Catastrophic system failure
"We've got to sit, wait and hope."
That sentiment was expressed to me in the past 12 hours by bankers, fund managers, regulators and politicians.
What it reflects is a sense of powerless to direct events in global markets, following the rejection by the US House of Representatives of the Whitehouse's $700bn plan to extract poison from US banks.
There are two big fears driving markets: first that the risk of a serious recession in the US and in Europe has risen sharply; second, and more immediately, that the danger of a domino-effect collapse of a series of financial firms is also much more real than it was.
Both of these anxieties has prompted a massive reallocation of investors' cash, away from shares perceived as risky and commodities that are vulnerable to lower global demand as economies slow.
US government bonds, gold and investments perceived as - well - solid gold have soared.
These are the sort of conditions that can kill hedge funds for example, as the value of their investments suffer from violent swings and their backers ask for their money back.
You may not weep for them, but if they're forced to liquidate in a hurry - well that would force down prices of their investments in a way that would damage other financial firms.
In this climate of sheer anxiety, the normal levers pulled by central banks and governments aren't very effective.
Extraordinary quantities of loans have been provided by central banks to commercial banks - but it hasn't made the banks much more willing to lend to each other.
Central banks could cut interest rates - but these rate cuts may not actually be passed on to any great degree in the interest rates the banks charge each other or us.
What's needed is some sign that the White House and Congress do have the ability to mend ailing US banks.
At the moment, it's the breakdown in the US political system that's doing as much damage as the breakdown in its banking system.
I'm 
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Sorry no one trusts company Directors, the Gov't or the FSA.
A Director says their company is sound then three days later it is Nationalised.
I'm afraid you cannot treat Shareholders that way.
No wonder the owners are now selling up.
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The federal reserve have no choice but to bail out the banks rightly or wrongly.
http://video.google.com/videoplay?docid=-9050474362583451279
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The only way out of this would seem to be inflation = repudiation.
The Weimar solution, in fact.
What then?
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Robert
As a UK taxpayer - Brown is asking me to foot the bill.
I still don't know why. What do I get for my money?
'Financial stability' is just words...
In the US the electorates representatives were not persuaded - ours were not even asked (not that I voted for my MP anyway...).
The 'wall street crash' seems to be used as a bogey man -- times are different - there is no US dustbowl and crop failures...
So just what is the risk here?
If the banks go bust, can't people can found new building societies.... etc
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Oh please, what exactly is different about today as compared to last tuesday? A few unsustainable businesses have been taken over by some better run ones, and those left have been publicly told that they can no longer socialise their losses.
This is now entirely a problem of perception in the stock market (and media reporting like this has a large influence). I know you like the doom and gloom angle, but I think you're over-egging this pudding Mr Peston.
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Come on Robert!
You know the inevitable has started!
A 700 Billion dollar deal is still a 'fire hose at 35000 ft' on a forest fire of contagion!
There is no money in the system - the black hole is enveloping us!
Put it under your mattress!
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The system hasn't failed yet. The American political system is not breaking down yet. It is a critical time but not the end. The system is being tested to its limits both politically and financially. It is all we can do now to sit and wait.
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Instead of the government trying to use tax payer's money to prop up private banks, money which eventually ends up in the pockets of the traders and fat cat bankers, were not use the same cash and create a National Bank of Britain, which would provide a role model for all other banks to adhere to. The National Bank of Britain would not lend you at 10 times your fake salary and it would pay you BoE base rate - 1% interest on your deposits. It would not enter into any dodgy financial transactions and would be there to serve as a beacon of stability, even if slightly uncompetitive. Private Banks would then need to be 100% certain of their actions in order to attract depositors.
But we are not seeing any moves towards this goal, so it seems to me that "financial stability" is not what the governments want (both Labour and Tories) - what the governments want is to take our tax money and pay those fat cat bankers and numerous fund managers and traders who have made hundreds of millions of salaries and bonuses in the past decade - and now that they have squandered the assets they were entrusted with they look to the government to bail them out. They should be taken to the cleaners with their mismanagement of the funds that were entrusted to them, this is our deposit accounts and our pensions.
Luckily the US senate did not vote this outrageous propositions by Bush+co. Imagine, the fat cat banker who has paid himself billions of profits in the past decades from your own savings and pensions, now comes back to you and arrogantly tells you that your only option is to pay him even more money to fix the system - which himself has broken.
Outrageous!
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Why aren't the banks being forced to disclose the extent of their off balance sheet losses? Then we might get an idea to what extent they need bailing out? Too radical?
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The problem seems to be that this crisis has peaked just weeks before the elections. Neither Republicans or Democrats want to support Bush, who has got to be the worst president ever.
And because the US is so insular they do not seem to care that this is effecting the rest of the world as well.
Where is Jed Bartlet when you need him?
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"At the moment, it's the breakdown in the US political system that's doing as much damage as the breakdown in its banking system.
It's wider than the US, but, yes, this is a political breakdown more than anything else.
My view, for what it's worth, is that over the last 20 years or so we have lost sight of the fact that successful human governance is a joint-venture between intellect and populism; a joint-venture in which it is critical that each camp has respect for the other. We need to recognise that it is calamitous if either camp is allowed to dominate, because it is only by combining the strengths of each that society can function at all.
Where we appear to have reached is a situation where populism is far too dominant, and has been for a number of years. It's time for a process of education which re-establishes the need to recognise that precise rational thought is an essential lubricant of human progress, despite the politically difficult fact that it is an ability restricted to a fairly small portion of the population.
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Throughout all of the last year and right up to now it seems to me that banks and financial insitutions are STILL not taking responsibility for their actions.
All I see reported is company representatives saying the equivalent of "it's unlucky" rather than "we messed up".
In my opinion, what is needed is a complete ban on dubious financial instruments and short selling. Rather than use taxpayer cash (or rather future taxpayer cash, as it doesnt actually exist but is merely a government 'promise') I'd be happier to take the pain of a recession.
I'm very sceptical that any amount of cash will solve the problem here, there's too much fictitious wealth in the system. We need a massive adjustment regardless.
Let's take the hit but make sure through draconian financial services legislation that it can never happen again.
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Anyone successful businessman will tell you that there are three levels of decision making.
1. The perfect decision (which fixes the problem)
2. The less than perfect decision (which may not fix the problem but at least moves you forward towards a fix)
3. No decision.
Yesterday, Congress voted for 3 at a time when delay is the biggest risk to finding a workable solution.
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Robert Peston reports: 'Extraordinary quantities of loans have been provided by central banks to commercial banks - but it hasn't made the banks much more willing to lend to each other.' If the banks have been loaned this money and they are not using it for the purpose, then the central banks should withdraw it.
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Come on Mr Preston. You make it all sound as though it has never happened before.
The same thing happened only 7 or so years ago. Melt down due to dot com. Then there was the endowment mortgages, pension mis-selling and multiple other scams.
The fact is the financial system is corrupt and governments keep putting sticky plasters over the valleys.
Stock markets are for gambling not investing.
Everyone is now waiting for the bottom as they always do. To pretend financial meltdown is a joke.
The only question is who is stupid enough to loose their money and who is clever enough to make money.
The only certainty is, Joe average will definately not make money.
As for hedge funds, every average person knows they shouldn't exist. For a small group of people with no sector business knowledge to buyout a company is sheer stupidity. The only business plan is to place the company in huge debt (Gearing). But their banky mates will give them our money to risk over and over again.
Quite frankly I hope hedge funds go under too.
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The Global financial markets are now beyond restoration. $700bn is a drop in the ocean. Let the toys fall on the floor.
Society has paid these bright leaders of the financial world many millions in salary and binus - now is the time for them to earn their keep and sort out their own mess.
We need HIGH interest rates to discourage borrowing and encourage saving. Banks will only lend to each other if the RISK/REWARD ratio is met. Today the risk is high, low interest rates will not reduce the risk, it will increase the risk......
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Hopefully we won't see a domino-effect in collapsing banking and finance, Robert, although I appreciate that possibility is now very much more real.
Another pressing problem in my opinion is that if Capitol Hill is going to have 'another bite of the apple', and let's say this time the bill passes, will the freeze-out have already hit 'Main Street'? i.e. those borrowers who depend on advances to fund corporations, payrolls, operations and so on.
If the end point is a Wall Street crash - equivalent to falls in the markets of up to 25-30% on one day - there is a point of no return presumably. I haven't seen much indication yet that point has been reached.
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Hopefully anyone on this forum who ranted about short-sellers will now reflect that the markets are having their worst drops of the crisis so far, now that short-selling of financials has been banned. Time to find another straw man to burn...
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Mr Bin Laden must be sitting in his cave rolling around in helpless mirth as Uncle Sam presses the 'self- destruct' button...
and Congress can't meet again until Thursday because of the Jewish New Year holiday! You couldn't make it up!
A toute a l'heure...je dois cultiver mon jardin!
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"That sentiment was expressed to me in the past 12 hours by bankers, fund managers, regulators and politicians."
Perhaps you ought to try talking to some normal people Robert?
I'm personally very amused at the outrage being expressed at the refusal of US taxpayers to bail out the world economy.
So much for the shrinking influence of the US and the rise of China - anyone remember China?
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#13 wotmenah
You forgot numbers 4 and 5, I think your list should look something like;
1. The perfect decision (which fixes the problem)
2. The less than perfect decision (which may not fix the problem but at least moves you forward towards a fix)
3. No decision.
and
4. The bad decision which moves you away from a fix
5. The worst possible decision that completely screws any chance of getting a fix
In my opinion, passing this bill would have been a 4, if not 5!
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It is fairly simple really:
1. Any and all quoted businesses that provide mortgages or trade in or have anything to do with products derived from mortgages are toast until Thursday afternoon, when the House will probably agree something.
2. Poulson was always half-hearted and insufficient to cover all of the liabilities of the estimated 900 trillion US dollar mortgage related 'securities' which sit in the books as assets of so called expert financial traders around the World.
3. The 900 trillion US dollars of insane/unwise bonds and derivatives need cancelling as soon as possible - globally making the contracts void ab-initio should do the trick, if the 'industry' is unable to agree.
4. This mess will take a generation to fix and many people will suffer.
5. The cause was Reganomics and Thatcherism's relaxation and abolition of regulation in the 1980s.
6. The Republican Party in the US and the Conservative Party in the UK MUST say so and agree that their 'gods' were false gods if they, and we, are to move towards a more rational system. If they do not, or cannot, then the time warp that they live in will spread its contagion for some years to come.
7. Discussions about sensible regulation are critically urgent in the US and the UK.
8. Globally, Professional Accountants MUST speak out about the impact of 'mark-to-market' asset valuation on the accounts of financial institutions. (Essentially no institution that holds on its books, as an asset, an asset that has no market can continue to be allowed to value the asset at any value - in short as mortgages can't be sold then they have zero value.)
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The contradiction at the heart of the problem in the US is that, whilst Americans are overwhelmingly in favour of market capitalism in principle, they detest - and, frankly, are envious of - Wall Street.
They urge their elected representatives to vote down a bill which is seen as rescuing Wall street fat-cats. They just don't think it affects ordinary Americans.
Oh really? Maybe Lehman, etc, doesn't much affect the average American. But the health of institutions like Fannie, Freddie, AIG, Washington Mutual and others most certainly does. The public ignorance over this issue - the belief that a meltdown in America's financial system won't actually affect Americans - is staggering. The words "turkey", "voting for" and "Christmas" apply here.
The way ahead for legislators is to bridge the chasm between belief in capitalism and contempt for Wall Street.
The bill needs to be modified to assuage this contempt. "Make it tough on Wall Street, but get it done" seems obvious.
Take equity in return for the bail-out. Cap salaries, restrict (or even forbid) bonuses. But get it done.
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Bush's bill has come at a curious time. With elections in November and an angry electorate, 133 Republicans and 95 Democrats decided they didn't want to be tagged as a supporter of a bill perceived to be a bail-out of "greedy fat cats".
That's the political system working as it should, not a breakdown.
If somebody explained to the American electorate why things would be worse without this bill, they might take the pressure off the Congressmen. However, I think American voters would not believe a word coming out of either Washington or Wall Street. Why should they?
Perhaps it's time to jettison the Anglo-American version of capitalism; that is, stop American politicians being bought by people who have power because they can *sometimes* direct the flow of speculative money. That is, remove mere profit as both the highest aim and the fundamental driver of human activity. That is, seek to generate wealth with the aim of improving all of Mankind's lot instead of enriching a very small elite at the expense of most of the rest of the world.
Here we are worrying about stock markets. Around 2 billion people have to get by on less than $2 a day. Viewed from that perspective, the wailing and gnashing of teeth emanating from Wall Street sounds childish.
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I now believe we are heading the Japanese way in 90s. All bobble blown and interest rate heading to zero%. Also I expect this to lead to high unemployment.
Government will not be able to protect all the depositors money as there is no cash or that much credit available to the government, so in few weeks time they will also lose out.
Main shareholders are ordinary public through pension funds and insurance funds. So they will lose out again.
At the end every one will be the losers.
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Robert
Heard you on R4 news. Thanks for aksing the question 'is it just hysteria'.
The bankers said how it affected bankers and banking - but still didn't say how it affected me (and other non-bankers...).
If the economy fundamentally requires banks, then it should have banks run by people who are good at running banks (and demonstrate that ability by not going bust) -- not the current shower of failures, and certainly not know nothing politicians.
Seem to me that to make way for 'good banks' the bad ones have to be left to fold.
Still don't know what I am getting for my (taxpayers) money...
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#10 - Lord Vetinari
Jed Bartlett was an ecomomist too, so doubly the best choice in the current situation.
Shame America has never actually had a president that capable, fair of intelligent!
Instead Bush does increasingly less...
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This is just a confidence thing now, isn't it?
The size of the root problem, bad mortgages on overvalued real estate in the US, is no way near big enough to justify the panic. In my view, the bailout itself is an ill thought out panic measure and it's a very good thing that it's been rejected. I mean, c'mon ... the idea of the government buying assets off the banks, just because nobody else will, is absolutely ludicrous. Please let it go.
It's obvious that these troublesome "toxic" assets do have value ... that value being the future cash flow from mortgages being paid off or (where they default) from properties being seized and sold. Most banks have them written down already to around 20 cents in the dollar and that sounds on the prudent side. Even if it isn't, you can analyse and take a reasoned view of what the ultimate value might be. Half of the exposure is, in any case, with Freddie and Fannie.
So, there is no reason why the banks themselves can't step up and start behaving sensibly. They should be able to drop the paranoia, drop this laughable "we're too scared to lend to each other" business ... in due course, a liquid market should evolve for the distressed assets (there are loads of precedents for that) and, in the meantime, they can just hold them and take whatever coupon income comes their way. We have capital ratios that banks have to stick to and, if they're in compliance with all that, even after a writedown to 20 cents, what's the big problem?
There are potentially large profits to be made by people who buy this stuff very low ... that's the essence of risk / reward banking and that's what should be happening, yes?
The whole point of bankers is to manage risk, move money about and provide credit. That's what they're there for, right? It's very important and they get paid silly money for doing it. If it now proves that they are not up to the job, merely because one sector has gone nasty, then one of two things should happen ... either let things run their course (if you're a free marketeer) or, if you're a believer in government solutions, nationalise them.
At the present time, they are being ... cue Californian valley girl dripping with contempt type accent ... "Patheddic" ... and I find it hard to imagine a less deserving case for state support. IT MUST NOT HAPPEN.
