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Pause for thought

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Stephanie Flanders | 12:47 UK time, Friday, 16 October 2009

How can the banks be back paying mega-bonuses, just a year after Lehmans collapsed?

That's the question that many outraged citizens in Britain and America have been asking the past few days.

But for economists, there's a much bigger question: how will banks meet the cost of writing off all the bad debts they still have sitting on their books - and help fund an economic recovery as well?

The IMF recently reduced its estimate of the total bank losses for banks in the major markets as a result of the crisis - from around $3.8 trillion to $2.8 trillion. That's the good news.

The bad news is that, collectively, they are less than half way through the job of recognizing those losses and writing them off.

The Fund reckons that US banks are about 60% of the way there. But in the UK and the euro area, the figure is more like 40%.

Put it another way, the Fund thinks that around 60% of the £400bn in British bank losses as a result of the crisis has yet to be written off.

That has gloomsters such as Danny Gabay, of Fathom Consulting, predicting a second wave of the banking crisis here in the UK. He says we've had the first, foreign, wave. That took out a large chunk of lending capacity in the UK.

But the domestic wave of the crisis could still be ahead. And if the banks are still mired in debt, they will surely be reluctant to fund a full-blooded recovery.

As I said, that's one of the darker views out there. I might add that Gabay thinks the good news on the labour market is a false dawn as well. Most see the smaller than expected rise in unemployment as reason to hope that the labour market has become more flexible.

He thinks it shows the market has been even slower to adjust than it has been in the past, and a much larger rise in joblessness is still to come.

More upbeat analysts point to the sharp fall in the cost of bank funding since the start of the year. With so much liquidity sloshing round the system, they think it's only a matter of time before bank lending starts to pick up as well.

In other words, they say the recovery scenario is still on track.

And, of course, the IMF could be wrong about the total bank losses as a result of the crunch. It is something of a moving target.

That is all quite possible. We will get further clues on the state of the real economy when we get next week's preliminary estimate for third quarter GDP in the UK (though not that many more, given how much these preliminary figures are usually revised).

But for Carl Weinberg, Chief Economist for High Frequency Economics, it is simply impossible to generate a healthy recovery out of the kind of credit contraction we're still seeing around the developed world. "The next leg of this credit crunch will be the effect of a prolonged period of credit retraction among small and medium-sized enterprises."

Indeed, he see the contraction in bank lending to companies in the UK as a sign of more to come in the US and Europe (see chart below from one of Weinberg's recent reports). In his view, all the major economies could well be shrinking again by the turn of the year.

Image from High Frequency Economics' Global Notes, 13 October

I'm not sure I'm that gloomy. But for anyone caught up in the euphoria on Wall Street and in the City in recent weeks, the still enfeebled state of lending to ordinary businesses around the world ought to be pause for thought.

Comments

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  • Comment number 1.

    SF: How about defining (enumerating) the classes 'Consumers' and 'Non Financial Enterprises' for us in an update?

  • Comment number 2.

    All I can say is the banks better not pay big bonuses this year and then come running if they have to do more right downs...If that happens I do not see it being politically viable for more bailouts...Then what happens?

  • Comment number 3.

    Given what went wrong in the first place, is an excess of available debt finance desirable?
    Especially if this finance is given in the wrong direction, rather than to real wealth generating businesses.

    Surely without addressing the underlying flaws in the economy, any debt fuelled "recovery" will actually just be another bubble.

  • Comment number 4.

    As to the bank losses, given that they've posted accounts, why haven't those losses being recognised yet?

    Great isn't it; banking excess leads to a downturn being much worse, meaning governments need to borrow more (in part due to bailing out the banks), for which banks get sky high fees, and then pay massive bonuses again.
    So the banks win either way, especially with governments underwriting their risks.

  • Comment number 5.

    "How can the banks be back paying mega-bonuses, just a year after Lehmans collapse?"

    Well they have, and therefore it must follow that the regulatory cultivated imbalances are even more profound today than they were a year ago (and we were all lied to last year!)

    The highly protected nature of the regulatory controls over the 'market' in financial services has got far worse since last year. It is now impossible to enter the market because of new regulatory hurdles and in consequence the monopoly profits are even more extreme. (This is evidenced by these profits.)

    We MUST actually tackle these structural imbalances. My pet solution is a Maximum Wage (set at a fixed multiple of the minimum wage! and probably a Maximum Wealth too.) This would change the nature of society. It will not happen, as the bankers have ensured that they have sufficient support in the legislatures to ensure they continue to be protected and have their monopoly profits protected. But for how long will the people put up with this nonsense?

    This is all about money and corruption caused by money and the direct result of defective regulatory regimes that protect these monopoly profits. (This is not about some grand conspiracy of right wind racist anarchists as some writers would have us believe - It is just simple arithmetic and self-interest being enshrined in and protected by a legal regulatory framework.)

    Less regulatory protection and easier entry into the banking and financial services market combined with breaking up the big institutions because of their anti-competitive power would suffice. It will be painful, but it will work! Doing noting is not an option. Already they 95 per cent mortgages are available and the property boom is starting - this MUST be stopped NOW. (Cassandra has spoken!)

  • Comment number 6.

    FICTITIOUS CAPITAL - money that is thrown into circulation as capital without any material basis in commodities or productive activity.

  • Comment number 7.

    I think the corrections will go on until the something-for-nothing attitude goes from the market. Some of the speculators are probably ordinary people looking desperately for a way to get their savings to grow, but a lot will be speculators trying to get rich and retire. We have become used to dotcom, technology, property and other bubbles, and keep hoping to ride the next growth wave. Hopefully, the worst speculators will gradually lose their fortunes and the markets will become more boring.

    The current market boom is unsustainable, as there is no substance. When unemployment kicks in, as it will, things will become clearer (but much worse).

  • Comment number 8.

    More rubbish from the BBC.

    People understand that banks pay huge bonuses because the ruling elite is nothing more than a kleptocracy. It is not hard to understand. One way that have managed to generate the cash necessary to pay themselves is to ensure that 1 in 50 children in the US are homeless and 1 in 10 US citizens rely in whole or in part on foodstamps in order to eat.

    Economists are morons if they are asking the questions you suggest they are asking. The banks have no idea how they are going to write off their bad debts, their strategy is to close their eyes and hope it all goes away. What do you think the change in the accounting rules was designed to achieve? There is no possibility that they will help fund an economic recovery. This is like asking how much blood a leech will pump into a body.

    A lot of economists are not asking the questions you suggest because they already know the answer. Think mainstream people like Simon Johnson and Elizabeth Warren. They are asking how much more damage "to big to fail institutions" are going to cause. But, of course, they are ignored.

    Articles like this should be read as further evidence that there is no way out and full spectrum meltdown is waiting to engulf us all in the not too distant future.

  • Comment number 9.

    Stephanie is adding to the developing talk of the second wave which will show itself in the next few months if it is going happen at all. What would it take to burst the current balooning stock market bubble - a handful of economic negatives. This time the Government will have to take direct control of many of the economic levers and it has the advantage of owning a significant proportion of the banking industry but to avoid an explosion of unemeployment - both private and public - a programme of public works will be necessary. Funding this will require increased taxation on both the wealthy and the highly paid. About time too.

  • Comment number 10.

    We all need to stop borrowing and that includes businesses too. Then growth becomes sustainable and organic instead of based on indebtedness which is only sustainable if interest rates remain low and customers carry on spending. Anything else is inherently unstable and liable to collapse if market conditions change.

