    theres nothing wrong with superficial spin
    it's been going on since the beginning of time
    but how will this help the skint tax payers
    unless you bribe us with a several grand

  • Comment number 58.

    "4. At 12:14pm on 16 Jan 2009, Steep1 wrote:

    a) There must be a point at which the tax payer cannot pay these debts.

    d) Why has the stock market ignoring these events?"

    How much money can the government print?

    Ask Zimbabweans...

    The stock market is... a device for capturing the inflation caused when governments and banks inflate the supply of money.

  • Comment number 59.

    It occurs to me that if so many businesses are likely to go bust soom and so many of us about to end up unemployed, how come we keep getting told that "taxpayers will fund this, taxpayers will bail-out that, taxpayers will underwrite the other ..."?

    Since the few remaining taxpayers left in the UK will almost certainly end up being those employed in Gordon Brown's monstrously bloated and untouchable public sector, doesn't all this end up being funny money? Because those taxpaying, public sector workers are themselves being funded by, er, taxpayers.

    This is doing my head in.

  • Comment number 60.

    This is all becoming a pointless waste of time and money. They should have just nationalised all the banking system at the start.


    If I were running a bank then I would want to exaggerate my position downwards and over-play how much trouble I'm getting into, because if I can convince enough people then I will get a bailout form the Government - which will turn into a competitive advantage over those banks who did not get funding. I think Citi are about to make the same move - but cleverly offloading the bad debt whilst still getting public assistance.

    The reason is because once you have received funding then the Government isn't going to let you fail and loose the money it gave you.

    The other banks will not be so lucky.

    The moral hazard is upside down at the moment. When you step back and look at it then you can start to see the madness.

    This is reflected in both the banking system and the wider economy. Prudent people and prudent banks (like HSBC) will be penalised in the long term - where as the risk takers will be rewarded, thereby encouraging more risk taking in the future (contrary to Government spin about clamping down on the risk takers).

    All that clap-trap about the Government taking the lead at the banks is complete nonsense. Look how the rate cuts are not being passed on by banks - even though the Government "has had strong words" on several occassions. The Bankers don't care what the Government say - they never have. The ONLY thing that bankers fear is tighter regulation - which is why you can hear the murmours of "stifling growth" and "restricting profit" already.

    If you want a quick and simple explanation - look at Aesop's fable, the hare and the tortoise. This is more true today than it's ever been - and it's now ingrained into our society.

    The exception in this case is the Government are trying to cheat to make the Hare win. It failed in trying to boost the Hares chances (with bailouts) - so now it's actions are effectively penalising the Tortoises.

    The reality is that the Hare never wins - even though it thinks it's winning for much of the race.
    The fable is rooted in our society and applies to most aspects of our lives.


    Hare vs Tortoise
    Celebrity vs Education
    U.S. vs China (until China started becoming a Hare)
    Large borrowers vs Prudent Savers
    HBOS vs HSBC
    Hedge Funds vs Traditional investments
    Capitalism vs Communism

    ...the last one is the fundamental driver for us all being hares.

    Once we have a few years of negative Growth - would the boom have been worth it?
    Surely it would be better to have steadily grown over the last 10 years and not have to suffer this national devaluation.

  • Comment number 61.

    We are already past the point of no return. INFLATION is the now the only 'solution'. We need to get up to at least 20% in order to evaporate a sizeable proportion of the debt now crippling western economies.

    After two or three years of high inflation the problem might become manageable, but certainly the years of western high growth and consumption based on illusory wealth are most assuredly OVER AND OUT.

  • Comment number 62.

    The one thing which is becoming abundantly clear right now is that a putative recovery after June, always highly improbable, is becoming ever more of a pipe-dream.

    Just one example comes from the IEA, which has halved its 2009 global growth assumption and slashed its projection for oil consumption. Industries are crashing as we watch.

    It was interesting that, when put on the spot by Cameron, GB pointedly refused to repeat an economic forecast issued in the PBR just a few weeks ago. Is the govt likely to recalibrate its financing assumptions based on a more realistic economic scenario, and what would forward borrowing assumptions look like under such a scenario?

