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Bank reform: The radical way

Robert Peston | 12:34 UK time, Wednesday, 21 October 2009

Please forgive me for not having published a column for a bit. I've been pre-occupied sorting out family stuff.

That stuff isn't quite ticketyboo yet. So the blog will go into hibernation for some weeks (please don't look so pleased).

There will be plenty to talk about when I return - so I hope fervently you will still want to have a conversation with me.

In the meantime, it seems appropriate to discuss what a radical reform of the financial system would actually look like.

I say the "financial system" rather than the "banking system" because arguably the debate has been too fixated on institutional reform of banks rather than the size and scope of the financial system as a whole.

Mervyn KingThe governor of the Bank of England is widely seen as having joined the radicals' camp - in that, overnight he declared himself the friend of those who wish for sprawling banking conglomerates to be broken up, such that banks' more speculative activities would be separated from those functions vital to the functioning of the economy (see Stephanie Flanders' note on this).

As usual for the governor, it's an exquisitely timed intervention in the debate - in that the Financial Services Authority will be publishing its latest reforming thoughts later this week.

So the poor old FSA is bound to be characterised as sleepy and unimaginative compared with the bold and courageous Bank of England.

And, do you know, I almost feel sorry for the FSA. Because the remedies proposed by Adair Turner, the FSA's chairman, are arguably a greater challenge to the status quo than King's.

In some ways, King's position has not shifted a jot since the crisis began in the summer of 2007.

He has always been fixated on moral hazard, on the idea that it's lethal for the efficient functioning of markets that institutions should be protected from the consequence of their mistakes.

And, as a matter of social justice, very few would fail to share his frustration that taxpayers have bailed out British banks to the tune of a short trillion pounds only to see the bankers making plans to pay themselves fabulous bonuses once again.

His characterisation has been incendiary: "never in the field of financial endeavour has so much money been owed by so few to so many - and, one might add, so far with little real reform".

For him, it is a matter of overwhelming importance that when banks and bankers gamble and lose, they pay the price - that the casino isn't rigged such that the winnings always go to them, while losses are forced on the state, on us.

That said, there is probably no way to avoid the provision by taxpayers to banks of financial protection for those functions that protect our savings, that provide vital credit to businesses and that move money around the economy.

What should be avoided (King would say, and most would agree) is what happened last autumn - which is that we rescued the speculative or casino operations of banks, the parts that generate the spectacular gains and losses, along with the supposed utility parts.

Which is why hiving off the banks' trading activities may well be a sensible way of limiting taxpayers' liability in the long term.

And it is perhaps testament to the lobbying clout of the big banks that the proposal from Paul Volcker, the distinguished former chairman of the Federal Reserve, for the separation of banks' investing and trading functions has not been embraced by Barack Obama or Gordon Brown.

But although breaking up the banks may be a sensible and necessary reform, it's by no means clear that it would be sufficient to correct the flaws that got us into this mess - even when combined with the recent international agreements to strengthen banks by obliging them to hold more capital and liquid assets.

Which brings us to Adair Turner and the FSA.

He would part company with King on an issue of fundamental principle.

The point - and most in the City will find this impossible to believe - is that King is much more the bankers' ally than Turner.

Because King, and others who argue for breaking up the banks, want onerous regulation and heavy supervision to be concentrated on a relatively narrow area of what banks do - those utility activities I've described as being the infrastructure of a healthy economy.

For King, there could be a relatively free, unfettered market for trading and investment banks, so long as the incentives for bankers can be corrected, such that the risks they take are genuinely risks for them, the proprietors of their institutions and professional creditors.

Turner would not agree.

Adair TurnerHe believes there is no serious alternative to much more intensive interference in all credit markets by the authorities. And he also believes - which is arguably more radical than breaking up banks - that credit markets have become far too big and opaque and that governments should take active steps to shrink and simplify them.

Perhaps his main point of dispute with King would be whether the guarantee against losses provided by taxpayers is really the main contributor to boom-and-bust cycles in credit.

With Keynes and Hyman Minsky, Turner would argue that the heart of the problem is simply that there is always a subjective element in valuing the future stream of earnings from any loan or investment, and that therefore the pricing of financial assets is always prone to overshoots and undershoots, depending on whether there is a prevailing climate of euphoria or despair.

No-one would argue - surely - that the insane dotcom bubble in shares prices of 1997 to 2000 was in any sense a moral hazard phenomenon. There was no taxpayer protection for over-enthusiastic investors who bought shares in "we_saw_you_coming.com" at multiples of 1,000 times notional prospective profits.

Investors paid far too much for "new economy" shares for the same reason investors traded their life savings for a single tulip bulb in the 1630's - hysteria and greed persuaded herds of investors that they were going up forever.

Precisely the same mania afflicted bankers and professional investors who lent colossal sums to over-indebted companies from 2005-7 with few strings attached and bought bonds made out of poor-quality subprime loans that were priced only a bit more cheaply than high-quality sovereign debt.

In the recent credit bubble, the equivalent of the insane heights touched by shares in 1999 and 2000 was the ludicrously low cost - in July 2007, just weeks before wholesale financial markets froze and the credit crunch began - of insuring against possible losses on loans to banks through the use of credit default swaps (CDS's).

The CDS premium for bank debt at the time was as low as it had ever been: it implied there was almost no risk of lending to a bank, when in reality there had never since 1929 been a riskier time to lend to a bank.

This was as much a bubble as had been the dotcom one.

But there is a really important difference between the two bubbles.

The retail and commercial banks on which we all depend are more-or-less prohibited from investing depositors' money in shares, so when share prices collapse there's little impact on their viability or solvency.

But when a credit bubble goes from boom to bust, there is a hideous feedback loop which damages the banks, then the economy, then the banks again: banks suffer losses on their investments and loans; their ability to lend becomes constrained which leads to a slowdown in the economy; which in turn generates greater losses on loans and investments for banks; and so on, till we're all paupers.

It would of course be theoretically possible to stipulate that retail banks benefiting from a taxpayer guarantee should be prohibited from any lending or investing at all, that they should only be allowed to hold high-quality government bonds or cash (which is similar to what the economist John Kay has recently argued).

But that would only protect depositors' money. It would not flatten the credit cycle.

The important point is that it is not just the more obviously tradeable forms of credit, the bonds made out of loans, that are prone to being overpriced and underpriced; banking history is an epic of periodic manias in all kinds of loans.

For Turner, therefore, if it's acknowledged that the big risk that has to be reduced is the susceptibility of the economy to boom-and-bust cycles caused by boom-and-bust cycles in credit, there is at best only a partial cure to be found in breaking up the banks.

The economy would still be inextricably dependent on credit provided by banks and other financial institutions, whether those banks are narrow insured retail banks and uninsured trading and investment banks, on the one hand, or today's conglomerates, such as Royal Bank of Scotland and Barclays.

So, for him, a better prophylactic against the boom-and-bust cycle is to curb what he calls the more socially useless and frothy trading by all and any banks, whether they are pure investment banks like Goldman Sachs or conglomerates like Barclays.

He has, for example, already said that he sees a powerful case for introducing a tax on much of the trading in wholesale financial products.

And, as I understand it, he would also be highly sympathetic to the suggestion of George Soros, the hedge fund billionaire, that there should be a prohibition on so-called "naked" trading in credit default swaps - or that only those holding the debt of a company or institution should be able to take out insurance against that debt.

Which may sound technical and dull. But it would shrink the CDS market by many trillions of dollars, since something like 90% of the market in recent years has taken the form of pure speculation, according to industry statistics.

By the way, if you are one of those who want to see a substantial and permanent reduction in bankers' bonuses, Turner may be your man - because he wishes to see a substantial diminution in banks' revenues, so the bonus pot would inevitably become much smaller.

What is clear to me is that the British financial services industry should be feeling quite uncomfortable.

The City of London is sandwiched between Mervyn King at the Bank of England, who wants to break up the likes of Barclays and Royal Bank, and Adair Turner, who believes its activities should be fettered and constrained to an extent it hasn't experienced for almost 30 years.

Perhaps the bankers are hoping for a Tory government and assuming that George Osborne as chancellor would see off the irksome King and Turner.

If so, that's as likely to pay out as the massive bets many of them took two and half years ago that the banking system had never been sounder.

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Comments

Page 1 of 4

  • Comment number 1.

    Robert - you're back!

    I hope you sort out your personal problems - there are some things far more important than money and business.

    Sadly not much has changed while you've been absent, the markets are still being boosted by QE money, the inaccurate predictions of 'a return to growth' are still being hurled about and the jobs are still being lost.

    We should be hitting the winter of discontent II soon, so make sure you have some warm blankets and tinned food sticked up. Already the Post looks like it's finished for the year and I have seen numerous reports of strikes being prepared.

    Still the politicians play see no evil, hear no evil - ah what it must be like to be so oblivious to the impending disaster.

    For the rest of us - preparation is the key.

    Water, Food, Shelter - get them sorted now while the pound in your pocket is still worth something.

    On this banking waffle - well it doesn't really matter does it. The banks will get their own way in the end, because despite the rumours they own us all as we owe them Billions

    The Merv quote was the killer:
    "never in the field of financial endeavour has so much money been owed by so few to so many"


    We shall fight them on the beaches...

  • Comment number 2.

    Robert,

    The competitive structure of the investment banks needs to be investigated as the bonuses are only a symptom of the enormous profits being made. This would seem to imply that there is no real competition and banks are operating in a rigged market. A market with healthy competition has a tendency to limit the level of profit available against the volume of business. With low volume of business, which must surely be the case at this point in the cycle, then profits should also be low.

  • Comment number 3.

