A global solution needed
In the past 50 years, there haven't been many - if any - meetings of the world's seven richest developed nations as important as today's.
Markets are in meltdown. Investors are dumping almost any asset that can be sold for cash - and never mind the price.
It's a vicious downward spiral.
When the prices of assets fall sharply, that triggers margin calls for other investors, a hideous, insidious form of feedback that triggers another round of asset liquidations.
Which in turn undermines the capital of banks - which forces them to dump yet more assets and call in more loans.
It's a terrifying process, the precursor to a "Minsky Moment" - called such after the economist who described a breakdown of the entire financial system caused by a panicked mass liquidation of assets.
To ward off the Minsky Moment - which would have devastating economic consequences - a circuit breaker has to be found. And only taxpayers can provide that circuit breaker, by - inter alia - underwriting the banking system so that lenders to banks regain confidence that they'll get their money back
I don't mean just British taxpayers. We've been doing our bit. I mean the taxpayers of the developed world (because this is the developed world's mess, our mess, whether we like it or not).
The problem is global so the solution has to be global.
National initiatives - such as the UK's £400bn bank rescue plan and the US Treasury's scheme of equivalent size to remove toxins from banks - are useful.
But they can't be a complete cure, because they treat only parts of the ailing body, not the entire sick global corpus.
What would an effective medicine look like? Well it might be a global version of the British Treasury's recently announced £250bn guarantee for lending between banks - which is designed to demonstrate to institutional lenders that they are safe when lending to banks.
This could restore the flow of money between the banks and financial institutions; it could unblock the pipes that underpin our very way of life.
But for reasons that aren't at all clear, the US and French governments have dismissed that kind of initiative.
Maybe there's another cunning plan available to ward off the Minsky Moment.
If the leaders of rich Europe, Japan and North Amierica fail to find such a plan today or over the weekend, the painful consequences could scar a generation.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~25~RS~)
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Robert,
It's a market. Undervalued securities will be seen as such and buyers will return. However cataclysmic the BBC is reporting this day's trading to be, there are only so many trades you can do in a day and only so much devaluing can occur before even a sick share looks attractive.
The Russians seem to have got it right. Close the exchanges for a week.
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Here are some pictures of the situation, some based on Robert's observations: http://southbeach-examples.blogspot.com
A picture paints a 1000 words.
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why even bother lending to the banks, they have had billions pumped into them, a world wide base rate reduction and they just keep it.
All central banks should become lenders, issue cheque books and see how quickly the banks start lending again, because if they didnt they would cease to exist!
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Capitulation Monday?
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I'm having a Robert Peston moment...
As I said in a previous blog on the 7th October
"A few months ago Messrs Brown and Darling were saying that the economy was well placed to avoid serious impact...
How wrong were they!
Thousands of jobs have been lost already and probably hundreds of thousands of jobs are going to be lost. We keep getting told this is a global problem, isn't it about time someone realised that a global problem can't then be solved by individual countries, this problem needs all the major economies of the world to act together."
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Globalisation: when one of us goes down, everyone goes down. Can we please keep this in mind once this is all over and people start prattling on about the advantages of a global economy again?
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The G7 leaders can huff and puff but I don't believe there is much they can do.
Darling's plan (remember that?) completely failed to affect either the markets or Libor. Let's not throw more good money after bad by attempting a new plan.
Government's job now is to look after it's citizens. There will be many unemployed and homeless people about very soon and failure to act decisively could bring down the whole fabric of society.
Brown and Bush, with the help of the bankers seemed to have managed to wreck the world's economy, and they will be remembered for having done so.
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Robert how come the banks have not taken Gordon Brown up on his rescue plan? Would it be something to do with their greed and not wanting their pay/bonus cut? Surely not. Brown/Darling....."they don't know what they're doing"
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Yes, Mr Peston.
"Casino Capitalism" must end.
A new, strict set of rules is required urgently, to cover share trading, bank lending and property speculation.
Ban hedge funds, short selling and spread betting?
Maximum mortgage limits on properties?
