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Can we avoid Credit Crunch 2?

Robert Peston | 09:44 UK time, Thursday, 15 July 2010

The chief executives of Britain's biggest banks are trooping in to see the chancellor today, to discuss how a second credit crunch can be avoided.

George OsborneThere are two issues. First, why aren't banks lending more to businesses right now? Second, how can a sharp squeeze in their ability to lend during 2011 and 2012 be avoided?

The first credit crunch led to a reduction in the rate of growth of bank lending to businesses that started in the summer of 2007. Month after month of reductions in the flow of credit culminated in a contraction of business lending of more than 10% per annum a year ago.

The crunch is still showing its effects, with the take up of business loans from banks still shrinking at more than 3% a year, according to Bank of England figures.

What's going on?

Here is what Andrew Tyrie, the new chairman of the Treasury Select Committee, told the annual conference of the British Bankers Association:

"My fellow MPs are acutely aware that sound local businesses are unable to find banking support at sensible prices."

A rather different message was delivered by Stephen Hester, chief executive of the UK's largest business lender, Royal Bank of Scotland. He said:

"RBS alone extended over £40bn in new facilities to business in the UK last year, and £45bn in credit facilities are still available but remain unused. 85% of SME (small business) applications for lending are successful".

He made two further points. First, that banks make an unacceptably low return on their lending to small and medium size enterprises, that they "do not even recover their cost of capital from SME lending".

That rather implies that RBS and the other banks aren't desperately keen to lend to businesses. But Mr Hester insists that the supply of credit isn't constrained.

What's happening, he insists, is that "businesses, unconfident of demand for their own goods and services, and recognising that debt was perhaps too high in recent years, are often seeking to reduce financial risk".

Or to put it another way, Mr Hester argues that what's driving the statistics that show a decline in business lending is that businesses don't want to borrow: with the economic outlook somewhat opaque, businesses are nervous about increasing their debts to finance working capital and investment whose returns look uncertain.

The chancellor will, of course, be aware that this is the banks' position, because they've been banging on to this effect for the best part of 18 months. But he'll hear it again today, from John Varley, chief executive of Barclays, who is today acting as shop steward for the bankers in their meeting with him.

What's the truth of it all? Probably not that there's currently an acute shortage of business credit but that there's a chronic, longstanding problem of mismatch between the kind of finance that smaller businesses want and what banks are prepared to supply.

However, the bigger issue for today's meeting is that there could be an acute shortage of credit in less than a year.

You'll remember the Bank of England's recent warning that the banks need to find £800bn of funding over the coming 30 months to replace taxpayer support that has to be repaid and bonds that are maturing (see my post, The risks of forcing banks off welfare) - and that the banks are currently raising nowhere near enough new money to refinance all this.

Which presents a pressing problem for the chancellor. Does he roll over £285bn of taxpayer lending to the banks, with the risk that this becomes perceived as a semi-permanent liability and is therefore added to official or unofficial calculations of a national debt that's famously rising too fast?

Or does he stick to the timetable for withdrawing financial support for banks, knowing that this could force banks to massively reduce the amount of credit they provide to businesses and households?

Nor is that the only potential obstacle to the flow of lending.

Again, you'll be aware from this blog that the banks are acutely concerned that if they are forced to strengthen themselves against future crises too rapidly - if they are obliged to raise a significant amount of new capital within the next couple of years or increase their stock of liquid assets or move quickly towards balance between loans and customer deposits - that again could spark something of a crunch to credit provision.

Probably the best way of seeing this is from the Bank of England's calculation that every 1% increase in British banks' ratio of equity capital to assets would require them to raise £30bn of new equity.

On the assumption they were able to raise this, it would force them to increase by 0.07% what they charge for their loans - in order to pay the dividends on the new equity that investors would demand. Which may not sound a huge increase in the cost of borrowing for businesses and households, but every little hurts, as they say.

But in practice, and in the short term, banks would endeavour in part to meet the new targets for capital ratios by shrinking their balance sheets. Or to put it another way, they would lend less.

How much less? Well if British banks endeavoured to increase their equity capital ratios by 1 percentage point exclusively by shrinking their balance sheets, that would see them lending a staggering £600bn less on a risk weighted basis (based on 2008 figures) and £1800bn less in respect of gross assets (equivalent to rather more than the output of the British economy).

Now the withdrawal of credit on that scale very quickly wouldn't lead to a return to recession - it would probably engender a full scale depression.

Which is why there is no serious argument against the phasing in of these new capital requirements - although there is still plenty of argument to come over the precise length of the timetable for implementing them.

The big point however is that one of the biggest threats to the UK's (and the world's) economic recovery is a possible second credit crunch. And for all the importance of George Osborne's recent budget, his soon-to-be published discussion paper on bank lending will also be of some economic significance.

Comments

Page 1 of 2

  • Comment number 1.

    Can we avoid Credit Crunch 2?

    I think we should look at whether we are still in an extended credit crunch 1 as we have been looking at a too short historical timeframe.

    If we had a benevolent dictator then perhaps the executives of Britain's biggest banks that are trooping in to see the chancellor would not be seen again.

  • Comment number 2.

    The amount of gearing up of the money supply that the banks did by lending freely before the crunch was sufficient to keep the economy buoyant without too much inflation. The banks will not lend as freely again in the near future, if ever. So a return to former levels of economic activity will only be possible if the money supply is increased substantially to compensate for the loss of leverage by credit.

    Unfortunately our politicians, and the economists that advise them, seem to be stuck with the monetarist dogma that "printing money" always leads to inflation. This is not so. Inflation is caused when the money supply is in excess of that needed to facilitate the distribution of goods and services.

    Less gearing by credit means that the mechanism by means of which the money supply lubricates the economy is now and for at least the medium term less effective, so more money will be essential for full recovery. The government's accumulated deficit needs to be allowed to increase substantially and interest rates kept low for some time.

    Why is the UK base rate stuck at 0.5% and not zero?

  • Comment number 3.

    New government, big problems.
    And without any experience is business or running the country what chance does the new boys have against the banks? Professional men all and, one would expect quite good at their jobs.
    It did all go wrong with the world system because banks, mainly american in my view, were left to their own devices.... then they called governments bluff to bail them out.
    Something does need to be done, but so quickly? And with this ideological thinking running the country now, how many more will be without a job or a future? Most of the civil service and local government it looks like now. Along with NHS workers and the police.

    It is all very sad in my world it seems

  • Comment number 4.

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

  • Comment number 5.

    Robert,

    If - as clearly pointed out - that banks are not supplying fluidity *where* business want it - then Credit Crunch II (CCII?) shall indeed be upon us.

    Why does this smack of 1929?

    The secondary arguments are moot.

    Which leaves the bigger question: if the collective fluidity pool available to the general populace / business is shrinking heavily (creating the sequence of higher taxes, reduced lending, resultant redundancies, the net effect of which lowers the income going back round into the system, and again higher taxes, reduced lending, resultant redundancies etc.), then where is this finite fluidity ending up?

    Some onto the staggering national debt, yes.

    But what about the rest of it? The bigger companies by any chance?!?

    --

    The real danger here is markets will talk themselves into a irrational downward spiral...

  • Comment number 6.

    Robert,

    Instead of rolling over the £285 Billion, why not take the £285 Billion from the banks and give it to the SME's directly?


    Didn't Osbourne say at credit crunch mark 1 that he would have let the banks go bust?

  • Comment number 7.

    # 1 Kit Green

    "If we had a benevolent dictator..."

    Dead right, Kit. You've hit the nail on the head.

  • Comment number 8.

    > Which is why there is no serious argument against the phasing in of
    > these new capital requirements - although there is still plenty of
    > argument to come over the precise length of the timetable for implementing them.

    When banks can phase in new capital requirements, they don't want to. And when they want to, the daft so-and-sos can't!

