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Spanking bank investors

Robert Peston | 09:39 UK time, Thursday, 4 June 2009

There's been a bit of fuss about a decision by the government to suspend interest payments on £325m of its liabilities - which to some looks like the state defaulting on its debts.

But don't panic.

This isn't the Treasury announcing that it can't afford to keep up the payments on its great mountain of new borrowing, which grows ever-larger as tax revenues dwindle and social security payments escalate.

This isn't a declaration that the state is bust.

No. What's happened is that Bradford & Bingley, the nationalised mortgage bank, has stopped paying interest on £275m of subordinated notes and £50m of perpetual subordinated bonds.

Bradford & Bingley logo

Which may sound dull and technical, but it matters quite a lot - partly because it's very much a first.

Up to now, the government has made sure that payments were kept up on all such bonds issued by banks that have been nationalised or in which it has a big stake.

For example, Northern Rock is still paying interest on its subordinated debt.

So why is Bradford & Bingley inflicting serious pain on investors in its subordinated bonds when Northern Rock is not?

Well, the reason is that Bradford & Bingley is being wound up whereas Northern Rock is being managed as a going concern.

However, that difference between B&B and the Rock is based on nothing more than the impotence of the Treasury at the time that the Rock was collapsing, in that it did not then have the legal powers to dismantle the Rock in a way that both protected depositors and allowed for an orderly liquidation of assets.

The Treasury acquired those powers in the legislation that nationalised the Rock - and then exploited them in the way it took control of B&B last September.

So the Rock lives on more-or-less as a matter of luck.

That said, it's not altogether clear that some great injustice is being meted out on B&B's bondholders. Arguably what's unfair is that equivalent pain hasn't been inflicted on holders of the subordinated bonds sold by the Rock, and even on holders of HBOS and Royal Bank of Scotland bonds too.

Here's why.

These bonds count as what's called Tier 2 capital - which means that under global banking rules negotiated painstakingly over the past 25 years, they were deemed to be risk capital, or part of the buffer for banks to protect them when they incur serious losses on loans and investments.

As someone who has been a banking journalist at various times since the early 1980s I can speak with weary authority about the many years of intellectual toil invested by an elite financial priesthood of central bankers and regulators in devising complex rules on the capital that banks should hold.

These are known as the Basel Rules. And since the late 1980s, they have been the foundations of how banks operate: they determined how much banks could lend relative to their capital resources.

Few can now doubt that they have been calamitously inadequate foundations, made of paper and feathers rather than stone and concrete. They have been a monumental failure - in that they didn't prevent the worst banking crisis the world has seen since just before the First World War. Worse, they may have contributed to that crisis.

One element of the Basel Rules that turned out to be utterly fatuous was the idea that subordinated debt is any kind of buffer or protection for banks. When the going got tough for banks after the summer of 2007 - and especially in the autumn of 2008 - that subordinated debt, that Tier 2 capital, even some of the supposedly better quality capital classed as Tier 1 - well, it all turned out to be irrelevant, no protection at all.

As banks crashed, all that mattered in respect of their ability to survive was how much "core" equity capital they had. Their viability was assessed by investors, markets, regulators, central bankers and finance ministers in the way that banks' viability has been assessed for almost 200 years, which is whether their traditional share capital and reserves were sufficient to absorb the losses.

In an instant, the many thousands of hours of theological debate that led to the Basel rules were more-or-less consigned to the dustbin of history.

More extraordinary still, banks that were to all intents and purposes bust decided that it was absolutely imperative to keep up the payments on the Tier 2 subordinated debt - and they were backed in this respect by governments and regulators.

In other words, banks did everything they could to bail out professional investors who had bought the subordinated debt. As the going got tough, banks simply abandoned the commonsense principle that providers of risk capital have to take the rough with the smooth.

Which is pretty rum.

If professional investors can't be punished for failing to prevent our banks from taking excessive risks, what chance is there that market discipline can ever succeed in maintaining banking stability?

Of course I can see why holders of B&B's bonds should be crying foul. Naturally they think it's appallingly unfair that they should be punished when providers of Tier 2 capital to the Rock, RBS and HBOS are sitting pretty.

But for the long term health of the global banking system, it might actually have been better if a few more holders of these bonds had been squeezed till their pips squeaked. Perhaps then they would have an incentive to keep a closer eye on the behaviour of those who run our banks, and might even prevent them taking the kind of mad and reckless risks that got us into this dreadful economic mess.

Comments

Page 1 of 2

  • Comment number 1.

    your explanation is logical but is it the real reason ......??
    Any default is likely to be seen as a weakness, will this help with UK's credit rating...probably not, just another step nearer the IMF rescue?

  • Comment number 2.

    "If professional investors can't be punished for failing to prevent our banks from taking excessive risks, what chance is there that market discipline can ever succeed in maintaining banking stability?"

    Can you explain how pro investors can prevent management taking excessive risk. It seems to me as evidenced by management ignoring votes to moderate executive pay that investors have very little control over management. Therefore itsn't punishment of one class of investors over another excessive?

  • Comment number 3.

    What's happened to the BBC? The reporters seem to be criticising decisions made by the Government more. Could it be the end of Brown?
    A much better piece than usual Robert. You still won't tell me about off-balance sheet toxic assets. I'm a big boy. I can take it.
    The system is unfair but mostly to taxpayers. Bond holders and equity holders understand the risk. Tax payers do not.
    Stop this waste of money and use the Rock for good. Let it lend again at realistic rates so we can afford to buy things such as electricity, gas, petrol etc.

  • Comment number 4.

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

  • Comment number 5.

    'Don't panic'lol robert, when should i start?

  • Comment number 6.

    This blog has touched on what I feel is a fundamental problem with where investment capital comes from and accountability to these "investors". Huge portions of FTSE250 companies are "owned" by fund managers. Very many of these funds are occupational pension funds and the funds are usually chosen by pension managers not the members. It means that any real influence does not lie with the memebers i.e. the true owners of the companies, they are twice removed from having any influence. The fund managers and in turn the pension managers have the real power, but why should they wield this power. They will be paid their salaries and probably even bonuses to boot no matter how badly the companies do. The company managers know this too so feel no real obligation to behave properly. Nothing will change even after this crisis is over unless the true owners i.e. pension fund members have the power to take their money out and put it elsewhere.

  • Comment number 7.

    Once again Peston has got himself in a mess. What I find intruiging is that for all his years in financial journalism, he doesn't understand the difference between Tier 2 and Tier 1 debt.