    King is right - it's about the City CULTURE not Regulation - the R word is a giant red herring - in fact, tougher Regs would probably do more harm than good

    main thing is to get a handle on the crazy bonuses - we do that, it's pretty much sorted - we don't, well we just forget about it

    great news that Mr King is coming around to my way of thinking

    Mervyn rules!

  • Comment number 4.

    Personally i dont see a way this can be done, more legislation creates more loop holes....

    IMO simplicity is the key,easier said than done i know, but we have to get to a position where Banks will never again be bailed out by the tax payer, how soon and quickly that be achieved is another matter.

    A system of account reporting should leave us in no doubt what the assets and liabilities of a bank are so we the public can make an informed decision whether to invest/save with them, and it is this to me that has been sadly lacking.

    As has been said, while the banks are in a no fail position it will not curb their sharp practices.

  • Comment number 5.

    If I had the power to choose, I would take the King tack. His proposal neatly solves the problem of the taxpayer picking up the tab for the failures of private enterprise. What more can we ask?

    Robert successfully argues that this approach would not prevent boom and bust. Does any rational individual in 2009 believe that boom and bust can ever be eliminated? I for one do not.

    Lord Turner's proposal, on the other hand, perpetuates the risk of too-important-to-fail private enterprises, and then seeks to manage that risk through regulation and tax incentives. This will have an inevitable drag effect on economic growth, and yet might still fail to deliver the end of boom and bust. Finance practice is constantly evolving, striving to wriggle free of regulatory fetters. Can we really believe in a near-omniscient regulator that is capable of keeping on top of these changes throughout decades of constant struggle?

  • Comment number 6.

    Sad you are going to be away when Alistair Darling has said more borrowing for longer is the answer.(A terrifying statement given current projections) Will this be to re-structure the banks? In which case we risk serious problems if we can't sell the record levels of debt this will generate.

  • Comment number 7.

    What an opportunist, political animal Mervyn King has shown himself to be. I don’t recall many warnings from him before the event or criticisms when labour’s position seemed rock solid.

    One issue is the actual practicalities of separation. My understanding is the banking world has become so entwined it would take up to ten year to identify actual legal ownership alone!.

  • Comment number 8.

    If I am understanding the Govt bail out of Banks, we the taxpayer have provided loans and guarantees to the banks on which the banks pay a premium / margin to the treasury. Therefore you could argue that as long as the banks are making the payments to the govt what business is it of theirs [the govt] what they do with their profits. - simplistic I know as taxpayer support stop the banks from failing. However if this support is so risky and crucial then why isn't a higher premium being charged so that profits would be less and therefore reduce the amount available for "extreme bonuses"?

    The break up of the banks to hive off the "casino" part seems to me to make sense as if the bank makes huge losses it fails or is unable to obtain the credit it needs to undertake the investments or is this relying on "market principles" again which we have seen didn't work.

    the g

  • Comment number 9.

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

  • Comment number 10.

    good to have you back Robert.

    If financial institutions are too big to fail then they should be split up in a way that they can fail.

    The Government should realise that banking is now almost a utility as it is almost impossible to live a normal life without access to banking. If this type of banking was hived off from the casino risk taking then the FSA could regulate them far more strongly.

  • Comment number 11.

    Separate out commercial and retail banks from the rest. Require them to pay a minimum risk free interest on secured deposits, to encourage customers to keep a positive current account balance, and to strengthen the effect of interest rate decisions (and charge for the services provided, just like all other industries - I don't need branches and I don't want to pay for them).

    Establish a mortgage bond market similar to the Danish one (http://en.wikipedia.org/wiki/Danish_mortgage_market%29 which would go a long way to provide a safe alternative to investing all your money in Government bonds. Let investment banks buy the surplus bonds, attract the gambling money and play around packaging things up beyond recognition, at their peril.

    But most of all, insert some creative thinking into making rented accommodation a viable long term alternative to the insanity of forced property ownership. Forcing the population to own their house - just to have a stable place to live - puts the whole economy in the hands of frothing amateur property speculators who's gambling habits are the biggest threat of all.

  • Comment number 12.

    WOTW is correct, like it or not.

    The banks have triumphed in their one-sided and brief tussle with the politicians/regulators. They have stared-down the opposition and now know for sure they can get away with just about ANYTHING.

    A gambler will NEVER stop gambling until all sources of money available have been exhausted. The western banks and finanial institutions have run-out of their own money to gamble with, and now have taxpayers money to squander on spread bets and swaps etc. They will never voluntarily accept the seperation of retail and investment banking, as that would limit their bets and bonuses. An addict will tell any lie and lobby anyone in order to obtain relief and continue a 'lifestyle'.

    Ordinary folk will have to hunker down and prepare as best they can for the coming storm. Also, never accept what the apologists say about us having to make 'sacrifices' through tax rises and cuts etc., on the say so and for the benefit of ponzi-bankers and the criminally irresponsibe gamblers who brought down this situation upon us in the first place.

  • Comment number 13.

    David Einhorn (a US hedge fund manager) made a great speech about this all the other day...

    http://blogs.reuters.com/rolfe-winkler/2009/10/19/einhorn-on-gold-sovereign-default-and-more/

    My favourite from the speech is:
    "The financial reform on the table is analogous to our response to airline terrorism by frisking grandma and taking away everyone’s shampoo, in that it gives the appearance of officially “doing something” and adds to our bureaucracy without really making anything safer."

    hits the nail on the head!

  • Comment number 14.

    I have a feeling that much as King says if we split the casino from the grocery store then a lot of the problem will go away. who would bother if a someone playing the field made a whacking loss as it did in Singapore(sorry cant recall the names) but that did not threaten the High Street banks.

  • Comment number 15.

    Once again it appears that the governor of the Bank of England (I have to admit...my hero in all this) is talking sense. Once again the bureaucratic FSA are fudging the issue.
    When I started investing in the stock-market I read a number of educational arguments about how to do this. There is one phrase that has stuck in my mind: "Don't forget that financial markets are run by people. They react like all people. Greed!"
    To quote Niccolo Machiavelli in his book 'The Prince':
    "...a prudent ruler cannot, and must not, honour his word when it places him at a disadvantge and when the reasons for which he made his promise no longer exist."
    "...because men are wretched creatures who would not keep their word to you, you need not keep your word to them."
    I would recommend anyone to read Machiavelli's 'The Prince'.
    It is suprising how much it teaches you about modern politics and commerce.

  • Comment number 16.

    It is simple, Turner is one of the bankers and looking after their interests and King is looking at the economy as a whole. Turner is quite happy for the status quo to remain with slightly more regulation.

    It made me laugh today when the Gordon Brown stated that the Northern Rock collapse had nothing to do with "Out of control" merchant banks and their associates.

    The reality is we can't afford another financial collapse and I think the Tories will agree with King on the principle that financial institutions have to stand on their own feet or be allowed to fail. The tax payer needs to be removed from the position of "Fool of last resort".

  • Comment number 17.

    Robert, yes welcome back and thank you for this analysis as you see it of the two issues.

    I think a combination of both approaches would be good i.e. both a split between the 'system' banks and the 'casinos', together with a Tobin tax on all financial transations for the speculators.

    I'm extremely glad that Meryvn King is not dropping this one. (....... weak kneed Gordon Brown is doing the usual - thinking that a pretend minor change will solve the problem. It's surprising that he has not suggested using "targets"!)

    How can we get this debate into the public mainstream, and throw things wider?

    The disgrace that is the fund management industry in this country also needs to be looked at (high charges, hopeless performance).

  • Comment number 18.

    "Perhaps the bankers are hoping for a Tory government and assuming that George Osborne as chancellor would see off the irksome King and Turner"
    Why i will vote Labour, tough words from GO but little action is what we can expect.
    Legislation would be easy to enforce. You tell the banks that they must split their operations into Retail (receiving Govt backing) and non retail banking. If they refuse, support is to be withdrawn for them. Let them go to the wall. Lets face it whom has Lehman's collapse actually affected . All their employees seem to have found positions.

    An intersting view of the future
    I work in an industry supplying the public sector. I was at a trade show a few weeks ago and all of my fellow exhibitors said the same thing, business this year has been hard but it has been there if you worked at it. But as for next year everyone is bricking themselves, both political parties will be keen to show how much can be cut from the public purse with inevitable carnage in my industry. If the banks are still being picky about loans and overdrafts then it could be curtains for many of companies who deal with Public Institutions.

    Of course the banking sector will survive and pay themselves nice bonus's as there industry has impecable financial backing - us. Have i missed something or do these guys need a good slap.

  • Comment number 19.

    It is clear the banks and finance institutions only seem to experience competition in the form of head hunting each other's senior staff. How else do we explain the stupendous size of bonuses - they reflect easy and excessive profits. Tesco's come nowhere near yet they are profitable and successful and stable! Whether banks are split or not there is and overwhelming case for supervision not regulation. Better still if there is a sizable and strategic public sector presence which conveniently could be formed from dis - aggregating HBOS from Lloyds and merging it with NR to make the standard bank UK to set the pace in conduct and customer service.

  • Comment number 20.

    " And it is perhaps testament to the lobbying clout of the big banks that the proposal from Paul Volcker, the distinguished former chairman of the Federal Reserve, for the separation of banks' investing and trading functions has not been embraced by Barack Obama or Gordon Brown."

    Spot On!

    "It would of course be theoretically possible to stipulate that retail banks benefiting from a taxpayer guarantee should be prohibited from any lending or investing at all, that they should only be allowed to hold high-quality government bonds or cash (which is similar to what the economist John Kay has recently argued).

    But that would only protect depositors' money. It would not flatten the credit cycle."

    But Narrow/Limited/Utility Banking is part of the solution. We should start with that foundation.


  • Comment number 21.

