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Dressing the banks' window

Robert Peston | 08:34 UK time, Friday, 9 April 2010

There's no great secret that public companies, especially banks, use cosmetic devices to make their published accounts look as attractive as possible.

It's called window dressing - and in the case of banks its aim is normally to persuade investors and creditors that they are not taking excessive risks.

Lehman Bros building in New YorkAs you'll recall, Lehman - the US investment bank whose demise triggered arguably the worst global banking crisis the world has seen - used a highly questionable accounting device called "Repo 105" to reduce its published assets and debts by a significant $50bn (see my note, "Lehman: how it disguised its frailty").

Now you'd think that in the wake of that banking crisis, banks would abandon their window-dressing habits and share with investors and creditors the true risks they run.

That, it seems, would have been a naive assumption to make.

Data supplied to the Federal Reserve Bank of New York shows that 18 big international banks systematically understated in their published quarterly accounts what they had borrowed to finance securities trading from the repo market (which is where securities can be swapped for short-term loans).

So says this morning's Wall Street Journal.

According to the Journal, the 18 banks that understated their debt levels included all the important ones, such as Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America and Citigroup - although it doesn't say which were the worst culprits.

The scale of this prettying up of their balance sheets is striking.

The Fed data shows that during the past 15 months, and at the end of each of the five quarterly reporting periods, the published debt used to fund securities speculation of the 18 banks was 42% lower on average than the actual peak levels of their debt in the preceding few weeks.

Or to put it another way, these banks were telling their investors and creditors that they were taking on much less debt (42% less) and much less risk than was actually the case.

That will disturb anyone who believes that the best way to keep banks on the prudent straight-and-narrow is for those who lend and invest in them to have the facts about what they're doing - so that they can instruct banks' management to do the right thing.

The important point is that market discipline on banks is wholly ineffective if the market doesn't have the relevant information.

Many would argue that it shows that the banks have learned almost nothing from the financial cataclysm of 2008.

All the banks would argue that wealth creation is maximised when official regulation is light and markets are liberated to do what markets do best.

But if they are not giving the market the facts that the market needs to sort the banking wheat from the chaff, then there is no alternative to very intrusive and costly regulation by the likes of the New York Fed and Britain's Financial Services Authority.

Arguably, the New York Fed's data shows that when the banks were herded into the last chance saloon at the end of 2008, they were not converted to a life of transparent temperance, but chose instead to drink the bar dry and shoot the place up.

Comments

  • Comment number 1.

    And what have they all been telling us?

    That they have a responsibility to their shareholders.......
    Hmmmm

    If the shareholders, their investors are surprised, more fool them.

  • Comment number 2.

    > All the banks would argue that wealth creation is maximised
    > when official regulation is light and markets are liberated
    > to do what markets do best.

    What could banks know about wealth creation? Others, like me, create
    wealth by work. Banks just store it, steal it, transfer it and throw a
    lot of it away. Banks are well advised to shut up while we decide how
    to break them up.



  • Comment number 3.

    Americans eh? It was mentioned that all the great financial frauds were American, and the auditors were American based. Then companies had taken over others to 'reduce costs' and then tried to prove to investors they were so good at making cash then entered the mistruth track to mislead them. Mostly the investors were American.

    I don't think I am the first one to point this out, but should the major investors have at least thought about the fact that sometimes they are wrong in what they invest in? Maybe time for a slightly less return and longer period of return as opposed to what we seem to have now.
    And I think there is more of this to come, leaving now the world governments to sort it out again.

  • Comment number 4.

    Most of the banks mentioned are zombies anyway. They have been ducking, diving, lying and cheating for the past ten years and more. Playing the off balance sheet game (how can anything REALLY be off balance sheet anyway) in collusion with goondog-trillionaire Brown and his cronies. This illusion act has still to fully unwind.

    Bernanke and his buddy King have tried every trick in the book to keep this silly magic show on the road: Altering accounting rules; printing money; robbing savers and taxpayers; masking losses, anything to keep their grubby hands on the power they so obviously crave as deeply as any addict.

    This crisis is not over yet, its full impact has simply been delayed. As the debts mount and 'the west' is revealed for the hollow con-job it has become, those nations that truly create wealth (you know who they are) will become ever more reluctant to prop them up without extracting real concessions and political power.

  • Comment number 5.

    TUT,TUT ROBERT!...YOU HAVE USED THAT PHRASE AGAIN!

    'All the banks would argue that wealth creation is maximised when official regulation is light and markets are liberated to do what markets do best.'

    -----------------------------

    You naughty boy!

    You really do have to re-visit your Karl Marx text books again to understand that banks do not 'create wealth'.

    Even Peter Mandelson has said so...'the banks are socially useless'.

    Extra homework tonight....or even possibly detention!

    ;o)

  • Comment number 6.

    Be honest, anyone surprised? It's obvious the financiers learnt nothing from 2008; come the revolution....

  • Comment number 7.

    So there are certain dates (quarters) when bank results are posted, and naturally the banks want to look 'good' on these dates. Where they can, they distort transactions to achieve this, bringing forward, delaying or modifying their balance sheets as appropriate. This is no different from what went on in Eastern Europe under old-style central planning, when at the end of each month (or quarter, or year) results were distorted to make firm performance look good - so managers could report plan fulfilment and get their bonuses. We all knew this was a pretty bad system, but why are we so shocked and surprised when our own banks engage in analogously shady practices? What do we expect?

    The difficult part, of course, is to design a set of performance indicators and incentives that would give more truthful reporting while also supporting genuinely good performance by the banks. And I don't think we've cracked this one yet!

  • Comment number 8.

    Nothing new or unique here Robert. Practically every large company plays similar games. I once worked for one where at year end we would buy millions of pounds of Airline tickets for future flights (tax deductable this tax year). After year end and tax reporting these same tickets were backed in to the airline for a full refund. I think the airline was in on the manouver but could never prove it. Another I worked at overpaid VAT to get the same effect. As far as I can tell most of the companies are at it.

  • Comment number 9.

    Moving and borrowing to make things look good at the end of a reporting period has been so normal in the City for as many years as I can remember that it would be difficult for the banks to change their ways.

    Looking back on the last 40 years, financial services have changed dramatically.

    40 years ago there would have been no way that most people would buy shares unless they had inside information. That's not that long ago and yet now it is essential to prove that you do not have inside information and bank staff have to be whiter than white by getting permission for buying and selling any financial products, so that the whiter than white audit trail is clear for the FSA, auditors and risk assessors.

    At that time people also borrowed money from their director's current account although that was not legally allowed, borrowed elsewhere and paid it all back in the last month of the financial year for the company, only to reborrow it the following month. That was normal too.

    However, it is not just the banks and financial services you have raised the subject of here, Robert, the government also does precisely that now.

    The effect on businesses of the government fudging its own figures is legion. The government not admitting to the reality of its costs by refusing to have a financial review in which all costs can be scrutinised, makes the prospects for business people to plan for their own businesses hobbled.

    We all know that Labour have decided not to have a financial review because they would rather do that after the election. That in itself means that they know the worst but don't want to admit it. The impact on businesses, including the banks, will therefore be pretty dire and Labour's current position almost guarantees a double dip recession - knocking the prospects of business even more.

  • Comment number 10.

    I am not surprised at this, one little bit.The system of accounting they use is full of holes and they know every hole there is.

    Governments are too weak to tackle them and they know it.

  • Comment number 11.

    5. At 09:35am on 09 Apr 2010, DebtJuggler wrote:

    "You really do have to re-visit your Karl Marx text books again to understand that banks do not 'create wealth'."

    I'm afraid Robet know this perfectly well but his 'journalistic integrity' won't allow him to admit it.

    Lets ask Robert a simple question and he can go off and investigate.

    "If banks create walth - what o they need business for? - surely all we need is banks, all other businesses are obsolete as we can import everything we need with the wealth the banks are creating"

    A simple question - never answered - because it canot be answered without telling the truth.

    Where is the surplus in the lending / production process which results in the payment of interest as a surplus?

    ...silence will be the answer...

  • Comment number 12.

    Have I missed something. We are all aware the Accounting standard in the US was 'relaxed' during the crisis after heavy lobbying by the Banks. Why are you shocked they have mis reported. Once you get doing your job you could check out the off-balance sheet toxic debt that still exists.
    Maybe the BBC should employ soemone who actually researches these things.

  • Comment number 13.

    Until the directors, accountants and auditors of companies that do these sort of things are convicted of fraud no member of the public can place any value on a companies results and balance sheet and should therefore never invest in shares.

  • Comment number 14.

    Window dressing, that old chestnut, the phrases accountants come up with which really means to mislead and get away with.

    Costly regulation by the FSA?, here is an idea, the banks can pay for this out of the money they have previously been paying auditors to come up with window dressing ideas.

    Simples

  • Comment number 15.

    Its business as usual for the banks only now they know that whatever they do it will go unpunished and any risks they take are underwriten by us taxpayers. No control, no accountability, no regulation....just what they wanted then, strange that. Of course the banks know they can get away with it because they have all the politicians from every party in their back pocket, and when you've got that it doesn't matter what journalists write or what the public thinks....you might as well be shouting at yourself in the bathroom mirror for all the good it would do!