    Robert, this is the dilemma of the junkie - when you can stop, you don't want to, and when you want to stop, you can't. So why have we let the greedy junkies in our population run our money system? Who had that bright idea?

    And why are they on the loose (meeting the chancellor!) when they should be in rehab? Look, as Einstein said, we can't solve this problem by using the same thinking we used when we created it. Do we have to lift the Sir Greedies out with a forklift truck, or can we get them to quit voluntarily?

  • Comment number 9.

    "He made two further points. First, that banks make an unacceptably low return on their lending to small and medium size enterprises, that they "do not even recover their cost of capital from SME lending".

    Does this not pave the way for a new type of peoples bank supported by the bank of England where the sole purpose is to lend to SME's with loans capped at say £100k.
    The loan period could be for a max of say 15years which should be enough time to bridge the world recession issues (hopefully)....
    Any one business could only take out one loan with the peoples bank being closed in say 20years.

    As a tax payer I would prefer to support this "cheap access to money" for SME's with say all profits to the government rather than line shareholder pockets.
    As a short term stop gap would this undermine the banking sector?



  • Comment number 10.

    SME's I have heard of complain about the high rates of interests and charges they have to pay to borrow from the banks even when they have good prospects in the short term. Of course the credit crunch 2 will also feed on the cuts the government will be making (mostly talk at the moment) to the public sector casting even greater uncertainty over the private sector. There is discounting in the retail economy everywhere and dont forget many are surviving only because interest rates are relatively low. Crisis what Crisis Mr Osborne?

  • Comment number 11.

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

  • Comment number 12.

    Robert,
    We CAN avoid credit crunch 2, and the key to this comes from the RBS bloke's comment:

    'What's happening, he insists, is that "businesses, unconfident of demand for their own goods and services, and recognising that debt was perhaps too high in recent years, are often seeking to reduce financial risk".'

    The problem begins and ends with 'domestic aggregate demand'. If more ordinary people were working and earning more, then both spending on the high street would increase, and consumers would be able to deleverage (the later benefiting the banks); aggregate demand would increase along with business confidence, and businesses would grow and borrow more to do so.

    There's no use having credit available to business if there is no demand for goods and services.

    The government need to pull their finger out and spend money on job creation. They should increase public sector pay, not reduce it, and perhaps some more tax cuts too. The deficit will take care of itself as aggregate demand and growth increases.

    Kind Regards
    Charlie

  • Comment number 13.

    Savvy consumers should have seen the writing on the wall (sorry writings) as early as July 2007 (the actual start of recession IMO), this should have helped with the need for banks to refincance. The attempt at creating a new bubble, which resulted in further debts being taken out means that we effectively only have one solution now.

    Print Money (which will prolong the life of the current system a little longer).....Either way this system is set for collapse, it is a methematical certainty


    p.s. WOTW, that was a great link you posted the other day.

  • Comment number 14.

    Could someone at the BBC please give Robert a nudge and inform him that out here in the real world we are still in version one. (and its getting worse).

  • Comment number 15.

    Credit crunch 2? We're still suffering from credit crunch no.1 When the government bailed the banks out the problems were not fixed, it just the burden shifted to the government and therefore us as tax payers. The problem is the monetary system is no longer fit for purpose, as I keep pointing out, we have collectively robbed ourselves of our future unearned income to enjoy now, which is what caused the last period of unsustainable growth. To pay the bills we need an even bigger period of growth as thats what all the borrowing assumed. However, the world is in recession, and therefore where will growth come from. In addition, we are taxing ourselves crazy, cutting publice sector jobs, future pensions etc etc. That means future consumers will have less to spend than now! We are on a downward spiral, with no way out. The only solution would be to borrow even more from the future to allow a new period of growth, which of course is daft. The monetary system has reached the end of its life as a means of allocating our resources in a supposedly efficient manner. We need a new system that allocates our planets limited resources that doesn't cause debt that grows exponentially. This requires fresh objective thinking to design, which means that most existing experts (current economists for example) need not apply.

  • Comment number 16.

    #2. stanblogger wrote:

    "The government's accumulated deficit needs to be allowed to increase substantially and interest rates kept low for some time"

    You are wrong in every particular for you are first and foremost NOT describing a path to recovery but an ever increasing collapse.

    Interest rates are far too low for the economy to function properly, indeed for capitalism to function - it is that critical. Your recipe is one for disaster and continuing collapse over many years and NOT one for recovery.

    Rates MUST rise to rational economic levels and deficits have to be brought down not only in the public sector but the private sector too. Indeed only by raising rates can we move from continuing collapse to recovery.

    One way or another we have to de-leverage the debt situation. This can be done via hyper-inflation or by repaying loans (or defaulting upon them). The fact is that the cost of land and buildings in the UK is so out of balance that it leaves British industry with an almost impossible task to compete in global markets and we must compete so one way or another house prices need to decline by 50% and the over indebted will have to suffer the consequences. Investors and savers (particularly small ones) have taken the lions share of the burden of supporting the over indebted and the banks and this has to be corrected for equity and in the end to stop savings drying up completely. Rates must return to at least 5% ASAP. Rates up to 1% next month please and up by 0.5% a month till near Christmas. Let the World know that we can fix the capitalist system!

    Your recipe is madness for in your system money has a zero price - it is worthless and there is no mechanism to logically ration investment - absolute bonkers. Your crackpot economics is why we are in this awful situation now and you and you daft ideas need to be purged - you represent the pernicious evil of the deranged end of economic miss-education and folly.

  • Comment number 17.

    Meanwhile in China;
    "The authorities imposed limits on lending and investment in order to engineer a soft-landing.

    But a report out from the credit rating agency, Fitch, suggests that banks have been getting round this by re-packaging some loans into investment products - securitising them - so that they no longer appear in their lending figures."
    You've got to hand it to the bankers. Even in China, where you could be punished severely, the bankers still take extrodinary risks in pursuit of personal gain. What is the hope of regulations working here!

  • Comment number 18.

    2,

    Excellent post and I agree, unfortunately GO thinks the same way as those who caused the great depression :-0

  • Comment number 19.

    @ 1. At 10:31am on 15 Jul 2010, Kit Green wrote:

    > If we had a benevolent dictator then perhaps the
    > executives of Britain's biggest banks that are
    > trooping in to see the chancellor would not be seen
    > again.

    Those Sir Greedies will have had that wallpaper guy, Osborne, in their pocket before you could say Jack Robinson, believe me.

    We have to get down to brass tacks now. The only way to make the money system safe is to de-couple it. We must learn to abhor dependencies. Bankers, of course, are wholly dependent on anyone who can help them get by without actually doing anything whatsoever for themselves.

    But the rest of us have to cut those gangsters out of the loop by standing on our own feet without propping bankers up as well.


  • Comment number 20.

    Looking closely at the period 1931–1935 to the same unbalanced accumulations of wealth, leading to overaccumulations of capital, the lessons learned are 1) keep people fully employed, and 2) governments have to run deficits when the economy is slowing. The private sector simply is not investing enough for the economy to recover.

  • Comment number 21.

    The government is always placing the blame onto Banks and its employees for the financial crisis. But the Manin cause of the credit crisis was the underlining Financial system that was in place prior to the financial crisis (note it is the same still system even now).
    Unless significant Monetary reform is taken to replace this current debt-based monetary system we will never successfully come out of this recession and in the future will have heavier Financial crisis'.

    For more information on how yu can help and understand the real issue the government wants to ignore, please visit the website below:

    http://www.bendyson.com/
    http://www.bankofenglandact.co.uk/

    http://www.call4reform.org/

  • Comment number 22.

    If the banks do stop lending to meet these capital requirements this will hopefully start people thinking - what are the point of these banks?!

    Stephen Hester: "we do not even recover our cost of capital from SME lending".

    So Stephen you make a loss on lending to SMEs - so where do you make your money? Oh yes I forgot - that lending on property (ie. land speculation).

