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Rio, China and British investors

Robert Peston | 11:10 UK time, Thursday, 12 February 2009

Are there greater hypocrites in the world than British institutional investors?

These days, they bellyache about the excessive risks that were being run by big companies in the boom years.

They've put irresistible pressure on banks to raise regulatory capital and on other big companies to pay down debt.

Which is fine and dandy but long overdue - a closing of stable doors after more or less every horse has galloped over the horizon.

Lest we forget, it was these same shareholders who less than two years ago were putting extreme pressure on companies to gear up, to increase borrowings, to take advantage of the availability of cheap plentiful debt for takeovers and to finance buybacks of shares.

If Royal Bank of Scotland and HBOS were recklessly lending a massive multiple of capital resources - as no one today can possibly deny - they were doing so for years in the full view of their owners, who said thanks for the dividends and rarely asked whether the dividends were sustainable.

And here's the tragedy. Those owners were us - the millions of British people saving for a pension, who innocently mandated a bunch of numpties at investment institutions to look after our retirement savings.

These investment institutions were supposed to ensure that the big companies in which we're invested serve our interests - instead of which they encouraged these companies to maximise short-term profits regardless of whether the future was being dangerously mortgaged to the hilt.

To call this a failure of corporate governance is the equivalent of describing the second world war as a breakdown of diplomatic relations between Britain and Germany.

Iron ore mineWhich brings me to today's historic investment of $19.5bn by Chinalco - a giant Chinese resources group - in Rio, the metals and minerals group.

Doubtless we'll hear carping from the investment institutions that Rio is selling at an inopportune down-phase of the commodity cycle and that it's flogging too much influence over its affairs to a minority investor.

But there is another way of seeing this deal.

Rio is securing a 60-year loan from the Chinese.

It's selling a right to buy its shares in the future at a massive premium to the prevailing share price.

And Rio is forming partnerships with Chinalco in individual mines - which should bring in new Chinese customers and help with the development of new mines in China's growing sphere of influence throughout the emerging economies.

Of course Chinalco's investment can be seen as another worrying manifestation of how economic and financial power has shifted from west to east.

But if that's happening, it's in part because the Chinese are prepared to invest for the long term to create sustainable enterprises.

And can Rio's board be blamed if - under pressure from its existing shareholders to pay down borrowings - it concludes that it's in the interest of all its owners (whether they acknowedge it or not) to lock in a relationship with a Chinese business and a Chinese economy which commit their capital for the rewards that may come in ten years, not ten minutes?

Comments

Page 1 of 3

  • Comment number 1.

    and you can be sure that CEO's of top chinese companies are not a bunch of unqualified or underqualifed lightweights
    i.e. John Varley who is a solicitor with no banking, finance or accounting qualifications in charge of barclays...

  • Comment number 2.

    It's a shame it does not work both ways as equal trading partners
    A British Company having 50% interest in a Chinese Company
    as well as
    A Chinese Company having 50% interest in a British Company
    i.e. Global Mergers for Global Trading (No Sell Outs)

  • Comment number 3.

    A colleague once told me that if every country in the world had the same standard of living as the British, we would need 3 planets to provide all the natural resources required. I don't know if this is accurate, but I do think that as other nations increase their wealth, Britain's wealth will diminish.

    Wealth is moving from the West to Asia. I don't think Asia is going to take over the world, but history tells us that Britain's world dominance has declined, Europe's also, and now the USA's economic influence is falling. The wealth of nations is being evened out.

  • Comment number 4.

    your best post for a long long time robert.
    I agree on both points. But can we explore the first one a little more for a start - fund managers seem to have got off scott free from all this mess, despite the fact that their herd-like behaviour and short term focus on shareholder value (ie profits) was instrumental in blowing up the bubble.
    And why? Because they got massive annual bonuses, based on discrete annual performance. Sometimes this means beating the index or peer group average (hence herd like behaviour most of the time) OR hitting the top quartile, which means taking massive risks.
    Massive bonuses based solely on short termism, without a thought to the long term consequences of their actions. Sound familiar at all? The fund managers and the bankers were all in this together, laughing as they went along.

  • Comment number 5.

    The man looked into the mirror and said "Mirror Mirror on the way, who is to blame for this fall?"

    And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! A Banker", he said "I knew it!".

    The man was thought for a while and said to himself "But surely the Bankers couldn't have done it all by themselves". And so he returned to the mirror

    "Mirror Mirror on the way, who is to blame for this fall?"

    And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! The FSA", he said "Well blow me down with a feather!".

    The man was now on a roll so he asked again, "Mirror Mirror on the way, who is to blame for this fall?".

    And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! The Auditors", he said "But how could they?!".

    Again he asked, "Mirror Mirror on the way, who is to blame for this fall?"

    And the mirror turned cloudy, and the man strained to see the image that was slowly forming. "AH! The GOVERNMENT", he said "But WE gave them their mandate", he sighed.

    Again he asked, "Mirror Mirror on the way, who is to blame for this fall?"

    The man's jaw fell wide open and the colour drained from his cheeks. He sat and looked into the mirror for what seemed like an age, "But how?", he said for all he could see was his own reflection.

  • Comment number 6.

    Is anybody looking at the excessive salaries of the investment managers who manage our money. Perhaps the BBC could start a campaign in that direction.

    How did they get paid during the downturn?

    As you point out a review of their behaviour should take place as they are supposed to be the responsible trustees of our money

  • Comment number 7.

    "...bunch of numpties..."

    That's a bit red-top for you Robert, is it not?

  • Comment number 8.

    Robert, I think we are all noticing a more "annoyed" tone in your writings.
    Perhaps it's the realisation of what a bunch of "numpties" (your word) have been running the economy.
    And we keep hearing that no-one saw all this mess coming.
    Well, i think that millions of us saw it.
    Who are we?
    Anyone over 50 who watches the news, and is careful with money.
    After all, we saw the US savings and loan disaster of the mid 80s, we saw the UK property spiral and crash of the late 80s, we saw the dot-com bubble burst in 2000.
    We may not have known anything about sub-prime, but we knew something was going to crash.
    300% property inflation in 7 years.
    Bank staff on 10 million a year.
    Crashes have a giveaway beacon...its called excess.

  • Comment number 9.

    UK Economic Meltdown Continues Towards Price Deflation

    http://www.marketoracle.co.uk/Article8829.html

  • Comment number 10.

    We are collectively guilty of constantly electing politicians who promise jam today, rather than rewarding foresight and prudence so that at least we have a crust tomorrow.

    One might say, "You get the government you deserve".

    It would be extremely naive to believe that many of these institutions is actually run for the benefit of the common weal. In practise they're run for the benefit of those running them.

    And the only way to stop that would be proper regulation. But when the relationship between the politicians and businessman is so incestuous how can that possibly happen?

  • Comment number 11.

    RP, their is obviously a lot of opinions here, imo, some fair some not so.

    A lot of individuals who invests in shares, if not most, wants better than we can earn elswhere and a little better than the market average, blinding ourselves this forces the companies or funds we invest into, to take on ever increasing risk.

    Also as i understand it, it was the pressure of british institutional investors who prevented Barclays buying the poison chalice of ABN Ambro, so yes they have vast power, but they are not stupid.

    I totally support your stance to report all the facts, but i would say it is vital to the UK economy that we do not unduly talk down our financial sector, we do still have a large number of skilled hard working and responsible people.

    It is therefore vital that confidence is brought back by ensuring the errors of the past cannot take place again i.e. the FSA having teeth, auditors being challenging, prosecutions taken against wrong doing, irresponsibility or not being strong enough to do the job needed, the end of cosy old boy networks, the end of short term greed culture and government responsibity

  • Comment number 12.

