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A European bank tax to pay for dismantling bust banks

Robert Peston | 00:01 UK time, Wednesday, 26 May 2010

The new chancellor of the exchequer and Michel Barnier, the European Union's commissioner for the internal market, are trying to hit it off.

Michel BarnierWhich is why when Mr Barnier announces later today that he believes that all European Union countries should impose a near-identical new tax on banks, the Treasury is likely to point out that George Osborne too is in favour of such a levy: in fact, the coalition has said there may be a case for two new taxes on banks, one on what they borrow and one on their profits.

But there'll be no disguising that Mr Barnier and Mr Osborne could not be further apart on what happens to the proceeds of such a tax.

Mr Osborne's view is that the British government should be free to do what it likes with the revenues.

By contrast Mr Barnier will argue that the wonga should go into national "resolution" funds, whose purpose would be to pay for the orderly dismantling of banks that run into difficulties.

In other words, the proceeds of the tax would be a form of insurance to minimise any future bill for taxpayers, were we to see any kind of repeat of the great banking crisis of 2008 (that suddenly seems a topical anxiety).

Mr Barnier will try to allay Mr Osborne's main concern, which is that banks might be encouraged to redouble their lending and investing follies if they knew that a bailout fund existed to rescue them in the event that their bets were to go pear-shaped.

The commissioner will say that the resolution funds would be used only to provide the kind of temporary finance required to lubricate the break up of big banks - but the money would not be deployed to reduce losses for shareholders and creditors (though retail depositors would remain a protected species).

Comments

  • Comment number 1.

    No doubt this blog will give rise to the usual stream of comments about how terrible banks are and how they should all be destroyed and replaced by some vaguely alluded and supposedly better alternative.

    But before we get down to business as usual, I would like to point out the fundemental fact about this entire crisis- from sub prime onwards, which is rarely mentioned. The underlying cause of the crisis is the massive global trade balances that bult up since the Asian debt crisis on 1997. On a global scale, China has been the main driver of this. On a European scale it is Germany.


    When one country runs a persistent trade surplus, another country has to run a deficit. China ran a massive trade surplus explicitly to avoid a bdet crisis such as occurred in 1997. It did this by intervening to keep the dollar and running a huge currency sterilisation programme that recycled the money into US capital markets. This drove up asset prices in the US and drove down yields. It was the corollary of the massive flood of goods that drove down inflation in physical markets and encouraged central banks to keep interest rates low. It was also completely price insensitive.

    The US financial system proved incapable of dealing with this wall of funding and allocating it productively. But this is hardly surprising. Investment is likely to be most productive in fast growing emerging markets with low capital stocks, not mature and ageing countries like the US.

    In any case, bankers were merely surfers of a mighty wave they thought they were in control of, not understanding that it was carrying them towards a very large rock. But then, it is hard to imagine any system that could cope with such large scale and concerted intervention by a major government and remain in tact.

  • Comment number 2.

    The other thing to mention is that the imbalances I refer to above are still with us. China is insisting on its right not to let its currency appreciate, even accusing the US of protectionism for suggesting that it should. And Germany is busy trying to turn the entire Eurozone into a giant version of itself, with a trade surplus against the rest of world.

    But if the Eurozone and China run surpluses, who is going to run the deficits? There are no debtors of last resort left. The result will be a return to competitive devaluation (either through currency or through real wages and prices)and subsequent global slump- the beggar my neighbour policies of the 1930's!

  • Comment number 3.

    It's taking a long time but the crash is slowly unravelling. The game is up, the ponzi fractional banking scheme is up.

    Banks fail, sovereign states shore them up with bonds (I owe you's) that can never be paid back.

    The system has failed, markets will soon signal the end.

    It will be interesting to see which european country will be first fold their hand.

  • Comment number 4.

    Long term prediction - war with China

  • Comment number 5.

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

  • Comment number 6.

    #1 Yeswemightaswell - poor bankers, they were just the innocent mugs who pulled the trigger then...... and yet when they are justifying their bonuses, not so stupid eh.....

    Yes Banks provide a much needed service, but what they have shown us is that you can't trust them as far as you can throw them where short term gains are concerned!



  • Comment number 7.

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

  • Comment number 8.

    I largely agree with posts 1 and 2 from Yeswemightaswell aying that a lot of our current problems arise from trade imbalances especially with China. Its, I believe, t

  • Comment number 9.

    Post 8 continued

    Its an inevitable result of the freeing up of the Chinese economy to do business with the rest of the world that started 20 years ago. For the last ten years or so it has been funded by the west borrowing money from China by increasing asset values. Now that it has dawned on the world what has been happening 10 years of imbalances have hit at once. And now India and Russia are joining in the freer economics.

    While the banks are guilty of excesses they are the mechanisms by which the funding took place rather than the underlying cause of the problem.

    The solution is to correct the imbalances but that is far from easy and is a long way off. I am writing this from an electronics factory in outer Shenzhen, China (just over the border from Hong Kong). Its lunch time and most people are asleep at their desks. Like other Chinese factories I have been to by Western standards it is hopelessly inefficient and poorly managed despite having to compete against other Chinese factories that make the same products. Its western competitors have long ago outsourced their manufacture to far east factories. If it needed to, it could reduce its cost base hugely. It is highly profitable and growing rapidly. The idea that the west will be able to compete with it in the next 10 years is frankly laughable.

    These global imbalances are also a problem for China. It needs someone to sell its goods to. Unless China is prepared to accept the bad debts somewhere along the line the west will be buying a lot less as it won't be able to pay for them.

    So it is looking to its own people to to fill the gap but that is a long term process.

    But I don't think China has reason to want to change the imbalances much. It is giving them an industrial base from which they are able to develop their own country. As a veteran of trips to China I can see the huge overall benefits this policy has brought to many of the people here over the last 15 years. Pricing themselves out of the market (when compared with India, Vietnam, Bangladesh etc)isn't going to bring more of their people out of poverty.

    If their currency is undervalued then its a form of reverse protectionism. China is benefitting from it. The West has decided that protectionism equals bad so doesn't fight back. So the drift to China, India etc will continue until their relative competitiveness is severely reduced.

    Banks, Goldman Sachs, CDO's etc are just a side show to the fundamental change that is going on in the world.

  • Comment number 10.

    If we are supposed to compete with China, does it logically follow that our wages should be drastically cut so as to be competitive?

    If so, I really hope the cost of living is going to fall correspondingly, because I don't see how anyone could get to house themselves, travel and eat on a few quid a day.

    So, this is the creation of wealth myth of Capitalism.

  • Comment number 11.

    Posts 1 and 2 are in the right area.

    The funny thing is that all the 'growth' predicted by European countries that will see (help them to) them reduce their deficits is all based on the notion that they are going to export their way out of problems and into growth. One small problem with that... how on earth can everyone be running a surplus? There has to be someone importing your exports.

  • Comment number 12.

    In other words, the proceeds of the tax would be a form of insurance to minimise any future bill for taxpayers, were we to see any kind of repeat of the great banking crisis of 2008
    I wonder what currency or product this money would be invested in so its value did not fall long term. Gold?

  • Comment number 13.

    1 and 2 - not the first time imbalances with trading nations. First time a banking crisis has followed.
    Government borrowing has been modelled on private equity lines, if you can pay the interest (tax revenue), then you can borrow the cash. Once the interest repayments become an issue, we have instability.
    Banks are like drug addicts, they need cash to continue trading to earn more cash to keep on trading in the markets and so on.
    Interest rates held low means banks must sell assets or borrow to feed the addiction to trade.
    LIBOR rates eventually rise.
    A squeeze on assets, an increase in CGT would force banks to divest low yield investments.
    Interest rates can't rise, it would hurt tax payers and governments.
    Banks are going to have to tighten their belts also, or seek rehab therapy!

  • Comment number 14.

    #3 It's not fractional reserve banking. If it was the outlook may be less bleak.

    This is a link that has been posted on here before, but it is an excellent explanation:
    http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

  • Comment number 15.

    1. At 00:45am on 26 May 2010, Yeswemightaswell wrote:
    'The underlying cause of the crisis is the massive global trade balances that bult up since the Asian debt crisis on 1997. On a global scale, China has been the main driver of this. On a European scale it is Germany'

    Well I beg to differ, it has not been the main driver, it has been one of the beneficiaries.