    And when that speculative activity goes wrong where do you and your friend in the banking industry go for help - oh yes to the taxpayer - i.e. the SME worker and owner!

    Oh I forgot - Banks are run for the benefit of their employees aren't they not those annoying 'socially useful' SMEs. If only we all worked in the wealth generating financial sector just think how rich and prosperous we all would be!!!


    PS - Check out this great article in the FT

    "The war on greed begins at the dinner table"

    http://www.ft.com/cms/s/0/3cb20720-8eb1-11df-8a67-00144feab49a,s01=1.html


  • Comment number 23.

    I agree with 2. stanblogger.

    Thanks for the excellent report Robert. The timescales for these paybacks both here and in eurozone and on commercial property are most likely the elephants in the room. They'll be with us for a generation.

    Bank lending has always gone in cycles, but this will be a deep freeze that will take a long time to thaw. I agree with stanblogger that QE is unlikely to cause inflation and infact that the banks are absorbing the greater part of that money (can you comment on where the QE moneys are going Robert?).

    Can you clarify which investors would get hurt if it can to payback time and the banks went bust? How bad would that be? I'd like some more creative ideas regarding the banks troubles. Can any of it be written off? What about a fire-sale of bank assets to help their balance sheets? Any ideas?

    I expect the debt will be rolled over, like in most other countries. There are a good number of fiscal initiatives being taken but no really new ideas about this HUGE elephant in the room!

  • Comment number 24.

    If the government buys Diamonds instead of Gold then we should be on a winner! Oppps! Zimbabwen diamonds flood the market today. Pretty glass is the new Diamond!! What a world.

  • Comment number 25.

    "The chief executives of Britain's biggest banks are trooping in to see the chancellor today, to discuss how a second credit crunch can be avoided."

    This statement shows the idiocy of those who run the banks - there's no question of avoiding a new credit crunch as we're still in the last one!

    http://www.housepricecrash.co.uk/graphs-mortgage-approvals.php

    http://www.telegraph.co.uk/finance/yourbusiness/7877891/UK-lending-to-small-businesses-collapsed-last-year.html

    What a bunch of mawons - honestly the cast of sesame street could do a better job.

  • Comment number 26.

    A great number of our top companies are holding a lot of cash. Hmmm.

  • Comment number 27.

    "There are two issues. First, why aren't banks lending more to businesses right now?"

    Because small businesses aren't stupid - if you look at the BBA's own document you can see (chart 1.5) the various costs of funding to banks - and then marry that up with the 29% overdraft facility they offer SME's. Most SME owners I know would rather scale down or go bust than have to pay the shylcok their pound of flesh.



    "Second, how can a sharp squeeze in their ability to lend during 2011 and 2012 be avoided?"

    It's not even their ability to lend that's the problem, I mean they've been given enough funny money by the Government to fulfil demand 10 times over. It's the rate they offer which is the problem. The only way to avoid this is to stop them being greedy - but considering the thicko's of finance haven't worked out the correlation between their need to pay huge bonuses and salaries and the need to charge over the odds for a loan - then this isn't likely to be resolved anytime soon.

    I mean why would banks want to lend to businesses in a recession @less than 4% when they can simply purchase gilts and get a better and 'safer' return. Especially as they know the Government is going to have to start paying more for their borrowings soon - further cutting the desire to lend to those who need it.

    As this crisis goes on - the ideas and conversations get more and more banal. I presume this is desperation at the fact that nothing else they have tried has worked.

    The haeds of banks are not just idiots - they're greedy idiots - which makes them twice as dangerous to the rest of us. Unfortunately the regulators and Government are also idiots - so they can't tell the difference.
    Only the rest of us can see where this "ship of fools" is heading.... [Unsuitable/Broken URL removed by Moderator]

  • Comment number 28.

    Robert,
    My earlier comment that the government need to increase aggregate demand (by increasing emplyment) to avoid this debt 'crisis' is backed up by Chick and Pettifor in their recent (Bloomberg Opinion, July 13, 2010) article 'UK Bust Needs Big Spender':

    http://www.bloomberg.com/news/2010-07-13/u-k etc

    This in turn is based on a research paper entitled "The Economic Consequences of Mr Osbourne"!!

    [Unsuitable/Broken URL removed by Moderator]

    Fiscal austerity is just pro-cyclical rubbish, and we need a u-turn now.

    Kind Regards
    Charlie

  • Comment number 29.

    Robert wrote

    (Shrinking loans to business) "That rather implies that RBS and the other banks aren't desperately keen to lend to businesses."

    Your logic is flawed.

    This also implies that business is not too keen to borrow.

    Profitable business generate cash; that is they have their own money to invest so have less of a need to borrow. Duff or start up business need to borrow either to get started as a bridging exercise before the profits flow in or, in the case off duff loss making business, to con/persuade themselves (and others) into believing that they will eventually make a profit.

    Politicians don't understand business and nor sometimes do journalists! Please work through the full logic of the situation before you condemn the banks although they are such an easy, worthy and justified target and deserve so richly to be kicked on every possible occasion.

  • Comment number 30.

    Jacques Cartier
    (while booting a banker as often and as hard as possible, of course!)

    Nice comment Jacques and very professional and grown up!!!!

  • Comment number 31.

    No - we probably can't avoid Credit Crunch 2; at least not without taking a long hard look at how our economy works and where the wealth in our society is concentrated. SMEs rely, to a very large extent, on spending by the wider population of the country. The policy for the last thirty years has been to depress the wages and salaries of the large majority of British workers, relying on encouraging personal debt and "trickle-down" economics to finance economic activity among that majority. "Trickle down" economics was also used to justify massive wages and salaries and bonuses for a very small proportion of the population.

    We have reached a point where ever-spiralling personal debt has made that stream of finance untenable and, frankly, "trickle down" finance never really worked at all. We need a redistribution of wealth within our economy so that, yes, those who are especially gifted or talented or hard-working are decently rewarded; but not at the cost of squeezing the rewards of workers who also make an essential contribution to the creation of wealth, but who are at present treated as nothing more than a drain on company finances.

    Now, that may produce howls of outrage from the elite - and those who fancy they may join the elite; but if we do not foster economic activity for our SMEs then banking finances will also go out of the window. This means we need lots of people in work earning decent amounts of money.

  • Comment number 32.

    17. At 12:55pm on 15 Jul 2010, Averagejoe wrote:

    > You've got to hand it to the bankers. Even in China, where you could be
    > punished severely, the bankers still take extraordinary risks in pursuit of
    > personal gain. What is the hope of regulations working here!

    Here, we give our Sir Greedies a pension worth 500 grand a year.
    We need to hit bankers where it makes them squeal - in their pockets!

  • Comment number 33.

    16. At 12:48pm on 15 Jul 2010, John_from_Hendon wrote:

    "Interest rates are far too low for the economy to function properly, indeed for capitalism to function - it is that critical."

    Sorry to break it to you - but Capitalism hasn't been functioning correctly for the last 100 years. If you look at historical interest rates, aside from a few crises years - they've always been too low.

  • Comment number 34.

  • Comment number 35.

    Moderators - in case you need help moderating my post @ 27

    id·i·ot Show Spelled[id-ee-uht]

    –noun
    1.
    an utterly foolish or senseless person.

    Don't worry, it's not libelous as I can prove it in court if necessary.

  • Comment number 36.

    @ 30. At 2:07pm on 15 Jul 2010, windchrisleeds wrote:

    >> Jacques Cartier (while booting a banker as often and as hard as
    >> possible, of course!)

    > Nice comment Jacques and very professional

    Then why not join my fan club (as long as you're not some banker)?

  • Comment number 37.

    29. At 2:03pm on 15 Jul 2010, John_from_Hendon wrote:

    "Politicians don't understand business and nor sometimes do journalists! Please work through the full logic of the situation before you condemn the banks although they are such an easy, worthy and justified target and deserve so richly to be kicked on every possible occasion."