    Robert,

    for the first time you are hitting the nail on the head...FINALLY...

    The failure of insisutional shareholders of banks, property companies, house builders, retailers, etc. and all other companies riding the debt-inflated boom must surely count as the greatest organized loot of the British public by our incompetent financial elite.

    In fact, I have never, ever in any of my employments, agreed to have x% of my pay docked, so that these guys can CHARGE me for the privilege of LOSING it. I take the cash, pay the 41% tax and that's that.

    To have no control over where the investmetns go, and then to have Gordon Brown change his mind every few weeks about whether I can get my hands on it at 80 or 85, and THEN to pay tax on the paltry annuity income anyway from your death bed, is quite simply bananas. It also explains the British obsession with housing to a great extent.

    I think this is the area of greatest reform, an unsustainable pensions system, where a proportion of hardworking peoples' wages are simply taken off and sent to some ridiculous fund management house with nincompoops in charge. Free money and free fund management charges for them with almost no performance demands. Seriously, how many people on the street have ANY clue as to how their cash is performing. They are simply bamboozled by jargon from a terrible IFA system and swindled.

    Much better for the government to reform the system completely with ALL pension contributions paid into a UK sovereign wealth fund which invests CHEAPLY with proper fund managers. Economies of scale and performance metrics. There will be an argument for passive bond funds and cheap tracker funds, given how 'well' our fund managers do in bust times.

    Otherwise, we must at least have some sort of financial education in all schools, so that fund managers who lose money for 10 years don't just carry on as before, because the money just keeps rolling in from pensions contributions by an uninformed public.

    I thnk perhaps the Calpers system in California, some of the US university endowments, and some SWF's like the Singaporean one are perhaps decent templates for the UK to follow. Our current system WILL run out of money, because NEW MONEY PAYS OLD LIABILITIES.

    Madoff anyone?

  • Comment number 13.

    Robert

    I agree with the thrust of your point but do I recall you complaining in your book that fuddy duddy institutions werent allowing plcs to gear up balance sheets to exploit assets and letting the Phillip Greens in to take the pickings.

    Rio must be aligning with Chinalco to feed China with commodities and get an angle. Because we are not widget-makers why should we be worried. I might get worried about other strategic foreign joint ventures or swf investments which gain a hold on vital national interests.

  • Comment number 14.

    Excellent points Robert.

    Say it as it is.

    Isn't this how business was once conducted in the days when the current financial markets workforce were still in kindergarten or nappies?

    Bravery, forward planning, responsibility are 'dirty words' in modern financial models.

    'Dirty money' used to be associated with crime.

    Now its the accepted currency of the Financial Markets.

    The road to recovery is long and hard, so Mr Brown says.

    The road from Downing Street to the Palace is short and sweet, I say.

  • Comment number 15.

    Only a handfil of posts in over an hour?

    I guess this blog is too far wide of what everyone is really concerned about today... The PM being questioned and bankers bonuses!

  • Comment number 16.

    Collective – non culpability (aka ‘pass the parcel’)

    Robert , your use of the word numpties is spot on.

    The one person who has got away with all this is that multimillionaire capitalist, Tony Blair, who was architect of this sorry mess along with his poodle, Brown who was the architect of the current regulatory system. One of its 4 statutory objectives is to ‘Maintain confidence in the financial system’ Well that’s another Labour success story but will he own up to that one…the collective says ‘ Not me, not us, not them but we inherited blah blah blah’…

    The people who will suffer most are our children who have been unashamedly used as the collateral for future payment of this country’s massive, massive, debt burden.

    Until the culture is changed, nothing will change.

    Isn’t it about time people took responsibility? It’s quite clear to me and probably many people reading this blog that the people responsible in these organisations are the ‘numpties’, the executive board and the senior managers driven by the need to enhance shareholder value whilst enriching their own pockets via the irresponsible bonus culture they awarded themselves.

    Where were the non executives in all this, supposedly holding the board to account? What actual qualifications do these people have? I was astonished to hear that not many had any banking qualifications at all at HBOS.

    So convince me …..What right do they have to run a bank or financial institution when they do not understand the business themselves?

    You may argue that the necessary safeguards were in place, remuneration committees, non – executive directors, auditors, regulators etc. I would say it all depends on the scope of any review or audit and who is paying the fees.

    Don’t you get the distinct feeling that provided that this ‘elite’group do a reasonable job, tick the right boxes and don’t look too hard at the detail everything will be ok and if they do find one or two irritations then the board or senior managers acting as a collective, can remove it or conveniently forget about it because they know they will have moved onto the next highly paid job before the ‘xxxx hits the fan’. Maybe these organisations have adopted the Labour’s governments approach to reviews – keep commissioning them until you get one you can agree with.

    What real weight does a risk manager or compliance manger actually carry in these organisations when at the back of their minds they may get sacked? The boards collective action is simple corporate bullying of a lone voice.

    Let’s hope Labour keep going until the next election so they can sort out this mess (yeh right) and then the electorate will give them what they rightly deserve…

  • Comment number 17.

    Call me an old cynic, but were the "bunch of numpties at investment institutions" paid a bonus depending on how well their investments performed?

    Bonuses are incredibly corrupting - they actively encourage people to close their eyes to the bigger picture, and to just think of the short-term reward instead.

  • Comment number 18.

    I strongly recommend anyone with a pension pot with an institutional investor, to switch it to a SIPP which you control yourself. There are some very inexpensive ones out there which you can manage easily on line, and if enough of us did this, the 'small' investor would start to have a say in things.

  • Comment number 19.

    SPOT ON BLOG MR PESTON

    THE DEAL DONE BY CHINALCO SOUNDS PERFECTLY REASONABLE TO ME IN TERMS OF LONG TERM STRATEGY.

  • Comment number 20.

    As set up, the personal pensions industry in this country - whose peerless excellence was cited as one of the reasons why we should not touch the euro with a bargepole - was run by great, reliable, ultra-cautious benevolent associations. We just made our contributions and when the time came the pension was there. Now in connection with our pension plans we all have to be financial experts. We have to make a set of more or less technical choices, when starting the plan, throughout its life and above all at the end. A wrong call, even of one day's timing at the end, can cost a substantial proportion of a pension built up over 30 or 40 years. Being thrifty, and leaving it till the last moment to draw down the pension, can be fatal. What is worse, it is a pig in a poke - we only discover the result of our choice after we have made it. We have the illusion of a range of options - which gives the fund-managers their let-out when the choices prove wrong - but no real control, because we are still at the mercy of the fund-managers for the actual outcome. No wonder people are finding other ways to provide for their old age.

  • Comment number 21.

    Q:

    Are there greater hypocrites in the world than British institutional investors.

    A:

    No.

    If it hadn't been for the British institutional investors there wouldn't have been the bonus driven senior managers and directors who created bonus and greed driven corporate cultures within the banks which led to bankers making decisions to suit their needs and pockets rather than the needs of customers, the public or the UK or global economy.

    That's why I'm so glad to see more and more people from that yesteryear school of greedy, bonus-grabbing banking going out of banking (and also out of the FSA).

    Once the financial industry is rid of these predators, then perhaps it can rebuild into something of some use to ordinary people and indeed to the UK as a whole.

    Don't get me wrong, a worker deserves his/her wages and a fair days wage for a fair days work. But the myth that we have to pay people vast amounts to get the best people is just nonsense. We paid vast amounts and people who wrecked everything for everyone.