    The main driver was the availability of credit in the debtor nations.

    Because without the availability of debt, there wouldn't have been the demand for the goods.

    Debt fuelled the boom, and satisfying the debt is causing the bust.

    It all boils back down to one thing, uncontrolled fractional reserve banking.


  • Comment number 16.

    1. At 00:45am on 26 May 2010, Yeswemightaswell wrote:
    Interesting points and in my own business I see the imbalance of people trying to provide products or a service under one set of rules trying to compete with others playing by different rules.
    So much of the market has been overvalued and needs to reset. Commercial property (one of our largest costs) has become ridiculously expensive in the UK and that has been encouraged by Central Banks low interest rates and increasing the money supply. Tinkering with the banking system is laughable when the underlying problems are ignored.
    Is it not a bit of a joke the EU wanting to tighten banking controls when the Central Banks are printing money and artificially keeping interest rates low. This is surely going to be inflationary in the not to distant future and not help us at all.
    If the EU does raise this money what will they invest it in to keep its value if needed?
    The currencies are unstable.
    Perhaps they should demand payment in Gold


  • Comment number 17.

    Why isn't there a fund for all the ordinary "peasants" who are affected by these big bureaucratic games? Why no handout as fair compensation for playing blackjack with our cash?

    What makes the rich that special that they must always be rich or at least have a goose feather mattress to land on?

  • Comment number 18.


    You can let individuals fail, companies to, even banks, but not nations.

    The current Central Bankers and Politicians seem to have an overwhelming desire to believe the current financial system (uncontrolled fractional reserve banking) works.

    And the plain truth is, it doesn’t, because if it did, countries wouldn’t be facing bankruptcy.

    Up to press the Central Bankers and Politicians are trying to keep a flawed financial system afloat, whilst letting country’s sink.

    They need to accept the reality that the current financial system is flawed, and print a shed load of money to save nations from going bankrupt, whilst devoutly praying that belief in a fiat currency isn’t lost.

    And then if they have any common sense or responsibility to the citizens they serve, which I suspect is unlikely, change the current financial system.

    Because the way it’s set up, promotes debt slavery, particularly for the young, and if that represents a fair future for young kids I'll plait sawdust.

    We should endeavour to give the young a level playing field for their start in life, instead we’re giving them a mountain of debt to climb.


    All those digits sat on a micro chip somewhere causing so many problems.
    Pity someone just can’t pull the plug and give us a fresh start.

  • Comment number 19.

    Interesting posts!

    Are we seeing the emergence of new world power bases, or are we seeing the end of a fundamentally flawed system? Or both at the same time, and more?

  • Comment number 20.

    @ 1. At 00:45am on 26 May 2010, Yeswemightaswell wrote:

    > But before we get down to business as usual, I would like to point
    > out the fundemental fact about this entire crisis- from sub prime
    > onwards, which is rarely mentioned. The underlying cause of the crisis
    > is the massive global trade balances that bult up since the Asian debt
    > crisis on 1997.

    Never mind those lame excuses - the fundamental fact is that the perps are still
    walking around amongst us in complete liberty. To stop bad behaviour, we have
    to punish bad behavior. Until we fling the perps inside, we'll suffer
    this sort of thing over and over again.

  • Comment number 21.

    #1 Yeswemightaswell

    "But before we get down to business as usual, I would like to point out the fundemental fact about this entire crisis- from sub prime onwards, which is rarely mentioned. The underlying cause of the crisis is the massive global trade balances that bult up since the Asian debt crisis on 1997. On a global scale, China has been the main driver of this. On a European scale it is Germany."

    This is factually and historically incorrect.

    The main driver of the trade imbalance is the USA, whose emphasis on consumerism and globalisation has turned the US into a consuming 'engine of growth,' which in turn arose out of decoupling the dollar from gold in 1971. Remember that it was the USA that pushed the world into floating exchange rates through defaulting on its gold obligations.

    You also need to include OPEC and oil producing nations exporting in dollars as major trade surplus benefactors, as they have the highest reserves.

    The history is that when in 1971 Nixon decoupled gold from USD the exporter nations (oil, Asian goods, etc), were holding dollar assets that would have lost their value had they not mandated more dollars for their produce.

    Don't post if you don't know the history or the underlying 'economics'.

  • Comment number 22.

    Osborne has a point in his argument against Barnier, in that it isn't a question of insurance because governments have already paid out without a premium having been collected.

  • Comment number 23.

    20. At 09:21am on 26 May 2010, Jacques Cartier wrote:
    Never mind those lame excuses - the fundamental fact is that the perps are still walking around amongst us in complete liberty. To stop bad behaviour, we have to punish bad behavior. Until we fling the perps inside, we'll suffer this sort of thing over and over again.

    ________________________________________________________

    You can't bung a billion chinese people into prisons ?

  • Comment number 24.

    Robert you say:

    "In other words, the proceeds of the tax would be a form of insurance to minimise any future bill for taxpayers, were we to see any kind of repeat of the great banking crisis of 2008 (that suddenly seems a topical anxiety)."

    I am trying to grasp the enormity of the amounts involved from those events - the figures have become meaningless to me - so can you help me, with something visual, how many skip fulls of money has that cost us? how many are we borrowing each day? and what has the government saved in its cuts, a suitcase? (not being political, just trying to get a perspective)

    It makes things like gold seem very practical and not just some ones opinion, especially when you factor in the surplus/deficit logic in the posts above

  • Comment number 25.

    The problem is leverage. When people, banks AND countries can mortgage the future and feel that they can borrow into perpetuity. How is this any different to a pyramid scheme? The people who create the scheme, the ones at the top (call them bankers, politicians whatever) pull the plug when the lower tiers of the scheme are occupied by the joe public. Think about it... who foot the bill for the last crisis? Who is going to pay for the cuts? Will Adam Applegarth have to cue for his dole money, will Gordon Brown have to work on minimum wage? Will Dick Fuld of Lehmans fame have to repay all his millions in bonuses?

    I always believed that the people who are in the boat are the ones that are least likely to rock it. Its the joe public who are sinking here...

  • Comment number 26.

    15. At 07:56am on 26 May 2010, Dempster wrote:

    It all boils back down to one thing, uncontrolled fractional reserve banking.

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

    Is this one still running? In my opinion FRB has nothing to do with the current or any other similar problems. Take the example in the link at post 14 as the basis. You see the government IOU of £1000 allowing £10000 of funding to be 'created' as a result of FRB. However, it is all IOU's including the £1000 of initial funding. You could stop FRB today and the government simply issue an IOU for £10000 instead of £1000 and have exactly the same result.

    Notice to that when the world was on a gold standard their were still debts and defaults right up to soverign level.

    The problem is simply that people, companies and governments are all keen to borrow from their future and then can't handle the situation as repayment becomes due.

  • Comment number 27.

    1. At 00:45am on 26 May 2010, Yeswemightaswell wrote:
    No doubt this blog will give rise to the usual stream of comments about how terrible banks are and how they should all be destroyed and replaced by some vaguely alluded and supposedly better alternative.
    -------------------------------

    Yeswemightaswell, if you really want to know what's what, read this.

    By slowing the rate of note issuance periodically, the ultimate crisis stage is postponed until many decades after the original Central Bank Charter was granted. Before the rapidly dwindling gold reserves on which faith in our Bank depends is exhausted we abruptly contract our loan volume to private industry and government as well. With the contraction of the money supply a great deflationary crash begins in earnest with all its attendant unemployment, bankruptcies, and civil strife. We do not take responsibility for the depression. We blame it on evil hoarders who are refusing to spend their money and the prophets of doom who are spoiling business confidence. The government accepts this analysis and leaves monetary policy in our hands. If things go well we bankers channel the fury and unrest into puppet movements and pressure groups that carry our agents into full control of the government. Once in charge we devalue our outstanding bank notes in terms of gold and make them inconvertible for all but possibly foreign Central Banks and begin plans to restore a "prosperity" that will be totally ours.

    When lucky, we are able to confiscate the gold of private citizens as punishment for hoarding during the climax of the depression.

  • Comment number 28.

    1. Capitalism will not work if you absolutely protect banks.

    2. Banks must be allowed to fail and their staff must face the consequences of their actions.

    3. Protect small depositors.

    4. Never protect borrowers.

    Four simple rules and truisms, but please do not think that you can tax banks to stop them collapsing - it is wrong and will only make things worse. If these four rules are not followed capitalism will collapse.