    My view is that recovery cannot start until asset prices hit bottom, giving people reasonable confidence to go out and buy. For me, this means the FTSE at maybe 3500 and average houses prices at perhaps GBP 110k. The sooner we get there, the sooner we can get on with reconstruction.

  • Comment number 63.

    "Suffice to say for now that a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years."

    Robert - why is this even being suggested as a solution.

    The taxpayer may as well pick up the toxic debts and absorb them because all the banks will do for thenext 10 years is squeeze us harder and harder to earn the capital to pay off the leases.

    Option a - you pay
    Option b - you pay.

    Either way YOU PAY!

    Work it out people, the only place the banks will get the money from to fill the debt holes is from you and me - one way or another.

    When I rode past the houses of Parliment this morning my heart skipped a beat as I thought they were on fire - sadly it was just steam created by some works being done there at the moment....

    For all those who get repossessed - take yourself down to parliment square and move in with Brian Haws - when there are 60,000 people living on Parliment square then I think the Government wil get the message.

  • Comment number 64.

    46. tonyparksrun:

    "Has anyone addressed the issue of prison for the culpable and reckless bankers who put us in this mess".

    Good point, but it will not happen, for one very simple reason. You would have to move on to include "culpable and reckless regulators" and, after that, "culpable and reckless government ministers".

    The bankers are a sort of "human shield" for regulators and politicians. So it seems pretty unlikely, unfortunately.

  • Comment number 65.

    MAYBE

    A better more simple option than a septic bank would be. Set asside that debt and banking to one side in EXISTING Sterling Dollars Euros etc .

    And Create new currencies

    SterlingX

    DollarX

    EuroX

    Etc

    Then run a new parallel global economy with new rules whilst unwinding the old economy with an exchange ration betwee the old and new currency.



    NOW that would be an interesting way to go into a NEW global financial world.



    It has it has been done before has it Not?


  • Comment number 66.

    Once upon a time in America there was a depression in some ways caused by among other things a banking and stock market crisis.

    As part of the recovery process a piece of legislation called the Glass Steagall act was passed. Its purpose, in simple terms, was to prevent retail banks investing in other financial institutions. An investment bank was a type of other financial institution.

    Effectively Glass Steagall was repealed and that allowed a real blurring of banking and other financial activities and allowed retail and wholesale bankers to get into bed together. The progeny were truly horrendous and kept secret. What we are now seeing is the progeny let loose.

    The derivatives markets were expanded to the point where only a computer could perform the necessary calculations quickly enough and the computer was only as good as the analysts and the programmers working on behalf of the banker Quants.

    The opportunity to nip this in the bud came when the Nobel Prize winners of long term capital markets LTCM hedge fund were found to be badly wrong and their fund should have failed. Unfortunately, the fund had such huge positions it was considered too big to fail because of the perceived systemic risk.

    If one lesson and one lesson only comes out of this debacle it should be to allow the failures at the outset. If LTCM had failed, I very much doubt the edifice would have fallen and we would certainly have been much better off now.

    If the state is to take these assets (I suggest liabilities might be a better term though inaccurate from an accounting perspective) then they should be valued on a fair value rather than a mark to market basis. If a fair value cannot be calculated, then legislation to allow the CDOs to be broken up into their constituent parts on a compulsory purchase basis should be passed. The underlying mortgages can be run off through the nationalised banks and ex building societies and the real horror stories taken into possession and sold to local authorities and housing associations to house the people who should never have been gulled into buying.

  • Comment number 67.

    This is silly. The bad loans should be sold off for whatever can be recovered for them to professional debt collectors.

  • Comment number 68.

    #52 - my bet - when the cash machines stop working.

    Nothing like standing in the rain in front of an empty bank to turn dissapointment into anger.

  • Comment number 69.

    FOR ALL THOSE WHO REALISE THE GAME IS UP.

    ...and that capitalism is dead, you can speed up the process by doign EXACTLY THE OPPOSITE OF WHAT THE GOVERNMENT TELLS YOU.