    This culture of fat bonuses and fat and fast profits has destroyed the finanicial industry - not saved it.

  • Comment number 22.

    My comment is more of a question to Robert or anyone else who may be able to answer it, regarding the "credit crunch".
    I understand how the banks lent excessively and recklessly particularly on mortgages both in the UK and the US, we are told that they then "packaged " these debts into saleable chunks and offloaded them to institutions and other Banks, resulting in the "toxic loans" situation they now find themselves in. These debts are referred to in £billions as though the whole loan needs to be, or is, written off.
    But surely when the packages of loans were sold off, each loan had its collateral accompanying it ie the mortgaged house deeds etc and when the borrower defaulted, the loan was called in, the house repossessed and the property sold off to repay the loan. Ok there may well be a loss, in terms of lost interest, legal fees and maybe some resultant loss due to a fall in property prices but surely the bulk of the loan would be repayed.
    So where does this money go? Or am I being niaive?

  • Comment number 23.

    The meek shall inherit the earth..but not it's mineral rights!

    China invests in ITS future. very clever.

  • Comment number 24.

    I think you are being a bit disingenuous Robert.

    I am the owner of my own pension fund. All I have ever asked for is steady growth over the decades in which I invested in the fund. In the thirty or more years life of this fund there have been periods of boom and bust: to coin a phrase.

    Why has the last ten years been any different from the first twenty? I gave no new instructions, so why did the fund holder allegedly go off and demand higher and higher returns?

    Was this perhaps because the company was taken over by a bigger finance house which then needed to sweat the assets a bit? Possibly, because the income of my fund suffered from the late Nineties by both the behaviour of the managers and the greed of the government.

    What we have experienced was a financial system going progressively out of control. The defect goes back a long way and I think it lies in perceptions of and within the financial institutions. Who was it who asked them to take bigger and bigger risks? I think we will find it was Mr. Nobody. They did it because they could and they liked the outcomes.

    However, we will also find that Mr. Nobody also asked them not to take bigger and bigger risks. Only in this instance Mr. Nobody has to be somebody and so we end up with a squalid list of bank executives, regulators and politicians.

    The failure lies within the concert party which went on in the City and Whitehall as the great and good revelled in the joys of easy money. Money has never been easy for me as I know it has to be earned. I have too much respect for my money to slosh it about like champagne at a Labour Party conference.

    This is really what the difference is between the real economy and the great and the good. In the real economy you have to make your money. This is what the City forgot for a few years. During those years the Chinese did not, so now they have the money and we have the debts.

    If we had chosen to work for our money by adding value, ensuring there was a return on our investments and putting some money aside for a rainy day we would not be where we are now.

    Why is it that I have more in common with my Chinese colleagues than I do with the leading members of my own country? The simple answer is that in the real world people have to work for their living. Reality is so embracing.

  • Comment number 25.

    If you disagree with how our banks are using our money, take it out. I have just opened a savings account with our local credit union. As a member, I am entitled to a share of annual profit (as dividend, circa 2-5%). All the money is lent in small amounts to local people to use, and due to the amounts, more than likely in the local economy. No bonuses to staff and well respected local responsible people on the management board. Note, as they are registered with FSA, they qualify for FSCS.

  • Comment number 26.

    And don't forget those "numpties" in the instituations, holding Lloyds shares, who agreed Lloyds takeover of HBOS - thereby acting in the interests of their HBOS holdings, not their Lloyds holdings.

    Anybody holding just Lloyds shares has been *@!+#^*ed.

  • Comment number 27.

    Are they any more hypocritical than the Government who were happy to take the increased tax on profits, or consumers who were happy to take relatively cheap loans and mortgages.

  • Comment number 28.

    ROBERT PESTON

    Your comments regarding Mr James Crosby yesterday have incited numerous allegations that you enjoy a cosy relationship with the aforementioned.

    I invite you to clear your name by disclosing the nature of your relationship, or otherwise, with him.

    If you do not, people may assume that you toned down criticism deliberately.That would make you part of the problem, rather than part of the solution.

    Which could make things difficult when we eventually arrive at the solution, as people are getting angrier by the day.

  • Comment number 29.

    and what about gazprom buying centrica possibly too?

    State ownership by potentially hostile foreign owners is somehwo less risky than ownership by our pension funds, for all their failings?

  • Comment number 30.

    Th late Sir Derek Hicks identified the problems (yet again) in his report of 2003 - everyone including Journalists knew of the root cause of this governance problem so don't blame the users of the system - blame the legislators who caved in under pressure from the City to not implement the reports recommendations (even though they were themselves watered down).

    Both parties are complicit in this dereliction of duty. Labour for not producing the legislation and the Tories for attempting (on behalf of their friends in the City) to water down what was included in the legislation.

    Your journalists knew, we investors knew but above all the regulators knew, the accountancy profession knew, the Bank of England knew the FSA knew the Treasury knew. The Bank even knew it should have done something about house price inflation, as Sir John Gieve said.

    We are all hypocrites. We got what we deserved. We voted for it. We borrowed absurd multiples of income for a house. The fools who ran the banks did not see the buffers looming (as we might have expected them to have done.) Now we have the train crash. It was going to happen - one could have said that ten or fifteen years ago and now it has!

    What we should be concentrating on is the the way forward - this navel gazing will fix nothing. It may be cathartic and fun but it is pointless unless things are done as a result!

  • Comment number 31.

    Institutional investor / shareholder 'numpties' that we 'innocently mandated' to look after our pension savings - so Robert, can you tell me whether there is such a thing as professional probity or duty of care involved - such as a minimum standard? And is there any possibility for challenging any of these people / institutions on such a basis in a court of law? Or is there a mechanism for claiming compensation from the Government, on the basis of its continual failure to regulate effectively - especially after removing regulatary powers from the Bank of England?

    I also note that the Prime Minister, in defending his position vis a vis Sir James Crosby's appointment to the FSA, calls in aid advice from an 'independent committee'. How brazen. Who was on that Committee, and who appointed them?

  • Comment number 32.

    Well Robert - if yeasterday's offering got 3/10 this is more like 8 or 9.

    This is what Britain needs to do: invest for the long term. I'm not so sure about Chinese sustainability - there is a very high fossil fuel dependence. However, I suspect that ALL major economies are secretly hoping that fusion power will come good. Otherwise, I can't see a way out for the human race without a very significant reduction in population. NOT nice.

  • Comment number 33.

    You're absolutely right; this is probably a sensible and even inevitable deal, given the situation at the moment, but it signals the continuation of a slow and largely self-inflicted shift of power.
    It's pretty obvious that, when a recovery does occur (and no-one can abolish the boom part of the cycle, anymore than they can avert the busts), commodity prices will return to their previous levels, and exceed them - but we've left ourselves so weakened that we will not be able to derive much benefit from that rise.
    I never really approved of the privileged position we used to enjoy in the world economy; but I'm going to miss it when it's gone.

  • Comment number 34.

    China is the nation investing most in eco towns and research, sustainable towns with no net contribution to the environment.

    China is the nation that has taken steps to try to control population. There are problems with the way they have approached it to be sure but at least they are actually trying to do something to prevent overpopulation with reulting fighting for resources / mass suffering.

    China is the nation that has made and is making sensible long term decisions not decisions based on what personal gain can be had in a timescale of months.

    Many people simply still see China as a totalitarian state that abuses human rights. Even that distraction serves China well in terms of distrating the world from what is really going on on a fundamental political and economic level.

    China is leading the way, albeit it clubsily at the moment at least they are genuinly trying to create something disciplined and sustainable in the long term.