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It is a failure of the American political system, but it is a failure due to the doctrine of separation of powers embedded in the US Constitution. The whips in the UK House of Commons have tight control over the members (especially on the government side of the house) because of the large number of government jobs, from PPS upwards in the gift of the Prime Minister. There is no such greasy pole in the USA where the executive is a separate branch of government. The House of Representatives, especially, is a loose cannon in the system. Even the Senate has a history of undermining the government in international affairs because of its constitutional role in ratifying treaties. One only has to look at its treatment of the Treaty of Versailles, the founding of the League of Nations, the Montreux Convention, the Kyoto Treaty. The list goes on and on.
European parliamentary government has a lot to be said for it. It leads to strong government. The US system leads to government ham-strung by a populist rabble.
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By inclination my politics are dead centre. The fence is a comfortable place to sit!
For the first time ever I was impressed by Cameron on R4 this morning when he emphasised that the solution in the UK had to be co-operative and he refused to speculate on what happened next.
This is a much more earthshaking event - a Tory leader not trying to stuff someone. Whatever next.
The intereviewer had it right though - what is happening in the finaincial markets provides a much bigger challenge to right wing parties who have to face the truth - that unfettered, unregulated free marketeering is a dangerous out of control animal.
There is another point that the Tories might struggle with. It is possible that Europe, as a region might deal with this better than the US. We are politically much more pragmatic. Suppose Europe decides to buy up all of the "toxic" investments generated in America but held on this side of the pond. It is a feasible option. This leaves the US to struggle on alone.
The consequences of inactivity in the US and interventionism over here could be that the US sufferes years of depressed growth and Europe leaves it behind.
Just imagine how much it would stick in the Tory craw if Europe did it better than the US.
As for what happens next .... Nobody knows but it will be one hell of a ride.
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Dear Robert.
I recently read about the Great Depression, 1929, and the involvement of Montague Norman in creating the Financial collapse of the world economy, then i read, Secrets of the Federal Reserve, and then i realised just what a bunch of crooks bankers are and how they manipulate people and their money.
So it is right and proper that they deserve all this hassle they have caused, but it is they who have created the problems for the ordinary man and women so, this time around lets see some of them arrested for Fraud.I hope the FBI and British police find a few to bring before the courts, they do not deserve to get away with what they ahve created.
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Of course it's a natural reaction to pour scorn and vitriol on "The Fat Cat Bankers" who caused all this ... but just remember that although they were driving the gravy train most of us jumped on board. Let him who does not have credit card debt or an uncomfortably large mortgage throw the first stone !
And a prediction ... things will really get bad when the first pension funds start crashing in a couple of weeks time.
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Comment 21 : s_slatt
Absolutely correct. We have to get away from the commonly-held view that any decisive action is preferable to indecision.
It's this sort of anti-intellectualism that is the chief contributor to the calamity that is currently unfolding.
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There may be a pattern emerging in response to the banking problems :
European governments are inclined towards nationalisation and state intervention.
However the USA is inclined towards market reaction - takeover and bankruptcy.
I listened to Cameron being interviewed on R4 this a.m and it is now apparent he is between the two stools. He doesn't want the upheaval of bankruptcies but is scared of mentioning 'socialist ' solutions and terrified of mentioning Europe for all the old divisive reasons.
Cameron is left with making the worn out plea for improved regulation
The Conservatives may be praying for the US Democrats to broker solution .
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John from Hendon asked yesterday what we all thought Plan B was in the US.
How about if HP writes out 700bn worth of treasury notes over time in tranches being careful not to flood the market at any one time with a maturity date that corresponds approximately to the unwind date of all these bad mortgage assets.
HP can then swap these notes directly for the really bad assets with the US banks.
HP then gets these bad assets out of the banking system and into his septic bank, and the banks get the up front liquidity they need from the market rather than from the US taxpayer by then selling these notes on to private investors.
The US government has then effectively underwritten these bad assets which is what the Republicans said they wanted.
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The following struck me this morning.
It's a game of Russian Roulette, who will blink first.
The markets have the ability to fix the situation themselves but are too panicked / greedy / stupid (make your choice) to do so.
The Governments are panicking that voters will lose money if companies go under and are not bought by competitors which, in turn, means they lose votes.
At some point, one of two things (I can only think of two at the moment but I am sure there are more options) will happen, either the Governments will blink (and the House Of Representatives etc. will vote for a bail out) or the markets will get so low that they begin to see value in the most depressed of companies. If the former happens then no one knows if it will fix the situation. If the latter happens, then, erm, no one knows if it will fix the situation.
Actually, I've thought of the third option, greed and panic prevail and they work themselves into a self perpetuating total meltdown.
Each of these options (and others that I've not thought of) are equally likely in the current headless chicken situation.
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Did I hear right this morning? Did I really hear an American congressman say he refused to back the Wall Street bail out because he thought it would take America "down the slippery slope to socialism". Should we be rethinking our "special relationship".
I suggest there is a vast chasm between the way this vast continental North American collection of states is run and governed and the way our group of comparatively tiny islands is administrated.
As such I can see a danger in the British Isles being sucked from the comparative safety of a united Europe, with largely common aims, into a vortex of the apparently self-absorbed and anti-socialist US.
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Let the Bush men (voters) pay.
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Can I ask a really silly question (again) ? If the markets are tanking because shareholders are selling, WHO IS BUYING these shares?
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Everyone is leaping onto the "regulate banks" bandwagon.
Sure we'll need clever targeted regulation in future, but unless such regulation is "global" we will see a jurisdiction/tax regime auction where banks will be sited where regulation is lightest.
The credit markets are global - the bubble was global- the solution will ultimately be global - sometime in the next generation - well maybe.
What has happened to the withered husk of global financial institutions such as the World Bank and IMF in all of this? Conspicuously silent.
Do they have a role? If not let's can them and save some $$$
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Peter Mandelson, Gordon Brown, Robert Preston et al. It makes my blood boil that these stalwarts of Europe and the Uk have the temerity to criticise the US political system for voting down the Paulson bail out package. What right do they have for attacking the US taxpayer and expecting them to fund the rescue of the UK financial system. Things are a lot tougher in the US than the UK right now and yet we stand here moaning and whining, which is typical of a nation that has lost it's sense of ownership. I have the impression that these great British Isles have really become the 51st state. Ordinary US taxpayers hate the idea of subsidising Wall Street vultures while at the same time being kicked out of their homes. It's time we stood up, accepted responsibility, dig in, rein back and batton the hatches. We will survive this with frugality, appreciation of life versus consumerism and good old fashioned improvisation. We are all to blame for this mess and for us as British citizens and Europeans to expect the American taxpayer to bail us out is maddening in the extreme. Well done Congress. If only our politicians would listen to the people before throwing our hard earned taxes at incompetent institutions and instead plough the money where we the taxpayer want it sown. Pathetic.
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This comment was removed because the moderators found it broke the House Rules.
I agree with the recent posts that - at its heart - the rejecton of US bail out by the American people results from a lack of trust in politicians.
Congressmen - although they rely on bankers dollars for their campains - rely on the ordinary vote for thier seat. Their constituents told them that if they voted for this bill they would be out of a job.
Democracy in action.
Yet the Congressional leaders, the president and the great and the good of the financial world all said that - while it was unpalatable - the bail out was the best solution and that furthermore the pain of not bailing the banks out would be much worse than dumping on the Taxpayer.
People simply didn't believe them.
Politicians from time to time bemoan the disengagement of the public from politics but you can tell they don't really care - as long as the gravy train keeps rolling. Well guys, this is what happens when you really need to take the public with you. They think you are lying and do the opposite of what you want.
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Ironic, isn't it, that the George W Bush era began with a dereliction of duty by the Supreme Court, and ends with a dereliction of duty by Congress, neatly book-ending an eight year dereliction of duty by the executive branch.
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I for one am glad that the US has stopped this lunacy in its tracks. Perhaps, since it is so keen to follow what the American's do, our own Government will follow suit and stop bailing out failed banking/financial sector businesses.
At the end of the day, these businesses have failed because of the greed of those involved within them. For decades they have piled up huge potential risks at our expense and now expect us to save the day with taxpayers money.
The answer should, and MUST, be NO NO NO! Let the bankers who have acted irresponsibly for decades carry the can - just as any other Company Director in Britain would have to!
At the end of this cycle will come the stability Britain's economy needs because the weak, the greedy and the glutanous will no longer be in control of our destiny.
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#21 s-slatt
I find it difficult to put the proposed solution into your categories 4 or 5 as the proposed solution is based on the, albeit painful, nevertheless valid solution in Japan when all the commercial loans went bad.
I am minded to put it into category 2 as I believe that it does not address the issue of the need for re-capitalisation, but that could not be addressed solely by the US and will probably need to involve sovereign wealth funds.
There is also a very strong argument that no decision is always worse than even the wrong decision as wrong decisions can always be modified, whereas no decision not only doesn't fix the problem, but also doesn't even move you towards finding the right decision
Dithering is never a good strategy and is not quality one normally finds in good leaders.
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A factor that hasn't yet been considered in the immediate hiatus is the effect of the current financial instabilities on pensions. People due to retire in the next few years may well find that their pension funds (dependent to an extent on share prices and dividends) are no longer adequate to sustain them. This will have an impact on government spending in future years, and may well be a contributory factor to future tax rises. I would be interested in Roberts view on what (a) the state; and (b) the individual should be considering in this matter.
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People asking why the banks can't sort it out between themselves should look to the FSA.
The FSA have some pretty bizzare requirements on 'capital adaquacy' and the such - no only are the bizzare because they don't really make sense, but bizzare because the evidently dont work!
The fact that banks can't afford to pay their contribution to the 'financial compensation scheme' with out a taxpayer loan makes a mockery of the scheme -- what if the other banks go bust before they ever pay it? do new banks get lumbered clearing this old debt that they had nothing to do with? etc..
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Robert - you indicate that "There are two big fears: first that the risk of a serious recession in the US and in Europe ; second the danger of a domino-effect collapse of a series of financial firms."
There is an underlying serious problem - total lack of leadership - at Government levels (US and UK to name only two) - at Corporation Level. They are sitting and waiting for someone else to bail them out.
We will do everything possible to maintain stability - this seems to be the latest PR phrase to be used to get you off the hook (short term). It shows no vision or understanding of the problem.
Perhaps we should take a week out - close all markets for a week, while the dust settles - take off line all computer driven trading - Determine how quickly all Banks can report on the "true" state of their health. It is all going to come out at some stage, let's get on with it now.
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To RufusTFirefly and others...
I am aghast at the naivety of some on this blog. This is not just bad for the banks, this is all business, the business that employs you. Don't think that if you work for the government that you are immune either.
The banks will not or cannot lend any money long term or even advance credit for a couple of months.
All businesses need credit from time to time. If they don't get it then they will fail to pay their suppliers and employees. The suppliers will fail, as will the suppliers suppliers. They will all go bust. All the bank's and business's employees will join the dole queue.
Tax revenues will collapse. The government will have to cut public spending and thousands of government employees will lose their jobs as well.
For better or for worse our money system is run by Banks. Their criminal actions in gambling my money has put in jeopardy the whole world economy.
Once this is all over debt securitisation and pseudo un-capitalised insurance such as Credit Default Swaps must be outlawed.
The bank that lends the money should be responsible for collecting the interest and should lose out if they don't. Only that way will we get sensible lending policies. If the price paid is a slower less liquid and dynamic economy then so be it.
We already have the "slow food" movement. We should have a "slow banking" movement!
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"The cause was Reganomics and Thatcherism's relaxation and abolition of regulation in the 1980s."
Exactly. Unrestrained free market capitalism has always been a mindless beast.
I'd also like to point the finger at the big accountancy firms whose lack of ethics, if not outright dishonesty, has contributed to the situation where there are black holes of unknown size in every large company. Company bosses have acquiesced to creative accountancy, because it meant they could indulge their enormous greed.
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Credit crunch, what credit crunch?
I just recieved a letter from my bank advising me that the 3,000 Euro overdraft facility which I never use has been extended to 15,000 Euros - and I didn't even have to ask.
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Robert,
Can you let me know why, if defaulting mortgages are a major part of the problem, the Fed does not guarantee the mortgages rather than bail out the banks? This would not necessarily mean the bank bailing out homeowners in every instance but to make things easier for them e.g. longer repayment periods, lower interest etc. Would this not have the effect of providing confidence to the banking system? It would also mean the money is going to Main Street rather than Wall Street so would be more acceptable all round. You are also helping out the people most needy. This wouldnt be an easy process and not without moral hazard but probably easier than what they are proposing!
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30:
Good ideas, but the concept of Europe doing better, while the US does worse, begs one question - where is the UK in this? A European success, or an Atlantic failure?
You are right that Europe will do better than the US, because Europe has a far more prudent financial model. France, for instance, has never allowed the kind of insane mortgage and credit card lending that has happened in the US. Much the same can be said for other Eurozone countries, even including Spain.
But I do not think that the UK fits into this 'strong Europe' category. Our financial system - and our speculative, debt-driven economic structure - looks a lot more like the US than Europe to me.
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When does Robert Peston sleep?
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Although the failure of the US economy will undoubtedly adversley effect the UK economy and ultimately cost me personally, I am absolutely delighted that the prop up deal was rejected. It seems to me inevitable that US will now have to come to terms with the fact that their right wing economic capitalism does not work and that the people who need to pay for this whole mess are the ones who have been robbing the ordinary man blind for so many years. I hope, pray and believe that this whole episode will signal the fall of capitalism as it exists today and usher in a new era of more responsible world economics.
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My parents are 80 years old. They have a mortgage-free house, which is their only asset. I have no liking for City fat-cats; but I do not want my parents on the street with a worthless pension and a worthless home.
Therefore, the system needs to be saved.
By the way, what about the huge amounts of tax the 'fat cats' will have paid (at 40%) on their inflated earnings. Perhaps we should close the half-dozen hospitals that were built with it.
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Would it not be more sensible to assist the man on the street who is struggling to pay his mortgage and ensure job losses are keep to a minimum... treat the cause and not the effect...
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I'm buying gold coins, baked beans and a shotgun. Who's with me?
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#22 -
"3. The 900 trillion US dollars of insane/unwise bonds and derivatives need cancelling as soon as possible - globally making the contracts void ab-initio should do the trick, if the 'industry' is unable to agree."
Yup - I agree entirely. That's what has got to happen.
It may require the G8 governments acting in concert - some hope!
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Here's another perspective on all this:
"Oh no, shares are getting less expensive - panic"
"Oh no, oil is getting less expensive - help!"
"Oh no, houses are getting less expensive - armageddon!"
The money supply has grown massively in recent years which has made everything more expensive for everyone. It wasn't 'real money' and now it needs to disappear. Lots of people will get burnt but those that don't will find the world less expensive and maybe we'll not make these mistakes again.
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I would be interested to know what all those who propose doing nothing because bankers should take their medicine would like to happen to banks. Should they just be let fail? Have all the 'let em go hang band' all transferred their deposits to National Savings and handed in their cards and cheque books? Have they sold their shares last week, and given up on their pension funds, endowments and the like?
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#32
I'm gathering stones as I write.
I don't have a mortgage, no credit card debt and no pension to speak of. Also, I don't own a house and am renting at a time of decreasing rents.
So I should be happy, no?
Well, 6 months ago I was unhappy with my lot and determined to do something about it. I considered I was in a "very bad way" for the lack of owning my own home and zero pension.