    ...as should you John, for it's not that SME's don't want to borrow - it's that they don't want to borrow at the rate being offered

    The banks are playing games, offering a half eaten meal of maggot sandwiches and then claiming "nobody wants our charity".

    SME's are being forced to downscale by the banks - the credit crunch has just moved from the banks to everyone else, and now the world is just realising that the bailouts solved nothing - it just meant it's our problem now...

  • Comment number 38.

    Mandy was on the radio this morning. He said how Gordo had put us on the road to recovery (so we are not going to face CC2). I know this not to be true so the radio must be faulty. I need a new one.

  • Comment number 39.

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

  • Comment number 40.

    The banks apparently assume the governments are extremely stupid, and after the last shakedown they have a track record to prove it. Remember the first bailout was to provide funds for the economy...banking bonuses.
    After tha banks undermined the national economies and stole retirements they wonder why people are not borrowing money. This basic lack of common sense is what lead to the house of cards they built crashing in the first place. How do they justify those salaries? I guess because of their ability to indirectly tax citizens though the government.

    Oh, you only gave us a trillion last time, if you actually want us to lend money we would need much more.

    Anyone in government even discussing these issues with the banks should be let go. The bankers should be in jail and because they are not they have been emboldened by the free access to the treasury. Apparently nothing will be done until the governments have finally caused a depression that will inspire the people to require a new system of both banking and politics.

  • Comment number 41.

    For the removed link @27

    Search in google for
    Small_business_lending_bankfact.pdf

    ...and select the BBA result.

    It's an interesting document - a bit like the plans of Hitler in 1936. When you read it it's in 2 distinct parts - the "what we should do" part and then the stats which show "what we actually do in practice"

  • Comment number 42.

    # 39

    Change "gallows" to "scaffold" and I'm with you.

  • Comment number 43.

    Robert Peston - "there's a chronic, longstanding problem of mismatch between the kind of finance that smaller businesses want and what banks are prepared to supply"

    John_from_Hendon - "start up business need to borrow either to get started as a bridging exercise before the profits flow in"

    The problem starts here. In the entire time I've been working in SME's in the UK the Banks (I had the misfortune to work with Barclays, but I'm sure they're all the same) were only really interested in loaning against property - it's as safe as houses, isn't it? Quite possibly they're right if the spread on borrowing versus lending is small.

    SME's are naturally risky. Many, many will fail. A few will be truly successful. The fundamental problem is they need development capital that they're not getting in the UK. That's a problem the financial services sector as a whole ought to be working on, not the retail Banks. Heck, isn't that the role of the Investment Banks?

    Sadly Investment Banks found it easier to make significant money on fancy financial instruments and hard to have to get down and dirty managing investments in, amongst others, SME's.

    By comparison, the US has a massive Venture Capital sector, much of on Sand Hill Rd., but also in Boston, and a few other High Tech. centres. The lack of that sector in the UK, and the easy money that could allegedly be made from investment in property is, in a nutshell, why the SME's in the UK are an endangered species.

    It's also why people like me gave up and moved to the US.

    In short, the Government is wrong to blame retail Banks for not lending to small businesses. SME's don't need more, expensive loans - they need investment. What the Government desperately needs to do is lean on Banks to do what the word "Investment" implies - invest in SME's for the long haul instead of for ever trying to flip holdings in artificial financial instruments for short term profit.

    In the meantime they could also make the Small Firm Loan Guarantee Scheme work to deliver "at risk" pseudo-capital while stopping the retail Banks from flipping conventional loans for their own gain as they did when the SFLGS was first introduced.

    Better still, why not encourage Investment Banks to re-cycle their crazy bonuses into "at risk" capital for SME's with tax breaks provided the investments are held for 5-10 years?

  • Comment number 44.

    We have already paid the money.
    The banks do not require to do anything more.
    That is how market transactions work.


    Has Vince Cable seen the second dip yet?

  • Comment number 45.

    He [Hester] made two further points. First, that banks make an unacceptably low return on their lending to small and medium size enterprises, that they "do not even recover their cost of capital from SME lending".

    My reading of this is Hester and friends are going to openly screw the hell out of SMEs. It's monopoly power talk.

  • Comment number 46.


    http://www.reuters.com/article/idUSTRE66E2IJ20100715

    ...but I thought we were in recovery?

    I wonder if this one will make it...

    http://www.automatedtrader.net/real-time-dow-jones/5197/ocado-says-gbp510-million-ipo-plan-remains-on-track-for-next-week

    You can say "recovery, recovery, recovery" - but it won't take you back to Kansas.

  • Comment number 47.

    42. At 3:01pm on 15 Jul 2010, newProtectorCromwell

    According to this we can use street lights.

    http://en.wikipedia.org/wiki/Gallows

  • Comment number 48.

    Banks, businesses and consumers all present the same problem. They want to borrow relatively unlimited amounts of money at unrealistically low prices. The short term fix of printing money (sorry, quantative easing) and the government borrowing long and relatively expensively in the gilts market to lend short term and cheaply to the banks and industry is no permanent solution.
    The day of reckoning cannot be endlessly forestalled. The sooner we accept that the party is over and that we cannot keep on borrowing to prop up unsustainable standards of living, the less long term damage from inflation, currency devaluation and stagnation.
    Wealth is not created by tinkering with the balance sheets of bankrupt banks that reflect the circumstances of their over-borrowed customers.

  • Comment number 49.

    Everyone does well on a rising tide, but the plain truth is that, whatever shape this recession turns out to be, we will have to wait a good few years to feel that surge tide floating us all high again with both private and public sector growing. I am afraid there is no escaping the fact that it is going to be a lot of hard work and we are going to see both winners and losers for quite a while to come. If you want to be on the winning side, now is time to think through your strategy and to put in place plans to protect and grow your business.
    Rose Lewis, Pembridge Partners LLP www.pembridge.net

  • Comment number 50.

    This is not Credit Crunch 2: this is still the same old Credit Crunch.

    Nothing has changed: so all will remain the same.

  • Comment number 51.

    @15, AverageJoe.

    Excellent summation of our current predicament.
    "This requires fresh objective thinking to design, which means that most existing experts (current economists for example) need not apply."

    As Ghandi said - "The expert knows more and more about less and less until he knows everything about nothing."

    WOTW, your posts are truly inspiring, you are wasted working for a financial institution.

  • Comment number 52.

    45. At 3:11pm on 15 Jul 2010, PacketRat wrote:

    "My reading of this is Hester and friends are going to openly screw the hell out of SMEs. It's monopoly power talk."

    Oh they already are....let me tell you a story....

    My friend works in a tool hire business - owned by his Dad. In 2007 they were unfortunately burgled (risk of the trade I'm afraid) and lost a lot of tools. The insurance comapany agreed to pay out the losses, and the bank (who was the same comapny as the insurer) offered them an overdraft at about 8% while the claim came through.

    The payment from the claim took over 2 years to settle - and in this time the interest rate for the overdraft rose to 18% - the credit crunch getting the blame for this of course.

    When the claim finally was settled the interest charged on the overdraft meant that the claim money didn't cover the amount owed and so the overdraft remained (albeit somewhat smaller).

    This is a small business, family run and been in existance for about 25 years. This is the first time they are facing real trouble and could be closed.

    One thing that they have noticed was the marked difference in the banks attitude in the last 5 years. Before they went out of their way to offer you loans - and now it's like getting the blood out of the proverbial stone.

    It's small business, credit card holders and homeowners (not on a BoE linked rate) who are all paying for this crisis. The banking system will chew them up and spit them out when they're done before looking for their next victim(s) to repair thir leaky balance sheets.

    Governments are a big target, very dangerous to banks as they can change legislation and tax them - but don't be surprised if they are the next target of the zombie banking world.

  • Comment number 53.

    WOTW....
    http://www.reuters.com/article/idUSTRE66E2IJ20100715

    Only around half of the share placing was taken up, that's miserable, and Reuters decided to leave that out the report!