    Corollary - ensure that banks can never get too big and can never trade outside their domicile, or collaborate with other banks outside their domicile in a way that would amount to collaborative trading.

    Also prevent banks creating too much money through exotic financial instruments in an uncontrolled or unmonitored manner.

  • Comment number 29.

    #18. At 08:51am on 26 May 2010, Dempster wrote:

    "You can let individuals fail, companies to, even banks, but not nations."

    But can you let millions of individuals fail all in a short space of time. Will those individuals accept failure when they realise they have a common cause with millions of others?

    "All those digits sat on a micro chip somewhere causing so many problems. Pity someone just can’t pull the plug and give us a fresh start."

    I've been wondering if there's a "Delete All" button somewhere for some time otherwise I think we might be pressing the "Red" one quite soon.

    Are Amazonian Indians recruiting at the moment, a secluded jungle lifestyle with all the inherent dangers is getting more appealing by the day.


  • Comment number 30.

    Much easier way to make money than taxing the banks a new tax is to put a tax on the BBC News everytime an estate agent appears on BBC News 24 - we could wipe out the national debt within a week!

    News 24 has just announced that bank lending in the UK for mortgages fell a fair bit in April... subdued the bankers are calling it...

    I now have a bet on with my colleague to see how long it is before News 24 wheel on their usual estate agent representative to 'reassure' us that house prices only ever go up in the UK.

    Listening to the BBC News and house prices in the UK is a tad like working in one of those 1984 factories with Big Brother constantly droning on in the background.

  • Comment number 31.

    Yet another temporary measure to prop up the fiat currencies / debt-money system.

    If we used real money (ie.gold) we wouldn't have these long-term trade imbalances.

    Unfortunately governments would be required to live within their means, and this is something they prefer not to do if they can help it. Didn't the new Chief Secretary to the Treasury describe public debt as taxation deferred? This is much more politically popular than taxation now!

  • Comment number 32.

    The debate over the role of the banksters will go on for a long time. Clearly all the worlds politicians have all backed away from any serious reform, so we need to remember and plan for it happening again.

    Given that they are making lots of money however, they are a classic target for cash strapped Governments. However it's what you do with this money that counts.

    Britain has has a glorious history of selling off the family silver, to fund freebies, onto to discover that a few years later, we could really have done with investing the money in some form of replacement.

    If we tax the banks, then spend it on todays holes, what capacity is there to cope with tomorrows craters, when the banks crap on us again?

  • Comment number 33.

    #10 you are wrong.

    Even where a country can produce everything more cheaply than we can the theory of comparative advantage does not require that our wages fall to the other countries levels.

    This was originally set out by Adam Smith in the Wealth of Nations in 1776 and David Ricardo in 1817 so not exactly a new theory.

    However, what neither Ricardo nor Smith predicted was the situation we have today where the "old" economies (ie Western Europe, America, Canada, Japan, Australia) are being overhauled by newer, much larger economies in the BRIC countries and the old economies have weighed down their performance with layer upon layer of social welfare. There is, I believe but cannot prove, a very difficult period ahead of us over the next 30+ years. Gradually the new countries' electorate will require the same levels of social welfare that we take for granted but in the meantime we will be in a situation where the theory of comparative advantage means that we will increasingly concentrate the economy on services (legal, accountancy, finance etc) and very high value bespoke engineering or manufacturing none of which requires large amounts of employment.

    In other words we can compete, we can sell significant goods and servies with China, but not whilst keeping employment high for the great mass of people. The inevitable result for people with little or no qualifications is wage stagnation for the next 20-30 years unless we are willing to remove layers of unnecessary social welfare. I believe that there are significant layers of social welfare that could be removed (tax credits for families earning more than £40,000 per year for example) but equally I also believe that we cannot cut social welfare by the levels necessary to compete with BRICs whilst maintaining a tolerably fair society

  • Comment number 34.

    There seems to be a high level of paranoia out there, or is it only with those people who bother to post comments?
    We are NOT facing Armageddon, simply a longer dose of "recession" than originally posted by electioeering politicians.....if you have a major Operation, you don't tend to recover and go back to BAU in days or even weeks.
    The "emerging economies" of China, India, South America, Wherever, are just that...emerging...and based almost entirely on Manufacturing, although India and China are truing to build Intellectual Capital, Knowledge-based Services, but without similar success.
    The future is in Services, not Manufacturing, and each economic area has its place in the "Global Village"....worry if you wish, but please also hold your nerve as we steer through the choppy waters....and don't let the EU knobble the City, still pretty much the Financial captial of the World, and the engine room of Britain's future.....

  • Comment number 35.

    Same old same old from our political masters. Lets tax the problem rather than solve it at source. It would seem that Angela Merkel is the only one with the sense to start decapitating the monster that has been created by out of control finacial products. In sanitising, and by default ringfencing, the German banking system they are crearly now playing the long game,having worked out that at some not to distant point in the future the speculators will start attacking the elephant in the room - the US Dollar. With perhaps the biggest deficit of all the US will respond aggressively to such an attack and at that point any national system without sound defenses will find itself undermined. I would encourage the rest of Europe to stop thinking taxation is the answer. It may play well to parts of the gallery but the horse will have long bolted, to mix a metaphor or two!

  • Comment number 36.

    #24. At 09:31am on 26 May 2010, 24law wrote:

    "I am trying to grasp the enormity of the amounts involved from those events - the figures have become meaningless to me......."

    In astronomy distance is measured in light years because of the human inability to comprehend the vast numbers involved so perhaps we should think of a similar measuring standard for the trillions involved in this debacle.

    How about a measure of debt equivalent to a $Million being called a Goldman then a $Billion would be $1,000 Goldmans etc.


  • Comment number 37.

    For every feckless borrower there is a feckless lender.

    China is as guilty as the USA - one recklessly producing and lending and the other recklessly borrowing and buying.

    Until these imbalances can be resolved, there will always be periods of financial crisis.

  • Comment number 38.

    @ 26. At 09:37am on 26 May 2010, Uphios wrote:

    > The problem is simply that people ... are all keen to borrow from their
    > future and then can't handle the situation as repayment becomes due.

    Let's not leave out the flip side. People are all keen to lend into their future and then can't handle the situation as repayment doesn't materialize.

    Irresponsible lending must being reduced in Europe by attaching an insurance policy to it. In that scheme, the more abuse a bank does, the higher its premium would be. It's a bit like your car insurance - good drivers get a discount.

    Abusive banks will carry higher risk costs. If the abusive banks try to pass costs on, customers will depart to cheaper, better banks - that's the theory, anyway.

    I'd go slightly further and put abusive bankers in jail, like recidivist drink-drivers.


  • Comment number 39.

    26. At 09:37am on 26 May 2010, Uphios wrote:
    15. At 07:56am on 26 May 2010, Dempster wrote:
    It all boils back down to one thing, uncontrolled fractional reserve banking.
    The problem is simply that people, companies and governments are all keen to borrow from their future and then can't handle the situation as repayment becomes due.

    Fair commnent:

    The answer to which is: it needs controlling then doesn't it, so they don't borrow too much.
    But it's not adequately controlled is it, hence the reason why it all boils back down to uncontrolled fractional reserve banking.

  • Comment number 40.

    #33. Justin150 wrote:

    "#10 you are wrong."

    But note a Chinese worker can be paid a fraction of a British worker, but be better of.

    This is because the cost of an acceptable standard of housing in China is generally far below that of an acceptable standard of housing in the UK.

    This leaves a greater disposable income of a lower paid Chinese worker to buy that which he/she desires, than a British Worker has at the end of the month.

    Further more, the economic burden of vastly overinflated housing costs runs through the British economy. It is especially noticeable in organisations such as airlines when cabin crew for overseas are far better of on lower wages, than UK based cabin crew.

    We are slaughtering our economy by deliberately running huge house price inflation as a objective of economic policy - on top of vastly over-priced houses in the first place. Responsibility: The Bank of England and Mervyn King.

  • Comment number 41.

    #37. nametheguilty wrote:

    "For every feckless borrower there is a feckless lender."

    And behind every feckless lender is a gormless regulator!!!!

  • Comment number 42.