However, right now, I don't feel so badly off.
That said, in order to come out of this with any benefit personally I need to pick the right time to start a pension and buy a house. If I get that right, I'm laughing. If I get it wrong, I'm more stuffed than I was before.
Many famous people have said (and I am paraphrasing), in times of trouble, there is opportunity. The only question is whether the right opportunities come along at the right time and whether I have the ability to spot them.
There are a lot of people who could not buy their first home due to stupidly inflated prices. It is possible, though by no means certain, that this period of economic turmoil will turn out to be the best thing that could have happened for them.
The rest are in a very precarious position. As with all things, there are winners and there are losers.
At the moment, nothing is certain. Keep your eyes peeled for the opportunities.
And your fingers crossed....
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A lot of financiers and financial journalists (yourself included) have really lost the plot over this one. A few banks will go bust, a few businessmen will lose their jobs, then new banks will rise up to replace them. In the short run, it might be hard to get a loan. But in the long run all this will have a positive effect with banks being more prudent after having taken their medicine. The bail-out was a disastrous idea.
And in two years we'll have forgotten all about this.
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Personally, I think the House of Representatives made the right decision. Oh sure, without the rescue package, there is going to be a lot of pain. A lot of people will lose money and some will lose their jobs. That's tough.
But the markets will recover. That's what they do. It may take months, it may take years, but they'll get there.
The alternative is pumping $700 billion of taxpayers' money into a black hole. That would royally screw the US economy for a long time to come. I just don't think they can afford it.
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Let's face it, we're all as guilty as everyone else.
It almost doesn't matter what job you're in.
If you sell shoes you've been doing better because people have afforded more shoes.
If you sell houses you've been doing better because people have been buying more expensive houses.
The whole economy is based on buying and selling. I need people to buy off me and you need people to buy off you. Maybe not directly but the company you work for.
If as some here encourage we should save every penny and never borrow because it's the prudent thing to do, none of us would last very long.
It's going to get hard as purses tighten, but let's not panic, worst case scenario is everybody stops spending because of this financial crisis.
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Our domestic economy is build on debt...personal, corporate and Government. Everything around us is a mirage. It isn't real.
We need to reduce our expenditure in every home, in every business and in Government.
Banks should go to the wall...like a lot of businesses and a lot of individuals as the pain involved is the only way for people and institutions to learn the lessons for the future. We can do nothing about the past.
It is time for UK plc to find another way of earning her living in the future, other than borrow, spend and consume. Government needs to get off the back of people and put their money back in their pockets at a time when it is most needed. The BoE needs to reduce interest rates.
Britian's foriegn policy needs to strengthen econmoic ties with the emerging BRIC economies: China, Brazil, India and Brazil.
It's time for us Britons to find our entrepreneurial zeal once again and get out on the world stage to sell our products and services to earn a honest living.
What we really need to to also is ditch Gordon Brown's borrow, spend , consume and debt-fuelled frenzy of an economic policy!
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Why does everyone refer to "The market(s)" as if it's some abstract beast that can't be controlled? People ARE the markets. People MAKE the markets. People DICTATE the markets! All that has been lost in this year's series of grand catastrophes is common sense, rationality, cool heads and, so it seems, any degree of economic intellect.
It is unacceptable to keep harping on about the fact that banks simply do not "trust" each other hence the paralysis on interbank lending. A US bailout would be nothing more than "Daddy" bailing out his spoilt, thick, over-indulged children, who would make exactly the same mistakes over and over again, and again and again, and would still not play nicely with the other kids in the schoolyard. (It's called history repeating itself folks, or, for the more philosophical among you, it's the dialectic of life). A bailout would not restore trust, it would simply over-compensate and gloss over a fundamental incompetence and financial illiteracy that seems to have dogged even the soundest institutional stallwarts of late.
Get the bankers back to school. Force feed them (and world treasuries and regulators) to learn about and finally understand the complex structured products, models and algorithms that they've so ignorantly but readily used. Dissect the complex CDOs and CDSs and get product composition and mechanics back to basics. If a mum doesn't seatbelt her three year old into the car and an horrific accident happens killing the child and not the mother, the mother goes to Jail. Bankers and bankers alone have killed the financial system. They didn't buckle up their passengers or indeed themselves. Let them live with the consequences. In Darwinian (and Capitalist) terms, let the strongest and the most adaptable to change survive (they will), let the weak and irresponsible fall.
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The House of Representatives did the right thing by refusing the buy junk bonds with public money.
There was no proof that $700bn was a full and final payment that would solve the problem. There is no discussion of other options. We are told that businesses will get in trouble and people will loose jobs, but $700bn is a big fund which could help businesses directly.
Instead, we are told it will be the end of the world if we do not act now. This is just seems an attempt by the bankers to panic the government into bailing them out.
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Dear Robert,
*32
The pension Funds, Now that is the reality of it all, the ditching of funds, why did Gordon Brown tax The Pension Funds SO HE DID CREATE the the run on them?
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The problem goes back to the 1980's, when Thatcherism and Reaganomics arrived on the scene. The philosophy that the market will prevail relies upon the assumption that those running the markets are responsible people. That has been shown to be a false assumption, with plenty of letters and comments to that effect to be found in newspapers and online forums over the years. Some people could see it coming. There's no choice now, but to ensure that responsibility is enforced by regulation.
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Perhaps transparent and honest book keeping would allow us - in an instant - to tell whether an institution is liquid, or not.
"Neither a borrower nor a lender be.." Our banks and financial systems seem only to want to borrow - and the lending has been forgotten. And they phone me up and offer their services as "Financial advisers"!!
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#39
A) They're not tanking. FTSE is up 30 points as I right this.
B) The market makers.
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Not a system failure. There was no Systematic approach. No rules. What we are witnessing is a geo-political transfer of power within finance capital to the East.
The Dollar will not be sustainable as the central currency of the global market. What happens when you pour thousands of billion dollars into holes in the ground to support to support the banks.. Each Govt telling us that there is then enough cash to maintain confidence that the hole in the ground can be passed opff as a solid financial institution? Ans A hole in the ground that rather than spporting the structure rots the cash..rapid devaluation and re-alignment of international debt and power. The sun is rising in the East again.
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here's a jolly scenario:
the markets recover. there is no string of bank failures.
congress does not pass any bailout. the republicans loudly reassert free-market ideology.
mccain gets elected on an anti-wall street ticket.
the housing market collapse and credit crunch only really bite early next year, and then things get very ugly.
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What I want to know is what's next for the UK economy? Over the last 5 - 10 years, the UK economy has been based almost entirely on financial services or government spending. Given the fact that the financial system is now in chaos and the government tax receipts are going to be massively hit - what sector of industry will we turn to in order to revitalise the UK economy. We've no manufacturing industry any more so who do we turn to to provide the jobs that are going to be required when the government starts laying people off when they cut services in order to balance the books?
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I would like to suggest three immediate measures:
1. Slash interest rates to 2% - there is little inflationary pressure in the economy and possibly even deflation is ahead now that commodity prices seem to have peaked.
2. Raise VAT to 20% - just in case there is any inflation.
3. Give local councils a £2billion capital fund to purchase local flats and housing producing a new set of council housing that can be targeted at key workers.
There is of course a risk of a capital flight to higher interest rate economies but I think any major economy that shows itself to be aggressive in its solutions will attract capital.
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Lies all around! who to trust?
On Friday 26th September B+B stated that it was well funded and could last through 2009.
The next day it was nationalised. The country is being lied to - There is NO trust anywhere
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so I, who saved and invested sensibly, instead of borrowing more and more money to buy expensive houses, cars, holidays, gadgets and stuff I simply had to have because I could show no control, will end up paying the price. Where is all this money promised by governments going to come from? The problem is that they just fiddled while the country burned - watching trillions rack up in debt, content to see their happy constituents voting for them and what was in their pockets.
And now, there are some people with money who were "prudent" (Gordon's favourite word), that are the only ones who can actually finance this mess. So watch, while the government come after us to try to squeeze every penny they can out of us.
How fair is that? This has been a catastrophic failure of government. While the bubble was inflating and mass hysteria was taking place (the exuberant excesses of credit and material goods in the last 7 years), the government should have done something about the warning signs and slowed it down. No point in blaming it on global economics - show some governance. Capitalism and the free markets do not work when you are talking about things so inherent to the system as the infrastructure of a country. Look at banking. Look at the railways. Look at the energy industry. Look at schools. Look at hospitals. What happens if any of these fail (the simple risk/reward model of a free market) - they cannot be allowed to. So where is the risk? Plenty of reward though.
And we know, from previous government incompetence like selling gold at the bottom of the market, that we will nationalise these institutions and then not capitalise on them when they recover. They will be sold off to the private bankers and politicians friends just in time for them to start making bucketfuls of money. Now, if the proposals included guarantees that the taxpayer would benefit in the future from massive profits until such time as we maybe recouped the equivalent of 500% or 1000% of the investment at todays prices before the big shots start getting ridiculously inflated bonuses then maybe we would be more amenable but history tells us that we, the taxpayer, are bound to get shafted yet again.
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The end of western civilisation as we know it, buildings crumbling, shops empty, the fields barren, lawless gang warfare around us.....
Look the only problem we have is that the banks have forgotten what their job is, so we should explain to them.
If they won't lend to other banks the Fed/BoE won't lend to them.
Problem fixed.
Now lets look at a real problem - Global Warming, that's a real one, along with world hunger.
I hope that the kid's in Africa aren't hit too hard by the falling stock markets.
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#50
This is not bad for my business (as you will see if you look at my other posts) and it certainly doesn't need credit right now.
Businesses don't run on the same principles as individuals. Yes, some need credit to get them through cash-flow problems, but few need it in the magnitudes that we're talking about here and lending criteria has always been much stiffer for business than individuals. By and large businesses pay their suppliers and employees from cash, not credit. Generally the idea is that you have 30 days to sell the product before you settle the bill, and as Tesco have demonstrated today, retailers are not having any problems doing that.
If liquidity can be improved by next year most businesses will be OK (in my opinion).
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This government has built it's reputation around an intricate web of mechanisms designed with the sole intention of keeping expenditure off the balance sheet, and away from scrutiny.
Is it therefore suprising that we find companies operating in a similar fashion. These are private companies; it is the responsibility of the board and the shareholders to resolve any financial difficulties. Any bank that requires government intervention should immediately hand-over assets/equity to the equivalent value, otherwise the assistance should not be approved.
I also find it laughable that GB feels he is the best man to lead us out of this mess; considering he was the man who led us into this mess and isn't even prepared to recognise that fact.
It's time for change - a lot of change.
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#67
Ditch Brown and do what, allow the ideology that is at the root back into power, as I and others have said - and one day those who worship Thatcher will wake up to the fact - Reagonomics and Thatcherism was the origin of this mess.
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Re 53, AnitaES - if the Fed backed mortgages, what incentive would anyone have to make their mortgage payments? The US govt would end up with everyone's mortgage tab and have to massively devalue the dollar to pay it, which would destroy the US economy.
Re 62, this is one of the key problems - if you let every bank go (and that would pretty much happen if the central banks cut their gargantuan levels of emergency funding to zero right now), the damage to the world economy would be extreme. There's a balance between punishing the wrong-doers and cutting off one's nose to spite one's face. I'd be inclined to start clearing out some prison space though, for the financial executives who broke their contract to run a sound company, especially those who did so while fraudulently taking enormous bonuses.
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It's disappointing that the BBC's coverage of this issue has become so hysterical in the last 48 hours--and so opinionated. Peston describes the lack of a deal in the US as "catastrophic" and used the same word on Radio 4 this morning. Since when did reporters take such strong lines on a story? And why isn't he putting the alternative view-- that this is a game of chicken between bankers and governments in which the bankers are saying, in effect, "Give us the money or the economy gets it." No one doubts there is a problem here, but shares aren't in "freefall" this morning, the economy has not collapsed, and there is a strong continuing case that those who created the problem should not simply be bailed out. Doing so will simply create the conditions for yet another bubble, and another bail-out, paid for by taxpayers, in ten years' time.
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The time for ideology is not now. There is a generation of people in the uk and no doubt abroad that have taken significant mortgages to buy a decent home in this period of house price inflation. (Those being in their 20's and thirties now)
Life is not fair and whilst I agree that the years of hyper bonuses to the city elite are somewhat disconcerting, we all benefited from 10+ years of growth, and look to any director, CEO or individual with surplus cash and you could see extreme returns for the privaledged few... we should exclude this emotional argument at this point in the unfolding series of events.
- to take a stand on ideology at this time is plain wrong
we need to support the authorities as we attempt a rescue of the economic system that we all participate in / benefit from, and when stability returns, our employers are less distressed and the appropriate level of lending (at the right price) is offered to enterprises, but also you and I, we regulate with vigour to stop this particular event happening again..... and prepare for the next one.....
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#46 wotmenah
The reason I put it into 4, pushing 5, is that I disagree that the $700 billion bailout option is the best way, or is even the best of a bad lot.
I do agree with you that dithering is not a good idea, but choosing the wrong path could be much much worse.
We keep being told that this is the only choice we have, and that if we (by which I of course mean the US Congress) don't choose it now, everything is going to come tumbling down around our ears.
However there are quite a few economists and other experts who believe that this was completely the wrong plan to fix the US economy. And I am more inclined to believe them than the people who caused these problems and who are now saying "give us a load of money, now close your eyes and turn around, and when you turn back everything will be alright"
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With all due respect, why is it that so many are pointing fingers at politicians and regulators when the bankers should have and I would argue, did, know better. When I'm assaulted should I blame the criminal responsible or the police who didn't show up in time? Primary responsibility for this disaster lies with the bankers and their lawyer facilitators, and we shouldn’t forget this. The “originate and distribute” model was and is inherently flawed, as it removes the incentive bankers should have to carefully assess/model risk before jumping into the deep end of the pool. In this sense unbridled securitisation represents the greatest moral hazard banking has ever seen. But the bankers and their lawyers knew this – they were just too busy banking their ill-gotten gains to care. What is needed is the financial services equivalent of RICO, that US legislation designed to punish organised criminals by seizing their assets with virtual impunity. If it works for the Gambinos, it will work for the Goldmans too.
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Certainly, "casino financing" and a "betting-on-horses attitude" are finished.
Is it really a catastrophe?
Or is it now just a battle of pessimists and optimists?
Don't forget, for every seller at a certain price there is a buyer.
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#22 John_from_Hendon
About your last point, I read the draft of the bill for the bail-out in the US and it seems that there is a clause that would allow the authorities to suspend the need to mark to market!
It is section 132:
"SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING"
and it worried me a lot (I posted it on 2 previous threads but only got 1 comment.)
What do you (or any one else) think?
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"A sense of powerlessness to direct events in global markets". Why should anyone other than a control freak (or an ex-GOSPLAN apparatchik) think that trying to direct events in global markets is a good idea?
"Central banks could cut interest rates". If there is a shortage of credit then why are you advocating reductions in its price? This is a great example of why no-one should try to direct events in global markets. Such a person would probably make daft decisions like reducing interest rates when actually they need to go up.
I say well done to the US Congress for rejecting Paulson's plan, and how about letting the market have what it is CLEARLY signalling is needed, i.e. higher interest rates?
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Robert, why do you use the expression "...the breakdown in the US political system..."?
There is no "breakdown".
Surely, what we have been witnessing is a democratic process working extremely well. It may have come up with the 'wrong' answer, but I've seen absolutely no evidence in recent days that's it's 'broken down'.