    Don't spend, don't invest and don't worry about it.

    The Government wants as many people as possible to sacrifice themselves to generations of slavery in order to keep the economy going.

    Don't do it - you will survive, we all will. It will be the ministers, civil servants and bankers that won't be able to handle it in the real world.

    The surplus value of the worker is coming back home. The rich have stolen it for centuries but they can never own it, they can never fully control it - it will never be theirs.

  • Comment number 70.

    Create a bank of mum & dad. A real one that competes with the septic banks we all know and hate. Put 50% of the value of fully-owned (paid off) property into the bank and borrow at bank rate (soon to be 0% for the septics). Lend at rates which compete head on with the septics and force them to get rid of their crap rather than going round again with taxpayer's money on the money-go-round.

  • Comment number 71.

    The best solution would be to pass a law that requires all financial institutions trading in the UK to publish their liabilities. People could then see where the risks were, where they weren't, and thus trade reasonably confidently. The problem is they don't know their liabilities - instruments like CDOs were explicitly designed to hide them.

    There is a solution at the housing market level, and it nicely punishes the two parties at fault - the mortgager who took out a debt they did not reasonably believe they could repay, and the morgagee who gave them the money recklessly.

    When somebody defaults on a mortgage issued to a bank that has taken Gov handouts the property reverts to the Govs possession. The Gov lend the property to the relevant Local Authoritys housing ALMO who promptly evict the previous owner, put them in empty (i.e. unpopular) Council housing, and allow existing Council tenants with good standing to apply to have the repossessed house as their Council house. The rent goes to the LA. It can be ringfenced for housing or supporting local small businesses.

    When the house is sold the amount raised would go to Central Gov. Given that you don't get a Right to Buy for a few years it would give house prices time to recover, increasing Govs chances of making some decent money back.

  • Comment number 72.

    This is all a dream RIGHT ?

    All this isn't really happening is it ?

    This is like the MATRIX only a Banking ONE ?




    zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz



  • Comment number 73.

    No doubt some or most FT350 deserve some help. How about the masses who are more vulnerable, with less resources, cannot pass on costs, cannot and will not intimidate governments and politicians, do not employ skillful and well networked lobbyists.

    In December 2008, Pope Benedict points to estimates that the global fiscal deficit caused by offshore activities could amount to a staggering US $255bn (much higher by other estimates). There msut be many $trillions sitting in tax havens.

    Over the years how much of those money were lend to legitimate businesses and people around the globe?

    How much of those many $trillions are from ill gotten gains (crime, corruption fraud, Madoff'ed) compounded over the years laundered through and protect by tax havens? These must be returned.

    How much of those many $trillions are extra money (bonuses) make by people who put us in such dire situation? These should be contributed into a 30-50 year "financial war-bond", like during the war.

    How much of those many $trillions are tax savings enjoyed by ex-doms which makes millions and billions from businesses in this country? Ther is still $1million to be collected from Warren who offered the prize (in 2007?) those in a charity dinner who pays more or equal taxes, in %, than their secretary/secretaries. The differenes should be lend to us in a 50-100 year "Goodwill bond"

    It is possible that many countries can pay off their debt in one simple stroke?

    "Why should the victims of robbery get victimised again by paying for the luxuries of the robbers?"

  • Comment number 74.

    My comments about auditors seem to have been misunderstood.

    I mean those forensic guys who audit for fraud not the children sent out by the big city firms. HMRE also has some auditors who are very tasty at following the money.

    Time to kick a few doors in!

    Speaking as a taxpayer I want my money back and if I can't have it back I want there to be public humiliations, careers destroyed and the greedy bankrupted.

    Cynicism is no longer enough. Justice and integrity must rule.

  • Comment number 75.

    We trusted banks with our money because we thought they at least understood about prudential lending. Was it greed or incompetence that led us to this? Either way we then discovered that regulatory and audit professionals failed big time to blow the whistle on basic and visible failures in governance. Now we are bystanders while governments throw petrol on the flames. Every debt has its price but we seem unable to understand that and as the pack of cards is piled higher, the whole wobbly edifice looks increasingly shaky. Exaggeration? I think not.