Shares must be held for a minimum amount of time, say 1 year?
Short-termers and sharks are destroying the function of the markets.
Bank leveraging limits?
The whole system needs revising, otherwise it's just boom and bust forever.
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How about we do what they did in the 30's. Close everything, banks, stock markets, etc, for 2 weeks. All the people who put us in this mess do a full audit of all banks and financial institutions and tell us all at the end what the truth is. In the meantime, everybody else have a two week holiday paid for by governments. Cheaper than the current plans and the weathers not too bad either.
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Why not close down the world's stock markets for a period of cooling off?
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What worries me here is that all commodities are falling through the floor as well on the back of panic selling. Normally this would be a good thing because it would ease consumer's pain and ease inflation. However, a lot of new production of coal, gold, gas, crude etc. is dependant on achieving recent prices in the market.
This new production is now having credit lines pulled and will probably not come to market in 6 months to a year time. This means that prices will probably go back up to record levels..... unless the demand destruction taking place around the world now stays.
We all need to cut back on our use of electricity, oil and food otherwise the future is going to be even grimmer.
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It's dead. There's nothing to be done.
The more interference , the more hopeless obligations the taxpayers are forced into.
Clearly the system is in trouble when so much money is based on the "credit worthiness" of institutions. These ratings have no meaning anymore, so those transactions are trading (soo to be the taxpayers) cash for moondust.
So:
1 Allow central banks to deal directly with corporations.
2 Incarcerate and liquidate any major investment bank or hedge fund.
3 Form a new ecology of banks that are heavily regulated (like those in France)
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Surely the "Minsky Moment" could only occur if no-one came back in to buy an oversold market.
Im sure there's pots of money out there just waiting for the right moment to get back in.
Meanwhile, lets just have one national bank and let the others go to the wall. There are simply too many and it's time for some malthusian population dynamics to bite.
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so lets get this straight our government is borrowing to help offset this global downturn.
thats plain nuts once things settle down it will start again and the government will have to borrow to cover the earlier borrowings, when will it end?
the government will have to be stopped before they bankrupt this country just to cover there debts, those in government are placed there under trust to do whats right for our country, they get a massive wage and expencess and live the good life whilst every one else has to suffer.
the way to stop this madness is to globaly suspend share dealing and money markets and each country to resolve there own issues.
sadly the governments will not even try to solve this problem they are enjoying it too much (you can tell by browns laughing and joking) it points the media towards the crisis rather than his failing government
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History teaches us that no system of running things lasts forever. The Ancient Egyptians ruled a very powerful empire for a while, and then went into decline. The Romans once ruled most of Europe, and now they struggle even to rule Italy.
The world has been ruled by global capitalism for the last few decades. Actually, I doubt we're seeing anything like the end of it yet, just an adjustment from which we'll recover in a few years time. But one day it will come to an end. I wonder if the start of it would look like this?
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I had got this ready for RP's previous posting, and it is still relavant. Senior clergy get bad pres for commenting on economic issues, but sometimes they can be spot on.
The then Bishop of Worcester wrote these words in 1997:
"We are living, it seems, as those who think they hold a credit card with no limit to their credit and no date by which repayment will have to be made. We inhabit our universe increasingly as those who have a mortgage they can add to at will and will never have to discharge."
Peter Selby, 'Grace and Mortgage: The Language of Faith and the Debt of the World' (London: DLT., 1997), 6.
"We were all assured that the trends in the world economy were all ultimately beneficial, provided unnecessary and old-fashioned restrictions could be removed. The world was moving, we were told, in the direction of a free market, of low taxation, of the exportability of capital and knowhow. Is such a world one in which the challenge of 'Who's "us"?' would finally have been answered? Or is it not rather a world in which the power to decide who 'us' is has been handed over to those who have the capacity to succeed in the market, and ultimately to control it? "
Ibid, 24
"For we are surely discovering that the disciplines of regulation were not arbitrary statutory rules imposed by an over-zealous government, but in effect the financial disciplines of living within your means, disciplines inherited from the past but now regarded as unnecessary limitations on growth. As we have seen in this brief examination of the vast explosion of credit and debt and its consequences, limitations on growth were also limitations on disaster. For the piggy bank, that derided symbol of the world we have left behind in the search for 'financial sophistication', imposed the very simple discipline that what was taken out could not exceed what was put in."