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Comment 46 : wotmenah
The problem with your argument seems to me to be that you equate any decision to maintain the status quo with dithering. This is not necessarily the case, is it? The decision for "no change" may be because each of the options on offer is perceived to be inferior to what's currently in place. This doesn't mean that there is no superior option - just that at present it's not on offer.
It's quite possible that reaching the best solution is more likely from a position of stagnancy than from one where there is a momentum in the wrong direction.
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I am surprised at some of the comments made on the bbc site. Many do not seem to recognise the possible implications of a few banks going to the dogs and a few fat cats losing their jobs. I am no economist and have never invested in stocks and shares, but by just using a little common sense even I can see that the possible "domino effect" of this will impact every one of us and the consequences could be anything from a minor inconveience for a few people to a global disaster resulting in the collapse of the world economic system. Not even oil rich countries are potentially immune as if their customers have no money - they will end up with a plentiful supply of oil but with no one able to buy. Only time will tell how this pans out.
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#82
See my post @ #83...
As for change, yes, we need to get back to a regulated mixed economy, were personal greed (the Harry Enfeild type of "Loads of Money" scenario) is not allowed to control both the money markets and Govt.
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#39 sanitychecker
"Can I ask a really silly question (again) ? If the markets are tanking because shareholders are selling, WHO IS BUYING these shares?"
If I understand it correctly the whole point is that everyone is trying to sell and no-one wants to buy, this means that the sellers drop their price to try to entice a buyer. The more people selling - the more the price drops, as buyers have more choice and can demand more for less.
Hope that helps, in my head that made perfect sense.... ;o)
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"the normal levers pulled by central banks and governments aren't very effective"
So, we have a financial system that is uncontrollable? A system that exists at the whim of a few very wealthy people?
T.I.N.A? I think we're about to see old Maggie proved wrong.
The system must change. Indeed, it must be destroyed.
If there is to be any bail out it should be for the poor people losing their homes because greedy bankers lent them money they knew was unaffordable so they could get their next fat cat bonus.
Prohibit house repossessions for two years and let the banks sort it out.
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The only way that any money should be given to the banks is under tight conditions that makes them suffer for their mistakes and gives them real pain. The directors need to feel the p;ain not be insulated in the bank.
They should get some money but only if reforms are put in place. No more big bonuses, nor more ratching up of prices to buy businesses to satisfy their power egos.
They are often very bloody with businesses when they run into difficulties and generally show little mercy or understanding if businesses make mistakes. Why should they be a special case?
Its time that the heads of RBS, HSBC etc., were given the smell of a P45 perhaps that would then focus their minds on being more prudent as this is what they have given to many of their customers and shareholders by their wrecklessness. Lets fire the people at the top as they made the mistakes. I didn't make their mistake so why should I pickj up their tab. Why should the status quo continue. Time they fell on their swords and did the decent thing. No apologis necessary, resignations speak Louder.
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Some posters are raising some very interesting questions. It may be that there are opportunities here, because houses, and investments, are getting cheaper. Physical assets still exist - houses, factories, oil refineries, the physical infrastructure, have not been vapourised. It's the financial numbers that we attach to assets, not the assets themselves, which are going up in smoke.
Is this actually an opportunity disguised as a catastrophe?
Let me suggest a way of looking at this - I call it 'time phasing'.
Investing is something that virtually all of us do in one shape or form. It might not be shares or bonds, it might be houses or pensions, but it's all investment.
The critical issue is timing and time-phasing. Timing - when to buy or sell - is obvious. What about time-phasing?
House prices and mortgages illustrate this. House prices have gone up and up for years. Now they are falling, much more sharply, I think, than published numbers are telling us. But they will not fall back to, say, 1998 levels. Someone who bought at the peak (last summer) is certain to lose out. Those who bought ten years ago will almost certainly still be ahead. Someone who bought, say, three or four years ago, is likely to be roughly where he/she started.
As house prices rose, young people (in particular) were forced to take on hugely-expensive mortgages to get on the ladder. Older people (in general) saw paper increases in their house values.
This was a (rather bizarre) transfer of wealth from young people (who need income and are, initially, asset-poor) to older people (typically more comfortable, and comparatively asset-rich because they already owned houses bought at historic - much lower - levels of cost).
As house prices fall, this equation reverses. Older people will be sitting on smaller paper gains than previously. In the future, young people will find that houses are more affordable.
The net balance, if you think of it in this way, is actually positive. The older person's loss is simply on paper; the value of their house might have risen, but so would the cost of an equivalent house if they move. The young person's benefit isn't purely paper - it is a REAL, cash benefit in terms of servicing a mortgage starting at a much lower level.
Two snags here. First, this net gain presupposes, of course, that these young people still have jobs. That's why we DO need to stabilise the financial system so that non-financials businesses stay afloat. If bankers suffer, no one minds that except bankers. But if 'ordinary' businesses suffer, we all lose.
Second, those on the wrong side of the time-curve - those who bought houses over the last three or so years - are in dire straits. They need practical help, focussed on being able to stay in their homes. Government needs to create some sort of 'transitional relief' fund. Perhaps they could use NR and BB as part of this.
In the situation of a young person looking at this, I would suggest they take a sober look at their circumstances. If one's job is reasonably secure, this transition situation actually helps. It's a bad situation, but it is not without its benefits.
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I can't believe how many people don't get it. Yes, it's objectionable to bail out banks. But it's somewhat more objectionable if the whole system of lending breaks down so that people can't buy houses, can't borrow to expand (or even maintain) their businesses and can't rely on their pensions being there in the morning.
Economies aren't magic. They rely on institutions. One or two can fail and the system will survive. But with a systemic problem like this, there is a need for Government to step in before the dominoes all fall. Congress has just abdicated that responsibility in an outrageous act of populist lunacy that we will all pay for.
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#85
Don't shoot the messenger...
If it's just "Hysteria" then the only damage done will be to the credibility of a few politicians and journalists, on the other hand if it's not - no doubt - people like you would be on this blog (assuming we still have a working IT network to post via) complaining that 'No one warned us'!
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American politicians are playing a dangerous game. It's clear the rolling snowball of financial collapse is gathering momentum.
We've seen it reported that this will not be as bad as 1929 and the following Great Depression, but twelve months ago nobody predicted we would be where we are now.
If this monster snowball is not quickly stopped in its tracks it may prove too late for any power to prevent it going all the way to the bottom of the hill.
The bail out is the only realistic option on the table and it must happen now.
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So we have to trust the very people who allowed the banks to screw us in the first place. Right.
When will anyone shout "The Emperor has no clothes"?
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Peston should get a grip, his hysterical words do nothing in situations like this. He is so full of doom it's unbelievable, why does he not mention the fact that some Asian stocks went up in price last night. The BBC should sack this harbinger of doom-the man who personally tried to bring down NR and got his way with constant attacks.
His choice of word are pathetic-catastrophic systems failure-utterly unbelievable how he gets away with it-everybody who feels strongly about it e-mail the BBC and get rid of this clown.
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Live and learn...
Cowboy saying: Best way to double your money is fold it in two and put it back in your wallet...
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The markets have now gone 'green' - panic over?
Put your wallets away everyone - this might not be as bad as we thought.
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Come next year when NULab Government owns over half of the houses on duff mortgages they will call an election. They will win because no one will want to be evicted !!
Clever eh ?
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The whole story is about trust, especially about who could trust GWB or anybody in his team.
Distrust is not only logical; it could become helpful. For example, if China changed its billions of dollars into actual assets…
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"Would you write again on 'debt'?" was the serious request made to me last month. I have written on this topic thrice now!
"More and more people are incurring debts, which take months to repay."
Debts cause serious on-going arguments, distress and trouble.
More people get into debt as they are presented by tempting offers and special terms.
One very simple way of avoiding debt is to say clearly and specifically, "I am not buying that. I can't afford it. We can't afford it".
It is possible to resist the temptation to buy things which you know are beyond your means.
God has something very real and highly practical to say about debt - "Let no debt remain outstanding, except the continuing debt to love one another".
This is a decision which an individual has to make. Sometimes the decision is not easy, but it will normally be a wise decision.
Refuse to get into debt.
Decide that you are not to get into debt. This has nothing whatsoever to do with emotion - it is a decision an individual makes.
If you enter into a contract, that is all right, but keep up with the payments and never take on more than you can safely repay.
Discover what God teaches us regarding debt and it will save you from weeks of upset, anxiety and heartache.
God speaks to us about this subject in the context of our behaviour, and relationships with those around us.
Attitude is important.
Pay your tithes and offerings to God, your taxes to the state, and whatever you might owe your neighbour, no matter who your neighbour might be.
Yes, all this was first written to people who were disciples of Jesus Christ, but it is so essential in 2008, and so very practical.
It might just prevent you from running up unnecessary bills, and many many other ills.
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Economists, bankers and business journalists have all been living in a bubble of their own invention for the past twenty years. In this bubble, hot air dominates and the US economy is the best thing since sliced bagel. It's easy to see why they were all so obsessed with making money but it never made them right and anyone with any sense noticed the weak dollar, massive unemployment and diminishing manufacturing base in the US years ago and gradually moved their money out of US investments. It wasn't rocket science and I fail to see hysteria and such excessive news time has been given to internal US politics. Lazy, US-focused journalism springs to mind. The US is simply not as important to world markets as it used to be and only the UK, which seems to want to hang on to American coat-tails, will be dragged down with it.
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People tend to forget that in the long term nationalised banks make a lot of money for the government.
People forget that the Mexico bailout made the US govt around $600bil.
They will nationalise, they will profit, they will privatise and then we will find something else to create the next bubble.
Repeat until the end of civilisation.
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At last, we have a financial melt down which I had expected a couple of years ago.
I am very happy that this bailout has failed, why? Because I agree with the sentiments of many here, why should we pay for irresponsible lending and borrowing by the financial giants and the government?
I think we should also remind ourselves that greed of the common person has also added to this. Think for a moment, I bet you can think of someone who has numerous credit cards with balances far beyond their means, ones that we all know they can not ever dream of paying off? Television programs such as property ladder have to also accept the blame - they have encouraged people to borrow money and go into property development - borrowing the finance on credit cards and then shifting it in 12 month cycles to avoid payments. At some point it was going to catch up with these people.
This credit crunch, well yes it is worrying but I am not concerned - I owe no-one and have always purchased items I want by saving. Perhaps we should go back to these principles?
What I do find amusing is that we constantly hear Mr Brown claiming he is the best person to steer this economy. Well, Mr Brown you are the person that has got us into this mess. You should have restricted the issuing of credit cards and credit to people the banks and financial organisations knew would end up in difficulties.
I am also sick and tired of hearing the labour party and the unions criticising the Conservatives and Liberal Democrats, claiming the labour party do not believe in this big bonuses on the city. Really? I think the hypocrits should stay quiet - perhaps they should remind us of the last leader of the labour party - where did he end up and what does he do? Yes, that's right, Tony Blair headed to JP Morgan Chase where he collects a nice bonus and wage.
What I want to see is the city bankers having to repay their bonuses and those like Mr Blair. Put the money back and the banks will have money to lend. Why should we all pick up the bill? If I were to head out and max myself upto the eyeballs in debt could I just pop along to Number 10 and the Bank of England and say, oops, I appear to have overspent, do me a favour and bail me out at the tax payers expense? No I didn't think so!
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Oh please do get real! Yes we have been ignored in the scheme of things as far as banking/finance is concerned over the past decade but in truth we've not been particularly interested. Who cared 2 years ago about the sub-prime situation in the great USof A?
As a result financial institutions have posted obscene profits and paid apparently la-la land bonuses to employees. Bet most said 'that's outrageous but I wouldn't mind a bit of that myself.'
Now that the house of cards is crashing down it appears to me that the pack are baying for blood - string 'em up from the lamp-posts, let 'em burn - a curse on their houses.
All well and good but it's not just their gilded lifestyle that's now threatened it's your pension, you savings (however modest), the cost of living, being able to go on holiday.
Fine words from our PM and the boy wonder about guarantees for savers etc but there will be a finite limit somewhere down the track.
Letting it all go to the wall would be folly - in my humble opinion. I'm not for saving the pampered few but I would be keen to see steps taken to protect the vast majority who have worked hard and those that still do.
You don't ask the firemen how they got here when your house is burning down! Maybe later is fine. I'll even join in with the Peoples' Courts in dishing out sentences but save the people first.
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It looked like the republican/neo-con leadership was trying a BIG scam on the people before they get kicked out of office. The $700 billion figure was literally made up and picked out of thin air. Not costed. Not based on anything at all. A whitehouse source said that they wanted a figure that was "big enough to scare congress in to action without question."
That's right. It is just another banking scam! The whole bail-out bill was and remains a huge scam!
Well, the people called the elite's bluff, forced their representatives to vote NO! and and and.....And where was the promised crash? There wasn't one. As I write this the FTSE is UP! (only by a small amount, and it could fall again, but there is no crash) We were promised a crash, all hell breaking loose on a historic scale. and fire and brimstone stuff. A crash is a one day drop of 10%. It never happened. I was disappointed, I wanted to see Bankers throwing themselves out of high windows. And what did we get? We just got footage of a few fed up traders that could see their next Porsche delivery being delayed for a few months. WHERE WAS THE BLOOD? WHERE WAS THE DESTRUCTION? I wanted to see people lose it and start shooting people on the floor of the stock exchange! C'mon man, we were promised CARNAGE dammit!
The commentators on the news channels were funny last night. "We are in unchartered territory, we don't know what will happen next, people do not know what to do..."
More like, the people actually woke up, told the elite to go *%*! themselves and now the corporate media spokespeople are pissing their pants that their propaganda station owner's stock portfolio might be hit. They cannot pretend that there is any honesty in the banking system, as it has now been admitted that the banking system is based entirely on confidence, once that is gone, the system collapses. Hmmmmmmm confidence eh? admitting that the entire banking system is a big confidence trick then? Admitting that banks have been lending out trillions that they do not have? eh? It is only a short step from there to admit that David Icke is correct.
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Neither the Democrats nor the Republicans want to win the forthcoming election. Whichever party wins will get the blame for the pain involved in picking up the mess after Bush. The winning presidential candidate will be an unpopular single term president.
Not being as stupid as they seem, each party wants the other to win. So the Republicans put up a presidential candidate so weak that any white male Democrat could beat him. And the Democrats, being well aware of this, make sure not to choose such a candidate.
Regardless of their merits women and black men still have a harder time getting elected.
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#92
If it is true, that a number of (otherwise supportive) republican Representatives voted against this bill simply because they felt that the house leader 'insulted them' it does show that there has been a catastrophic failure - because politicians are choosing how to vote on their personal feelings rather than the issue.
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Time to start a new 'charitable' pressure group for city traders? I suggest we call it SOBs - Save Our Bonuses.
The shadow banking system, with its myriad of scams and 'off balance sheet' sleight of hand needs to be brought under regulation before any of the mess can be sorted long-term.
Until then, the city and wall street kids will continue to duck, dive, churn and con, trying to turn merde into bonuses.