    When are we going to accept the fact that communism is dead and capitalism is terminally ill? Why do those who rule us try and make us believe that an economic system which is so blatantly flawed can be permanently fixed when in fact all they can ever do is bodge it back together for a little while? We have been running in a circle of the rich (individuals/companies/nations) squeezing the poor (individuals/companies/nations) until they default on their debts (and, yes, nations have defaulted and will default on their debts in the future)that surely it must be plain that the system is not fit for purpose.

  • Comment number 43.

    What we all seem to forget is that years ago banking was a profession and to get to senior roles you had to be professionally qualified and really understand the industry you worked in. Now all you need to run a bank is the ability to sell and make a quick profit. HSBC never forgot this which is why they have faired better than most.

    The Treasury Select Committee recommended that senior bankers should have a professional banking qualification but very few seem to have followed that advice. Perhaps some of this bank tax should be refunded providing they use the money to ensure their staff know what they are doing!

  • Comment number 44.

    39. At 10:27am on 26 May 2010, Dempster wrote:

    Fair commnent:

    The answer to which is: it needs controlling then doesn't it, so they don't borrow too much.
    But it's not adequately controlled is it, hence the reason why it all boils back down to uncontrolled fractional reserve banking.

    Agreed, it does need controlling. My point is that FRB makes little or no difference. When the government issues it's 1k IOU to the bank they clearly know this will generate up to 10k into the economy. They could remove FRB by a small change in banking law and then the issue becomes do they still raise a 1k IOU or a 10k IOU, it depends on their intention when they raise the IOU. The thing that troubles me is when we read about QE of 200 bln, was the IOU for 20 bln giving the economy 10 times that amount or was the IOU for 200 bln giving the economy a fantastic 2000 bln. I hope the former.

    38. At 10:24am on 26 May 2010, Jacques Cartier wrote:

    Let's not leave out the flip side. People are all keen to lend into their future and then can't handle the situation as repayment doesn't materialize.
    ..................................

    Yes, accepted though I guess I am of the view the banks can offer me as much as they want and often do, I am not a taker of their offers though so I tend to heap a little more blame on the borrows.

    Personally I would like to see the government/BoE take over all retail banking and this might cure both problems without the need for yet another tax on the citizens of this country. I really, really can't think why this is not happening. What can be the advantage of leaving retail banking in private hands?

  • Comment number 45.

    @ 23. At 09:30am on 26 May 2010, DevilsintheDetail wrote:

    >> 20. At 09:21am on 26 May 2010, Jacques Cartier wrote:
    >> Until we fling the perps inside, we'll suffer this sort of
    >> thing over and over again.

    >You can't bung a billion chinese people into prisons ?

    Indeed, and we can find room for 40,000 City Swindlers, by letting
    other weirdos go (drug dealers, car thieves, shop lifters etc.)

    Some of the swindling bankers call themslves "stockbrokers", so it
    would be quite right to use village stocks to hold them down. It would
    also be cheaper and much more fun. That's the anglo-saxon way of dealing
    with anti-social elements, and we should stick with it.

    Or bring back the birch. One way or the other, we're determined to
    put a stop to the culprits.

  • Comment number 46.

    44. At 11:27am on 26 May 2010, Uphios wrote:

    > What can be the advantage of leaving retail banking in private hands?

    Dunno - it's a trivial business model - the computer does all the work. There's absolutely nothing novel about it. Costs (wages etc.) are very low because the personnel are unskilled (IT people aside, of course).

    It's a no-brainer - the public sector are running our banks far better than the Sir Greedies of this world ever did.

  • Comment number 47.

    The European bank tax will not work because it is retrospective ...

    1)It will only come into play after banks fail

    2)It will penalise countries like the UK for having an over-sized banking sector - may be fair from a European point of view as Britain is a larger overall risk than with e.g. 80% of European hedge funds etc

    3) It will tie up large quantities of monies in hopefully dormant accounts - which is inefficient in pure economic theory and at a practical level also

    4) These bank bail out accounts will become the new 'Euro black hole'

    This is a typical purile eurocrat half baked accounting fudge that smacks of big state government money hoarding

    5) An opportunity lost because what should be done with the safety fund is that it should be used to create a new Euro bank in each country that is run properly on ethical guidelines where EU citizens buy and euro credits which can be cashed for pensions and savings etc anywhere in Europe - that would be much better and sell Euroland to the euro citizen!

    Some of the cash should be spent on policing the existing banks and checking what they are doing very thoroughly!

    WHY?

    What is needed is a 'European financial hit squad' to visit every bank in the EU and say to them prove by full accounting analysis and by full transparency by e.g. 30th September 2010 that your bank is reasonably solvent or have your banking licence revoked and the bank be put into administration and be broken up by a managed process.

    This would be much more effective, safer and fairer and if Britain did have twice as many banks as e.g. Germany at the end of the process - then that would be because Britian had twice as many properly managed and relatively risk and negative trade free banking institutions.

    This pro-active proposal would get the bad banks removed from the European financial system and this would remove the 'uncertainty'.

    In addition, new accounting standards could be brought in for banks and this would improve confidence, stability and remove excess uncertainty from our European cpaital markets.

    Europe does not need another giant balck hole with no idea of what the banking sector liabilities are ... it needs a massive pro-active clean up operation ... on the same scale as what is now needed in the Gulf of Mexico.

    Simples ... why do these Eurocrats make such hard work of it all!

  • Comment number 48.

    As if the foundations of our luxurious western house of cards weren't flakey enough, we are about to face severe resource shortages as a result of our insatiable consumption. Probably the most serious of these is oil. We have literally been pumping free money out of the ground, powering our lives and even eating it for decades. It sustains our very lives and supports population densities that would be impossible without it.

    It is about to become scarce and we have no viable alternative. That can only mean one thing for our standard of living and sadly, for some of us, our very lives. Check out the oil price and you'll notice every major recession has followed an oil price spike - 2008 was no exception and we've just had a another one last month.

  • Comment number 49.

    #26 It all boils back down to one thing, uncontrolled fractional reserve banking.

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

    Is this one still running? In my opinion FRB has nothing to do with the current or any other similar problems.

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

    Agree - a currency is effectively backed by the current and future and value of the juristriction it is legal tender in.
    However as that is pretty much impossible to measure, let alone predict, we need a proxy. Gold used to be such a proxy, it didn't stop bubbles and in the end it proved to be too inflexible.
    Now debt based money assumes that the just in time creation of money through lending will mean the money supply grows at a rate correlated with the underlying economy. Unfortunately as people borrow to speculate it can come unattached - as it did with 'tidal wave' #1 described.

    Continuing that anology, the only thing big enough for that wave to break on safely is the pent up internal demand in China. Unfortunately the wave got too big before the Chinese were forced to relesse it.

  • Comment number 50.

    #40 wrote

    But note a Chinese worker can be paid a fraction of a British worker, but be better of.

    This is because the cost of an acceptable standard of housing in China is generally far below that of an acceptable standard of housing in the UK.

    This leaves a greater disposable income of a lower paid Chinese worker to buy that which he/she desires, than a British Worker has at the end of the month.

    Further more, the economic burden of vastly overinflated housing costs runs through the British economy. It is especially noticeable in organisations such as airlines when cabin crew for overseas are far better of on lower wages, than UK based cabin crew.

    We are slaughtering our economy by deliberately running huge house price inflation as a objective of economic policy - on top of vastly over-priced houses in the first place. Responsibility: The Bank of England and Mervyn King.

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

    I agree in the UK property has an importance in people's mind as a judge of wealth, social standing that is completely out of kilter with reality.

    Sadly we are always going to be in a situation where UK property prices are higher than most countries for the simple reason that we are a small island with a large population. Given that we cannot create more land and slaughtering a large chunk of the population is unlikely to be a viable policy option this means we will need to organise the economy in a way to minimise the housing cost problem.

    It is by no means impossible, German has far higher social costs than the BRIC countries but gets by because of much higher productivity and investment in plant and machinery. What they mostly concentrate on is machine tools, some car manufacture, and light engineering are things which are capable of delivering higher levels of employment to the majority of people. Unfortunately what the UK is very good at delivers high levels of employment only to those with high levels of qualifications (degree level and above or very high technical qualifications). One logical response to that is to increase the number of people with the high levels of qualifications but that has to be done in a way that does not reduce the quality of the qualifications and of course does not help those who are either not capable of getting those qualifications or simply not interested in that type of work (which in many cases, law and accountancy being particularly good examples, is incredibly dull).