  • Comment number 54.

    The chief executives of Britain's biggest banks are trooping in to see the chancellor today, to discuss how a second credit crunch can be avoided.
    ------------------------------

    Calm down folks, they are simply preparing the ground for QE 2.0
    America is getting ready too. It's a question of when not if.

  • Comment number 55.

    This article only talks about SME lending, what about the dried up mortgage market? Is Stephen Hester not making any money on his mortgage portfolio anymore?

    I pity those people who rushed out to buy property when the market dived and ultimately provided a floor for the price crash. What's going to happen when those people face rate resets as their 2-3 year fixed deals start coming to an end? I wonder why my bank won't lend me a 5 year fixed mortgage for anything less than 5%, which is 10x higher than the BoE base rate. The banks themselves know which way the economy and interest rates are heading. I'll have my double dip recession with portion of fries please.

  • Comment number 56.

    #2 stanblogger

    It's not Dogma. Inflation is low because we have a huge trade deficit with china and the far east. As fast as we print money we give it to them for goods. This is why inflation is low - we are borrowing China's spare capacity. As there is no immediate exchange in the other direction we are writing IOUs to do. Either our children will have to cover debt or we as a country will default. Nether are a good prospect. We can not just print money and rely upon 200years of reputation to count for something indefinitely. If we write enough IOU's for China to think we can't pay back then that is the end of our stint at the top table!

  • Comment number 57.

    Whats the problem with banks.........well
    I recently requested a loan to repair a building which was approved... i have proven cash flow and profits. However i have an overdraft and an existing loan, so the Major bank i am with put conditions.
    I had to refinance my existing loan and overdraft together with the increase for the building repair into one loan.
    But there is a catch... interest charged increased by 1.25% wow.
    My reply was NO way.. with that i had a polite letter back saying that my ovedraft would be with drawn.
    What more can be said.
    In years gone by i used to get 2% over base, now the rate is near 4% over base. Whats the point of lowering interest rates. Banks dont pass this on. However, when the economy does expand, and interest rates rise most customers that have had guns put to there heads by banks will then find themselves in trouble paying this extra interest payment.

    If you want this economy to grow to absorb the job loses from the Goverment contraction you have to look at SME lending practice, the way it is at present the banks are slowly killing whats left of the private sector.

  • Comment number 58.

    "Calm down folks, they are simply preparing the ground for QE 2.0
    America is getting ready too. It's a question of when not if."
    [plamski]

    My understanding is the QE isn't working (at least in stimulating the economy) because all it does is increase reserves. Given that banks can lend irrespective of whether reserves exist (the reserves follow the lending, not the other way round). So the problem is that the banks are simply using QE to repair their balance sheets.

    If the UK and US got together to 'deficit spend', then that would truly stimulate the economy by increasing aggregate demand. This would help the private sector to deleverage, which would help the banks to improve their balance sheets quicker, whilst reducing unemployment and creating growth in the economy.

    Kind Regards
    Charlie

  • Comment number 59.

    The Banks have known about Profit Crunch #2 Since Profit Crunch #1. They still insist upon calling it a "credit" crunch. Once again, they are playing the "too big to fail" card and, once again, the Government is falling for it.

    What Chancellor Osbourne should have done is informed the banks that, on friday, he would announce which of their number is to go bust. The inherent credit from the bust bank being redistributed to the remaining Institutions.

    The Banks need a recession in order to suck up all the wealth that years of "growth" require. In essence, the banks predicted future profits that never happened. They are now demanding that the world goes into recession to support the growth they predicted for their own future profits. It is a bluff that Chancellor Osbourne should call. Why should the economy be starved for a decade for the benefits of the banks?

    Having had over two years to fix their problems, the banks have done nothing except prepare for a long hard recession and wait for a change of government. That recession will suck the wealth of nations into their coffers this government will help that along. All the wishy-washy pouting of Osbourne and Cable is just wrapping up banking problems in nice marketing exterior.

    What Osbourne should do is impose a solution onto them. A solution that suits the interests of the electorate. He will not be doing it: the suggestion that the electorate can choose to sacrifice bits of the economy to protect the rest of the economy is just a little bit too far fetched. (Unless, of course, the public is being asked to nominate public spending cuts).

    It is all very well blaming the crisis on people borrowing excessively. But that borrowing is balanced by lending. If people borrowed excessively then banks lent excessively. There is no get out of jail free card. For every pound borrowed a pound was lent. The entire banking system failed to exercise due dilligence, care and attention. They even openly acknowledged it in saying loans were "sub-prime" and "high-risk". So, playing a blame game in which customers are to blame is nonsense. They did it all for hypothetical future profits. This is the future.

    Choose a bank, any bank. Lay off every single employee. Transfer the assets and debts to the rest of the banking system and point out that it can be done again if they do not fix their problems.

    Of course, this suggestion comes from cloud-cuckoo-land. Nobody pretends otherwise. Strip it of the suggestion that Osbourne chooses a bank to fail and what you have is exactly what is happening in the public sector: choose a project to fail and transfer the assets and debts to the rest of the public sector. Welcome to the cancelled schools building program.

    The Banks have had long enough to fix their problems and "rebalance" their books. If they were some public sector quango there would be cries of kill the lame duck. Instead we get this latest round of blackmail where it is claimed that small enterprises do not want to borrow.

    Perhaps small enterprises do not want loan shark rates and practices. Perhaps they do not wish to pay the additional interest that should have been paid in the years of cheap credit. Perhaps they do not want to put up real assets for imaginary credit that the banks might need to call in because the Bank is not a sound business. At the end of the day it is the banks that have a crisis not the rest of the economy. Their failure to lend is more an indication of their failure to run their own businesses properly. Why would a well run SME want to borrow from a bank that might have to call in the loan at the drop of a shareholder dividend. If the Chancellor does roll over the £285Bn of aid and does so without it being on the same terms and conditions as the banks are offering to small businesses then, there are serious questions: we are all in this together, after all.

    We could ask why are the banks not fixing their problems: if my next door neigbours house had an unsafe wall they would be obliged to fix it. If they did not and it fell down destroying my garden shed then they would be obliged to compensate me for the damages. And this is what the banks are pretending has not happened. The banks are pretending they are not responsible. (They could be obliged to be more responsible by a Bank of England Act - as outlined by comment 21: the bank of england act). Instead of turning up, en masse, to bully the wallpaper chap, the Banks should be seeking investments that will motivate and energise the economy. That would involve deferred profit. Deferred for years, decades even. But it would avoid a recession for the rest of us.

    The Banks have pulled the "too big to fail" card once too often. They are milking Greece tor future profits, they are looking at Spain and Portugal for the same reason and it would be foolish to suppose they are not doing the same with the UK. They are not too big to fail. They should be told that.

  • Comment number 60.

    I smell a dirty great rat folks. This is going to turn out to be a meeting about how and why we water down new Banking Regulation. And the excuse.....the likelihood of economic growth being too much to the low side over the coming 4-5 years.

    Yes, there's a bit of tough talk going on about bank regulation - has been for a while. No surprise then that it's just not happening.

    Osbourne is a closet inflator? He's prepared to risk getting back to asset bubbles. And guess what, he's upped Capital Gains tax too, in the hope of taking full advantage of this. But without inflation the asset prices won't rise and security for bank lending won't be worth much either.

    Meanwhile, according to Hester, small business is getting credit. But small business is not getting it cheap. Although Hester says there's little profit in it - margins are too low, (well he would wouldn't he.)But if the banks are not making profits then there's no room for a bonus? Doubt that! I don't buy the bankers take on things. Look what happens when we do. The lack of credit angle is not the real story.

    So, Osbourne's calculations must be showing up that he's not going to make it (on debt repayment) and inflation is essential to reducing the deflationary impact of repaying Government debt. Would he mind telling us this? (I have a nasty feeling ordinary folks are going to be turned over again and bankers will be the beneficiaries.)

