Why our banks are vulnerable
The most important markets announcement this morning is that the Irish government has placed an unlimited two-year guarantee on all deposits and some debt in six Irish banks, to "safeguard the Irish financial system".
The emergency measure follows an extraordinary 26% fall in Irish bank shares yesterday.
This has huge ramifications for us.
Potentially it puts British banks at a massive competitive disadvantage - especially since other European governments are also taking urgent steps to reassure their citizens that their bank deposits are safe.
There is a widespread perception that the £35,000 limit to deposit protection in the UK, and the proposed increase to £50,000, are inadequate - and that the absence of full protection makes our banks more at risk of a run on retail deposits.
That has two damaging effects.
It spooks giant global money managers and providers of wholesale funding - and if they were to accelerate their withdrawal of cash from UK banks, well we'd see a domino-effect of horrible banking failures.
Second, it undermines the confidence of investors in our banks shares - which is why their share prices have become so vulnerable to sharp falls.
So top of the list of what this government could do to limit the damage to us from Washington's bail-out bungle would be to announce with immediate effect that all deposits in UK banks are 100% guaranteed by the government.
The chancellor did this after the run on Northern Rock last September.
There's a powerful argument that he should do it again.
PS. There is also a perception that our banks remain at a disadvantage compared with those in the eurozone and the US in respect of the assets they can swap for central bank loans.
Although the Bank of England has, over recent months, widened the collateral it will take in exchange for loans, there is a perception (which is as important as the reality in a climate of hysteria) that it is less amenable in the way it provides financial support than either the European Central Bank or the Federal Reserve.
This is something that the Bank of England can and should probably address, fairly speedily, if it wants to shore up the confidence of money markets in the robustness of our banks.
I'm 
© MMX~RS~q~RS~~RS~z~RS~22~RS~)
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Hmm..
If all deposits are guaranteed there is no risk in banking all your cash with the dodgiest deposit holder who pays a bit more interest. We need to get away from the idea that individuals need take no personal responsibility for their financial decisions...it cannot always be up to the Goverment to bail them out...
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He should and I hope he will ... the cost of the insurance should be met 100% by the banking industry.
No state aid for these guys, I'm afraid.
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Robert
You are 100% right. We need Brown and Darling to take the initiative rather than being seen as reacting to events.
Last night's Newsnight showed just how ineffective the FSA has been at anticipating developments over the last 12 months, so savers have little or no confidence in the tripartite arrangements.
In this vacuum, the only effective stabilisation would be a simple statment of a 100% guarantee in all UK banks.
The hugely volatile movments in UK bank share prices yesterday and today - even with the shorting ban in place - just underlines how important this is.
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It is all very well the Irish Government offering such an assurance to their banks depositors - but with what are they backing it up?
What 'assets' are they offering as collateral?
Their guarantee is fanciful.
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How much cash is being transferred from the Commercial Banks into National Savings at the moment.
Isn't National Savings a more secure home ?
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Good post, Robert.
Has Congress (or the whole USA) missed the point that money knows no boundaries.
Is their parochial thinking blinding them to the real problems, and going to do them some real damage?
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If the government had acted months ago to introduce this measure much of the damage done to banking confidence in this country could have been avoided.
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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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Northern Rock is fast approaching its cap of holding 1.5% of all national savings, it is estimated that it will reach the limit within a fortnight but this could speed up. The government need to work out a scenario of whether they will they refuse to take deposits or not. If they do refuse to take new deposits or offer a very bad interest rate of new savers to Northern Rock this cause a stampede to Irish banks.
The Post Office runs accounts by the Bank of Ireland and the Anglo Irish Bank also has a presense in the UK. I'm sure a lot of worried people with large savings will be moving money while the world financial crisis carries on.
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Just what we need. And don't worry about the lesser banks offering slightly more interest, they're all regulated by the same body....FSA.
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The US infected the world economy with the on-selling of its toxic subprime loans internationally, but hasn't got the spunk to make amends for its disasterous contagion. This failure risks bringing down the world financial system and it will by turn bring down the US system with it.
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If you buy an ISA or a bond from the Post Office, the provider is the Bank of Ireland. Such deposits are covered by HMG up to 35000 pounds but does the Irish Govt 2 year guarantee cover deposits over 35000 pounds? If so this would give them a commercial advantage over our own banks and building societies. Time now for HMG to match the Irish guarantee.
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This is all well and good but it would surely be no more than an empty promise. Would the Gov really be in a position to pay out? Who is their insurance policy with to cover this? How long would it take?
I think if the situation arose by where a huge high street back collapses taking customer savings with it then our society will crumble before our eyes and there won't be a thing the Gov can do about it.
Hold onto your hats.......
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my problem is, even if the government guarantees all our savings are safe how long will it take for them to pay up? history would suggest we could be in for a long wait.
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When will a Bank exec be prosecuted? That'll be never.
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BoE needs to act more like Eurozone ECB and US Fed? Why? Because they have done such a bang-up job till now?
If the UK government is going to "guarantee" 100% all deposits then we should simply do away with our banks and have retail size gilts. Why should the banks be able to set the interest rates on what is essentially then government borrowing?
Before we get all excited about this proposal in Ireland why don't we see what affect it has.
Oh and PS, most of the deposits are corporate not retail.
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Dear Robert
So it is official Britain is in Recession, official given by the BBC.
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Robert you stated
"There is also a perception that our banks remain at a disadvantage compared with those in the eurozone and the US in respect of the assets they can swap for central bank loans"
Through this whole sorry saga, the government and BOE have been the last to act compared to what other goverments and Central Banks have been doing.
I thought London was the financial capital of the world... Surely someone in the capital has a original idea or plan to get us out of this mess (after all, they are partly to blame for the problem... What a bunch of muppets)
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GB said last night - 3 times in fact - when interviewed about the congress decision... HE would do anything to ensure the stability of the UK financial system... THIS IS HIS CHANCE.... So, come on GB... make an announcement...
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Dear Robert
Thatcher and Regan, Started the rot, Especially Thatcher, we have her to thank for the deregulation of tbe Banks, and the loss of the Bank of England Regulatory role.
Thatcher has done more damage to Britain than two world wars ever did.
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At least the Irish have a potential solution. Mumblerbrown and Ditherdarling take note.
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i agree that a 100% deposit guarantee makes sense. but this won't do anything to recapitalise the banks, nor do i think it will stop a run on hedge funds, money market funds, the stock market, etc, if these things are going to happen.
@ 4 - it's backed by the uk taxpayers = the entire uk economy. duh.
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THE BANKERS BROKE THE LAW
WHAT WILL STABILISE THE MARKETS.
THE MOST FUNDAMENTAL THING THAT IS MISSING IS A PROPER DETERRENT
UNTIL DETERRENT, PROPER REGULATION, ACCOUNTABILITY AND TRANSPARENCY IS PUT IN PLACE BANKERS WILL CONTINUE TO RIP OF HOMEOWNERS AND THE TAXPAYER.
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First thing I did this morning was check the Irish Times website knowing that the Irish govt would have to do something ....certainly decisive, and kind of contrasts with DarlingBrown favouring the going to the brink approach.
From a personal point of view got much comfort regarding my deposits with Anglo Irish........though your first contributor pricked my conscience a bit. In my defence, I have ignored press best buys citing First Save interest for term deposits since digging found they are backed by Bank of Nigeria, not a totally know quantity, fair to say.
There is a role here for the FSA calling to account those 'dodgy banks' but on Newsnight last night they were clearly holding their hand up and saying fair cop, caught napping these last few years.
What amazes me though, is that this is the same FSA that played hard ball with the Insurance industry, regarding with profits, and who required major restructuring of security of cover they had. Didn't anyone in FSA look across sectors at requirement to apply same principles of good risk management?
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"There is a widespread perception that the £35,000 limit to deposit protection in the UK is inadequate - and that it makes our banks more at risk of a run on retail deposits."
The deposit protection covers building societies too, when you say "bank", Robert, presumably you mean building societies too as well?
Clarifying when "banks" means "banks and building societies" would be helpful for those of us with savings in the latter.
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This could be a great opportunity. Why not call the Irish govt's bluff?
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With all the current uncertainty, what chance is there that the HBOS/Lloyds TSB deal might fall through? What would be the likely fallout?
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If the stock markets are falling, it implies that there is some selling.
In which case there should be some proceeds.
Where are those proceeds being put?
Are they going into Building Societies, National Savings or just under the mattress?
Or is there not any actual selling (ie no-one actually buying) and the index is just a reflection of price tickets on the shares?
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It would settle nerves if the compensation level was to be increased.
The Tories offered to fast track this through parliament before it recessed for the summer but Brown/Darling didn't want to do this for some reason despite their own suggestion that it would be raised to GBP50,000. Dithering again!
A crisis of confidence requires certainty. This would help.
A particular concern is the large number of UK residents with money in overseas banks registered to operate in the UK. Given, for instance, the recent problem with Glitnir there are bound to be a number worried about Icelandic banks, i.e. Kaupthing Edge and Landsbanki (Icesave). I presume, therefore, that Robert, when he refers to "UK banks", means all those institutions that fall under the Financial Services Compensation Scheme?
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#15 I imagine...hope that the SFO., I'm sure their remit covers this, are quietly getting on with investigating all those self-cert, 125% morgages, the rating agencies across-the-board AAA rating of CDO's and MBS's aswell as the accounting and audit practices that allowed SIV's etc.
It's just if the SFO where to announce publically that such investigations were underway, right now, one of the features of the 1929 crash that we haven't seen so far... bank executives taking a rapid, unspported fresh air decent from the top floor... might become common place!
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@solomanbrown
That is an horrific claim to make. I'm a bit of a lefty if i'm anything, so I'm no Thatcherite but people died in those wars. Millions of People.
Accusing a frail old woman, who has pretty much lost what remained of her faculties of being responsible for our current situation is hardly a constructive addition to this debate.
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Until such guarantee is given I imagine the simple saver will be daily pondering the import of (presumably) responsible articles that advise one to look around for favourable rates. As one certainly can. Decisions: better to stick with a taken-over bank that has a yo-yoing share price, because if we don't that's a run? Better if a run is on the cards to move anyway to a bank which has not been created in part by de-mutualisation? And pays a percent point higher on deposits?
None of this looks good for HBOS. Am I right? Is nationalisation becoming the solution of choice because commercial solutions are limited or may be failing? I would worry about that.
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This argument that I can just deposit my money anywhere under a 100% guarantee doesnt wash.
The responsibility to regulate the banking system is with the authorities.
Joe Public is simply not in a position to do so.
If a bank is dodgy the regulators should act immediately.
If the reugulator doesnt act, how on earth do we expect an individual member of the public to second guess the regulator?
The Irish move just recognises reality.
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I hope we have enough troops left in the country to protect our society instead of being abroad being target practice for the nutters.
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Robert
I think you've called it right here, but sadly we don't really have a government at the moment.
Gordon Brown was obviously hoping that the US would sort it out for him and he would get some of the credit by "being over there" at the time. Now they haven't passed their plan (probably for the right reasons) he seems to be at a loss to know what to do - indecision rules!
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Still trying to post my first message. Previous attempts have failed but have been taken over by events!
Should we now be worrying about building Socs. If they are picking up the tab for banks the cost will have to be passed on to mortgage holders. Therefore more repossessions, more costs, and on goes the spiral.
Is the cost capped if more banks go down?
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By the way, #3....of course the Irish government can back it up.
The Irish government has one of the lowest debt to GDP ratios in the OECD.
Besides, as we have seen, most banks get sold on in part if in trouble.
The key thing is that any bank can get into trouble through lost confidence, no matter how misplaced.
In this context, the 100% guarantee is the only sure counterweight to perverse market forces
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How large was the run? It must of been sizable to have the Irish government act. I cant believe they just come out with this on their own. By thier very nature, governments can only react to actions taken by others.
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The bitterness of many contributors towards bankers and banking is understandable but it is misdirected in time and target. The time to deal with errors of the past is after the markets have been stabilised and the targets for criticism will be headed by Mr G Brown.
During the next few weeks or months it is vitally inportant that bureaucrats and anti-capitalists do not get control of the markets. They love to seize on any problem, enlarge it into a crisis, and seek to take powers they should not be given.
I have been amazed how politicians have been talking up the scale of market difficulties whereas in similar past times they, and the Central Banks who used to handle such matters, always sought to understate them to avoid causing panic. Today's politicians seem moreintersted in appearing macho rather than effective crisis control.
By the way, if any of you saw Boy George or Young Dave discussing these matters did you not find it encouraging Brown is still PM? Although he caused the problem at least he has what used to be called "bottom" whereas the young pretenders seem to have no depth.
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#30 Can't see it ever happening. I'd like to see Gordon Bust prosecuted for his irresponsible neglect but this too will never happen. Why can't the banks be forced to reveal the extent of their involvement in toxic assets? The reason why Santander has the cash to takeover the high street is that thanks to Franco(Yip a Facist) banks in Spain are not allowed to have off balance sheet..ahem..investments.
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To answer the question with what can Ireland back it up ?
Ireland has since 2001 been stashing 1% of our GNP in a fund called the NPRF.
I think this move is a masterstroke by the Irish government.
Individuals and corporates will flock to the Irish banks.
I'm an Irish man, I think the British government needs to get the finger out now.
Britain is in a lot deeper than either Ireland or for example Sweden and needs to act now.
There may be gains to be had if these 4 Irish banks can pick up some British banks for a song.
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On the face of it this is a sensible move by the Irish, but such a gaurentee could leave their banks open to bets against them and reserves being 'raided' by hedge funds and other investment sharks.
The UK position was articulated by Lord Turner last night, when he stated (and it was clearly why he was on Newsnight) that no UK depositor had lost since the start of the 'credit-crunch'.
UK strategy is to assume everyone 'knows' that the Bank of England and the Gov't will protect savers, without making a formal staement to that effect - do we believe them?
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On the face of it this is a sensible move by the Irish, but such a gaurentee could leave their banks open to bets against them and reserves being 'raided' by hedge funds and other investment sharks.
The UK position was articulated by Lord Turner last night, when he stated (and it was clearly why he was on Newsnight) that no UK depositor had lost since the start of the 'credit-crunch'.
UK strategy is to assume everyone 'knows' that the Bank of England and the Gov't will protect savers, without making a formal statement to that effect - do we believe them?
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Is it not true that, although banks seem unwilling to lend to each other or, indeed, anyone, at the moment; ultimately their profits arise from lending money.
So no matter how loud they whinge at the moment, in the end they'll have to start lending again, in order to have any sort of viable business model.
Are there not a lot of banks "crying wolf" at the moment in the hope that we hapless taxpayers/consumers will save their bacon, when, in the end, commercial reality will force them to save themselves by resuming "normal" business?
I accept that they may, in these circumstances, be lending at higher rates, but may this not actually be less costly to the taxpayer/consumer than saving their fat-cat backsides "for free"?
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This comment was removed because the moderators found it broke the House Rules.
#32 The problem now with the lloyds-HBOS tie up is that the original deal valued HBOS at about 275p? per share. The market currently values HBOS at 125p per share.
If those figures stick over the next couple of days, this deal looks almost as bad (paying too too much) as RBS's purchase of ABN-AMRO last summer.
As a corporate shareholder in Lloyds I would be insisting that Chairman and directors go back to HBOS and enlighten their board of the current, new market reality.
And Lloyds can still walk away and if there are no other suitors HMG will own another bank.
Which will be nice!
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I'm surprised that people have been calling Robert a doom maker etc etc.
Do people actually realise (or are they calling ones bluff) as to the potential consequences?
A bit off topic, but the bail out in the US is not just about sub prime mortgages - it's the whole credit derivatives thing also which is enormous.
For the US to vote against it was pure politics and nothing else.
Back to this blog, if deposits disappear out of UK banks, then they no longer become viable due to excess leveraging.
So, we invoke the FSCS ? can't that's empty.
What about the credit events triggered by the UK bank no longer being viable?
Ooops loads of credit derivative contracts swing into play.
Who is owns the risk of those credit derivative contracts? Umm another UK bank. What if they can't afford it?
Umm they become non viable
and so it goes on.
Interesting article (for a layman like me) explaining all of this on
http://www.financialsense.com/fsu/editorials/amerman/2008/0917.html
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It may have escaped some of the comentators on this blog but...
'The Government' is not some independent entity with bucket loads of free cash (or gold - thanks to Brown's previous bright ideas).