  • Comment number 76.

    #43
    Greed corrupts so the answer is nationalisation. So there is no greed in our public sector?

    Digby Jones put it beautifully yesterday and Public Sector ownership has been totally discredited as a way of running anything - ask your postman!

    If we want our banks to not care about commerce, run the thing as a cozy cartel to benefit them and have twice the staff producing half the result then nationalise them - it's only our money, after all!

  • Comment number 77.

    Unpalatable as the concept may be to some the only way to draw a line under this issue is to put all the toxic waste peddled by Merrills, Goldmans etc etc into a special vehicle in order to unblock the system. In doing this we will get an idea of what everybody has been sooooo concerned about. I am sure the old addeage one man's toxic waste is another's treasure will again hold true and the vultures will surely flock to the rotting pile as gulls do to a household waste site. Once it has been picked over, the really toxic stuff might well be left but even in time that too will find a home. The markets will unlock and I still hope that some of the idiotic acccounting principles at the centre of this chaos will be given a proper seeing to. The time for retribution will come so it is probably time to begin lining up some of the culprits such as the remaining investment banks and their erstwhile chums the rating agencies, who classified the very same waste as "investment grade" a necessity for it to be flogged on to our banks, are now busily downgrading countries such as Italy and Spain. Perhaps the BOE and the FSA also need to be overhauled. Going around in circles will get us nowhere. Its time to don the marigolds and get to work

  • Comment number 78.

    43 jericoa

    '' capitalism holds within it the seeds of its own destruction''

    More K Marx than usual on here today. Am I seeing a gradual concensus that he was in many ways right?

    I am not surprised, but he was always better at analysing the nature and working of the nation-state and global capitalism than he was at suggesting how people should organise themselves after the demise of these structures.

    Hey ho!

  • Comment number 79.

    It's a real shame this blog isn't searchable and there's no way to follow replies and links from one user to another.

    Would make it much more fun.


    Come on BBC pull your chequebook out.

  • Comment number 80.

    45. At 1:19pm on 16 Jan 2009, saintgoingmarching3

    Yes, these institutions queueing up for aid didn't know anything about their toxicity.

    I had thought that Ignorance was no defence in law,

  • Comment number 81.

    First post here, and it may be a silly question, but what did people do with their savings when interest rates were at 2 percent from the 1930s until the 1950s?

  • Comment number 82.

    Following on from #27

    In order to raise taxes HMG need to ensure there is enough receipts to be able to increase them to cover their bets over the next forty years.

    With the retail sector alone responsible for 40% of the 20+million jobs in the UK at the moment and with only 1 job in every 10 being castaway to save money ( a very big under-estimate) that is just under 2 million lost jobs alone! Is it not time to accept and divulge that unemployment in the UK alone will hit 4 million, maybe 5 as this pans out?

    Banks a lot !

  • Comment number 83.

    It's incredible the power some contributors think Robert and other journalists have. If he was only to say, "Everything's fine" it would be. What else could he do with just a few positive words? Create peace in the Middle East? Resolve the economic situation in Zimbabwe? Reverse gravity?

    No - like objects fall to Earth because of gravity - debts have to be repaid. We will collectively be repaying them for some time to come. Information is power in these difficult times and I come here to understand more. Robert does a good job of explaining. Hopefully that will enable me (and us educated readers) to avoid the worst of this crisis. And have some money left so that we can be the leaders of the next upturn when it happens.

  • Comment number 84.

    'Bank of America did the world a favour by acquiring Merrill Lynch last autumn'

    ????

    Procrastination is the thief of time.

  • Comment number 85.

    At 12:41pm on 16 Jan 2009, Bell_4_Goalie wrote:

    Can anyone answer these most basic of questions, please. Sorry if they are naive, but I genuinely don't understand:

    Q1. Why is the taxpayer acting as an insurance company? What is wrong with businesses using proper insurance firms for this purpose?