    China is already leading the way, the west in its arrogance simply does not realise it yet..

    China is not to be feared as once was the case, they want to engage with us and be responsible world players. The west should get off its high horse ( guantanomo/ torture flights / Iraq war weapons of mass destruction etc etc), positively engage with them and listen to many of the sensible pragmatic long term things China is doing.

    Did I forget to mention, China is run by Engineers at the highest level, not bankers and lawyers. I wonder why they are progressing better than us?

    I worked there for 5 years and have the greatest respect for them. Time to be honest about our own position and dubious morals and embrace them for the good of all.

    No more throwing of shoes please, the shoe would have been better directed at ourselves, that would have been a more honest and useful demonstation.


    Jericoa






  • Comment number 35.

    It's the law, Robert.

    Company officers are legally bound to act in the best interests of shareholders.

    And those shareholders were mainly bankers, pension fund managers, mutual fund managers, hedge fund managers....stupendously paid experts looking after our money. Because, we all know, you GET WHAT YOU PAY FOR, and by paying large, we were getting the world's very best, right?

    I mean, what could go wrong with such highly educated, highly paid talent at the wheels of industry?

    Until they turned out to be highly paid sheep, none willing to shout about the naked emperor, lest they be sacked for rocking the gravy boat.

  • Comment number 36.

    As long as we realise that this sort of 'hyprocricy' is not new - it's been going on for at least 30 years!

    Was it not the duty of the accounts managers at pension funds to maximise their cash flows to the point where their jobs depended on their achievements? And did this not encourage over enthusastic risk taking and asset stripping and, inevitably, militate against long term planning?

    As always, this is a culture problem. Perhaps it is also a legislative problem, if (and I'm not saying this is the case as I don't know) legislation requires pension funds to maximise assets, in the same way that charities are required to maximise assets.

    Either way, maximising assets is in the long run the self defeating philosophy of accountants. Good housekeeping is to be preferred.

  • Comment number 37.

    Once again Robert the question is - just what are the Government trying to salvage at the moment?

    We know money has been too freely available and once again, on a domestic level, people are beginning to understand that there are rainy days that you need to save for (or at least have a buffer between income and expenditure). Just how many times through history people need to be taught this lesson is astounding!

    What we seem to be lacking is anyone (a real Expert maybe) that seems to have a clue where we are going. All I hear is when we will recover.... anyone know what we will recover to?

    I had to listen to another Expert from the world of finance talking on 5 Live just before 6pm last night telling us to imagine how bad things would be without the reduction in the Mortgages and VAT..... I don’t know, how bad would it have been? How many more unemployed would there be? How many more companies in trouble?....... and is it worth the money or could it have better spent. You are the expert... tell me how bad it would have been?

    We are told the reduction in mortgage rates is helping, but helping who? It seems the most random way of helping people you could come up with as it’s not based on your ability to repay, but on whether you chose a Tracker type system. In addition don’t we need to deduct from this additional money these mortgage reduction are putting back into the economy the negative impact the reduction in interest payment to savers is taking from the economy? Just what is the NET effect?

    VAT!!!!! I understand there is a trickle effect here, I don’t save a huge amount on a purchase and it’s not going to make anyone rush out and buy. But over a period of months there is a natural saving of a few pound – not enough to save and it therefore gets spent. But is this 13% reduction in VAT revenue (I am presuming the money saved is then re-spent on another VAT applicable product) is worth it – or is it. We all know that we are going to have to spend less in the future as the money lenders become a bit more choosey, so the High Street is going to take a beating. Is this just a parachute to make the landing easier or is it going to have a serious impact?

    Someone tell me please – in a rising market there is no shortage of Experts telling us what to do. Now it appears their words of wisdom stretch only so far as “imagine how bad it would be if we didn’t do something”

    I’m going to go and stand in the market square this afternoon and jump up and down waving my arms about to help fight the recession..... Just imagine how bad it would be if I didn’t..........

  • Comment number 38.

    !!BBC Breaking News!!

    "Gordon Brown says public support aid to banks!"


    Other top stories this Thursday lunchtime!

    Public support aid to Africa
    Public support repossessions
    Public support foreclosures
    Public support liquidations
    Public support aid from China
    Public like Gordon Brown
    Public hail hero Brown
    Public never happier says Brown
    Public love me says Brown
    O'Reilly says do this
    Brown says do that


    Also coming up!

    London bus found on moon!
    Miracle cure for cancer!
    Lord Lucan traced!
    Headless man walks streets!
    Brown walks streets!



    And now the sport.



    GC





  • Comment number 39.

    # 3. At 11:35am on 12 Feb 2009, MrTweedy wrote:
    "A colleague once told me that if every country in the world had the same standard of living as the British, we would need 3 planets to provide all the natural resources required. I don't know if this is accurate, but I do think that as other nations increase their wealth, Britain's wealth will diminish."

    Similar "statistics" have been quoted for the USA standard of living, especially in some of the scientific press concerned with resource allocation and distribution issues. In the cases I have read the figure is usually 6 to 8 planets, assuming a global population of 6 Billion. Since global population forecasts are for between 9 to 12 billion over the next 30 years, then clearly we need even more planets!

    Unfortunately, the process is unlikely to lead to a simple sharing of resources and net reduction per capita. Rather, history shows that like most animals faced with severe competition for resources, humans will kill to gain dominance of their neighbours' resources. Hence, I don't think there will be an "evening out", except as a result of warfare that literally levels everything, at least in human terms.

  • Comment number 40.

    Numpties indeed. Not before time that this subject of pensions was raised. These very same numpties are bullet proof. however badly they perform they still are entitled to their fee whilst all the individual can do is watch the investment go south. Why can't ISA's be extended to allow people to invest direct into them and cut out the numpties?

  • Comment number 41.

    Meanwhile.... No evidence of regaining confidence, faith, or any of the other synonyms for credit...

    Ho Hum...

  • Comment number 42.

    "it's in part because the Chinese are prepared to invest for the long term to create sustainable enterprises."

    The truth is far more pragmatic than that. The Chinese are not interested in the enterprises at all. They are interested in securing their access to raw materials. They couldn't care less if it's Rio or Fred Bloggs.

    Your article does not go far enough. It's not just the institutional fund managers who also need hauling over the coals. It's becoming clear that there is not one element of the financial services industry - brokers, traders, hedge funds, etc. etc. who do not bear some responsibility for this mess.

    In the immortal words of Forrest Gump, " and that all that I have to say on that".

  • Comment number 43.

    And, some prescient observations from June 2007

    "In the beginning, there were mortgage-backed securities that turned ordinary home loans into bonds. Then came collateralized mortgage obligations, or CMOs, which sliced and diced the mortgage securities according to when they'd get paid off, which is uncertain, especially given homeowners' proclivity to refinance when it suited them.

    The next step was the collateralized debt obligation and its cousin, the collateralized loan obligation. CDOs and CLOs represent pools of corporate bonds or other loans -- including subprime mortgages -- that are split up into tranches of varying risk and return. The first in line to get paid get the highest credit rating and the lowest yield, and so on down the line.

    Here's where the real alchemy comes in: The top tier of CDOs and CLOs can be backed by a pool of junky credits and still get a triple-A rating. The pawns at the lower tiers absorb the losses to protect the kings and queens at the top. And so these derivatives have exploded in just a few years, to as much as $1 trillion by some estimates."

    -- Randall Forsyth
    Ho hum.....

    ;-)
    ed

  • Comment number 44.