It is funded by us, the tax payer. The Government has no assets because Gordon Brown has spent a decade selling off every building, hospital or state-owned utitlity to the private sector to pay for their fanciful New Labour projects. We don't manufacture and we don't export to any great degree. We, like America, have been living the playboy lifestyle, flogging the crown jewels to fund it.
The chickens have come home to roost and it ain't gonna be pretty. I understand that confidence tricks are required if other countries offer them but, frankly, all these guarantees are worthless.
In times like these a guarantee from any government is about as useful as a chocolate teapot.
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So the Irish govt is going to 100% underwrite the bank deposits of Irish taxpayers
...if all else fails presumably with Irish taxpayers money?
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We get what we deserve is not fair with this 'crisis' we have got so used to spin we don't know our rear end form our elbow any more.
Why? because we have career politicians who have never done a proper job except they sure know how to line ther pockets.
A regulator, in the FSA who is only good at trying to close the gate after every horse has bolted, and a Bank of England that appears reluctant to do what it does best and tell eth banks to grop up and stop pleading hardship.
At some stage soon this will all change but until it does we must disbelieve, for our own sanity, what we are told because the facts are clear those doing the telling haven't a clue.
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45
I saw that too, but give the guy a break.
he's probably had no sleep for a week!
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STOP LYING!!! IN LESS THAN 4 YEARS THE AMERICAN UNION WILL TAKE PLACE..... CANADA USA AND MEXICO WILL JOIN TOGETHER FISRT WITH A NEW CURRENCY CALED THE AMERO....YOU WILL BE INFORMING THE PUBLIC ABOUT THIS IN A FEW YEARS TIME .......THIS IS ALL MADE TO HAPPEN BY THE ELITE FAMILES WHO RUN THE WORLD..THE TRUTH HURTS DON'T IT!!!!!!!!!!!!
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Dear Robert,
I understand that you are trying to assist your friends and contacts find a way out of this mess. You must remember that this is a mess of their own making.
Our financial system is not fit for purpose and hasn't been for sometime. Casino banking is not a way forward no matter how you see the current financial climate.
We would be better off discussing the form of your "New World Order" mentioned in previous blogs than to carry on discussing the how we can keep the old system going.
The real question is:
How can we create a new financial system that will work for the global population from here on and what form will it take?
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The line that needs to be taken should ensure the following:
1. The financial stability of the country is maintained, that business can be done and people get their wages.
2. The banks and their shareholders will be the ones to suffer most, not the tax payer. Of course this will affect many pension funds, ordinary bank employees, and ordinary shareholders.
3. The blame game cannot be avoided. The level of incompetence, greed and lack of regulatory oversight is absolutely staggering. Do the banks not know how to assess risk? Did they learn nothing from Barings bank and Nick Leeson?
4. A full explanation of exactly what has happened, how it happened, and how it is being fixed together with the full implications must be delivered to the public. The explanation should be such that members of the public, news media, and politicians all understand the problems we face. This explanation should be given by the Prime Minister and all questions should be answered. What we do not want
5. There needs to be a full criminal investigation into the actions of bank executives and their auditors with reference to what was reported to their shareholders. Here, if criminal wrongdoing is uncovered, then we would fully expect very long jail sentences for those responsible.
6. If the tax payer is bailing out the banks, then the banks must not be permitted to increase their charges to the taxpayer in order to recoup their losses. There will be no quick return to huge bank profits. The tax payer, who is paying for the rescue, will get their pound of flesh. Any bank that has benefitted from tax payer funds will not be permitted to pay huge and wholly undeserved salaries to their executives, top managers and traders.
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I think the Irish government has done the right thing. Ultimately, financial markets are all about confidence, and any move which tends to build confidence has to be positive.
Note that the Irish move guarantees deposits. It does not guarantee bank shares or bank directors, so it is not any kind of bail-out for bankers.
Ireland also benefits from being in the Eurozone. It derives strength from being in a bloc which includes economies such as Germany and France.
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So Robert you're effectively arguing for a slow competitive nationalisation of the global financial system. A world where governments compete to shore-up dodgy failing banks. Think about it for a minute: ever more cast iron guarantees being offered by ever more nervous governments. What a mess. If we have a run on retail deposits, surely that is simply we as consumers of banking services deciding, given the information available, to place our money where we feel it meets our financial needs. Our business, not the government's or any government's business. How many of our 'deposits' have been left in banks that the regulators knew some time ago were not viable? This hasn't bothered our government so far. They simply made the banks special pleading secret, which in turn placed depositors, who, given true information on the stability of the bank where their deposits are held, ignorant of how well or how badly the bank that has their money is doing.
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Robert,
Am I missing something when I propose a simple solution to this crisis- The banks have lots of bad debt witch means they have to write it down meaning they need more capital. We all know what a farce that pretty much turned into last time, surely the government could 'buy in' to the banks (there are only really 4 left now) on condition that the banks come clean- write down the bad assets to a agreed low level. This would then mean that all the banks knew the situation of the others hence rebuilding confidence, and had sufficient capital to see them through. This could be done in the form of a preference shareholder or some sort where by the UK tax payer has invested in our (highly profitable) banks at there current low price, and in the future as they recover they could buy back the shares from the taxpayer making a small profit for us and ensuring a stable banking system in the long term. I know this would be similar to nationalisation of the entire banking system, but so long as less than 50% of the company was 'owned' i do not see the problem. Surely in crisis like these a emergency EU law could be passed allowing such actions?
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I'd be interested to know which bank or building society Robert Peston chooses to hoard his (doubtless) very large salary and savings in? He must have a fairly good idea where is safest.
I don't imagine he reads these comments (despite the number addresed directly to him), but just in case - Any advice RP?
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Is Gordon Brown going to actually DO anything?
Now is the time for him to prove, once and for all, that he is either a statesman, capable of delivering both bad news and a solution, or just another member of the political elite hiding behind a Scottish accent and a fascade of socialism.
He just reminds me of George Bush when he heard about the 9/11 attacks. Like a rabbit in headlights.
C'mon Gordon. Do something decisive.
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Why our banks are vulnerable ?
Because we manufacture only a fraction of what we consume and are in debt to the people who do make the stuff. (China, Asia).
This will become clearer when the new owners of the banks become apparent.
Its been a national collective illusion.
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Agreed, this is necessary. But I am a bit concerned about the attitude of the Bank of England, especially the Governor. Is he flexible and pragmatic enough to do this, and does he have an appropriate sense of urgency? His talk of moral hazard and anxieties about inflation seem somewhat irrelevant at the moment.
Is Bank independence a help or a hindrance at the moment?
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If I was forced to chose between a guarantee backed by the Bank of England and one guaranteed by de Valera's Republic, despite or maybe because of my strong Irish connections, I will prefer that of the Bank of England.
Sure, it is time that the British state started to grow up and stop being a blue meanie in every sense of the word. Guarantee cash deposits and you will naturally get more cash deposits: useful things when liquidity is generally poor. This might be called thinking outside the money box.
To refuse to guarantee cash deposits larger than a relatively small sum suggests to me that they are expected to disappear.
Despite my intense dislike of Mr Brown and all that he stands for I do feel that after a very wobbly start over Northern Rock the government has to date made a pretty good fist of a bad hand. Personally, I feel this is more down to Darling than his boss.
The banks also need to raise their game and it appears they are now starting to get the message.
All need not be doom and gloom.
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I'm sorry but are most commentators talking about some other Irish economy I don't know about? The Irish economy has been the first to slip into an officially defined recession; house prices are in freefall; Irish banks have been investing hugely in commercial property development in the UK - and commercial property prices are likewise in freefall. At least housing - unlike office blocks - has a certain demand inelasticity since people need places to live - they don't always need shiny new offices or shopping malls. Don't forget that the late lamented Lehman Bros were hugely exposed to commerical property as well as sub-prime. Personally Ireland and Iceland are the two places where I'd prefer not be sticking any spare cash.
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I have some questions for everyone who wants to play the blame game:
1) Is the greed that everyone is complaining about a new phenomenon?
2) What is the difference between greed and incentive?
3) Was the greed inherently a bad thing or is it only bad now that the banks are unstable?
4) How many of you have performance-related pay or bonuses and consider yourselves over-paid?
5) Is placing blame more important than ensuring that real people who do real work (like myself - I'm a software developer, not an economist or banker) keep their jobs and houses?
6) Is it more important to protect tax-payers or tax-payers' jobs?
7) If our financial system is not fit for purpose, is that a big pointer that capitalism is to blame, or are people being hyperbolic?
It seems to me that the underlying cause of this crisis is political: politicians have been too scared to legislate against banks and businesses in case it rocked fragile economic growth. New Labour did not want to be labelled anti-business. And everyone seems to have buried their heads in the sand.
I am not an economist, and hindsight is 20-20, but even I could see that house prices in the UK were making unsustainable gains - that people were jumping onto the buy-to-let bandwagon and there was at least one television program in the UK warning that self-cert mortgages were an easy way for borrowers to fraudulently borrow more money than they could afford to repay.
It seems to me that bankers were behaving like bankers; it was the legislators who weren't legislating to protect the public interest. That's capitalism: it's based on greed. If you don't like it, we could throw it away; but I suspect that there isn't anything better.
The one thing to take away from this is that the non-interventionist policies of the right are completely inappropriate for a democratic political system. Politicians *must* intervene and bankers and businessmen must take it on the nose.
I don't suppose anyone will read this, but it seems to me that the housing market in the US and UK was essentially an elaborate Pyramid Scheme. If you were in early enough on, you might have made money; but people who joined most recently are going to lose a lot of money.
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The Government must now guarantee ALL UK bank deposits. It would be a good idea if everybody who agrees would send an email to Downing Street. The trouble is, there is currently no facility to send an email on the Downing Street site. You can only send a Fax. Who has a Fax nowadays? £35,000 is not enough. Even for some old timer like me who has spent 40 years working in a factory. We keep our money in the bank because we don't trust pension companies to still be around when the time comes to pay out.
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Robert,
Can you give us your 'worst case scenario' for the next few months or year?
Tell us blow-by-blow what you would expect to happen if the US can't hold up their own economy and the UK starts to slide too........what would you expect to happen, and in what order?
I don't ask because I'm a doom-merchant; I am truly interested in the inter-connectedness of things....how will the dominoes fall?
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I remember the government giving the 100% guarentee -- I don't remember them withdrawing it?
So when did the government withdraw the 100% guarentee?
- Glad I haven't relied on it!!
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> How can we create a new financial system that
> will work for the global population from here on
> and what form will it take?
It's easier to decide what form it must _not_ take. Simple “money” was suitable in, say, Tudor times, and even managed to survive the industrial revolution. But it is an ancient invention and it is no longer fit for purpose in the 21st century. It is very unhelpful nowadays, and causes all manner of economic imbalances, envy and improper behaviour. Indeed, some have even suggested that it is the root of all evil.
The time has finally come to do away with money. The replacement must be fair, incorruptible, transparent and equal. Oh, and the “new money” must be far harder to tax. That's the only way to go now, I'm afraid.
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is a guarantee really going to prevent runs? if a bank was perceived as dodgy wouldn't Joe Public withdraw his savings anyway, to avoid the necessity of going through a no-doubt lengthy recovery process through a FSCS claim which could mean his money is not available to him for a number of months?
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Re 31
The "horrific" comment you complain about merely seeks to compare the economic damage caused to the British economy by Thatcher and the economic damage caused by 2 world wars.
It does not say anything at all about any human death toll - only your comment does that.
By the way did you get the idea that frailty and loss of faculties can be a defence from past actions from the strategy adopted by General Pinochet - a known mass murderer and a known friend of Mrs Thatcher.
"and ye shall be judged by the company that ye keep"
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FTSE 100's just gone up. So lets not get too excited about a fallout from the US government's failure to pass a bailout just yet.
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guaranteeing 100% is a great idea, it would instantly stop any proposed run on a bank which if it happened in the current climate would bring the whole house of cards down! The problem is, how do you get G Brown to do anything, he waffles and dithers but there is little positive action. Robert you must have his telephone number, do us all a favour and call him now and tell him to do something!
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39 - "in similar past times they, and the Central Banks who used to handle such matters, always sought to understate them to avoid causing panic."
has it occurred to you that they may be understating it and the real situation is far worse?
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Re #2
"Thatcher and Regan, Started the rot, Especially Thatcher, we have her to thank for the deregulation of tbe Banks, and the loss of the Bank of England Regulatory role."
And what have Blair and Brown done to stop "the rot"?
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64:
This is a superb post.
The blame game, I'm afraid, has been a British sport for a long time now. At various times in recent years, we have blamed many diverse categories of people. Immigrants. Single mothers. Benefit claimants. Foreigners. Europe. Politicians. Hoodies. Even footballers. Now, bankers. Anybody, so long as it isn't us.
This is a collective mess. Irresponsible bankers? Lax regulators? Spineless politicians, happier to ride the 'boom' bandwagon rather than admit that 'bust' always follows an unsustainable boom? Yes, all of these. But also irresponsible borrowers. Voters.
It needs a collective solution, not a pointless blame-game.
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Last weeks the Irish government backed deposits up to 100,000 Euros each after pressure from the public and now this. It is fantastic and if our Government were to do the same investors/savers would pile back into bank deposits exactly what the banks need.
Our government has been talking for over a year now about raising the amount of the guarantee from 35,000 and they have done simply nothing, nil, zero. What a wonderful bunch!
And as for the FSa....
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Robert,
The major 'disadvantage' Northern Rock faced was that -as a wholly UK owned bank-they went to the BoE for a facility other central banks were putting in place without a song and dance (in their legitimate role as lender of last resort). European and US banks did not have to deal with a central bank that 'leaked' the 'story' to the press. Nor did they have to deal with a national broadcaster knowingly spreading panic in the name of their big 'scoop', then gleefully reporting the panic they themselves had caused. NR were disadvantaged by being British and the BBC played a big part in that.
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All this talk of when will "they" (HMG) pay up... there is no "they" - it's taxpayers money, yours and mine.
I don't know what the solution is, but find it galling that so much talk of a rescue now doesn't do any good for those of us who suffered, and are still suffering, from past recessions and financial debacles.
It's simple, we live now, as we did then, in a capitalist culture. We placed our bets...
Throughout my 52 year life we've lived with assumed inflationary growth. Whatever makes any of us think it can carry on forever. Maybe it's time for a serious correction, no matter how painful.
Anyway, as a small offshore group of islands, what right do we have to be the world's 4th wealthiest nation - whilst millions starve each day?
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Robert, if one of the big banks goes under there is not enough money in the FSC compensation scheme to refund people's savings. You know this. The FSC knows this and the government knows this.
One of the big banks in this country would have something along the lines of £200bn in deposits so where would that money come from if they went bust? A levy on the other banks is all well in good but in such a dire circumstance where Barclays or RBS went under, levying that much money from the remaining banks would cause them to go under too.
The FSC scheme is an empty promise designed to stop panics and bank runs, but as a real guarantee of peoples money its completely worthless.
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BBC - Enough, really!!
Time to move on from this rather exciting debate and start looking at the wider (real-world) effects? You don't have much to say on that do you/ Except 'What it means to you' and other rather wishy-washy blogs!'
There have been 3 major party conferences in as many weeks but despite the incalculably vast amounts of taxpayers' money ploughed into failing banks I have not heard anyone speak for the taxpayer. I mean, how is this money going to be recovered? Tax money is earned by people, and given that the UK has been a net importer for decades the flow of money is OUT of the UK, which means that unless one party or another wakes up to the FACT that unless we start exporting again the UK is going to go BUST. But still all three major political parties seen to think the stuff falls out of the sky. Hello?
You don't need to be a BBC economist to predict what's coming:
1. Rapidly rising prices
2. Inflation going thru the roof
3. Shops closing, firms going into liquidation
4. Huge rises in unemployment
5. Foreclosures and repossessions
6. A wave of court cases for debt that will tie up the system for years.
The end result will be less and less choice for anything. 'Can't get this', 'can't get that' and more dependence on cheap stuff from SE Asia that falls to bits the second time you use it.
Those banks who got themselves into a mess get government help, ordinary businessmen and individuals get bankruptcy orders. If you think that's right or fair you belong in an asylum but the whole country seems to marching off a cliff, whereas in the USA angry Senators with real exposure to business are actually saying, 'hey, stop this crazy investment into financial failures, let it burn out and let's get on with rebuilding our economy'.
Any student with a modest grasp of contemporary history knows that no country on earth can do that like the USA, but in the UK, we ordinary taxpayers have to just sit and watch economic chaos smash everything we've worked for for decades with no hope of a bright future for use - let alone our children.
I hope there are some MPs reading this..