    To put it simply there are three levels of bank debt, senior secured, senior unsecured and sub-ordinated. Senior secured is known as Lower Tier 2, senior unsecured is Upper Tier 2 and sub-ordinated is Tier 1 - which is on a par with Preference Share holders. Without wanting to sound like I'm being overly picky, but how can we rely on one person so much as to provide us with the "answers" to what is going on when he doesn't understand it. Tier 1 debt is of less quality than Tier 2 debt, which is why it pays more interest.

    The Basel rules on Bank capitalisation is complicated to say the least, as is the definition and calculation of Tier 1 and Tier 2 capital, and whilst I applaud Peston on trying to explain it in one line, he hasn't hit the mark.

    As an Investment Analyst for an asset management company, it may sound harsh but investors want to make money and have to take risk to obtain this. Investors know the risks involved, can protect themselves from this risk (in the form of credit default swaps CDS), and they should know what they're doing. If someone doesn't understand the implications of their investments, they should not be in that asset! Yes it is unfair that a Nationalised bank is not honouring its committments to investors, which I personally think it should do (as explained later) but with Tier 1 debt, there is no protection against defaults. The rammifications however are huge in that once the government sets a precedent, there is no reason why other banks will follow this and default on their sub-ordinated debt too.

    The Corporate Bond market is very important to both the UK economy and UK stock market, and it has only been over the past few months we have seen this market show signs of recovery. Now it feels as though the rug is being pulled from under our feet.

    Why can't the government just continue to pay back bond holders without issuing more debt and let the markets recover?! Confidence has been improving but is still really low, and all this will be un-done by the defaulting! This is not good news...

  • Comment number 8.

    Robert, so it's the architects of Basle and the subordinated bondholders who are to blame for the management of these Banks failing to assess their market and credit risks properly? If they had assessed the through the cycle risks sensibly they would have raised more capital from shareholders and bondholders ahead of the credit crunch. Of course, properly assessing the risk would have shown that their operating models required more capital than investors would have been willing to provide. Sounds like you're missing the point of Basle and blaming the bondholder victims.

  • Comment number 9.

    You are spot on Robert. Just one point to make though and so clarify your argument. It has always been known that Tier 1 capital is a buffer against losses whilst a bank is a going-concern. Tier 2 capital, on the other hand, only comes into play when the bank is no longer a going concern and has to be liquidated - in other words a buffer to protect depositors funds when the bank is wound up. This is why it is important to make subordinated debt holders lose out when banks fail. By protecting the subordinated debt holders in the largest UK banks a dangerous precedence has been created and, therefore, broken the regulatory purpose of this Tier 2 capital.

  • Comment number 10.

    Robert surely the issue is that a lot of the tier 2 funding is provided by other financial institutions which would be in the mire themselves if payment was stopped? So I would suggest that it was probably a political decison to continue paying it to try and limit the spread of rot to the entire financial services industry.

  • Comment number 11.

    You haven't mentioned Basel II. Is it an improvement, or are the pillars on which the Basel accords are built fatally flawed?

  • Comment number 12.

    It's just the little guy that gets hit with the massive interest charges, disproportionate late fees for being a single day late, heavy-handed pressure and bullying from debt collectors, and are threatened with court action and illegal costs for small amounts of debt.

    Same goes with energy suppliers who send a letter demanding 250 pound court fees to collect a 20 pound debt

    Same goes with local councils who send a letter demanding 100 court fees for being late on a monthly Council Tax installment.

    i.e. Ramped up Court Fees for sending threatening letters and no Court Hearings

  • Comment number 13.

    Are you seriously suggesting that LBG & RBS default on their debt for 'fairness' sake? I think you can abandon any hope that these companies are going concerns and will one day be returned to full private ownership. Just how are they expected to raise capital if they don't pay their existing creditors? Back in the real world (divorced from the NuLabour concept of 'fairness') no one would touch them with a barge pole. Do you suppose the Bank of England can just keep printing the money they need? Having gone to great lengths to rescue the banking sector why destabilise it now? Argentina is still living with the consequences of defaulting on its debt decades ago and whilst this may not be a sovereign default the reprecussions for the UK could be similar. Forget 'fairness', don't default, we must rebuild trust in our banking sector and only then will we begin to recover from this disaster.

  • Comment number 14.

    Why don't we just print more money to pay our liabilities. If fact the more we print the richer we get - hoorah for Gordo!

  • Comment number 15.

    Surely, the answer to this question is due to Santander taking over the deposits arm of the business and the UK government the liabilties

    Since the Bradford & Bingley logo is now to disappear from the High Street there is little point in bothering to keep up the facade of a prosperous business.

    Why should the UK taxpayer be expected to fund bond-holders of a bust bank if that bank is soon to become an ex-bank?

  • Comment number 16.

    Dear Robert,

    Are you sure you are right? The House of Lords reckon that Tier One capital is designed to buffer banks against their losses. Tier One capital, they say, is costly and the banks tried every ruse to avoid the cost. Tier Two capital is designed to provide a buffer against losses by depositors - so the HoL grandees say. Securitisation, off balance sheet vehicles and conduits were means to get round expensive capital by the banks.

    Any way, why dont you post on the H0L findings. It was on your business website for a short period and then rapidly taken off. It makes very important points and identifies failures in regulation and supervision by the Tripartite Committee. You know, the numpty regulators that 'supervised' this complete mess!! Also, why is the issue of regulation being handled by unaccountable members of the HOL - will the Treasury Select Committee get hold of this? Public inquiry is the bare minimum required.

  • Comment number 17.

    I think you'll find that a lot of these bonds are held by institutions such as insurance companies and if our rescued banks start defaulting on them the law of unintended consequences may come into play causing a worldwide crisis in other sectors. Is stability a bad thing now? Crazy idea.

  • Comment number 18.

    It is nothing other than rape, pillage, and plunder of certain investors over others.

    Sacrifice any, the general public do not understand. The ethics of the gutter have become the ethics of the sewer.

  • Comment number 19.

    Taken you a very long time to catch up with this one Robert, and it is noticeable that you have no dates on any of this

    It is also noticeable that you blame the bond holders to control banks rather than the treasury report which blames the failure of the triumvirate set up by Brown which neutered all the organisations involved and laid the risk fairly open

    The banking laws enabling this bond non payment were set up because the system failed after the capitalists ran it beyond the limits of understanding and outside the triumvirates gaze

    I would now like to know when your journalism was telling us that this triumvirate was dangerous

    I'm afraid I believe that you are spinning the government story and not truly reflecting the markets or the BoE views.

  • Comment number 20.

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

  • Comment number 21.

    all very interesting, but here is some more news, not about B&B, but C&G, It has just been announced internally that c and g are having large scale meetings on tuesday to announce changes in the brand, the internal whispers are that c and g will either be shut or downsized, apparently this all stems from the takeover of halifax, with many towns supporting all 3 brands - are we about to see another historic high street brand go from the nation? and who is to blame? lloyds, halifax or mr brown?