    There is such an imbalance between us in the west (developed countries) and those in the east (developing countries) that the world needs to have a period in which there is a marked re-adjustment. This means we all have to accept that our present standards of living need to be reduced so that others in the world may have a little more. For those who bury their heads in the sand and try to get back to "business as usual" I fear they won't get away with it for ever. As usual though it is the poorest who suffer in any downturn.

    For the planet as a holistic system the recession was the best thing which could have happened as our "growth" was unsustainable and causing untold damage to our environment.

    Greed will be our undoing as a species if we don't change our ways and learn to share the earth's finite resources.

  • Comment number 11.

    What worries me is the exposure of the British banks effectively owned by the British Government to the refinancing of this debt and also to the toxic stuff. The losses will have to be added to national debt as we are currently in deficit and will add to the balloon. The credit crunch has been hidden rather than solved. Who else can the banks turn to?

    Can any indication be given of the liabilities we are facing or are they simply open ended? Who will fund this second wave of the banking crisis?

  • Comment number 12.

    "With so much liquidity sloshing round the system, ......... the recovery scenario is still on track."

    Of course the recovery is on track. If I have a puncture and I keep blowing my tyre up, it stays inflated. But if I haven't fixed the puncture it is still a puncture.

    The Banks are a real problem but also the Government because it didn't squirrel away money or rein back spending in the good times ("no more boom and Bust" as our National Leader stated) However we dare not fix our national puncture, because of the consequences, a total blowout i.e. a long depression/deflation.

  • Comment number 13.

    No 5 "(Cassandra has spoken!)"

    Hello, Cassandra !! Welcome to the doom and gloom party !! Would you like some barbecued green shoots of recovery ?? :-)

    As had been said many times before, all those who sprout of "green shoots" were either over-optimistic, have personal axes to grind or smoking something illicit !!

    There will *NEVER* be green shoots unless and until *ALL* these toxic stuff is quantified properly and accounted for !! As for the unemployment figures, they are just disguised by the summer hires and the holiday season. Just wait for the "Winter of Our Discontent" and watch the unemployment figures climb like a rocker !!

    First up against the wall with be the postal workers whose jobs have vanished because the parcels business and some of the letters business have gone to private delivery operators !! What's the betting that the bosses of TNT, DHL, UPS, etc. are rubbing their hands in glee and egging on the Royal Mail workers in their strike(s) ?? Already, most internet sales companies had switch or will switch to more reliable delivery contractors !!

  • Comment number 14.

    Danny Gabay is right about a false dawn on unemployment figures.
    Short term stimulus packages VAT reduction, car scrappage scheme, etc have kept the unemployment numbers down, not flexibility of the workforce.
    Wait... when these stop and winter starts then trustworthy unemployment numbers will emerge.
    Its impossible to think economic recovery is round the corner when everything is unstable and untrustworthy.
    Normality and confidence can only return after an election, when hopefully a fresh team of long term thinkers with a mandate and a plan to invest in Britain's future will take charge.

  • Comment number 15.

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

  • Comment number 16.

    Stephanie, I agree - it should be more than time for pause for thought. Its sufficiently serious for further action. The liquidity lifeboats extended to banks will unwind in 2012/13. Illiquid collateralised debts weigh down the balance sheets and wholesale funding models of banks are part of the past. Funding models are being re-structured. Capital regulations set out a path of more expensive times ahead for banks.If the real economy remains linked to this it will take years to overcome. Shouldnt we be thinking of innovative measures to re-structure the process of credit provision through new vehicles.

  • Comment number 17.

    DOntmakea wave - I love the tyre puncture analogy. Sadly it is not entirely accurate for the simple reason that all major economies have relied on credit to fuel (or more accurately grease the wheels of) economic expansion for centuries. International economies are a bit like your tyre, correctly inflated they run well, poorly inflated or over-inflated they can cause disaster.

    The one problem I have with this blog is that whilst banks may not be writing off all debts that they have to, this does not necessarily mean a second crash for two reasons - in good times banks should be writing off some debts, normal levels of write offs covered many times by profits are not something to worry about, secondly (and something I see a lot of at the moment) with interest rates at very low levels borrowers can keep struggling on servicing interest and if it becomes too much the bank will reduce the rate if only to avoid making a provision.

    At the end of the recession I have no doubt we will discover the real problems were nothing to do with bankers bonuses but 2 groups of people being totally deluded - banks/govt misunderstanding risk and govt being incapable of not spending money like water

  • Comment number 18.

    What's particularly galling is the thought that our naive politicians and civil servants, none of whom have ever had a proper job, thought they could control the City spivs. Caledonian Comment

  • Comment number 19.

    Welcome to dystopia, Stephanie!

    All that the taxpayer funded rescue of the financial sector has meant is that the losses sustained when the first debt bubble burst have been socialised. There has been no attempt by any government in the world to address structural issues, such as the separation of retail banking from investment banking, so we are left pretty much where we were before the first bubble burst.

    Is it any wonder then that a second bubble is now inflating? The banks don't know any better as nobody has had the courage to make them see and experience sense.

    The question for me is not whether there will be a second banking crash but how long will it be before the second crash happens.

    Out here in the real economy, far from economists and where banks are places you store the cash your business is hopefully still making; if you are lucky, the prospect is gloomy. At best we have years ahead of constrained profitability, poor investment capability and limited opportunity. A second bust will wipe all that out and turn it into a struggle for survival which only a few will win. This would be Pelleon upon Ossa and could well break the private industrial and commercial sectors of the economy.

    Furthermore employment prospects for the young are truly awful: that is so wrong and so dangerous for society at large. An acquaintance advertised a vacancy and had three hundred applications. He only looked at the first hundred.......its all wrong: so very wrong!

  • Comment number 20.

    Stephanie,

    Are you and the IMF saying anything more than that our banks are still badly under-capitalised?

    The bulk of the banks' 'bonus' bonanza turns out to be profit related pay to people who are not major responsible decision makers in the firm. Some of those reward schemes were counter productive for banks interested in staying in business, but that seems to be in course of correction.

    The other part of the bonanza is still pretty large. It consists of rewards to the responsible decision makers who, in effect, now have a major equity stake in the bank; with options for avoiding some or all of the equity risk. That part should have been tackled in the course of the really major forced recapitalisation of most banks which has not occurred. Instead, banks have been stabilised by various forms of guarantee, without providing the firm base for lending that proper recapitalisation eould have provided.

    The result of governemnt measures that have not matched up to the Swedish model of forced recapitalisation - which has been acknowledged for years as the way to tackle a crisis - seems to be that we are left with banks which will not go broke simply because we taxpayers will stand behind them. However, they are still burdened with a command structure that had become predatory if not parasitic, they have not sufficient capital to lend properly, and they are trading on our credit while paying little for the privilege.

    Can the recovery be other than painfully slow unless we improve on the position in which we have left the banks? Unless we recapitalise them properly, will we not face the perpetual, nagging, risk that an inadvertant policy stumble in one country orv another will force us into another round of crisis measures?

  • Comment number 21.

    Here is some truth:

    http://www.blip.tv/file/2728300

  • Comment number 22.

    N0 17 "secondly (and something I see a lot of at the moment) with interest rates at very low levels borrowers can keep struggling on servicing interest and if it becomes too much the bank will reduce the rate if only to avoid making a provision."