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My savings are with National Savings, the Nationwide and the CO-OP - none of which are listed on the stock exchange.
Does this mean they are safe?
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The BoE/Treasury/FSA must follow suit and guarantee all deposits in the major British banks.
If it fails to do so there will be a massive flight to safe havens which will further destabilise the whole UK financial industry.
Next week will not do - this action needs to be taken by Thursday.
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Can only agree with #75. For every irresponsible lender there is an irresponsible borrower.
The only insurance that should be offered to banks beyond the FSCS £35000 limit should be an optional scheme banks could enter into, perhaps with FSCS. The premium they would pay should be assessed by the insurer on the basis of the riskiness of the individual bank's business model. Banks could advertise the level to which their deposits were protected.
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When asking 'should the government guarantee all deposits?', we need to note one thing: IT ALREADY DOES, in all but name.
NR was rescued, because the run on the bank, and the likelihood of depositors losing money, was politically unthinkable. That remains true. If a bank gets into trouble, it has to be rescued, either by arranging a shotgun marriage with another bank or else by state intervention.
Since the practical reality is that retail deposits are protected, it might be a good idea to just come out and say so, thereby boosting confidence.
My fear is that Brown won't see this, and act. His latest policy gimmick - of using other banks to underwrite the BB rescue when we all know that the final recourse is to taxpayers - just put additional pressure on the remaining banks and damaged their share prices, to no purpose other than political posturing.
Brown has a habit of announcing things which sound fine for a few minutes but then bite back (like the 10 pc tax fiasco) when people think it through. His bumbling, dithering incompetence is really scary.
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"Thatcher and Regan, Started the rot, Especially Thatcher, we have her to thank for the deregulation of tbe Banks, and the loss of the Bank of England Regulatory role.
Thatcher has done more damage to Britain than two world wars ever did."
What a muppet. Thatcher saved this country and was not worried about the tough decisions that were needed. Her legacy has been squandered by Bliar and his dithering clunker Brown. This is a typical rallying call fom the nutty left - quote Thatcher and deflect attention from the shallow, weak government that has been foisted upon us. Get back to the point - we need strong government intervention and we need to match the Irish as far as guarantees are concerned for all the reasons Robert says.
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Please can't we all start thinking about each other instead of ourselves. We need to move back to considering the common good first and ourselves second. Lack of self regulation, greed and self interest is what's got us into the mess we're in now. I am sick of money being something you think selfishly about. News like this will be leapt upon by middlemen and financial advisors who will shout at us to 'switch and ditch' our savings into whatever Icelandic/Indian/Irish bank they make most commission from although they won't put it like that. Now's the time to stop acting selfishly and instead think about what's best for us all.
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Irish banks are empty lets think of a way to get plenty
We are not trying to be funny we are going to guarantee the money
Withdraw all your cash from all Uk banks and on your way out say 'thanks'
Walk down the street with loads of wonga and pop it into the Irish bank you cant go wronga
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I can't see how the governement cannot agree to bail out investors, since it is successive governments that have told us that saving for our pensions is our responsibility. It's bad enough seeing our pensions funds ebbing away by the day - to have them written off because the bank or insurance company they were with went bust is unthinkable.
However, the banking industry must have to put up some kind of bond (like tour operators do) so that ultimately the banking industry pays, not the taxpayer.
However unjust your friends in the city believe it to be, the senior execs. in the banking and finance industries need to be held to account for the reckless way in which they conduct their businesses, playing with other peoples money, and other peoples futures.
A new broom is required - and a return to the "old fashioned" system from the 1960s is long overdue.
Money isn't made - it's earned! (Smith Barney advertising slogan from the late 1970s if I recall correctly)
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I’m curious ……..
There has been an enormous amount of money made available to banks from central banks. I believe this money has been many times over subscribed. – Where does this money go and what happens to it?
Do banks simply hold on to it ? or is it put there to get banks lending again. If the latter – Do they use these funds to lend between themselves, or is the purpose to get banks lending to business and individuals.
Have been following the blogs with interest, but I don’t really understand how the mechanics work.
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So, which Private Equity and Hedge Funds are holding toxic bonds or indeed, will need to refinance themsleves soon ?
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First you lose your Pension.
Then you lose your Job.
And then you lose your House!
But, maybe a first time buyer will be able to have a Mortgage to Buy YOUR House!
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Why couldn't B and B swop assets and take advantage of the Bank of England scheme ?
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Why all this wailing and gnashing of teeth??
If the wholesale banks are frightened to lend to other banks...
But their central bank, be it ECB, BoE or FED, says that the banks are okay to lend to,..
Why don't the Central Banks cut out the wholesale banks from the system, or threaten to, and lend direct to the retail banks?
Caveat being... No reposessions of domestic mortgaged homes:-
No new mortgages to be issued, but the loans to be used to reduce the rates of interest on current mortgages....(gives protection to those that have most to lose)
New mortgages to be available after 6 months of stability, 20% deposits required.(stops the gamblers)
Capital Gains Tax on homes sold within 10 years of purchase...(stops the speculators)
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Can someone explain to me why banks are suddenly failing? They seem to wake up in the morning and go 'oh dear, we've failed, we owe many millions, better sell up'. How is this happening?
A case in point is Wachovia. Wachovia was in the running to buy one of the earlier failed financial institutions only a few short days ago, yet today it's gone belly-up. How can a company go from being so confident that it wants to buy up something to being taken over itself so quickly?
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86:
Very good points.
Your comment on middlemen prompts me to add something. As more and more people get into worsening financial difficulties, the scope for exploitation by the unscrupulous will become much more serious. I can already imagine the loan-shark types rubbing their fingers in glee. A horrible thought.
Some of this exploitation might be via legally-valid (but grossly exploitative) contracts signed by people through ignorance or panic. We might need to consider some kind of equity courts, which can invalidate grossly exploitative contracts on principles of simple equity.
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For decades we in the 'civilised' world have lived lavish lives of over indulgance on a credit card and our chickens are now coming home to roost. Our lifestyles are unsustainable, as is the present free market system. Peak oil is here. Get growing your veggies and wrap up warm.
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Why ha nothing been said about the accountants whose job it is to audit banks
and ensure they trade safely
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It is conceivable that the freeze the banks have imposed on lending to one another and the fact that lending rates are higher than they should be, is being deliberately orchestrated by a small goup of powerful bankers. In an attempt to regain control of the money markets that spiralled out of control in the years since the financial markets were deregulated.
In the years since the city"big bang" took place all manner of investment banks and hedge funds were allowed to grow and prosper on the assumption that their illusory ideas (money making scams) did actually work in creating money. During that period the main banks, the regulatory bodies and the government lost control of the supply and reissuing of money and the ammount of debt owed (by the banks, the government as well as ordinary citizens) was allowed to grow to the point where it it could never be repaid.
As events in the past have shown when that happens these powerful bankers will do all that is necessary to preserve their money and status and to restore order in the financial markets, regardless of how brutal their actions might be. If that involves driving weaker banks under or businesses going bust, with the shedding of tens of thousands of jobs, that will not deter them.
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Requesting 100% guarantee on retail deposits to banks and building societies seems an over reaction to me.
De-risking retail deposits would imply a lower interest rate should be offered by the banks.
Would the Government have the resources to provide a 100% guarantee on all deposits? - the Irish economy is small and the deposits held in their system tiny compared with UK.
The UK economy is open and our retail banks have exposures abroad (e.g. RBoS with Fortis ABN Amro assets) Why should the UK government underwrite deposits held against risky non-UK assets.
This is a global problem needing a global solution
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It is an obvious thing to do to guarantee all deposits in our banks.
Money is swirling around the system at the moment because of this ridiculous situation where everyone is having to split their savings into small chunks and spread them around.
If the banks are to be recapitalised it is much better that this is done by individual savers rather than the taxpayers.
Better rates of interest are needed to lure back the' cash under the bed'.
So money will be more expensive to borrow in the short term but at least it would be available.
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I have sympathy for the members of the House of Representatives and can understand them rejecting the Paulson bail out plan.
Basically they are being told to agree to hand over $700 billion dollars of their constituents money to bail out some of the richest people in the world with no guarantee that the bail out will work. They must feel that they are being blackmailed, hand over the money or the collapse of capitalism will be your fault, seems to be the message from Bush and his advisers. Just like every blackmail attempt, how do you know the blackmailer wont come back for more, again, again and again?
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We keep being told that Bank A has no money to lend to private individual Y or company Z, and that this is because Bank A can't borrow any money from Banks B and C as they don't trust Bank A.
That implies that Banks B and C have some money they could (but won't) lend to Bank A.
Why, then, can't Banks B and C themselves lend the money that they won't lend to Bank A directly to individual Y and company Z?
I'm puzzled!
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It's at moments like this that I am grateful that my savings are stored in jamjars in the airing cupboard, behind my wellington boots. There they will stay until conditions improve, or - as seems more likely - hell freezes over, and Caol Ila rains from the marshmallow clouds in the black autumn sky. Then, and only then, will I empty the jamjars.
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Robert,
1. Why are American taxpayers so naive that they cannot understand that this is not a rescue package for "fat cat Wall Street bankers"???? It is a rescue package for ordinary people who will end up unemployed, in negative equity, with savings worth little etc etc..... if the package is not adopted?
2. Why can't Congress be presented with a Warren Buffet style proposal? ie the rescue of the banks at a huge future cost to the banks, such that tax payers can only make money out of it in the long run. Bail the banks out in return for preference shares which will give the Govt huge returns once banks are solvent and times are good again.
3. Make all financial institutions in future pay a certain percentage of profits each year into a Govt fund which is safe and which is a reserve fund to use in times like this. Instead of blowing it on executives' bonuses.
4. Tighten regulations on financial institutions so that minimizing losses and having clean audits are rewarded each year rather than profits. Instead of looking at overall results (ie aggregating losses and profits), reward those with fewer individual portfolio losses and so on. This would encourage conservatism over greed.
Surely all the above is common sense????
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I'm really cynical about the government guaranteeing depositors funds. Argentina suffered a severe financial crisis in the seventies and all assets were frozen because the government had no financial means. You could say "well I'll store my money under my bed in that case" but of course if things got that bad money would either be worthless or the government would pass legislation to make holidng cash illegal (as they did with holding gold!).
That said, the way we are headed is towards a depression and no one wants to experience that. Mass unemployment, soup kitchens in the street...
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Bankers have for too long walked along a one-way street - one that allows them to take decisions in a "no-lose" environment where any losses or bad bets they make get recovered from the rest of society - as higher charges levied on customers or - as now - calls for tax-payers to bail them out.
Let them sink, I say. And, once sunk, the action governments should take is to regulate the new institutions that arise in such a way that their bad behaviour no longer causes the rest of us such turmoil and cost.
The bankers who decided to make loans that were never repayable then package them up for sale to others who should have known better and done more to understand what they were being sold should face criminal prosecution for their actions.
Those that bought the loans took the enormous bonuses that came from their short term greed. Now they should take the fall that is the consequence of their actions.
The rest of us are already suffering. The housing market is dead in the water; good businesses are being forced to the wall and honest families find themeselves on the dole in the run up to Christmas.
Let's at least use the opportunity to do some house-cleaning. The banks and financial institutions that are all, jointly and severally, responsible for this crisis need to stand or fall under their own resources. If they want us to trust them with our money again, let them make their own case for it.
Government guarantees? Not with my money thank you.
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#68
Love of money is the root of all evil, not money itself.
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I'm no Cassandra. I don't think the world will come to an end but I do think that there is likley to be more pain before the cure is complete.
I'm sorry but I don't trust the banks any more. My current account will stay in the high street but my savings are being moved inexorably towards mutual organisations.
There are a few mutuals whose balance sheets look pretty healthy who have insualated themselves against carpetbaggers (now of course revealed as toally lacking in any integrity) and who are in pretty good shape.
They haven't tried to take over the world, they stick to what they know and they now look pretty damn smug.
Do I think that I would lose a chunk if a bank went down - probably not -but why take the risk when the interest rates are just as good elsewhere and the money's a lot safer.
The propbem is, as many commentators have remarked, trust. if you had asked me two year ago whether banks would pile wholesale into investments without any real understanding of their worth I would have laughed in your face. Banks are the most conservative of all businesses aren't they?
Furthermore, as they are at pains to point out to us, investments can go up as well as down. They would make sure they have a proper spread so that a crash in one sector would only have a marginal affect wouldn't they.
It is clear that the banks cannot be trusted to make decent investment decisions with their money so why should I trust them with mine.
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STATE OF EMERGENCY
Robert,
Surely its time for USA and UK governments to introduce a STATE OF EMERGENCY.
Strict limits on bank transactions and share trading until the situation stabilises.
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So which Company will be offered up on the Altar appeasement next ?
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What will happen to the majority of us that don't have savings? you know the one's that have overdrafts and mortgages? If my bank goes under will I only have to pay back 35000 pounds? instead of the 480000 that I owe.
Anyone know how safe the Nat West is?
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This comment was removed because the moderators found it broke the House Rules.
To post 89
The BoE funding is over subscribed as the banks' funding models rely on liquidity that has dried up from their usual sources. This is exactly what happened to NR- just a bit sooner. What is really curious is that Robert does not seem to think it important to tell us who these banks running out of liquidity are - yet it was SO important that he told us about NR. The NR 'scoop' was defended as being in the 'public interest', but apparently it is not in our interest to find out about other banks in the same situation.
Funny that, isn't it?
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> The Government must now guarantee ALL UK
> bank deposits.
The government only consists of the taxpayers - you and your neighbours . If you guarantee your neighbours' money, and your neighbours guarantee your money, then why could you rely on such guarantees?
Jacques
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Those asking for the government to guarantee all savers deposits can you just answer one question. Where is the money going to come from?
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Another attempt at a quick fix which is fundamentally unjust and runs the risk of exacerbating bank runs elsewhere. Before any bank is given support it should be forced to scrap its dividends and place a salary cap on all staff - say at 100,000, pouns or Euros.
And why anyway should taxpayers take on an open-ended commitment to institutions which are a black hole? Let them fail, pay out depositors up to the relevant limit and too bad if you are a share or bondholder - it's your responisibility that these institutions were so badly managed.
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All my cash is with Halifax: savings, ISAs and current account. It comes to much less than the £35,000. However, my mortgage is also with Halifax and that is much more than the £35,000. I recon not one penny of my money is protected. Am I right? Should I be worried about the Lloyds deal falling through? Should I move all my cash?!
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Irish Banks have large exposures to the international property sector (hence the drop in their share prices). The Irish economy has been strong in so many other areas and with it's significant credit rating their govt could cover the deposits in case of failure
Of course it is hoping that by backing up it's finanacial institutions now it won't have to bail them out later.
Shoring up their banks makes sense as it underscores their confidence in their economy. At a time when no one trusts anybody - where do you put your money? People still have cash, they still want to invest.....that's the thinking behind the guarantee!
If Ireland's financial services community was to collapse it would cripple not just the boys in suits, but all businesses large and small.
It was a clever and correct decision.
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Timothy 6:10 (King James Version)
For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.
Looks like they might have had a Credit Crunch back in biblical times. I wonder if there's a solution in the bible.... I could make a fortune selling it to GB.. quick where's me Gideons
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GB - Great Britain, Gordon Brown or Gideon Bible?
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@ 117
If I were you mate, I'd take out all your cash and pop down the high street and 'ave a bit of a spending spree... It's like my grandpappy used to say "You can't take it with you yer know" Having said that when he went we found he'd left quite a bit behind... what a waste!
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117:
I cannot say for sure but I suspect your savings may not be covered - I hope someone out there can tell you for sure. I suspect that, in a worst-case scenario, your savings could be gone but your mortgage would be reduced by the same amount (up to a maximum of 35 thousand).
I do not for one minute think that that will happen. Allowing depositors to lose money in a High Street bank seems politically unthinkable.
This said, my personal view is that applying this kind of rational analysis to a government led by Gordon McPlonker may not be altogether comforting, given how bizarre some of his actions tend to be.
So if it was me I would move my savings just in case. Having savings with your mortgage provider might not be ideal. In the UK, Nationwide and HSBC would be my preferences, but you could also consider an Irish bank in the light of the new guarantee.
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Where is the money going to come from?
The money comes from taxes, both personal and corporate. Nobody said it's a free ride, but it does create a level playing field, and brings a sense of calm to 99% of depositors.
The single best thing the Governments can do right now is calm the public. The nail in the coffin in the 30s was panicked depositors pulling their money because they didn't think it was safe. And without a level playing field, people will rush from one bank to the next, playing Russian roulette with banks and their savings.