  • Comment number 22.

    #6 - pension scheme members do not own money - it is Trustees who invest it on their behalf.

    if members switch their money they will only invest with someone else who will undertake very similar investment decisions, because no one will want to stand out from the crowd. May not be what we want, but it is a fact of life.

  • Comment number 23.

    2. At 10:05am on 04 Jun 2009, herima wrote:

    "Can you explain how pro investors can prevent management taking excessive risk. It seems to me as evidenced by management ignoring votes to moderate executive pay that investors have very little control over management."

    Exactly - cutting out the razzle-dazzle-them waffle - in reality shareholders allow the board members of the companies they invest in too much free reign and demand too little independently verified performance data from them by which to decide upon whether these individuals will or won't remain as Board Members. That is, whether they deliver value for money to the shareholders, as managers.

    Having said that UK shareholders have allowed that to happen and been razzle-dazzled into it. It's all part of the 'quick buck at little effort' culture. "Damn, I've put £XXX thousands into that company - do I have to micro-manage it myself too?"

    Er, well, if you don't and the Board milk you for all your worth, then don't cry about it retrospectively.

    If you allow people to do things unscrutinised and unregulated - i.e. without their performance being managed, then they will do silly, self-serving, risky and damaging things, e.g. the MPs expenses scandal, the banking crisis.

    And just like the MPs system is 'highly flawed', so the system by which shareholders cannot effectively and efficiently hold their Board members to account is equally flawed and gives rise to fat cat CEO's on ludicrously high remuneration packages.

    Sadly, the vast amount of money paid to these often 'not-nearly-as-capable-as-they-would-like-to-make-out' individuals could very often be invested in the company itself ensuring greater long term security for shareholders, workforce, customers, etc.

    As you can see though from today's news, a similar problem exists at the BBC. Its managers feel it is o.k. to use public money to pay certain stars for their performances, but then enter into a secrecy contract with those stars to ensure the actual amounts paid remain secret. This results in the farce whereby they won't reveal to the National Audit Office - a statutory authority - what they have paid these stars thus circumventing the NAO from auditing these BBC managers' ability to provide value for money.

    Sorry, dear shareholding people, if you're waiting for someone to come along and sort out the companies you've invested in ... well, there ain't no-one coming.

    Perhaps this helps - if you are considering moving some of your investments that is.

    http://www.ethicalconsumer.org/

  • Comment number 24.

    Companies Greedy Mantra for exploitation
    Terms and Conditions Blah Blah Blah
    Outsource Debt Collection to the Irish
    Call Customers up 5 times a day every day
    Rack up Fees to Sell Debt on to Legal firms
    Same way Legal Firms rack up fees exponentially
    And Then Place Charging Orders on Properties

  • Comment number 25.

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

  • Comment number 26.

    "many years of intellectual toil invested by an elite financial priesthood of central bankers and regulators ...utterly fatuous"...
    As I've been saying all along - they don't have a clue ! They don't understand what money is, where prices come from and how they are paid.
    They think money is a natural system that automatically reflects reality - it's not it's an out of date system that shows we are poor (Credit Crunch) when we are rich - (Over capacity in the car and most other Industries) "One element... that turned out to be utterly fatuous " - there is plenty more than One element ! If you want to do things properly you have to get the numbers to reflect reality and so you need to be using NEFS : Net Export Financial Simulation or something like it

  • Comment number 27.

    What is blatantly obvious from several of Robertss articles is that the financial infrastructure of the developed west is crumbling fast. When I read some comments on here declaring Thatcherism and reaganomics are dead, I wondered what this meant (I am 38 btw). Banks defaulting on Bonds, I happen to know (as I work for a financial institution, this is becoming more common), bond defaults hurt investors. How will you encourage investment when you default on paying up on it? A fundamental question that must be asked.

    Now it all seems clear, the smoke and mirrors of the last 30 years or so(Paying into pensions, home ownership share capital etc etc) is at an end. Basically any system will only last for so long before everyone works it out, can everyone be a millionaire? The answer is obviously no, and thus we have reached a point in the current system (which has been exploited from top to bottom for personal greed) where the system will collapse.

    A new world awaits us and Gordon Brown has no idea what to do, he even thinks he can fix the system he helped break. We are in trouble, pity Cameron has no idea on what has actually happened over the last two years.

  • Comment number 28.

    Why am I not surprised... The richer you are the more protected from failure.
    Greedy capitalists were the destroyers of the global economy and the least affected by there actions.
    Growth in the economy is dependent on consumers, if most of us are "skint" how can we help fuel it.
    Thousands of CEOs GEOs MPs and all those other AKAs on 60>600 grand minimum plus bonuses,company cars,second homes,expenses,pensions and pay-offs. These people don't spend there own money they hoard it! They don't fuel an economy they stagnate it!
    If the minimum wage(currently 13k GROSS a year)was at a level that allowed 15 million+ employees to at least spend or save some money rather than have to claim working tax benefit just to make ends meet it may have helped.

  • Comment number 29.

    Now I am properly confused, I dont know whether to start crying with crodile tears type 1 or type 2.
    Look Mr P, since you have started scribbling again the old share thing has taken a knock, could you take next week off so we can check to see if it is really you, also I might make a few bob.

  • Comment number 30.

    Another structured investment vehicle bites the dust after the pillocks retire and take their pot somewhere else.

    http://www.youtube.com/watch?v=-1X8j53U1So

  • Comment number 31.

    In this Great Pyramid Ponzi Scheme of Life (also known as The Big Scam Swindle)
    At the Top End the Bankers play with big numbers and fudge the figures by lending/investing/borrowing more.
    At the Bottom End the poor get 10 pounds to play with each week after paying bills and buying petrol / diesel to run around in.
    If the poor are going to have no money anyway, they may as well spash out on a lap-top pc, house and car to spend time doing nothing when out of / not at work..
    (But is it not ironic that the top end bankers should really be going down the drain and out of business too and will fade away)
    (The Top 5% holds 95% of the World's Wealth and while the Rich get Richer, the Poor get Poorer, and the little that the poor people have will be taken away, do you hear what I say)

  • Comment number 32.

    Is this what Basel II was supposed to address, to strengthen the previous Basel accord?

  • Comment number 33.

    Robert,

    Your best post for some time I think, yesterdays was not bad either.

    I appreciate all the sculduggery, smoke, mirrors and mindblowing wealth available to the high preisthood of world finance and the 'luck element' now emerging (interesting use of theological terms in your post I thought).

    But at its core i am with Lone wolf #12 on this.