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Come on Robert, you can do better than this. First you've accepted the argument that somehow political inertia is the problem. This manifests itself as the argument that some 'institutions' are too big to fail, and that it's mainly a crisis of confidence exacerbated by governmental failure. Now true enough the political 'elite' on both sides of the pond are pretty useless at the best of times but lets not confuse political infighting with what is, after all, a banking failure. I think it was yesterday that I heard the term 'institutions' being used to refer to these failing private banks. They are not 'institutions' they are private companies: businesses, with failed business models. More worrying is the old utilitarian argument that somehow intervention is good because it is for the greater good. Neo liberals have been peddling this 'solution' to the 'crisis' for a while now. What a turn around? This is the type of argument many on the left were making about the destruction of many of our old primary industries many years ago, that these industries were key industries and should be 'supported' ie. 'subsidised'. This is the heart of the matter Robert. These 'important people' are in a position to effectively demand a subsidy from the taxpayers and argue it is for the greater good. The crisis were are now suffering is a crisis of 'nerve'. The instability you mention is not explainable by political inertia over the propping up of failed financial 'institutions'. The instability is a result of bankers running failing private 'companies' doing a lot of special pleading for state subsidies. This special pleading should be ignored. If many of these banks etc. fail there will emerge other companies/banks to take their place. What we don't need is a propping-up of a number of 'private companies' that have systematically proved unfit to do the work they supposedly have the expertise to do.
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if Tesco can make such profits in these hard times!!!!! Why not get them to run the country. oh, but who would get all the points, the bankers again or would they be in non declarable mp's expenses.
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High Street Banks are retailers that sell money.
Wholesale banks supply Retail Banks, just like any other industry. Wholesalers that do not supply to retailers generally go bust, in any type of business why should banking be any different?
Surely the simple way forward, and therefore the one that nobody thinks of, is this: if the wholesale banks will not lend to other banks, but the central banks are willing for them to make those loans, then the central banks should lend direct to those banks that need the liquidity, cutting out the wholesale banks.
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@100, "Economies aren't magic. They rely on institutions. One or two can fail and the system will survive. But with a systemic problem like this, there is a need for Government to step in before the dominoes all fall. Congress has just abdicated that responsibility in an outrageous act of populist lunacy that we will all pay for."
Nonsense! There should NOT be one cent of tax-payers money to bail out the banks.
This bail out was a massive scam anyway. the 700billion figure was plucked out of thin air to, "be a big enough number to scare congress into agreeing to our demands without question" (according to a whitehouse source) IT WAS A SCAM!
I agree that if we find ourselves in a situation where a systemic failure causes a domino-effect collapse in the entire system, then the Government SHOULD act. But NOT with any extra money.
The flaw in the system should be found and rectified. But with trillions of extra liquidity pumped into the system already this year, that flaw is NOT lack of cash. 700 billion would not have made any difference when the federal reserve had already lent out 900 billion plus last week alone!
No, this is more like a gas tank that has sprung a leak. Bush was asking for more gas to be pumped in to the tank, when he should find the hole and plug it.
Actually, I believe this has more to do with the systemic flaw in fractional reserve banking with fiat currencies.
Making money out of thin air and then charging interest on it. Except that all that interest on all those loans is NEVER created and put into circulation. THAT is the very simple and deliberate flaw in the banking system that guarantees to inflate economies with debt and then cause those economies to crash.
Fix that and you have fixed the banking system.
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#32
"Of course it's a natural reaction to pour scorn and vitriol on "The Fat Cat Bankers" who caused all this ... but just remember that although they were driving the gravy train most of us jumped on board. Let him who does not have credit card debt or an uncomfortably large mortgage throw the first stone !"
I cast that stone.
I refused to buy a house in the last two years due to the ridculous cost compared with my income.
I have no debts at all. I own everything I possess.
No-one can defend the actions of the banks and financial houses on this one.
If the taxpayer bails them (as is likely to be needed) then any solution must hurt the banks and penalize them in the long term for the problem. Banking is all about risk/reward and they need to be reminded of that.
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Spot on 104. I've been saying for ages that it's sloppy and scaremongering journalists who have fuelled market (and public) panic. If we didn't have a 24/7 globally connected media, market decisions would not be made so hastily and irrationally. The media will eventually create both its own demise (we're all taking power from it via these posts aren't we?) and that of financial markets and society more generally (It is the media who have scared financially illiterate Joe Public into closing all of his bank accounts and stashing cash wads under the matress instead).
And yes, Peston most certainly did not come across as a distinguished business editor live at 10pm last night.
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Has someone turnd the Hadron collider back on?
We are all doomed. Doomed I say!!!!
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116
Do we really believe this?
It's much more likely that Republican Reps were listening to their constituents, but, for maximum political gain, needed to blame Democrat Pelosi for the outcome.
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#96
Surely if there are no buyers for the shares being sold then the company whose name in on the share certificate will have to buy back their (own) share as they were the original owner, in other words the share is a type of loan to the company. If to many people want to sell their shares, that no one else wants to buy, meaning that the company has to buy back these shares then the company will eventually run out of capital for it's day to day bossiness - it won't have the 'cash' to pay suppliers or pay their employees etc. and thus go bankrupt.
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As I understand it, and I'll readily admit my interest in this subject outweighs my expertise.
In order to provide the necessary liquidity to keep the whole system running and ensure the solvency of the banks holding large amounts of these mortgage backed securities. The American tax payer is being asked to stump up the difference between the real value of these toxic holdings, (and they do have a real value value since they're based on property) and the hugely inflated value of these holdings that the banks have marked down on their balance sheets.
The problem for me, (If I was an American tax payer) would be once a degree of cool pragmatism had returned after the revenge fantasy blood lust had subsided, would be......What's in it for me?
I'd be looking to capitalise on the fact that I appear to be the ONLY hope of salvation for these banks and in return for my $2500 investment (or whatever the amount is) I'd be looking to purchase this risk at the lowest possible price with either an opportunity of extremely high returns or a more moderate GUARANTEED return based on these banks returning to profitability in the coming years.
I don't believe that the deal on offer by the US government is a good enough for the US tax payer. I don't believe they see the government paying a fair MARKET price for the toxic securities. I don't believe they think they'll ever see any real return, (in the shape of cash in their pocket) on these investments and I don't believe they're seeing any commitment whatsoever from the banks involved to commit to getting themselves out of this mess by offering, in one form or another, the people bailing them out a better deal in the future.
If government intervention is the chosen path in this crisis, then the real political failure will be the failure of the government to represent and secure the interests of the American people. A failure which created the whole problem in the first place.
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it might be pertinent to ask the simple question as to who actually gains from such a major failure of the finance system. We know its not the ordinary taxpayer or the workers. But who stands to gain from the coming fire sale on the stock markets. It can certainly be argued that Lloyd's has done well in its acquisition of HBOS and that it probably wouldn't have been allowed to make the purchase in ordinary times.
We are witnessing the run up to a massive concentration of economic power and wealth, not its breakdown.
So who shops at a fire sale in the world's stock markets? There's the Chinese government with Billions in US funds, the OPEC nations - in the same boat. But they may have to act quickly as the value of the US$ heads south.
So lets pay close attention and look to see who the winners are here.
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"If it is true, that a number of (otherwise supportive) republican Representatives voted against this bill simply because they felt that the house leader 'insulted them'"
That is not true. Sure, they are using Pelosi's partisan speech as an excuse that they hope will play well with the electorate in November, but the truth of the issue is many congressmen were being promised to be greeted with strong rope attached to high branches on their return home IF they supported this diabolical theft from the tax-payer.
Democracy happened for once in the USA yesterday and it is a wonderful thing that it did.
Now, hopefully, congress can fix what is wrong with the system, rather that just keep trying to fill a tank that has holes in it.
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If they are not, why cannot bail outs from governments take the form of mortgages repayable by the specific company and guaranteed by the directors. If that were the case directors would not be so keen to before directors unless they were sure or confident in the ability of the company and would less likily to, or allow their employees, to undertake risky activilities. They would then also earn their rewards, although I am not saying that the majority do not earn their rewards.
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You've seen the Ruin of Communism. You are now experiencing the Ruin of Capitalism !
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This comment was removed because the moderators found it broke the House Rules.
#104 and others with similar comments;
Do I get the feeling that the real issue is that the truth hurts do you would prefer that it be swept under the carpet?...
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I can't help thinking we all deserve this.
Everyone wanted cheap credit for their flat screen TV's, new cars, cheap flights and sofas - didn't matter where the cash came from. We all wanted to make a killing in the housing market if we could afford to and we're all destroying the environment. Bankers may be at the top of the responsibility list, but really, we're all complicit in this.
The way Western society had treated the planet and other people living on it is a disgrace. Politicians might make decisions, bankers might abuse the banking system but, if the personal is the political, we're all to blame.
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Maybe the system has always failed - and it´s just the turn of the US and Europe to see its failings.
I saw a few posts yesterday about Argentina, but I don´t remember this level of hysteria in 2002/3. In 1900 Argentina was the 4th largest economy in the world - by 2003 there were reports of starvation in Argentina. What about the catastrophe that was Ecuador when the sucre was replaced with the US$ - no bleatings about system failure then.
You think the system has been kind to Iraq? If you do, great go live there. A wonderful system in Zaire under that great system manager Sese Seko Mobuto. What about Zimbabwe today? Good systems in East Timor and Rwanda provided you think a spot of genocide is beneficial to the system.
The list goes on.
Speaking of systems in 1989 someone did a theoretical valuation of the garden of the Emperors Palace in Tokyo. Turned out the Emperors garden was worth more than the whole of California. For some unknown reason Japanese real estate prices started falling shortly thereafter.
The world as we know it is in meltdown because the US won´t pass a bill to provide $700 billion of funding. It´s a lot of money - in fact it´s precisely twice the amount of money in the possession of the owners of Manchester City football club. I guess you could say that the entire world economy has twice the value of Manchester City FC.
Strange world - still it should make supporters of the sky blues happy.
Note also the now obvious and unashamed subversion of any democratic pretence. The democratic process has spoken - there is no popular demand to "mend the ailing US banks." Under a democratic process that is the end of the matter - but that is not the answer that the system demands, and the system will not be denied.
So what if banks collapse and the world is plunged into recession/depression - do the people not have the right to choose this outcome? It doesn´t matter if they are wrong or if they are ill informed - it only matters that they have chosen this. People have been around a long time, banks for only a small part of that time, and "global" banks for an even smaller part of that time.
This system manifestly can´t provide for the needs of the people, it can´t do anything for sustainable living and it eats and destroys all in its path. If you want to argue then please do so from the streets of Baghdad, Mogadishu, Peshawar, Kabul or some similar place. In this regard there is no shortage of choice.
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Didn't Sarbanes and Oxley do well!
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It happened. The World didn't end.
Maybe by trying to scare the beejesus out of everyone, then proving the Globe still spins ok, these guys are shedding whatever's left of their credibility.
Let the bad banks burn, set up a state controlled funding centre (that's all that'll be done by bailing out anyhow) and move on from a broken system to a better one.
Painful, but worth it in the long run.
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'it's the breakdown in the US political system'
Utter rubbish. The political system in the States is working as it should. Because members of the House serve two years terms they are much closer to public opinion. And the defeat of banking so called rescue represents the anger of a lot of ordinary Americans. The system is designed to be deliberate and representative. Which is why it endures.
Quite honestly I expected better from you.
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Robert,
Please can we have some balanced reporting please. You seem to be influenced by group think.
It just seems you are repeating everything you hear from the city boys you bump into.
I don't recall you forecasting this "disaster" a couple of years ago, so please don't try and convince us you know what's going on now.
If you want to do something useful go and interview Meredith Whitney at Oppenheimer.
She correctly called this problem in Oct '05.
What she says now is very refreshing.
Please take me seriously, jump on a plane and go and interview her.
The City and Wall street are more interested in themselves than the rest of humanity, lets not get hoodwinked into thinking they have changed their spots in the last few weeks.
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Why is it that the American politicians and taxpayers would seemingly rather lose huge chunks of their pensions, possibly their jobs and, ultimately their houses than pay far less in a general bail out of Wall St?
I can understand well how they are tee'd off, as my pension and savings have also dropped 25% recently and I'm coming up to retirement, but this would surely be a classic pyrrhic victory.
Or are they hung up on the American Way that it would be worthy of Mao's little red book of correct thought and analysis?
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#123
Unfortunately, at 10pm I don't think he (RP) is not meant (read, allowed) to be, the BBC 10pm news is for the 'Tabloid' masses, much to the BBC's shame in my opinion - it's "sound-bite" news.
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Why bail out the "Fat Cats" when it is only their end of the boat that is sinking?
Fine sentiments, unless you happen to be at the other end of the boat, which we all are.
If only it was as easy as saying "Don't Panic", but unfortunately in difficult times, no one is going to wish to be exposed to avoidable risk, and while the banks adopt the cowboy philosophy above (fold your money in half and put it back in your wallet) we all suffer because business needs money, and we all need business because we need the jobs.
The markets need to have confidence restored, and this is going to need all of us to be involved - through government help to the financial sector - and yes, we are all going to pick up the tab.
On a separate note please can we here no more of the collapse in house sales in August. No one was going to commit to a purchase at a time when the whole issue of Stamp Duty was up in the air.
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LOL. We have buildings that should never have been built falling down.
We have a US deal which has to go thru because the taxpayer is the only person big enough to buy the fire sale assests, its not a gift. China could buy but Mr U. S. Redneck wouldnt like that and China has been worried about the dollar falling, lost a lot on dollar holdings recently.
We have a load of money in the system pent up waiting to move in when things stabilse, whether it is first time buyers of houses of somebody grabbing a bargin. But the guy with the money has the money because they only buy when the greed-risk balance is in their favour. LB for a 1/3rd more than the building. LOL, LOL.
We have a government which could see this happening and did not intervene because it benefited from the bubble. Just hoped it would go away.
There will be impact on the economy and on peoples wealth. It is absolutely inevitable that the UK economy sees some effect. At least nobody will be under the illusion that the UK government is not a gambler, safe as houses, nudge nudge wink wink. And there are still people who do not think that they are being manipulated and that fear is a driver.
No hope then. Utimately Joe Public will pay at least in part either as a High St customer or a taxpayer. Where do you think the banks and the government get their money.
Lady Macbeth.. tis best the deed is done quickly.... rubbing of hand, blood appearing. Great cinema. When there is raging emotional debate is when cold detachment is needed, and those who use it profit. LOL
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#125
Then it's even worse, the 'average Joe' doesn't understand their own credit never mine the banking system, politicians voting in a way just so they get reelected - and we complain about fat-cat bankers!
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It's hard to know which I loathe most....the greed and vanity of the people who exploited the lack of regulation in the markets which got us into the mess in the first place or the envy and deep-seated bitterness of those who see this an excuse to condemn capitalism out of hand.
I do hope that we all draw breath when things have calmed down a bit and come up with a sensible regulatory framework that still enables the City to generate the tax revenues that we will badly need from it over the coming years. Otherwise, how else is the country going to pay its bills?
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Alan Greenspan stated on the 14th September: "This Week is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go. Indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes”.
The US Congress was correct to reject the rescue measures proposed by Bush and Paulson. The proposed rescue will artificially prop up US asset prices, and let the financial community off the hook. Given the opportunity, banks will look for new assets to artificially inflate.
Without pain, there will be no long term gain for the World Economy. The USD 700 billion bail out is a drop in the ocean, and will just prolong the economic agony for the US and other nations.
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Sirrah:
As an American taxpayer and an attorney I jumped for joy at the House vote for several reasons:
1. How can I believe anything Wall Street and the politicians in D.C. say. Apparently several generations of the graduates of the business schools at Wharton, Harvard, Yale, Columbia, University of Chicago, Stanford, etc. are either sociopaths or ignorant. My dentist last week commented that Paulson earned $140 million his last year at Goldman Sachs (?). And he had NO idea the financial crisis would happen?