If the Government says my savings are 100% guaranteed, it would give me tremendous peace of mind.
If we can get through this without a total collapse, then this may just turn out to be one of the best shocks to the financial system we could hope for - finally burying the Reagan/Thatcher/Babyboomer greedonomics and bringing about a more social and responsible financial system.
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Under a "state of emergency", surely the President could over-ride congress and the Senate.
Just as in wartime?
Nero fiddling while Rome burns?
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@120
-Green Backs, Going Bankrupt, Guarantee Broken, Good Bye,
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The Irish Central bank made a very foolish undertaking guaranteeing all deposits and debt. I have a nasty feeling it is going to come back to haunt them.
1: It is against European rules on providing state aid and I would be very surprised if the European Central bank, or the commission allowed it.
2: This guarantee is not going to address the problem of the banks issuing and partaking in dodgey derivatives and now having to come to their senses.
3: The share options of the Irish Bank heads are now going to be reinflated with their suspect performance skewed by the bank's intervention.
4: Irish Bankers must be rubbing their hands in glee. They can now continue to issue and originate dodgey debt knowing there are no consequences to their actions.
5: What not central banks don't seem to understand is that the more they intervene the more prolonged the downturn is going to be.
This is a bad day for the European free market. If a bank can't stand by itself then it needs to be allowed to fail.
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This comment was removed because the moderators found it broke the House Rules.
#111 - my understanding is that unfortunately if your mortgage or overdraft provider goes under your debt will not be reduced.
Instead, it will be transferred to the creditors of the institution (i.e. whoever the institution owed money to when it went bust).
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102 - The answer is because there is in reality very little real money. All the banks are doing is swapping sophisticated IOUs with each other and because Bank A knows the real worth of it's IOUs (bugger all), it assumes the same value applies to the other banks and so is unwilling to give credit in return for them.
As for money and how little of it there really is, think how much you spent last month on all your bills, going out, direct debits etc etc then think how much of that was actually real money as opposed to electronic money.
If you bank with bank A, and go to Bank B's cashpoint and withdraw a tenner, Bank B is then holding temporarily an IOU from Bank A for that tenner which Bank B can either asked to be honoured, or trade it on.
There is very little real money, and what there is is created from debt and doesn't have a value as such, only what others are willing to swap for it so that they in turn can swap it on.
But somewhere, at sometime, someone has got to honour these IOUs or they become worthless and untradeable. That is what's happening now.
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Gambling Bankers, Greedy Brokers, Gaze Blankly, Global Bonds, Gravely Become...Government Buy-back.
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This comment is not particularly intended for publication, but is rather to alert you to a possible angle on the current events, which I have not seen covered at all in the media, (although there have been passing remarks from time to time from those involved which tend to suggest that the point might be worth pursuing).
The point relates to crucial accounting technicalities regarding the way in which financial assets are valued. I am not an accountant myself: I have a professional interest in these matters but, strictly speaking, I comment as an interested amateur. The point is an inherently difficult one, in that, whilst being (I suspect) absolutely at the dead centre of current events, it is a slightly elusive technical point, and this may be why it has been neglected.
I shall try to be as brief as possible. In one way or another, the trigger for the current difficulties in the money and capital markets has been the huge reported losses of banks. However, whilst those losses make eye-grabbing headlines, the key issue is: how are the losses quantiifed? As I understand it, under US generally accepted accounting practice ("GAAP"), the losses result from revaluations of the banks' assets, and those valuations in turn are quantiified by reference to prices that are actually being paid in the open market between willing buyers and willing sellers.
The same measure of valuation has recently been forced on European listed companies by the introduction of international financial reporting standards (IFRS) as of 2005.
There is, however, an alternative way of quantifying losses on financial assets, which is to look at prospective shortfalls in expected cashflows. This was (basically) the approach adopted under pre-IFRS GAAP. In other words, the choice is: do you look at (1) market values or (2) actual expected cash shortfalls. Note that experience amply demonstrates that (1) leads to vastly greater reported losses, at a much early point in time, than (2). For example, at the beginning of 2005, there were increases of billions of pounds in UK banks' bad debt provisions due to the switch from (2) to (1).
Furthermore - and this is perhaps the key point - method (1) is inherently only suited to a scenario where there is actually an active market. What we see now is that, once the market has simply shut down, (1) leaves us totally at sea.
It may be that I am completely misunderstanding the technical accounting points, and/or greatly overestimating their impact. However, I would have thought that there was something here that most definitely ought to be pursued in your task of working out how on earth all of this can have happened.
Kind regards,
Stephen Shea
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129,
Sounds to me like you are saying the FIAT currency model has reached its end.
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post 85 - Is it just me that sees a contradiction in espousing the glories of the Thatcherite past while simultaneously demanding more urgent state intervention? Defend the old dear if you like but check out at least the ideological basis of her remedies: I suspect the last thing she, Hayak, Friedman et al would have implemented would have been "strong government interviention" - hence all the arguing going on right now in right-wing circles in the UK and the USA. (Perhaps however, you don't think she was ideological and instead driven by a deep, visceral loathing for people in the UK who got their hands dirty by actually making things and would be happy to bailout the captains of international finance and so keep them in the style to which they've become accustomed.)
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I wonder what would unlimited bank deposit insurance sensibly cost? What % charge on annual interest paid? 0.1%, 0.5% or what?
With a funded levy a government backed scheme could be funded by an across the board levy on all deposits - or insurance might be offered as an optional extra to depositors.
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I may be old fashioned but I thought our banks were private businesses whose objective is to make money for their investors. Funny, how when capitalism collapses, investors suddenly go all communist and want a State hand out to guarantee their money. No guarantee of this handout being repaid. I am struggling to see why taxes of people on low pay, with no mortagage and no savings should be used to pay out to underwrite the investments of others. This is a business not a Govt problem. And never let me hear anyone who benefits from whatever rescue the Govt provides call the Govt wasteful or call for cuts in publci expenditure. Of course they will, because capitalists are greedy and selfish like that.
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So how are the Builders getting on with no mortgages and falling House prices ?
Are they next for the Peston treatment?
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135: Sadly the Pension funds and other Shareholders has lost everything they had invested in B and b.
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Comments 1 thru 133.
I think you guys back in Blighty are taking this far too seriously! It's only MONEY... It can't buy you LOVE (I think John Lennon said that), mind you, he had pots of it! Anyway, don't stress over it. It's like my grandpappy used to say "A simile costs nothing and is priceless" having said that he was a miserable sod.
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This comment was removed because the moderators found it broke the House Rules.
I'll tell you the funniest thing in this sorry mess.
Both GB and GWB are both blaming 'world economic slowdown' as the cause of the impending recession / housing crash.
Who are they trying to kid? Both countries lax policy towards the control of lending has created this mess - and both men sit at the helm.
At least GWB can claim he's too stupid to understand the economy - GB has no such excuse.
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#131
Fine. Go back to the old model and problem swept under the carpet.
However I would kindly like to point out that given that bank assets are being valued at the market value the last thing banks would want to do is to distort the market place in the first place !
Banks have done nothing BUT distort the housing market for the last 5-10 years.
Words cannot describe what I think of the whole system - bankers, regulators, politicians and the media.
Let us not forget that those with money have bought into the gravy train - collusion has got us here. How many media pundits are STILL saying "Housing profits in 2 years, fundimentals is lack of houses".
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There is a question of who gets to fund the guarantees - a problem highlighted by AIG and CDSs in recent times. What no-one has twigged is that it is us, the tax-payers that get to fund the guarantees. And in a very cruel twist of fate, the people who are most likely to have large deposits in these sort of institutions are the one least likely to be paying large (proportioately) amounts of tax, as they are the ones that are probably better able to get the best advice, and are depositing cash as a hedge against their other risk exposures. Therefore, by guaranteeing large sums of cash, we are in fact self insuring in what could end up as a most unfair system.
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#131 - spot on. However the converse is also true - it allows the recognition of profits at a much earlier time as well. Both are equally misleading, though at different times, and the values given out very much depend on the fuidity of the market
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Not that Im trying to cause panic here but why do people assume building societies are so safe...?
Small example:
I 'self-certed' (ooh he admitted it) my mortgage with a company called GMAC. Within 2 months of completion my mortgage had been packaged up and sold to the West Bromwich Building Society.
Fast forward a couple of years and there we have Band B struggling with the level of defaults on their mortgage portfolios. And where did the most heavily delinquent loans come from? Yes you guessed it - the ones they bought from GMAC.
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....and another thing.....
In line with what Tendiam has said above - the reason for the big whooo har about the credit crunch is because the semi-rich (middle classes) will suffer the most.
The super rich are all abroad - in whichever country is the most stable, having taken their ill-gotten gains from the last 5 years.
The very poor have no pensions and no savings and therefore couldn't care less about the markets. They may have a concern for their jobs, but as the poor generally don't own their own house - they have very little to loose.
This is a re-drawing of the distribution of wealth. It wouldn't get such headlines if it wasn't for the fact that most journalists and media gossips are all middle class - aspiring to be rich - but never quite getting there.
Hamsters in wheels - the lot of you....
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We're told that around 95% of deposits at a typical bank are within the FSCS compensation limit of £35,000.
If this limit is removed, isn't this just a way for the richest 5% of depositors to be compensated by all taxpayers, rich and poor alike? (Even if the nation could afford it.)
Is that how we, as taxpayers, want to see our money spent?
Much better is the approach suggested by Willem Buiter this morning that in extreme circumstances, a percentage of each deposit should be compulsorily converted into fresh shares in the bank concerned, probably wiping out existing shareholders, but preserving the financial stability of the banking system.
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Over the weekend our company had $1,061,000 on money market deposit – it’s a rolling overnight account so we don’t get asked every day about it.
We received a rate of 0.05% - you need to read this a couple of times to get this right; not 5% and not 0.5% but 0.05%!
So after the 3 days of the weekend we had earned $4.36 interest at about $1.45 per day.
Apparently the inter bank lending rate is as high as 6.87% but our bank don’t want any of that so they are just keeping their (and our money) nice and safe under their mattress – or they are creaming in a margin of 6.82% and just selling me a line, its hard to say.
0.05% - unbelievable!
But this is the credit crunch crisis in the real world!
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I still say "No bail out" but the European banks are getting Euro-bailouts - see below:
"Dexia has become the latest European bank to be bailed out as the deepening credit crisis shakes the banks sector.
After all-night talks the Belgian, French and Luxembourg governments said they would put in 6.4bn euros ($9bn; £5bn) to keep it afloat."
Therefore if we are going to start bailing out British banks surely we should be doing that with the Europeans or is this a Euro/Sterling devide and we pay the money in to Europe and they just convert to Euros and keep it as Euros?
Ireland is acting illegally in their guaranttee for banks. This will come back on them badly.
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131 Stephen:
A very good point and well explained.
The fair value accounting system is contributing to the problem. The intrinsic aim is prudence - to show values on a worst-case, "not less than", basis. But the external effect - an unintended consequence - is that this prudence produces severe write-downs, as you explain.
With specific reference to mortgages, there are three ways you could value them:
1. NPV - the net present value of future repayments from the borrower, risk-weighted to reflect the likely through-cycle default rate.
2. Bedrock security rate - "how much would I get back if I had to repossess?"
3. The saleable value of the mortgages, as currently required.
The latter is a distortion. It reflects the pricing of risk at any given time. A mortgage might have an NPV of 100 (pounds, or whatever), and a bedrock (repossession) value of 50, but both contain some risk. In a massively risk-averse climate like the present one, buyers - if they exist at all - might offer you only 10. In happier, less risk-averse times, the market might have offered you, say, 75, for something with an NPV of 100 and a bedrock value of 50.
So what the fair value accounting system has done is to incorporate the pricing of risk into the corporate balance sheet.
Also, fair value accounting assumes that banks could, in theory, sell their entire book today at the market rate. In practice, they could not do this, so it is notional at best.
I think a better way to do this would be to use risk-weighted NPV, but with the bedrock security value reported as a note to the accounts.
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#123
So lets say Barclays went under with their £200 billion of savers deposits. Are you saying the government would be able to cover this by tax? That's 14% of UK GDP. In order for the government to cover that much they'd have to either scrap the NHS or massively increase borrowing. The only other options would be to print lots of new money, which would make the savings worthless through inflation anyway. Alternatively, they could defer the savings refunds over a long period of time, which might mean it'd take decades for you to get your money back.
Let's be realistic, if a big bank goes under, savers will lose a large amount, if not all, of their savings because the money to refund them simply does not exist.
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test
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So if there is carnage and the end of the world as we know it, how come both the FTSE and the DJ are up at time of writing?
Surely no-one's been sensationalising the extent of the mess?
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Am I the only one who heard someone on Radio 5 Live this morning say that the Irish guarantee was limited to 100,000Euro.
I was not dreaming. This should be properly clarified by the BBC
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@151
I think you hit the nail right on the head with that remark!
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#126 - It was the Irish Govt which made the undertaking and there won't be an issue as to whether or not it is unfair since they are to charge commercial rates for the service. Whatever those rates turn out to be? Also - EU already has to consider UK, France, Netherlands, Denmark, Luxembourg, Belgium, Germany ....etc and did they break the "rules".
The truth is simply if the banks were to fail the tax payer would somehow end up paying either by increased taxes or a damaged economy. It is the duty of any government to protect it's country.
I keep hearing aboyt dodgy derivatives when the real issue is not about the vehicle or even the driving put rather who was monitoring the driving! That's the real damning failure - the external regulators and by internal controls.
I was looking up a reference book about CDS and it stated clearly that the biggest danger is to trade with a party that itself is somehow exposed to same underlying risk. With the various interlinking relationships between all the financial institutions no one knows anymore who's at risk and who isn't. Even your basic co-op bank is exposed.
Oh in case people haven't figured it out - think about the exposed corporate treasuries or the county councils who have dealing positions. That's companies and local government who are risk.
So before people bail out over the idea of a bail out....think what babies are likely to be included in the bathwater!
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149 under that situation B and B wouldn't have needed Nationalization ?
The sheer number of Banks in trouble Monday makes it clear someone defaulted big time, and the knock on effects took out the other banks.
If it was B and B at the root of it then the CEO should have some tough questions to answer.
Too late for the Shareholders though, who have been shortsold, duped, and finally stitched up by the investors friend FSA.
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#149 Friendlycard - ah yes, good old model based valuations, smooth over the temporary market disenchantment and drip-feed it through as impairment charges :)
NPV - how do you decide on the likely future repayments, taking into account a potential housing crash and recession? And if the market is extremely risk averse, what discount rate should you use to reflect this?
Bedrock value - how is this affected if large numbers of properties need to be repossessed at the same time?
The main difference between these approaches and the market valuation is that the market calculates what they believe to be a true NPV, with a discount rate that reflects the fact that previous cash flow estimates can be thrown out of the window. It is more accurate because the market has to put their money behind it. Indeed, most companies that would like to use "hold to maturity" valuations for their existing holdings will apply a completely different valuation for anything in the market - or else why would they not be rushing to buy all these cheap securities? They must be a bargain if you apply the right model based valuation :)
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Direct intervention..............
Central Banks lending directly to Retail Banks........................
This is the only way out of this current LIBOR hike...........................
Central bankers lending at 0.5% over Base rate, diretly to the High Street Banks, will remove the liquidity issues in the market. At will force the Wholesale banks to either pay up or shut up (for good).
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I'm not going to cheer yet because I don't think the bounce in equity markets proves anything - yet, anyway. There are often small upticks in a downtrend, just as there are often small corrections during an uptrend.
This said, it's a lot better than the armageddon that the media were confidently predicting yesterday. One wonders if the media pundits really know what they're talking about..........
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How much did the Tories make from their Donors shorting the UK banks ?
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I'm still trying to work out how GB, according to his speech last month, is going to ensure first time buyers access to affordable housing, which the market is currently doing by itself, whilst maintaining house prices.
It's this kind of political conumdrum that politicians on both sides of the Atlantic are trying to balance. The reality is that they are mutually exclusive.
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So how many Companies, bought out by Private Equity and loaded with debt before being resold to Joe Public Shareholder, are going to go bust ?
And what happens to all those Companies encouraged to Sell and leaseback their Properties ?
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156:
I don't think I would infer from this that BB could have survived. I was replying to an earlier post which, I think, explained very well the weaknesses implicit in fair value accounting of mortgages where "fair value" equals "saleable value in a depressed market".
Ultimately, a bank goes down if it has a liquidity squeeze and/or when people lose confidence in it, the latter being the BB situation. They make take this cue from the share price. Unfortunately, the rational investor decision that "I don't wan't to own this bank" can often be interpreted as "this bank is unsound".