    Just how much of an issue is bank regulation in the election campaign? How much in terms of cash do we all still stand behind the banks? How much money is the taxpayer shelling out to ensure ever rising house prices? Paying peoples mortgages when they lose their jobs or take a drop in wages at one end and funding part buy/part rent mortgages for first time buyers at the other? Just how many people are going to have to work till their 70 in a minimum wage job while living with their family in one room of a rented house while their tax is thrown at the banks and the mess they've made....just so that things can continue as if nothing had happened?

  • Comment number 16.

    I have been saying for some time now that in conscripting the taxpayers to save the banks the governments of this world then failed to do the next necessary thing and reform the banks.

    This is a political failure of grotesque proportions which the average voter has to take into account as to whom they vote for at the coming election.

    Now there is a very clear reason as to why the current British government failed to reform the banks. The idea is that by reinflating the bubble they can achieve the 3.5% annual growth in GDP with which they hope to reduce their GBP 163 billion deficit without troubling the calm waters of their public sector client base. The apparent risks in reinflating the bubble are disregarded.

    It is amazing that having failed with one one-way bet they then set out to do the same all over: this is not so much a government as a gambling addict.

    I have recently been abused elsewhere as being negative because I can be pedantic in the presentation of business figures and processes in a clear and honest way. I am a firm believer that the truth with always come out so there is no point in being disingenuous. When a markets is rigged then something unpleasant always happens. This is inevitable and this is what our banks and our governments are working up to all over again.

    It is not a case of just a double-dip recession, it is a case of repeating a financial catastrophe all over again. Vote Labour and it will certainly happen, vote for anyone else and it just might happen. I suppose that represents some sort of a choice for the electorate.

  • Comment number 17.

    16. At 10:39am on 09 Apr 2010, stanilic

    I'm not so sure it is our government, more most governments. At best they seem to be like a sailor with a bucket trying to rescue the Titanic, if indeed, they've realised the iceberg exists and as hit us all.

  • Comment number 18.

    The "accounting standards" are clearly feeble. The Regulation is a joke. "So what," you might ask, you're a million miles from any of these businesses? Not any more you're not, not if you're a taxpayer. Millions are diverted into saving the bankers, not pot hole repairs, for example.

    As for, "cosmetic devices," "Window Dressing," etc (or just plain spin?)to mislead investors. If bankers do this every quarter as a matter of habit, there are bound to be many bankers who believe that the window dressing is the genuine article as well!

    Hardly surprising that we have financial meltdown if half the people who assume they know how to run a bank are so self-deluded that they lose the plot when it comes to assessing a genuinely risky takeover possibility. Perhaps genuinely believing that all the pesky debt problems just "blow away in a nice warm magical breeze, every quarter?" (Can't help thinking about Lloyds/HBOS "due diligence." )

  • Comment number 19.

    It's hard to impress upon people the need to be honest when their political masters and the financial institutions are all on the fiddle. Dress it up any way you like, call it "window dressing" - but we all know it's a fiddle. Overclaim 4 quid a week on the social and you'll get jailed - hide 400 million in dodgy accounts and you'll get a knighthood. Caledonian Comment

  • Comment number 20.

    Far more pressing problems than this little side show today. Currently stuck on completing freecell game 8668. 100% success until now.

  • Comment number 21.

    So, The Banks consistently hide (lie about) 40% of their activities from the auditors, eh? Are we supposed to be surprised, shocked or just jaded?

    Doesn't this signify that there is at least 40% more toxic debt yet to be declared? Sorry, I forget, how many more trillions will that be?

    16. Stanilic - absolutely: the whole system is rigged and the thieves, the banks and their political puppies, are taking the mickey and the money with complete abandon.

    The doomsday scenario, portrayed in so many Hollywood movies, of mega-corps ruling the world, is already upon us - but Batman is nowhere to be found. Perhaps the batmobile has a sticky accelerator pedal?

  • Comment number 22.

    Thanks for an interesting post on this subject Robert. However we should not really be surprised as there has been no real reform of the banks either in the US or the UK.So I would expect the UK banks to be behaving in a similar fashion.
    It is also true that there has been a fundamental change in the role of central banks over the course of this crisis.For example I have read today on notayesmanseconomics web blog how they have lost independence and mostly seem to be losing interest in controlling inflation which in the UK is only enhanced by todays producer price numbers.
    And on a national level Greece got into her current mess by yes you guessed it not telling the truth about fiscal statistics...

  • Comment number 23.

    How can regulation be used within one country to control global markets?
    Surely all we will see is fiscal protectionism.
    When countries are up to their necks in it they will start to act to
    protect themselves in what they consider the best way.
    Unfortunately they cannot predict how a dumb, unpolitical market will react.
    Having started down the road of intervening far too late will it make things better or worse?
    Take Ambac.
    A sound business making more money than they knew what to do with underwriting municipal projects in the US.
    So they branch out into backing dodgy CDOs. woops. What to do?
    Err, protect the core business and let the rest go to hell in a hand-basket.
    Muni projects cannot be allowed to fail.
    It was all going down anyway so way not intervene.
    But, hang on, after a hasty rewrite of their books and a missed deadline or two they are now in PROFIT.
    (Gee, I wonder what the bonus scheme is like...)
    By the way, the CDS triggered as a result of splitting off the dross has likely put MORE CDOs into default.
    But, hey, so what, I did the best thing at the time (for me).
    But what if it was in the best interests of a bank to try to take the lot down?
    (American or otherwise?)
    Could they do this? They could certainly try.
    Bonds issued by Ambac as a whole could be deemed in default as a result of the split.
    So what to do? Wait and see what happens I suppose.
    Local regulation and global markets will FAIL.

  • Comment number 24.

    I think this 'new' revelation is the confirmation that all shareholders are merely gamblers.

    They think they can read 'form' but it appears the form book is faked - so they are doing nothing more than guessing.

    ...and how many gamblers have you met who come out on top?

    Unfortunately the combination of government policy and financial wizardry - most people have had their retirements 'gambled on their behalf'.

    I believe there is a 'new enron' about to be revealed in the states - this time in property.

    So how many times will shareholders be taken for mugs before they take real action?

  • Comment number 25.

    16 Stanilic

    'This is a political failure of grotesque proportions which the average voter has to take into account as to whom they vote for at the coming election.'

    -------------------------------

    A very important point!...but unfortunately, the average voter has been switched/turned off politics!
    :o(

    Can't you see that there is no difference between the 3 main parties in the Westminster village. They are all essentially free-market, anarchistic (i.e. believe in laissez faire regulation), liberal-democratic parties AKA LIBERTARIANS. They believe so much in the free-market principle, that they do not really care about the cost to society...it's the very free-market which failed so spectacularly when the banks were bailed out...hence Roberts piece up in the top right hand corner of this web-page titled 'The New Capitalism'.

    (It does sound a bit like 'New Labour' to me though...and what a con that's turned out to be!)

    I know that you have consistently proposed on these blogs that the plain vanilla retail banking NEEDS to be separated from the risky investment banking arms of large banks, so that only the tax payer guarantee can be applied to the retail side (ala Glass-Steagall). As have I.

    It's actually a 'no brainer'!

    Now WHY do you think that this has not happened?


  • Comment number 26.

    #11 WOTW

    Hear, hear!

    As it looks like we may be heading for a 'balanced parliament'...then why not a balanced UK economy?

    I guess that would be just a tad too Xenophobic for some!

  • Comment number 27.

    Robert, you appear to have learned nothing since summer 07.

  • Comment number 28.

    Just confirms that the banking system hasn't been sorted out at all just sort of stabilised for a time by taxpayers and printed money.


  • Comment number 29.

    As my daughter would say 'department of no surprises'. So its a race to see what finally trashes the economy first. The politicians (with the added frisson of not knowing which lot), the banks, peak oil (see [Unsuitable/Broken URL removed by Moderator]), peak water, peak food .... etc etc. Excuse the pun but my money is still on the banks.

  • Comment number 30.

    21. At 11:11am on 09 Apr 2010, ElEnfadado wrote:

    The doomsday scenario, portrayed in so many Hollywood movies, of mega-corps ruling the world, is already upon us -
    ...........................................
    Well, there is an alternative as advocated by some on these boards and it goes like this:-
    1. Abolition of property in land and application of all rents of land to public purposes.
    2. A heavy progressive or graduated income tax.
    3. Abolition of all right of inheritance.
    4. Confiscation of the property of all emigrants and rebels.
    5. Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.
    6. Centralisation of the means of communication and transport in the hands of the State.
    7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
    8. Equal liability of all to labour. Establishment of industrial armies, especially for agriculture.
    9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equitable distribution of the population over the country.
    10. Free education for all children in public schools. Abolition of children's factory labour in its present form. Combination of education with industrial production.

    I particularly like number 3. That is if you don't like it and decide to leave the country then everything is confiscated from you. The Russians had a similar thing except they just didn't let you leave at all!.

    Great system for freedom this Marxist idea, you can immidiately see how we will all be so much better off. What do you think of item 8? is this to include the eldery, infirm, handicapped etc?