2. American banks, and especially the big ones, have treated the customers with contempt, as if they were numbers and not people. I know of one client who shouted with glee when Indymac failed. When Wachovia failed, I called and told another client. The arrogance, contempt and hubris of these financial institutions would flabbergast Oedipus Rex and Aristotle. And I am suppose to bail these financial institutions out?
3. Old Jack Benny joke: Thief with gun to Benny: "Your money or your life." Benny: "I am thinking it over." I would rather see the economy collapse than have Kenneth Lewis at B of A or Robert Rubin at Citi steal another farthing we taxpayers.
4. When someone proposes how to value the securities based on these collateralized debt obligations and then actually brings these values to financial institution balance sheets and then lets the chip lie where they fall, then and only then will we have the information necessary to begin a bail out. Right now Andy Capp throwing darts at figures on a dart board knows as much about the true cost of the bail out than Paulson or Bernanke. And this to me is the key.
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"32. At 09:12am on 30 Sep 2008, mobomobo wrote:
Of course it's a natural reaction to pour scorn and vitriol on "The Fat Cat Bankers" who caused all this ... but just remember that although they were driving the gravy train most of us jumped on board. Let him who does not have credit card debt or an uncomfortably large mortgage throw the first stone !"
Stone just thrown :P
No credit card debt (neither does SWMBO)
£10 overdrawn on Current Account (dunno about SWMBO)
No store or othe cards
3 bedroom house £20,000 mortgage
Still off to Nice on hols next week :P
BTW in case you wondered. KHSGUY = went to same school as Maggie (Gordon) Broon ;)
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Here's a question you need to ask...
What is money?
Imagine you hold the entire world in your left hand. In your right, all the money which exists, 1 penny.
How much is the entire world worth?
Now double the money. 2 pennies. How much is the world worth now?
Has the world changed? No the only thing which has changed is your perception of what it is worth.
A wealthy few use this perception to acquire real assets, bits of the real world by manipulating the amount money which exists, and therefore your perception of the worth of those assets.
"Permit me to issue and control the money of a nation, and I care not who makes its laws." -- Mayer Amschel Rothschild
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Some very thinly disguised irritation with the Americans from EU Commissioner Peter Mandelson on Newsnight.
The upshot of all this will be a new global regulatory structure for financial markets, which will include the BRICs.
In the interim, as yet another bank (Nexia) struggles today, one suspects that EU financial institutions will strive to have a more 'arms-length' relationship with their American counterparties.
BTW. I was impressed by the FSA's Lord Turner on Newsnight, who successfully, in my opinion, argued that the FSA had learnt some painful lessons from the NR debacle.
As he pointed out, as yet, UK savers have not lost a penny so far in all this.
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I'm going to be unpopular.
I have to take issue with posters using phrases such as "people were forced to take out big mortgages".
No.
No one was "forced" to do anything. They chose to do so.
For me (and here's the unpopular bit), anyone who fraudulently used the self certification mortgage process to declare their disposable income far greater than it actually was has only themselves to blame.
Anyone who used a similar approach to get on the buy-to-let bandwagon, ditto.
It's supply and demand. Products are not made available if there is no demand. The financial industry came up with increasingly lax ways of Joe Public getting hold of money and Joe Public grabbed it. There was no "forcing" going on. If the public had rejected such approaches the products would have disappeared.
And yes, I know that ordinary people could not buy a house with a "normal" mortgage and therefore chose to self certify well above their means but that's my point.
They CHOSE to do so.
That said, what do I think should happen now? Well, (and here's the REALLY unpopular bit), what will be should be.
People who meet the above criteria and can not keep up their repayments should refinance. If they can't refinance then they lose their homes.
It's a shame and I feel for them, but it's of their own making.
If anyone thinks they have a genuine grievance against another party (the lender, the Government) then I fully support them investigating that avenue and attempting to get compensation. However, I doubt there are many "genuine" cases.
Support and assistance should be focussed on those that are going to suffer through no fault of their own. Those people who took out mortgages that they could afford but who will now suffer because of a crisis beyond their control. They should get every assistance available. They are genuinely aggrieved parties.
The rest, well, they gambled and lost.
It's harsh and unfortunate but there you go.
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re 122.
me too to some extent. I have got some debt but nothing like what I was being encouraged to take on and perfectly affordable to me. The trouble as I said in #79 was that you and me and others like us will be picking up the tab for those who couldn't show any restraint. And yes #32 is wrong. Quite a few of us didn't jump on the gravy train and quite a few had been saying in private that it was a house of cards/smoke and mirrors (well there was no point in saying it publicly - no-one was paying any attention). The strong economy was all bs - being funded by our childrens future, 30 year PFI contracts, pension fund taxation, selling of gold reserves etc.
Why try and cover it up with yet more smoke and mirrors (ie 700 trillion dollar bailout). We can't afford our lifestyle. Let's get real and reduce our expectations of fast cars, holidays, big houses and everything we want. We have to earn it and it's a slow process.
and #127 repeats my assertion that this deal is not good enough for the people bailing out, the taxpayer. Give us more reward and we might be prepared to take more risk.
Re meltdown if we don't bail out - how will it cost us more than giving them the money? I don't understand the argument that it will cost us £1500 to fix the problem if we give it to bankers and government (who are so good at using money wisely) but it will cost us a lot more if we don't. Since when have they proved their use of my money is better than mine?
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If anyone wants to know why China's keeping out, well ten years ago the Chinese govt and bankers looked at these credit derivavtives and decided they were effectively a mirror trick. So they've kept out and are not exposed in the same way (obviously have issues with owning US's debt and economic downturn though).
So interestingly, the winners in this lot are the Chinese and Islamic banks (due to their conservative banking practices).
Strange days.
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#138
The problem there is that they (members of the house) don't take a long view and never will do as they are always looking at being reelected - on the other hand presidents (and Parliaments in other countries like the UK) have either long or fixed terms - short of impeachment etc. - and can thus take the long view that is needed, this mess won't be sorted by the next US house elections never mind those in November 2008.
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Re 99
Nice theoretical analysis - and no doubt has value in some instances.
More generally the system has already arbitraged this value opportunity away for a lot people.
It is true that the old have seen paper asset value growth. However they have also seen their pensions destroyed - either through the personal pension scam or through the mechanism of old age pensions being linked to some bogus inflation rate.
On top of that there´s a great urge to lock old people up in care homes - the costs of which are eye watering.
I haven´t got any macro figures but I suspect the old have a lot less wealth than you may conclude simply by looking at house price levels. As you imply the only real metric is equity - and a lot of people will have sold equity to pay tax and buy food.
This class of equity buyers also adopt some very interesting valuation techniques - techniques that for some strange reason seem to favour the buyer over the seller. One more benefit of free markets.
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151:
Brilliant post. It needed saying!
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I'm just waiting for the flak to clear and then I'm in the market big time.
There are still alot of very solid companies out there whose share prices have been adversely affected by the present problem and they will provide excellent long term investments for the future at, now, very good prices.
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Peston,
Why not do an article on what will happen once the UK’s financial Institutions are bankrupt, You know we can go back to being productive with real jobs in the real economy.
Wait a minute? We sold / pawned our manufacturing base off to asia et al, in doing so we also wasted approx 20 years worth of educating our population on engineering discipline and so on.
We are truly screwed this time, nice one Mr Prudence ! (and yes it was GB’s fault and I commented on the erosion of our manufacturing base at the time.
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Catastrophic system failure eh?
Well so what? It was a crap one anyway.
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What would be the outcome of failure in the banking system? - we may all appreciate better values in life rather than seeing life as the chance to accumulate more and more money!
True values in life cannot be bought (it just seems like it in a capitalist world!)
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#90 questidium
Yes, I agree it is very worrying that the Poulson Bill suspended the need to keep proper accounts at a time when one of the main problems stems from the lack of confidence in the accounts!
OK let us say, 'Mark-to-market' was suspended then all that would happen is that the accounts would be analysed very quickly to reinstate it in terms of a banks ratings with the unfortunate consequence that the accounts would continue to be mistrusted.
Confidence in the accounts needs to be regained and a uniform pessimistic/realistic view of all the banks and financial instututions would not in the end do us any harm.
This idea that by 'lying' on a bank's balance sheet you can somehow make things better is partially what caused the problem. We all know that 'king has no clothes' and there is no point finessing the point and if fact it is, in my view, more damaging to continue fiddling the figures than not.
Let us keep raising the issue of 'Mark-to Market' as it goes to the very heart of confidence.
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Looking at the interbank and equity markets and the likely opening in New York the sky hasn't fallen! Most of your posts to the blog Robert were less hysterical and panicky than some of the more professional commentators and pundits. Could the man and woman in the street be right?
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#158
(talking about the UK)
You seem to have forgotten the 1980s, before which, the UK for example built ships, mined our own coal, built our own trains, had UK owned engineering companies, had corner shops and so on - and lets not forget, as you talk about education - many schools had fully equipped wood and metal working facilities (and other 'trade' subjects) were kids would learn the basis of a trade that could stay with them for life (even if they did end up in an ivory tower pushing a pen all day).
Also, we had a nation of fit children as schools still had playing fields, were time was given over to making sure that the kids learnt how to take their aggression out and how to be team players via sport. Some schools even had their own allotments were kids could learn how to grow real food, of the sort that they eat in the school dinning rooms at lunch time - granted that some school cooking was a crime against the child and ingredients though!
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"4. When someone proposes how to value the securities based on these collateralized debt obligations and then actually brings these values to financial institution balance sheets and then lets the chip lie where they fall, then and only then will we have the information necessary to begin a bail out. Right now Andy Capp throwing darts at figures on a dart board knows as much about the true cost of the bail out than Paulson or Bernanke. And this to me is the key."
AMEN!
and that is why this bail-out bill was in reality a 100% grand theft America scam!
The 700Billion figure is NOT a calculated figure based on what is needed to solve the problem. it is NOT costed in any way shape or form. It is a number that was, in reality, in fact, actually literally picked out of thin air as admitted by a whitehouse spokesman last week.
When I say that they "made it up" I do NOT mean that as any kind of metaphor. I mean that they literally needed a number so big, so frightening that the congress would be shocked and scared into supporting the measure without question and so they plucked a figure out of the sky. They made it up.
The whole bail out bill is a MASSIVE scam!
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#163
I’m assuming your having a go at the real state our country is in? i.e we are in real bother this time, no more family silver to sell off.
So now we have no (will have no) service Industry that we can export (banking / financial services) because we have proved ourselves incompetent (our AAA credit rating is on a shoogly peg), nor can we manufacture anything.
10 Million on the dole anyone ?
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This comment was removed because the moderators found it broke the House Rules.
Re 151 Mortgage holder the problem.
Agree and disagree. If somebody goes for a 125% self cert mortgage etc etc then difficult to defend.
However UK routine property turnover (can't remember figure exactly but they are in the right ball park) runs at about 2 to 2.3%, purchase due to deaths, up-and-down grading, job relocation etc. Typical occupation period just under 5 years. Changes in demand push up prices, or down as at present, Closing days of Conservative property boom, Lawson, property turnover rose to about 4%, I think a bit more. Very strong growth in house prices, unsustainable, vulnerable to upset, upset duly occurs.
Similar figures recently I believe. Note it is easier to push prices up than to build property to match demand - limited by planning and physical build time.
If you then accept the market can be, shall we say influenced, by events then any sane person who has to keep an eye on the economy would look at control mechanisms. There is no such animal as a free market they are all controlled.
The most, but not only people who are, vulnerable to the market movement up or down are the young, they are the most inexperienced and least financially padded.
A house is not just financial you need a place to live, and guess what, the property prices are high where there is work. (There is also another subsequent mechanism as a boom developes which is asset stripping cash moving to rural locations but that is not the core of it).
If you rent you have a 6 month security and thats all, and much of the private sector stock is tacky. Private landlords need 10% of property value for the finances to work. This is seldom available so anybody investing in buy-to-let needs rising property rises to make it work and rarely maintain or update property. Repeated government strategies, have not ring fenced social housing so the available stock has dramatically reduced. Gets steadily more difficult to rent.
In this situation, with difficulty in renting due to availability and high rental cost there is pressure to buy. To buy is dangerous unless there is stability. simplistically ther eis a point at which the would be householder says the snapshot sum says I should buy.
The new banker, (not the old school high street banks) needs to expend his turnover, has to generate debt all the time, its not credit, its debt he is selling. Runs out of sound borrowers so has to look to unsound borrowers/practice (eg NR, BnB). Mr Shareholder just wants best divi.
As long as house prices go up you don't need a deposit Mr Borrower, go 100% and you'll have your deposit next year as the house price goes up and if you don't buy now you won't be able to next year the property will be out of your reach. New banker needs expanding debt. Brings a whole new raft of inexperienced people into housing.
Year on year the property price goes up, everybody is happy. There is nothing to stop the new banker who has demands on him from the shareholder. This extra demand created by this new debt regime pushes demand up and therefore prices rise and property turnover moves up from 2.0% towards 4%.
Interest rates controlled by BoE as instructed by Government. Government imposed model remember. Rampant house price inflation does not register on inflation model as gov left it out. Interest rates stay low fuelling house demand, no damping. Effect of low interest rates which do not reflect inflation is to effectively subsidise mortgages driving prices higher. Next new banker step is to promote assest stripping house to buy cars etc. That new activity rises in volume to match actual volumes on house purchases. Hmmm.
Government happy, massive, truely massive revenues relating to housing. Gov wealth. House holders happy, feel wealth. Important, feel wealthy. Economy booms with asset stripped cash buying up left right n centre. Pressure grows on gov not to intervene from banks, and newly house wealthy voters. Keep pumping the volume.
Gov should have told BoE to introduce housing inflation on a taper into BoE model, should have moved to pressure new banks to limit mortgage percentages of house price, not been asleep at the wheel enjoying an easy ride. Gov knew bubble at work, admitted it last week. did nothing.
So you now have young inexperienced borrowers who have been encouraged into artificially low interest rate mortgages at high percentages of the house price at the top of the market. The bank wouldnt have given them the current mortgage at the new interest rates and house price so why do you think it is acceptable that they gave it to them just a short while ago knowing this was around the corner. Ditto the government. It is predating on the vulnerable.
House price duly drops. Householder cannot sell even if gets an offer a fiver lower than mortgage and sale costs. Not allowed to by bank. Householder has all the liability but no right to insist on sale unless can clear debt. Meanwhile the artifically low interest rate has to eventually go up and the already tight household buget is unsustainable. Bank will not accept fiver loss on sale would prefer to sieze and sell much lower and claim on householders mortgage insurance, more predation. Insurer goes after householder for loss.
Rural prices meanwhile pushed up by second home and retirement purchases, houses not accessable under any circumstances to local young, disintegration of community. Even stiifer planning to protect rural beauty develops.
Buy to let generated by new bankers to replace first time buyers priced out of housing market. Seen unbelievebly as a good development, not a danger sign. Gotta keep expanding the debt.
Albert Einstein - It is madness to keep doing the same thing again and again and to expect a different outcome.
Tell me if you think it is just a consumer thing.
Sorry to all for length.