So I don't think that accounting methods affected BB.
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157:
I would suggest that the market value of mortgages at any given time depends on the tenor of the market at that time. Markets right now are massively risk-averse, so prices are low.
You are right that bedrock value assumes you could repossess and re-sell all the properties, which of course you couldn't.
But fair value assumes, similarly, that you could sell the whole book at that price which, again, you couldn't. It's the same problem. It's a bit like the market cap of a big company - it doesn't mean you could sell the whole company at that price.
I personally like NPV because you can vary the assumptions to reflect likely conditions. Let's say the percentage of defaults rises sharply - in that instance, you would incorporate a higher default assumption into your risk-weighting for NPV calculations.
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100:
Still after higher Interest rates?
Well the bad news is that the real rate of Inflation is heading towards 12 percent.
Mind you it depends on what you look at !
The Price of housing is coming down rapidly.
Mainly due to the failure of the Bank of England and Gov't to act quickly enough.
But when unemployment rises and repossessions grow, the first time buyers (if any) will have to pay high interest rates!
If they have a job of course.
I didn't believe in a House crash, but it looks like it is here afterall.
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Is the Private Equity policy of buying a company, asset removal , loading it with debt based on its current cash flow, and then reselling it to Pension Funds and Naive public shareholders going to be investigated?
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To 160.
How much did Labour, the Lib Dems and the Cof E get from short sellers?!?!?!
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162:
Great point. Private Equity is toast, I suspect, except where they've been canny enough to get ultra-long-term funding.
I might as well add that I disliked the private equity concept from day one. It profited from an unequal playing field. Companies financed with debt could deduct interest expense for tax purposes, but companies based on equity capital could not similarly deduct dividends. Not only was this unfair, but it was biased in favour of debt rather than equity - illogical, I've always felt. It also reduced transparency.
Private equity involved taking over companies using their own money (future cash flows). This didn't feel right, somehow (OK, I know that is subjective). Some very good businesses could now be at risk because they moved from an equity to a debt capital structure.
I take a rather conservative (small c) view of leverage, and always have. I like companies which have strong cash flow and 'survivability' built into the balance sheet i.e. not too much leverage.
As for sale and leaseback, I suppose it depends on the leaseback terms. We could perhaps be asking questions about the whole asset leasing market - what is the situation of, say, rail companies which lease all of their rolling stock?
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In discussion recently about the absence of any kind of safety net for people who fall into debt through no discernible fault of their own, my MP Douglas Hogg QC told me that a government could not afford to distinguish between 'the poor' and the 'deserving poor'. Not the words I would have used, quaint, but the we are.
The idea that people with savings should be protected conversely strikes me as a bad case of protecting both the 'deserving' and 'undeserving rich'.
The deserving? Those modest savings who've worked hard (in the true sense) to accrue them. The undeserving? People with more money than they know what to do with who typically live off the interest, like to count it every day and keep their money tucked away. Half the problem is too many wealthy 'savers' who never spend it - that's just money pulled out of circulation. I know plenty of these types, made a killing during privatisation and never did a day's work since.
You figure it out. Protection for the wealthy but no-one else? Get real.
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I've got an idea!......why don't the people lucky enough to have over GBP35,000 savings in a bank account take out an insurance policy on any potential loss over and above the GBP35,000 limit should their bank collapses!......Brilliant eh!!!
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#77 Dorte2 - I think NR could have reqistered its overseas operations (Ireland or Denmark) and approached the European central bank - The way I heard it, they just didn't understand they could? Well, that and they probably expected the kind of annonimity from the BoE as standard...
I read somewhere that the GBP 40bn of 3 month money has been oversubscribed to the tune of GBP 50bn. Why isnt Robert telling us who are the borrowers of last resort now?!
The only reason banks dont trust each other is because theyve seen the state of their own "assets" and assume everyone is in the same situation. Which means, as no banks are lending, that no banks are ok?
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166 supercalmdown:
With you 100 percent on this - I've just posted a reply to you on private equity and its future (basically, it hasn't got one), saying how much I've always disliked the whole thing.
The snag with investigation, though, is that what they did probably didn't break any laws that I can think of. If you can think of some, I'd like to hear of it!
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When will Gordon Bust offer a guarantee on the value of the pesion funds they encouraged us all to invest in? That'll be another NEVER
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167:
A very good question!
If they were undermining the Uk economy in order to boost their finances, I would be surprised and horrified.
In an earlier Age such actions would be considered Treason.
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170:
Good idea - but do you know of any insurers that offer such policies? It seems a bit like a certain US insurer writing cover for CDOs.
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Ive just realised - Which of the "House Rules" did my post (#45 break?). The one where its wrong to criticise Robert Peston? I didn't find that in the list of possible exclusions when I've just looked.
That isnt moderation, its censorship.
Since notverysmary replied at #51 it must have been up for a while?
Confused now.
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Robert, (or should that be Chicken Licken?)
If the British government adopted a matching kneejerk response to the Irish move to increase the amount of depositors' savings covered by government (ie taxpayers') guarantee. it would increase the moral hazard that, in future, British banks will again play fast and loose with the risks they take, knowing that the government is shouldering more of the responsibility if things go pear shaped.
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News from Main Street America:
House members were told overwhelmingly by their constituents to vote NO on yesterday's bill.
95 Democrats voted against the proposal, including many of the most socialist in that party.
The mood here, after all the government interventions and foolishness, is firmly against any plan to rescue the banks (and the Congress) from their own folly.
House members stand for election every two years, and live very 'exposed' lives in their districts. I belong to the same church as a member of Congress, for instance. They are obligated to listen closely on matters such as this. People in the districts are adamantly opposed to any bailout of the financial sector.
They do not trust the Great and Good to act with any modicum of competence or honesty.
If you are waiting for the US taxpayer to come to the rescue, I advise you to make other plans.
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I do not know if there is to be a global bailout - with Brown flapping about in America to meet the US president only to meet no-one of any importance, and trying to look as if he has a global plan.
Perhaps though Mr Preston can guide us through what the bailout options really are.
I mean there is the Bail out the bankers plan put forward by the US treasury, to use taxpayers money to buy toxic assets, and basically give the bankers the money, so they can cash in on rising share prices and cash in options.
I don't see unless the assets are overpaid for, how this would help the banks capital.
Then there is the Swedish Plan, or SuperBond plan where the taxpayer actaully takes a hybrid bond/equity stake in the failing banks in return for capital injections, making sure that they burn through the shareholders and debt holders before the taxpayer capital is touched, a plan which stops a vicouis cycle of delevering because it restores bank capital.
Why is the fed and treasury reluctant to burn through the bond/capital holders and instead just hand them over the taxpayers cash??
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Regarding Private Equity company resales,
Pension Fund Managers are professionals?
They act in the interests of their Clients (the Pensioners).
So how did they assess the value of the repackaged companies sold on by Private Equity?
Did they look at NAV per share ?
(Mind you NAV - net aset value - seems to be ignored these days especially in regard to Banks!)
So if the NAV was lower than the IPO price, why would they buy ?
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I don't have too much of a problem with the Govt bailing out the banks provided a) it's approved by parliament and b) the boards of the banks concerned are immediately dismissed with no compensation.
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I like the sidebar conversation about the valuation accounting. Exit cost or replacement value are always contentious. Likewise when it comes to NPV. That's why although the accounting regulations take one approach only, middle office checks (or should check) a multitude. Exit cost or mark to market has rarely been so tested as it is now. NPV assumes that you want or at least can hold a position for a medium to long-term period. Not true today.
The trouble is accounting has never been able to keep up and is likely never going to. The world moves to fast for a system designed by a bee keeper to have a chance.
The way to deal with the whole situation is to force all parties to create separate companies holding their 'toxic' assets. Leaving behind only clean balance sheet institutions which can trade without hindrance. To do this there will have to be a formal set of regulations ensuring that the task is done correctly and completely. Whilst this is been done the banks will be guaranteed by themselves and our governments.
The toxic asset companies would then "cleared" in that all deals would be matched and settled. This would be done by some central exchange.
Thereafter, all such derivatives must be exchange derivatives and not OTC.
Who bears the cost? Well I'm reminded of the phrase if you think education is expensive, try ignorance!
If you think bail out is expensive....try chaos! So – we pay…
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I find it interesting that up to Comment 182 and apart from a few over the lunch period, all the comments have been posted during normal working hours!
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Anyone on these blogs NOT actually a banker?
I've never read so much jargon in my life!
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#85
Trying to change history and mask the 20/20 hindsight does nothing to help anyone - it most certainly doesn't help those who have inherited Thatchers party - if you wake up you will notice that even they have started to back-track some of their dogma.
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182 knaper:
Yes, the valuation discussion is interesting, Stephen's original post on this particularly so. I'm interested in this area (though I must disclaim any particular knowledge of banks - I'm interested in industrial companies).
Mark to market is not just being tested, it is being tested to destruction, in my opinion. NPV is my favourite. Far from perfect, but better than the alternatives. There needs to be full disclosure of assumptions and calculations, enabling shareholders to test it for sensitivities. Writing your own NPV model is easy enough.
NPV doesn't necessarily assume that you hold to it termination, as an NPV - if realistic, of course - should also indicate a saleable price.
Separating out toxic assets is a very good idea.
And here's a twist which has just occured to me - why not CONVERT ALL BANK DIRECTORS' SHARES AND OPTIONS INTO TOXIC COMPANY STOCK?
This could be pro-rata - if the toxic co is, say, 20% of book, 20% of their shares get converted. Seems fair to me...
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English again!
Won't integrate with Europe again!
Pity the victories of your Republican and Socialist Allies in the past (WW1 and WW2). You didn't get the benefit of all your stinking Institutions being swept away, as the rest of Europe did.
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#170
I tried to buy some insurance against banks going bust and nobody will write the policy! I wonder why!
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184: guycroft
I doubt if there are many bankers contributing, but probably a lot of investors. Any banker reading the majority of these posts probably feels suicidal!
Personally, I think the standard of contributions to Robert's blogs is exceptionally high. Vastly better than all that reactionary ranting on HYS!
As for jargon, I don't think it's too bad really. I own up to using the terms LTV, BTL and NPV a lot, but they are more convenient than writing "loan-to-value" etc each time.
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You have got to read purpleDogzzz's posts over on Nick Robinson's blog through out today (click on his name to read them together as the day unfolded).
They're brilliant.....guaranteed to put a smile on your face!
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What is going on here.? I thought the US Congress declined to support the "bail out" package, and I thought they did so in full compliance and accordance to the accepted US procedural practices.
From what I know the average guy in Main Street (i.e. the average voter) is quite happy with this decision.
Surely this should be a time to celebrate the democratic process, and be happy that the leading power in the world has sufficiently robust democratic institutions to function even at times of great stress.
I see nothing of that joy and happiness on the news. All I see is a collection of vested interests all desperately casting around for some effective way to subvert the democratic process. Reading these comments there would seem to be no shortage of cheerleaders for these anti democratic forces.
Democracy is supposed to be an inclusive concept. A lot of people (the poor) have no interest in this system. They have no jobs, no pensions, no savings and do not own houses. However what they have, or should have, is an equal right to partake in any democratic process.
The poor don´t agree with all of this, because it is not in their interests to agree.
Some people probably form their view based on ignorance or prejudice - it may be annoying but it is also their right, and that is what any democratic system should strive to protect at ALL costs.
A lot of the contributors to this blog don´t seem to care too much about democracy either. What do you want Fascism, Communism, some form of Oligarchy for the rich? What happens if it is your turn next? There are more important things than money and banks.
This is just life - some you win, some you lose. I´m sure there are some genuinely worried or frightened people - but I don´t see how joining the war on democracy is going to help placate those worries and fears.
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On Valuing Mortgages
There seems to be lots of differing views about how to value mortgages in the books of the mortgagor.
The rule is "Mark-to-Market" I believe.
This is where the value of an asset is the price that someone will pay for the asset. Hmm - this means in present market conditions - zilch!
By the way this method of valuation was to have been suspended in clause 132 of the bill before the House yesterday (and voted down). So until Thursday (at the earliest) it stands.
(SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING)
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Of course, the knock on effect of the collapse in Share prices (due to the serial dishonesty of the City and the failure of the regulators) with be the end of Private pensions.
The impact of this on the Taxpayer of the future will be enormous.
All those who could have had pensions, will be reliant on State handouts.
All those small shareholders who lost it all, will down the social security office.
And of course, paying no taxes.
But the spreadbetting, shortselling, casino culture of the City has ruined the Pension Funds for us all.
Except for the real Pirates of the Offshore tax havens.
They have no doubt feathered their nests quite well.
Which is why they do not wish for inflation.
Inflation would take their unearned profits away from them !
Roll on Hyper inflation.
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Dear all,
I must make an URGENT clarification.
My post #170 was in jest (given the CDS scam that is the real reason why banks and insurance companies are in so much trouble).
Insuring a potential loss (whether likely to be incurred or not) will only create more electronic debt.
I apologise for this frivolous gallows humour.
Only you've got to laugh otherwise you just want to sit and cry. I'm off for a pint now and have some sensible conversation!
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Yes, pension funds are in a mess (which would be worse still if inflation takes off).
But I seem to remember a certain Mr G Brown pinching billions from them in tax.
How much has that raid totalled thus far, including the income that would have accrued on the money if they'd been allowed to keep it?
I'd be surprised if it was much less than GBP 200 bn, perhaps more.
Please bear that huge figure in mind when considering how much of savers' money has been squandered by bankers. Brown is as bad as any of them.
Before Brown, both parties had always agreed on the need for fiscal encouragement of pension saving, not least because it reduces the cost to the state of pension provision (which is why it made fiscal sense to give pension savers preferential tax treatment).
And how many savers may have been suckered into BTL, etc., because of the pensions raid?
Brown may or may not be responsible for the current crisis, that's a matter of opinion - I think he carries a huge amount of responsibility - but he is undoubtedly nailed for the pensions raid. Expropriation of ordinary people's prudence.
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Why don`t the Americans just use their "directed-energy" weapons to jump start the "economy"?
P.S These weapons can turn big buildings into dust!
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This is nonsense. America is bankrupt and has been for a number of years, yet the UK and Europe allow their markets to be driven by the US economy. It'sa not acceptable.
Let's get some real sense back into the markets and invest in home-grown, sound, business opportunities in Europe.
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I don't think so, as people are investing shares, in house, etc; these people are not protected. So why should we protect depositors and not the other.
Also realistically government cannot afford to do so.
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gurugally,
what are talking about?
The money the Wall St banks lent was to US citizens and it was then spread through the US economy by the purchases they made, whether on houses or anything else.
Also, the US treasury and individual state treasuries got their cut from the various taxes on those purchases and the taxes on Wall St profits.
You might say that the US banks were irresponsible for lending large sums to people with poor credit records, but I didn't see anyone in the US complaing about the economic growth that spending fuelled! unfortunately the way those debts were then packaged and re-sold to non-US banks means we are now carrying some of the can.
I don't see why anyone other than the US taxpayer should be responsible for footing the bill for rwsolving this mess.
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Robert - nice to see that Gordon's reading and responding to your blogs...BBC now leading with "Gordon brown confirms plans to protect banking deposits up to £50,000...". Good to see you driving HMG policy like this. Thank you.
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#185, but apparently fabricating what happened in the 80s does.....
Repeating the same lie over and over doesn't make it true. Fact average house inflation is ten times that under NuLab than it was under Major. Fact when inflation became an issue the Tories moved decisively to end it - remember the 15% interest rates that Labour used to be so keen to remind us about? Fact the housing bubble started within 12 months of NuLab coming to power - post Brown's budget where he set up rules to guarantee low interest rates, guarantee dividends would not make tax sense, guarantee pensions would be worth nothing and finally changed the regulatory structure to the current worthless one we have now. Then just in case no one got the point he changed inflation to strip out housing. Fact, he has solely been concerned with keeping house prices high instead of dealing with the larger economy thus ensuring when the storm hit we were hit as one of the hardest. Final fact, housing bubble in the 80s was 3-4 years out of 18, under NuLab it is 11 out of 11 years.
Those are the facts.
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Peston you big tease. Where is this collapse you promised me?
The bail-out-bill is a big scam and you know it.
How?
1. the 700 billion figure was created out of thin air.
2. 700 billion is LESS than the Federal reserve pumped into the banking system in extra-liquidity last week alone. How is this so-called 700 billion going to make a difference when 900 billion didn't?