    It's all very nice if the debts were entirely local. Unfortunately, there isn't enough "local" money to cover even half of the debts. Hence a lot of the money comes from the international money markets. Thee are the hard-hearted guys that demand their pound of flesh for their money. The greater the risk of default, the higher the interest !! Since Britain has a greater risk of devaluation and/or default, the interest rates will be higher than normal !!

    Secondly, much of the risk is *NOT* in the bank loans themselves. They are in the form of CDOs (Collateralized debt obligations) and CDSs (credit default swaps, a form of insurance against loan defaults). The exposure of the banks and, through that wonderful government construction, GAPS (Government's Assets Protection Scheme), the government (i.e. us muggins, the taxpayers) is still yet to be properly quantified and accounted for !! This is the magic blackhole that anyone who knows anything about this kind of thing is talking about !!

    The question now is - will this blackhole swallow up whole banks or will us muggins have to fork out yet more money to try and fill in this ever hungry blackhole ?? The answer to this question will point the way to how the next bust will go !!

    Another point is that most people seem to speak of "the banks" as though they are some amorphous entity. This is not correct. There are, *still*, good banks and bad banks and most, if not all the bad banks are now in government hands. If they start paying out massive bonuses, then the government is at fault and *NOT* the banks, since it is the government who are supposed to run them !!

    If they are *NOT* in government hands, then they are the "good" or profitable banks and they can pay out as much of their profits in the form of bonuses as they please (and one or two fingers to the government !!) !! They are not the ones that needed the government bailouts and they probably will not need any future government bailouts. HSBC, Barclays and Standard Chartered can tap into foreign funds if they need more. It's the "bad" banks who cannot tap into foreign funds that need government bailouts !!

    Just because ONE nursery school teacher abused kiddies, does it mean that the whole town are paedophiles ??

  • Comment number 23.

    No 15 Cornucopia - http://en.wikipedia.org/wiki/Cornucopia

    You can have everything you wish for without having to work for it !! Looks wonderful in myths and legends; doesn't exist today !!

  • Comment number 24.

    #13. ishkandar wrote:

    No 5 "(Cassandra has spoken!)"

    Homeric time; when the World was young and Mervyn King was just an infant and had not chosen to blindly pursue a course of action that inevitably led to the destruction of the finances of the poor. Ahh those were that days!!!!

    That reminds me indirectly via Aeschylus and then Euripides that ASDA's cheap Chinese jeans have just risen from 3 GBP to 4 GBP - here come the 通貨膨脹 (Chinese Inflation - I hope the translation is OK!) We have had their imported deflation now we get the bounce back!

  • Comment number 25.

    No 19 "This would be Pelleon upon Ossa and could well break the private industrial and commercial sectors of the economy."

    And, presumably, since Pelion is so full of the Milk of Magnesia, these sectors will be flushed away !! :-)

    "A second bust will wipe all that out and turn it into a struggle for survival which only a few will win."

    Darwinism at its best !! Or should that be Noah's Ark ??

  • Comment number 26.

    #17 Justin150 Interest rates are at low levels if you are an oligarch. Not so the further down the food chain you travel. There is a company advertising on British TV pushing short term loans at an APR of 2,356%. Yes: TWO THOUSAND THREE HUNDRED AND FIFTY SIX PERCENT.

  • Comment number 27.

    PETITIO PRINCIPII AND OTHER INTENSIONAL ERRORS

    John_from_Hendon (#5) "This is not about some grand conspiracy of right wind racist anarchists as some writers would have us believe - It is just simple arithmetic and self-interest being enshrined in and protected by a legal regulatory framework."

    Next you'll be having us believe that insects as depicted in BEE MOVIE and ANTZ don't really plot and conive, they just...err behave that way.

    Part of the problem is that people like yourself would have other people believe all sorts of nonsense simply because people like yourself don't know when they're using terms which are expanatorily vacuous. However, trying to teach people like yourself anything which is unfamiliar, just elicits responses to the effect that whatever people like yourself don't already know or like, is rubbish, which would ideally be censored, because people like yourself find such ways of thinking/writing offensive....

  • Comment number 28.

    #27. JadedJean wrote: RUBBISH

    You really do write meaningless rubbish from a totally repellent and unacceptable standpoint. You are absolutely right that I put the sentence in my contribution to specifically attack you.

    Yesterday I heard on the TV the spokesman for the BNP using precisely the same language that you use - are you related? Your contributions and convoluted rubbish and are deliberately designed to confuse and make that what has a simple explanation to have totally unnecessarilly complex one and as such your ideas are simply stupid. How dare you persistently spout your garbage. Your arrogance alone puts you beyond civilised debate let alone your undeniable and indeed un-refuted racism.

  • Comment number 29.

    # 22. ishkandar wrote:

    "If they are *NOT* in government hands, then they are the "good" or profitable banks"

    A bit debatable given the fact that almost all banks received the benefit of government support, whether direct or indirect.
    After all, if the claims that without government intervention the entire banking system would have collapsed are true, then it would follow that pretty much everyone was over-exposed.

  • Comment number 30.

    Good article! More such graphs please.

  • Comment number 31.

    Spell check: MONTHLY in the graph say MONHLY

  • Comment number 32.

    No 29 "After all, if the claims that without government intervention the entire banking system would have collapsed are true, then it would follow that pretty much everyone was over-exposed."

    Two operative words here are "if" and "claims" !! Doubtless both HSBC and Barclays had been hit to some extent by the toxic stuff. However, they survived the hits by recapitalising from foreign sources !! Therefore, they had no need of "the Queen's shilling". Furthermore, Lloyds TSB was a well run bank and also didn't need "the Queen's shilling" until its shotgun marriage with the toxic HBOS !!

    In fact, *WITHOUT* government intervention, the banking sector will be in a much healthier state, since the busted banks will have gone to the wall and the healthy banks will have stepped in and taken over their market share !! I'm sure the Co-op wouldn't mind a few hundred thousand more members !! In addition, without pouring billions into that bailout, the government's own finances will also be a lot healthier !!

    But then political expediency reared its ugly head and the bailout occurred !! Our Glorious Leader was "seen to be doing something" even though that "something" was the wrong thing to do !! As many had said, he privatised the profits and socialised the losses !! Had he "paused for thought", he might (and that's a very iffy "might") have done things differently !! But, true to his nature, he made a series of knee-jerk decisions and the rest, as they say, is history !!

  • Comment number 33.

    No 31 "Spell check: MONTHLY in the graph say MONHLY"

    How do you spellcheck "cut n paste" graphics ?? :-)

    The originator of the graph should have used a spell checker but once it's pure graphics, it's just lots of bits in an image !! It's what comes of not checking the source for correctness !! A mutant, if you wish !! :-)

  • Comment number 34.

    Re - 21 armagediontimes

    The video is amusing, the commentator with the glasses is just spewing meaningless rhetoric, keiser makes some good points (although he is a little OTT!)

    What concerns me is both UK and US could quite easily go the way of Argentina, -

    http://www.itulip.com/forums/showthread.php?p=106493#post106493

    http://www.itulip.com/forums/showthread.php?p=41130#post41130

  • Comment number 35.

    John_from_Hendon (#28) "Your contributions and convoluted rubbish and are deliberately designed to confuse and make that what has a simple explanation to have totally unnecessarilly complex one and as such your ideas are simply stupid. How dare you persistently spout your garbage."

    One day you're going to wake up and appreciate that the way that you think and write is all factually wrong. When you do, you're going to wonder how you ever thought the naive way that you currently do was ever right.

    Your misplaced confidence (arrogance) comes from your not considering the possibility that you are in fact wrong. This is an act of omission. The fact is, you are wrong. Look up narcissistic rage.