    Answer - Bad loans were mixed up with good loans and sold on by banks to each other. The people who bought the mix don't know how much bad loan is in the asset. This means no-one wants to insure against default on these assets, as they can't quantify the liability. The value of these mixed assets is falling, as more bad debts arise because of the recession, which makes it all worse.

    Q2. Are all these measures permanent, or just temporary until 'normality' resumes.

    Answer - They are designed to be temporary, to bridge the gap caused by falling asset values. However, the problem is so serious that the measures could end up being permanent.

    Q3. Rather than the Bank of England lending money to banks, to lend to us, why does the BoE not lend directly to us. Why not change all branches of Northern Rock, RBS, HBOS etc into high street branches of BoE. Cut out the middle man.

    Answer - A State Bank is one idea, but it would involve moving all the deposits and good assets out of the banks you mention. The banks mentioned would be left with only toxic assets, and would then be declared bankrupt. This would upset their creditors and shareholders, who would lose vast amounts of money.

    Q4. Presumably the government would only consider a 'Royal Sceptic Bank' if it thought it could make money out of the toxic debts. If the govt can, why can't the normal banks.

    Answer - the government will lose money by underwriting bad debts. The idea is the banks would eventually pay these losses back to the government out of the profits the banks make in the future.

    Q5. If the whole banking mess turns out not to be as bad as currently thought, will the banks actually sudeenly be sitting pretty and set to make HUGE profits?

    Answer - the banks you mention would be bankrupt but for the government propping them up with taxpayers' money. Therefore, the crisis is real. The hope is the banks will make profits in the future and then repay the government.

    Q6. As unlikely as it is, if the bail-outs fail totally, the consequences to the national economy are simply huge. Do we have a plan for this scenario?

    Answer - if the bail-outs fail, the outcome will be another great depression, as experienced by America in the 1930s. This time it will affect the whole world. Britain was able to survive in the 1930s because the British empire kept our trade open. I read somewhere that the USA's economy shrank by 30% in the 1930s, but Britain's only shrank by 5%. This time round the whole world economy is at stake.

  • Comment number 86.

    Advice please. I have a few thousand I want to invest. My bank thinks I should put it into one of their schemes. Would this be sensible?

  • Comment number 87.

    One of the big problems was that commercial debt raters, like Standard and Poor , were classifying what should have been rubbish which was packaged and repackaged ,as AAA ,and when the loans defaulted, a total loss of faith ensued and the debt was unsellable.
    What if there was a new quango which rated debts independently , for a fee, and covered with it an insurance premium for a rating giving as near-accurate default rate maximum?
    Then if that quango's insurance could be underwritten by the government, which would pay out if the default rate exceeded the predicted rate?
    Would this not allow the loans to be sold on?


    Is this what the government are trying to do already?

  • Comment number 88.

    #81
    I think they were worrying more about being bombed than the performance of their savings.

  • Comment number 89.

    Over the last 4 months, huge amounts of capital flew into 3 month t-bills. 'Investors' were prepared to accept virtually no yield to ring fence the capital. Additonal capital flew into longer term bills and notes where the yield is higher.

    Why, because these types of 'investment' are amongst the few where you can guarantee that you will get bigs sums of money back.

    Some of this capital was cash that corporations had at hand. For example, there is a small technology company that raised $30m in the markets in September. Where did they deposit this capital, do you think. Any sound treasury management team would have an investment ladder in t-bills that will release capital as required. This outfit has a strong order book by the way.

    Where do you think the 7bn that crossed the Atlantic in the week before Lehman's collapsed went? Under the bed?

    When sterling went into freefall against the dollar, when interest rates here were slashed, what do you think happened to capital moved to the UK. It got moved. Why because the losses on currency movements were bigger than the loss of selling up

    Anyway, it is one of the reasons the dollar strengthened.