3. We were promised a crash if the bill failed.... Well the bill failed and what happened? The FTSE and the DOW and a host of other markets went UP today!!! So all this was scaremongering nonsense.
4. the experts listed below can say in their own words exactly why the bill would have failed to stop the rot anyway.
(This letter was sent to Congress on Wed Sept 24 2008 regarding the Treasury plan as outlined on that date. It does not reflect all signatories views on subesquent plans or modifications of the bill)
To the Speaker of the House of Representatives and the President pro tempore of the Senate:
As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:
1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.
2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.
3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.
For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.
Signed (updated at 9-27-2008 6:00PM CT)
By over 2000 economists and economics professors
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So Peston you big tease!!!
WHERE IS MY STOCK MARKET CRASH????
You promised. You said if the bill is not passed then all hell will break loose. Where are the bankers jumping out of high windows? Where are the traders on the stock exchange killing each other?
Bush and the bankers were trying to scam the public out of billions of their hard earned tax dollars.
Congress MUST keep voting NO! Americans will meet any congressman who supports this with a strong rope.
the revolutionary spirit of 1776 is awakening. The people have had enough.
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195. I just googled "Gordon Brown pension funds" and got a few eye-opening newspaper reports from a couple of years ago. Worth a look.
I've got all mine in a mattress, and when I'm gone the cat's having it.
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No 1: A deposit is NOT an investment, it is a deposit, it cannot have a risk. If the bank that accepts someone's deposit then decides to risk it in dodgy investments, it is clearly not the depositors fault. So yes, deposits ought to be guaranteed, not by the state but the banks who ought to insure the deposits amongst themselves. If savings are guaranteed, less people will feel inclined to risk their money in questionable investment gambling. In that it is a vital step away from financial bubble building. It cannot come fast enough these days.
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I estimated the FTSE at 4600 by Christmas.
Well it's around 4900 now.
At this rate, maybe 50 points a week down, it will be around 4250 by Christmas.
Far more pessimistic than I first imagined.
To me, the only Shares worth buying are in those Companies with strong exports and zero or very low debt.
And sadly there are not many of them on the Exchange.
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The Irish 'unlimited two-year guarantee' looks a bit oxymoronic !
Looking back to Alan Greenspan's Fed. tenure I remember that he pushed interest rates down and down to keep the already seriously flagging US and World economies from spinning down into recession. He gets plenty of criticism for it now, but it did put off the Evil Day, as did Gordon Brown's borrowing and spending here.
The West has overspent and become dependent on the rest of the world to provide the resources it needs to keep going in the manner to which it is now accustomed.
The present jolt seems to be the beginning of the inevitable downward adjustment in our Western relative wealth and the arguments are now about how we share the pain.
Overall I rather favour inflation as a reasonably fair solution and a big National Bank as a means of protecting individuals - but two years won't do it!
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Re No 85
Thanks for letting us all know that Thatcher saved the country - unfortunately you neglect to mention exactly what she saved the country from.
Maybe this old quote from the Vietnam war might throw some light on the activities of the great saviour
"In order to save this village we had to destroy it"
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204:
Yes, it's shocking, isn't it?
There aren't many things that I get really, really angry over, but Brown's pensions confiscation is one of them. GBP 200bn of ordinary, prudent people's money - it dwarfs bankers' worst excesses.
The problem with Brown (et al) is he's forgotten the name of his party. Labour. Work. Working people. He doesn't try to help them. He mouths platitudes about "the poorest in our society", by which he means benefits claimants. There's nothing wrong with helping them.
But what about a bit of help for hard-pressed working people? 10 percent tax hit that group. Pensions confiscation hit them. The property bubble hurt them. Lots of working class young people now saddled with huge mortgages and, very probably, negative equity.
Does Brown help these people? No. He seems to be on some kind of messianic, "son of the Manse" mission to help people on benefits; working people can go hang.
Well, they are showing him exactly what they think of that in previously-solid Labour seats like Crewe and Glasgow.
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#201
So stop repeating the same lie then...
The facts are that Thatcher changed both the housing system, the way that most think about housing, both mean that we now have people in their mid to late twenties talking about wanting (or worse still, getting) a 100% or more mortgage etc. Also Thatcher, along with Reagan, changed much of the banking system.
Please stop trying to make out that the 1980s didn't happen, that we all went to sleep at the end of 1979 and woke up in 1997 with a changed world order (some of us wish the Thatcher era was just a - bad - dream...)! I'm not saying that mistakes have not been made, by either political flavour, but those mistakes would not - could not - have occurred had the system not been changed back in the 1980s.
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I find it ironic that post offices were closing and now they will become the biggest community bank in Britain. Thank you Bank of Ireland. The good guys win in the end!
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Gordon Brown has done it, again.
The Irish are guaranteeing any sum of money in a deposit. Gordon Brown will only guarantee 50000- where will any reasoning person put their money - in an Irish Bank!
Does Gordon Brown intend to engineer a run on all British banks? Perhaps he does - as he is going the right way about it!
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#153
The €100,000 applies to all savings in ROI i.e. in all Irish Banks, branches of Foreign banks in Ireland (e.g. Halifax, Rabobank, Danske etc etc), credit unions and other savings institutions.
The new 100% guarantee only applies to Irish Banks.
The reason for this new measure is simple: Restore confidence.
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Whilst people still seem keen on continuing to attempt to subvert the democratic process, I thought I´d offer a potential solution.
If this deal is so vital and may not even cost the taxpayer very much in the end hows about a few rich guys club together and lead the way. Buffet and Gates must have a spare few billion between them. I´m told that Hank Paulson has got about $700 million in his pocket - he could make a nice gesture.
I reckon with a little effort you could come up with a few individual names that are collectively capable of making a big hole in the $700 billion. A lot of them are always banging on about their philanthropy - here´s an ideal opportunity for them to get in the spotlight and bask in the thanks of the world.
Sticking to the man with $700 million it seems clear that he got the vast bulk of this from Goldman, and that Goldman held him in high esteem, presumably because he was very good at his job. It is now being revealed that his job was value destruction on a massive scale, and remember he was very good at his job, so presumably he destroyed more value than most.
He now tells us that he needs $700 billion. A little knowledge of history tells us a lot as to how he will most probably deploy this money.
"There are none so blind as those that will not see."
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#206
Trouble there is, if no one is buying the exports, or worse still they don't pay for the stuff...
I suspect that buying gold or something like that is the only sure fire insurance policy, you might not make money but it's unlikely to loose it! Seems like Thursday or Friday is the next 'crunch day' (I suspect that the next HR vote will be late Friday, so that traders will have to wait until Monday before they can really hit the market should the doo-doo hit the air circulating device) - unless of course another bank goes down in the mean time...
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#41 - "There may be gains to be had if these 4 Irish banks can pick up some British banks for a song."
Not while the Chinese and the Arabs are waving wads of hard cash around !!
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#206 - Oh there's still a few of them around. There's never a shortage of buyers for good military hardware; not when hate, intolerance and greed rules this world !!
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#204 - You animalist !! How could you give it all to your cat when there are so many dogs living on less than $1 per day ?? What about canaries and goldfish ??
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After todays meeting (PM, Chancellor and Governor of BOE) expect a big interest rate cut on Thursday as well as increase in pumping money into the market.
Also expect, in the short term targeting interest rate at 2% to be abandoned in the national interest.
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#204
I remember contracting out of pensions.
Then pension mis-selling.
Now you are supposed to contract back in.
Then there were endowment mortgages.
The pension tax.
The Dot Com scam.
Now the housing boom.
I just googled the Gordon Brown pension funds as you suggested.
I am disgusted. The guy even has had the nerve to increase the retirement age.
Lol,, it would make a great farce comedy if it wasn't real.
I feel for the next generations, even before they start working they have the yoke on student loans on their backs.
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#212
I would want to see the detail in the IOR guarantee, unless they are trying to bolster their reserves it wouldn't surprise me to learn that one needs to be resident (have a registered address) in the IOR or NI... I really can't see that they would, in effect, be offering to guarantee the Wold!
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Reactions in the stocks today just display the fact that nobody really has a clue.
The whole business of finance has developed into a mire of deals that are imcomprehensible as a whole, very few of which are actually based on something real.
I have always been a believer in simpest is best. Lets get back to basics and outlaw all transactions that do not offer absolute clarity as to why they take place to all and that are seen to be based on actual values not gambles for the future.
Just to demonstrate my ignorance I would ask the following.
We keep being told one part of the crisis is caused by banks not lending money to each other. Which of the banks have money to lend and how do other banks know this. Lets get some money of these.
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#214
...and if the world is saved, the winner(s) take it all? If so were does that leave democracy then, after all those few people would have a blooming good claim on the world, considering they funded it!
Look at it this way, most people don't complain that their taxes are used on defence (either civil or military) because they accept that it's important to protect the state, surely if there is a economic threat that could damage the population why should the tax payer not use their taxes so that their way of life is (hopefully) protected?
Sorry but I can't help thinking that some, in the USA and here on these blogs, actually want a crash, there seems to be quite a few who think it would be an "opatunity"...
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#221 Boilerplated
"be offering to guarantee the Wold!"
Please forgive me but your accidental typo of wold for world amuses me (simple things please me and I generate many many typos myself. Why do I type fro when I mean for? etc. etc.) I see a Lincolnshire yokel dressed in an off white smock going to his local post office (that sell Bank of Ireland savings products) chewing on a straw (if that is the usual diet of Lincolnshire yokels).
Getting back to the point:
Reuters are reporting "Irish bank pledge nets cash inflow from UK-source"
"Tue Sep 30, 2008 3:36pm EDT"
I also heard from friends (who live in and go about in the real World) that several London Post Offices were unusually crowded today.
It I think proves my point that Gordon Brown has not done the right thing - again! Wake up an smell the grapeshot Gordon - Please!
PS The EU are I hear looking into the question of illegal state aid. It also strikes me that the European Central Bank should offer the guarantee and then there would be no disorderly market.
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This comment was removed because the moderators found it broke the House Rules.
#224
Perhaps Brown has been listening to the protests about post office closures, but then again... Now there's a thought, all these people transfer their life savings and then find in a few months time that there is no way of getting them out again when most of the local Post Offices close down - shares in Ryan Air anyone!
As for the EU, I suspect that they will get told what they can do with their state aid laws, and where they can put them, if they try and pull that one. How many EU member state governments have now stepped into save one or more of their banks or financial service industries from going down?...
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What is British about "our banks"?
Are they British owned? They make their money here? Ah so, they are internationally owned banks headquartered here making money out of us.
That makes them ours?
I bet the taxpayers will sleep easier in the knowledge that their money is being lined up to help such worthy causes.
#224 "several London Post Offices were unusually crowded today."
Some folk still use P.Os to get Car Tax Discs. End of the month..
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This is getting ridiculous. Just when was the last time that a depositor with a British Bank lost a single penny - wasn't it in the nineteenth century?
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#228
That might be so, but the problem now is that how business is done and the types of 'products' handled has changed so radically that even quoting events from the 1960s or '70s is bordering the irrelevant.
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I don't know if someone has already made this point, but might his be a clever scheme to get the British public to bail out failing Irish banks? I've just read that certain Irish banks are planning to publicise in the UK their new competitive advantage...
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The Irish have judged well in timing, competitive effect and in support for their financial sector. Before leaping to copy them however a pause for reason is required.
Whatever the condition of Irish Banks, internationally they remain small fry - much more important to their domestic market, politicians and voters than to foreign commercial operators. If the worst were to happen, it would probably also be happening in other countries and so simply put the Irish in the same boat. If the outcome were to be on the safe side of crisis, then Irish politicians and regulators will have scored a domestic coup and perhaps gained some points with foreign investors.
The notion that an economy like Britain can blindly copy such a guarantee within a small country is asking too much. If it turns out to be necessary, then hold on tight because we must be so close to depression that the normal niceties of capitalist economies will have been suspended indefinitely and mere survival will be the watch word. The idea that such guarantees can be predicted as being necessary for only two years is unrealistic. A depression demands much longer to be defeated and overcome.
In the event that the Irish action is not required for the full two years it must be removed as soon as possible to avoid unfair competition within the EU - this applies across the countries. The ECB must monitor real needs in the guarantee game and eliminate them when possible.
The Irish economy has boomed in property and it is very easy to imagine high levels of borrowing based on inflated house prices. Some mortgage banking risk profiles could look pretty horrible in Ireland. Perhaps this guarantee will help preserve some of the fruits of the Celtic Tiger Boom, however, ultimately it is either a sign of suspected impending disaster or something very unsavory in the so-called Single European Market. The Celtic Boom has benefited from tax breaks and all sorts of external inflows. A leveling of the playing field by some Irish banks suffering for bad lending would not be an injustice. But Ireland is a small country and nobody really bothers about it - they just smile in the corner with a Guinness and watch the cash roll in. Perhaps the ECB could pop into some Dublin bars and listen to the politicians laughing - all the way to the bank.
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some of the discussion on the accounting treatment of the so called toxic assets is excellent - while its true that mark to market accounting is aimed at keeping the banks honest and prudent, it unfortunately couldnt have arrived at a more inconvenient time. there is no doubt that the huge 'reported' losses strangled liquidity which has given rise to the problems we see now.
the accounting bodies need to provide detailed guidance on what exactly constitutes an active market and a fair value - to me the underlying credit quality in many of the subprime deals (at mid tranche levels at least) remains satisfactory - and allowing npv valuations for these complex securities would not seem unreasonable at the present time, assuming that auditors could look at the assumptions and vouch for their credibility, and ensure that all banks were applying consistent assumptions! - it would certainly improve matters in the short run - and buy all parties some time to discuss a longer term solution
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I write as an Irish Citizen and US resident:
It baffles me how the Irish government believes it can underwrite deposits to the tune of E500bn. (Around the same amount as Hank’s US fund for ‘toxic assets’ rejected by Congress)
For context the Irish government budget deficit for next year (the largest for many years) is forecast to be in the region of E5bn.
Many respectable economists believe there is a real chance (whether large or small) that we could see a wave of major worldwide defaults. If the Irish goverment had to pay up only 10% of the E500bn it would be ruined for years to come.
The government is in total denial of the risk taxpayers are exposed to. The Taoiseach tells us that the Irish taxpayer would not “in any way be liable for any deficit” that might occur because the financial sector would have to discharge any liability which arose.
There is a real risk that the liabilities could spiral beyond the means of the Irish financial sector. What then?
Does anyone have any suggestions as to the value the UK government would be underwriting were it to offer the same guarantee?
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This situation makes me think of a high stakes poker game. How much is bluff and are all the cards on the table?
Sorry to be opaque, but full honesty from governments, regulatury bodies and banks especially in the UK has not been forthcoming. Trust went out of the window a while ago now.
I strongly believe that banking/loan fundamentals need to be applied to the bad loan book. This is the nub of the problem. Address it and take the hit - it will hurt a lot. Or delay and watch the wound fester and infect other innocent financial institutions.
This requires guts, but 99.99% of politicians in the capitalist world are spineless.
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#223 - "most people don't complain that their taxes are used on defence (either civil or military) "
That's because these "services" are strictly controlled and that the personnel involved can be tried by court martial if they make a mess of things. A doctor or a nurse can be tried if they let a patient die through neglect or incompetence !!
Perhaps these bankers should also be tried and taken out and shot, *AFTER* their assets are confiscated to pay for the mess they made !!
#228 - "Just when was the last time that a depositor with a British Bank lost a single penny - wasn't it in the nineteenth century?"
- BCCI, late in the last century, if my failing memory serves me.
#227 - When times were good, the taxpayer used these "foreign" banks to make lots of money. Of course, the government could kick out all these "foreign" banks when times are tough making UK the first confiscatory Western regime and destroy what little trust left that the world has in the UK !! Then UK will have to start shipping what little gold it does *not* have (thanks to Gormless Gordon) to buy all the little necessities of life like oil, gas, food, etc. Good thinking, Battyman !!
#233 - "If the Irish government had to pay up only 10% of the E500bn it would be ruined for years to come."
They'll just have to sell more Guinness and Irish whiskey, won't they ??
#234 - You'll get full disclosure from governments when the Devil practices saintliness !! However, there's no harm in hoping and dreaming !!
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Am I the only one who sees the proposed seante vote on the bail out as a tad cynical?
To think that the senate will pass the bill because "only 30% of them are up for re-election and therefore will not feel the pressure from constituents" is surely the ultimate expression of the contempt which the US politicians seem to hold for the people they allegedly represent?
One interesting statistic: 700bn represents a million dollars a day, every day since the birth of Christ.