    Osbourne's and our biggest economic headache will be the need for growth, given we're sticking with Capitalism. That will clearly be the economic story of the next five years, if we stay as we are. More boom and bust then. Only next time will the taxpayer be able to cover it? Especially as Regulation isn't top priority?

  • Comment number 61.

    Oh dear what to do with the banks! Can't live with them can't live without them. Of course they are the root cause of all our worries. Well partly but presumably where there is a willing lender there is a willing borrower. So we have told them we are going to make you pay for your mistakes through higher taxation of your profits,tighter controls on capital and much greater regulation.Hey presto no money left to lend to anyone! About time we all got real, we are in this together and the banks play vital role in our future economic prosperity. Let's stop treating them like naughty children and start a constructive conversation about the way forward.

  • Comment number 62.

    51. At 3:40pm on 15 Jul 2010, Hornedog wrote:

    "WOTW, your posts are truly inspiring, you are wasted working for a financial institution."

    ...not wasted, because surely you'll need someone to 'open the back door' when you're all on the streets outside - you know how careless people who work in finance can be....
    (as long as you let me out alive!)

  • Comment number 63.

    53. At 3:48pm on 15 Jul 2010, Hornedog wrote:

    "Only around half of the share placing was taken up, that's miserable, and Reuters decided to leave that out the report!"

    Ocado will be the special one - why? - because it's been set up by ex-Goldman Sachs bankers.

    Packaging up a company which has never made a profit and stamping it with a £1bn value and releasing into an unsuspecting market which is fooled by the 'interest of the big boys' and takes it to mean it's good value....now where do you think they got that idea from?

    CDO's perhaps?

    Round and round and round we go - where it stops, god only knows.

  • Comment number 64.

    Banks are lending as much as they can subject to two conditions imposed by the government since the credit crunch, namely increasing their capital base and assessing the risk of loan default more realistically.

    The reason businesses think this is not enough is that they are still longing for the days of lax money. Also they were getting money from lots of non-bank lenders which have now gone.

  • Comment number 65.

    Here's a vision of all our futures - Detroit.

    http://www.youtube.com/watch?v=YCm1tQfuHeg

    Even Battersea is starting to look like this - less than 1 mile from Parliament. I suspect they will eventually construct a giant 'screen' so they don't have to look at it.

  • Comment number 66.

    54. At 3:55pm on 15 Jul 2010, plamski wrote:

    "Calm down folks, they are simply preparing the ground for QE 2.0
    America is getting ready too. It's a question of when not if."

    ROLL THE PRESSES MERV!

    The solution doesn't work - but at the moment it's the only one we've got!

  • Comment number 67.

    56. At 4:15pm on 15 Jul 2010, Robert wrote:

    "It's not Dogma. Inflation is low because we have a huge trade deficit with china and the far east. As fast as we print money we give it to them for goods. This is why inflation is low - we are borrowing China's spare capacity. As there is no immediate exchange in the other direction we are writing IOUs to do. Either our children will have to cover debt or we as a country will default. Nether are a good prospect. We can not just print money and rely upon 200years of reputation to count for something indefinitely. If we write enough IOU's for China to think we can't pay back then that is the end of our stint at the top table!"

    Excellent - and this is borne out by the increasing trade deficit of both the UK and the US.
    China was the systems only hope - they need to become the new consumer of the world to replace the US - somehow I can't see that happening, and certainly not at the pace that is required.

    What will they tell us next? - new markets found on the moon???

  • Comment number 68.

    57. At 4:25pm on 15 Jul 2010, kerope wrote:

    "If you want this economy to grow to absorb the job loses from the Goverment contraction you have to look at SME lending practice, the way it is at present the banks are slowly killing whats left of the private sector."

    Why of course - you didn't think they were going to pay for the crisis, did you?

    Taxes are for the little people
    Crisis payment is for the little people
    Austerity is for the little people

    The only solution is to make everyone 'the little people' and then we find attitudes change. To do that the little people need to realise their strength in numbers.

  • Comment number 69.

    It's ok folks - I've located the funding for all SME's and to rebuild our schools.

    http://www.bbc.co.uk/news/business-10649426

    The problem is you'll have to get it from them and they're unlikely to hand it over without a fight.

    Gladiators ready!

  • Comment number 70.

    @ 42. At 3:01pm on 15 Jul 2010, newProtectorCromwell wrote:

    > # 39
    > Change "gallows" to "scaffold" and I'm with you.

    Too late - one of the banker-dunces has been complaining
    about us hurting thier feelings!

    Diddums?

  • Comment number 71.

    Now everyone should know why this deficit has to go.

    Running such a deficit in the middle of a banking crisis is suicidal. This isn't credit crunch 2 it's the continuation of credit crunch 1 but no-one has yet come up with the answers on how to get rid of the sticking plasters.

    Reminds me of Enron where the company kept going for years on a money-go round until the money did eventually run out but what a mess it left behind.

    At least what we see is some attempt to manage and mitigate the chaos ahead by preparing us all for an austerity most cannot contemplate.

    We should know by now that no-one will tell the real truth because no-one will accept it. We just have to assume that it is going to be far worse than they've already stated.

    we are seeing the collapse of the western economies in their present form and if they hadn't all been drunk on the gravy train they would have seen this coming.

    No double dip just a continuation of a slump when the medication of QE is withdrawn. The sooner it reaches bottom the sooner the bebuilding can start.








  • Comment number 72.

    61. At 4:54pm on 15 Jul 2010, Puntav wrote:
    "we are in this together and the banks play vital role in our future economic prosperity. Let's stop treating them like naughty children and start a constructive conversation about the way forward."


    All in this together? Ordinary folk and the big bonus bankers. Ha ha ha ha. you funny funny funny man.

  • Comment number 73.

    64. At 5:03pm on 15 Jul 2010, Ian wrote:

    "Banks are lending as much as they can subject to two conditions imposed by the government since the credit crunch, namely increasing their capital base and assessing the risk of loan default more realistically."

    You mean doing the job they were supposed to be doing?

    "The reason businesses think this is not enough is that they are still longing for the days of lax money. Also they were getting money from lots of non-bank lenders which have now gone."

    Oh you mean they got used to the times when the banks weren't doing their job properly.

    ...well it was over a decade, how quickly do you think a business can turn around?

  • Comment number 74.

    The bankers and their political handmaidens are at it again. One thing everyone should notice is that it does not matter the party being elected, they all favor the banks. Since the entire process is and has been about securing the wealthy one should not expect any relief for the small businees or taxpayer. As long as the people allow this to go on, it will. The governments and the bankers have so forgotten the national economy and only care about the gobal process of shipping jobs to Asia for cheap labor that they have neither the capability nor the concern to address national issues. There is no credit crunch, there are banks sitting on money that they don't want to lend in an uncertain economy that they created and want the government to continue to insure the investments of the wealthy and tax everyone else when they make gambles that do not workout. The bare naked use of power and the obscene relationship between the governments and the bankers should disturb everyone. Your government will give your taxes and increase them to insure that bankers can pay out bonuses again this year. They plan to cut services to lessen the public debt that was created by assuming the bad loans of the banks. If it all wasn't so harmful to the nation one would laugh at the openness of this rape of the public treasury and trust. Vote for the Banker's option No. 1 or Banker's Option No.2. You may elect who you wish as long as we understand who owns them. Hyenas picking the bones of the national corpse.

  • Comment number 75.

    @ 68. At 5:13pm on 15 Jul 2010, writingsonthewall wrote:

    > the little people need to realise their strength in numbers.

    Actually, I'm about 220 pounds, and I can handle any banker with absolute ease! Imagine being worried by a banker! It'd be like being savaged by a poodle ...

  • Comment number 76.

    Lots of good comments here, especially those from Jacques Cartier re junkies and where the demand comes from ie people that are employed.