  • Comment number 31.

    So Robert - business as usual then in the City!

  • Comment number 32.

    @Paul Hare

    What do we expect? Well, for me, I expect that professionals who are handsomely remunerated behave in an honest, professional manner.

    I expect that professionals who do not behave honestly are dealt with using proper legal processes.

    I expect that government should properly regulate banks so that 'window dressing' is minimised to a degree where world economy isn't at risk because of it, and so that any improper behaviour is dealt with.

    You might call me naive; but I prefer to think that I am realistic. It is the job of government to regulate, and that is what I expect it to do.

    Anyone who still believes in the Free Market might as well believe in fairies at the bottom of the garden. These are really the people who are naive. Being blinded by ideology is always a bad thing - which is why the Tories are going to be such a disaster. Gordon Brown may have been blinded by this ideology for a while, but at least he is not so wedded to it that any conversion to sense requires a whole political re-think, as with the Tories.

    BUT NONE OF THIS IS NEW! The greed of bankers, insurers and businessmen is well documented in the 19th century not least by Charles Dickens, Anthony Trollope and Elizabeth Gaskell, at a time when laissez-faire was all there was.

  • Comment number 33.

    #29 for anyone who is interested the problem URL was a link to the 'Second report of the UK Industry Taskforce
    on Peak Oil & Energy Security (ITPOES)' which I am sure you can find for yourselves. It suggests that the next energy crunch with arrive in about 2015.

  • Comment number 34.

    25. At 11:20am on 09 Apr 2010, DebtJuggler wrote:

    Lots that I agree with but ended with:-

    I know that you have consistently proposed on these blogs that the plain vanilla retail banking NEEDS to be separated from the risky investment banking arms of large banks, so that only the tax payer guarantee can be applied to the retail side (ala Glass-Steagall). As have I.

    It's actually a 'no brainer'!

    Now WHY do you think that this has not happened?

    ..............................

    Well I think the answer to your question is fairly simple, it would destroy the only way out of this mess. The banks are up to their armpits in debt. In normal circumstances this would be no problem because the mass of their debt is on home loans to 'the people'. The debt is financed by the bank borrowing from whoever to loan against a property at a slightly higher rate and bingo there in lies a profit for the bank. Unfortunately the normal lending source has dried up so the government has backed up the loan via the funds they get from the taxpayer. The reason they have done this is simple. The alternative was the banks would forclose on mortgages on a massive scale and probaly avoid going under. I say probably because if they could recover 100% of the loans on property they would clearly be more than solvent but forclosing on such a large scale would certainly drive down the price of their asset, ie property. So the game now is one of time. If interest rates remain low and people continue to pay their mortgages all the money comes back to the bank as origionally planned. Parellel with this you need to keep the property market stable(ish). A collapse in price will realise the outstanding debt with catastophic consequence. A boom in property price would also be bad as this would require increasing the debt mountain. So look forward to years of stable property prices whilst the debt is worked through.

  • Comment number 35.

    29. At 11:39am on 09 Apr 2010, peter_t_clarke wrote:

    As my daughter would say 'department of no surprises'. So its a race to see what finally trashes the economy first. The politicians (with the added frisson of not knowing which lot), the banks, peak oil (see [Unsuitable/Broken URL removed by Moderator]), peak water, peak food .... etc etc. Excuse the pun but my money is still on the banks.

    ..................................

    Department of no surprises, I like that. As for the rest of your piece it is all true and predominently the result of 6.5 billion little furry animals trying to climb over each other.

  • Comment number 36.

    "Many would argue that it shows that the banks have learned almost nothing from the financial cataclysm of 2008".

    That is exactly it Robert. I was a very active poster late 2008 and into 2009 and expressed my concern on numerous occasions that we would see a repeat of the crash. I still feel that at some point in the next few years, we will be put through another convulsion. Here are a just a few of my previous comments:

    January 2009: "...There’s no real initiative to improve the system and we’re just going to keep feeding the beast with more cash".

    January 2009: "...Few of those actually in the system – those that benefit directly from the system – will want to spoil the status quo".

    February 2009: "...Too big to fail is nothing more than blackmail. I would have let the bank fail and taken the consequences. Teach them a lesson even if it means feeling the pain myself. At least that way, things might have changed for the better".

    March 2009: "...The system is indeed broken. We are simply patching it up and sending it back on its merry way. Be prepared for this whole sorry saga to draw on and on and on".

    March 2009: "...Corporate land has not been made to feel nearly enough pain for its folly and we will suffer again as a result".
    (And later in the same post): "...The precedent has now been set and as sure as God made little apples, we will be put in this position again".

    March 2009: "...We might as well have started afresh while we had the chance. Our leaders are so intent on recreating the status quo. This will happen all over again".

    So your article today is of absolutely no surprise to me. The international banking numbers remain astronomical in size, and I understand that even though for many banks FRB has been halved from 40:1 to 20:1, UK banks are still working with numbers well into the UK GDP arena.

    Mark my words Robert, we need radical change - REAL radical change. There is not nearly enough reform of the system and what we have seen, will not hinder the upward movement of the exponential curve for long. It will simply correct itself as capitalism demands. The crash cycle will return and it will return sooner and hit harder.

  • Comment number 37.

    In the days of the first release of the Pistol's 'God Save the Queen' I found myself singing over and over, the refrain "no future". Now, in my late 40's when I thought I'd be leaning back a bit, and enjoying some sort of economic stability for myself and my family, I find myself singing it to myself again.

  • Comment number 38.

    # 20. At 11:09am on 09 Apr 2010, Uphios wrote:

    > Far more pressing problems than this little side show today.
    > Currently stuck on completing freecell game 8668. 100% success
    > until now.

    Bloody computers, eh? Our supercomputer (that CERN uses to find
    the origins of the universe) is playing up again. I'll mend it after
    dinner, and create some more wealth!

  • Comment number 39.

    34. At 12:25pm on 09 Apr 2010, Uphios

    I cannot disagree with a word you say there and agree the logic but what I can't get a figuring is this "Parellel with this you need to keep the property market stable(ish)"...Exactly how can this be achieved by govt other than keeping interest rates low for a long period, these alone are not the only factor in deciding house prices and if the genie of inflation is unleashed due to QE/Oil/Whatever then even that tool is shot.

  • Comment number 40.

    At one level I can rustle up little sympathy for the bank shareholders / investors who have been (are repeatedly?) duped by this sort of nonsense.

    Hell, just how often has it been said and can it be said - 'if it looks/sounds too good to be true then it probably is'.

    This is the basic and fundamental reality of a "free market". People embellish the truth through to blatently lie .... about the used car .... about the house .... about investments .... about the safety and/or efficacy of pharmaceuticals ..... etc., etc.

    Do these investors switch their brains off at the first sound of the sirens of banks and financiers 'selling' their wares?

    For sure, everyone can make a mistake. But a fool and his money are easily parted and surely people just need to be more wary of the total old bunkum that some banks put forward as solid gold fact.

    Expecting regulators, or their political masters, to save your butt is a lovely but totally unrealistic expectation.

  • Comment number 41.

    30. At 11:44am on 09 Apr 2010, Uphios

    Try ad get our head around this - Marx does allow for propety rights - he abandonment of these would be anarchic.

    However propety ownership is defined by domination - that means if you use it more regularly than others - it's yours.

    Now this means you won't get the lovely Capitalist feature of 12 bedroom houses on park lan standing empty because the owner has more poperty than he can live in whilst a homeless man sits in the gutter outside.

    Wouldn't it be a shame if this was lost.

    The abolition of inheritence would mean you wouldn't get an entire generation living off the exploitation of their forefathers. I mean little rich boys might have to actually work? I mean what are you afraid of? Worried that you can't 'win the race if you're not given an advantage at the begining'?

    Again - I'm sure it would be terrible if we lost this concept.

    You see although the picture you paint is of a pseudo-socialist world (i.e. a capitalists impression of it) - there are aspects which would be an improvement on capitalism.

    Survival of the fittest is it? - don't make me laugh..

  • Comment number 42.

    39. At 12:54pm on 09 Apr 2010, dudeHangingon wrote:

    34. At 12:25pm on 09 Apr 2010, Uphios

    I cannot disagree with a word you say there and agree the logic but what I can't get a figuring is this "Parellel with this you need to keep the property market stable(ish)"...Exactly how can this be achieved by govt other than keeping interest rates low for a long period, these alone are not the only factor in deciding house prices and if the genie of inflation is unleashed due to QE/Oil/Whatever then even that tool is shot.

    I would love to answer your question but as soon as I get near to saying what I really think, it gets moderated out!.
    Suffice to say if we are the (supposidly) the most intellegent animal this planet has ever seen then why do the apes appear to have a more enjoyable life than most people? If we are concerned with mankind as a whole then why the drive to profit out of exports?

    The fact is people are summed up by Orwell and the drive to be more equal than others. Me, I just want to be a hermit and left alone, but that is not possible either.

  • Comment number 43.

    "If you can't trust your banker, who can you trust?" comedian Jack Benny circa 1950's.