    It is a tragic picture to paint when we have the technology now and knowledge available to us such that we can all enjoy a good base level of security, work less and have more free time. But as a race, we choose (or are led by the nose) down a path where a few ( but growing in number) can accumulate riches beyond imagination, but those riches are build upon the foundation of perpetuating the myth that eternl growth is what the global economy still needs.

    Jericoa

  • Comment number 34.

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

  • Comment number 35.

    #3 wrote re Northern Rock - "Let it lend again at realistic rates so we can afford to buy things such as electricity, gas, petrol etc."

    This comment sums up where we are as a nation more than anything else that I have ever read.

  • Comment number 36.

    Robert,

    Wouldn't the billions of 'B' shares the government own in RBS & LLOYDS be worthless if they default? Seems like a really dumb idea unless you wanted to end up nationalising the rest of the UK banking industry.

  • Comment number 37.

    @ ihavenone

    Sorry, but I felt compelled to reply to your post (and register), especially since you hold yourself up to be a professional. While the post is mostly correct and I agree with the points, the sentence

    'Senior secured is known as Lower Tier 2, senior unsecured is Upper Tier 2 and sub-ordinated is Tier 1 '

    is just plain wrong. All 3 of those debt types are subordinated, they just differ in degrees of subordination (coupons can be deferred, non-cum, extension to perp, etc etc). I've worked in credit many years so I know my onions on this topic...

    Furthermore, while T1 bondholders deserve whatever they get, those BRADBI LT2 noteholders may feel rather annoyed that the govt retrospectively changed their bond docs (and the law) to allow coupons to be skipped - not a feature of normal LT2 bonds. Of course, if it wasn't for the govt then they would have lost everything, but still...

  • Comment number 38.

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

  • Comment number 39.

    #6, zoro - pension-holders do have the power to change their allocations - they can invest in funds other than FTSE trackers by contacting their pension trustee to transfer their investments. There are active funds which will advertise their investment rationales, ethical funds which prohibit investment in certain companies/industries, or they can bypass the equity market altogether and invest in bonds, gilts or cash.

    Robert - you don't mention that the current perp financials market (the market for these Tier 1 and Tier 2 capital bonds issued by Europe's financial institutions) is a mess and has been for a while, with most of these bonds trading significantly below their par value. There is a risk that financial institutions permanently discourage investors from lending them money, which under the various terms of these arrangements, need never be paid back and need not even receive interest payments! For a financial system gasping for money, to stick two fingers up at the investors providing money is quite extraordinary, and casts significant doubt on any near-term reparation of the financial system.

  • Comment number 40.

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

  • Comment number 41.



    'a product is worth what someone will pay for it'

    - subordinated debt will only be of value in a bull market if it's value can accurately and easily assessed - which it clearly can not.

    - the value of debt that can not be easily assessed is highly unstable and largely determined by psychological factors; In an inflated market the subordinated debt may be highly profitable - being linked to the underlying market confidence. Indeed products whose value are largely determined by investors 'faith' and are not easily defined are those you want to invest in when times are good - just be sure to get out before the market fails and investors attempt to link value to measurable factors.

    Note: many of the 'measures' banks have employed based on 'advanced' computational techniques appear to have simply over-fit the pattern of profitability when times where good.

  • Comment number 42.

    Can't help thinking that this sends out a terrible signal from a government wedded to funding itself by borrowing. We in the City will dribble on long and boringly in technical jargonese to justify in (ho-ho) scientific terms the blindingly obvious decision that normal people would make in an instant and then move on. That decision being, can't trust HM Govt to pay it's debts, so hike the rate or withdraw credit. Looks like spiteful economic vandalism by a dying government.

  • Comment number 43.

    33. At 1:05pm on 04 Jun 2009, Jericoa wrote:

    "It is a tragic picture to paint when we have the technology now and knowledge available to us such that we can all enjoy a good base level of security, work less and have more free time."


    Yes, we do have those things, but we just seem to have lost the openness and integrity to use these things wisely.

    I'm still a bit bemused that the BBC, who like most media have been jumping on the MPs for trying to hide their dodgy expenses, have told the National Audit Office they can't be told how much the BBC pay various stars because the BBC signed up to 'secrecy contracts' with those stars. I mean, if we were talking ITV, I could just about believe the stance, but a public broadcaster funded from the public purse?

    I could also perhaps say, how could anyone go to work for a public-funded organisation in this day and age and expect such a Victorian 'gentleman's club' silence about their remuneration and their value as a provider of services?

    But all this sort of stuff seems to just be blurring into one great homogenous lump of untrustworthy Britain. Seemingly us British are all so wonderful and magificent and trustworthy that we have to do great chunks of our business hidden away in secret and avoiding scrutiny or independent audit, like some group of dodgy spivs from WWII days. MPs, fat cat CEOs, Bankers and now seemingly BBC Managers. Is there anyone left that ordinary people feel they can trust?

    Or has everyone, without exception, just got too many sercrets to hide?

  • Comment number 44.

    Look at the Bradford and Bingley accounts for last year and it makes a profit. There are still those in government who can not answer why Bradford and Bingley was nationalised in the first place, whether Santander was actually the highest bid for the savings part of the business - this part of the business was grossly undervalued and sold at a rock bottom price and the govt have not even had the decency to write to shareholders or bondholders about the nationalisation of the company. The United Kingdom Shareholders Association are fighting a campaign on behalf of shareholders and bondholders of Bradford and Bingley. Lord Myners can not even provide an answer to the above questions so it all leads to the statement that the govt rushed the decision to nationalise Bradford and Bingley because it did not want to lose face - it simply could not care less about those who lost money -a lot of pensioners in this case who needed an income.

  • Comment number 45.

    The banking crisis was caused by too many people being paid a small fortune for taking risks with other people's money.

    I have no problem with people making a profit from speculation, provided they do so using their own capital. Unfortunately, the profits made were commissions earnt on the "heads I win, tails you lose" principle.

    Why would the fund managers and investors change their behaviour if the subordinate debt was lost? It isn't their money that they are risking, they would risk not getting their bonus if they walked away from the deal so they are incentivised to make bad investments, since from their personal point of view "no investment is worse than a poor investment".

    I've worked in a trading house and I know how the pressures work.

  • Comment number 46.

    #3. eatingantonyo wrote:

    "Let it lend again at realistic rates so we can afford to buy things such as electricity, gas, petrol etc."

    Do you really think it is sensible to borrow in order to buy essentials such as fuel?


    #35. truths33k3r wrote:

    "This comment sums up where we are as a nation more than anything else that I have ever read."

    You really need to read more!

  • Comment number 47.

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

  • Comment number 48.

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

  • Comment number 49.

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

  • Comment number 50.