    As I have quoted here before, 'you can't solve the problems with the same brains that created them'. So called economists (remember the ones that failed to predict CC1) are now trying to use the same tools (growth, money supply, GDP etc) they made the mess with, to try to fix it. Even a child can see that isn't going to work any more that a bulldozer is a suitable tool for building brick walls. We need to remember what money is and what it is for. Money avoids you having to work out an exchange rate between what you do (work) and what you need (food, clothing, housing and so on). Any other use is pure invention to provide the inventors with things they want rather than need. Unfortunately the rest of the population has been dragged along with this bandwagon and still haven't worked out that they are simply helping the inventors/bankers/financiers get more and more of what they want.

    So we will have to have CC2....CCn until a complete collapse occurs or until enough people wake up. All so called civilisations have collapsed eventually, this one is not immune. What with climate change, peak everything, financial mayhem there's plenty of scope.

    I think I detect quite a number of GOM on this blog and maybe you (and I) will get away with it but think of your children and grandchildren.

  • Comment number 77.

    61. At 4:54pm on 15 Jul 2010, Puntav wrote:
    "we are in this together and the banks play vital role in our future economic prosperity. Let's stop treating them like naughty children and start a constructive conversation about the way forward."

    This is the virtually greatest canard of them all, the banks have conned everybody (including themselves) into thinking this way. What nonsense!

    It like the greatest marketing success of Marketing is to convince so many that they need marketing and will fail without it.

  • Comment number 78.

    'What's the truth of it all? Probably not that there's currently an acute shortage of business credit but that there's a chronic, longstanding problem of mismatch between the kind of finance that smaller businesses want and what banks are prepared to supply'.

    They want guarantees from the business owners, they want to place charges on homes as well as business premises.

    And I'll tell you something else that's going on.

    They're repossessing, but not selling on so they don't have to crystalise the loss. They're renting property out instead.

    Commercial property values are down 50% and no bank wants to own up to the fact they're broke....... again.

  • Comment number 79.

    67 Writngsonthewall

    'China was the system's only hope'

    Hope is about all it was for what can we sell to China that they cannot provide for themselves at a much cheaper cost.

    For those who think that QE is the answer the link you posted yesterday is a must read.


  • Comment number 80.

    72. At 5:22pm on 15 Jul 2010, warwick wrote:
    61. At 4:54pm on 15 Jul 2010, Puntav wrote:
    "we are in this together and the banks play vital role in our future economic prosperity. Let's stop treating them like naughty children and start a constructive conversation about the way forward."

    ----------------------------------------------
    All in this together? Ordinary folk and the big bonus bankers. Ha ha ha ha. you funny funny funny man.

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

    And it's the way they say it with a straight face as well!

    http://www.youtube.com/watch?v=v-L3dCYHbG4

  • Comment number 81.

    The debate about CC2 has intrinsically swung towards the topic of ethics and morals. Which is not to say it's not the logical conclusion. And if pushed, not only I'm of the view that at least one bank should be permitted to fail, but bankers themselves need to be held to account. Or better put: "locked in". One would hope Messrs Osbourne would see the same, but Darwinian selection and evolution of the flying Suidae seems more likely...

    Perhaps the notion of an ethically driven bank may ease the pain. They seem to exist. The Co-Op have weathered CC1 well. Funnily enough, they didn't partake in assumption driven growth exotica like CDOs and CDSs....

    Wonder how the likes of Barclays would weather CC2? Not very well if there were another banking credit spat... A future victim?

    --

  • Comment number 82.

    # 42

    Yes, but it would be nice to see their blood run.

  • Comment number 83.

    Dear Robert, why are you so surprised that banks continue to operate uncontrolled and outside of national interest?

    You have only to consider Nathan Mayer Rothschild's utterly arrogant comment many years ago:

    "I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls Britain's money supply controls the British Empire, and I control the British money supply."

    Given that the Rothschilds have not relinquished their power and have UK politicians doing their bidding, do you really expect any change? We are all slaves whilst this rich dynasty is allowed to operate unchecked.

  • Comment number 84.

    #75. At 5:49pm on 15 Jul 2010, Jacques Cartier wrote:

    "@ 68. At 5:13pm on 15 Jul 2010, writingsonthewall wrote:

    > the little people need to realise their strength in numbers.

    Actually, I'm about 220 pounds, and I can handle any banker with absolute ease! Imagine being worried by a banker! It'd be like being savaged by a poodle ..."


    That's the spirit, fighting talk.

    As an ex-banker myself none of this attitude surprises me. I quit the profession in 2001 after 22 years and it was changing rapidly at the time into the monster it's become. A lot of people are forgetting that deregulation of the financial sector is ingrained in Tory philosophy so don't expect anything to happen to dampen bankers spirits despite the talk from No's 10 & 11.

    Banking is all about risk, that's the nature of the beast, unfortunately in the pursuit of fast profit the risks are accumulating greater exposures. These risks represent increasing proportions of bank returns as they turn away from safer initiatives and their less lucrative returns, when the risks collapse we all fall down. The only way to stop this house of cards collapsing again is to regulate the banks operations but then we come back round to my initial point, the Tories won't. Unfortunately the Tories in red known as Labour would also be reluctant as successive governments strive for a finance based utopian economy devoid of the manufacturing limitations of mere supply and demand. There is also the fact that it's actually too late, austerity contradicts growth, no growth no returns, no returns no debt reduction and no future for the capitalist system as it implodes on defaults. On the other hand no austerity measures the deficit and debt escalate and there is no future for the capitalist system as it implodes on defaults - TOO LATE folks.

    Go East young man for the future is bright, the future is yerrow.

  • Comment number 85.

    Nobody but nobody should be surprised at the deal given to banks.
    They have had us all by the s&c for years now.
    They have destroyed what is left of industry in the UK in order for them to grow fat on moving assets around the world. Then persuading us all to owe them money.
    Meanwhile all that is left in the UK is banking.
    But of course the rest of us aren't blameless.

    After all it was good while it lasted.

    We even had year round Strawberries in the supermarkets.

  • Comment number 86.

    61. At 4:54pm on 15 Jul 2010, Puntav wrote:
    " ....we are in this together and the banks play vital role in our future economic prosperity. Let's stop treating them like naughty children and start a constructive conversation about the way forward."

    I think you might have missed the point though chap, we're not in it together. We're certainly 'in it', but there's not banker or hedgie worrying about how to pay their mortgage this month, or how fast their pension pot is shrinking. The 'vital role' they have played to date, are playing now, and are showing every sign of continuing in the future, is to ensure that we all stay 'in it', so they can further line their own pockets. 'Constructive conversation' is surely only possible between two parties wishing to find a way of moving forward in the same direction. Hmmmm

  • Comment number 87.

    "65. At 5:04pm on 15 Jul 2010, writingsonthewall wrote:
    Here's a vision of all our futures - Detroit.

    http://www.youtube.com/watch?v=YCm1tQfuHeg

    Even Battersea is starting to look like this - less than 1 mile from Parliament. I suspect they will eventually construct a giant 'screen' so they don't have to look at it."
    Well Detroit is looking a bit shabby, so much for the American dream. You have to wonder how long it take before people say they have had enough, and march on the banks and government. I watched V for Vendetta last night, first time in ages, how close to the truth can you get in a movie, very inspiring.

  • Comment number 88.

    Although badly practiced, I'm still keen. There appears to be some sort of underlying assumption here that markets create wealth. I was always under the impressionthat economic activity created markets. It seems that someone somewhere decided markets could generate wealth. This 'wealth' was then 'created' with 'markets' for money and financial instruments, which are about as worthy of the term 'wealth' as toilet tissue and what it wipes.
    What the masters of our destiny appear to have done within this transformation is remove our ability to create useful everyday things (wealth)and replace it with absolutely nothing but a paperchase of flawed and worthless monetary instruments.
    Now as things progress our Government seem hell bent on continuing this trend, without the slightest intention of trying to reverse the process.
    All this talk of a double dip needs to be viewed against our ability to create. This is in reality a depression of staggering propotions, one which will be fueled by political dogma for nothing more than the finger pointing political blaming game, and yah boo hiss in the house.
    If it wasn't so seriously bad for the vast majority of hard working folk in this country it would be laughable. Our situation defies belief,people are facing a really bleak future and this banality continues apace, or am I dreaming and have it all wrong? will it all be right tomorrow?