  • Comment number 51.

    I can't believe from all solutions possible they picked probably the worst one - taxing the banks. Breaking up the banks? Separating casino? Limiting fractional reserve? Too much to ask?

    The banks will pass this to consumer and carry on with more risk (and bonuses) since they are now sure they will be bailed-out.

    A fund for future bail-outs? Where will this fund be hold, in a bank? (I assume it won't lie under Mervin's mattress). Money don't exist if it's not circulated.

  • Comment number 52.

    China, India and all other 'emerging economies' have been a part of the new term 'soft power'? In other words - ensure you are 'artificially' so cheap you take jobs and commerce from another nation to fuel your perceived 'progress' then those nations are forced to import, because you have their jobs? At the same time - the 'emerging' economy funds rely heavily on 'false' promises to their population? Banks and hedge funds rely on such exploitation, globally?

    This is a tragic repeat of history that happened in Britain in the 18th/19th Century? Growth was dependent on pulling British peasants from the land into centres of dangerous or smoking factories? Furthermore, British industrial growth was dependent on it's own poverty stricken people. Many died during this industrial revolution - only a few became very rich on death. Then we had to have two world wars for peasants to wake up to exploitation? The so-called 'British Empire' exploited British people heavily too.

    We can only hope that the most exploited - think again - and wonder whether, can I eat money - or should I re-examine what 'progress' actually means? There are too many unaccountable forces telling us all what to do; how to 'improve' our life and 'education'. Media is owned by those who care less about your quality of life - but persist in intent in making you feel discontent?

  • Comment number 53.

    36. At 10:17am on 26 May 2010, NorthSeaHalibut wrote:
    #24. At 09:31am on 26 May 2010, 24law wrote:

    "I am trying to grasp the enormity of the amounts involved from those events - the figures have become meaningless to me......."

    In astronomy distance is measured in light years because of the human inability to comprehend the vast numbers involved so perhaps we should think of a similar measuring standard for the trillions involved in this debacle.

    How about a measure of debt equivalent to a $Million being called a Goldman then a $Billion would be $1,000 Goldmans etc.

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

    thank you for the appropriate analogy, it gets unpalatable pretty quickly doesn't it!

  • Comment number 54.

    So....once again the European Union is trying to convince the world that it is doing something. That something is a kind of tax that banks may have to pay into some form of fund, just in case that some day they may, possibly, have to fail.

    Let's rejoice that all the EU's problems are now solved!

    The International Monetary Funds (IMF) recent report on Spain shows a different picture.

    Only the complete re-structuring of the EU's tax-base; public spending; restrictive labour practices and debt re-payment will stop the Eurozone from completely collapsing.

    However some kind of type of tax on some banks paid into some kind of fund......sorry...I think I've just lost the will to live!

  • Comment number 55.

    Does Mr Barnier seriously believe that by taxing the banks and pooling the money in some kind of European holding fund, the increased costs will not simply be passed onto the taxpayer! That aside, surely any bank which knows it has a financial safety net to fall back on will only gamble all the more. Where would all this pool money go if Mr Barnier has his way? Into Dollars, Euros, gold?

    These plans are seriously flawed and the only way to stabalise the banking sector is :

    1) Break up the casino banks from healthy banking operations.
    2) Strong and independent public regulation.
    3) Proper openness and simplicity in all financial operations.
    4) A tax on all banks profits. (to be used by central government)
    5) An end to the bonus culture and a limit on remuneration.
    6) The creation of a national bank in each country, backed by the ECB.

    If any independent bank is failing, guarantee deposits only and LET IT FAIL!



  • Comment number 56.

    It's surely only a matter of time before the banks are in crisis again; I prefer Mr Barnier's plan for national funds to pay for the orderly dismantling of banks that run into difficulties. Quite right! Don't bail them out, dismantle them in an orderly manner.

    Mr Osborne wants the British government to "do what it likes with the revenues". No doubt that means bail out the banks and allow them to continue to pay huge bonues, yet fail to lend to small businesses. We've been there before, it doesn't work.

  • Comment number 57.

    Why was such a scheme not proposed years ago.

    Personally I think the Europe has finally got the message that the ordinary man in the street is fed up being held to ransom by the banks etc. There is no punishment for the large financial institutions only a slap on the wrist and bonuses for incompetence with our money.

    Hopefully our shiny new Government will take the hint.

  • Comment number 58.

    I remember Globalisation being hailed as the economic way forward. I am not a banker nor an economist but I always wondered where this would end up. If UK workers compete with Indian or Chinese workers, then as others here have already commented - UK workers will lose. I know we as a nation put great store in the equity of our housing market as a measure of the wealth of our nation.

    Would it not be a more interesting measure if we calculated the total and average disposable income in the Uk and what that disposable income could purchase? Wouldn't it be a great comparitive measure with the ROW?

    If I believe that as a result of Globalisation wages in the UK will weaken, and disposable income will reduce. Therefore will British businesses continue to push jobs abroad at the expense of their home market?

    I think Bankers have made errors, so have businesses, governments and regulatory bodies, but are these merely symptomatic of a much bigger problem?

  • Comment number 59.

    This is like the insurance for the Banks. You and I take insurance to cover ourselves from accidents, risks and unexpected events. The banks never had that instead when they were in trouble they simply got tax payers money. Now we are taking. Let us not get too worried about the bankers leaving the country etc. Believe me, they all can be replaced.

  • Comment number 60.

    55 James wrote:

    "4) A tax on all banks profits. (to be used by central government)"

    This is what George Osborne says he wants so therefore I am naturally suspicious. If banks are to be taxed then rather than investing in gold, as some here have suggested, why not just redeem short-dated gilts. This will reduce debt as a percentage of GDP which would serve to increase confidence that countries will not default on their debt obligations.

    Another tax worthy of consideration is a Tobin tax on all foreign exchange trading. Given that the vast majority of this market is for speculation, rather than for the settlement of World trade or currency hedging, then this could be very effective if set at a rate of 0.5% as Tobin originally proposed.

  • Comment number 61.

    Easy it goes like this-banks lend too much to taxpayers, who run out of money and don't repay it; banks run out of money; taxpayers, grouped together as the state, lend to banks to stop them from sinking; but state has no money, because it is made up of bankrupt taxpayers; so state borrows money, from banks; now state is unable to pay back banks, because it has insufficient tax revenue stream from bankrupt taxpayers, so now banks run out of money, as well as state, and taxpayer. Devaluation works to solve it, but not if everyone is at it. Inflation gets rid of the debt, so must be the only answer.

  • Comment number 62.

    55. At 2:10pm on 26 May 2010, James wrote:
    Does Mr Barnier seriously believe that by taxing the banks and pooling the money in some kind of European holding fund, the increased costs will not simply be passed onto the taxpayer! That aside, surely any bank which knows it has a financial safety net to fall back on will only gamble all the more. Where would all this pool money go if Mr Barnier has his way? Into Dollars, Euros, gold?


    This whole shinanagans is so utterly daft as to be unbelievable. It isn't just abuse of a safety-net - probably true with some of these nefarious banks - but how safe will this "pool" will be? Where's the money going to be invested? When Osborne talks about the UK wanting the money for UK's own use - what's he going to do with it? If he spends it how will he get it back if needed?
    Taxpayers again?
    If anything it should be kept in gold at the B of E.

    = = = = = = =

    These plans are seriously flawed and the only way to stabalise the banking sector is :

    1) Break up the casino banks from healthy banking operations.
    2) Strong and independent public regulation.
    3) Proper openness and simplicity in all financial operations.
    4) A tax on all banks profits. (to be used by central government)
    5) An end to the bonus culture and a limit on remuneration.
    6) The creation of a national bank in each country, backed by the ECB.

    If any independent bank is failing, guarantee deposits only and LET IT FAIL!


    We don't want more tax on bank profits. Guess who will pay for that? Yup, you got it: you, me, everyone who banks or invests, large or small.