    Mr Peston,

    Given that you have been a banking
    journo for such along time, I would have thought that you would be aware of the correct tiering of bank debt at the subordinated level. You stated 'even some of the supposedly better quality capital classed as Tier 1'......Tier 1 is the lowest form of subordinated debt and ranks below Tier 2 (or more correctly 'Lower Tier 2 and Upper Tier 2').



  • Comment number 51.

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

  • Comment number 52.

    49 steady on there old bean

    Youve been watching too much James Bond


    Remember Satire is the greatest marital aaart ,people must take to their couches and keyboards AND GET THEIR FINGER OUT BEFORE IT IS TOO LATE TO GO HAHA .

  • Comment number 53.

    46. At 2:47pm on 04 Jun 2009, rbs_temp wrote
    "Let it lend again at realistic rates so we can afford to buy things such as electricity, gas, petrol etc."

    Do you really think it is sensible to borrow in order to buy essentials such as fuel?

    I HOPE YOU ARE TRYING TO BE FUNNY? LET THE BANK LEND SO PEOPLE WHO NEED THE MONEY DESPERATELY CAN FIND IT. HOW ABOUT LENDING FOR A MORTGAGE TO HELP PEOPLE PAYING 5%+. IS THAT A BETTER WAY OF PUTTING IT.
    LIFE WOULD BE A LOT BETTER IF WE COULD GET SOME FOCUS ON THESE BILLIONS WE ARE SPENDING RATHER THAN JUST GIVING THE MONEY TO BANKS TO HOARD.
    HAVE A NICR DAY TEMP

  • Comment number 54.

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

  • Comment number 55.

    Asking the powerful finacial brokers to behave responsibly when it comes money matters is like asking turkey's to vote for Christmas. They just won't do it.

    The only answer is for governments to severly punish directors of large banks and corporate businesses who (wittingly or otherwise) allow banks and corporate businesses to be brought to their knees, for failing to act with due dilligence or taking the necessary actions in time to stop that from happening.

    In that respect senior bankers and directors of large organisations including hedge funds and pension fund managers should (as small businessmen are) be declared bankrupts, lose all their ill begotton gains and if they have been negligent (knowingly or unknowingly) these people should be given custodial sentences.

    Unless that happens far too many of them will carry on being just as morally incompetent and just as badly behaved, because they regard themselves as being above the laws of the land that govern the rest of us.

  • Comment number 56.

    #53. eatingantonyo wrote:

    "I HOPE YOU ARE TRYING TO BE FUNNY? LET THE BANK LEND SO PEOPLE WHO NEED THE MONEY DESPERATELY CAN FIND IT. HOW ABOUT LENDING FOR A MORTGAGE TO HELP PEOPLE PAYING 5%+. IS THAT A BETTER WAY OF PUTTING IT."

    No, I was not trying to be funny and yes, that is a better way of putting it.

    I have no problem whatsoever with banks lending money so that people can buy a home, or any other asset that will in all probability appreciate in value. But your original post demanded low interest rates so that people may borrow to buy "electricity, gas, petrol etc.".

  • Comment number 57.

    #37 to Scozer,

    Thank you for pointing out my errors, I must admit that fixed interest is my least favourite asset class. That said, my source of information has been the professional bodies namely CFAUK (formerly UKSIP) and the SII. Given that both Tier 1 and Tier 2 can be sub-ordinate, something not suggested for the IMC or SII Certificate, it makes one wonder what distinction senior-secured debt has. I ask you as someone who works in Credit and knows a lot more about it than I do, is this ranking of debt given its own Tier, or does it just settle in with the rest?

    Cheers

  • Comment number 58.

    The pound took a hit a couple of hours ago against the dollar and I think that this default is the reason.

    Another rumour roaming the City this afternoon was that GB had resigned, but this has been refuted recently, by No 10. Pity, all the dealing rooms were cheering, so I heard.

  • Comment number 59.

    Its all about re inflating the bubble Robert, the end result of this bank bailout will ultimatly be a return to pretty much what was there before with the differance that in future the financial services sector will always know that whatever mess it makes it will be bailed out by us taxpayers!! Just look at todays rise in house prices, all funded with taxpayer backed mortgages. Hey-Ho.

  • Comment number 60.

    20 25 40 and 47 removed after passing premoderation


    For the irelittleate Toireg moderators from the sub Sahaharahoorah


    PITTY ABOUT 40, IT WAS A GEM if i do say so myself . [The AAArt of bankink by Wee Fah Ueue ]

    Now how can i get this one passed the eagle ayed sentinills of the truth fairies running the bbqueue . [and make it five on the trot]

    Please oblige me ,i want a place in the guiness book of records and the message board of fame.

  • Comment number 61.

    Someone else's debt as your own capital. That's a good one. Cast iron.

    (i) You lend me a fiver;
    (ii) I give you a certificate saying I borrowed the money from you;
    (iii) You then keep this IOU is part of your capital reserves, to be used as a safeguard in case your loan book goes sour.

    Trouble is, I lent the money to the same people who are on your loan book, and so my loan book has also gone sour, and so I can't repay you....

    Why can't banks just keep more cash as capital, or commodities, or just something useful for a change, rather than debt being underpinned by yet more debt.............?

  • Comment number 62.

    OK let me understand this: since the crunch hit the banks the banks have been rescuing the holders of one class of risk capital in preference to savers and equity investors.

    To my legal mind this strikes me as a prima facie illegal preference and thus fraudulent trading and thus an act of bankruptcy and any company or director who sanctioned or knew about this, or should known about this, is jointly and severally liable for the financial consequences of his actions and subject to the full force of the law.

    Or is there a 'Get Out of Jail Free' clause somewhere!

    MMG (Mervyn Must Go)

  • Comment number 63.

    leaving aside all your technical mumbo-jumbo about Tier 2 capital Robert, which several posters say is incorrect anyway, I'd see this as a sign of ongoing serious problems with Ponzi scheme banking which is now shelted under the umbrella of Ponzi-scheme government ownership or guardianship in the US and UK

    why hasn't the UK covered this B&B debt; I don't have the faintest but might just suspect that it is because they can no longer afford any more; which might be the same reason that the British govt have not ponied up billions to try and keep parts of the auto industry in the UK, whilst Germany, Canada, US, Korea, Japan etc all are; it's a high risk strategy either way, as it greatly increases the risk of Vauxhall etc closing, but when you're broke you're broke; and maybe it will turn out that it was a smart move not to pour money down some of these holes

    of course Robert doesn't report on such things and nobody knows the answers anyway; the so-called experts continue to guess and the politicians are too busy scheming against each other and squabbling on deck to even notice that we remain in close contact with the iceberg!

    PS: where is Robert going to get his scoops and stories if Alistair gets reshuffled? from the child minister for children?