Second: the Fed pumped 630bn into the markets after the bill failed in the house acting on it's own authority and the markets still fell.
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It seems, after the credit boom of the past few years, that there are very few savers in this country.
Therefore, wouldn't a 100% guarantee on all deposits protect, primarily, the wealthier (and in some cases more prudent) at the expense of the less affluent average taxpayer?
When you consider that most of those average Joe's are scraping out a living in a country where they can't afford to buy a house because the people with money - who they would now be expected to guarantee - have been indulging in BTL mortgages to increase their stash....then I would suspect that that guarantee is essentially worthless.
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Apparently one of the Builders has slashed its prices by just over forty percent !
Good News for first time buyers, if they can get a mortgage!
As with B and B the Bank of England has failed in its remit, and the FSA really looks very bad right now.
How many Pension Plans have been closed this year ?
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This bailout should not happen ... we should either let the banks fail or they should be nationalised.
However if it is going to happen, with the banks being distressed sellers, the government should make sure they buy at rock bottom dollar price. At least that way, the banks will be hurt and the taxpayer might return a profit in the medium to long term.
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I have an accoung with ING Direct. What happens with UK citizens holding money in banks abroad. Is our money still protected?
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yes all very well talking about what another country has done - but what is the real value of what they have done?
I heard a figure that the Irish have guaranteed 100% etc., amounting to £400bn (pounds) if thats so - how can Ireland actually guarantee it? Its many, many times their entire GDP.
If this is correct, how solid is this guarantee anyway?
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I am getting fed up with all the criticism directed at "greedy, idiotic bankers." If you follow the trail all the way back, it leads not to the banks, but to greedy, idiotic consumers. The blame must be shared rather more evenly. Large swathes of the population thought that they could get rich by investing in bricks and mortar (an asset which produces nothing); many refinanced at regular intervals to sustain - for a time - a lifestyle that was beyond their means. Expensive holidays, lavish cars parked in front of not-so-lavish homes, etc. If you feel hard-up, blame them or blame yourself.
I would also point out that the backlash against bankers' pay is, to a certain extent, unfair. There is no doubt that, in retrospect, and over the last 3 years especially, many people have earned "too much money". However, this is not a blanket statement that can be directed at anyone working in the square mile. High-earners in the City have typically invested a lot in their own educations. They also work harder and under more pressure. They deserve to be paid more than people in retail, 'normal' office jobs, etc. They sacrifice time with their families, holidays, etc. I would, however, concede that some recalibration is perhaps in order.
Finally, I think the BBC should enforce its own house rules. One rule makes a reference to the use of defamatory language, and it bothers me that, despite this, people can make blanket statements like: "bankers are idiots" (to paraphrase dozens of posters this week alone). Why is that ok? If I said "factory workers are stupid," that would presumably be considered too offensive, and yet it is more likely to be true, since most would have been below-average performers throughout their school careers.
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#210, what has Thatcher wanting people to buy a house got to do with the current housing bubble? What has Thatcher got to do with destroying other forms of long-term saving? What has Thatcher got to do with crippling regulation? What has Thatcher got to do with making specific changes to inflation targets to keep interest rates artificially low and house prices high? What has Thatcher got with not targeting the house bubble earlier? What has Thatcher got to do with doing the opposite and trying to prop that market up?
The point is there was a house price bubble developing in the mid-80s and the Tories did something about it - as NuLab repeated reminded us. So your claim "it would have happened under either party" is simply a lie.
If we are going to ignore every single fact and every single statistic then why don't we blame those Renaissance bankers that came up with the idea of joint-stock companies? After all without banks we wouldn't have a banking crisis would we? Or the Babylonians for inventing accounting?
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#235
I agree about the need for regulation, I personally think that it needs to be very strict and the punishments punitive but accept that this is not going to happen unless all countries agree due to the way that money cane be moved around electronically these days - and there will always be those countries that will never do so.
But my point was about tax receipts being used to try and protect the nation, as I said most people accept that civel defence has to be paid for, I can only assume that most people see these bailouts as some kind of personal help[ for bankers who have hit hard times rather than help for banks (a subtle difference) that will hopefully protect the nation economically. Don't get me wrong, I would much prefer that none of this was being done, but then again I very much wish that spending many trillions of GBP on civil and military defence wasn't needed either.
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#236
The problem with democracy is that the electorate doesn't always understand the issue. OK, a bit patronising but true all the same!
As for the $630bn injected into the banking system to allow it to carry on functioning on a day-by-day basis, yes the shares still fell (due to the impasse in Wash DC), had the FED not injected that $630bn not only would have the shares fall have been even greater but their would have been a real possibility that we would have seen another bank (or two) go down - thus the spiral into the depression begins...
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#242
You are totally correct, it's not just the bankers at fault, everyone from the Govt. (over the last 30 years) down to the most humble of the population - we are all guilty of living well beyond our personal means for far to long - BUT - had the bankers NOT allowed it to happen, had they NOT been looking more at their bonus schemes, had the NOT left due diligence in the wine bars....
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#243
You really don't understand this do you - Thatcher along with Reagan didn't cause this (personal, individual greed and a gross lack of regulation has) but the changes in society and business (especially banking) allowed it to happen, had those changes not happened than it would have been impossible the current situation to occur.
As I said, I'm not saying that mistakes have not been made, Thatcher, Major and Blair/Brown have all made mistakes but to repeat, if Thatcher and Reagan had not made the changes they did in the 1980s the problem we face today would not -could not - have occurred.
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So Gordon Brown says the deal, as presently constituted, will go ahead and the markets say no. As a Lloyds TSB shareholder I will believe the markets, full stop.
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" had the bankers NOT allowed it to happen, had they NOT been looking more at their bonus schemes, had the NOT left due diligence in the wine bars...."
Yes, and the 'buy to let ' brigade were encouraged to use their portfolios as pension packages which helped soaring propertry prices while government just sat back and enjoyed the 'feel-good' factor which prevailed and got them re-elected in 2005. Even idiots knew the bubble would burst.
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I am an Irish citizen and I am shocked that our nation is now exposed to €400 billion plus of bank liabilities, that the banks themselves chose to undertake. I am shocked that this has been done with no democratic debate beforhand and with out the terms and conditions being settled and made public....Why do we still not know these terms a full day after the announcement? We do not even know the full picture of the Irish banks' liabilities and exposure... Are we going to be guaranteeing the banks' outrageous profits too? Will the executives still get their bonuses and perks?
This guarantee represents an exposure of €125,000 for every person (not even taxpayers alone) in the state.It will also affect the credit rating, and therefore the cost, of Irish Government bonds, adding another burden to the Irish citizen.
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Here's an interesting article from Economist David Mc Williams, who on Sunday was pleading with the Irish Government to offer 100% state Guarantees on Deposits.
See you down at the Post Office.
http://www.davidmcwilliams.ie/2008/09/28/state-guarantees-can-avert-depression
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242. Steven12468 wrote:
"I am getting fed up with all the criticism directed at "greedy, idiotic bankers."
I would also point out that the backlash against bankers' pay is, to a certain extent, unfair.
They deserve to be paid more than people in retail, 'normal' office jobs, etc. They sacrifice time with their families, holidays, etc."
Why do those who defend bankers big money salaries always sound so pedantic?
Bankers do not deserve to be paid more than the average person because they do not produce anything other than pretend money out of thin air. Hence the problem we have today. Tons of worthless IOUs, but no actual money to redeem them.
And as for the argument that they somehow work really really hard for their million pound bonuses, and sacrifice so much more than the rest of us, it makes you want to weep with sympathy at their dreadful plight.
Perhaps we should apply a similar argument for the soldiers currently trying to avoid getting shredded by roadside bombs in Afghanistan, because I can tell you for a fact, they are risking a hell of a whole lot more, and seeing a lot less of their families as well, and get paid peanuts.
Nurses also work harder than bankers. So do binmen and so does about any other profession i can think of where people actually 'do' stuff. And as for being 'smarter' than the rest of us. Give me strength. One thing this current crisis has shown is that they were about the least smart people in the entire world, except when it came to lining their own pockets.
I'm sorry to have to point this out to the spoilt little darlings, but bankers deserve every single bit of our contempt.
If you don't like it. Tough. Quit and get a real job.
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Has Mr. Preston forgotten that we are part of the EU and that there are competion rules and regulations which should make Eire's move subject to scrutiny.
Also another of BBC's finance guru's suggested this morning that Lloyds Bank would probably want to negotiate it's deal because of the fall in the share price of HBOS saying"who would want to pay a higher price than what is available on the stock exchange".If you buy on the stock market you buy for cash not by issue of shares in your own company and with cash being such a scarce commodity in all banking circles,Lloyds would not have the necessary readies available.Apart from this,a deal was agreed on on a certain date and if renegade upon would make people have more doubt in the trustworthiness of the banking system as a whole.
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#252 maroon3
"HEAR, HEAR!!!"
The best post on here for ages (by far)....and I couldn't agree with you more.
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252
Well said. 242 appears not to realise the illogic of his worldview: where just because someone has committed their purportedly towering intellect and time to a school of thought (the fiat system, which has now been proven to be intellectually feeble and dishonest), it makes them worthy of the fortunes they have extracted from the more useful but poorer members of society.
It has now been proven beyond reasonable doubt that modern bankers are generally parasites who provide nothing of value to society, only misery. This is on most reasonable views "fair comment" and the "truth" therefore not defamatory, by the way.
Even the regularly derided lawyers and accountants have a role to offer by holding the activities of grubby financiers in some sort of check, although the latter have seemingly failed the rest of us this time.
Yes, bankers are worse than estate agents and just above serial murderers in society's esteem right now. As you say, if they don't like this new label they should get a proper job.
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# 235. ishkandar
I did not suggest that the "foreign" banks be kicked out or confiscated.
No doubt they would leave of their own accord if the business climate was not to their liking.
You seem to be suggesting that the British taxpayers should provide all the infrastructure required for them to make profits. Not only that but also bail them out when conditions change!
You also seem to be inferring that bankers would somehow reciprocate the taxpayers largesse.
Yeah. I can just see it now. They would keep unprofitable branches open etc etc.
#242 Steven12468
Workers on the lines at chocolate factories were told that they could eat as many of the delights that passed in front of them as they liked. The factory owners obviously believing that the workers would soon tire of eating chocolate and the monetary loss would not be too high.
Bankers, those that know how the system works, realise that they too can take whatever they like from the delights that pass in front of them. Unlike the chocolate workers however they never tire of grabbing what they can. They also realise that what they are grabbing has been conjured out of thin air anyway. Who would complain? Their bosses? - They are doing it too.
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#252, you want to back up that nurses and binmen work harder than bankers? Remember that when most bankers are at work they are working as opposed to - for example - writing crap on a BBC website.
The "nothing" they produced is the boom that the UK has enjoyed for the last 16 years. You want to net off the GDP growth against banker's salaries over the same period of time?
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#243, No you don't seem to get it. Thatcher and Major explicitly DIDN'T "allow" this to happen. When there was a start of an asset bubble in the mid to late 80s that slammed on the brakes and brought that bubble under control. This is reflected in the asset inflation under their era vs the asset inflation under Brown. All this crap about "greed" is just that.
The point is that post 2002, this country has been living off house price inflation and financial services returns and debt driven spending. Without the "greedy bankers", the UK would have entered recession in 2002 and the brand spanky new NHS and other public services that Brown threw hundreds of billions at would not have got that funding. The downside is that sooner or later that Ponzi scheme comes to an end and the longer you delay the worse the eventual bang.
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Dear Robert
We are a small UK manfuacturing company , and we have large sums of money with Nat West bank ( rbs) would you advise us to move some of this money to another bank?
If so, who to?
and should we use more than one bank?
If the vote goes through OK in the USA will our money be safer? or should we still move some
I understand that this is just an opinion from you, but we are very worried that if we do nothing we may be in trouble if our bank has problems.....but we are not sure which of the Banks are safer
Many thanks
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I hope this will not be another case of having to act after the horse has bolted.
We are hearing already of people taking their money out of banks here and depositing in Ireland and elsewhere for the added guarantees.
Surely someone should have foreseen this happening and acted quickly in an era when money can be transferred at the touch of a button.
We are now at a stage where it is survival of the fittest and the Irish banks were first off the starting block and have left the rest standing.
This is not a time for EU petty rules and regulations. It is a time for those in charge to act and think on their feet as things move on so fast.. Each country will have to put its own house in order. This is no time for ditherers.
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# 257. laughingblacksheep wrote:
"you want to back up that nurses and binmen work harder than bankers? Remember that when most bankers are at work they are working as opposed to - for example - writing crap on a BBC website."
As I am neither, you'll have to ask binmen and nurses yourself whether they think their jobs are hard compared to yours. Make sure you tell them you're a banker first and inform them how much you earn. Just to see their reaction.
Personally, I'd say they do a pretty damn fine and more worthwhile job than the average banker. As I'd rather have my rubbish taken away or a wound stitched any day of the week than pay interest on a loan.
Certainly nothing a banker does, (which is essentially loan out money that isn't theirs, or as can be argued, doesn't even exist,) justifies even a tenth of what they are paid.
People talk about the risks they take. What risks? Oh you mean gambling other people's money? Or you mean the risks they take when they get it all wrong, (as they have done so dramatically) wreck the economy and still get to retire to the Bahamas with a few million in the bank. Wow those are heavy risks. Who'd want to mess with risks like that.
Look, I'm sure it's really, awfully stressful sitting behind that desk all hours of the day, finding new and interesting ways to make money out of nothing, but as I said before, not nearly as stressful as, say, a soldier in Helmand, who has just seen one of his friends blown to pieces and has to go out the next day wondering whether it's his turn to get shot or step on a mine. And all for barely above minimum wage.
So again, why the high salary?
--"The "nothing" they produced is the boom that the UK has enjoyed for the last 16 years. You want to net off the GDP growth against banker's salaries over the same period of time?"
That boom you were talking about, well golly gosh, would that be the one that caused the explosion in house prices and rents in the Capital and left most people I know priced out of living in areas they were born in? Trickle down effect? Right. . .
Well, that GDP you were talking about has turned into what it really always was all along, tons of bits of paper not really fit for wiping your backside with.
Like I said, I'm sure it's great fun being a banker, but personally, I think all those who took obscene bonuses through fraud, false accounting, or misrepresentation of profits, all those who looted the economy, should be treated the same way any sensible civilization would deal with a common thief.
Arrest them. Seize their assets as stolen property, and imprison then.
But hey, that's just my opinion. If you don't like it, you can of course, lump it.
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Re 257 and 258
Hey laughingblacksheep; either you are on some serious medication or you having a laugh.
It's no good bleating (gedditt?) about the response to some nascent asset price boom of the mid 1980's when contemporaneously the same spiv culture was busy flogging off council houses and closing down or flogging pretty much every hard asset in the country and doing everything else in their power to ensure that home ownership and the "service" economy was pretty much the only option whether people wanted it or not.
Investment bankers - real great guys, deserve every penny. They were the first to raise concerns about Enron for example. Oh no I'm wrong they never raised concerns - they just took the money instead, and applauded themselves for being so smart.
A lot of these guys could, and should, have been done under RICO.
Still they learned their lesson and stopped founding and funding offshore SPV's, creating dodgy bonds, and fiddling around with off balance sheet ju-ju money. Oh no I'm wrong again: They in fact transferred these practices to the entire economy and have now brought it to its knees.
...and how did they get away with it for so long, step forward the Iron Lady who so comprehensively threw away the regulation manuals and castrated the regulators
Brilliant bunch of guys - lets all have a whip round for them.
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fourbetwo (#199) I didn't see anyone in the US complaing about the economic growth that spending fuelled! unfortunately the way those debts were then packaged and re-sold to non-US banks means we are now carrying some of the can. I don't see why anyone other than the US taxpayer should be responsible for footing the bill for rwsolving this mess."
Interesting perspective, but say Flash-Harry goes along to someone of legal age (but with the IQ/self-control/reading age of an 11 year old) offering loads of attractive goodies now for a regular sum in the future, and several months later, payments on said goodies are hiked by 50-100% and when the client can't pay, bailiffs come along and take said goodies away. You reckon other tax-payers should take up the slack whilst Flash-Harry spends his brokerage commissions/bonuses on whatever he likes?
Perhaps it's just 'caveat emptor'? I know one shouldn't mention IQ differences these days, as we're told that's all long discredited pseudoscience (except it's not). We're als told we're all equals (but e're not). We're all told it's racist to say that there are ethnic and sex differences (but it's not, it's just fact).