    The too big to fail destroys the reward - risk dichotomy. It fundamentally undermines the point of a free enterprise based banking system - as some said what will the speculative whizz kids get up to if they BELIEVE that unplanned debts are always going to be socialised. This is why there should be a strong public sector presence, supervision not regulation and legislation that criminalises negligence and anti social behaviour(a pin striped ASBO?)

  • Comment number 22.

    #14
    Are you referring to Nick Leeson?

  • Comment number 23.

    We should avoid complexity at all costs as this allows places for the too-clever-by-half to hide. The City is full of that sort.

    Simplicity is of the essence.

    Separate retail and investment banking and do it yesterday.

    The investment bankers can then take all the risk. Hopefully they will all do a Barings and go pop! Then as a country we can go back to making things we need, growing things we need, building things we need and looking out for each other. It won't be exciting but it will be home and peaceful.

  • Comment number 24.

    Splitting up the banks is much too complicated and costly a solution. We need the banks to be making money - our economy relies on it. Better understanding by Regulators and better regulation is required. The core of the problem which caused the crash was that, fuelled by greed, the banks convinced themselves and the regulators they were not taking risks when piling in to highly risky structured products. As a result they did not have to allocate capital to these products and could do as much business as they pleased. One answer would be for a Basle-style licensing of all existing and new products; not to stop their use but to force the allocation of capital commensurate with the risk.
    Of course this would require a very high calibre of Regulator, internationally.

  • Comment number 25.

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

  • Comment number 26.

    It is very, very late and long overdue that a radical critique takes place of the way financial institutions hold both, the state and the tax payers, to ransom. The time for change is now.
    It is about time that someone in a senior leadership position (well done Mervyn King) in the UK society calls a spate a spate. We live in an unaccountable, injust financial system, where most banks can only win and the consumer (in the long-term) can only lose (via high debt interest charges, inflation, loss of pension funds, etc.) Currently, the biggest banks are not controllable by the government, they seem to live in a political space of their own. If any institution in a country is beyond political control, its democracy is severly damaged. Effectively, the government has no control over the direction the UK economy will take over the medium to long-term. Another bust or inflation spike could, and will, at any time ruin the governments planning.
    Please find many more arguments why this sad situation has to be changed now on the following web site:
    http://globalinsights.wordpress.com/

  • Comment number 27.

    Best wishes for resolving your family issues, these are rightly your priority.

    To extend the churchillian theme; never has so much common sense been spoken (by Mervin). Of course banks must be capable of failing they are in the risk business after all. The sooner the goverment hands back more powers to him the better. The FSA have been the biggest bunch of incompetents we have suffered in a generation. Too busy making trillions of rules and beurocracy whilst failing to see the big picture. The FSA has failed us all badly and should be held to account.

  • Comment number 28.

    I've become addicted to your column over the last year, and missed your musings of late. Take all the time you need, but come back soon.

  • Comment number 29.

    The trouble with splitting the banking functions will obviously be whether the "docile" retail banks can attract enough money to continue to lend and meet new criteria concerning healthy balance sheets. Having said that, the extortionate rates of interest ordinary borrowers are now having to pay, together with rip-off arrangement fees, might well mean the "docile" banks are making so much they won't need any back up. Caledonian Comment

  • Comment number 30.

    Breaking up banks might work, but what if they all agree on the same foolish behaviour ?

    Utility banks could fail too.

    In the next financial/banking crisis,cash will become meaningless..
    when the bullets are flying on the streets.

  • Comment number 31.

    £10n bonuses in 2007, £4bn last year and an estimated £6bn bonus this year.

    Should not the banking industry, in particular the investment bankers and those bank which have received public money at least pay the interest that we had to pay on the money which we had to borrow to bail them out?

  • Comment number 32.

    And another thing why are bank shareholders so impotent or indifferent when it is they that are subject to the consequences of reckless dealing?

  • Comment number 33.

    Hi there RP - hope all is well.

    Good luck with the family matters.

    Interesting dabble into politics at the end there. There can be no doubt that a political change is generally sought but it might prove a false dawn in the short term if the change is to the centre right and the bankers think that will help them. Playing to the masses is more important than almost ever before, I for one don't blame the bankers entirely- sure, a lot, but not entirely, but the media witch hunt goes on...

    Bankers are easy targets and that makes them political capital, for any party. Further, resolving the financial mess will earn kudos and brownie points in front of the electorate, as will capping/meddling/reducing the bonus culture in the city, which does need to be capped/meddled and reduced in any event.

    However, if the suggestion is that those in the city don't think the Conservatives will/would take on the above I think they're in denial over how important it is to DC to be the 'pop prime minister'. It all smacks a bit of 'new labour' at the moment- and just ask the unions how much new labour achieved for them in the last decade.

    [Irony in light of postal strike noted]

  • Comment number 34.

    Robert,

    I trust the family stuff is ticketyboo very soon!

    Twelve months ago I guess all of us would have been delighted for the return to a healthy banking sector but now that we have apparently got it we aint so sure we like it!

    Bank reform, radical or not, is a certainty but the fact that the surviving bankers have so quickly recovered (bonus payments and all) while the rest of us continue to pay the price for their rescue is what goes to the heart of the matter so far as the majority of tax payers are concerned.

    This weekend's papers Homes sections were full of trophy houses for sale at credit-crunch defying prices, all in anticipation of a financial sector bonus fueled bonaza. I muse over what reforms the potential sellers of those properties might support if indeed any reformation measures damaged this particular sector of the housing market.

    I have also been reading with interest about the gigantic fees being paid to the leading UK accountancy firms involved in the wind-up of Leaman etc and again I imagine the partners and associates of these firms may worry that radical reform may damage rather than advance their future prospects.

    The trouble with radical reform is having just given the banks all this money to save them and all of us from undoubted disasterquite it simply makes no sense to take it all back again. We all must resist the understandable upset caused in the minds of ordinary folk when they see the return of the bankers bonus just as we must resist the undoubted self-interest warnings from those saved bankers that radical reform will lead to another set of disasters.

    Is there not a sensible middle way where banks are restrained by the threat of bankruptcy and not underwritten by the tax payer? I can't see how in the free market permanent control over pay by Government would work so regulation to restric the scale of bonus payments looks wrong but attention to incentives that encourage unacceptable risk looks more hopeful.

  • Comment number 35.

    Separating retail and investment side of banks will need international co-operation at least between UK, USA, Germany, Japan and Switzerland. Difficult to achieve but possible.

    The next issue will be whether certain of the retail banks remain too big and therefore the market lacks competition. Personally I do not think there is a lack of competition at the retail bank level, as countless OFT investigations have failed to show this, but it does need to be thought about.

    Turner issues wonderful sound bites but when you think about it they prove to be insubstantial rubbish - credit markets and socially usefulness being the classic example, sounds great but when you think about it one person's view of socially useless (do not get me started on "My Little Pony" products) is totally different from someone elses often for totally good reasons. The last think I would want is for govt to decide what products were socially useful or not, you can guarantee they would be wrong and mess up the economy (again).

    King is right. If investment banks are cut free and so if they make losses it is their investors who pick up the tab not the public, then what is the problem

  • Comment number 36.

    Thanks for excellent clear article.

    This may be too easy, but what about making the banks bond all our savings? If you 'invest' £1000 in a holiday and pay the tour operator in advance, that money has to be bonded. If the operator goes bust, you are protected.

    But if you put £1000 into a bank, it is the taxpayer that guarantees your savings. Surely this is effectively a government subsidy to banks?

    The tour operator needs to pay the cost of bonding the money paid to him. So why not make the banks pay the 'bonding' cost of
    the amount guaranteed by the UK government to each depositor?

    Simpelz.

  • Comment number 37.

    Q. Why did Brown,Mandelson etc. Bail out the banks and not the RM pension defecit?

    A. Because when they get chucked out they want to do a Tony and not a reverse Alan

  • Comment number 38.

    *37 ???

  • Comment number 39.

    Why does it need agreement with other countries. Unti 1999 that is how the banks were organised. Clinton repeleled the Act and so the whole mess was born. If the investment banks need capital then they can obtain it at commercial rates, from retail banks. Hopefully they will not put all our savings in one basket.

  • Comment number 40.

    I hope I speak for many when I say I just hope it's not too serious, (although I assume it must be.) As a good employer would say, "We fully understand, you must take all the time you need." The business world CAN wait, (or if it can't it can get lost anyway.)

    The problem with the financial system is that those with the power to limit the extent of it's influence don't believe they need to do much.

    It's as if we've had a serious plane crash, we think we have a good idea of what caused it, but we're too frightened to correct things, anything more than superficially, in case it causes the industry to make lower profits.

    It's just no use politicians trying to gloss over how serious the situation is and dampening people's concerns by saying the best minds have given things a tweak and things are all OK now. We just aren't prepared to believe such patronising rubbish!

  • Comment number 41.

    38

    Tony Blair(Banker 17 mill last year) Alan Johnson ex-postie

  • Comment number 42.

    Hi mr Preston,I haven't read all the blogs on the fiscal trouble yet, but the investment side of the bankers work was surely working on the amount of 'credit'within the industry and not raw/liquid cash,because if there is more than say,2.5 billion floating around the system,then to an
    extent we the general public have put too much in the system over the last 5-10 yrs,thus awarding the frivolus bankers with excessive amounts to be working with.when this and the probability of lessening the number of MP's in the house of ill repute,and the excessive number of investment
    bankers being thinned down the country would be better run.Also the so called 'hedge funds' and other get out clauses.cheers for now and keep up your work,spicer

  • Comment number 43.

    The Governor of the BOE is quite right to say that the only way to prevent another finacial market catastrophe like the one we just experienced is to separate the high risk speculative bank dealings from the functions that are vital to the economy.