  • Comment number 64.

    @ ihavenone

    Credit terminology can be obtuse and bank credit terminology particularly so. I think you've misread some of the course material, because both T1 and T2 are classified as subordinate, but T1 is more subordinate, if that makes sense. Senior secured (and unsecured) debt doesn't have a tier because it isn't considered capital - only subordinate debt fits that description. To my knowledge (not being a bank specialist) I don't think banks borrow on a secured basis (like a mortgage is), rather pretty much all their senior debt is unsecured.

    To sum up, in reverse order of seniority in a banking liquidation, you'd have shareholders, prefs/T1, UT2, LT2, senior.

    I've also noticed a few of the other posters critising Pesto for referring to T1 as 'better quality capital'. This is a correct statement, as it is capital that can be used more readily than T2. It is 'better quality' for the bank, not for the investor.

  • Comment number 65.

    @ Scozer,

    Thanks for replying. I looked over the material from the course textbook and there is a strong implication as to where the Tier sit with regards to the basic levels of corporate debt. Whether this is intentional is another question as the textbook is full of little errors, typos and misexplanations.

    The rankings of sub-ordinate are crystal clear. I knew the order but it was whether Tier 2 merged into the senior categories or whether the senior bonds were their own entities.

    Cheers

  • Comment number 66.

    Earlier this afternoon a rumour started that Gordon Brown was about to resign. In three minutes sterling plunged by more than 3 cents from almost $1.64 to below $1.61. This was a massive plunge, the likes of which we have rarely seen, even in these times of crisis, just proves how fragile the whole UK economy is...........

  • Comment number 67.

    66,

    Quick start a rumour that El Gordo is set to stay for another 5 years.

    What do you think the pound would do then? Honestly now!

  • Comment number 68.


    Tiers - 30/09/1965
    5 weeks at #1 - 24 weeks on chart

    Tiers for souveneers are aaall you've left me
    Memories of a LUV [type recession] you never meant
    I just can't believe you could forclose me
    After all those happy hours we spent and spent(together)

    Tiers have been my only consholation
    But tiers can't mend a broken aaart I must confess
    Let's forgive and forget
    Turn our tiers of regret
    Once more to tiers of happlessness


  • Comment number 69.

    A few months ago the Treasury announced a review of corporate governance in the banking industry (the Walker Review) which is designed precisely to examine this kind of issue.

    A colleague (Sam Robbins) and I co-wrote a submission to the review which went in last week - we focused mainly on the equity tranche but our comments could apply almost as well to Tier 2 capital providers.

    If you'd like to know a bit more about the fundamental high-risk strategy that is encouraged by the equity structure of the banking sector, please click through to: http://www.knowingandmaking.com/2009/06/our-submission-to-walker-review.html


  • Comment number 70.

    It does seem to be a first doesn't it, this government doing something almost socialist. To stop paying returns on risk carrying bonds in a failed company out of the taxpapyers pocket but instead introduce the finanical investors to the downside of risk rather than letting the taxpapyer suck it all up just because it's a bank.

    They are professionals so should understand the basics of risk , high/medium/low are just degrees of risk. Low risk does not mean guaranteed, very bad returns for guaranteed. If they had wanted to, no doubt they could have invested in one of the myriad of mechanisms they invented to give the illusion of guarantee on the varying risk investments - would have been quite cheap to do so with these lower risk ones I'm sure.

    We have quite enough borrowing to do without borrowing to pay out profits on failed risk.

  • Comment number 71.

    three months ago ECB Trichet said Euroland GDP would fall by -2.7% in 2009... today he said the fall would be -4.6%... so much for forecasting!
    do any of these clowns running our economy, banks etc have any idea..?

  • Comment number 72.

    Professional investors failing to control management, whether in risk-taking, stupid and expensive acquisitions (such as Wolseley), or remuneration is a result of the lack of accountability both professional investors and management have to the people providing the money, mainly us as pension savers.

    This lack of accountability suits professional investors and management of course because they can pay themselves huge sums with our money without reference to us.

    It also suits the government as we see the large political donations roll in from the City and big business, and ex ministers are given very lucrative appointments by PLC's etc (I noticed Sugar - a man who sets a sterling example by employing people who lie on cv's - visited Brown today, perhaps Brown is to be the next Apprentice).

    Meanwhile we have people like Saint Vince blandly saying the shareholders should pay, when we pension savers are the shareholders who are doing the paying without having any say at all in such matters as senior management remuneration.

    Corporate governance in the UK is as corrupt as MP's expenses, which we are also paying for of course.

  • Comment number 73.

    #66 jolo13

    How curious and perverse. I would have thought the rumour of Brown's resignation would have greatly strengthened the pound. Maybe the rumour was that he was going to stay?

  • Comment number 74.

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

  • Comment number 75.

    With all Robert's heroic efforts to explain the significance of this latest default by the government to pay interest on its debts - or "suspend interest payments", if that sounds less dodgy - I find myself defeated by the complexity of the subject. Tier 1, Tier 2, Basel 1, Basel 2....? All beyond me I'm afraid.

    The events of the past year have served to tell me that I just didn't know that I didn't know about a great many things. Finding out that something is made of paper and feathers when what was needed was stone and concrete seems a very wasteful, dangerous and pointless exercise. If transparency could help cure this situation, it should be tried, but I think the quickest remedy would be to disband the high priests of the financial world with a few hefty financial sanctions.

    If I go on an adventure weekend abseiling down a cliff, I would pay the team who are in charge of the equipment to make sure the ropes can carry my weight. If I fall and break my neck because the ropes aren't strong enough, the people who run the course would be liable, not the rope manufacturer or me. Of course, I'd be dead, but the point is that the next abseiler would have a better chance of living! The company who killed me would no longer be in existence, hopefully.

    Surely the same principle should apply in the financial world? Instead, what appears to be happening is that all the dubious practices are still merrily being practiced, with a few more thrown in for good measure.

  • Comment number 76.

    #73 hodgeey

    the markets always sell on good news and buy on bad news..........so they sold pounds like crazy!

  • Comment number 77.

    3#

    Anyone who needs to borrow money so they can buy afford to buy "electricity, gas, petrol etc" is in a spot of financial trouble, i think.

    May be time to sell the car and use the money to buy a bicycle.

  • Comment number 78.

    FatuAAA's cat hypurrists of bankink ,is the required wordage ,that used as insurance the collatteral that was supported by that which was to be insured beneath .

    Lehman proved that point ,when one swings they all swing together ,it beggars belief that this bonus enhancing poppyconcocktion was palmed off into joe publics pension pot by appearing to be part of the enterpise culture, whilst in reality it was only created as a fictional lien on wealth [fiat currencies swapped for in reality worth less derivatives]witout have necessitated the creation of real wealth itself.