  • Comment number 89.

    Divide and Conquer!

    I know this is a little off topic but I would like to ask it before it's too late!

    It’s been stated in previous posts that we are turning on each other and taking our eyes of the prize. I ask, what is the PRIZE?

    We have been set up to fight each other, it seems to have broken down like this:

    Debtors vs Savers;
    Gamblers vs Non Gamblers;
    Spivs vs The Population
    MPs vs The Non Elected
    Elite vs Paroles;
    Quite Rich vs Poor;
    Rich and Poor vs The Middle Class;
    Private Sector vs Public Sector;
    Baby Boomers vs Their Offspring;
    Young vs Old;
    Graduates vs Employed;
    Employed vs 'Scroungers';
    Pensioners vs Employed;
    Competent vs Incompetent;
    Technically Able vs Technically Bewildered;
    Those with Foresight vs Tools;
    Us vs The Unborn;
    The Active vs The Inactive;

    And then of course there is:

    Revolution vs Laissez Faire.

    For us to fight the all the above is a wearisome and a losing battle, akin to Harold fighting the Vikings and then marching to battle the Normans.

    I know what I want from my country and I know what I can do for it.

    You tell me, what is the PRIZE?

  • Comment number 90.

    Clearly few on this blog are surprised by the imminent problem.

    CC1 - private debt converted to sovereign debt by bail outs leading to
    - sovereign debt crisis - they want their money back or they need more to keep their unsustainable spending going.

    CC2 - same banks come back to say we cant give you money back because you want us to increase our capital ratios and we are not giving any more out.

    The problem for the government is the banks most likely to fail are those overly dependent on wholesale finance rather than retail depositors. Makes me think RBS will get dismantled and the bad debts written off or sold if the government has some courage.

    The other thing that will happen will be further house price falls due to uncertainty about employment etc etc- this is a good thing in the long term (maybe our kids will be able to afford to own a house) but in the short term will cause a lot of hardship.

  • Comment number 91.

    Britain is largely controlled economically by multi-nationals and foreign nationals ... who are capable of raising their own cash/capital.

    There are very few new business opps. that are not controlled by these multi- and foreign nationals ... and the banks (who are largely controlled influenced by foreign national interests) do not wish to lend to the remainder in the UK.

    Just think of any larger successful business in the UK ... and then look where the capital/ investment in that business is held/coming from ... 'Wimbledonisation' is not doing us any good at all.

    Britain is crippled with damaging imports and a balance of payments deficit and cannot 'recover' until this further deficit is reversed.

    'Credit crunch 2' is here but is not a further credit crunch... it is really just phase two of the first credit crunch as part of the overall exposure of the UK to global markets ... which is very damaging to 'us' ... the UK.

    All that has happened is that we have a coalition government that has decided to make a stand against debt and deficit... that is all ... we're not much further along any road to improvement or recovery. Only radical overhaul of our economy and relations with e.g. WTO, EU etc will turn the tide of Wimbledonisation and get the damaging imports dealt with.

    We'll be lucky to see any real improvement with anything during the next several years which will be very testing ... the UK has massive costs and even now has a tendency to over-spend. Wish I could be optimistic about something economic ... but it is just going to be very difficult for all but the 'golden banking skimmers'.

    When will our politicians of all political parties realise that the sucessful countries in the world ... participate in globalisation but insulate their domestic economies from global stress and shocks and ... yes ... use various forms of protectionsism to do this. This is why some of them are booming while Britain is bust.

    Our politicians still do not get it.

    I still believe that the current poor state of Britian is not due entirely to global forces etc ... we could be doing better ... it's just that our politicians are incapable of doing the things that would make a difference ... and yes ... upset many overseas in the process. This might mean renegotiating WTO and EU agreements etc ... just because our politicians are afraid of doing this does not mean that it is not the right approach for Britain. Global trade is not fair ... it just gives market outcomes ... that is all.

    Britain is far too soft and gullible - we are the laughing stock of the world in terms of global trade, competitiveness, completely open borders, foreign aid etc. Our politicians need to get savvy for want of a better expresssion ... 'think foreign' ... act British ... for god's sake wise up you useless politicians ... get with the flow ... you're been left behind... the G20 bus has left ... as they're all gone home to protect their doemstic economies ... wise up ... do something useful besides talk talk talk about someone else's 'growth'.

    Apart from that everything ... is fine ... ask a politician!

  • Comment number 92.

    #43. Bernard wrote:

    Correctly bemoaning the lack of genuine Venture Capital in the UK

    I agree and have been round the loop many times. I think the probable cause is the way that the tax allowances for venture capitalists were set up. It basically dissuaded them from actually being venture capitalists or even Business Angels in any real sense. For example: the sweet loan from a generous maiden aunt is what most start-ups actually need. Much in the same way that the children of rich undergraduates really do benefit from university education in so many ways that those of poor parent do not.

    I have also seen so many budding British companies destroyed by the City of London and even by the city of Bristol at IPO stage too. The fact of quite dramatic and rapid changes in currency exchange rates also does for many companies - we can of course fix this one (or at least 70% of it) by joining the Euro - but we are prevented from doing this by the same bankers that destroy British business by the structure of the loan finance!

  • Comment number 93.

    There's an old saying to the effect that you should never pay a blackmailer - they will just keep coming back for more.

    So....

    £150bn in used notes round the back of Barclays - if you want the economy to stay "healthy". Oh - and a little bit of "quantitative easing" from that lovely Britannia wouldn't go amiss

  • Comment number 94.

    @ 91 nautonier

    Nautonier, you keep saying "our" politicians, what makes you think they are ours? It's them and us, we're not together.

  • Comment number 95.

    Working as a Relationship Manager for one of the Big Banks, I still find it staggering how poorly prepared companies are when applying for lending facilities. Companies with relatively large turnovers are still expecting lending without having to provide security and financial accounts. When asked for this information they all to often take offence and usually say 'I'll just leave it.' For good quality business applications, there will always be lending available, it's just that Businesses in the UK need to understand this.

  • Comment number 96.

    re #87
    They are actually talking about closing down cities - not just suburbs - in the mid-west and letting nature 'reclaim' them.

  • Comment number 97.

    38. At 2:44pm on 15 Jul 2010, Toldyouitwould wrote:
    Mandy was on the radio this morning. He said how Gordo had put us on the road to recovery (so we are not going to face CC2). I know this not to be true so the radio must be faulty. I need a new one.

    ---------------------------------------------------------
    Probably one of Mandy's digital ones ...

  • Comment number 98.

    Hey! How about if the nation actually owned a bank? Crazy talk, I know, but suppose we did - let's call it "Northern Rock" or something. And let's suppose it was rededicated to making loans to small and medium-sized businesses at the Bank of England's base rate. Being a nationalised company it would be expected to cover its costs, but would not necessarily have to turn a profit. Could such a thing make a difference?

  • Comment number 99.

    Robert...There is no way that Osborne is going to allow the amount of credit available to shrink, for whatever reason, and whatever the cost. Its a scare story to soften the public up for more liabilities. The only real question is how will the government and the banks get round it?...Will it be more QE?...Will more taxpayers money be put on the line in the form of more taxpayer insurance and loan guarantees?...We'll never see that £285bn again, its gone, the banks have got their hands on it and they don't want to give it up. Its the ramifications of how we pay for it that is the story.

  • Comment number 100.

    It looks like it will be 40% cuts instead of 25% after all then.

 

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