    To say the least there has to be a fundemental flaw with a banking system that is designed to allow groups of people from within the banking industry to recycle vast sums of money, in a way that only they understand, so they can pay themselves vast bonus payments before anyone from outside the banking industry knows for sure if the profits they claim to have made are genuine and are commercially sound for the future of the business.

  • Comment number 44.

    sorry, forgot to say in my self congratulatory haste at 3 ... all the best Robert and come back soon!

  • Comment number 45.

    Robert - I'm not even going to comment on your article; just want to wish you all the very best in relation to your 'family stuff'.

  • Comment number 46.

    Well done Mr King

  • Comment number 47.

    Banks must be split up into retail (low risk) and investment (high risk). This need not wait on international agreement. I just hope the Conservatives get the point. As long as banks know that the taxpayers will save them, they can hardly be motivated to avoid reckless behaviour and will be vulnerable to the next bubble which gives the illusion of easy money.

    Adverts have warned that share prices can go down as well as up. It is high time we had a banking industry that reflected this.

  • Comment number 48.


    Good to have you back Robert, but as many have already said, top priority is to sort out your 'family stuff'.

    I have to say, my vote would go to those who, like King, favour a dismantling of the banks. Its simple; if you take risks - you enjoy the benefits and also take the pain. Currently that just doesn't happen - too often there are safety nets, paid for by others, that protect people from their own stupidity. So no-one learns; just continues to weaken the gene pool.

  • Comment number 49.

    "And, as I understand it, he would also be highly sympathetic to the suggestion of George Soros, the hedge fund billionaire, that there should be a prohibition on so-called "naked" trading in credit default swaps - or that only those holding the debt of a company or institution should be able to take out insurance against that debt."

    Willem Buiter has also argued for such a prohibition. I guess if Buiter and Soros agree on something, it must be the right thing to do.

  • Comment number 50.

    Mr Peston, my sincere wishes that ticketyboo-ness will sprinkle amply over your domestics.

    #23:

    Hit the nails on their heads. Two sentences and two short paragraphs.

    Essentially, purge the financial system of the leeches (Hedgers etc)put an infinite gap between retail and investment(casino) banking, but not yesterday, more like last week. Time is of the essence rightly so.

    Todays' news about the Trojan Horse of immigrant baby-boom in years to come sent a shiver right up my fundament. My small Government pension and even tinier OAP will diminish as the state hands out more welfare and housing to the new 'benefit clients'.

    While most of my local churches are less than a quarter full, (some nearly running on empty) more mosques will necessarily be built. I served my country for 30yrs in the RAF, often flying relief supplies to the needy; now they're coming here for it, through our back entrances; I've just had that pain in my fundament again.

    We do need to look to each other, earnestly, before it is too late. We no longer produce anything worthwhile in quantity or quality;, no cotton, clothing, cars, coal, steel, ships, scientists, etc. But we're good at producing gigantic greedy financial conglomerates that suck us, the taxpayer, dry, then ask for more, before we've even had a post-transfusion cup of tea and a biscuit, chocolate, Gordo for the use of.

    Which brings me to a final suggestion; the next government must get the top twenty (or so) specialists, the absolute best in their fields, finance, banking, agriculture, defence, law, legal and policing, foreign affairs, transport, (road, rail sea and air) etc etc, lock them in a room for at least a week, give them nothing but tea and biscuits until they come up with several dozen portfolios to sort this once-great-country out. And knock off all the pc nonsense.

    Oh health and safety, ok, give the team one hot meal a day.

    Good afternoon all.

  • Comment number 51.

    Wish I could put some of my work on hibernation when I get a personal problem. And no cover for you? Actually both Robert and Steph seem to claim the title of economics editor, so maybe one is enough.

    Also wish I shared your confidence that this won't just blow over into nothing. It has all the makings of people with too much money and clout having a strategy of talking about change until people get bored, move on to the next big thing and stop noticing what they're doing.

    They are showing a remarkable disregard for pyublic opinion though - I mean, given the outrage that has been expressed, you'd think they'd show a modicum of circumspection and avoid a 50% hike in bouses until the coast is clear. Which suggests that they know something... something like "nothing's gonna change".

    Which seems borne out by the inaction of a government that is doing very little to stop them, including allowing them to walk off with massive pensions, no jail sentences and no real responsibilities to go with the giant hand-outs they got.

    I never thought I'd say it, but some form of nationalisation (for the retail arm at least) does look attractive.

  • Comment number 52.

    The reason King's views differ from Turner's is that as Governor of the BOE and responsible for the health of sterling he is aware that reform is not just a matter of protecting depositors and preventing rash lending. The economy must be protected also.

    The net total of sterling credit issued by the private banks effects the economy just as much as unfunded government debt, or funded by the BOE by QE which is the same thing. The combined effect should be kept at a level which keeps the economy buoyant without overheating.

    When the private banks suddenly started reducing credit the BOE and the government could not compensate quickly enough to plug the gap. The result was the recession.

    To prevent this happening again even a strict cap on net bank lending will not do, because it was a sudden reduction that actually did the damage.

    I agree with King that regulation is unlikely to work, but do not agree that splitting up the larger banks is the best solution. It would be much better to take them fully into public ownership and run them essentially as the retail arm of the Bank of England. In this way the great advantages of a large bank providing absolute security for sterling deposits, because of backing by the BOE, would be realised. At the same time the bank's credit policies could be reviewed on a day by day by the BOE to avoid future shocks to the economy. Incidentally the profits would go to the taxpayer, not into easily earned staff bonuses.

  • Comment number 53.

    You deserve all the time you need Robert and I suspect many of us will most certainly want to continue having conversations with you whenever you are ready to return (as we miss you when you are away) - I tend to refer to the Great Recession as Robert Peston's Great Recession: if it was John Simpson who saved Kabul surely it was Robert Peston who engineered the Great Recession ;)

    Mr King is right to want to regulate the crucial bits tightly and avoid moral hazard and let the rest go and play casinos. The instincts of Mr Turner, on the other hand, are rather new labourish and bolting stable doors: too much nannying and too little when it was needed: I was still investing in HBOS last summer (yes, more fool me) when the FSA should have already pulled the plug on them (of course the knight Crosby being at the FSA might have fooled them too that all was well there).

    Anyway, you have more important matters to attend to than banks. All good wishes to you and the family.

  • Comment number 54.

    Robert, I don't see that the respective approaches of King and Turner are mutually exclusive, though. It might be for the best *both* to split the banks *and* limit the paper in which they can trade, through prohibition on "naked" buying of CDS and other casino-like behaviour.

    And while we're at it, why not also prevent both deposit-taking institutions and investment banks from becoming too big to fail, e.g. by requiring a progressive increase in the capital adequacy ratio as the balance sheet grows bigger, as suggested, inter alia, by Buiter.

  • Comment number 55.

    I don't want to be a kill joy here but wasn't it the packaging up of mortgages made by the 'boring bank' that was then traded through the 'casino bank' that created this mess.
    So under King's suggestion Boring & Casino are split, great. Boring then lend loads of money on mortgages, package them up & sell them to Casino. All goes well whilst mortgages are paid, but that stops. Oh dear Casino now goes bust and being socially useless cannot be bailed out.
    Boring suddenly has no source of funds or liquidity & finds itself peering over the abyss again.
    Boring cannot fail as it is a socially useful bank ? So guess what - taxpayer to the rescue.
    Sorry guys you really will have to do better than this, surely all those degrees can come up with something that might work.

  • Comment number 56.

    Is not the core of this issue related to the (wise?) passage of the second Glass-Steagall Act in the US in 1933 and its (unfortunate?) repeal in 1999? Some would say that recent events strengthen the argument that it should be reinstated in some updated form by all countries which are major players in the global financial system. I understand that China continues to maintain a clear separation between investment and commercial banking to this very day. Perhaps the Conservatives, who presumably will form the next government, should support the Governor if he develops a firm position on these lines - exactly what he is paid to do, surely?

  • Comment number 57.

    "So under King's suggestion Boring & Casino are split, great. Boring then lend loads of money on mortgages, package them up & sell them to Casino."

    Yes, but that's why Boring should be required to hold part of the original mortgage on its own balance sheet, which would give it an incentive to make sure the person taking out the mortgage can pay - an incentive that was previously lacking and which was partly responsible for this whole mess.

  • Comment number 58.

    I am sure my analysis of the problem is too simplistic and would be grateful if someone could correct me if it is wrong.

    Anyway as I see it, the problem is that the financial services industry worldwide has shown itself incapable of managing risk. This has occurred for a variety of reasons, remuneration systems that favour short-term performance, complicated products that only a few (if anyone) really understand etc. In a normal commercial environment this would not be a problem, incompetent management end up with insolvent companies. However certain parts of the Financial Services industry, particularly deposit-taking and domestic/ commercial lending banks, are too important to permit to fail.

    Two solutions have been identified. Firstly the politicians and the FSA want to micro-manage the way financial companies manage their affairs. This would cover remuneration, products, reserves etc. The BOE take a different view, they want to split the "too important to fail bits" from the rest. The former would then be micro-managed but the latter would be permitted to continue with the current competition, going to the wall if they are either incompetent or unlucky.

  • Comment number 59.

    Good old Mervyn, someone needs to tell him the horse has already bolted and sadly he was the one who left the stable door open. Perhaps, since he does not seem to have any concise solution to the problem he was partly responsible for , he should take the honouable course of action and go look for a sword to fall on.

  • Comment number 60.

    The link I followed said "What might banking reform actually look like?"

    Answer: It'll lool like inadequately regulated and controlled banks milking their customers for every penny they can under any excuse whilst they cut back services, customer support and generally give the customer the run-around.

    It will take the form of more and more you must do our admin for us on our web-site to keep our costs down whilst we charge you more and more for services.

    It will take the form of (as recently happened to an associate of mine at HSBC) here's a charge for £78 for paying £5 in cash into your business account.