    Bankerrs filled their aaalimentary canals with the help of the bonus mugs at hand ,scooping from the investors full pint pot only to send that pot back full of toxic return waste[more to follow ] with an untested lifetime actuaaairial guarantee to those that will one day drink from it .

    Forget the claims of racket scientiste ,what one sees , is what one will get .

    Is it any wonder that many choose not to save for a pension , but will soon be forced to buy at bargain debasement prices the runoff from the toxic repositories purchased by the state [to ensure future jobs for the troy boys ,in banking] seemingly to fill their pension pots .

  • Comment number 79.

    The main problem I have with this article is the assumption that only professional investors hold this type of investment. These bonds were well publicised in the press and to my own knowledge were held by individual investors, sometimes elderly, who were simply looking for a reasonable return at what was perceived at the time to be relatively little risk.

  • Comment number 80.

    I see you are still practising censorship upon the truth.
    Why are you afraid of publishing message number 74?

    I and others acting for the shareholders and bondholders have evidence to support all that I say in message 74 and much, much more.

    I challenge the BBC to tell the truth of this situation, the real story behind the story.

  • Comment number 81.

    #3 eatingantonyo

    Got it spot on. Although I suspect for the wrong reason!

    The banks have to lend. If they don't then we are doomed. Money will get scarcer and scarcer. Where does everybody think money comes from?
    Like it or not in the system we have at the moment we need feckless folk who take out loans. They spend the money. It ends up in our pockets and gets deposited in banks. Everybody wins.
    We need more feckless folk.
    The government has already bailed out feckless banks but if they dont lend then that will have been a waste of time and our money.
    Go feckless go..

  • Comment number 82.

    How illiminating have been the events of the last six months. Lest we thought we were building a more solid, secure and just society, the moral relativists make a sudden sortie into the living room.

    The effects have yet to sink in. When they do, those who have till now commanded the political and financial heights may find the landscape changing beyond recognition.

  • Comment number 83.

    oh dear while robert fiddles with tier 1 another minister resigns.....purnell has finished gordon brown....!

  • Comment number 84.

    Robert you are incorrect again in your comments on this issue.

    I will deal with the plight of the small savers who are holders of B&B PIBS.

    You are putting forward the Governments standard defence line which is both inaccurate and untrue. Instead of winding on about Tiers of debt which is a technical issue not understood by the 1600 small investors who originally invested in Building Society PIBS before B&B was floated as a bank and their PIBS became subordinated debt, you should consider the simple outline facts of their situation. Probably the bank should have written to them at the conversion and described how their bonds had changed in the risk they carried but this did not happen.
    Now 1600 small savers, substantially pensioners, widows and even the long term sick who have invested their life savings in these bonds are to lose their income and later, their capital as well because the Government has ranked itself above them in settlement, although it is in reality the shareholder and should rank last.
    These bonds are described as safe for people seeking a stable, long term income and have proved so for over 30 years (see the BSA website). They do not pay significantly more interest than short term bonds bought over the bank counter usually around 2% at most, so the risk of total loss is not reflected in the interest rate. The main advantage was the security and regularity of income and the interest rate which was fixed at the time of buying the bonds which enabled these small savers to forecast their future income accurately, something which is important when you will never have any other income.
    Your suggestion that these people should control the Chief exec and Board of B&B is farcical and you know it, please stop trying to justify the unjustifiable with this errant nonsense from the Treasury. The Treasury is trying to say that it is the bondholders own fault to deflect criticism from the Treasurys mishandling of B&B.
    Just for clarity I will restate the B&B situation.
    A British bank of over 150 years standing which conducted all of its business in the UK and had the highest Tier 1 capital ratio of any bank in Britain at the time the Government nationalised it, was broken up and £21 billion of its deposits plus its total branch network were sold to a foreign bank, Santander for a mere £612 million. This prompted the chairman of Santander, to issue press statements claiming he had done the best deal in European banking that had been done in 20 years. The labour Government and the Treasury civil servants advising it had therefore done the worst deal in European banking in the last 20 years.
    Since this disaster which wiped out the investments of nearly 1 million small shareholders and others, the 1600 small savers in the permanent interest bearing bonds of the bank have been trapped in the wreckage the Government left behind. As I mentioned earlier, the Government has ranked itself above them for capital repayment and has now stopped paying their interest together with the dated bondholders who are large institutions.
    WHY DOES THIS SOCIALIST GOVERNMENT HATE THIS SMALL GROUP OF VULNERABLE PEOPLE SO MUCH THAT IT IS DETERMINED TO UTTERLY CRUSH THEM BY TAKING THEIR LIFE SAVINGS? Compare this with the Governments treatment of some politicians, thrown out for incompetence and attempts to prevent public access to expenses information. One is to receive 2 pensions and the second fund will be topped up with tax payers money of over £1.2million and that one may yet get a job for life in the Lords! Outrageous, disgraceful words fail me.

    I have sent a report to the chancellor, which was delivered to his desk by a senior MP, describing a simple solution to the situation of these small savers which is to move them to HBOS or Northern Rock by exchanging their investment in B&B bonds for the same amount of Government loan money from either HBOS or Northern Rock. The net effect on the accounts of both banks would be the same, there would be NO COST TO ANYONE AND NO COST TO THE TAXPAYER and these small savers would be placed in the same position as all other bondholders of PIBS.
    WHY DOES THE GOVERNMENT NOT DO THIS?
    One day there will be a public enquiry into the mishandling of B&B and all information will be made available to the forensic accountants and lawyers working for the B&B shareholders and bondholders. Only then will we know the truth and will the real culprits behind the largest single act of vandalism ever committed in the financial sector be exposed. Despite the efforts currently being made to contain the information and frustrate access to the facts, this WILL happen, the scandal is simply too great for them to stop it.





  • Comment number 85.

    72. At 7:12pm on 04 Jun 2009, whatevernext1 wrote:

    "Corporate governance in the UK is as corrupt as MP's expenses, which we are also paying for of course."

    Really now that is a very gloomy viewpoint! But I certainly wouldn't argue that you were wrong.

    It's probably pretty much the same disease really - greed and arrogance. What we probably need is a political and business leader of the ilk of, say, Mohandas Karamchand Ghandi.

    'Fraid I just don't see anyone on the horizon anywhere who would measure up to that. The fault is probably my eyesight, so I'd better book an appointment at the opticians.

  • Comment number 86.

    Brown's massacared in The Night of the Long Knives!

  • Comment number 87.

    Captain Brown's mutiny on the Bounty (thats now gone bust!)

  • Comment number 88.

    Brown's HMS Invincible...I counted them all in!...and I counted them all out!!!