    All we need is
    i) good regulation - by which I mean that the regulators fully understand the financial products and instruments and the risks attached. If they cannot calculate the risk, don't allow the product to be traded. They also need to understand capital adequacy, how to get it reported and how it should be scaled to the bank's overall risk/exposure.

    ii) prohibit the use of the Money Markets to borrow short term to fund long term lending.

    iii) good capital adequacy. This can be enforced by any and every central bank if the will is there (in the UK, when the B of E regains responsibility for such stuff)

    The very last thing we want is political interference in free market commerce. By all means scrap the free market if you like but until someone does, let the banks get on with their business. If they pull through this lot successfully don't punish them for being successful. Keep the politicians out as far as possible.

    Good and prudent banks have been operating for ages. But when you get stupid lending, stupid borrowing, targeted lending, ponzi schemes, banks that indulge deserve to be closed. Northern Rock frinstance, with it mortgage lending at 125% LTV in the face of an obvious property bubble, is completely daft.

    As for the Euro it isn't ever going to work properly while there's friction between national economies and a global financial system; while 27 nations fight for their fiscal sovreignity.

    I do agree with you, though, that if capital adequacy is set right and good regulation is enforced, then dodgy banks should be allowed to fail, not propped up by taxpayers or pools of bank tax.

  • Comment number 63.

    59. At 2:47pm on 26 May 2010, whistle_blower wrote:
    This is like the insurance for the Banks. You and I take insurance to cover ourselves from accidents, risks and unexpected events. The banks never had that instead when they were in trouble they simply got tax payers money. Now we are taking. Let us not get too worried about the bankers leaving the country etc. Believe me, they all can be replaced.


    Not quite. The banks took out insurance all right. That's what CDOs and CDSs are about, and it was them that started all the trouble and utterly inadequate regulation. Instead of just spreading the risk it ended up in little pieces scattered everywhere. In the end, no one knew who could be called upon to pay up. That's why the Money Market froze: no bank dared trust another because no one knew to what extent each bank was exposed.

    The regulators just didn't know what was happening. They never asked deeply enough, just took what the issuing bank told them. Everyone looked at Freddie and Fanny and thought, well, they're at it, let's get in on the game.

    When the game failed, then came the taxpayers. But don't tar every bank with the same brush. There were good ones that needed no taxpayer bailout.

  • Comment number 64.

    "3. Protect small depositors.

    4. Never protect borrowers."

    This I never get. Why should investors, i.e. depositors, deserve protection if borrowers do not ?

    The act of investing money in a bank is to bring about an increase in your money. It is an act of risk, you gamble, to gain an interest rate, in the bank's business.

    Why should I, as a tax payer, bail you out as a saver ? You are not 'morally' superior to a borrower.

    Tired of the same old short sighted arguements.

  • Comment number 65.

    So we pile more tax on the ordinary Joe, you tax the banks and they will pass it on like pass the parcel! Which will make things even more depressed and a double dip slump is inevitable.
    The people with the real power are not politicians but global corporations and global banks. They say capitalism kills itself and we are all witnessing that right now!
    I am rapidly coming to the conclusion that we have to let these private organisations fail be it banks or manufacturing companies. The size and magnitude of this debt crisis beggars belief.Western consumerism and constant borrowing to fuel this supposed growth has brought the west to its knees. The Asian region has wiped the floor with us all and the multinational corporations have made money in the short term using these low cost countries. But now the chickens are coming home to roost big time demand for product has virtually stopped!
    Banks have played a big part in this as well be it company debt, personal debt. Banks are like drug dealers selling us all a fix, only the drug is consumerism.I can see property values slumping big time across the western world, two reasons all the buy to let pimps off loading property to liquidate assets and hence avoid the new taxes coming in.Add that to a situation were people simply cannot afford the homes and you have a recipe for a double dip fueled by falling house prices. All the existing home owners will be sitting on properties worth less than there mortgages.
    And we are back to the days of negative equity, remember those times?
    I have been through three recessions, on the first two we bought our way out by creating a false boom fueled by credit expansion. This last one has been a real slump 1930`s style and its still continuing because their simply is no credit left to buy us out of the hole.
    The banks need to be under state control and tightly regulated with regard to interest rates charged and also the way they charge customers. Sending out letters at $50 dollars a time is not the answer!
    Capitalism has failed big time just like Communism , great civilizations come and go and we have seen both fail now. What next?, may be we will get a more caring & sharing society I hope so. But the rich will always control the cash and hence power, while the rest of us are debt slaves.
    The problem for the rich is this what happens when the slave stops consuming the hold over them fails.

  • Comment number 66.

    64. At 4:06pm on 26 May 2010, digs wrote:

    "3. Protect small depositors.

    4. Never protect borrowers."

    This I never get. Why should investors, i.e. depositors, deserve protection if borrowers do not ?

    The act of investing money in a bank is to bring about an increase in your money. It is an act of risk, you gamble, to gain an interest rate, in the bank's business.

    Why should I, as a tax payer, bail you out as a saver ? You are not 'morally' superior to a borrower.

    Tired of the same old short sighted arguements.

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

    Don't be silly. I do not invest my life times savings in a bank for their paltry 0.2%. I stick it with a bank for the purpose they were designed for, a large safe and a guarantee they will not lose it! Borrows on the other hand have an obligation to pay their debts. In exactly this manner the bank is a borrower from me.

  • Comment number 67.

    It seems like the politicians are trying to apply a Goldman Sachs style business strategy to this problem. They never lose or fail no matter what the circumstances are. Ultimately this is wrong and devalues what capitalism is supposed to be all about. Capitalism is fundamentally about failure without failure there can't be the chance for others compete in the market and make things better. This is not something that can ever be insured against, it's a like saying I want to live forever. Let them fail, then you will see true markets and economics at work.

  • Comment number 68.

    So let me get this straight. The governments are going to tax the banks so that they have funds available to bail them out in the future. The same governments that are paying interest to the banks who have bought up their bonds so they can run a perpetual deficit.

    Very very soon there is going to be a drastic under subscription of a gov bond issue. Who is going to bail out the governments who have done far more to destroy our economies than the banks managed (even more so when you consider that they are ultimately responsible for the regulation). The same people that always bail out overspending governments - its taxpayers. This is a political sleight of hand. A further misdirection to try and hide the fact that government debts that need to be shorn by the tax payer to an order of magnitude more than the banks.

  • Comment number 69.

    Will it be too naive to beleive that this extra tax on the banks will not be packaged and passed onto customers? i would assume that there would be more bank account holders than taxpayers. Money Honey.. just Money!

  • Comment number 70.

    Most countries and banks are already insolvent. That is, their debts are higher than can ever be repaid without unrealistically high levels of economic growth which aren't sustainable. You just wait until banks have to write off commercial property loans, this is the next bubble to hit. They are hanging on to them at the moment by giving companies very generous terms so they don't have to write them off since this will crystallize very large losses.

    I think we could do with taxes on banks which discouraging certain types of risky activity, such as very short term (micro-second) trading and split up investment banks from simpler high-street banks. This might soften the blows. But its hard to see how these taxes could keep up with financial 'innovations'. Another problem is that the whole economy only works with exponential growth which is clearly non-sensical in world in finite resources.

    The money base has got completely out of step with the real world which has meant it has become too disconnected and so extremely volatile and liable to fail ... again and much worse next time.

  • Comment number 71.

    67 Jim wrote:

    "It seems like the politicians are trying to apply a Goldman Sachs style business strategy to this problem. They never lose or fail no matter what the circumstances are. Ultimately this is wrong and devalues what capitalism is supposed to be all about. Capitalism is fundamentally about failure without failure there can't be the chance for others compete in the market and make things better. This is not something that can ever be insured against, it's a like saying I want to live forever. Let them fail, then you will see true markets and economics at work."

    Jim you appear to have a absolute faith in the rationality and self-correcting nature of markets, that must be comforting. Have you not considered that markets may sometimes behave chaotically and lock into an undesirable state: lengthy depressions or sustained periods of deflation. Under such circumstances, the great depression for example, governments may need to intervene to return the economy to a path of growth. The interconnectivity of the World econonomy makes this scenario rather more likely than in the days of Adam Smith or even the 1930s.

  • Comment number 72.

    "Don't be silly. I do not invest my life times savings in a bank for their paltry 0.2%. I stick it with a bank for the purpose they were designed for, a large safe and a guarantee they will not lose it! Borrows on the other hand have an obligation to pay their debts. In exactly this manner the bank is a borrower from me."

    If you bought gold with it, would you expect to be protected ? You can place your cash in any vehicle you want to try to protect it's value (either relative, or actual), it is still a risk you decide to take on.