    It will take the form of here's and annual charge for an account that gives you lots of "extra's" that you don't want anyhow.

    It'll take the form of increasing numbers of mistakes being made - in the banks' / insurance companies' favour - which they will of course apologise for profusely, but only after YOU have discovered it and threatened them with regulatory intervention. I

    t will take the form of "automatic renewals" of insurance policies where you get a confirmation of your renewal after the renewal date but no renewal notice prior to it and the money has been swiped off your account or card.

    That is, the UK financial industries will continue to be the notoriously unhelpful and infamously dodgy lot they've always been (in recent years).

    And why? Because when push comes to shove no-one is actually going to say so much as boo to them. It's all posture and waffle - they will never be truly reined in.

    And the one thing that is actually wrong with them? They need to be reined in.

    They have TOO MUCH licence and TOO MUCH autonomy and they get away with far TOO MUCH bad treatment of their customers and investors.

  • Comment number 61.

    If what you say is right then just combining King's and Turner's schemes would constitute a serious financial reform. I have waited more than two years to hear any official talking about serious reforms. Two at a time seems almost too much to grasp. But before we all get carried away, I do not believe that this country will see any reforms until I see them happening!

  • Comment number 62.

    Mervyn seems to have taken six years since he was appointed in 2003 to riddle out that the financial service industry consists of two parts: a productive part and an unproductive, or casino, part. I wonder how long it will take him to realise that the latter can be completely abolished without damage to the economy?

    The productive part of finance consists of simple banking (taking deposits and lending at interest), simple mortgage lending, insurance, fund management, etc.

    The unproductive part consists of derivatives trading, inventing new derivatives and structured products, providing consultancy to mugs who want to trade in those, hedge fund management, private equity take-overs, devising tax avoidance schemes, etc. These can all be abolished in toto without any damage to the economy - they create no new wealth and add nothing to GDP.

    If they appear to generate money in the form of financial-sector dividends and taxes (and bonuses), then it is a mirage: this is not new wealth but borrowed wealth. In effect, the property market has been the nation's credit card, and when that collapsed, the debt was transferred to the government as a huge and increasing 'national debt' in gilts etc that will take decades to pay off.

    In fact it would be highly beneficial to be rid of 'casino finance' as a source of completely unnecessary economic instability; also the wasteful bonuses and the destructive effect of private equity deals on wealth-creating businesses. It would be a great boost to the real economy to push the energetic and resourceful (albeit ruthless and grasping) denizens of the City out into productive industries: exporting and emerging industries, high-tech and fashion industries, environment- and Internet-related industries, etc.

    Let's do it! Let's have real reform.

    (Please do let me know if you spot a flaw in my analysis.)

  • Comment number 63.

    The banks, or any other industry, cannot be bigger than the country can manage; look at Iceland for the consequences. We need to encourage a successful financial services sector, but not at any cost. As for the bankers, whilst some bonuses are justifiable, they have completely lost the plot in thinking that they can return to the good old days. They are inviting government intervention to the point of stupidity.

  • Comment number 64.

    As in so many posts above re your family Robert...

    The banks attitude can be summed up as:

    Shut your appalling pleb faces and give us whatever money you might have left. We're itching with a need to get back to boosting hostile takeovers using borrowed money to pile debt on the small remaining number of UK businesses we haven't destroyed. Who remembers GE Marconi or Pilkingtons now Then when you are crushed into the floor we will take our world leading skills off to somewhere where we feel 'incentivised' to continue leaving behind a few management consultants who can advise on huge pay rises for our slightly more useless friends we've wedged onto the government payroll.

    Amazing to think our leaders grovel before these people

  • Comment number 65.

    Robert,

    I hope I speak for everyone (and associate myself with all similar sentiments above) that we all look forward to hearing from you once your really important family stuff that you are dealing with is behind you, and you can once again address the trivia of the economy and entertain us all.

    In the mean time I strongly suspect that nothing will be done about anything, even through delay is very bad, until after the election so don't worry the same problems will be with you, us and the Nation when you return.

    We need fifty banks and not four, and we need regulators who see the oncoming express train before it hits them (unlike the present failures.) We need money that has a realistic price, but hey we won't get what we want, and the economy needs, will we. So they will just re-inflate the credit balloon, fiddle the statistics and 'prove' it is a recovery when we will all know that they are not exactly being truthful! Sooner or later the banks, the economy and the price of money will be fixed by the market - probably in the worst possible way for the Nation. Just like the credit crunch 'fixed' the insanity of the last decade - but only more so!

  • Comment number 66.

    Robert, along with all your other many well-wishers I to would like you to know that you have been sorely missed and I sincerly hope that the ticketyboo business at home will soon be cleared up and that normal services will be resummed as soon as pooible.

    Best wishes old friend

  • Comment number 67.

    Too many time I have trusted empty words. (eg "Whiter than white.", "No more boom and bust."

    This is just spin from a trustworthy looking man. He may or may not be sincere, but nevertheless empty words and ineffective actions. But the speech does serve as early warnings to bankers so they can prepared in ample time. It is a bit like telling the poachers when and how fences will be pended.

    Instead of hoping and believing it would be better to only consider what had been said in context of the results and actions performed, not before.

  • Comment number 68.

    Robert

    I think Merv wants to see moral hazard dealt with not that he is not interested in the wider controls you mention.

    We simply can see the ordinary people raped of their money again and it is still going on as savers are being robed to help the property bubble buying fools

    As for the Churchill quotes

    "never in the field of financial endeavour has so much money been owed by so few to so many"

    The most apt is

    Who is in charge of the clattering train?

    The axles creak and the couplings strain,

    and the pace is hot and the points are near,

    and arrogance hath deadened the driver's ear,

    and the signals flash through the night in vain,

    for Brown is in charge of the clattering train



  • Comment number 69.

    Robert,

    I do hope your family issues are sorted out soon.

    However, the views of King and Turner are not necessarily mutually exclusive.

    For me the big issues are in those banks that are still receiving state support either through state funded equity or by the state taking on or insuring "toxic assets".

    These banks are technically bankrupt, and desperately need
    to repair their balance sheets. Many made overall losses, and no doubt will continue to make losses for some considerable time.

    How they can even consider paying any bonuses at all in this situation beggars belief. It should be simple: no profits means no bonuses. Ravaged balance sheets means no bonuses until the balance sheets are repaired.

    I have no problem with rewarding success; but these institutions are rewarding spectacular failure on a scale not seen since the 1930's with equally spectacular bonuses. It is simply not on and goes against any sense of natural justice.

    The argument that they will walk to competitor banks if they don't get their bonuses doesn't hold much water with me either. The relatively healthy competitors don't have the balance sheet strength to take on all the risks associated with expanding their trading books to such a large extent. A spell on the dole would bring some of these people down to earth with the bump they need.

    The main purpose of these banks is to allocate capital in a free-market economy. This "massive bonus culture" effectively pushes up the cost of capital for everyone else.

    The finance sector is too big, and is crowding out more useful activity in the economy: like solving the energy crisis, world hunger and tackling disease.

    Some of that puts me in the King camp, of wanting a new "Glass-Steagal". But I would also go along with some of what Turner wants. But not "more" regulation, but "better" regulation:

    1) Ban off balance sheet vehicles of all kinds

    2) Force all trades of these exotic instruments on to a recognised exchange

    3) Indeed follow the Soros view that "naked" trading of CDS's and other similar derivative instruments be banned

    4) Force all banks/institutions with a balance sheet above a certain size to hold even more regulatory capital to cater for the bigger impact of their failure in the event that the regulatory framework fails - as it will from time to time. This might act to limit the size of institutions (some have got too big to save compared to the tax base of their native country, let alone to big to fail) and encourage a variety of business models (so all the ex-building societies don't go the same way as Northern Rock).
    5) Force all bonuses to be paid in stock in escrow that can only be released say 5 years after the trading year in which the bonus was "earned"

  • Comment number 70.

    SUB PRIME mortgages are the reason we are in this mess.

    The losses on sub prime loans were (perhaps) containable, but what brought the global financial system to near collapse was the 'dicing and splicing' of these loans, re bundling and selling them on. The effect of spreading risk was meant to be benign. In principle, it is good banking practice.

    These loans were used as collateral on which to base yet more lending. Thus the multiplier effect of these toxic debts poisoned or infected the whole global financial system.

    Sub prime mortgages will inevitably re-emerge (in some other guise) when the housing market re-embarks on another insane, speculative boom.

    Surely, none of the proposed solutions from the FSA or Mervyn King address the fundamental - the greed of the housing boom.

    The recent paper published the other day from by the FSA on mortgage regulation does not tackle the simple fundamental of discouraging speculation in house prices.

    Of the British banks, Northern Rock and HBOS are the ones which collapsed.

    Neither were involved in investment banking - corporation merger and acquisition etc - but were most exposed to loans made to households for mortgages. Separation of investment banking activities is not the solution.

    The FSA proposals are equally wrong headed: heavy regulation.

    If we rush to knee jerk, emotional solutions, responding to public reactions to bankers and their bonuses, we risk a large part (whether we like it or not )of the British economy.










  • Comment number 71.

    Sorry to hear about your troubles old mate. Hope things get sorted in the right way.

    Your article is pretty dense with information.....I imagine you must be bursting with stories that you are keen to publish.

    The bit that caught my eye the most however is the bit about the CDS market potentially being clipped in the future so that only one CDS at a time can relate to an underlying instrument.

    To my mind the fact that 10 or more CDS contracts can each be "in the money" to a value equivalent to the amount that a single bond is "out of the money" is no different in principle to QE.

    Except QE is small beer compared to the amount of CDS wealth that was manufactured in the eight years prior to 2007. .....

    The cause of the crash may well be CDS related to a greater degree than is presently being spoken about.