    Some of this capital will become available again. Some investors might consider that the risks of depositing elsewhere have diminished (joke) or that the rewards from buying corporate bonds or shares outweighs the risk. Some business might not be considered viable enough so why would more cash be poured down a black hole

    You could consider it fortunate that, so much government debt is going to be issued across the world that the yields will be neglible and just maybe those with a job to do will seek other vehicles the tbills, tnotes and gilts to make a return.

  • Comment number 90.

    With due deference and apologies to others who have posted similarly to RP's blogs recently:



    Gave a man a fish, and you feed him for a day

    Teach a man to fish, and you feed him for a lifetime

    Buy his future fishing rights from him, and you give him a year of party and plenty, followed by a lifetime of slavery to you.




    We are borrowing now from overseas (all the funny money must come from somewhere - we have to pay for all our imports).
    And we are enslaving our children for their lifetime, solely for today's comfort of an extra few months saved from crash.



  • Comment number 91.

    I am getting really, really bored with this now.

    Finance & economics have always been of great interest to me but I'm tired of the shimmy-shammying and the steaming pile we're being force fed. ‘FUBAR’: What a great definition for the current situation.

    We're transfixed by each and every development, every collapsing business, every Government statement and every comment written. There are oh-so-many experts but 99.99% of people have absolutely no idea what they're talking about. On top of that, most if not all of the politicians and financial experts are fumbling around in the dark, plainly and obviously guessing what to do next: £12b here, £20b there, £6b to bail out the UK’s jelly-makers, £10t for this type of gobble-de-gook financial investment, £14t for A.N.Other gobble-de-gook finance structure.

    If anyone actually KNEW the true solution, then it would have been actioned long ago. Instead we get a drip-drip-drip of mini-catastrophes’ reported to us daily and the boundaries of what we are being told must be done are being widened at about the same rate.

    I have been concerned about the reality of long-term, full-blown capitalism for about 15 years now but couldn’t see anything happening on a big enough scale to encourage real and honest change at a global level.

    The system we have is rotten and it NEEDS to collapse so that it can be replaced. The practical and sustainable national/global system we should have will probably necessitate a total collapse of the old and impractical system currently in operation. Whether that system includes what we know as ‘Money’ remains to be seen. Without doubt, an enormous number of successful firms, business people, individuals and families would survive the journey quite happily.

    Now I am not, for one minute, suggesting that I know exactly what system we should use - But I am suggesting that the one we have is wrong and no amount of glue or silly-putty is going to make it right.

    I’ve recently come to think that this should be a great opportunity to make things so much better but I’m not seeing the brave first step that needs to be taken. There’s no real initiative to improve the system and we’re just going to keep feeding the beast with more cash.

    So…that is why I’m now bored with this ‘Story’.

    Shame really.

  • Comment number 92.

    My concern and judging by the turnout figures for local and general elections is that the people have only apathy for our elected leaders- to my eye there is little difference between the 2 parties today-whereas in the eighties there were polar differences .Unfortunately there were no Choice- Red or Blue.
    A case for proportional representation?

    What is startling however is the lack of leadership in the opposition- can you imagine maggie not spitting fire at the opposition with the ammunition available- calling for explanations/elections etc.

    The current government are out of their depth and I suggest the opposition would be as well.

    Labour came into power by virtue of a bored electorate and were lucky to have the finances relatively in shape- they then spent the following years spending the proceeds on increasing the public sector- not addressing the wages/pension time bomb/adopting the canadian tax credit/working family tax credit scheme(if you want a laugh go to the web site and see how much a single person with 2 kids gets who is working 21 hours gets with an income of 8,000- an incentive to a) live apart and b) not work any more than 21 hours)

    The point being that even if the financial crisis had not reared its head the country would still be up XXXX Street and that the crisis is a welcome diversion to labour.

    The Tories without any credible leaders are not making hay cos they inturn would not have a clue what to do and if pushed into an election would make an even bigger balls up than labour.

    I suggest that the collective minds on this blog pool any real ideas/working plans and see what can be done to resolve the mess we are in- regardless of political standing

    This crisis will not go away without some radical thinking.


  • Comment number 93.