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WHERE IS THE CRASH???
last night, I was looking forward to settling down in a comfy chair, with some popcorn and a nice drink and watching carnage. Bankers leaping from their 50 storey windows. People going mad on the stock exchange floor and shooting everyone in sight, FTSE plummeting through the floor to historic lows, 10% 20% 50% collapse, Politicians and bankers panicking and soiling themselves live on television.....
WHERE IS THE CARNAGE????
I want my crash dammit!
Peston, you got my hopes up you big tease. and today???
NOTHING!!! the FTSE dribbling along in POSITIVE territory. WHERE IS MY CRASH???
PESTON you promised me a crash today!
Could it be that the bankers and political elite pushing the bail-out were......LYING????
Surely not! Not those who told the truth about WMD in Iraq? they would not lie to us.....again?
The Bail out is a scam. Sure the banks are in trouble, but this greedy and unworkable bail-out is not the answer. It is the people in power looting the shop before they flee the scene!
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151,
I don't entirely agree. Whilst clearly you could make that case for those with deluded aspirational ambitions, what you can't ignore is that, in the case of the UK, a shortage of housing has fuelled rampant demand and escalated house prices to the point where even at the lower end of the market those earning a combined income of say £35000 (perhaps a couple employed in junior management positions in the retail sector) have no option but to borrow four times their annual salary if they want to purchase a home for themselves and two children.
Clearly, as we are seeing now this system was only maintained through the provision of cheap and easy credit - a system that suited the government since it masked to some degree the real problem of the acute shortage of affordable housing and suited the lending institutions since it generated huge 'paper' profits for them.
The collapse of this easily available credit provision could arguably be presented as a good thing - since it could be seen as enabling the UK housing market to naturally correct itself and narrow the huge disparity that has occurred between the growth in property prices and the growth (or lack of!) in wages. Perhaps your right to suggest that those that can't afford to pay should make way for those that can - hopefully those moving upwards will free up houses for those moving downwards and those seeking entry onto the housing ladder. But I don't think your entirely right to suggest there was a choice.
People have to live somewhere and I believe that the government has a responsibility to, if not directly provide then at least nurture conditions where the market can provide for its citizens somewhere to live. That hasn't happened in the UK - and ironically it has provided a robustness to the housing market that the US has lacked - Instead we have seen the proliferation of profit driven, inner city, aspirational, loft living that has provided rich pickings for both the developers and the financial backers they've been in cahoots with.
This then would be my grievance with the government and it's a particularly telling one to address to a labour government, it would be that they have treated housing as investment rather than homes.
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#167
I don't think i disagree with anything you wrote (I might have glazed over half way through!!) but I stand by the "no one was forced to do anything" statement.
As for 125% LTV mortgages, it's a different argument and I don't care about that. I don't care if Joe Consumer takes out a 200% mortgage as long as he does it lawfully. My beef is with people who declared fraudulantly that they could afford the repayments when they could not. They made that declaration, it's down to them.
Personally speaking, I can't see the sense in 100% LTV let alone more but that's just my opinion. Personal choice.
But I re-state, no one forced anyone to take out any mortgage.
To be honest, there are no absolutes in a situation like this. It's the consumers' "fault" for continuing to buy-buy-buy and the industry's fault for throwing unsustainable vehicles at them.
Which came first, the chicken or the egg?
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#165
Yes indeed, if a crash does happen, that people turn away from the money/credit industry as an investment method, the UK could well be in very deep Doo-doo as we simple don't have any real home owned/grown industry create the exports that will re-finance the country.
Perversely, having being one of the larger net givers to the EU we might just turn into one of the largest net takers of EU (re)development aid...
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I simply don’t understand the argument about getting the first time buyer back into the market. I would have thought that the vast proportion of sales would have been because of 1. People up sizing 2. People down sizing 3. People moving jobs etc etc.
I reckon that as a % of money generated in the economy (you know, actual transactions ‘trading’) due to the reasons listed above are in the majority. This to me indicates that the real problem here is stability, no one is moving because everyone is waiting to see what will happen.
The first time buyer is not the be all and end all, is it?
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#170
"But I re-state, no one forced anyone to take out any mortgage."
Now come on.
There isn't a human being alive that doesn't realise that births, marrages, deaths and seperations all make push come to shove.
For those they will have to sell and buy - they literally are forced to take what mortgages they can get.
And in a rising market like we have had, again those with growing families for relocations for job will have no choice.
You cannot blame the consumer for chosing what is best for them at the time.
What came first is the increase in house prices that could only come about by relaxing LTV and ratio to earnings. It doesn't take much to relise that 125% mortgages can only push up prices and reduce affordability - unless you also choose 125%.
Your argument has no substance to it what so ever - a bit like the bank share prices 8o)
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Perhaps now is the time to finally accept that the USA is a foreign and fairly incompetent place. At least within Europe we would be voters. It really is time the British started to disengage with America.
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#165, 171
Really our country is stronger than you think. Even our banking industry is in much better shape than the US industry. (Think Barclays buying the best bits of Lehman for a song after it crashed.)
Furthermore, we have world class companies in many other sectors. Examples: Vodafone, GlaxoSmithKline, British Airways, BAe Systems, BP, Shell, Tesco, Cadburys... The list goes on.
The sky is not falling in.
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The United States of America is a foreign country and just because they speak a version of the same language, are a former if rebellious colony, and export their ghastly films to us, they remain a foreign country.
There are some seriously angry people over there who are not aware - as they live in an enormous country - of the global ramifications of the US financial scene. So, since the country is a democracy they put their anger to their representatives.
I reckon the reason the bail-out failed is because since WMD nobody believes Bush on anything. I recall Blair had the same problem.
We need to be very aware that cultural issues affect economic outcomes which also in their turn affect social attitudes. All of these things are interdependent - something the bankers forgot as well.
We live in changing times: not everyone gets to smell the coffee.
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re my post 167.
I'm not attacking anybody for suggesting that unsound borrowing is unsound. I agree. What I am saying is that the body whose duty it is to regulate the economy which everybody works within, to regulate so damaging overheat occurs failed dismally.
If you accept that the BoE has a job to regulate inflation via interest rates but the most influential economic factor is house prices how can you justify leaving house price inflation out of the control mechanism. If the control mechanisms controls the market the issue of unsound borrowing disapears. QED France
If Greenspan in the US is correct in saying that the domestic housing market stablising is key to the domestic economy recovering, and that is 2010 at the earliest, then things will remain in trouble. Could be later than 2010.
If the stable housing market turnover runs in the region of 2% of stock and 4% gives you a boom, then less than 2% gives you a decline in property prices. First time buyers are part of the mix, 2% is unlikely to be acheived without first time buyers. First time buyers will not return until the market is stable, or at very least until it has clearly bottomed. Thats the problem first time buyers are part of the recovery, otherwise the only growth is from people who die.
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#173
I stand corrected. I should have taken notice of my own statement, “there are no absolutes”.
I'll accept that there are some "genuine" cases, those that were forced by circumstances beyond their control such as enforced relocations for work etc. But I do not accept that their numbers are great.
Births, deaths, marriages and separations rarely, in my opinion, place people in unliveable environments. Furthermore, even if such a situation occurs and people are placed in to a situation where their current home is physically too small, there are ways and means to resolve that. You still need to persuade me that the only option is to fraudulently declare disposable income on mortgage applications.
Yes, of course I accept that changing circumstances can lead to difficult circumstances and such circumstances would be eased by a bigger house etc. But if you can’t legally afford one then you can’t legally afford one.
I suspect we will not agree on this, it’s two sides of the same coin.
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If Paulson was right then the failure of the $700bn plan to go through immediately would have caused armageddon on the financial markets. Sure they spiked a bit yesterday but today armageddon is far from the truth as the Dow and FTSE both recover. Paulson is thus wrong- QED.
Let the free market take out the fraudsters and leave consumers with banks that actually make faster payments, pay realistic interest and have sound management paid realistic salaries all included ie less than say the PM.
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179
There is no such animal as a free market
Pressures grow under the surface and come thru with a bang. Doubt it is over yet. Can't remember anybody forcasting the erruptions in the EU of the last couple of days. People sit on it. eg BnB saying everything okay 3 days later - bang. Can't trust reassurances which is unsettling things. Hence please dont run on the bank.
Damage in the system is unlikely to be contained to the fraudsters hence the problem. If it was contained nobody would give a damn.
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#175
Not if the bubble pops, which it will do if a crash occurs, most of the industries that you cite will crash too...
Yes our economy is strong at the moment but much of it is a service to the very banking/money sectors that will crash, GlaxoSmithKline and BAe might be able to earn the UK foreign earnings but the others - I doubt it, and as for BA, don't make me laugh, come the day of reckoning (trials and retributions style) expect it to be either broken up or renationalised!
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#179
Hmm, not really, certainly not a QED moment as it's clear that a lot of arm twisting is being done, with promises that the bailout will happen and that the FED (and other central banks) will keep the banks afloat for a little while longer. This was the purpose of Bush's television address this morning, just in time for the opening of the NYS. You also need to look at what happened on the Asia markets overnight - in those markets there seems to have been a lot of manoeuvring of stocks, down but not crashed as you say, but now positioned to weather the storm if it comes.
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The "system failure" happened years ago... mis-selling and chronic over-pricing of property, on both sides of the Atlantic.
We have all watched in astonishment at the crazy lift-off in house prices.
That is deadly dangerous...most of all, to banks.
A battle is raging between middle-america and the greed of Wall Street.
Surely the solution is to pass the emergency bail-out, followed by a Congressional Inquiry into Wall St trading, pay and bonuses.
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That cover-up called "Bail-out" and "decisive actions" is absolute discrace.
The case is the same as Enron - some private inevstors do something stupid, but instead leaving them to bust and court to decide their fate the UK and EU government will help them to cover it up, of course with my taxpayer money?!??
Thank god there is still common sense left in mainly in Republicans America.
Not in Labor UK though...
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183,
No because no one knows how deep this goes. 900 trillion dollars is the estimated figure on us residential mortgages. The bail out is a no goer IMHO.
As E.T would say, ouch.
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re 167 and 177
I am afraid you have totally lost me - you talk about property turnover rates of 2% rising to 4% in a boom - and yet you also state that the typical period of occupancy is five years. That implies a tunover rate of 20%.
You state that BTL requires a rental of 10% of capital value to cover costs - but I know that even at current interest rates you can cover costs at 8% (easily).
Do you really understand anything about the housing market?
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Well, some American politicians are having to vote according to the wishes of their electorate, fancy that. The USA looks like it is heading towards becoming a democracy instead of pursuing the Pakistan model.
Members of the House of Commons take note.
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#186
re that 10% figure
Just a thought, have you costed in the actual cost of letting, not just the cost of the mortgage repayments - letting a property costs money (for statuary check and maintenance etc.) on top of any 'fixed' out-goings.
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#187
It might be heading towards a becoming a democracy but it could also be heading towards bankruptcy!
It's not always good that politicians listen to their electors, many people don't really understand High (Main) street credit offers, never-mind Wall Street type finance...
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Most of these posts seem bitter, and full of political anger.
However, the situation is potentially far worse than 1929.
In 1929 most of us did not own our home, we rented it.
We could potentially end up in a situation where our homes are worth literally nothing.
And banks? Doors locked.
A solution is vital, (non-political and sensible)
Otherwise, serious social unrest and a massive crime-wave.
And your pay-cheque....gone.
The community depends on our banks. We'll have to leave the blame game until later.
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re 188 - yes!
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I,m not neccesarily against the fact that the US voted out the 700 billion bailout............but , to get it into perspective, the Federal Defense Budget for
2009 is 515 billion with 650 built in for contingencies ! Would it cause major problems if they had to keep their finger off the trigger for a few years :-) ?
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#190 exactly. and one non-politcal and sensible solution will be to leave the bad investors on their own faith, economy can not be mandated with decret-style state issued "decisive actions" I'm afraid.
We anyway will have natural price correction, because trying to "help" ALWAYS makes the economy worst. I am afraid the economy can not be ruled by imaginery planning.
Otherwise you make it much worst spreading all the issues allover the whole economy - just cut the property speculators.
Of course Bankers Association and the governement will prefer political solution to spread the losses, no matter the price you and me will pay.
Bail out the people not the bankers.
The funny thing is that Labor are doing that, after the Brown said they will take for the people not for the elite. LOL
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The US political system is not in breakdown - in fact by rejecting Paulson's plan it is working very well.
Try reading
http://www.informationclearinghouse.info/article20900.htm
for a good explanation of why we're in the mess we're in, and why a bank bailout should not happen.
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#193
Sorry but I just don't think you understand this, the end losers will not just be the bankers (here I'm not talking about any retributions that might occur) but the home owner - who will still be liable for the mortgage debt - and after that if the bank is still in liquidation (bankrupt), the bank customers and share holders - in other words, you, me and 'average Joe' down the road!
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I seem to remember having a discussion a long long time ago following the failure of the UK Government to save Rover from collapse. My argument at the time was that rather than support and nurture an indigenous manufacturing economy we apparently favoured a "hollow" financial economy based on banking and insurance. At the time there was an individual called "MIDAS MURGLE" (I think) who advised me that I should take a basic economics course before I posted any further comments - Cheers Midas if you are still out there, you and your financial chums might need to go on a basic manufacturing or checkout operators course - The carnage that we saw in the indigenous manufacturing base is about to be brought to bear on the financial sector. We can only hope that somehow we come out of this wiser and have a better understanding that we need a balanced economy - Manufacturing/Service/Science/Finance to weather crisis like this. Midas - Where are you; Stacking shelves in Tesco ?
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#195 help then to those home owners only, but leave all BTL investors, hedge funds and banks speculating with the property bubble to pay the bill, why everybody should pay for somebody's private speculations, if I loose money on the stock market nobody will bail me out, it is completely unfair, not tot mention that I think it is unlawfull as well...
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Just had to join this blog..talk about self fulfilling prophesies.Now I am certainly no expert but I do know that if you keep on and on and on then people will get nervous. The BBC have played a significant role in this sorry affair.....by employing Mr Peston....someone needs to prescribe him valium and prozac
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#197
Forget the stock market, even mortgages are some what of an irrelevance (evictions just won't happen if the mortgage payer defaults due to deciding that it's more important to feed his family), we are talking about a possible banking crash - the ATMs will either stop working, banks will either close or limit how much you can withdraw, Internet banking will be shut down, employers won't be able to pay their employees etc. etc. etc. This will, if it happens, effect everyone, even those who have never had a bank account never mind playing the stock or housing markets.
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#198
Is the truth hurting, never mind, all surgery does so I'm told, but if the complaint is caught early there is less chance of complication such as gangrene setting in...
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very true #200 ... and the surgery has been performed
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#201
Oh right, has Bush used his executive powers to sign the $700bn bill into force then, has the UK Govt. put back the strict regulation that Thatcher and others have removed from the 1980s onwards? Sorry but the surgery you are talking about was botched and could well cause the patient to loose a leg or two if further surgery is preformed very quickly.
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re #202
Oops, That last sentence should have read ...or two if further surgery isn't preformed very quickly.
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#198 so you are saying the media are to blame for all property buble?
Even though, all the time most of the media especially BBC (excluding Mr. Preston), was telling us that the property will only rise (which is proven wrong now), and that the government is pefect, which we all shall see in near future unfortunately...
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The bailout is morally, ethically and fundamentally wrong. It is also likely unconstitutional. The house did the right thing. This ideology of a few on here that this is populism and only the elites know better is ludicrous. Those in power with this very arrogant attitude didn’t listen to average citizens for years about these very problems.