  • Comment number 44.

    41. At 1:22pm on 09 Apr 2010, writingsonthewall wrote:

    30. At 11:44am on 09 Apr 2010, Uphios

    Try ad get our head around this - Marx does allow for propety rights - he abandonment of these would be anarchic.

    ......

    And more.

    Whooooo WOTW, what are you firing at me for? You of all people surely recognised that list as Marx's work from 'The Communist Manifesto'.

  • Comment number 45.

    36. At 12:34pm on 09 Apr 2010, Catpain_Slackbladder

    I can sum up events since 2007 in in less words...

    Denial
    Denial
    DENIAL

    People won't wake up until countries have actually defaulted, commodity prices go bonkers and there is a full blown international currency crisis.

    It's not in Governments interest to spread panic - so they are not goin to say anything until it's too late to do anyhing about it.

    What I admire is those who put their faith in this election changing anything - because they really don't want to face the truth - truly astonishing they would rather trust those who have lied to them before than anyone else.

    Slaves in all but chains.

  • Comment number 46.

    There's no great secret that public companies, especially banks, use cosmetic devices to make their published accounts look as attractive as possible.

    >>>>>>>>>>>>>>>

    Really! In some place it is also called fraud.

  • Comment number 47.

    Good article, Robert. I just hope people open their eyes soon.
    “Financial mayhem” this is what I call unregulated banks, the games they play, the lies they tell, the quality of their balance sheets, especially when it comes to derivative bundles and credit default swaps.
    Goldman Sachs passed the FED's stress test to see if it was adequately capitalized. What kind of test was the “stress test”? You have to question this when ALL insolvent banks passed it.
    Sun Trust also passed the FED's stress test, but regulators said it needed $2.2B in order to be adequately capitalized. You have to wonder what kind of test it was when ALL insolvent banks passed it, some even needing more capital.
    US Bancorp reportedly passed the FED's stress test to see if it was adequately capitalized, with no need to raise any more cash. You have to wonder what kind of test it was when ALL insolvent banks passed it.
    Bank of America giddily paid a dime on the dollar for the money owed the American taxpayer. Taxpayers were owed $4,427 billion for the guarantee. They got $425 million, and this one was approved by the American legal system.
    Okay, enough already. I won’t bore you, but this “stress test” has got to be the prettiest, most deceiving piece of window-dressing!
    Lehman wasn't the only bank that engaged in bogus end-of-quarter balance sheet manipulation to hood-wink investors. Bank of America (BAC) did it, too.
    Look at Bank of America's "average quarterly assets" and "end of quarter assets" and you will find that, in each quarter, billions of dollars of assets conveniently disappeared - briefly - at the end of the quarter, only to return again at the start of the next one. If this looks like a Repo and smells like a Repo, it very likely is a Repo.
    Is this type of stuff legal? Probably not. But Lehman, Bank of America have the best lawyers, pay the best lawyers, and one of their key legal jobs is to find legal loopholes; another is to search and find dumb country which can be suckered into hiding tens of billions of dollars of assets somewhere where regulators won't find them. It’s most certainly not transparent.
    I’ve got to include what Bank of America said abouit this: Managining the size of our balance sheet are routine and appropriate. Our actions are consistent with all applicable accounting and legal requirements.
    So, all I have left to say is the banking industry requires tight regulation. Its transactions MUST be levied, preferably with a Tobin Tax on all foreign transactions; this would enforce transparency, establish audit trails, and give regulators enough ammunition to validate balance sheet cover-ups. We have got to get more of these banks into Court and make them do the right thing.

  • Comment number 48.

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

  • Comment number 49.

    The problem lies in the incentive schemes. If top bankers and traders are provided incentives that can make them very rich by taking high risks with other people's assets, then surely they will do so. After all, most are not particularly socially conscious people, which is why they play in this game in the first place. If on the other hand, gross neglicence, lying, cover ups, etc. were prosecuted under corporate law as unaccepatable and a number of them ended up behind bars, maybe more of them would think twice before playing loose with other people's assets and ruining many people's lives in the process. As for rewarding some of these culprits with huge bonuses or allowing them to continue playing these games, then it is beyond comment.

  • Comment number 50.

    Let us all kow-tow to the bankers. It is not "window dressing" it is dishonesty. Of course the banks knew what the results would be. They were in collusion with each other. Any other industry and people would be in jail. Unfortunately, the governments made all this possible and allowed banking lobbyist to repell any changes in regulations that would have brought this issue to public review prior to the collapse. The system is corrupt...not much more needs to be said except that the same people are in government and banking and no serious efforts to control or change the banking rules are being consider, maybe considered but will not be enacted. Your money will be stolen again because banking owns the governments...this is not about complex banking operations it is about corruption in government and dishonest ankers bilking the public out of their savings and retirements. Don't let the expensive suits fool you...these are common thieves. Watch the coming campaigns and listen for platforms based on banking reform....you won't hear any and if you do they will be vauge and noncommital. They will all talk about jobs but not what caused everyone to be unemployed...mainly because they are partly to blame.

  • Comment number 51.

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

  • Comment number 52.

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

  • Comment number 53.

    # 42. At 1:31pm on 09 Apr 2010, Uphios wrote:

    > Me, I just want to be a hermit and left alone, but that is not
    > possible either.

    Yes. You want to spend more time with your money, eh?

  • Comment number 54.

    27. At 2:05pm on 09 Apr 2010, flicks wrote:

    "I think this is so massive its beyond regulation. Its about saving fiat money otherwise we have total disaster. Its fraud but its also about saving a delusion - fiat money. Therefore there will be no regulation. This brings profound moral questions."


  • Comment number 55.

    When does hiding the true state of affairs become deceit and fraud?
    It makes a mockery of any balance sheet or company accounts if things are under stated like this.
    Just shows how out of control these guys are!, they have a duty to report the numbers to the shareholders but even that is seen to be below them.
    Would be interesting to perform the same exercise on European banks.
    Let us all kow-tow to the bankers. It is not "window dressing" it is dishonesty. Of course the banks knew what the results would be.
    They were in collusion with each other.
    Any other industry and people would be in jail. If on the other hand, gross neglicence, lying, cover ups, etc. were prosecuted under corporate law as unaccepatable and a number of them ended up behind bars, maybe more of them would think twice before playing loose with other people's assets and ruining many people's lives in the process. As for rewarding some of these culprits with huge bonuses or allowing them to continue playing these games, then it is beyond comment.

  • Comment number 56.

    At 10:08am on 09 Apr 2010, writingsonthewall wrote:

    Lets ask Robert a simple question and he can go off and investigate.

    "If banks create wealth - what do they need business for? - surely all we need is banks, all other businesses are obsolete as we can import everything we need with the wealth the banks are creating"


    To answer your question - UK plc can accomplish trick if Foreigners believe there's enough expertise in the UK Financial Services sector that they're willing to pay through fees & spread to have their wealth & risks "managed" by the UK. That's basically what the UK Government has been betting on - that the UK can pull of this trick, because it's desperate for the Tax revenue.

    The problem is this clearly doesn't work on a global scale - the economy will implode were every country to attempt to survive by financial services alone.

    The big risk for the UK seems to be that Financial Services will get off-shored to lower cost areas, just as software and most of the high-tech industries have.

    In principle there's absolutely no reason why that shouldn't happen, except maybe the dodgy notion of quasi-competition that seems to exist amongst Financial Services business. It seems abundantly clear that market forces are not working when all around them is going to hell, yet Financial Services continue to generate bigger profits and pay bigger bonuses. It beggers believe that this cartel / oligarchy like arrangement hasn't been investigated as a Monopoly a long time ago, but then there are a lot of vested interests involved I guess.

    My conclusion is, therefore, that if real and effective competition were to spontaneoulsy break out in the UK Financial Services sector, the country would be doomed, and should immediately call the IMF for a bail out.

    The corollary is the only hope for us all seems to be a broader based economy though how our politicians can effectively lead us in that direction is very unclear, given what we've done to the educational system over the last couple of decades.

  • Comment number 57.

    The nfact is that waste under the present governmant has reached unimaginable levels. Look at the numbers.


    Year Govt
    Spend GDP %

    1997 318 830 38%
    1998 325 879 37%
    1999 328 929 35%
    2000 339 976 35%
    2001 362 1022 35%
    2002 385 1075 36%
    2003 415 1140 36%
    2004 451 1201 38%
    2005 488 1252 39%
    2006 502 1322 38%
    2007 543 1401 39%
    2008 579 1405 41%
    2009 614 1743 35%
    2010 647 1550 42%

    If a Tory Government cut spending from 42% of GDP only back to the 1997 percentage of 38%, they would save 60bn - that's right SIXTY BILLION

    This Government has increased spending from 318bn in 1997 to 647bn estimated for 2010 - that's more than double. In no single area of public service have we seen an improvement commensurate with this rise. The NHS hasn't doubled productivity; there aren't twice as many doctors or nurses or operation being done. School's are not twice as efficient or twice as well equipped; class sizes haven't halved. On transport, we don't have twice as many roads; the trains are no better than 13 years ago. Crime hasn't halved; there aren't twice as many police on the streets. We have smaller armed forces than 13 years ago.