  • Comment number 36.

    #34 RedEyeUtd Don´t be concerned the US and UK are irrevocably headed for a much worse fate than that which befell Argentina.

  • Comment number 37.

    From my non economics based and simplistic viewpoint it seems that the underlying cause for this is home ownership or the desire for it. Those who couldn't afford it were assured they could and lent the wherewithal to accomplish it. Those who could afford to enter the market at the lower range were lent far more than they needed whilst those further upmarket started to believe that their property was a source of wealth and income and acted accordingly . In the meantime property prices were rising thus further exacerbating the situation - this rise aided and abetted by those who stood to gain from percentage based commissions and sales commissions. Having bought the property then there appeared maintenance costs - or just upgrading the kitchen/heating/whatever. At the same time the perceived equity from ever rising property values encouraged a standard of living rise ( you can fill in the details of just what constitutes a standard of living for yourself ) .
    Then two things happened - first time buyers couldn't afford to buy - they had been priced out of the market ; their wages hadn't kept up with property price inflation . The housing market stalled as no new buyers meant no sales for those wishing to sell ( not every body wanted a new build - some people wanted a house/flat with rooms in which you could put two chairs ). As it stood this may just have meant a period of stagnation ( I'm sure those of you who know better will be only too happy to tell me otherwise ) but it was just at that time the effects of those who had been overstretched/oversold and had started to default came into play. The house of cards built on poor risks and over priced property started to collapse ; it was obvious that the entire system had been based upon funny money ( on one of the blogs sometime ago it had been explained that none of this massive amount of money quoted actually existed ) . So what is the point of this you ask ( no? ) well the driving force is property ownership . We are continually exhorted to buy because you never lose out owning your own house ( really?) ; you never get to own a home if you rent - even though you pay all your life. Well there are a growing number of oldsters who have bought their homes , paid for it and then - because they have the temerity to live longer than they should - being forced to sell to pay for their upkeep in a home . So they have paid all their life and have had to sell - they have nothing to show for it!. Another canard is the excuse that paying rent is dead money - home owners have to spend large sums on maintaining their properties and some upgrades ,as those who watch the property programmes will know , do not add any appreciable value ( dead money) .
    Property owning is a little like serfdom - you are tied to that place in as much as it takes a lot of time and money to move - thus reducing the mobility of labour and deadening the desire to move . So you buy a house and then take whatever jobs you can get in the locality - at whatever wages they pay - knowing that you can't move easily . Unless you are prepared to travel several hours per day - some home life that!.
    So what I want to know is - would we have had a more stable housing situation and been less affected had the majority of us rented instead of bought. Of course an entire industry of hangers on and gold plated loo roll holder makers and all the other parasites on the home owner would not have existed .

  • Comment number 38.

    Morning Stephanie,
    it's good to know that the economists in the IMF managed to overestimate the debt by $one trillion (that's some margin of error).
    So how do we know that their latest figure which you use to estimate UK toxic debt is correct?
    Only the banks themselves know the true position and they are not telling!
    It makes me wonder about the role of the auditors in all this, are they being given the correct numbers so that they can advise the market that the business is a going concern? I noted that in the last statement from RBS they made a point of saying that all shares in bank may become worthless so watch out.
    The key to all of this tradgedy will be what happens to the dollar in the next 6 months. If it collapses then so do we. Obama knows this and is currently doing the due dilligence bit by trying to pretend that there are billions salted away offshore. The Australian government tried this some time ago and the cost of collection was larger than that received!
    This is of course just an exercise which is a precursor to massive tax rises in the US. How long before the UK takes the same tack?

  • Comment number 39.

    #38

    Unfortunately auditors used to value the CDOs at the lower of cost and disposable value (market rate), not the intrinsic value of their component parts. This meant when confidence was high and the nature of CDOs was possibly not known to those trading in them (especially if they relied on the ridiculous risk ratings they were given) the CDOs had a high market rate and were in many ways over valued.

    Of course now people claim CDOs can't be valued because nobody will buy them or if they did nobody would sell at that price and crystallise the loss... so if you followed the same principle, they should be valued at nothing, zero, zilch unless a market can be seen to exist.
    ..but then who pays the auditors.

    The auditors may carry some of the blame, but deficient accounting standards and the risk rating bodies seem to be more at the heart of the ridiculous figures, indeed some could say that giving many CDOs "A" ratings was extremely negligent.

    As to estimates being out by $1tr, a lot could depend on forecasts of economic conditions and factors such as government policy which in turn impact on the risk profile of individual financial instruments - given what we've seen about economic forecasts is it shouldn't really come as much of a surprise.

  • Comment number 40.

    No 37 "We are continually exhorted to buy because you never lose out owning your own house ( really?)"

    Really but only if (1) you buy within your means and (2) you *DON'T* buy as a means of making money !!

    "Well there are a growing number of oldsters who have bought their homes , paid for it and then - because they have the temerity to live longer than they should - being forced to sell to pay for their upkeep in a home ."

    As one of the said "oldsters", I had made provisions. Firstly, I have a family that can take care of me *provided* I am not a financial burden on them !! Secondly, whatever "spare" cash that I had had been invested in different investments in different countries (eggs, basket, etc.) in order to minimise and potential losses if and when (as had happened) any one or more economy(s) go funny. Having been through such events twice, it was only simple prudence.

    "Another canard is the excuse that paying rent is dead money - home owners have to spend large sums on maintaining their properties and some upgrades ,as those who watch the property programmes will know , do not add any appreciable value ( dead money) ."

    This presupposes that you treat your main property as an investment and *NOT* a *HOME* !! If it is a HOME, then the price changes are totally irrelevant !!

    "Property owning is a little like serfdom - you are tied to that place in as much as it takes a lot of time and money to move - thus reducing the mobility of labour and deadening the desire to move ."

    I've owned my property for 35 years now and in that time I've worked in 7 different countries. Owning a property didn't stop me from working abroad where the money and the working conditions were best for me !!

    "Of course an entire industry of hangers on and gold plated loo roll holder makers and all the other parasites on the home owner would not have existed ."

    Well, there's still the Russian oligarchs and Arab oil money to pander to, not to mention movie and pop stars and footballers and their WAGs !! And they are not necessarily gold-plated, some are actually pure gold !! :-)

  • Comment number 41.

    No 38 "It makes me wonder about the role of the auditors in all this, are they being given the correct numbers so that they can advise the market that the business is a going concern?"

    Auditors are to check that the accounts are produced in accordance with the regulations reigning at that date. They are *NOT* forensic bean-counters to dig into any and every detail.

    "Obama knows this and is currently doing the due dilligence bit by trying to pretend that there are billions salted away offshore."

    If the Yanks have billions salted away, they wouldn't be trillions in debt !!

    The main point of your post is that the CDOs and the CDSs, etc. are still not yet unwound !! Until that is done, no one knows exactly just how much the whole mess will cost !!

  • Comment number 42.

    I was listening to a couple of big noises in the financial world talking about the bonus culture on this morning's Today prog. One big noise claimed that the money made in banking was the shareholders' money and should go mainly to the shareholders and not the employees. But is this not what has led us into this crisis? The shareholders' money, the capital of the bank, is never enough to earn big returns. So to get around this they pay "experts" to invent financial instuments to return higher rewards; forgetting that reward is comensurate with risk. Also, to help preserve what is almost this country's last important industry, governments continually ease the regulation of the banking industry to earn higher return; again forgetting that reward is comensurate with risk.
    As somebody who was made redundant many years ago from a bank that was closed down by the Bank of England for lack of capital adequacy (to many bad debts wiping out capital), I think I can say that this banking crisis has a wee bit of deja vu about it.