Most of us don’t trust or believe in the government leadership or the corporate leadership who have their cronies in power for a good reason. Paulson is tied to Goldman Sachs and wants to toss money over the wall to them, and some of you have the audacity to blame populism like some aristocratic thug bullying humanity down your path of destruction? You people are so afraid and desperate that you would hand them everything and believe that their plan will actually work. And when the bailout fails, as all the previous nationalizations and bailouts have, then what?
I learned about this problem in the dot.com crash. It is the same problem at the core as what we are dealing with now. That problem was setting interest rates at a level that was wrong for the market.
Currently though the banks are not lending either because they are insolvent or they want the premium price of a government bailout. We need to say in a firm voice, “NO BAILOUTS!”. If any bank at that point isn’t working as it should we know them to be insolvent and can make a rational choice. If they will not be transparent about what they have on and off the books and still won’t open the spigot they are likely insolvent. They deserve nothing. It is time we as a society take our failures to the Wall. It is time way take our credit driven lives to the WALL. It is failing us.
I find it very sad that the banks are finally doing what they are supposed to be doing and you on here whine that we must fix the liquidity so they can continue to do what they are not supposed to be doing. Some of them are not lending because the risks of the counter parties might be too great. That is exactly what we want them to be doing, practicing risk management. And so many of you on here “Believe” fixing the problem is by having the taxpayer borrow money from the federal reserve and hand it over to the banks so they can continue down their merry way. Did I hear this right? You want to solve this debt-induced crisis by rolling over more debt on top of the taxpayer to hand it over to these failed institutions so they can keep handing out without proper risk management?
Let me simplify it yet again.
You want to hand over 700 billion INITIALLY, which will turn into trillions, so they can lend without proper risk management? Even though the lending we had before is what caused the problem? And the populist average dumb citizen is wrong to shoot this idiotic idea down? We are told by the aristocracy on this board and in government and Wall Street, “If we don’t do it the end of the financial market is coming.”
You are telling me and asking me to believe that this 700 billion will save the day. That it will fix all our problems and that tomorrow it will all go back to normal credit spending spree? That if we don’t start throwing public money at Wall Street and start writing blank checks the end of the world as we know it will occur.
In my opinion if it is truly the end of the world for the financial industry 700 billion isn’t going to stop it. So why hand it to them if it is the end of the world?
I have had enough “maybe it will work”. Prove that this bailout will work without a shadow of a doubt. Prove it and show us historically, mathematically and with all assets totally transparent. And all profits taken by everyone and everything associated with the business to be totally disclosed for everyone to see. Everything needs to be put on the table before we go tossing money to these idiots. If they won’t practice proper risk management it is the duty of the evil populist average citizen to practice it for them.
Welcome to how things should work. If we come to financial Armageddon get out there and help fix society instead of whining about what should have been done.
Enough is enough. No BAILOUTS with a firm voice. Force the banks to reveal their hand of cards, NOW!
And yes. I am angry as hell and as the pathetic populist dumb citizen won’t tolerate this nonsense anymore.
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Fear and greed drive the markets.
After years of greed, in just a few short days, we suddenly face the ultimate fear...
What happens if the world economy fails?
The "fat cats" would be left with nothing.
Ironic... that unbridled greed should end in total poverty! But there's nothing new in that, its happened so many times before. People never learn - that's why one cannot be optimistic.
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Sirblogger,
Understand your sentiment and agree that the financial institutions should state their positions.
However, I fear that the credit derivative market might just have made that impossible to do in a short period of time.
I've been banging on about this for a few days now, but do people of here realise that the derivative market is worth some 54 trillion usd against around 15 trillion worth of debt?
See
http://money.cnn.com/2008/09/30/magazines/fortune/varchaver_derivatives_short.fortune/index.htm
for a fuller explanation.
Basically anyone can take out a derivative based on a credit event - regardless of whether you own the asset you're trying to "insure".
I like the analogy in the article,
"It's like me taking out an insurance policy that you will crash your car. If you crash, I get paid"
Similarly, if some of the 15 trillion debt goes bad, then there's 54 trillion riding on it.
What gets worse is these derivatives (or insurance policies if you like) get sold on and on and on, sometimes with no real paper trail. The financial institutions don't need to hold capital against the risk or anything.
Thus the banks have not got a real handle on who is exposed to what.
I think the 700 bn is an interim measure to buy time so we can understand the exposure more than anything else.
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To bank , or not to bank, that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous overdraft charges,
Or to take arms against a sea of bubbles And by popping end them? To withdraw, to cheque out
No more; and, by a sleep, to say we end
The hidden charges, and the thousand natural shocks
That bank accounts are heir to, 'tis a consummation
Devoutly to be wish'd. To cash out to sleep;
To sleep! Perchance to reamortize: ay, there's the ATM;
For in that sleep of negative equity what final demands may come,
When we have shuffled off these credit cards
Must give us pause: there's the rolled interest payments That makes calamity of such long life;
For who would bear the base rate rise and latepayment charges............
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WAKE UP ROBERT!!!! THE AMERICAN UNION WILL TAKE PLACE IN LESS THAN 3 YEARS...YOU, YES YOU, WILL BE REPORTING THIS TO THE PUBLIC!!!!!!AS SOMETHING NEW...WHEN IT WAS SIGNED IN 2005....
CANADA..USA..MEXICO WILL JOIN FIST WITH A NEW CURRENCY CALLED, MAYBE, THE AMERO....
OTHER COUNTRIES OF THE AMERICAS WILL FOLLOW....THE AGENDA WE LIVE IN IS SO BORING!!!!!!!!
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144
If you really see it that way then your comment exposes your contempt for democracy.
What you seem to be saying is that experts, politicians and others in positions of power cannot and should not trust the electorate to decide what is done with their money. But it is possible that significant numbers of Americans mistrust not only their Government - which should come as no surprise, but also the financial industry which is now begging (with threats!) for tax-payers' money.
If one is cynical about people and electorates and is therefore contemptuous of democracy one will believe the popular and relatively modern doctrine that people consider only themselves and maybe their families and pets.
However, if one has some respect for democratic principles, which comes with a belief in Humanity, it is possible to see that people may have become increasingly disillusioned with the World financial system which they see as deeply and increasingly unfair and profoundly destructive.
It may just be that American voters are prepared to risk the 'dire consequences' they are being threatened with if they don't hand over their money and leave the financial industry to tear itself to pieces so that their taxes can be used not simply to resucitate it, but instead to build something better in its place.
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#210
Not a contempt for democracy, just contempt for people who don't know their *rse from their elbow (or a banker from a bank) yet think that they have a RIGHT to have a say in important decisions that effect the future of the country they live in (never mind the world) - especially when the country is in trouble.
Churchill didn't ask the people what to do, he consulted and made decisions that needed to be made, Roosevelt and Truman did the same for the USA. In fact, and for all the distant I hold for her, Thatcher did the same too - in my opinion many were wrong decisions but at least the country didn't stall - as is happening now, with everyone waiting for a decision to be made before being able to move on.
Strong leadership doesn't equate to a dictatorship, it equates to having a strong democratic government. Churchill, Roosevelt and Truman didn't worry about being reelected, they did what needed to be done, Churchill's party lost the next (UK) election but he knew that he had made the right decisions - those US politicians, if they did allow their fear of the electorate to colour their votes, should have done the same.
Sorry but people who think that every Govt. decision should be placed in front of the 'Kitchen cabinet' before Govt. can/should make a decision are the people who have the real 'contempt' for democracy - even Blair realised that approach just stalls government.
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#32 mobombo
"Let him who does not have credit card debt or an uncomfortably large mortgage throw the first stone !"
That's all my family then - a set of parents and three grown-up children each with their own home.
There's not a penny of mortgage debt between us and only the current month's transactions on our credit cards.
And all that has been paid for out of salaries which, averaged across the seven of us (five family plus two married in), lie between the median income and the mean income shown here:
http://news.bbc.co.uk/1/hi/magazine/7581120.stm
And we all of us bank with a major Building Society. Curious that?
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''catastrophic system failure'' ??
Sure was, despite trying to post a comment(three times),and being told I was signed is as''mindthegjc'', no posts were produced.
Now I will have to test the system before posting each time.
Test 1:
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Test 2; It works , ah well, too late for you.
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211
The fact remains, The American People were asked and they gave their view. No one needs a Phd in economics to understand what's really going on here. Your first paragraph exposes you again where you imply that only certain 'experts' (whoever they may be) should be allowed to have a "say in important decisions that effect the future of the country they live..."
You are suggesting that people are too stupid to be asked. I agree that a push-button democracy could lead to a seizure in the bureaucracy, but that's not what we have. There is a suspicion amongst many people (and I think a well-founded one!) that there is something very wrong with the economic processes we have set in train and allowed develop in past decades. Your comments so far imply you agree with this because you say the situation is now so dire that we cannot risk asking the (stupid masses?) for their opinion.
I say, let's hold back the money and see what happens. Almost all the terrible threats emanate from the very wealthy and the very powerful. As we have so often seen, the interests of Governments and their backers in the finance industries are not necessarily the same as the interests of people.
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#215
Are (some) people to stupid to be asked - yes. Especially when you hear them ranting on about saving bankers with their taxes when they mean banks, the same banks that hold their savings. Duh!
So should I be asked what colour the toilets in some government building should be painted in, if not why not, after all I'm a electorate and tax payer and I demand my say, I want to know how and were MY taxes are used. How far should we take this Kitchen Cabinet of yours?...
Sorry but it's you who doesn't understand democracy, don't like how the country has been run, then boot the politician(s) out at the next election, if you want to tell me how my taxes are spent - it's not just your taxes) then stand as a politician, rather than try and change policy by shouting the loudest.
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216
I said I agreed a push-button democracy is unlikely to work. I also said that's not what we have and that's not what we're talking about. Beyond that it's irrelevant to this discussion.
So to re-cap, we're talking about the fact that Congress - the US People - in line with US law, were asked if they would give 700 billion dollars apparently to rescue the World's financial system. They said no. You've suggested you don't believe they should have been asked (too stupid); I've suggested the US electorate doesn't trust the Government and specifically their relationship with the finance industry and they don't wish to prop up that finance industry which may consider to be corrupt, destructive and iniquitous.
But don't be too concerned. You share the view of Peston and most of those in authority and power and therefore if it's really that important to them, Congress's vote will not be allowed to stand and some rescue and resucitation plan for the the "Masters of the Universe" will inevitably be cobbled together at the US tax-payers considerable expense and regardless of their opinion.
I'm not sure I understand what you're talking about in your last paragraph.
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#217
Democracy
Surely if the people had really been asked the US would have held a referendum on this matter- not just the shouting match via email, fax and phone that seems to have occurred - and then what about those electors who, for what ever reason, can't contact their Representative?
I'll state again, in a democracy the electorate elect and if they (collectively) don't like what has been done in their name - by party or individual - they choose someone else at the next election. Politicians should do what is right for the country, not what is right for party or their own careers, a good politician should be prepared to lay down his career to do the right thing - not the popular thing just to preserve their careers, as seems to have happened the other day.
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218 - You´ve got the wrong end of the stick. The US Congress did their job on Tuesday and they voted this proposal down.
The problem is that the rich and the powerful didn´t like the answer, and what you see going on now is simply the visceral hatred that the rich and the powerful have for democracy and free markets.
Nobody in their right mind could vote for this - not least because nobody knows what it is. Where did $700 billion come from? Who said it is the right amount of money? What happens if it doesn´t work? What makes anyone think that it will work? How is its effectiveness to be measured?
No-one knows - how can you support something if you don´t know what it is that you are supporting?
This is a bill of goods pure and simple.
If it´s so vital and so needed why don´t the rich show some munificence and cough up the cash. There´s another post that points out that the richest 400 people in the US have aggregate net wealth of 1.57 trillion.
What´s the deal here? nothing makes sense. There´s a proposal to seriously impoverish millions of people (most of whom couldn´t care less whether banks fail because they already don´t have jobs, houses, pensions or savings) and you want to talk about the color of lavatories. I guess that sums it up really.
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REGARDLESS OF A BAIL OUT - IT IS AND ALWAYS WILL BE UNLAWFUL
REGARDLESS OF A BAIL OUT OR THE ARGUMENTS OVER WHETHER OR NOT THERE WAS REGULATION AND NO MATTER WHAT LEGISLATION IS PASSED BOTH IN THE UK AND USA - IN PRINCIPLE AND IN LAW WHAT THE BANKERS DID WAS UNLAWFUL AND WILL ALWAYS BE UNLAWFUL. TO PUT IT MILDELY IT IS A FORM OF CRIMINAL NEGLIGENCE INTER-ALIA.
LEGAL PROCEEDINGS CAN BE TAKEN AGAINST EXISTING REGULATION, LEGISLATION, ORDERS AND AGAINST THE DECISIONS MADE. THIS WILL BE THE NEXT PHASE.
WHEN BANKS ARE ENTRUSTED WITH OTHER PEOPLES MONEY AND ASSETS SURELY, TRANSPARENCY, ACCOUNTABILITY, PREVENTATIVE LEGISLATION PROPERLY REGULATED AND A FORENSIC AUTHORITY WITH POWER TO PROSECUTE AND ENFORCE HEAVY FINDS BIG ENOUGH TO BE A DETERRENT, IS THE ONLY OPERATIONAL RECIPE NEEDED TO BE ACCEPTABLE.
WHEN THE BANKS WON T TRUST EACH OTHER – NEITHER SHOULD THE TAXPAYER AND HOMEOWNERS TRUST THE GREEDY BANKERS.
MEMBERS OF THE USA CONGRESS AND MEMBERS OF UK PARLIAMENT:
TAKE NOTICE: LEGISLATION TO BAIL OUT AT THE EXPENSE ENFORCED UPON HOMEOWNERS AND THE TAXPAYER IS EXTORTION A FORM OF MALFEASANCE INTER ALIA MOST FOUL.
BROWN’S SPIN ON HIS BUZZ WORDS: NOVICE, CONFIDENCE AND STABILITY. DON’T LET MR BROWN SPIN YOU THE YARN, IT ALL STARTED IN USA. YES, BUT THE BUBBLE BURST IN AMERICA. THE CREDIT CRUNCH IN BRITAIN STARTED WITH DEREGULATION OF OUR OWN BANKING SYSTEM. BY CHANGING THE SYSTEM IN 1997 IT ALLOWED COLLATERAL, BACKED WITH MORTGAGES TO BE TAKEN OUT OF THE PROTECTION AND CONTROL OF BRITISH REGULATION AND JURISDICTION. BANKS WERE ABLE TO OPERATE AS INSTITUTIONS IN VOLATILE UNREGULATED SUBPRIME IN THE USA. BROWN AS CHANCELLOR, CLAIMS THAT HE IS NO NOVICE BUT IN EFFECT, HE HANDED HIS CONTROL AUTHORITY AND THE STABILITY OF OUR ECONOMY TO UNSCRUPULOUS GREEDY BANKERS IN THE USA A FOREIGN COUNTRY.
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#219
You seem to think that 'mob rule' = democracy, who shouts the loudest wins the debate. If the people need to be asked then all can be asked, via a referendum.
Read what I said in #21and #218 - I never even mentioned the $700bn bill as such - I was talking about democracy what it is and how it SHOULD work.
Anyway, this has now strayed well past the point of being off topic.
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I now have 8 bank acconts witn different groups and have to get another tomorrow is it fair to put savers through this.
Announce a safeguard now for all private
savers.
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