    All the best Robert

  • Comment number 72.

    Well at least you didn't get Swine Flu Robert, best keeping the private stuff that way though or you'll be dealing with swathes of tabloids

    I also think that it might just be affecting your actual perception of the realities in the marketplace

    Zombie banks, with no competition, harvesting desperately to restore their short term balances, little leadership, no movement on regulation and busy buying QE government bonds whilst moving profits off shore to cushion against the currency deflation just around the corner.

    Looks like the whole mess will be handed over to the next parliament

  • Comment number 73.

    Robert, all the best from me as well regarding the family issues....

    Regarding your blog, it does seem that the ground is slowly starting to move regarding the need for radical reform. And we deperately need both Mervyn's proposals to break up the banks and Adair's suggestions of regulating and/or taxing the dodgier parts of the finance system out of existance.

    There is one further vital aspect of reform which does not yet seem to be on the radar. There is simply too much "investment money" sloshing around the system looking for the latest bubble to "invest" in. There are a number of reasons for this, though they mostly relate to long-standing imbalances
    - international trade imbalances resulting in countries like China or the Gulf States having huge piles of cash
    - imbalances between rich and poor within each country, such that the rich (net savers) end up lending at interest to the poor, with the banks acting as intermediaries.
    - broken pensions systems which result in us all putting far more into pension funds than is actually needed by industry for real investment purposes.

    You can't have too much debt without someone else having too many savings. To solve the former you need to solve the latter. Correcting the imbalances is essential, and neither Mervyn's or Adair's approach will be sufficient if the imabalances are not addressed,

  • Comment number 74.

    So who presided over the incompetence that was Summer 2007-Summer 2009? Adair Turner and Mervyn King! Now, they have the answer! But - as anyone involved in finance will tell you - the FSA and Bank of England have as little control over the industry now as two years ago. Nice speeches, but completely irrelevant. THE PROBLEM IS YOU ADAIR AND YOU MERVYN. It's a problem of governance. Your organisations failed to do their jobs, and it's a sin that you are still in your seats pontificating. With no governance, nothing works.

  • Comment number 75.

    If only we could coordinate a THREATENED mass non-payment of loan re-payments to show government and the moneypower that we're as mad as hell and we're not going to put up with it anymore!
    Nationalise the whole money creation system for the benefit of all not just the few.
    As Abraham Lincoln said, "..the taxpayers will be saved immense sums of interest. Money will cease to be the master and become the servant of humanity."
    Look what happened to him though.

  • Comment number 76.

    Robert, I hope you feel as if you are overwhelmed with good wishes. I'm sure every reader of your posts wishes you well.

    I think what we have is a policy dilemma. You appear to believe that we can regulate ourselves out of this mess. The Governor of the Bank of England sees regulation as irrelevant but structural reform as the way forward. You cannot both be right. No compromise can be reached between the two positions. We have to jump one way or the other and I can see no way to work out which way to jump.

    When I was your age, I would have believed the problem could be solved objectively by computer simulation and the application of gaming theory, but I no longer believe that. My degree says BSc(Econ). I no longer believe my degree title to be justified because I have come to see the so called dismal science as a black art.

    Somebody, somewhere, has to decide which way to jump. There is clearly no consensus and ultimately it will need someone with nerves of steel to choose - because on this decision not only my grandchildren, but yours too have their fate hanging. (And I kinda suspect that yours have yet to be born). Doing nothing will ensure catastrophe.

    FWIW, I think King is right and Turner wrong because I do not believe you can do anything about the cyclicality of banking. Roll on ten years and the banks will be awash with money again and wondering what new wheeze they can come up with to lend it at a profit. The thing is to stop them doing anything foolish with our money and simply not lend it if it cannot be prudently lent. Frankly, if you invent regulations, the smart (and frequently amoral) cookies who end up in banking will work out ways round them.

    But - if you make banks who receive public and corporate deposits separate from the wild and wacky guys who will bet on futures for camel loads on the Kyber Pass - who can then earn all the bonuses they like before they go bust - well we should never again see you breaking a story about a British bank going belly up while the regulators were sleep walking. The way they trade will ensure they cannot go bust. Making it illegal for a licenced deposit taker to lend to a casino bank should get round the problem. There will always be loans that with hindsight appear foolish. That is why there is a need for a margin between deposit and lending rates.

    My judgement is no more likely to be right than anybody else's and when the decision is made either way, I will not be cheering if it goes my way.

    And incidentally, Robert, if you read this, I still think that you working out what was happening at Northern Rock was the finest piece of investigative financial journalism by anybody ever. Feel encouraged, and we all look forward to your return.

  • Comment number 77.

    Good luck with the family matters Robert, I'll miss the blog in the mean time it's always enlivening and enlightening reading.

    Both King and Turner have some good points to make, but truly we need to go further, I don't mean trashing the entire capitalist system, but surely we need to take a step back and properly evaluate the role and power of our financial services?

    I honestly think that the greatest problem with taking the required action to get our financial system on the right basis is the fact that somehow we have managed to avert total meltdown.

    Right now I have the horrible feeling that we're living in the delusion that because we managed to push the right switches this time and scrape by, that all's hunky dory.

    I hope this delusion does not deny us the chance for change.

  • Comment number 78.

    Never has this been more true....

    The trouble with being educated is that it takes a long time; it uses up the better part of your life and when you are finished what you know is that you would have benefited more by going into banking - Phillip K. Dick

  • Comment number 79.

    We'll get more Huff and Puff from Messrs.Brown and Darling then the bankers will get paid their bonuses because actually there is nothing the Government can do about it,short of shooting a 90% tax on bonuses bill through Parliament.
    What I would like to know though is-what special skills and competencies do these particular bankers have that make them so valuable to the banking system.
    My understanding is that they are the same people who screwed it up last time

  • Comment number 80.

    Radicals? I'd prefer to call them 'sensibles'. The sooner we decouple the speculative arms of banks the better. Radical is the demonstrably dangerous structure we have at the moment.

  • Comment number 81.

    I hope all things personal resolve them selves as your heart would wish.

    Don’t worry about us nothing much is going to change with these wasters in power life will slither slowly down hill the economy will continue to live in a bubble under a false dawn with a rosy pink glow.

    Thus making us forget that a red sky in the morning means sailors take warning

    True your pound wont be worth as much and a few bankers will take a lump sum and run but then no one either has the vision, the guts nor the leadership to do anything about the UK s problems. Just to talk about it and hope it will go away.

    Does any body with all these false statistics truly know how far the bottom twenty percent have sunk or the top twenty have risen both at the other eighty percents expense when the average sixty percent majority in the middle as a consequence remains the same.
    Good luck.

  • Comment number 82.

    It is very difficult for a "man-in-the-street" like me to understand the fineries of these financial alternatives. Here are a few points that I feel strongly about:
    (1) We have had socialism with all its regulation and it does not work. Beware of over-regulation.
    (2) The financial industry is completely taken up with money-making with the morals of the addicted gambler. They will lead us into disaster again. They are blind.
    (3) The financial industry is contrubuting greatly to the economy in taxes and jobs etc but it is not worth the risk they bring. If we get rid of unattractive parts of it (like hedge funds) that would be OK.
    (4) Mr. King and Mr. Turner, who are familair with the financial system are reccomending bold steps. They must be listened to. The government must be prepared to take bold steps, maybe bolder than what they are reccommending to protect the people.

  • Comment number 83.

    Now, now you can't lay the blame for Bankers greed at the feet of their Shareholders.

    Whilst the Bankers print their bonuses, the poor old Shareholders have still lost up to one hundred percent of their investments.

    For example RBS was once over five pounds, and is now forty five Pence a share. Do RBS Executives deserve a Bonus ? I doubt it !

    The Middle Eastern Investors in Barclays have in effect signalled the top of the market in selling such a large stake. Or do they just believe they can get a better return elsewhere ?

    Until Banks have to retain responsibility for their own loans, there will remain a problem.

    Whilst Salesmen are employed on Commission to sell Loans which will then be passed on to someone else, there will remain a problem.

    Banks can raise money from Deposits and Bonds, but they do not need to sell Loans to each other. That is a flawed American Banking concept.
    The only people who benefit are the Merchant Banks, and looking at the Lehmans of this world it didn't benefit them all.

    On the Economy, when will the Parties in Britain, actually put forward some proposal to create new Export Industries ?

    That is what Britain needs, not Accounting fudges, and removal of hard won workers rights.

    It is easy for rich businessmen to pick on the retirement age as a soft target, but how many of them will actually do a 37 hour week up to the age of seventy ?

    How many Businessmen actually Retire long before that ? Actually doing nominal one or two days a month as Directors. Spending the rest of their time enjoying their wealth ?

    It took two world wars to bring the workers rights that British people currently enjoy, and these Rights look like they will be thrown away in order to maintain the Illusion of a Global Free Market.

    There is no such thing as a Free Market, each Country around this world does its best to rig the market in its favour. Just examine the Yuan to Dollar exchange rate.

    That is clearly rigged against the West.

    Europe has anti dumping Laws. Why hasn't the flow of cheap goods from China been examined under those Laws ?

    In effect the rigged Exchange rate for the Yuan, amounts to an indirect Government subsidy to all Chinese goods being exported.

    Is that not dumping ?

    Thats enough for one day, I'm off to enjoy the Rain (with a bit of Thunder just for icing!)

  • Comment number 84.