  • Comment number 43.

    I think the big plan is to inflate our way out of the debt crisis.

    Look forward to the 70s again with unions following the example of the very successful RMT in getting high pay through industrial action.

    If it comes to the second wave of toxic banks then the Government should nationalise with no compo to shareholders. Hopefully this will make shareholders put the pressure on about bonuses etc.

  • Comment number 44.

    The one line in all the contributions that stands out for me in the above was #19 Stanilic's last one; ".......it's all wrong....."

    I do agree there is a tidal wave of redundancies about to break as companies that have 'held on' simply no longer can---the first wave were those that were stupidly over-borrowed and had to panic, now the larger number of companies (mainly SMEs) who weren't over borrowed, or even 'borrowed' at all, are finding that the desire to hang onto staff, many of whom are friends as much as colleagues is impossible to sustain.

    These companies run down reserves, freeze wages for all (including the management) and reduce wages for all for as long as they can---but that period has elapsed.

    From the collapse of Northern Rock two years ago the real issues have never been addressed, and the time has been wasted really---- that we are doing nothing, and have done nothing this year while the incumbent government waits like Mr Micawber for something to turn up before the election deadline arrives has simply stored up more trouble, hardship and real anguish and postponed for many years the proper reolution of all this.

    I chose the line at the beginning with purpose... economics and 'the efficiency of the markets' have come to stand for concepts such as the 'right thing to do---whether it's difficult or not'--- all the 'rules' of the market are framed for them, and ultimately from some sort of over arching idea of a moral system, with clear ethical rules.

    But for over half a century or more the stability of that underlying system of agreed values, has been eroded, taken for granted and degraded.

    That's why we arrive at a situation such as now, where the future of our children's lives are being set in a squalid moment in history where the real issues are being wilfully ignored.... I do feel it's a thread that connects the bonuses paid by Goldman Sachs and the MPs expenses; that lack of a basic moral compass to realise when something may well be justifiable 'within the rules' but is simply, as Stanilic has it; 'wrong'.

  • Comment number 45.

    #40 ishkandar thanks for your views but have you really answered the question - would we have weathered the financial storm in a better or worse state had we rented or not. Thirty years ago we were told that home ownership was the thing - it made you better off , lifted you from the morass of the commoners and gave you money into the bargain . On the back of all this were those who took money off you to 'facilitate' your purchase/sale. Home buyers are a cash cow to the financial sector - they pay fees for mortgages, surveys, estate agents ( remember how many were bought by the banks in the property boom years) and just about anyone else who can dream up some scheme or other- plus interest rates which were calculated in some weird and wonderful ways . So my contention still stands - a disproportionate part of our economy is based on those buying and selling houses - not on making things..

  • Comment number 46.

    #45 jabber-jabber. Try this for a detailed analysis for buying v renting.

    http://www.youtube.com/watch?v=mtL_plJXv3c&feature=youtube_gdata

    You can input your own assumptions and make your own mind up

  • Comment number 47.

    Oh look. Dow under 10k again.

  • Comment number 48.

    #47 FrankSz - Maybe it is on a slippery slope.

  • Comment number 49.

    46. At 8:46pm on 17 Oct 2009, armagediontimes

    Thanks for the link - I watched it several times - fascinating . For me it is academic as I have retired and paid for my house but for number 1 son who has just finished at uni - degree but no job - it may help him in the times to come. What made me ask was I come from a family who rented council houses in Brum over 40 yrs ago and I sometimes think that we were mislead ( as I married and started a family)into buying when it seemed at that time the most sensible thing was to rent - but then there was always a supply of ' social ' i.e council housing . The debt each family had in those days did not include greasing the palms of the financial sector to achieve a house. My biggest worry now is that I don't have to sell the house to carry on living ( depriving my descendants of any advantage there from ) , if I was renting then that burden is taken from me.

  • Comment number 50.

    No 45 "#40 ishkandar thanks for your views but have you really answered the question - would we have weathered the financial storm in a better or worse state had we rented or not."

    In further elaboration of the answer to your question, buying is always better *PROVIDED* you do not get greedy and see the home as a commodity instead of a fixed asset !!

    The trap is not whether you own or rent. The trap is when greed strikes and you give in to the urge of getting an ever bigger, more expensive place because your last place went up in price. The other trap, especially for "oldsters", is when glib-tongued parasites approach you about "releasing the equity" of your asset so you can spend it on a foreign holiday you don't need or blow it on unnecessary luxuaries like a fancy car when you already have a serviceable one or a giant flat screen TV when you have a decent-sized CRT one !!

    I *don't* live in a 10 room mansion. I bought my 3 bedroom house about 30+ years ago, paid off the mortgage and told any parasite to darken my door with that fairy tale about "releasing my equity" to take that, fold it into sharp corners and shove it where the sun don't shine, before I release my 120 lb slavering "equities" with lots of sharp teeth and claws !!

    Looking at the other side of the coin, those who are on a low wage and cannot afford a large place should be given a chance to start up the housing ladder through state-sponsored housing. Singapore has one of the highest home ownership levels in the world. Most of that was through the HDB (Housing Development Board) flats, built by the government will *NO* profits in mind !! They also have various penalty clauses in the purchase contracts of those flats like minimum period of *ACTUALLY* living in them (as opposed to buying to let) before they can be sold !! Another is that no one can own a second property if one of them is an HDB flat !! If such clauses are broken, the government has the right to seize those HDB flats and re-sell them to someone else who wants to make the first step up the property ladder. This is to stop profiteering at the government's expense. It also helps to keep the price of property at the lower end within reach of the vast majority of first-time buyers !!

    Here, the price of a 2 bedroom flat NOW cost 4x what I paid for a 3 bedroom HOUSE those many years ago !! Salaries and wages have *NOT* gone up 4x !! So, how on Earth will first-time buyers be able to afford them without resorting to the Bank of Mum and Dad ??

    There are lots of tales to tell but essentially, it's not just the greed of the parasites that blew up this bubble. If the general populace are not complicit in this through their own selfishness, greed and love of luxuary, this bubble cannot exist !! The ones with negative equity generally have only themselves to blame. You can't bet on a horse and, when it comes in last, complain to the bookie about it !!

  • Comment number 51.

    No 49 "My biggest worry now is that I don't have to sell the house to carry on living ( depriving my descendants of any advantage there from ) , if I was renting then that burden is taken from me."

    If you were renting, your descendants will not have any chance anyway because you gave them none and have nothing to give them !! You'd have enjoyed your earnings and tough luck to your descendants !!

    Even if you have to "sell the house to carry on living", you will still not be a burden on your descendants so long as the money last !! Do you think they will enjoy carrying you as an additional burden on top of their own struggles to survive after you have spent years renting instead of buying ?? And if you want to depend on the state, then why worry about selling the house ?? After all, the state giveth (very little) and the state taketh away (a LOT) !! :-)

  • Comment number 52.

    Seriously, why can we just pop 50k into everyones bank account?

  • Comment number 53.

    No 52 "Seriously, why can we just pop 50k into everyones bank account?"

    And where will that money come from ?? If it's just funny money, how much will that be worth and what will that do to the economy is general ??

  • Comment number 54.

    #48 Arma
    teehee.

  • Comment number 55.

    JavaMan1984 (#52) "Seriously, why can['t] we just pop 50k into everyones bank account?"