    Where has this Government wasted the 329bn rise? Well, how about

    Advertising, beaurocrats, managers, consultants, inefficient and beaurocratic procurement, spin doctors, idiotic initiatives, ill-considered IT projects (ID cards and the NHS to name but 2)...I could go on, but the opposition will probably eventually get the message out there. Please get rid of this uselss and wasteful Government.

  • Comment number 58.

    Sadly I expect no better from the banks.

    And what is worse? Nobody else does either.
    Everybody thinks it is just a manifestation of the system.

    Am I alone in knowing that we are being shafted?

  • Comment number 59.

    these major banks probably go with the presumption that what one doesn't see wont hurt them. they are justifying their actions by allowing themselves to believe that they are helping the markets and in turn the economy. they see it as attracting investors and borrowers who will inturn use these funds in the markets through entrepreneurship or the like and hereby aiding the financial systems. but they're ignoring the adverse effects this will have in the future for individuals and businesses alike. these businesses will take risks by borrowing or investing assuming that the markets are stable not knowing the big risk taken and when the axe falls which it will, many people and businesses will become affected causing instability in the market and diverse economic problems for these countries. but as is the custom their aim is to make money and deceiving a few and weaving an economic sticky web is not reason enough to stop their bad practises. the should learn from the catastrophy of the american banks. guess its not happening. hold tight then in the meantime investors and borrowers should be careful.

  • Comment number 60.

    53. At 4:06pm on 09 Apr 2010, Jacques Cartier wrote:

    Yes. You want to spend more time with your money, eh?

    ..........................

    Hee, Hee, Hee. Still way off base Jacques. Think more in terms of Mennonites but without the religion. You know, 'opt out' of your crazy society whichever government you choose to form. Would have done it years ago but it is not allowed to leave 'society', However I did spot that the capitalist system at least provides the opportunity to acquire enough in order to then 'opt out', unlike the Marxist society that wants you to become a tax slave without the option of saying I refuse to work till I drop.

  • Comment number 61.

    58. At 4:36pm on 09 Apr 2010, prudeboy wrote:

    Sadly I expect no better from the banks.

    And what is worse? Nobody else does either.
    Everybody thinks it is just a manifestation of the system.

    Am I alone in knowing that we are being shafted?

    ...........................

    Not having a go at you in paticular but am I alone in wondering what all the fuss is about?

    The money supplied to support the banks came out of taxes. If they had not spent it on this they would just have spent it on some other hairbrain scheme. It's not as if they came round to your door and said 'look you need to cough up £xxx extra in order to prevent the banks forcloseing on all the borrows who got in way over their heads'. Don't like the banks? fine don't use them. You can switch to a building society or one of the many alternatives to a bank anytime you like.

  • Comment number 62.

    The old adage "buyer beware of bank manager selling worthless products"!
    Insurance, Pensions, Endowments, hell even shares !
    They have to have some cash to gamble with, like a junky on the hard stuff!
    Nationalise them all and government who ever it is protect the ordinary citizens like you are supposed to do!
    I see Greece has thrown the towel in the IMF has gone in, next will be Spain followed closely by the United Kingdom. When the housing melt down starts proper and negative equity appears every where like the USA.

  • Comment number 63.

    11. At 10:08am on 09 Apr 2010, writingsonthewall wrote:

    "5. At 09:35am on 09 Apr 2010, DebtJuggler wrote:

    "You really do have to re-visit your Karl Marx text books again to understand that banks do not 'create wealth'."

    I'm afraid Robet know this perfectly well but his 'journalistic integrity' won't allow him to admit it."

    OK - I'll bite. Again.

    Banks, when they do what they are supposed to, create some wealth by matching those who have capital which they don't currently want to consume with those who can use that capital to produce more than they would otherwise be able to. Otherwise the capital would just sit around not being put to productive use. As well as introducing lenders to borrowers, they (are supposed to) underwrite loans so that the capital is not squandered and (are supposed to) take all the risk of their underwriting decisions so that the lender doesn't have to.

    Without banks, those with capital would either have to waste some of it in doing their own underwriting (less efficiently than a specialist lender), or they would only lend it to those people who they personally trust. That would mean that the capital was in general put to less productive use.

    "Lets ask Robert a simple question and he can go off and investigate.

    "If banks create walth - what o they need business for? - surely all we need is banks, all other businesses are obsolete as we can import everything we need with the wealth the banks are creating""

    Change "banks" to "sausage roll makers" in your question, and the answer is clear. They create some wealth, but (i) they can't do it without other people doing other useful and related things e.g. livestock and arable farmers, butchers, millers, lorry drivers, retailers, and many more, and (ii) they don't create enough wealth by themselves to trade for all our needs and wants.

    "A simple question - never answered - because it canot be answered without telling the truth.

    Where is the surplus in the lending / production process which results in the payment of interest as a surplus?

    ...silence will be the answer...""

    Your Marxist reasoning is unconvincing. Tell me which of the following scenarios you think is unfair, if any:

    1. A gardener and a farmer agree that (a) the gardener will help the farmer to remove weeds from his field, and (b) the farmer will give the gardener some of the extra wheat which is harvested as a result.

    2. A plumber and a gardener agree that (a) the plumber will fix the gardener's leaking tap, and (b) the gardener will weed the plumber's garden.

    3. A plumber, a gardener and a farmer agree that (a) the plumber will fix the gardener's leaking tap, (b) the gardener will help the farmer to remove weeds from his field, and (c) the farmer will give some wheat to the plumber.

    4. A plumber and a gardener agree that (a) the plumber will fix the gardener's leaking tap, and (b) the gardener will do some weeding for the plumber. The plumber and a farmer agree that (a) the plumber will ask the gardener to do weeding for the farmer instead of for the plumber, and (b) the farmer will give some wheat to the plumber.

    Scenarios 3 and 4, I suggest, are identical. This is exactly the case of a capitalist profiting from the investment of his capital. It's simply about simplifying complex webs of production and consumption involving many parties into much simpler agreements between two parties at a time.

    To address your question about interest directly, the bank depositor is providing capital which enables extra production and, as in case 4 above, is entirely justified in receiving a proportion of this excess. The bank, acting as an agent and insurer, takes a cut of this, in the form of interest.

    I just don't see the problem. The idea that you have to be physically involved in production in order to benefit from it seems to me to be entirely unjustified dogma. It assumes that those who are physically involved in production are entitled to the use of other people's stuff without having to ask for it or give anything in return. If you believe that, can I borrow your car for the next year? I promise I'll get some productive use out of it.

  • Comment number 64.

    25 DebtJuggler

    It is interesting that we can come to the same conclusion from two different directions.

    Your reasoning is a tad prejudicial as it implies that there is an intellectual reason for the position of our political parties on this issue.

    I don't think they have a rational proposition for their perspective as they are just behaving not thinking.

    I have been reliably advised from an excellent source that followers of the Austrian school of economics are shortly to come out with an argument that the banking crash was due to legislative interference by governments with a social agenda. Having read a brief version: they have a point.

    I do feel that rather than look for intellectual failings behind the banking crash we should seek to understand the consequences of group-think including the way that the critical and the whistle blower become excluded by the group. In other words self-criticism should be the first and continuing task for all groups otherwise they go insane.

  • Comment number 65.

    #61 Uphios

    I appreciate you not having a go at me in particular!

    However I did not get asked whether or not my tax contributions, past - present - future, were to be used to bail the banks out. It just was.

    Just like my tax contributions get used for all sorts of things I do not like.
    But the difference is that the banks already tax us, me, in their everyday commerce. Where else does their money come from?
    They are supposed to stand on their own three feet with what they extract from the wider population.
    And then when that is not enough they get the rest from a government/taxpayer bailout.
    Nice work if you can get it.
    And they think it is normal.

    Perhaps it is.
    Are bankers alone in being the chosen few that are allowed to scrounge off the rest of us?

    Sorry "allowed" is the wrong word. Required.
    The tax system has been partially privatised with public top ups as necessary.
    All to keep bankers in the manner they have become accustomed to.

    By the way don't think that the bankers are the only ones I am tilting at. Over the years I have been wasting my time having a go at all sorts of other leeches. Exposing prima facie public waste to Regional Development Agencies merely brings the response "It's OK since you too could do that". Obviously the public servants have been contaminated by the bankers. Growth needed at all cost.

    At least bank robbers generally spend their loot in the immediate locale.

  • Comment number 66.

    At 6:08pm on 09 Apr 2010, striped-pad3 wrote:

    "To address your question about interest directly, the bank depositor is providing capital which enables extra production and, as in case 4 above, is entirely justified in receiving a proportion of this excess. The bank, acting as an agent and insurer, takes a cut of this, in the form of interest.

    I just don't see the problem. The idea that you have to be physically involved in production in order to benefit from it seems to me to be entirely unjustified dogma. "



    I agree entirely that we need Banks as facilitators, borrowing short, lending long to increase productivity.