    I actually don't believe in protection for either, I am not pro: borrower protection, but equally not pro bail out savers either. You takes your money and makes your choice.

  • Comment number 73.

    Here is a novel concept how about we all care and help one another?
    Instead of trying to screw one another over, we actually start to live with the concept that we all deserve a right to live decently and have clothes and food in our belly.
    At the minute its winner takes all and everybody else can go to hell, guys its not working any more. Capitalism is failing big time just like Communism failed. Loads of western people try to cover unhappiness in their lives by going out on spending binges.That does not solve the problem it justs masks it.The old saying money does not buy happiness just means you can be miserable in comfort.
    Millions are going to live in poverty for generations all for what the greed of a few people who have been reckless with there life savings.
    And the people who have been reckless are still out there doing exactly the same thing none in jail or brought to task over what they have done.

  • Comment number 74.

    72. At 5:09pm on 26 May 2010, digs wrote:

    If you bought gold with it, would you expect to be protected ? You can place your cash in any vehicle you want to try to protect it's value (either relative, or actual), it is still a risk you decide to take on.

    I actually don't believe in protection for either, I am not pro: borrower protection, but equally not pro bail out savers either. You takes your money and makes your choice.
    ...........................................
    But that's the point, I do not buy gold or anything else with it because I do not wish to take the risk. It goes with the bank purely for safe keeping. They stick it in a vault, if they get robbed or what ever they pay me the money, if they go broke the government pays me the money (eventually!). I appricate your stance on not bailing out either party but were this the real life case then nobody would use a bank, may as well stick it under the floorboards.

  • Comment number 75.

    Every western bank has been vaporised, they are all technically bankrupt, only brought back to life by governments with a quick use of the money paddles and a commercial electric jolt!
    Politicians do not know what to do next, we all assume that they have the answers but the truth is they don`t.Only way out of this is for them all to be nationalized , similar to whats been happening but on a much larger scale. Deny the speculators access to their gambling cash.
    Then whats left merge and make them government owned, put legislation down to strictly control the interest charged on all new mortgages, credit cards, personal loans. Then drag every existing borrower in and reduce the interest charged on these debts to match the new rates.
    This deflates the consumer debt, stops the banks taking money in at 0.5% and charging us all 5-6% on our mortgages and 19-20% on our credit cards.
    In short rein in the loan sharks take the heat off every families budget, cut them some slack!
    Reduce families living costs !, not as now pile more on them!

  • Comment number 76.

    @ 71 Mr_Sensible wrote:
    "Jim you appear to have a absolute faith in the rationality and self-correcting nature of markets, that must be comforting. Have you not considered that markets may sometimes behave chaotically and lock into an undesirable state: lengthy depressions or sustained periods of deflation. Under such circumstances, the great depression for example, governments may need to intervene to return the economy to a path of growth. The interconnectivity of the World econonomy makes this scenario rather more likely than in the days of Adam Smith or even the 1930s."

    Markets are not supposed to be about faith they are supposed to be about establishing relative values of goods and services. Perhaps this is what politicians don't get. The difference here is that faith is a constant and that markets just aren't and never will be. Yes markets are chaotic, it's in this chaos that new opportunity is breed. Trying to protect banks from the market with a tax / insurance will only protects those that already have opportunity from those that don't and never will. If any thing it's a stealth tax on those that don't as the cost will inevitably be passed on them as customers. Your historical rhetoric has no place in this argument. As ever financial institution has to declare, 'Past performance does not necessarily reflect future performance.' Read the small print.

  • Comment number 77.

    The first post in reply to this blog may be right, may be wrong but his last paragraph tells the tale. He appears to forgive the banks for missing the big rock. Well to forgive perpetrators who have the whole of global currencies in their sweaty mits to control and to deal with as they think fit is a forgiveness too far.

    We can forgive acts of God but acts of man alias bankers anxious to tick their commission boxes representing, as they do, the wrong side of dodgy deals. I ask you. There was a time long ago when a currency whose function was to represent real value of goods or services could be a guide as to the true health of a nations standing. It was not until the banks decided to severe that relationship and deal with the resultant jubbly as an entirely separate dealing commodity that troubles took root. Its real worth became a myth and a playground infested with speculators. And then there was debt - another feature that lost its way but in the process became the new means of fictitiously classifying values. If there is a brake on lending, values fall. If there is a lending free for all values multiply. So where in the world are we? What is worth what. We dont know anymore. And yet the world goes on flogging that dead donkey of debt for all its worth until the pips squeak. Well they cant squeek as the squeaker is dead. So what have we ultimately? Fake money actually. Added to that the wheels of the mints (where nations still have them) turn mercilessly to add further rot to a diminished fiscal credibility - but at least we can fool ourselves into thinking we are meeting our obligations. We need to go into re hab do we not. And then on top of that to add to the confusion created way back by those 'Gnomes of Zurich'and their predecessors, we had the brilliant idea of a euroclub abandoning their individual currencies in favour of the Euro. How daft was that. Dad the breadwinner gives a bit to his son for putting his toys away. It can be said that they then both trade in a single currency but no one but no one would judge the fiscal status in Dad's empire by the level at which the son contributes to that economy. They must be numbsculls in Brussels to think that all euro member nations can maintain their euroworthiness alongside the big boys. That was unforgivable.

    Every door along that corridor to fiscal freedom is firmly closed but the one headed 'A new Concept in Reality - no admittance to bankers' is still open. Whose that guy with a white collar and a jemmy trying to break into a closed door? We have a bullet to bite.

  • Comment number 78.

    Now I'm the first to admit that I'm no economist, but as the 1 trillion pounds in subsidies the government has pledged or given to the banks seems to have had little positive effect, perhaps the following solution may be considered the next time round.
    Give everyone £10,000 in vouchers to be used initially to pay off individual debt (credit cards or a lump sum off the mortgage) the remainder to be disposed of as the recipient wishes (anyone under the age of say 21 would have their vouchers held in trust and perhaps used for tuition fees or a down payment for a mortgage (compare this with the £250 which is now being withdrawn)
    This would have the immediate effect of:
    Increasing individuals disposable income
    Reducing the amount banks had to set aside for bad debt.
    Enable banks to increase the extra amount of capital they are now required to hold.
    Reduce means tested benefit payments.
    Jump start the housing market and increase job opportunities, further reducing reliance on benefits.
    Guarantee the government who introduced it at least one more term in office (ok maybe not always a plus!).
    I'm sure there is a flaw here somewhere but I'm struggling to find it.

  • Comment number 79.

    Oh dear, Oh dear!

    After all the talk and analysis that has occupied many minds since the financial crisis, the fundamental causes still do not seem to have been recognised. The global collapse of financial markets and the investment banks that hunt in them was based on a need to give a guarantee of return on asset backed securities. In order to get a aa/aaa rating the investment banks who packaged the securities took insurance with the likes of AIG, who in turn lent their balance sheet for a healthy premium.

    The premise was that the underlying asset would always have a value and even higher risk investors were given protection. The scale of issues and the global spread of buyers meant that when a borrowers defaulted on a large scale investors took big hits and look to the likes of AIG to recover their loss. No surprise then that the 'insurers' could not meet their obligations or rely on asset disposal to recover their money.

    There was a systemic failure on three critical fronts, namely:
    1)US and subsequently UK property markets
    2)The structure of the asset backed securities and market participants exposure to them could not be determined sufficiently to manage risk effectively
    3)The regulatory framework was found wanting because it allowed these structures to persist without check.

    Levying a tax on banks to cover the future cost of managing an orderly disposal of 'failing ' institutions immediately implies that regulators expect it to happen again and that public finances would not be able to bare the cost again.

    I would therefore suggest that the first step is to put in place uniform market regulations that prevent the accrual of large investments in asset backed securities by pensions funds and similar institutions.

    Where asset backed securities are issued in the market, the issuing bank or institution is required to provide the market regulator with a full break down of the structure and would be required to underwrite a percentage of the whole issuance by lodging with the central bank cash deposits to the prescribed value.

    In addition, each party to the resulting transaction would be required to give full disclosure of it own financial position and make appropriate provision within its balance sheet at the specified % cover. So if an insurer lends its balance sheet to improve the credit rating of the security and the regulator defines that the level of market cover required is say 50%, then the insurer would have to make a provision that would be 50% of their own exposure.