Mrs Thatcher's government said we didn't need a nannystate or 'society', and Mr Blair's eroded patronising deference and gave people more freedom to 'choose'.
It was a 'good' way to make money I think, that, and low skilled immigration. Bnng in the market.
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257-258
The GNP growth was all a load of hot air though, wasn't it? The UK is now bankrupt and a pariah to the rest of the world thanks to the neoliberal nightmare we have had thrust upon us in the last 30 years.
Let's get back to real wealth creation thanks.
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The banks, vulnerable? Tuesday's figures showed a bubble of around a trillion wiped out with a snap of the fingers. Oddly enough, that's around the same size as the credit being pumped into the system by the central banks, so what comes around, goes around.
The first failing, therefore, is in technical analysis. A company's share value should bear a relationship to the trend of its long-term profitability or net worth, measured on a replacement-cost basis, ie excluding hyped figures. It's what did for Rolls Royce with the RB211 development cost fiasco in the 1970s, and it's done for UK PLC now.
The second failing is ontological: an economy most be driven as a whole, not by tinkering with parts of it in a Captain Mainwaring-like fiddle while Rome, Paris and London are burning. Reactive patching just doesn't cut it, and however much the Conservatives have had to hush up, the current state of affairs reminds me of nothing so much as Labour management under Healey in the 1970s, pure Left-Hand-Down-A-Bit Navy Larking. With the same result, too...whoops, lummee...crash. Trouble is, twice running's got beyond a joke, especially when the PM starts going on about inexperience. The sweepstake for inflation in nine months' time (just before the election, hee hee) starts here...
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#264, the UK is now "bankrupt" - it isn't but it is under heavy strain - because for the last 11 years we had an idiot running the economy whose luck finally ran out. His luck would have finally run out around 2000 - when the dot com bubble burst - if it was not for the "greedy" bankers. Real wealth creation? Like what? Manufacturing which has been negative for decades and sucked up hundreds of billions in public investment since 1945? You want to live in a country which "makes things"? Ask average person in Taiwan or Korea or China how much they enjoy that - even with all the issues of the West, people where possible are voting with their feet.
#262, you are falsely assuming I am banker. I was, am not now. Got out a while back. This was all obvious. There was no secret, people wrote articles about the mispricing of risk, the house price bubble was obvious to everyone. As for this obsession with "hard assets", ask me if you want to be US Microsoft with 40%+ margins or Taiwanese LCD manufacturer working on 3% margins? Or who you'd rather work for?
Guess what, Investment bankers DID call on Enron just no one paid attention to them. The guy who finally burst the bubble and famously got called an "a**hole" by the CEO was a banker.
As for "bringing the economy to its knees", the ONLY reason there has been any growth is because of banking and the house price bubble. Who do you think pays for the NHS? Binmen? Who do you think paid for the massive and wasteful expansion in the public sector? Nurses?
Again you seem determined to blame this on Thatcher when it DIDN'T happen on her watch - or that of Major. It DID happen on Browns.
#261, You are clearly lucky to live in a part of the UK where the rubbish is taken away. When I lived there it wasn't and doctors stitch your wounds not nurses.
Again, banker ARE your economy. You want to live in a country where "spivs" and "greedy bankers" can't "ruin" the economy you are welcome to move to North Korea or to a lesser extent Iran. See what a great place is a country "that makes things".
"Trickle down"? You use every day the products of banker's efforts. Use the train? That's a product of banking since the very beginning. Use the NHS? Whose taxes did you think paid for all those upgrades and new doctors? Who do you think is paying for that soldier's equipment in Helmand?
As for the rest, what fraud? What misrepresentation of profits? What false accounting? "Priced out of the market" - bet you are glad you don't own a flat "where you grew up" now.
In terms of the risks when it goes wrong, I can trot out a couple. One banker was owed 1.5m GBP from LEH and now will get 800 GBP - you lost 1,499,200GBP? Another investor lost 800m USD overnight when Bear Stearns was taken over.
I still bet that for each one of the above posters that if we netted out an average bankers contribution to the economy - even marked to market to this morning - against yours he/she would come out far, far ahead.
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#263, yeah we should use the North Korean model. Pure communism with no freedom to choose and no market. No flash-harrys. Must be why all those people risk being executed to flee INTO the DPRK from the US or the UK.....
As for your hypothetical dimwit, he/she just paid the stupid/greedy tax. I have lost track of the number of people who over the years asked where to "put their money" so it would earn more than the rate in the bank. Maybe you'd like some sort of government license for people to invest/spend their money? Because after all, socialist governments have shown themselves to be far smarter investors....
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Hey laughingblack sheep man . You gotta tell me where you get your medicine from.
The Enron "A*hole" man was no investment banker - he ran a shorting operation - and he didn´t exactly blow no whistles. He had no access to inside information, along with everyone esle he just couldn´t understand their balance sheet, and unlike most others he actually asked questions.
The Investment bankers - who certainly did have inside information - just kept schtum, and kept "strong buy" recommendations even when they SEC were on the case.
The revered Goldman came out with something like "Just becasue we´re not smart enough to analyse and understand the black box, doesn´t mean it´s not a great business" Yeah, just the kind of penetrating analysis that deserves $ millions. Even a dustman could do better than that.
You misunderstand the nature of hard assets. Not everybody is as smart as an investment banker but everybody gotta eat, or maybe you think that the soldiers, nurses and dustmen should all get into "virtual food."
You harrass some other guy for having the temerity to mention false accounting - surely you must have come across long term synthetic price curves and played around with a few assumptions in order to maximise your bonus - beaten a few analyists and associates around the head to get them to agree that they can´t prove these new assumptions to be unreasonable.
C´mon laughing man its all ju-ju stuff and you know it - you even admit it; As you say everyone knew it and that´s why you got out.
The only point where you obviously tell the truth is when you say "banker (sic) ARE your economy"
That is why people are about to be introduced to the fact that there is no economy - the real bits have been sold and the rest is all virtual.
As for the guy that lost 1.5 million sterling - just tell me where to send the cheque. Man you sure put the laugh into the black sheep.
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The Media, which I realise is fulfilling it's proper function of keeping us informed, is in some ways as guilty as the Government in making Joe public jittery - it's definately a case of 'a little information can be a dangerous thing'
What WE would all really like to know is where you, Robert Peston , (with the benefit of inside knowledge) are safely stashing YOUR savings?
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This isn’t the first time in the last few weeks I’ve felt the urge to pinch myself to make sure I’m not dreaming.
So mesmerised are we all with what we have come to accept as ‘normal’, that when the UK banks moan about the ‘anti-competitive’ behaviour of the Irish Government in underwriting 100% of all Irish bank deposits that we have to stop and almost physically force ourselves to take a step back and look with a fresh perspective at what’s really going on and then realise what a complete joke this is.
How can it be deemed anti-competitive to provide customers with products and services they want? In this case, the fairly reasonable expectation depositors have of at least getting all their own money back when they want it. That the UK banking moaners can seriously put out a case for this without realising how ridiculous it is only shows how far up their own black hole of over-written debt they really are.
The banks claimed back then, they had to take on unsupportable levels of debt and provide loans to lower credit ratings (with commensurately higher APRs of course) in order to ‘stay competitive’. They had no problems following the leader when times were good, bonuses large and the music had not yet stopped. But now they’ve been called to account, big time, they start to whine like the wilfully unemployed or deliberately unemployable.
The bailouts for banks being considered across all Western nations are a symptom of the cultures we (the West) have become. It’s not the current banking crisis that has spawned them, but society’s acceptance across all social, academic, political and now financial spectra of the ‘sense’ in subsidising those who can’t or wont from the efforts of those who can and do.
Until we address these wider issues and stop believing in true Pollyanna style that everyone is equal and continue to legislate to achieve this unreachable goal, we’re simply kidding ourselves we’re doing anything to solve the single underlying problem of which this latest debacle is just another symptom.
Governments should not be underwriting commercial ventures. Even with government appointed ‘representatives of the public interest’ on the boards of such companies, there is absolutely nothing to stop exactly the same cycle starting all over again. And when it does, which it will, the governments will find they are unable to come good on their promises. It wont be the first time either.
We only have to go back over the last 500 years to find every single Western government has at least once in this period reneged on its gilt commitments.
When banks fail – it’s one thing, but for governments to fail, it is quite another. We’re putting far more at risk by allowing our governments to even consider these bailouts than just simply national financial meltdown.
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Its all very easy to blame the bankers - everyone looks for someone to blame when the edifice comes crashing down. But the root cause of the whole problem was the insatiable greed of the middle classes of the Anglo Saxon economies. Young people who wanted to skip the 1st rung of the property ladder and borrow 6 or 7 times their salary to get a bigger 2 bedroom apartment They knew they were being greedy, and there is a lot of denial going on. I was one of them, and knew full well that I was stretching myself. And what about all those older middle class professionals who werent happy with their money in the bank - they wanted it in property funds or levered investment vehicles.
There was insatiable demand from the greedy middle classes to get rich quick. And an unlimited amount of supply of the necessary finance from the banks. Put them both together, and we are where we are. It was the regulator and the govenment's job to stand between those 2 powerful forces, and they failed.
No-one was complaining when the going was good, and the city was generating revenue that benefitted the whole country. And now the poor suffer, while the middle classes live in denial and blame anyone else other than themselves
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re 220:
"I remember contracting out of pensions.
Then pension mis-selling.
Now you are supposed to contract back in.
Then there were endowment mortgages.
The pension tax.
The Dot Com scam.
Now the housing boom."
I too remember contracting out of pensions.
I changed jobs a lot ("get on your bike" times) and was forced to take cash (surprisingly little) when I tried to move from one company's plan to another.
So, I get some Private Pension *plans* set up.
Then gov't review into pension mis-selling.
In spite of it being MY choice, was told to
give up my CU pension and transfer it elsewhere, because it had been "mis-sold" (I didn't think so - I chose it - I approached the company - I got a product I wanted). Tried to explain this to the "pensions mis-selling task force", to no avail - they insisted I transfer it to one of my other plans - guess where it had to go - Equitable Life. Oh blooming heck.
Now you are supposed to contract back in.
Then there were endowment mortgages.
Burnt there as well.....
The pension tax. ---- Aha, yes....
The Dot Com scam.
Rampant inflation on food and energy
Now the housing boom - or was that bust?
Dont regard this comment as me being a "moaning minnie" - I'm not complaining, I really no longer care, Im just commiserating with your situation!
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Re 271 - Don´t flagellate yourself too much.
Everybody gotta live somewhere - and the cops don´t like the homeless.
Sure people spend too much - but you live in a consumer world, and wherever you go there are people exhorting you to spend more because "you deserve it"
Sure everyone should have ignored these siren calls - but a lot of time, effort and brainpower has gone into producing effective slogans.
You and the "greedy" middle classes were all caught out - but if you think about it, you never really had a chance. The dice were always loaded against you.
Meanwhile the people that "it´s all too easy to blame" have made out like bandits. They´ve never done anything for you. All they´ve done is a kind of David Blaine conjuring trick and produced "virtual" money. The very small amount of real money that has been introduced into the mix has mostly come from selling off public assets, or jacking off third world governments with useless infrastructure projects.
These are the same guys who got a fortune for advice - which normally had to do with telling real businesses that their balance sheet was inefficient and it needed to be loaded up with debt to make it more efficient. That sure looks like good advice today. (and why was debt so efficient? - because they got the Government to change the tax laws to favor debt).
They got a record on other kinds of advice too: like hyping Enron to the general public long after they knew it was a criminal enterprise.
No "greedy middle class professional" has come knocking at my door asking for cash. These guys are knocking on all our doors - telling us if we don´t pay up then they´re going to kill the economy. Try that as an individual and you´ll soon be checking out life on the chain gang.
No matter how much you want to blame yourself - it just aint your fault.
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Dear Robert
As the russian President states, the dominance of America in the world market is finished.Wall Street has successfully seen to that nver again will America be trusted with the Dominance it had and the Dollar could be removed as the world currancy in favour of another even the Euro.
THIS IS THE FAULT ENTIRLEY OF WALL STREET, AND THREADNEEDLE STREET,
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protection of offshore deposits.
There is a proliferation of UK off-shore banks who offer tax-free interest, which are wholly maintained by their mainland equivalents. I am a UK expat, living in Europe and a saver of modest means. I get the impression with this so called financial crisis, there is now a “grey area” in international banking and no-one can come up with good advice regarding depositors protection.
Mainland Northern rock has been bailed out by the UK exchequer which is quoted on record to offer unrivalled depositors protection up to £1000,000 i.e safe as rock in offering cover for every penny. There now seems to be “champion league” of banking and building societies who can offer depositors the best of insolvency protection.
The offshore depositors protection scheme seems to be rather vague. The Isle of Man (I.O.M) do not offer anywhere that compensation amount should insolvency occur. In the policy terms and conditions of these offshore accounts which are wholly maintained by mainland rivals are often limited to the first measley £15,000.
This is a mess.
Would they be bailed out by their mainland partners ?
Surely it makes a nonsense, some people with substantial amounts suddenly realising the dilemma would shift vast sums to open new accounts in order to spread the risk to get 100% compensation.
I don’t understand why it has taken so long to get the rules changed on this ?
Isn’t the time rife for a standard code of compensation for all types of banking be it offshore and wherever ?
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Oh laughingblacksheep I'm afraid you seem to have got yourself all turned around and confused by your own smoke and mirrors.
First you tried to justify bankers obscene pay structures of which you have personally benefited, by stating it was because you all worked so hard, spent so much time away from home etc.
When it was pointed out to you that many other professions demand as much if not more dedication and sacrifice, you retreated into the theory that bankers incomprehensibly high pay is justified because of the high taxes they will pay on that pay.
Talk about the chicken before the egg.
As for banking benefiting society, don't make me laugh.
Bankers create money (debt), not wealth.
There is a slight but significant difference in a similar way that Robert Mugabe has made all Zimbabwean citizens into millionaires, and yet none of them are actually richer for it.
The only wealth that bankers make disappears into their own pockets.
So again, please, I'm really curious, and please be sensible this time, why the high wages?
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oh and please go tell me again to move to North Korea or Iran if I don't like the banking system here. It really tickled me and added so much to the debate.
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At 12:00 0n the 30 Sep 2008 response 64 rhysgp, amongst some very pertinent questions makes an interesting comment about greed. Like every thing in life all things including greed are good or at least not bad in moderation. With greed it’s fair to say it can be a great motivator for improvement but it depends not so much on degree as on the direction.
Are you greedy for yourself, your family, your kin, your friends, your society, your community, your country or all civilization? I would suggest as we read from left to right along the line greed become less bad and more good, less selfish and nobler. So when you walk out the door in the morning we should ask ourselves who are we being greedy for today. Then when you judge the banks, capitalism, communism or any political or fiscal regime or institution fro that matter we can ask who were they being greedy for? Who took the bonus? Who took the lions share? Who of them used greed for noble causes not self indulgent ones? Who cost their fellow citizens rather than themselves?
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Why does no-one ever mention credit card debt. This is unsecured whereas mortgages are secured, albeit by assets with currently declining value. CC companies should be banned from selling their wares as if they were loans. If I remember correctly, when the first card was introduced, the minimum payment was 15% per month.
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With respect no one seems to have anticipated the next result of incompetent bankers. This will be the credit card bubble. If one person self certified a mortgage that generated one debt. Credit card holders self certified multiple applications giving multiple debts. Banks fell over themselves to get more credit card holders and are now trying and failing to collect. The myth was that the 18% interest rates would cover the bad debts...I dont think so!!
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There is 1 place this crisis will lead, mass unemployment, indeed it is the banks somewhat self fulfiling prophecy of this that has them spooked. To stay ahead of the game governments must activate plans to create jobs through direct funding and subsidies of the private sector hi tech clean energy including nuclear, efficient transport hi speed trains etc. cooperating on a global scale.
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I've just discovered the best recession/confidence indicator- The Peston Blog indicator (PBI). Basically tracks the number of blogs posted by Robert Peston each month:
Aug 2008 11
Sep 2008 48
Oct 2008 49
Nov 2008 33
Dec 2008 26 (seasonally adjusted 31)
Jan 2009 32
Feb 2009 29 (workday adjusted 31)
Mar 2009 27
and here's the good news April 2009 to date only 19. If Robert can just stay away from his keyboard for one more day we will be over the worst.
I predict that if the indicator drops to less than 15 and remains below 15 for at least 3 months we will be entering a bull market. The PBI is an inverse bull indicator the less bull he writes the greater the chance of a bull market.
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