    Seriously, don't be so silly. An economic system is just that, a system. Systems don't work when the critical mass of people comprising them are too dumb to sustain it. See many Third World countries and their IQ distributions. It is not about giving people the means of exchange!

  • Comment number 56.

    #52

    That's already been done. That's why we're in this mess, due to runaway credit.

  • Comment number 57.

    It is an unfortunate truth and contrary to the blind optimism that seems to be spoken in the small circles that move and shake(and certainly don't vacuum) that banks starting to lend again is a myth. Them starting again soon without the help of a great big stick is an even bigger myth. Ladies with snakes for hair will be gracing the streets of Guildford long before that.

    The Banks are risk averse to a fault and can't seem to get themselves out of this rut. They are in it to make money and have been burnt so badly that enterprise has become something only seen on star trek. Who can blame them? Apart from the fact that they got us all into this mess and we have bailed them out. They seem to have had their cake and scoffed it well and truly. Suddenly estate agents and MPs don't seem such bad chaps after all!

    It's a shame really, as this is the time for risk and enterprise. To lead teh world over the next 30 years we need high risk taking enterprising people with ideas, and lots of them. is someone willing to take the long term view and fund them? Not that load of bankers it seems.

  • Comment number 58.

    hodgeey (#56) Precisely, but most can't see this.

  • Comment number 59.

    The bAAAnksters are using cheep money from their chummy central bAAAnksters to inflate a new AAAsset bubble ponzi II to s it along side the existant one in order to make their overal balances appear solvent whilst they "carry on up the Kaiberr pass" with their newly aquired horn of plenty that can be redirected to bongoland in the form of bonuses .

    Our party clowns are addept at stretching their used balloons[so they say] and blowing on them up so that they inflate at the furthest end first [assets]whilst leaving the nearest end underinflated[wages and prices] before proceding to give the chicken little taxpayers AAA's hole a good plucking before removing the wishbone

  • Comment number 60.

  • Comment number 61.

    We've spent tomorrow [credit] on cheap chinese takeaways [sweat and sour]now filling our landfill sites before we have even paid the interst[rolled over] never mind repaying the capital .

    The banksterrs intend to continue making a living rolling over debts accrued on what now sits cumfortably in those landfill sites ,long may they rein in over us.

    The ponzi is dead......Long live the Gordonzi

  • Comment number 62.

    It is my desire and intent to live free in a democracy. That privelage is a freedom l wish extended to all. I have no desire whatever for a masterplan, supermen or the holier than thou. Live and let live, worship your own god and if others kneel at the temple of lucre so be it. I will smile and do my thing.

  • Comment number 63.

    #50 Ishkandar - Why not test your theories? You could, for example, go to Latvia and tell the population there that buying is always better than renting, and that if they have negative equity then it is their own fault.

    If you thinking of conducting such an expretiment it is probably best to check your health insurance first.

  • Comment number 64.

    #56 hodgeey. I must have missed the day that the state handed out 50K to all citizens - perhaps you can let me know when this happened and I can check as to how I missed out on this act of munificence.

  • Comment number 65.

    62 herosrest, AlAAA's pollytitians and their moneylAAAundering counterpAAArts in banking have given us DimocrAAAcy and only a choice between sheep in wolves clothing leaving the fleeced sheep wondering where is the true shepherd is.

    http://www.youtube.com/watch?v=TpVmlW7YT9Q&feature=player_embedded#

  • Comment number 66.

  • Comment number 67.

    #58 Jadedjean. Too right I can´t see it. I have checked my bank account but cannot see where anyone has given me 50k.

    #55 If it is not about giving people the means of exchange then what is it about? Have you taken a look at the structure of the Israeli economy? That only keeps going because it is GIVEN the means of exchange.

    Why is Latvia collapsing? Could it be because the means of exchange is being removed from Latvia?

    Why is California bankrupt? Why are automakers bankrupt? Why are Hungary, Iceland, the Ukraine and Ireland all in visible collapse? Why does Spain have an unemployment rate of 20% and 1.6 million empty properties? Could it possibly have anything to do with a removal of the means of exchange?

    You can test your theories - pick a country, any country that most closely fits your ideals, and it will take less than 5 minutes to provide evidence that it is in the process of irreversible collapse.

    It is possible that the British are suffering from mass delusion on the same scale as exists in the DPRK. Non Brits seem to understand without problems.

    You guys need to get with the program. Rise up overthrow the parasites that have attached themselves to you, and start making plans to survive based on your own resources and your own efforts. No-one is coming to save you. The longer you live in denial the worse it is going to be.

    Full spectrum meltdown is coming.

  • Comment number 68.

    #62 herosrest. There are only 2 possibilities (i) You do not live in the UK (ii) You are delusional.

  • Comment number 69.

    armagediontimes, your fraudulent conveyance errs. Bless you and all foundering upon your rocks. Gesthemane beckons - hurry back. l follow McAuliffe - and come from where l please. Guess where that might be?

  • Comment number 70.

    armagediontimes - Your assets were revalued 3 years ago. It is happening again now. 3 years ago cost you 30%. It's about to happen again. FAS 166&167. Talk to me in a couple of months time. We'll know who is correct by then.

  • Comment number 71.

    No 63 "#50 Ishkandar - Why not test your theories? You could, for example, go to Latvia and tell the population there that buying is always better than renting, and that if they have negative equity then it is their own fault."

    Well, if they bought *within* their means, then they should have no problems. Strange as it may seem, I do have a Latvian friend who did just that. Nothing ambitious, just a two bedroom flat in a middle class suburb. The ones who were caught out were in a similar position to those in Britain. They kept trading up until the crunch hit or they borrowed beyond their means !!

    Furthermore, Swedish banks had problems back home after the Swedish brush with their financial crisis and the stringent regulations that resulted from that, so they were lending riskily in the Baltics. Not that different from Britain really !! Now they are rather upset because the Lat may be devalued in the near future, much thanks to the IMF !!

  • Comment number 72.

    #64 armagediontimes

    If you've never had a mortgage, a loan or an overdraft then you didn't get your 50k of somebody else's money; I salute you.

    If you did, then you would have had to pay it back with interest. That is the sort of thing that adds to the credit spiral, to which you would have been contributing; I condemn you.

  • Comment number 73.

    I go with the first comment, what does the graph at the end of the article mean? It is surprising news that lending to consumers has been on a general downward trend since early 2005. At the same time lending to 'non financial enterprises' soared, where did this money go?

    As a whole this picture does not seem to line up with the general impression of media reports.

  • Comment number 74.

    Something don´t make no sense. I got poster #72 telling me I´ve been given 50k and poster #70 telling me my assets have been revalued (i assume downwards) by 30%.

    Man I would be confused if only I didn´t understand that assets are an encumbrance which I why I aint gone none. Which I guess means I have avoided both the munficent and the thief in the night. But in the end it wont make no difference because the grim reaper from Goldman will call for the blood of every soul that walks the earth.

    I don´t do no false conveyance. If you live in the UK you don´t do no live and let live neither. You pay money to kill the foreign man. No way you can be free if your hands are dripping in blood. Just because you got the somnolent tones of Rupert drowning out the screams of your victims don´t mean they aint screaming as your 21st century high tech killing machine stamps down on the faces of the poor.

    Or; You are delusional. Quad erat demonstradum.

    Embrace the rocks for that is where freedom lies.

  • Comment number 75.

    #71 Ishkandar. With the exception of the local oligarchs, anyone in Latvia that borrowed money, borrowed beyond their means.