    Separately, disclosure arrangements for investors should then reflect that in the event of any failure of the issuer, borrower or insurer, the investor would be unlikely to recover more than 50% of their investment.

    This arrangement would have a number of effects. It would allow central banks to hold funds against large scale failures in the asset backed securities market. Investment bank and other issuers would have to give full disclosure and provide funds against losses which would limit the scope and appetite for high risk deals. Pricing for securities issued under these arrangements would then be truly reflective of the risk position of each participant.

    It would force those institutions that provide guarantees to properly disclosure their exposure and provide adequate protection for their shareholders. It would further qualify the nature of the investment and its risk profile for institutional investors.

    Global markets rely on flows of capital to work effectively and to give balance exposure to global commercial /investor activities. What we must not allow is a repetition of the behaviour of investment banks and other arrangers to reap huge profits without accepting responsibility for their activities.

    My guess is that these sorts of regulations would temper the ability and willingness of Boards of Directors of banks to pay handsome bonuses if they are on the hook for the life of a deal.

    As a large number of global banks are now partially or totally owned by their respective governments, reaching consensus should be relatively easy.

    This would have a number of effects, all of which would be designed to both provide a fund against failure and affect a real pricing of issued securities.

  • Comment number 80.


    21. At 09:22am on 26 May 2010, Oblivion wrote:

    #1 Yeswemightaswell

    ...

    Don't post if you don't know the history or the underlying 'economics'.


    Since when has knowing economics been a requirement for posting here?

  • Comment number 81.


    62. At 3:28pm on 26 May 2010, doctor bob wrote:

    55. At 2:10pm on 26 May 2010, James wrote:
    Does Mr Barnier seriously believe that by taxing the banks and pooling the money in some kind of European holding fund, the increased costs will not simply be passed onto the taxpayer!

    ...

    We don't want more tax on bank profits. Guess who will pay for that? Yup, you got it: you, me, everyone who banks or invests, large or small.


    I think you are missing a couple of crucial points.

    First, we are all going to be paying more taxes anyway. So, if the money raised by this tax goes into the general taxation pot (a contentious issue), then we won't be any worse off if the costs are passed on.

    Second, remember that the investment banks based in London originate most of their revenues outside the UK. So if they do pass the cost of the tax on to their customers it won't be UK tax payers that end up paying!

    A bank tax applied uniformly across the EU with the proceeds going to national governments would be the perfect tax for the UK tax payer. There will be much less incentive to move financial services overseas (Switzerland excepted) if the tax is uniformly applied, and ultimately much of the cost will be exported to overseas customers of the banks.

    Obviously, if the tax revenues are ring fenced and not used to offset other increases in general taxation, then this would be an extra burden on the UK economy that we can ill afford. I don't imagine, though, that any UK politician would agree to the EU dictating how tax revenues from the banks are spent.

  • Comment number 82.

    71 Mr_Sensible wrote

    "Jim you appear to have a absolute faith in the rationality and self-correcting nature of markets, that must be comforting. Have you not considered that markets may sometimes behave chaotically and lock into an undesirable state: lengthy depressions or sustained periods of deflation. Under such circumstances, the great depression for example, governments may need to intervene to return the economy to a path of growth. The interconnectivity of the World econonomy makes this scenario rather more likely than in the days of Adam Smith or even the 1930s."


    76 Jim wrote

    "Markets are not supposed to be about faith they are supposed to be about establishing relative values of goods and services. Perhaps this is what politicians don't get. The difference here is that faith is a constant and that markets just aren't and never will be. Yes markets are chaotic, it's in this chaos that new opportunity is breed. Trying to protect banks from the market with a tax / insurance will only protects those that already have opportunity from those that don't and never will. If any thing it's a stealth tax on those that don't as the cost will inevitably be passed on them as customers. Your historical rhetoric has no place in this argument. As ever financial institution has to declare, 'Past performance does not necessarily reflect future performance.' Read the small print."

    Jim, I hardly know where to start as your analysis is so far detached from reality in numerous areas! If a world existed where there were: no regulations whatsover of the markets, no subsidies or import tariffs, no protectionism, no credit default swaps, no collaterised debt obligations, no derivative market, no naked shorting, no securitisation and foreign exchange trading was only for the settlement of world trade and hedging against currency movements then perhaps your argument might have some merit.

    This does not represent reality or even a close approximation. The value of some of the financial instruments listed above exceed World GDP by more than an order of magnitude. The complexity of and interactions between several of these financial instruments can generate oscillations in economic activity which are somewhat unpredictable even to those who devised them.

    If you want some concrete examples: The foreign exchange markets trade approximately $2 trillon per day or as an annualised figure 12x World GDP with 80% of this used for speculation, credit default swaps represent 10x the amount of debt being secured with no guarantee against default as the counterparties are often not known. I could go on.

    I therefore think that your view is somewhat simplistic as it denies much of this complexity and the potential for interaction. You are however correct that past performance of the economy cannot be used to predict the future with absolute precision.

  • Comment number 83.

    @ Jaques Catier:
    The comparison with car insurance isn't strictly true: The very good drivers (those who never claim) are penalised by being forced to have insurance in the first instance... thus subsidising those who do claim, and the insurers' profits. The "no claims" discount is merely a discount off an unfair penalty on the careful and cautious!

  • Comment number 84.

    what about wholesale depositors?

  • Comment number 85.

    I have been tracking yours and others comments on the banking crisis for more than am year now. I have read Soros, Cable and others on the subject. I understand the drivers and I understand the consequences. What I have been unable to understand is why when the taxpayer lends money to the banks it is the taxpayer that picks up the bill. I consider myself a reasonably intelligent person, 3 degrees and a PhD in the offing - but I still do not understand this!? Why are the banks not repaying the money lent to them?

  • Comment number 86.

    85 AReiver
    Its a very reasonable and logical question to ask, if the banks have now gone back to profits they should pay the money back to the taxpayer.
    If you think about it, it should be fairly easy for the banks to bounce back into profit.
    The bank base rate is now at an all time low of 0.5%, yet most banks are still charging credit out at much higher rates eg loans(7%), credit cards (19-25%), mortgages (5-6%).
    Whats messing things up is the LIBOR rate, when banks borrow from one another the interest rate is charged on the perceived risk from the lenders perspective.
    So in theory they should find it very easy to bounce back, some have been recording record profits! No wonder really when the base rate is 0.5%! This enables them to claw back all of the losses on the toxic debt that pushed them in to the red. Trouble is the cash has gone to the shareholders and not the government (eg the taxpayer).
    Debt is debt its not disappeared, all they have done is transfer the debt on the banks balance sheet(off the shareholders back) and placed it on the public purse (taxpayers back). Thats the reality, banks do not see it like that they think the taxpayer should bail them out.
    My view is any private sector business that gets in trouble then its the shareholders in that business that should take the hit. Not play pass the parcel with the debt and dump it on taxpayers.

  • Comment number 87.

    Most banks should find it very easy to make money now, with the bank base rate at an all time low of 0.5%, yet most banks are still charging credit out at much higher rates eg loans(7%), credit cards (19-25%), mortgages (5-6%).So they should find it very easy to bounce back, some have been recording record profits! No wonder really when the base rate is 0.5%! This enables them to claw back all of the losses on the toxic debt that pushed them in to the red.
    Trouble is the cash has gone to the shareholders and not the government (eg the taxpayer).Debt is debt its not disappeared, all they have done is transfer the debt on the banks balance sheet(off the shareholders back) and placed it on the public purse (taxpayers back).
    Whats needed now is a controlled deflation of the asset bubble, the government needs to force the banks in to renegotiation phase.
    Take the pressure off the families that are feeling the squeeze with high cost mortgages. Reduce the interest on the mortgages to 2%, credit card interest controlled by the government and set at say 4%.
    Stop the banks carrying on as normal eg fleecing every one! How the hell they can justify charging what they are doing when bank base rates are at 0.5% is beyond me!
    Banks and estate agents have been forcing prices down to try and drum up demand for mortgages, but the bottom line is this its not worked. Taking houses off people and pushing them through auctions will not benefit anybody only the buy to let sharks.
    Renegotiate the mortgages is the sensible way out of this mess, the banks do not want to do that they want to carry on as normal.If they do most will go bankrupt and they deserve too, greed has taken over.

 

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