    It breaks down, however, when Banks have so much control of the economy that all a disproportionate amount of the rewards ends up with the facilitators rather than those physically engaged in the production. Compare the rewards of middle level people in Goldman Sachs with those in industry if you don't believe me. Arguments about free markets suggest producers should be able to shop around for lower costs of capital, however as anyone involved in small businesses in the UK will tell you the market isn't functioning and real at risk capital is way to hard to find so there's no competition. That's a big problem our elected leaders ought to be addressing.

    That brings me to my second point - the current crop of "Investment Banks" don't seem to be engaged in classic borrow short to lend long activities. What we call "Investment Bankers" today is something of a misnomer - they're all too often traders in stocks, bonds and currencies, rather than people involved in long term development of anything whatsoever. What the UK has desperately needed for as long as I can remember is a viable Seed and Venture Capital sector. That in part is why UK industry has struggled so much - we're not developing and nurturing the next generations of physical producers.


  • Comment number 67.

    63. striped-pad3 wrote:

    "Banks...create some wealth by matching those who have capital which they don't currently want to consume with those who can use that capital to produce more than they would otherwise be able to."

    ...but the crucial point is that the bank is entirely dependent on "those who can use that capital to produce more than they would otherwise be able to". Without them (the end producers) the bank could produce nothing at all from the capital that has been deposited with it by investors.

    You still haven't shown how the bank is 'creating wealth' - all you have done is shown that the bank is merely matching the resources (capital and labour) enabling others to do it.

    Sorry, but Marxist theory is still very much intact.

  • Comment number 68.

    At 24 Wotw wrote
    I think this 'new' revelation is the confirmation that all shareholders are merely gamblers.
    They think they can read 'form' but it appears the form book is faked - so they are doing nothing more than guessing.
    I suppose that explains why you were predicting this time last year a stock market crash then? After all on 02 Mar 2009 wotw said
    ....just an additional note for all those fools who think they're clever and can beat the system of Capitalism.....
    Remember all those people who worried about the FTSE falling below 6000?
    ....well try below 3000 - or even 2000.
    This is the measure of how over-inflated the Economy was - maybe even twice as much as it's real value.
    Where is it today? 5700? Seems that, like most of your predictions, it was more hot air than insight.

  • Comment number 69.

    I think that if you really want to split hairs on how banks produce a profit the answer is back in the early days of banking. As a bank I will provide a secure safe for you to deposit your money. I will guarentee the safty of your deposit and of course charge you for the service, voila, a profit.

    Along comes 'progress' and as a bank I discover I can lend this money to what I feel are upright respectable people. They will pay something called interest on the loan and as a marketing ploy I can now let the depositer bank for free.

    The bank today can always revert to the earlier model.

  • Comment number 70.

    Assuming the previous post didn't get moderated out here is a new business venture for someone out there. Think of the early banks as a forerunner of the self storage companies you see all over the place today. Now do what the banks did and instead of just charging for the storage, reach an agreement with the depositor to loan out the furniture, bicycles or what ever. In a few hundred years you will be held in the same contempt as bankers are today.

  • Comment number 71.

    So I was playing around in the potting shed earlier planting out the next crop for my self sufficency quest when I got to thinking about Albert and he's E=Mc2 stuff. You know he never said anything about it has to be uranium so I took a couple of bits of sandstone, soaked then in some Reckitt Benckiser products for an hour and dropped one stone on the other. Unbelievable! A huge hole in the ground, lucky I didn't die. Anyway it turns out I have discovered Nuclear fision on a shoestring. So much energy available a jam jar full will run the world and still have enough power left to desalinate the Atlantic and irigate the Sahara. So pleased was I with this discovery I gave our mate Karl a ring to see what it was worth. Apparently just my hour of labour. So dissapointed with this news. I have chucked the lot in the bin.

  • Comment number 72.

    No 71 Uphios

    Great post - a perfect example of why Marx is as relevant today as he always was!

    The rest of the world will go off and make an absolute fortune, but without your labour at the start there would be absolutely nothing. Unfortunately the banks (and quite a few posters on this board) can't see this.

  • Comment number 73.

    #69 70 Uphios

    It is not the renting out on interest that pays.
    It is the renting out multiple times simultaneously of the same money at interest that pays. Check out Basel II.
    Also look at leverage.
    Clever people these bankers.
    Much cleverer than you and me.

  • Comment number 74.

    #68 The reason that the FTSE is at 5700 today is because of QE. All that printed money needed to go somewhere and it found a home in the stock market. To be fair in March of last year QE was nothing more than a twinkle in Mervyn King's eye, who then would have thought that he would create £200 billion out of thin air or forseen the results? And don't think its going to stay this way either, the only reason the money has all gone into stocks and shares is because interest rates here and abroad are at all time lows, when things start looking up in America, Europe and here and interest rates start to rise alot of that money will come out of the stock market and move into currencies. The 5700 number is not based on company results....its a false position that will correct itself in due course.

  • Comment number 75.

    #70 prudeboy.

    Yep, I've watched debt as money several times, full of holes. The government/BoE are not stupid. Watch the start again with the government raising however many billions it was and the banks multiplying it through lending. The government know exactly whats going on and could easily stop it if they chose. But it would mean that when they wanted an extra 200 billion in circulation that is what they would have to approve instead of the 20 billion they approve now, knowing that the banks will 10 fold it. It's not a bank manouver (although they profit) it is a political one.

    It's very easy to escape the whole show, just do not borrow, anything, ever. If you can't afford it out of savings then you can't afford it. Borrowing is selling your future on the cheap.

  • Comment number 76.

    75 Uphios

    "It's very easy to escape the whole show"

    Luckily I am debt free. But that is not the point. Everything we buy or use is just a bit more expensive because we all pay our dues to the bankers. One way or another they tax us. We drag them along for the ride and I for one do not like it. They are getting something for nothing. Their little marks on bits of paper and bits in bytes of words on files in spreadsheets cost us all.
    Arguably they have empowered us all to exploit the earths resources.
    But I still don't like paying taxes to unelected people.

    However "It's very easy to escape the whole show" you are right!
    I'm off to the pub. I'm late!
    But the money I spend will in part find it's way to - banksters..

  • Comment number 77.

    76. prudeboy:
    I'm off to the pub. I'm late!
    But the money I spend will in part find it's way to - banksters.

    ...........

    Brew your own!

  • Comment number 78.

    Old news my man, all these debts are being inflated away as we speak.
    The next generation is in the queue to be enslaved and the circle of life rumbles on. I remeber that old say "Neither a borrower nor a lender be", rather in these modern times it should be "Neither a borrower nor saver be"

  • Comment number 79.

    77. At 10:17pm on 09 Apr 2010, Uphios wrote:
    76. prudeboy:
    I'm off to the pub. I'm late!
    But the money I spend will in part find it's way to - banksters.
    ...........
    Brew your own!
    -----------------------------------------------

    Better yet, eliminate money completely.
    Isn't it time we design a WORLD WITHOUT MONEY?!

    These people try to
    http://www.youtube.com/watch?v=ovkhMly5FTU

  • Comment number 80.

    79. plamski

    Ah, the venus project thing. Utopia, everything you want and all for free. Now watch it again whilst thinking 'I want 400 metres of Malibu beach to race my horses along'.

  • Comment number 81.

    24. At 11:18am on 09 Apr 2010, writingsonthewall wrote:

    "I think this 'new' revelation is the confirmation that all shareholders are merely gamblers.

    They think they can read 'form' but it appears the form book is faked - so they are doing nothing more than guessing."

    If it's a zero-sum (or negative-sum) game, gamblers is all they are. If there is a genuine ability to create wealth by combining someone's capital with someone else's labour then it's not gambling - it's win-win. Sadly there doesn't seem to be too much of that sort of thing around at the moment because it's so much easier to make money out of fraudulent credit expansion, and no one seems to be held accountable for their bad decisions these days.

    "I believe there is a 'new enron' about to be revealed in the states - this time in property."

    I think you're right that it's going to become clear to everyone soon - and it's worldwide, not just in the US. But it's not news to people who read around a bit - particularly away from the mainstream media. Bloomberg's Jonathan Weil is a good source, as is Karl Denninger in his Market Ticker blog. But the warning signs have been in the mainstream media too - The Times wrote on 24 August 2009 about Lloyds Banking Group and RBS selling their foreclosed properties to their own subsidiaries. And I've kept a cutting from the FT in October 2007 where a columnist gave examples of how out-of-control mortgage lending was in the UK, not just U.S. subprime - e.g. lending to a couple at the limit of what they could afford where the woman was obviously pregnant, using proof of a gardener's summer income as typical for the whole year, and lending £3 million to a cabbie with an income of £30K per year to buy flats which he hadn't even seen (subsequently valued at £2 million). And the BBC reported Dominique Strauss-Kahn saying that banks have only recognised half their losses.

  • Comment number 82.

    80. At 11:41pm on 09 Apr 2010, Uphios wrote:
    79. plamski
    Ah, the venus project thing. Utopia, everything you want and all for free. Now watch it again whilst thinking 'I want 400 metres of Malibu beach to race my horses along'.
    ----------------------

    I do not think you understand the concept really well. "Free" means that something is not free i.e. costs money. In a non-monetary system the notion of "free" does not exist.