    This message is about to be driven home by the forthcoming total reduction of Latvia. It seemed to offend the sensibilities of the Swedes when they were asked to quantify the number of Latvians that they required to die on the alter of debt peonage. The failure to answer the question leads one to suspect that the number is very high indeed.

    The IMF are apparently unhappy with the Latvian exportation of its own population. It needs to step up emigration substantially. I seem to recall reading about another forced movement of people from the Baltic area.

  • Comment number 76.

    armagediontimes (#67) "#58 Jadedjean. Too right I can´t see it. I have checked my bank account but cannot see where anyone has given me 50k."

    You didn't get one of those free mortgages then? How did you buy your home, car etc? No debt? Lots of people allegedly wnet to their banks and said - 'please can I have 300K to buy a nice house?', and the nice brokers acting for banks said yes. Lots of people got lots of free money into their bank accounts which they used for all sorts, but then couldn't pay back as they didn't have the income, didn't you hear? It caused a bit of a stink, as the banks thought they had it covered through insurance and through dumping it on unsuspecting others (mainly 'commies' allegedly). Some say it was all about redistribution of wealth, some say economic warfare against the 'commies' who sponsor state terrorism etc.

  • Comment number 77.

    Humpty Dumpty sat on wall st

    Humpty dumbty had a greAAAt fAAAll

    All Kings whoresies

    and all Kings QE'er men

    Could not get HD back together again

    They pumped and they dumped

    They aaayed and they saaayed

    but nothing would go up to soon

    The little boys laughed to see such fun

    And the faaatcaaats raaan aaawaaay with the spoons


    The green shoots of wreckovary and AAAcompaaanyink souldforAAA's stink are everywhere to be noticed by the lift boys as they go back up in the world

  • Comment number 78.

    Gordon the AAA'complished and his slapstick cloWnes came unstuck on their Nautearn Rock of gibberishAAAltar [built out of strAAAw sewAAAge and fig leaves that rurned to dust] now he is buisy with the coverup plAAA'stic fig leave.

  • Comment number 79.

    WHAT GOES AROUND COMES AROUND?

    Postscript (#76) Some said 'the commies' couldn't really complain, as they believe in redistribution of wealth and are very anti-racist, so, couldn't moan that the benefits weren't going to their people - which wold be protectinist/nationalist and altogether bad! The trouble is, 'the commies' turn out to be Socialists in ONE Country type, not the 'international workers of the world' (COMINTERN aka Zinovite/Trotskyite) type, so weren't at all pleased about being force fed the 'toxic assets' of running dogs...

  • Comment number 80.

    #76 Jadedjean. What you describe is not free money it is secured debt. If the debt is secured on something that is insecure (geddit?) then whose fault is that?

    An example of "free money" is the approximately $15 trillion that has so far been given to financial oligarchs. Did you not hear that Mssrs. Bernanke and King abandoned the moral hazard principle?

    If you abandon moral hazard then you could have used this $15 trillion to paydown household debt. This would mean that the banks get their money back and that households would be re-set to zero leverage which would enable them to continue with their shopping and consuming - something that is currently being urged on them by substantially the entire official media system. They are unable to comply with meida demands because of...a debt problem.

    This solution was never once discussed, never once considered. I wonder why? Meanwhile the general population seem only to happy to fix the spotlight on some obese lazy class who are obviously consuming more than they produce. The general population reverentially avert their gaze to the high priests of finance who have amonngst them 500 individuals with aggregate wealth of $5 trillion. No questions are asked as to what such a small number of people could possibly do with such wealth - which is quite literally beyond the ability of the mind to imagine.

  • Comment number 81.

    Gordon[friertuck] is now one of the Robing hoods merriest men taking from the rich taxpayerrs to give to the poor m[AAA]rx1st banksters who became the victims of unbridled cloth cAAApitalism as they handed out money created from thin air, to anyone [no questions asked]
    Brace yourself for more seismic semantic shifts as labour attempts to winover the labourink lasses aka prescot

  • Comment number 82.

    It makes me angry to think that the rich can afford 1000 eggs for breakfast and lipposuction whereas i can "only" afford 6 eggs and no lipposuction

    This inequality of access to lipposucktion machines must stop and our dimocracy must progueress to a lipposuctionocracy where the waste product can be used for power generation starting with parlamment itself

  • Comment number 83.

    Well one thing cheered me up lately. The sight of Hester obviously gorging himself on our money means he shouldn't be around too long to enjoy it. The size of him!

  • Comment number 84.

    The answer to bankers bonuses and banks being too risky is staring us in the face.
    Dead simple.
    Handicap the banks.
    Race horses that win too often are handicapped by virtue of them carrying weight.
    Why not simply take note of the profit a bank declares, multiply that figure by their leverage and then add that figure to their required capital adequacy?

    So the banks can make big profits, but it will be harder for them to do so year on year. The bankers will really have to earn their keep.
    Before folk start sounding off about this scheme being artificial it should be pointed out that the bankers live in a totally artificial world anyway.
    This scheme would level the playing field that they all occupy.

  • Comment number 85.

    Writing off the debt is exactly what needs to be done.

  • Comment number 86.

    #85

    Dear Frank

    If you look at the debt investors information for the UK lending banks, you will find that the level of mortgage arrears is about 2%, so IMHO I don't think we do need to write off this debt. It will get paid at some point. Actually average LTV is much lower than expected too.

    I would not write off the commercial property debt either. If I were benignly in charge of UKFI, I'd be saying to the debtors, you're in trouble, you've broken your banking covenants, pay up or we'll have the assets, thank you that was our agreement, you don't like it?, tough. Then, I'd say UK government, we've got these rather nice assets (or cash), would you like these in exchange for those shares you've got.

    We'd actually get a PFI scheme or two back if this approach was taken.

    It needs a few balls or the debt collecting arm of a loan shark

    Right now, neither is being used.

    Yrs

    Mrs Bloggs

  • Comment number 87.

    armagediontimes (#80) "#76 Jadedjean. What you describe is not free money it is secured debt. If the debt is secured on something that is insecure (geddit?) then whose fault is that"

    What were liar's (self-certified) loans secured on other than hot-air?

    I'm not talking about fault, I'm talking about money in the bank.

    Incidentally, the problem with intensional idioms is that they're a bit like liar's loans and pass-the-parcel or musical-chairs - harbingers of band news.

    Be wary of peddlers of intensional idioms as trustworthy cognitive currency.

  • Comment number 88.

    #85 FrankSz - They have no intention of writing off debt. Only the people could force a debt write off, but the people seem determined to vecome debt peons.

    #86 Mrs Bloggs the level of mortgage arrears is so low because employment is being held up by an army of people employed for no productive purpose. This must change.

    LTV value is lower than expected because house prices are being maintained through systemic manipulation. This too is unsustainable and house prices must crash.

    The UK is currently suffering from a form of mass delusion that would make Kim Il Jong proud.

  • Comment number 89.

    erratum (#87) "harbingers of bad news."

  • Comment number 90.

    #87 Jadedjean. Liars loans were secured on something that has transpired to be insecure (i.e. liars). How smart do you need to be to understand that it is not prudent to place your trust in a liar?

    The money is no longer in the bank because the white shoe boys gave it all to the liars.

    The white shoe boys were happy because they lied to themselves that they would be better at telling lies than poor people - Maybe because they believed theories like the ones you peddle.