  • Comment number 89.

    #84 BandBinvestigator - You are wasting your time. No-one in power has any interest at all in in 1,600 small time punters in an obscure investment vehicle in a provincial bank. Most of these guys won´t even know where Bradford is, much less Bingley, and in all probability will be proud of their ignorance.

    Now - if you had a couple of disenchanted billionaires in your ranks you may have a fighting chance.

    What is so special about B and B losers that was not so special about Equitable Life losers?

    Joe Strummer anticipated the official reaction to people like you:


    "...Clear as winter ice
    This is your paradise
    There aint no need for ya
    Go straight to hell boys"

  • Comment number 90.

    Apparently...Susan Boyle has phoned 10 Downing Street to see how Gordon Brown's doing!

  • Comment number 91.

    Regarding today's active moderation, the BBC blog laws clearly state:

    "Special rules may apply during elections, war or other exceptional circumstances"


    Hence, some of the above posts have been removed, due to todays' EU and council elections.

    Copied from 'MrTweedy' from Paul Mason's blog

  • Comment number 92.

    Cor Blimey!...Victor Blank's ermine must be looking 'decidedly' shakey tonight!

  • Comment number 93.

    A number of errors in this article by RP.

    Firstly, I understand the discontent of B&B subordinated debt holders is not about the fact that creditors in other banks' subordinated debt have been treated differently. Generally investors in subordinated debt know (as they should) that they are taking on more risk than senior creditors and appreciate that they need to suffer more pain in adverse circumstances. However until the new Banking Act 2009 they bought bonds on the basis that the terms and conditions of the bonds they were buying would be adhered to. The terms of the majority of these B&B bonds said that if interest was not paid, they the creditors could seek a winding-up of the company. Those rights, the basis on which investors bought the bonds at issue, have been withdrawn. I believe that is the cause of the investor discontent.

    What this means is that investors who have bought subordinated debt are completely in the hands of the UK regulator. There can be no trust in written contracts, or in priority of payments, or the point at which a regulator may step in. The investors have found they are locked in a game with the regulator, where the regulator (a) writes the rules and (b) has a vested interest in making the investors lose. It's not really a sensible basis for investing. Billions of this subordinated debt has been sold to investors in the last decade on the basis of what were thought to be established rules, rights and priorities. In fact it was an enormous confidence trick: the investors were buying snake oil. Doing business in this way is similar to the idea of decisions of the 'court of public opinion' taking precedence over previous established legal principles. A better resolution regime for banks may have been needed for the good of the banking system, but the reaction of subordinated bondholders is understandable.

    Secondly, it is patently not the case that investors in subordinated debt of RBS, HBOS and others have not suffered pain. The Tier 1 bonds of RBS fell in price from 100% into the teens. Lloyds Tier 1 bonds fell from 100% to 35% between January and March this year (they have since recovered to around 70%).

    Thirdly, it is not the case that the banks concerned have not been able to recoup capital from these creditors under Basel rules. Due to the low trading prices mentioned in the para above, many UK banks have bought back their subordinated debt (or Tier 1 debt) at significant discounts to their par value, creating free core equity capital as a result.

    On a general note, RP's stated desire to make the creditors of the banks suffer more pain is misguided and impractical. It would lead, for instance, to the consequences others have mentioned, such as major losses for pension funds and insurance companies, and potentially the insolvency of some insurance companies. Banks face a daunting wholesale funding mountain to refinance over the next three to five years, and it would significantly impair the ability of banks to fund themselves with senior debt or capital, extending the crisis we have been suffering. It is exactly the same thinking that inspired letting Lehman Brothers go into default, creating a negative spiral of confidence that has caused deflation and unprecedented contraction in the world's economies.

  • Comment number 94.

    With all of these seriously complicated rules in place.

    Why did the super rewarded financial experts buy into pig in a poke investments?.

    Are these products of any value?

    The human cost of this foolishness is the celibration in the US that GM can close 14 plants and everyone thinks its good with little or no out cry.


  • Comment number 95.

    blimey I heard that you were having some unseasonably warm weather over there but in the 4 short weeks since I left your shores you seem to have become a proper banana republic and are actually having a coup!

    very impressive; glumness rejected by a nationof glumsters! bring back superficiality and bring it back now! all the Brownite babies hunted down and put to the sword; even those hiding in the bullrushes; any chance of Blair returning from his King Herod hotel suite to lead Labour back to the Blairite promised land? or is it to be Blair II, aka King David

    but what is Robert going to do for a story when New Labour are out? a trip down the JobCentre, or whatever its silly new name is, might be on its way; and who will want Robert's 'biography of Gordon Brown, listing his triumphs in full, as read out to Robert by Gordon himself' now?

    ah well; I guess Brown really was Richard Nixon in disguise; sweating upper lip and all; calls for a Frost interview

  • Comment number 96.

    #93 firbankfell

    Are you not promoting moral hazard in your final paragraph?

    Whilst I have some sympathy for the 1600 small bond holders (84) I do hope this is the first glimmer of hope. Failed banks must ultimately be left to fail and debt default is the only viable solution in the long run.

    Good also to see that we (the silent majority) appear to have won a landslide in todays elections. As the reporter from Lincoln has just reported, turnout was a surprisingly high 31 percent!

  • Comment number 97.

    90, lol

  • Comment number 98.

    Very plausible etc ,but wrong.

    Who supplies the long term capital requirement of many businesses ? Equity holders ? I don't think so.The aggregate holding time for equity holders is under 1 year.This means in effect that that capital is so transitory in terms of it's ownership that it is treated merely as bet rather than capital funding.The holders are buying and selling and hoping to get a capital gain much more than they are hoping for yield.
    Bond holders hold for years and years based upon no capital growth ,but yield.
    So when you talk about defaulting on bondholders you are actually saying goodbye to long term capital funding which is what underpins our business activity.

    Regards

  • Comment number 99.

    THE STATE'S NOT BUST?? HA HA HA!

  • Comment number 100.

    BankSlickerminustheR

    Your #90 - I did laugh at that.

    Alistair Darling stays in the Brown cabinet. http://news.bbc.co.uk/1/hi/uk_politics/8084501.stm

    I didn't laugh at that.

    The message we can take from all of this is that, in Britain, dodgy expenses are O.K. as long as you are badly needed due to political expedience.

    I mean, where's the credibility in a Cabinet with a Chancellor whose integrity has been called into question in the way that has happened recently?

    That's the whole problem though with politicians, bankers and CEO fat cats, isn't it? They're O.K. (ish) when things are going right but once the pressure is on and things start crumbling around them, they try to cling on to the status quo and make more and more and bigger and bigger mistakes in thus doing.

 

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