    An interview with the Peter Joseph
    http://www.youtube.com/watch?v=CIINgQ1TooE

    I realise it will take a lot of time for people to comprehend the idea of a world without money, but at least we can spare each other the sarcasm.

  • Comment number 83.

    25. At 11:20am on 09 Apr 2010, DebtJuggler wrote:

    "Can't you see that there is no difference between the 3 main parties in the Westminster village. (...) They believe so much in the free-market principle, that they do not really care about the cost to society...it's the very free-market which failed so spectacularly when the banks were bailed out."

    I agree with your sentiment about the outrageousness of the bail-out, but that's not a failure of the free market. In a free market, the banks would have collapsed, and their shareholders and junior bondholders would have lost some or all of their money.

    It was the government which decided to bail them out. If they'd been looking out for our interests, they would have allowed them to close, put them through administration, and given the equity to the bondholders. Pretty dramatic for a week, it would have clearly shown the apparent prosperity of recent years to be a mirage, and it would have forced the country into a recession in which we'd have to restructure so that we were back to producing more than we consume, but it would have solved the problem. Instead the government decided to blame the crisis on the rest of the world and pretend that borrowing huge sums of money to meet the short-term cash-flow needs of the banks would solve everything (and give us a profit too - a miracle).

    Note that I'm not for a free-for-all. Government has an important role, but it's to prevent fraud. But leave the rest to the free market. The banks who underwrite well, and don't gear up to their eyeballs, get to expand and profit. And the rubbish banks get to collapse. Instead it's the other way round e.g. Dudley Building Society, conservatively run, had to pay a huge chunk of its profits into the FSCS to cover the losses of Northern Rock.

  • Comment number 84.

    34. At 12:25pm on 09 Apr 2010, Uphios wrote:

    "Unfortunately the normal lending source has dried up so the government has backed up the loan via the funds they get from the taxpayer. The reason they have done this is simple. The alternative was the banks would forclose on mortgages on a massive scale and probaly avoid going under. I say probably because if they could recover 100% of the loans on property they would clearly be more than solvent but forclosing on such a large scale would certainly drive down the price of their asset, ie property. So the game now is one of time. If interest rates remain low and people continue to pay their mortgages all the money comes back to the bank as origionally planned. Parellel with this you need to keep the property market stable(ish). A collapse in price will realise the outstanding debt with catastophic consequence. A boom in property price would also be bad as this would require increasing the debt mountain. So look forward to years of stable property prices whilst the debt is worked through."

    It's not going to work. Too many mortgages, by all accounts, could not be afforded, even at low interest. The borrowers, and indeed lenders, were relying on property prices going up continually faster than the interest accumulated. If property prices remain stable, the debt will run away from them.

    The other problem is that the decision to set interest rates low to continue to allow banks to continue to lend into property results in a huge misallocation of capital, which could instead have been used for something productive which could be used to pay the mortgages.

    It's not going to end well. :-(

  • Comment number 85.

    41. At 1:22pm on 09 Apr 2010, writingsonthewall wrote:

    "Now this means you won't get the lovely Capitalist feature of 12 bedroom houses on park lan standing empty because the owner has more poperty than he can live in whilst a homeless man sits in the gutter outside.

    Wouldn't it be a shame if this was lost."

    You make it sound as though anyone who believes in the merits of capitalism is mean (and imply that all socialists are generous and kind). I'm not convinced that that is true. I could just as easily say that it would be nice if someone who produces lots of wealth was free to give it away generously to causes in which they believe instead of having to allow some committee to decide it while taking their share of the proceeds for the important work that they are doing.

    "The abolition of inheritence would mean you wouldn't get an entire generation living off the exploitation of their forefathers. I mean little rich boys might have to actually work? I mean what are you afraid of? Worried that you can't 'win the race if you're not given an advantage at the begining'?"

    If you don't believe in the principle of benefiting from the results of other people's generosity, do you refuse if someone offers you a drink in the pub? Or if it's children benefiting from their parents' wealth that you object to, do you think that children should be fed a standard diet so that wealthier parents can't give their children an advantage by giving them better food? Maybe wealthier parents shouldn't be allowed to spend quality time with their children, because it gives them an advantage over those people who can't or won't? Maybe parents should not be allowed to let their children play with friends, because there are some children whose parents don't let their children play with friends? Maybe we should just take children away from their parents at birth, and let the state or the community bring them up in a standardised way?

  • Comment number 86.

    54. At 4:08pm on 09 Apr 2010, DebtJuggler wrote:

    "I think this is so massive its beyond regulation. Its about saving fiat money otherwise we have total disaster. Its fraud but its also about saving a delusion - fiat money. Therefore there will be no regulation. This brings profound moral questions."

    I don't believe that fiat money is delusional. It seems perfectly reasonable to me to have a system of credits for work done, as long as everyone in society accepts them. Why is using chunks of pretty metal any more sensible? Or shells or playing cards for that matter?

  • Comment number 87.

    66. At 6:43pm on 09 Apr 2010, Bernard wrote:

    "I agree entirely that we need Banks as facilitators, borrowing short, lending long to increase productivity.

    It breaks down, however, when Banks have so much control of the economy that all a disproportionate amount of the rewards ends up with the facilitators rather than those physically engaged in the production"

    I agree entirely. What you're arguing for is plenty of real competition between banks. And alternative means of employing capital to mutual gain, such as direct bond or share purchases. It all sounds good to me. The problem that we seem to have is that the system currently benefits those banks who engage in customer-unfriendly actions, such as getting people into excessive debt. Those who keep their moral compasses end up being bought out by the bad lot. All I can suggest to that is that government should enforce transparency (e.g. nightly mark-to-market on all assets held by banks to prevent bad credit creation), instead of colluding with them in hiding bad debt by massive subsidies from taxpayers.

    "That brings me to my second point - the current crop of "Investment Banks" don't seem to be engaged in classic borrow short to lend long activities. What we call "Investment Bankers" today is something of a misnomer - they're all too often traders in stocks, bonds and currencies, rather than people involved in long term development of anything whatsoever."

    As I understand it, investment banks are supposed to help organisations to raise funds through issuing shares and bonds, and they take a percentage of the amount raised. In theory they could add value by making the process more efficient. But as you say, a lot of what they do (as well as retail banks) is proprietary trading - a zero-sum game, with opportunities for conflicts of interest.

  • Comment number 88.

    67. At 7:03pm on 09 Apr 2010, the_fatcat wrote:

    "...but the crucial point is that the bank is entirely dependent on "those who can use that capital to produce more than they would otherwise be able to". Without them (the end producers) the bank could produce nothing at all from the capital that has been deposited with it by investors."

    Millers are entirely dependent on farmers, retailers, etc. Just because you need other entities in order to do your thing doesn't mean that you don't create wealth.

    "You still haven't shown how the bank is 'creating wealth' - all you have done is shown that the bank is merely matching the resources (capital and labour) enabling others to do it."

    The point is that if the borrowers and lenders had to find each other, they wouldn't be able to do it as efficiently. A farmer who had to go round to his friends to borrow money to buy a new tractor would waste a lot of time he could have spent growing something. And his friends might not want to risk all their money in a single venture like that, so their capital isn't likely to be used efficiently. Banks offer protection to the lender, which has to be paid for by interest charged to the borrower.

    "Sorry, but Marxist theory is still very much intact."

    I'm yet to be convinced. It all appears to me to be assertions by several commentators here. I'd be more impressed if you showed real examples of complex societies where Marxism has worked to increase the welfare of the population.

  • Comment number 89.

    68. At 7:24pm on 09 Apr 2010, blogjt wrote:

    "I suppose that explains why you were predicting this time last year a stock market crash then? After all on 02 Mar 2009 wotw said (...)
    Remember all those people who worried about the FTSE falling below 6000?
    ....well try below 3000 - or even 2000.
    This is the measure of how over-inflated the Economy was - maybe even twice as much as it's real value.
    Where is it today? 5700? Seems that, like most of your predictions, it was more hot air than insight."

    I haven't done this before, but I'm standing up for WOTW here. It's difficult to predict exactly when a stock market crash is going to happen, particularly with the government running up £170 billion per year on the nation's credit card, and the Bank of England printing £200 billion predicated on future government tax increases. And these bubbles historically last for much longer than you'd expect. Apparently Sir Isaac Newton sold out of the tulip mania, but bought back into it because it just kept on going. But when you have a nation (or individual, or any size group) which is consuming more than it produces at an exponentially increasing rate, you can have mathematical certainty that it will not continue.

  • Comment number 90.

    75. At 9:19pm on 09 Apr 2010, Uphios wrote:

    "If you can't afford it out of savings then you can't afford it."

    A good general rule. I'd just add "apart from a place to live, as long as you only borrow what you can afford to pay back if interest rates rise and you lose your job for a few months".

    "Borrowing is selling your future on the cheap."

    Nicely put.

  • Comment number 91.

    89. At 02:10am on 10 Apr 2010, striped-pad3 wrote:

    "Apparently Sir Isaac Newton sold out of the tulip mania, but bought back into it because it just kept on going."