    They also knew that they had captured the political apparatus, and should the worst happen they would simply instruct the politicians to bail them out using taxpayers money. Where their logic deserted them is that the taxpayer base is itself comprised of a lot of the same liars who were counterparts to the first part of the scam.

    I think it was Michael Caine that said poor people cannot be intimidated. Ally that pearl of wisdom to the old adage "you can´t get blood from a stone" and you can see the problem.

    The next trick is to borrow large amounts of money from Johnny Foreigner on the unspoken premise that the foreign man is a bit thick. (back to your own theories again - although I am less sure where this leaves your more vociferous critics).

    Normally "he who pays the piper calls the tune" - but we can´t have anything like that. So to maintain confidence we start printing money at the same time as we start borrowing money. This allows the elites to relax knowing that they are onto a winner as the only loser will be the foreign man. There is no need for subtlety because Johnny is just so dumb he will not be able to notice the obvious.

    This kind of thinking has (more or less) worked in the past. In the days of Empire we just took what we wanted, then came the days of oil which tended to be found in places of low population so we could just bribe a few people. Places that didn´t fit the general mode could just be bombed occassionally to keep them in line.

    This time around things don´t look so promising. We either need to overthrow the white shoe boys (unlikely) or (more likely) we will need to fight someone who has both the intention and the capability of fighting back. Hence the future doesn´t look too bright. Although it may be very bright indeed for a few moments prior to the lights going out for the last time.

    The general population is suffering from a form of mass delusion which leaves them operating without any sense of either the past or the future. If they looked to the past they would remember people like Leonardo who cautioned "It is easier to resist at the begining than at the end." If they looked to the future they would realise that resistance at the end will be impossible. The best a body can do is to resist until the end.

    Full spectrum meltdown is coming - and this will be denied by the mainstream until the end.

  • Comment number 91.

    armagediontimes (#90) You said you didn't know that 50K ended up in 'everyone's' accounts. I've explained how it did.

    Do you just like arguing?

  • Comment number 92.

    armagediontimes (#90) Just remember, Goldman Sachs etc have done very well this year. Have you looked into those NYC demographics? Have you considered the policies of the Taliban who appear eager to stop Itan's neighbour Pakistan losing its way to Liberal-Democracy? What I've covered is not theory, it's descriptive statistics at the population level. Demographics drive business and policy. Forget my critics, they're not very bright. That's not theory either.

  • Comment number 93.

    http://news.bbc.co.uk/1/hi/business/8310072.stm

    For those interested in such things, it looks like the "green shoots of recovery" didn't reach these guys in time to save their collective posteriors !! Then again, these guys were probably eyeballs deep in the toxic stuff which they can't quantify !! Therefore, the simplest solution is to flog the lot for £1 !!

  • Comment number 94.

    #90

    Of course people operate under a form of intentional delusion... after all its often considered better to look on the bright side, take what you can when you can and ignore the consequences, hoping someone else will deal with them.. the "me, me, me" consumer society and nanny state just encourages this further. Even if you can see things going to hell, if you don't believe others will change their behaviour to prevent it and you can't stop it yourself, its basic game theory to grab things for yourself in the short term to at least be as comfortable as possible as things fall apart.
    As I often quote Keynes' "in the long run we're all dead" emphasises the short term nature of most people's perspectives.

    As to "It is easier to resist at the begining than at the end" of course it is, things initially have a certain inertia, but once they build up sufficient momentum they can become virtually unstoppable.
    The same is often due of people's herd behaviour, uncertain first steps, things eventually becoming acceptable and the norm, can eventually lead to a stampede, even if that takes them over a cliff.

  • Comment number 95.

    # 85. FrankSz wrote:

    "Writing off the debt is exactly what needs to be done."

    Whilst I would agree that the debts should be recognised as potentially of no value in the books of the banks, why should those who have borrowed beyond their means be rewarded via a debt write off?

    #86. mrsbloggs13c2

    Why just commercial property?
    A few house repossessions and then the government buying them back at a reasonable (much lower than current "market rate") price would seem to be a way of instigating a much needed increase in the social housing stock.
    Of course I also favour the construction of additional social housing on the cheap while the market allows it.

    Indeed,despite their claims to have "invested" the government has failed massively in this regard.
    The classic way of softening boom and bust is to put money away in the good times and to invest in infrastructure to soften the blow in the bad times, with those investments moving the economy forward and paying back their cost as things improve.
    Instead this government overspends in the good times and just spends more when times get tight rather than actually "investing" as they claim.

  • Comment number 96.

    86. mrsbloggs13c2 wrote:

    "Actually average LTV is much lower than expected too."

    That in part is due to prices rising since loans were taken out (and indeed not fallin gas much as might have been reasonable recently).

    Its not generally a result of the LTV the loans were granted at.

    Oh look the apologist from the cartel body the BBA on GMTV, trying to justify high bonuses to encourage "exceptional staff" - strange so many in banking get them, especially in light of the analysis that Pesto showed in his blog a month or two ago showing earnings over time had not increased as a result of better deals and were actually pretty consistent if you removed the effect of increasing leverage.
    The "reward for value added" argument therefore seems to be somewhat flawed and the bonus culture looks to be more just another case of the the old boys club taking care of their own.

    There is of course the risk of institutions locating activities outside the UK to avoid restrictions, but then appropriate global policies could restrict the ability of such operations to access and impact major economies, making relocation undesirable.
    Of course the reliance of the nation on the revenue generated by the financial service industry makes it a worrying possibility (in terms of tax revenue, employment and the drip down effect into the rest of the economy through those servicing it or indeed providing services to its employees).
    The main threat to the City would appear to be Frankfurt if certain EU interests get their way, but infrastructure and language (English being a secondary language of most business interests for which it isn't the first language). Unless of course someone manages a 24/7 exchange reducing the desirability of a market in European timezones.

  • Comment number 97.

    Wolfgang Munchau refers to Minsky's instability hypothesis in this morning's FT.

    Basically the argument is an over-sized financial sector makes for instability in prices and output, so reduce the size of the financial sector.

    This theory will have appeal to those who see capitalism as industrial capital (producing commodities) and will work against the financial capitalists interests (the devaluation of their fictitious capital).

    It is important to remember that the growth of finance capital was and still is an essential element for capitalism to accumulate.
    Finance does not introduce instability because it gets too big.
    The instability is inherent in capitalism, it merely transforms it (and attempts to postpone the inevitable devaluation of capital).

  • Comment number 98.

    53,55

    I am being silly?

    You have asked me where the money will come from. Where did the money come from to bail the banks out?

    Ah, thin air............................You have both missed the point entirely, as for discussing, I'll give that a miss with Jaded Jean as he / she will come back with utter gibberish!

  • Comment number 99.

    56,

    Incorrect, this has not been done.

  • Comment number 100.

    # 55. At 11:48am on 18 Oct 2009, JadedJean wrote:

    "An economic system is just that, a system. Systems don't work when the critical mass of people comprising them are too dumb to sustain it."


    It could actually be argued that many economic systems are sustainable primarily because of the intellectual (or at least knowledge) deficiencies of elements within them.

    Knowledge and intelligence tend to facilitate people being able to challenge the blind belief in anything.
    And its so much easier to exploit someone who's ignorant of the fact they're being exploited.

    Of course wilful delusion is often another matter, people wanting things to be true, can mean they're easily swayed in that direction in spite of what facts may tell them.

    It would be interesting to know how many people genuinely think things are improving (not just getting worse more slowly) and how many are just trying to talk the market up or profit from speculating on a short term bounce.

 

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