    Many of the investors were managing pension funds for companies who's schemes had deficits and they probably did encourage risks to be taken to maximise returns and reduce those deficits. But it is worth remembering that these deficits were caused in no small part by the tax grab of Gordon Brown. His 'boom' year policies have had both a direct and indirect impact on how the 'bust' is effecting us.

  • Comment number 45.

    But weren't these "investors" driven in turn by us? Weren't we the ones demanding the highest return on our ISA's, pensions, savings etc? Weren't we the ones luxuriating in how much the value of our "property" (NEVER call it a house or a home), had risen.
    Responsibilty for the current foul up doesn't stop just with bankers and politicians, (and I'm neither), but also with the great whinging, hypocrites called the British Public. Who cared that their kids were being priced out of the housing market? That jobs went to the lowest bidder, usually overseas, but the price here was the same and the extra profit went to the company/shareholders and thence to our "investments". As long as the good times rolled, no-one gave a @"*$ for the less well off, or the need for regulation, or for a sustainable economy. It was dip yer bread in time! Now guilty and innocent alike have to pay the price for "World class rewards for World class management" We've certainly got a World class frolics!

  • Comment number 46.

    Don't worry kiddies. The chief clown, Brown,
    has a cunning plan. He told us so - again and
    again - this morning. The circus will continue as before,

  • Comment number 47.

    Speaking of sustainability - it looks like the goods trade deficit will be of the order of £90bn this year. That's £1500 for every man woman and child in the country. Financial services won't make up the difference, so how do we manage? Does tourism balance what Brits spend on holidays abroad?

    Analysis please Robert!

  • Comment number 48.

    Another clear point of view by RP. Long term investment is ultimately the answer to current debacle - not printing money either.

    Which brings me to RP......

    Economics is based on all sorts of things and RP has had a loud voice exposing all sorts of foolishness surrounding these. It is also based on confidence; be confident to spend a little, save a little, to innovate.

    I like the idea of all the new businesses being created by the flow of redundancy payments. Great. Lets help them.

    There is a direct correlation between column inches/broadcast minutes of media doom and gloom and people's ability to spend money (if we save our pennies then we really are doomed).

    Why doesn't RP spend more time on articles like this one (exposing the need to invest for the long run) rather than "jail worthy" bankers and a very silly chancellor?

    Either that, or start talking about the next general election!!

  • Comment number 49.

    It is about time someone laid a fair amount of the blame at the door of investors.

    Unfortunately in this capitalist country the public is not educated in a how a capitalist system works. It should be part of every schools curriculum.

    Only then can we lay the myth that shareholders are fat cat individuals. They are every person with any insurance, investment account or pension.

  • Comment number 50.

    If Halifax and the other building societies hadn't been allowed to convert into PLCs they'd have no shareholders. I think that the Tories were responsible for the legislation that allowed this to happen.

  • Comment number 51.

    Mr peston you touch on "mortaged to the Hilt" So I put this to you is we had not become mortaged to the Hilt since 1997 what sort of economy would we have been.

    Maybe the dt com bust of 1999? would have seen britian into a smaller recession and labour as a result loss the next election.

    An that is the route of all our troubles the desire of Nu lab to get re-elected time and again for the sake of being in power but not actually doing anything positvie with that time.

    It seems there where problem at HBOS way back in 2002 and also with many banks going for wholesale borrowings that should have been the trigger to take action. But was ignored buy those that maintain they are best of governing us. Why are they the best if they could not spot that then ?

    As an aviation engineer I have to consider all the "angles" all the "time". Not just the next election which was dominating NU lab thinking and NOT upsetting the "golden goose" ie the City as they would have turned on NU-lab and they would have lost the election.

    So for 12 years we have had no industrial policy whatsoever as long as the Tax rolled in to cover the vaste increase in the size of the state and its influence on us all (for the bad)

    I say this again look at the Family Courts and how much money has been wasted for politically inspired results, more single families and therefore more dependancy

    its the only policy that they have create dependancy then up create control and though control they will get voted back in until the rest of you wake up and smell the coffee, or there is a electroll revolution




  • Comment number 52.

    Oh its all so easy with 20/20 hindsight, its easy enough to moan today I wasn't moaning (and I don't remember anyone else moaning) when my Barclays,Soc Gen & Hitachi capital shares were paying big dividends, my house was increasing by 2% a Month and I was getting regular pay rises from my employer (I worked for a big commercial bank) and banks were happily offering 100% mortgages (with cashback)

    At the same time ads in the USA were offering mortgages to people who had no job, just got out of prison even illegal immigrants.

    Please please stop with all this 'the world is going to end' the economy runs in cycles I can understand anyone under about 25 thinking the world was going to end but come on don't you remember the dot com bubble, the recession in the early 90's (remember 16% interest rates anyone?), a deep recession in the 80's and not forgetting the 70's with 3day weeks, huge inflation, high interest rates, strikes, etc, etc.

    Please keep a balanced view in 10 years it'll all hapen again and no doubt it'll be the end of the world, AGAIN.

  • Comment number 53.

    The pension issue is at the heart of this. People have an unrealistic expectation that they can retire at 65 and live to 85+. Companies, governments and people also have a limit on how much of their income they are able to save and this limit is falling.

    Rather than say 'this is impossible' pension funds require higher and higher yields from their investments. Listed companies get pressurised to make the dividend payments pension funds want to see and therefore get more short term in focus (which actually reduces future profits) and start to trade risk for profit through leverage. After a while the whole thing inevitably breaks down.

    Meanwhile the Chinese and Asians work hard, invest in industry rather than houses and banks and take a long term view.

    We need to wake up and start wresting control high technology back from Asia. The first step is to put tariffs on imported high tech products from China and taxes on outsourcing IT work to India. The next step is to create a bank that only lends to technology companies and fund it well so that these sectors can expand even while the rest of the economy is shrinking.

    All the Asian countries have banks that finance manufacturing whereas all our banks want to do is lend on houses and create ever more complex financial instruments. It is typical that at the height of the boom Royal Bank of Scotland closed down its Venture Capital business unit which funded high technology because they could get better and 'safer' returns on property and debt.

  • Comment number 54.

    There is exposure of incompetence and abuse in the international banking system but other than President Obama who is going to do anything about making sure it dosn't happen again ?

    Do not rely on the Hurrah Henrys in the City and their political oiks in Westminster or the Marxist political dogmatists in the EU.

  • Comment number 55.

    #8 Stevewo

    I couldn't agree with you more - and I'm only 37.

    You know what really stood out for me though as the absolute confirmation that a crash was on the way?

    Country Life magazine proudly introducing a weekly double page spread for domestic staff. If ever there was a sign that there was just too much money about, that was it for me.

  • Comment number 56.

    "... they encouraged these companies to maximise short-term profits regardless of whether the future was being dangerously mortgaged to the hilt."

    and our problem is that this attitude prevails across all areas of government: food, energy, transport water, climate... If money can be made today and the people that will really pay are future generations then, too bad for the future.

    We are moving into the 'Age of Consequences' as I call it, the one where we realise that, blinded by the vast amounts of fossil-fuelled energy available to us, we've thought that we can all keep living in a fantasy world where we can everything we want as cheap as possible, and then some more of it. Forever. With no consequences.