    Why not just buy folks homes (who are in trouble) then rent them back to them?

    Am I missing something?


    Its the problem with asset price falls that causing all the trouble, stop this and the folk who are left WILL spend!

  • Comment number 94.

    Regardless of what many others might say about Robert Preston's style and content when reporting on the credit crunch I believe he has and still is, doing a good job. He was one of the first reporters to raise the publics awareness about the turmoil that is now affecting global finacial markets and how this would damage economies around the world.

    Since then his updates on how the situation has steadidly deteriorated and his prdictions on how things might deteriorate even further, have been surprisingly accurate and well founded (sometimes worryingly so) and that clearly demonstrates that his sources of information are particuarly well connected.
    So to those of you who don't like what he espouses I can only say, don't shoot the messenger because you don't like the message.

    It is now becoming increasingly evident, to us lesser mortals, that this situation is far more serious than we could ever have imagined and were initially led to believe by our government. Also because the level of deciet (some might more kindly say denial) in the finacial markets went undetected for so many years the problem of trying to establish which banks and businesses are truly creditworthy will take many years for us to find out, if we ever do.

    In the meantime the best that all governments around the world can to is try and keep the wheels turning by whatever means they have available at their disposal, until they can establish where the bottom line, in this matter, might be. The only worry that I have with such an approach is that politicians can be as reckless as greedy bankers when it comes spending taxpayer's money.

    Unfortunately because there is no one size fits all soultions to this matter individual governments and central banks will modify their approaches accordingly. There does however seem to be a broad concensus between the various governments as to the best way forward and all we can now do is to be more patient and wait to see what happens.

    On the subject of a National Septic Bank (should that read sceptic) it would be neat and tidy if we could put all the nastiness in one box but for a whole number of reasons Ithat might just not be possible.


  • Comment number 95.

    79. At 2:22pm on 16 Jan 2009, the1beard wrote:

    It's a real shame this blog isn't searchable

    ---

    Try Alt+E+F on your keyboard - just a suggestion, it works for me.

    There are always certain people on here that I look out for - the usual suspects, such as AlexCurzon, Rahere, MorayMint, VirtualSilverLady, WakeUpBritain, GuyCroft, GrimUpNorth... to name but a few.

    Speaking of usual suspects, has that SomaliPirate gone back to work? Haven't seen him around these parts for a couple of days

    PS: I agree with your other point about following certain 'discussions' between posters - would be a useful feature




  • Comment number 96.

    15. At 12:35pm on 16 Jan 2009, onward-ho wrote:

    At least our government are doing what it takes to weather this storm.

    ---

    Please, please, please tell me you are being sarcastic with that last sentence!!!!!!!!

  • Comment number 97.

    "Digby Jones put it beautifully yesterday and Public Sector ownership has been totally discredited as a way of running anything - ask your postman!" - PewterJ42

    Digby Jones came out with the usual business-bilge about the public sector, and your postman will likely point out that the Post Office's problems are mostly down to allowing the private sector to cherry-pick the profitable parts of the business while the PO does the actual delivery for them at knock-down prices.

  • Comment number 98.

    Maybe the Treasury bills in the swap for motgages shouldn't be called "easy to sell" but "not as easy to sell as they were"---after Germany failed to get it's debt away.... once we push the debt out onto the market we'll see whether it's "easy to sell".. "not as easy to sell" or ...hopefully not.... "really quite hard to sell"

    Or is our debt just so much more attractive than German Govt Debt???

  • Comment number 99.

    86. At 2:53pm on 16 Jan 2009, credit-crunchy wrote:
    Advice please. I have a few thousand I want to invest. My bank thinks I should put it into one of their schemes. Would this be sensible?

    Since your tongue is firmly in your cheek, I would invest in some cosmetic dentistry. No, seriously. I reckon that decorative gold fillings are a proper portable pension....

  • Comment number 100.

    86. credit-crunchy:

    "Advice please. I have a few thousand I want to invest. My bank thinks I should put it into one of their schemes. Would this be sensible?"

    Depends which bank it is.

 

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