    It must be remembered that it is possible to take a lot of risk just within the context of a 'narrow' bank (with all the trading activities stripped off into the 'casino' bank). The likes of HBOS and Northern Rock were undone by a combination of the riskness of their traditional banking assets and their dependence on short term funding from the money markets. So what do these tradiational but risky assets look like? Loans simply. But given to the wrong people at the wrong price. For example v. high LTV loans to very cyclical industries such as contruction, all retail mortgages at 80+% LTV, as well as underpriced loans where the risk premium has effectively gone to zero. If you want some more insight into this last point compare the rate of growth of HBOS commercial or ratail bank balance sheet with its revenue growth. They were lending ever more money at lower rates of interest - making implicit assumptions about the continuing availability of cheap funding, and failing to take a through the cycle view of what appropriate credit risk premiums should be.

    In short, splitting up the banks is not sufficient to curb excessive risk taking (nor possibly required).

    It does pose a fundamental question of how banks should actually compete with each other - because their customers are typically happy to get cheap credit as a result of intense competition. And they would be equally unhappy to have a defacto high interest rate which leads to massive profits for the banks in boom times but is 'safer' in a through the cycle view.

  • Comment number 85.

    Robert

    I wish you well with things at home and I hope all works out for you and your family.

    I am not a fan of your comments and am constanly disappointed in your lack of interest in real business rather than just gossiping about banks.

    But I think it important that we all wish you well at this time.

  • Comment number 86.

    To my mind all the regulatory stuff is fiddling around the edges.

    The core issue is that financial activities are pulling in around a third of the profit produced by the economy while only generating about 10% of the GDP. 25 years ago, it was roughly 10% and 10% which looks intuitively right.

    Until we figure out how and why this massive distortion is happening, it is extrememly unlikely that any kind of regulation will work.

    Either the bankers have improved their relative contribution to the rest of the economy beyond all recognition over the last 25 years, or - far more likely to my mind - it's all built on sand and will collapse just like Madoff's operation did. I've been running a business for the last 20 years and though there have been improvements in business finance, nothing out of proportion to improvements in other areas of the economy. I've certainly not seen any tripling of the effectiveness of financial services in the real world.

    If it's the latter scenario, then we're all in big trouble unless it gets stopped. Quickly.

  • Comment number 87.

    Robert, you just take the time it requires to sort your family matters out. Nothing else matters more.
    Opposed to some other readers, I am actually a fan of your blog, and I do find your interest in the UK banks both timely and relevant. Never before (I think) have they screwed up this big, still managed to get into the public treasure chest, and now even rewarding themselves bigger bunusses than ever before. The banks surely deserve every little bit of critical and negative exposure we can find.
    Looking forward to seeing you back at the old computer...

  • Comment number 88.

    Robert,

    Hope you get your issues resolved asap, look forward to your return.

    JM

  • Comment number 89.

    Hope you get back to posting soon, I've been missing your articles and the little debates they spawn.

    Gl with your issues.

  • Comment number 90.

    Greetings Mr Peston (Robert)

    Best wishes ....and as the wife of a famous Monarch once said....in Life you only need to do three things...hope for the best, prepare for the worst ...and take what comes.

    When things are better for you Sir would you consider the parallels between the Enron scandal and HMG ?

  • Comment number 91.

    Robert,
    I hope all will be well soon with you and yours.
    GREED, and a lack of "purpose in life" (try rading Frankyl's writings)are the main reasons for all of these problems. Farcical salaries and bonuses paid to a small proportion of the population who contribute very little, if anything, useful to society - Turner was right about that. People selling stupid mortgages (anything over about 95% is ridiculous - all it does in increase the price of houses, which encourages people to take the risk of taking a stupid mortgage (after all, "if the banks are offering them, they must be sensible"). 99% plus of traditional bank managers (I am not a bank employee)knew this would end in tears, but they were replaced with salespeople whose pay was partly determined by how much they sold. Things won't recover until people realise that the prime purpose of an organisation is to deliver LONG-TERM CUSTOMER STAISFACTION. mMaking a profit is a necessary condition to be able to do that. Get it the other way around (as we do) and disaster inevitably follows. get the message : THERE ARE NO FREE LUNCHES!

  • Comment number 92.

    RP: " ........But it would shrink the CDS market by many trillions of dollars, since something like 90% of the market in recent years has taken the form of pure speculation, "

    ++++++++++++++++++

    Pure speculation? erm, like Roulette using other peoples money?

    It seems to me that CDS canot be accurately assessed either to risk or value. How on earth is there trillions of clamshells/pounds/dollars bundled up in them? The credit rating agencies never saw they were worthless, on the contrary, triple A+ was freely bandied about CDS.
    Will somebody assure me that the credit rating agencies are no longer rating these possibly worthless instruments as AAA?

    We really do have to split the people who carry out the 'pure speculation' from the retail banks. If this does not happen we will be having another 'crunch' soon.

    I do not see any repentance anywhere.

    Toldyouitwould

  • Comment number 93.

    This is going to sound like a rant and it's the first time I have posted anything! I am only only starting to do so because our social economic and political system has become illogical and unethical. careful analysis will bear out this statement:

    Economics is not a science it is the management of the economy by fiscal (monetary means), the need to manage an economy is brought about by social choices made in theory by members of society, the choices needing to be made are for the provision of services to that society, in order to provide firstly for the majority and then for the minority. These choices are first based on need, then ethics.

    Society needs an infrastructure that provides for a police force, society needs defence, society needs healthcare, society needs education, welfare, transport, etc. These needs are decided upon by a political system (government) that in theory acts for the majority.

    Individuals employed in these services are there because society can afford to pay for these services, if it is unaffordable to do so society would, or should choose not to pay for the service or services based on ethics, this involves making choices, these choices are supposedly made by the majority via a political system (the Government) who make choices based on (in theory) the wishes of the majority.

    If this system is working so well, how can it be that government chooses to pay civil servants (anybody not employed in the private sector) more money than the private sector could choose to pay itself? This statement needs clarifying:

    In the private sector if you work you get paid based on your output, if you can afford to put money away for your future you do.

    The private sector (when based on individuals and not averages or those on very high earnings) is unable to fund the equivalent pensions received by those in the public sector who typically end up with a pension of 2/3rds of their final salary (typically a lot higher or at least equal to average earnings) at retirement, anyone in the private sector wishing to provide for this would have to put at least 50% of their earnings aside, and would therefore be earning 50% less. Is it ethical for the private sector to be asked to provide this benefit to it’s employees?

    In times of recession the self employed and those in the private sector do not get increases in income because the employer does not make sufficient profit to provide an increase, the self employed tend to make less and suffer a fall in income. Yet in the public sector pay rises are restricted or reduced, to be paid for by the employer (the private sector) either by increased taxes or by borrowing based on possible future increases in private sector income. Is it sensible or ethical for society to provide pay increases to it’s employees when it can least afford it?

    The cost of public sector pensions now exceeds the cost of providing the Army, the Navy and the Air force, so society’s representatives (the government) have decided to put public sector pension provision above society’s defence needs. Is this ethical?
    Do we really want to provide better pensions for society’s employees at the cost of the lives of the people who defend us and those we choose to defend us, because we cant afford to provide bullet proof vests for our soldiers because government wants to have an index linked pension for our employees higher than the pension we can afford to pay ourselves?

    Is it ethical that public service employees get a full state pension as well as their employee pension, when the average earners and those below average earnings in society may only get a state pension because they could not afford to provide for a private pension as well?

    Society provides education, and society’s representatives (the government ) choose on society’s behalf to ask teachers to prove they are teaching our children well, by filling out forms to say what and when they are going to teach, then to say what they have taught as well as planning for each and every lesson, it asks that work is marked and these marks go into tables to show how well they are doing at their job.
    A good teacher gets results a bad teacher learns how to manipulate forms to show they are doing their job and uses statistics to justify performance. The good teacher spends less time than they would like in front of children teaching in order to fill out obligatory forms, the bad teacher does what is necessary to meet targets, and demonstrates they have done so using forms as evidence, which teacher would society prefer, and wouldn’t results speak for themselves?

    The great bulk of self employed (who earn less than their employees in the public sector) now choose not to employ staff based on the benefits society’s representatives (the government) has decided they are legally obliged to give, like access to pensions, sick pay, maternity pay, paternal leave pay, keeping jobs open and replacing staff when off are an additional cost. An employer has to find funds to cover these benefits from his/her own resources.
    So instead of choosing to bear the cost of additional employee’s the potential employer simply chooses to work longer hours and not to employ somebody, especially since it is almost impossible to get rid of an employee without several warnings or paying redundancy payments at a time when an employer can least afford it. Is it sensible or ethical to encourage unemployment by granting employment rights via legislation?

    It costs somewhere in the region of £70,000.00 per year to keep someone in prison, this is more than the average salary in the private sector, is society choosing to treat those that choose to hurt society too well at it’s own expense? Is it ethical to expect that it do so?

    This fact may be wide of the mark but not far off, roughly 90% of the national health services budget is spent on treatment for those with less than 5 years to live, yet society does not allow you to choose to die, keeping you alive at it’s expense. Is it ethical or desirable for society to force you to stay alive if you can, at the cost of society and against individual wishes?

    Society allows us to sue Doctors and surgeons and other health workers when they make mistake’s, yet society asks that they work hours that result in fatigue and increase the likelihood of mistakes, and when a case is successful against someone who is doing a job of trying to save lives not endanger them, society foots the usually very large bill. Perhaps unless it could be proved that the carer actually intended to cause harm, should society not exempt such an individual?
    Should not society accept that it expected too much of the carer instead of trying to apportion blame?
    If you were a surgeon would you choose not to try and save someone’s life because you were tired and might make a mistake, and if you did , you would be sued and someone attempt to blame you for the outcome if it were to go wrong?

    Society has started to legislate for minority’s at it’s own expense, it grants rights to minority’s that cost the majority funds the public purse cannot afford. These right’s may be ethical but are they if they contribute the bankruptcy of society?