    I include a relevant quote from February 2005 from the US company 'Sprott Asset Management':

    "Indeed, the game being played in the economic world is all about interest rates and the availability of credit. Nothing else seems to matter anymore. It’s truly become a finance-driven economy, where the single most important factor is the cost of borrowed money. People and governments no longer care about debts and deficits. They no longer worry about rising energy costs and commodity prices. Even inflation in general just doesn’t matter anymore. As long as increasing quantities of money can be borrowed to pay for it all, then that is all that matters. What seems to be forgotten is that borrowing is a claim against the future. It will someday have to be repaid. But perhaps the faulty premise in all this, the sin qua non, is that it is being assumed that there is a “future” to borrow against! The future that we once expected is quickly disappearing. Debts will more likely be defaulted than be repaid. Or if they are repaid, it will be in currency that is worth substantially less than it was when borrowed. Social contracts are being rewritten as we speak, first by corporations, then governments. The promises made to employees and citizens, respectively, can no longer be afforded. There will be no social security or Medicare or corporate pension plans or retiree medical benefits (and, of course, still no energy policy). Debts will come due and everybody will be broke."

    Mother nature will soon be teaching her unruly adolescent children it's time to grow up or face the consequences. And we will find that the politicians overseeing this mess are just as negligent in areas far more fundamental to our way of life than stocks, shares and loans.

  • Comment number 57.

    No.5 - fair enough but it wasn't me who forced all UK manfacturers to relocate to China.

    UK, the US and Europe all thought it was a good idea - the demise of the western economies was handed to China on a plate.
    Manufacturing was seen as a dirty word. Getting your hands dirty being a plumber for eg. was looked down on by every Business Studies graduate who thought that usuary was the way forward.

    As reported by PJ O'Rourke, yesterday FT., western economies brought to their knees by 1930's Thatcher, Reagan etc etc.

  • Comment number 58.

    Isn't it time the Royal Bank of Scotland had it's name changed to something more accurate?

    Perhaps...

    The mainly English bank.

    The English taxpayers bank.

    You know something that represents the majority shareholder?

  • Comment number 59.

    Bravo. Let's hope the great and the good take some notice of the double and triple standards so ably pointed out by Robert Peston

  • Comment number 60.

    #1 - Good point, and I would also add that 'failure under the pain of death' is a damned good motivator and should be adopted here.

    I bet Fred 'the shred' Goodwin and brood of in-bred crooks really WOULD BE SORRY then.

    I'm sure banks would have had more respect for the FSA if they were armed and had a secret police division.

    I hope this puts into perspective all those anti-China sentiments about their authoritarian state.

    AT LEAST THEIR BANKERS AREN'T LAUGHING AT THE PEOPLE AS THEY RUN OFF WITH ALL THE MONEY.

  • Comment number 61.

    I have always thought that in some small way we have all had some hand in what has happened. I still blame our government in leading us into an inflated view of our overall expectations.
    I worked for a very large private US company for over 25 years and they had a couple of rules of how the business should be run. One of those rules that at the time I couldn't quite understand was that they never borrowed money. The reason for this was because the original family who started the business lived in the 30's in the US and he had seen at first hand what happened then.
    I was always told that any bill I had incurred on behalf of the business had to be paid within a month. I was paid a bonus which was only paid if the business was profitable. For a couple of years I (as a manager - shop floor workers were immune from any wage drops) earned less than the previous years - painful for us managers but very good at concentrating the mind. And finally, the owners of the business always told the managers never to blame the worker as it was the managers who were employed to manage. Suffice the say the company is finding things hard but surviving.

  • Comment number 62.

    #37 Thinkb4

    I'd vote for you - what you are proposing to do certainly makes more sense than the guff spewed daily by politicians and would about as effective.

  • Comment number 63.

    Whilst its true that shareholders could have put the brakes on the corporate derring-do, in practice this is well nigh impossible. The pension funds have a voice, but this is generally inaudible as they are complicit (and in bed with company boards) in the stampede for short term growth and profits. What I am amazed at is that there is no statutory requirement for boards to have an "Small shareholder" representative. This individual would have to demonstrate that they had no links to big business or funds and was voted for only by small shareholders (say less than 50,000 shares?) Currently, individual shareholders have no voice at all ...ok, they may attend the AGM, but the voting has already been stitched up by the pension funds etc, so what's the point?

  • Comment number 64.

    The first part of this blog was correct and hilarious. One of the best yet.

    I am not bright enough to really understand the second bit unfortunately.

  • Comment number 65.

    Robert,

    I have to take issue with your inaccruate picture painted above.

    Shareholders do NOT control companies, majority shareholders do.

    Making a statement like that is akin to suggesting that Gordon Brown was chosen by the public and not cronies like Bernie Eccleston and a myriad of wealthy bourgoisie.

    More people didn't vote than voted for Labour in the last election. Small shareholder stakes in companies do not often vote due to the feeling of powerlessness (just like a Democratic voter).

    Even when they do they are often fed incorrect information by directors and other shareholders who are promoting their own interests.

    I'm sure if HBOS had announced a couple of years ago "hey, we're going to start investing in some right wild stuff, it's dangerous, risky but might make a lot of money" - then maybe the shareholders would have made the right decision at the time.

    ....but please show me from any past AGM where the risk assesment is in black and white and not buried deep within the accountants artistry.

    Remember that a lot of investors are not accountants, nor are they industry experts. They are merely working people who believed successive Government lies of "you don't need a state pension - a private one will be better"

    As most of the majority shareholders in any bank are a) Other banks b) Hedge funds run by ex-bankers
    .....it doesn't say much for the objectivity of the large shareholders.

  • Comment number 66.

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

  • Comment number 67.

    Your comments about hypocritical investors simply highlight (again) that we are all, collectively, responsible for the mess we are in. Loads of people have been greedy, concentrating on the short-term, irresponsible, stupid etc - and hindsight is a very convenient tool for identifying scapegoats and coming up with "I told you so" comments.

    This all brings us back to those over-seeing the economy. One of the main purposes of the government and the regulators is to keep an eye on the individual actions of the population as a whole, and to keep them under control for the collective good. To assist them they have armies of economists, statisticians and other qualified people. What is increasingly becoming very clear is that our government did not have any eyes on the ball and simply allowed things to get out of control. To learn that 29 similar "over-heating" reports were in the hands of the FSA simply proves a lack of joined-up thinking. It is increasingly clear that the main responsibility should be allocated to the government.

    Brown is trying to make himself even more teflon coated than Blair as he tries to spin his web that the good times were thanks to his brilliance but he has nothing to do with the bad times and is not responsible in any way for the wholesale myopia of the government/regulatory system. We need an election before even more damage is done.

    Message to all Labour MPs - out of loyalty to your country, please call for a vote of no confidence and get rid of Brown and his government. Your constituents may then recognise your gallantry and you might be re-elected as an independent MP.

  • Comment number 68.

    I wonder if this was the subject of conversation between Gordon Brown and China's Premier Wen ?

  • Comment number 69.

    So, all the numpties' fault then. No blame whatsoever attached to the pension fund trustees and pension fund owners "like you and me" putting pressure on the numtpies to finish in the top performance quartiles each quarter.

    Ho hum.

  • Comment number 70.

    #49 - very true....however if society was educated as to how a Capitalist society works then they would reject it.

    .....that's why the 'masters of the universe' keep the rules to themselves, for without their inside knowledge the public would clearly see what a bunch of ignoramus's they all are.

  • Comment number 71.

    @52 Paulie

    Sorry to dissappoint you but we wont be in a position to crash in 10 years time because we wont have recovered from this one by then

  • Comment number 72.

    Well done Robert glad you've moved on from bankers.

    I suppose by the time you have worked your way around all those to blame for this mess, this mess will be over.

    You're like a good book on a cold winter night.

  • Comment number 73.