    Sorry - it was actually the South Sea Bubble. Tulip mania was shortly before he was born.

  • Comment number 92.

    #85 Wrote :"You make it sound as though anyone who believes in the merits of capitalism is mean (and imply that all socialists are generous and kind). I'm not convinced that that is true. I could just as easily say that it would be nice if someone who produces lots of wealth was free to give it away generously to causes in which they believe instead of having to allow some committee to decide it while taking their share of the proceeds for the important work that they are doing"

    That's the problem with these lefty types - the're convinced there's no such thing as compassionate conservatism - god, how naiive!
    I've just been down Tower Hamlets where I bumped into Bod Diamond who was setting up a local charity for under- priveleged kids who want to make it big and screw the rest of society - good old Bob's sponsoring courses in ineffective auditing, inattentive law practice, tax avoidance and good ol' fashioned investment gambling.
    When are these bigoted labourites going to realise just how valuable our wealth creators are!

  • Comment number 93.

    60. At 4:41pm on 09 Apr 2010, Uphios wrote:

    # 53. At 4:06pm on 09 Apr 2010, Jacques Cartier wrote:

    >> You want to spend more time with your money, eh?

    > the capitalist system at least provides the
    > opportunity to acquire enough in order to then 'opt out'

    Canada is your place. The road north from Montreal becomes
    a track after a hundred miles, then you get a bankerless
    wildrerness for another 1,500 miles. Most of it hasn't been
    trashed by your beloved "capitalist system", yet.

    Or try BC - I loved living in the Southern Interior,
    which has a far better climate than Quebec. Try
    Kelowna, but there are a few bankers there, unfortunately.

  • Comment number 94.

    92. At 02:29am on 10 Apr 2010, Billythefirst wrote:

    "That's the problem with these lefty types - the're convinced there's no such thing as compassionate conservatism - god, how naiive!
    I've just been down Tower Hamlets where I bumped into Bod Diamond who was setting up a local charity for under- priveleged kids who want to make it big and screw the rest of society - good old Bob's sponsoring courses in ineffective auditing, inattentive law practice, tax avoidance and good ol' fashioned investment gambling.
    When are these bigoted labourites going to realise just how valuable our wealth creators are!"

    OK - that made me smile. But do you really think of Bob Diamond as a wealth creator? To me, he's just a manager. And wasn't he the one who almost destroyed Barclays by massively overbidding on ABN Amro? They were only saved when RBS overbid even more outrageously.

    I'm thinking more of the people like John Cadbury, who made a fortune and shared that wealth generously with the workers. While that may continue in some places, I don't think you'll see much of it in the plcs, partly because they have a fiduciary responsibility to their shareholders - have you read 'The Corporation' by Joel Bakan?

    I'm just as outraged as you are by the bad auditing, debt pushing, loss socialising, and executive overpayment based on massive overstatement of profits. But that's not capitalism - at least not as I understand it. Those things happen when a group of powerful people (in this case powerful people in large corporations and government) cooperate to enrich themselves at the expense of others. What we need is more integrity all around, instead of punishing those who behave well and rewarding those who behave badly (perhaps like certain bailed-out banks).

  • Comment number 95.

    I think we will have to start calling these banks 'Leopard Banks' for obvious reasons. God knows, people have been lined up against the wall for less.
    In a funny sort of way, it is the huge size of the credit market that will save many of these banks(providing they do not crab too many bad loans), not ''market efficiency'', as they hoover up cheap credit to sell (inefficiently) to consumers dearly.
    In a way, it was the short- sellers that saved the remaining banks before they got in way too deep. The governments supplied the path of the escape route.

    If you can read companies financial reports you find the companies problems without even sometimes needing to read/calculate the figures.
    The use of particular language speaks for itself, and what the companies don't comment on also speaks volumes !!

    I'm not too sure of the banks ''shooting up the place''.
    Looks more like they have ordered (on)a new Slate.

    [e.g. BT Year 2000, for example, red cover,used dense language to give the impression that they are on top of the (complex)situation. Then you read about all the borrowings they had. Their shares used to be about £15 each.]

  • Comment number 96.

    82. At 00:51am on 10 Apr 2010, plamski wrote:

    80. At 11:41pm on 09 Apr 2010, Uphios wrote:
    79. plamski
    Ah, the venus project thing. Utopia, everything you want and all for free. Now watch it again whilst thinking 'I want 400 metres of Malibu beach to race my horses along'.
    ----------------------

    I do not think you understand the concept really well. "Free" means that something is not free i.e. costs money. In a non-monetary system the notion of "free" does not exist.

    An interview with the Peter Joseph
    http://www.youtube.com/watch?v=CIINgQ1TooE

    I realise it will take a lot of time for people to comprehend the idea of a world without money, but at least we can spare each other the sarcasm.

    ..........................
    OK. First I apologise if you thought I was being sarcastic to you, I was being sarcastic about the Venus project.

    I watched the video several times, the first time I thought it was the build up to an elaborate joke. Only when it got to the end without a punch line did I realise it was meant to be taken seriously. So I watched it again and listened and thought. And then I watched it again and saw so many holes in the assumptions I decided it really was a joke and the punch line is coming in the next release.

    On the use of the word 'free' I think you are being pedantic, lets use the Zeitgeist Movements words then, 'without the use of money, credit, barter, debt, or servitude'. We could take a leap of faith and call it free or invent a new word WTUOMCBDS.

    The list of problems with the whole idea are to numerous to go into but the reason I picked the example I did is because they talk about machines making everything so it can make me a racehorse please. The Zeitgeist site at www.thezeitgeistmovement.com under FAQ tells me I can pick my home for WTUOMCBDS under the heading 'How would you choose a Home'. The same site tells me I can have this home wherever I like, so I choose 400 metres of Malibu beach. Now clearly if several thousand people all want similar it just ain't gonna happen!.

    Key to their assumptions are two things, harnessing energy and computer power. Now I don't know what computer program they think is going to run this lot but have they seen the programs produced by Microsoft or the NHS IT project. Good luck with that one. Harnessing the energy is a fair enough ambition but this is nothing that couldn't be achieved today in a monetary world. Think of the funds available to Exxon and a location like the Western Sahara. You could probably buy the entire area for a couple of million, cover it with solar cells and sell the energy to southern Europe at a profit. So why aren't the energy companies doing it? Well it's because it's way too expensive to do, the cost of all those cells and the ongoing maintenance simply makes it too expensive at this stage. When I say 'expensive' I don't mean in monetary terms, I mean in resource terms.

    The Zeitgeist talks about everybody able to practice their religion without interference. Ha, they are presumably aware that some religions dictate that you must attempt to convert everyone to your religion, so someone is going to have their religion interfered with.

    World population. I assume if they were to get this up and running next week it would cater for the 6.5 billion on the planet. How about in 20 years, or a hundred years. Do they think the planets resources are infinite?

    Oh so many holes and so little time and space.

  • Comment number 97.

    OK, so #92, Bob the big D is spending a bit of his loose change. Why is he so big? Answer because his pay cheque contains a LOT more than all our loose change combined. Come on, convince me and the rest of our contry, why he is worth a penny more than our scorn?

    And before you accuse me of being a leftie agitator bear in mind I often vote Tory, am a (manufacturing) company dirctor and if BD 'earned' £63M last year, my pay was less than £63k. The difference being my company contributed to the UK balance of payments...

    I think DC sees the old party ties are irrelavant and its time to support UK PLC. Of course GB knows that too and as for NC, who knows (he doesn't) he'll do whatever someone smarter suggests.

























  • Comment number 98.

    #87. At 01:47am on 10 Apr 2010, striped-pad3 wrote:

    "What you're arguing for is plenty of real competition between banks."


    That's part of it, but I'm troubled by everyone's quest for the magic bullet - I don't think there is a simple, quick solution. Amongst other things I'd like to see:

    i) a move to incease real competition amongst Banks that should be lending to SME's

    ii) a real drive to increase access to equity for SME's - loans are a small part of the problem, but what SME's lack collateral so what they need more than anything else is Seed & VC funds, HOWEVER the UK doesn't have the infrastructure to manage these. Several Governments have tried to help through things like the Small Firms Loan Guarantee Scheme but they have yet to make them work

    iii) on a broader scale I think we need much of the trading activities of Banks seperated from the retail activity

    iv) I'd like to see a move to reduce or eliminate limited liability for proprietry trading, which I'm sure would reduce the heads I win, tails you lose tendency in Banks. The "Names" at LLoyds used to work this way, why not the people who choose to trade in currency & bonds & commodities?

    v) above all I'd like to see our elected leaders stand up and point out to the Country that we can't all get rich from trading houses, but that we'll have to work at it. To do that we need, amongst other things, more science education in schools.

    vi) we need to cut enough out of public spending that we can afford to reduce the public debt, quit hiding so much of it, and find a way through the tax system to reward people who get off their backsides and actually improve productivity rather than traders who move wealth around

    vii) ....

    Well, there's a big shopping list of things that have to be done, but I very much doubt any of the current crop of sound-bite politicians has any appetite for the hard, un-popular slog that's required.

  • Comment number 99.

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

 

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