    Society chooses to investigate and have enquiry’s into individuals actions that cost far more than the result of the individuals action and then have enquiry’s into the enquiry. The idea behind the investigation is to prevent something happening again, but in the majority of cases the cost seems to out way using common sense to reach a conclusion. Does that show that the choice to have started the enquiry in the first place was an uneconomical one ?

    Public service employees choose to interpret legislation whilst carrying out their office, how can it be possible for an individual to be allowed to openly display their religion by their dress code and it be possible for another individual wearing a cross to be told that they are not allowed to wear it whilst in a public place of work?

    Why are public officers not allowed to look after each others children for more than a few hours a week so that they can go to work? If it means that they cannot afford to go to work without paying for child care and so choose not to, is society now saying public officers are not to be trusted with your children, is it saying that you should stay at home and not go to work if you cant afford to pay a registered childminder or find one that you trust with your child?

    Is it not about time public service employees saw themselves as such and that they were paid what society can afford, with similar employment and pension rights to their employers in the private sector (this of course would result in a reduction to them in pay, pension, and employment rights). This might reduce the tax burden on society and go some way to equalising the income gulf between the Private and Public sector.

    In Cornwall the average income of those outside the Public sector (excluding larger employers) is around £15,000.00, most of these employees cannot and do not pay into a private pension yet they all employ Public sector workers via their tax and National Insurance contributions.

    Is it not time to examine what society can be reasonably expected to pay for, should the unemployed be able to be so for their whole working life, and should society pay to home them, pay for cars, dishwashers, televisions, satellite dishes, DVD recorders, and a whole host of things that are “essential” not to mention the taxes society deems them to have paid for them in order that they receive pensions when they retire! Shouldn’t unemployment benefits provide a basic level of support until the claimant returns to work, and not encourage the unemployed to remain out of work.

    It is apparent that if it were not for the influx of foreign workers now in this country that their would be insufficient national insurance contributions being paid by UK nationals to meet the current call on those funds to pay UK old age pensioners their pension.

    We need society’s representatives to start making choices based on economic principals, we need them to be prioritised in favour of the majority and then the minority, we need ethical choices to be made on the needs of the majority and then those of minorities, and big savings in the public purse would be made if we stopped making criminals by introducing legislation that makes criminals of the general public for petty things that are not worth policing.

    Society needs to re-form social groups that feel empowered to effect the future of it’s members and it needs to be able to penalise it’s members and their children in an effective manner that prevents antisocial behaviour from occurring in the first place. Members of society should be trusted to do the best for society until they demonstrate they are not worthy of that trust by acting against it’s wishes, and they should then be dealt with in a proportional manner, that is likely to discourage such behaviour in future.

    Our Current Taxation Burden:

    Income Tax 20%
    Employee national insurance contribution 11%
    V.A.T. Soon to increase again back to 17.5% 15%

    Total 46%

    Our allowances are around £6000.00 over a working life of say 50 years that equates to £300,000.00 not surprisingly the Inheritance tax allowance is above that figure at £325,000.00 so if as an individual you manage to accumulate an amount above the allowance and die your estate pays 40% tax on the excess.

    Conclusion if you do save money and have some left on the day you die above the allowance you will already have paid tax on these funds at 46% and then will pay an additional 40% on the balance, Council tax, road tax, water rates, TV. licences, stamp duty, and having your assets used to pay for your care costs have been ignored in this simple exercise!



    Does any of this seem fair, logical, ethical or even sensible for the masses?

    Are we simply choosing to impose this on ourselves via our employees in public service who get a much better deal?

    OR have we been blinded by all the legislation and benefits that seem to have been granted to individuals in society and not noticed the effect it has had on us?

    Right now the post office is holding the people who pay it's wages to ransom, preventing the private sector from earning the funds to pay their wages by striking. Perhaps the private sector should go on strike for a week and see what effect that would have on the ecconomy, perhaps we would have to loose a lot more public service workers.

    We also have the government trying to introduce legislation on mortgages that will restrict the ability of people who will be deemed unable to afford a mortgage without taking into account differences in life choices:

    If a couple smoke 20 a day each they spend around £280.00 per month on cigarrete, if they get a takeaway one a week they spend another £80.00 per month, perhaps they also have Sky at a cost of £30.00 per month, these three things total £390.00 per month and anyone choosing to service an interest only mortgage with this amount would be able to borrow £93,600.00 at 5%. Are the government going to introduce obligatory life style questions on borrowers?

    Talk about a Nanny State government has lost it's way and has no idea what it is doing by producing a never ending stream og Kneejerk legislation!

  • Comment number 94.

    It was a sombre speech by Mervyn King and rightly so. As always you have to listen very carefully to what he says so tactfully are his words chosen.

    Everything is not good and his fears seem to be that before the country can organise a banking system that will stand alone against another credit crunch one may have already occurred. With £1 trillion pounds already propping up the present system it is inconceivable that the taxpayer could take on any more.

    It is shocking that Brown and Darling are disagreeing with his concerns that the financial separation of the casino banks and retail banks must be done on an international basis. Perhaps the agreement at the G20 on cooperation was not all it seemed.

    This then leaves the option for a new bank as discussed on previous blogs to safeguard the public from any further upheavals.

  • Comment number 95.

    13. At 2:21pm on 21 Oct 2009, danj180 wrote:

    My favourite from the speech is:
    "The financial reform on the table is analogous to our response to airline terrorism by frisking grandma and taking away everyone’s shampoo, in that it gives the appearance of officially “doing something” and adds to our bureaucracy without really making anything safer."

    Superb analagy - spot on.

  • Comment number 96.

    There is a popular movement for the Glass_stegall equivalent here - although I don't believe it will solve the problems of Capitlaist banks, I can see peoples point.

    However the total lack of media or politicans talking about such an act is 'deafening'. Not one inch of column, nor minutes of TV time has been dedicated to the subject.

    If nothing else this should be ringing alarm bells about 'who the Government is working for and what their aims are'

  • Comment number 97.

    64. At 8:01pm on 21 Oct 2009, FauxGeordie

    That was excellent - and possibly very true...

  • Comment number 98.

    79. At 08:47am on 22 Oct 2009, gavin_humph wrote:

    "What I would like to know though is-what special skills and competencies do these particular bankers have that make them so valuable to the banking system."

    Gavin, their skills are:

    1) Taking your money and ensuring someone else gets the blame
    2) Resisting any reform which might impact their taking your money in the future
    3) Convincing the world they are clever by making up acronyms like 'CDO' and 'CDS' allowing them to confuse non-bankers
    4) Manipulating Government into a position that it is forced to save them from their own recklessness
    5) Paying themselves vast amounts of money for very little work - and then convincing you and I that they deserve it!
    6) Getting away with the biggest robbery of publicly owned money since the brinks matt robbery.

    Come on Gavin, you know they are well trained at what they do - they have just run rings around one of the largest and most established Governments in the world...

  • Comment number 99.

    Old Swervin' Mervyn was spot on in excoriating the entire banking culture there, wasn't he? The City has perfected the dark science of 'trickle up' economics whereby they accumulate wealth no matter what the actual state of the real economy - either by emptying taxpayer's pockets when they encounter a little temporary difficulty or by "speculation and obfuscation" when things are going more swimmingly.

    When the Governor of the Bank of England appears as a firebrand radical reformer compared to a Labour Chancellor and Prime Minister, you know something has gone very badly wrong with Labour ethics. Quite simply, Brown et al have none, they merely seek power for their own ends, just like Cameron and Clegg and their cronies.

    That is why we need a ballot box revolution in this country and the political status quo must be rejected.

  • Comment number 100.

    Robert, like you I have been away from the blogosphere. May I join the others that have expressed their best wishes and hope that things work out for you.
    My absence was partly due to internet problems and partly due to holidays. There is nothing like getting one Euro to the Pound the reinforce the fact that the UK is going to hell in a hand cart. It's not just the UK economy but Spanish tourism that has taken a huge dive this year.
    Much as whatever Messrs King or Turner say we all know that the key decisions will be made in numbers 10 & 11 Downing Street.
    The sad fact is that Messrs Brown and Darling are doing the equivalent of putting their fingers in their ears and screaming "la la la la" to try to drown out the problems or do they hope it is going away?
    I wonder if they hope that QE and artificially low mortgage rates will help keep the people off the streets this winter?
    Like post 1 I can see a winter of disconetent this winter as many in the Public Sector know this is the last chance to try to save or preserve what they have. The Unions have labour across a barrel when it comes to funding the next election and now is the last chance to call in any favours they may have.
    I am convinced Gordon's plan is to defer and delay any difficult decisions until after the election and there are a huge number of issues that need resolving. Many of these have been already highlighted by other posters but my top five are as follows.
    1) The banks. Something needs to be done and it has to be pretty major. New Labour have no idea and fear that any actions that seem like letting the bankers off could cause electoral suicide for them. Best to keep quiet and hope no one raises it until after the election.
    2) The public sector. Public sector pay, pensions and staffing need a cleansing like the Augean stables but any attempt by Labour to sort this out will cause massive unrest in the councils and NHS. The Public Sector Unions just won't stand for it and Gordon can't afford to stand up to them.
    3) The Post Office. Again despite their being a decisive need for leadership in an organisation that is Government owned we have no leadership from Mandelson, Brown or Darling and the strikes keep on coming.
    4) PFI. All of this is off balance sheet and apparently if it was brought back on then Government debt would treble. PFI deals need paying whether the hospitals or schools are used or not. PFI will drive education and NHS choices for the next 20 years. Any government spending cuts will make this even worse. Expect real problems over the next two years that will make the current situation look like a garden party in comparison.
    5) Defence. Whether it is Trident, new aircraft carriers with no planes or an overstretched army and a non trained TA allied to just how and when we get out of Afghanistan, if we ever will in our lifetimes. The lack of activity and leadership from the top is a disgrace.

 

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