    #52

    "when my Barclays,Soc Gen & Hitachi capital shares were paying big dividends, my house was increasing by 2% a Month and I was getting regular pay rises from my employer"


    ...and not once did you ask yourself "Where does the profit come from?"

    If you had thought about it you would have realised the situation was unsustainable.

    You need to aks yourself "Why was my bank offering 100% mortgages".

    The answer you seek is competition, which forces market participants to continually cut margins to ensure survival, taking bigger and bigger risks to achieve this.

    It's how capitalism works, and with the combination of every other company doing the same you end up chasing a diminishing profit.

    A fisherman may work alone, but collectively (and without realising it) he and his peers will over-fish reducing stocks in the chasing of the increased haul.

    ....replace fisherman with Banker and fish with Money and it's the same story over and over again.

  • Comment number 74.

    So we're meant to congratulate Rio?

    They had the opportunity to sell all of the company at the peak of the market to BHPB, but were too proud to do so, and now they've done a 'good deal'?

    This is the same bunch of incompetents whose senior managers live on expat salaries in company-provided Belgravia houses while bleating about the need to make 14,000 redundancies. And why? To pay back debts incurred to buy an integrated aluminium maker at the peak of the cycle? All to stop BHPB wasting their shareholders' cash on the mega-merger?

    At least the Alcan purchase was highlighted by all the technical people within Rio as not making sense according to any of Rio's long-held views on commodity prices, the value chain and strategy. It was forced through by all accounts by Chairman Skinner, and ever since shareholders and employees have been paying for it.

    If that's true, let's hope for the sake of shareholders and employees at BP that Chairman Skinner has learned his lesson by the time he take up his new position there - although quite why someone that earns as much as he does should get a second chance after betting the company and getting it wrong is beyond me...

  • Comment number 75.

    4. angelcontrarian

    Good points on the way fund managers work, namely herd-like behaviour, benchmark-driven, obsessed with positions in league tables. All true (most of my working life has been in fund management firms). I'd take issue with what you think is the motivation. Fund managers are a bit more (personally) risk averse. If they weren't, they'd be working as traders. Fund managers are actuallt obsessed with losing business due to poor performance, rather than gettinb ig bonuses due to "shooting the lights out" on performance. The explanation below sheds light on this I hope. The big bonuses then flow from winning new business: I'm not saying they don't exist in this sector of the industry.

    My take on the weakness of fund managers as guardians of people's savings is as follows. A large proportion of pensions investment is now managed passively, ie in what are effectively tracker funds. Even most "active" managers are not much more than glorified "index huggers", in other words their investment decisions are based more on not deviating too much from benchmark weights for individual holdings rather than any real conviction on the attractiveness of a company. On top of this you can chuck in the growth of quant investment strategies. These are model driven, and very cheap to implement in a world of low cost computer power, telecoms costs, and dealing costs. Put all these together, and you have a fund management industry that is almost divorced from the entities in which they invest.

    Like you say, the obsession is with beating the benchmark (the usual measure for "institutional" clients such as pension funds), and/or peer group comparison (effectively league tables and a more common measure for "retail" funds, eg sold within ISA wrappers etc).

    What drives this behaviour? A large part of it is the role of investment consultants. The top 4 of these advise 70% of all UK pension schemes. The control access to their clients, ie they are effectively the gatekeepers. Therefore, to have a chance of winning mandates from the pension schemes requires getting onto those consultants' buy lists. Doing that requires consistently beating benchmark or being highly ranked versus peers. For fund managers that do that, the benefits are enormous in terms of cash flow into their Funds. And, to a large extent, it's total assets that drive earnings for those managers, not absolute or relative performance. And don't forget that the biggest drivers of the move to passive management are these consultants. They have been advising clients for years that active management is, in most cases, expensive for the performance it delivers. A consequence of passive management is less need to engage with management of the companies in which fund managers invest.

    Taking all this together, fund managers are driven by the need to meet the purchasing standards of effectively 4 organisations. It's a bit like the supermarket industry if you think about it: 3-4 dominant distributors to the end consumer versus many many providers of product. Just as food manufacturers have a tough time getting space on supermarket shelves, so do fund managers getting recommendations from consultants. The system encourages obsession with benchmarks, a "me too" approach, and passive/quant techniques which really treat the investable universe of stocks pretty much as a commodity. Very few fund managers see value in engaging with the firms in which they invest (certainly the large cap stocks). Very few Funds hold concentrated portfolios consisting of a manager's "best ideas". Instead they hold vast numbers of positions simply for risk control, ie to hug the benchmark (why do you think there was such an overlap of shareholders in Lloyds TSB and HBOS?).

  • Comment number 76.

    "buch of numpties" is this the same bunch that we are told we must continue to pay bonuses to so we can get out of the mess they created?

  • Comment number 77.

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

  • Comment number 78.

    Costmeabob wrote:

    'The road from Downing St to the Palace is short and sweet'

    Personally I would have enjoyed his comment if he'd said the road from Downing Street to the Tower is short and sweet.

    The Tower is where those who have allowed this situation to occur should go.

    Who is to blame here in the UK?


    Bankers & Traders? Yes

    FSA? Yes

    Gordon Clown? Yes

    Rating Agencies? Yes

    Personal greed for some but not necessarily all persons who were 'economic with the truth' when self declaring their income on mortgage applications? Yes

    Pension Fund Managers? Yes

    Need we go on?






  • Comment number 79.

    all good but how do you control how your pension fund invests?

    And, here is a theory.

    In our current economic system, the lending decisions of individual banks were out of their own control anyway and were driven by the market.

    Only if the banks made a collective decision could they take a less riskier (and for a time less profitable) position. A lone ranger would have suffered lower profits than its competitors, pushing down its share price and leaving it wide open for a take over.

    I would venture that is someone suggested taking this approach, they would get the sack.

    Hmm.

  • Comment number 80.

    RE: No 58.

    englandrise, perhaps you meant to say:

    .. the mainly UK bank.

    The UK taxpayers bank.

    UK tax isn't just paid by those dwelling in England.

    Royal Bank of the United Kingdom ... sounds not bad to me.

  • Comment number 81.

    Robert,

    Another "worrying manifestation of how economic and financial power has transferred from west to east" will be when China outsources its manufacturing activities to skilled, low cost operating centres such as the UK.

    Don't larf, it's going to happen.





  • Comment number 82.

    It is very interesting comparing east vs west when it comes to invetsment horizon. In the West, as our financial markets have been americanised we have become short term ie next quarters results are what drives investment. Whereas in the east, the short term is five to ten years, medium term is ten to twenty years, and long term anything over that. Guess where they focus their investment.

    I am an investor in unquoted comapnies, we invest with an investment horizon of between 3 and 7 years. That is considered long term. Many of my competitor investors are focused on exiting their investments less than 3 years. You may think that is exceptionally short. But compared to the stock markets it is a lengthy holding period. Investors on the stock market can have completely charged the constituents of their fund in days or weeks.

    It isn't only in financial markets that people want instant gratification. We have a society that wants everything now (my wife included - tho she is learning the hard way....).

    This is an opportunity to re-jig society.

  • Comment number 83.

    What was very obvious at todays questioning of the PM is that he is most definitely not a leader of anything.

    And waiting for the answers to the problems to be supplied by others, and to think that the present status quo banking operations, which gamble with invented capital/ the leverage which the corrupt fractional reserve system delivers with its free virtual money, is going to remain in much the same way as its presently is, with the same heads/Intellectual Property running the Global Governance System, is an Arrogance and Delusional Psychological Flaw which afflicts many feathering their nests with the present calamitous Ponzi Scam.

    And if you print money on a wholesale scale with a notion to deliver it through/to the Banking System to charge interest to customers who would apply to spend it and allow practically worthless paper currency to work its magic and Energise Supply and Demand, and also to expect them to return the sum, you will have a ...... well, revolution which sweeps away parasitic bankers for a start along with numpty, out of their depth, politicians who wannabe in a leading gang, but who are unfit for ITs Purpose and Active Service.

    I do not need some upstart in a suit advising/telling me, once I have told them what I need and what I am going to do with what I need, which is spend on a Program so that currency can do its Trick, that a) no you can't b) yes, you can but we want our cut too and the money back too, whenever trillions have been and are being lost by their dumb actions and trillions more are being supplied/deposited with them for free to start people spending again on the things that they need/want

    They seem to forget that if they are in banking, the protection and supply of money, the shekels are not theirs to play with, although they will try to tell you otherwise, of course.

    The problem is the not the supply of paper wealth, it is the non-supply manipulation of it and its private bankers club use for a perverse, holier than thou, control for power, which is the Problem.

    Fix it or it will continue to Fail Catastrophically.

    And as we have seen/heard/witnessed regarding the recent Crosby/Moore/FSA/HBOS exchange, which I imagine to be only the tip of the iceberg, once a problem has been Flagged Up and its Resolution ignored, is it only a matter of time before it boomerangs back to claim its prize scalps.

    And what you should all realise nowadays, is that the Intelligence Dynamic has changed Fundamentally with Open Source Sharing for Transparency as provided by Networks InterNetworking.

    Something new to get used to as IT Virtually introduces the SMARTer Great Game Bigger Picture Player into Control and Power Systems.

  • Comment number 84.

    Many small shareholders have been hustled out of their money by these fund managers.

    For example I bought shares in my pension company in 2000 expecting reasonable long term growth,

    Shortly after buying them they had a shares issue which diluted the value of those shares overnight.

    After Gordon Brown raided the pension funds and everyone else seems to have made money out of me and millions of other naive and trusting small shareholders those shares are now worth only a third of what I paid for them and the pension is worth much less than anticipated.

    Someone has paid for all of this and it is the likes of you and me and every other man and woman on the street who has been conned.

    I do not blame the ordinary shareholders but I do blame the greedy fund managers and their obscene salaries and bonusus.

    Beware any financial advisor trying to approach me again.

  • Comment number 85.

    60 years eh??

    I think there is a statistic that says, over the last 100 years, only 5 companies out of the top 100 have survived as a business.

    Only 23 from the Ftse 100 in the last 20 years are left.

    btw.....
    Did I ever mention (before now)the Local Income Tax as proposed by the SNP ??
    No.
    Ah well,there you go.

  • Comment number 86.

    Re No 65.

    TheresOnly1Soupey, I actually think Robert Peston is absolutely right.

    As a group, the shareholders of the banks, whether large institutional investors, small investors or even staff shareholders, all failed to keep their directors and senior managers in appropriate check.

    That in turn allowed them to increasingly create and promote corporate cultures based on ever increasing personal returns for themselves and for their shareholders.

    Common sense tells you that you can't keep on milking the same cow and that sooner or later something is going to go wrong. But shareholders did not manage to break into this greed culture. And poor calibre, short-sighted, highly-rewarded bankers failed to change the way their organisations were operating until it was too late.

    Now I accept that for various reasons, certain individuals may have been disempowered from taking individual action, but those individuals still profitted from it.

    However, the issue is not about a blame and shame game, the issue is about how do we prevent the financial sector recovering from the current slump and just going off and doing the very same thing all over again?

    Preventing a repeat performance IS going to require shareholders, especially the larger institutional ones, to recognise and realise their collusion in the processes too.

  • Comment number 87.

    What about the Ukraine Robert ??

    Some time ago they got a $2 billion loan from thre IMF.

    They then paid the Russians $1.6 billion at the new year to settle the gas bills...

    Bankrupt.

  • Comment number 88.

    About 25 years ago I worked for a credit company who had a very tight criteria for accepting applications for credit. About 50 to 60 per cent of applicants were turned down.

    Then we were taken over by a bank following which only about 10% were rejected.

    Store cards appeared giving £1000 credit limits without any real credit checks being made.

    They were all to blame for our current mess the bankers and institutions were just greedier than the rest.

    T

  • Comment number 89.

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

  • Comment number 90.

    I can make no comment about this deal with Rio. But I wonder when / if the role of the 'institutions' who invest in banks and companies (eg pension funds) will also be called upon to explain their strategy and their attitude to risk. After all, they are in charge of the future wealth of most workers, in the shape of pensions. Did they take a long view? What did they do to stop companies in which they were investing taking too many risks?

  • Comment number 91.

    Never let anyone forget that Chinalco IS the Chinese government.
    John C.

  • Comment number 92.

    #81 I can't ever see the UK being a low cost manufacturing base. Population density is too high for a start, allied with increasing regulations that stop development of industrial sites, means that we can never compete on construction of manufacturing facility let alone compete on wages.

    One point that should be debated is what is / should be the true link between average house prices and average wages. Historically it was 3.7X, ie you would borrow 3.0x salary via a mortage after saving up the balance. This moved to 3.5X salary mortgages being the norm in the '80's. When you consider not just the increase in UK population, but also the change in demographics, in particular the increase in divorce, lone parent families etc, the strain on the UK housing stock is monstrous. Therefore will we see a more continental housing market where people rent rather than buy, or we say that 4.0X salary mortgages are the new norm?

  • Comment number 93.

    Robert,

    You put your finger on a well understood downside of listed companies as opposed to Private Equity owned businesses.

    It has long been accepted that listed companies perform sub-optimally because of the pressure to perform against short termism in the public equity markets. So nothing new in that. And, nothing has changed that is going to stop such short termism continuing.

    Unless..we see more businesses de-listing and/or we see more asset nationalisation.

  • Comment number 94.

    @ #38 guycroft

    Always enjoy your posts, but this one really made me laugh. I needed that -- thanks!

  • Comment number 95.

    Point taken. The British Public are mainly the owners of these companies. BUT the dash for cash was to balance the books needed to meet Pension requirements.

    A few years ago the rising FTSE could be relied upon to help generate the wealth to provide pensions, but when this began failing shear raw profits were needed too.

  • Comment number 96.

    If Institutional shareholders were reckless in not objecting to dividends paid from the bank's gigantic profits, was not the Government even more so to bill them for corporation tax on those profits? PLUS getting taxation out of the bonuses the bank bosses received?
    sonofadamsmith

  • Comment number 97.

    Please excuse my ignorance but what does 'pay down borrowings' mean?

  • Comment number 98.

    12. courteousnewcitizen
    24. stanilic

    right on the money (or lack thereof...). We have (well, most of us) sleepwalked into this one...

  • Comment number 99.

    @ # 49 Borisnorris:

    "Unfortunately in this capitalist country the public is not educated in a how a capitalist system works. It should be part of every schools curriculum."

    There are few things I can agree with 100% --but this is one of them! Absolutely.

    The same thing is woefully true in North America, and I can't believe it's accidental neglect.

    If citizens were well-educated, would they be as willing to accept the gross inequality in benefits for the average human being in exchange for so much wealth and power concentrated in the hands of a very few?

    No, I believe someone has a vested interest, now more than ever, in keeping our children ignorant. Unfortunately, our children may soon be too busy trying to survive, to take much interest in how a system betrayed them.

  • Comment number 100.

    Pay down borrowings quite simply means the borrower repays his debt to a pre agreed schedule or in one go.

 

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