Ibid, 54.
It is pity that those views were apparently not read by the then incomimg Chancellor. Perhaps the bishop should be called out of retirement to Head-up the FSA?
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We might also immediately suspend mark-to-market accounting of assets. Whatever its long-term merits it is driving the bank sales and doing a lot of damage in the short term
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Nobody seems to mention that Iceland was paying up to 14% interest on deposit paper.
Here is a view from Iceland:
"..
The ECB, the Federal Reserve and the BoE refused to start negotiations with Iceland on the grounds that the Icelandic bank system was too large and that swap facility agreements would not suffice to ensure financial stability.
According to the CBI's announcement it was clear that the foreign central banks consulted each other on the matter.
In search of new friends
The CBI's announcement goes a long way to explain what Iceland's prime minister meant when, upon being asked why Iceland had approached the Russians for a loan to boost the currency reserves, he responded that old friends had failed Icelanders and that the time had come to make new friends.
As previously announced the government will enter into negotiations with Russia next week on a EUR 4bn loan to strengthen the currency reserves..."
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I think you need to read up on Hayek but a short quote from Mises should do:
"The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved"
We are, unfortunately, at the final collapse stage.
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I say! Ought we take advise from a chap who may well end up under investigation from the FSA for market manipulation on behalf of - erm - some people we all know and love? I mean, really?
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Investment funds and companies should hold their stake in any company for at least 5 years.
Any stock that falls more than 5% in one day should be suspended.
Bank executives should face financial penalties for losses.
Stability must prevail, the current system is a free-for-all, a casino.
They may as well all go to the bookies every morning, instead of the City.
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Any reaction to the Michael Howard sugestion should also include Northern Rock and the HBOS / TSB breaking stories. Don't shoot the messenger will be the claim but somebody has made a lot of money reacting to Robert Peston's reports before they happen!
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I think whatever the reasons for the reluctance of the stock markets to move upwards one reason not so far verbalised is one that dare not spk its name. There is plenty of money put into banks in this country -true it hasnt been matched globally but there is no reason for the slide to continue..unless...my view is that traders are reacting like a naughty child to being told off. It doesnt like what the Brit Govt has done and doesnt like the regulation.
The irony of it all is that more is needed -The government needs to take control of the mortgaga market and to intervene to prevent the obscene bonuses. It is no good Brown saying that he hopes the will exercise restraint -these **!!**!* wouldnt know restraint if it hit them square on!
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Not one to usually comment,but I think Robert Peston's coverage is becoming increasingly exaggerated and helping to creat panic given BBC privaged position.
To say "Investors are dumping almost any asset that can be sold for cash - and never mind the price." is not true there are the vast majority of investors who are not panicing and the market pressure is being build by relatively few.
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Whats the point of lending these banks any money at all? Its reported on the BBC today that Banks are charging customers at Libor + profit margin, this means that they are using tax payers money to repair their balance sheet and pay their debts.
This is wrong, and I am raging about what is (the theft of my money) going on here !!!
Everyone should withdraw ALL their cash from every bank next Monday, then we will see what happens to the Banks!!!
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This comment was removed because the moderators found it broke the House Rules.
Dear Mister Peston
You will be relieved to hear that having been aware of the crisis I have taken steps to relieve the situation.
Regards
Uncle
http://talesfromhomeward.blogspot.com/2008/10/dont-panic.html
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So is this the start of the Armageddon you said was averted a few days ago, or is it the fuse that is well and truly alight?
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This may seem at first reading to be exaggeration but the actions of certain individuals in the City of London are "a crime of betraying one's country" - in today's world more dangerous to the nation than overthrowing the monarch or parliament. Their actions satisfy criteria for being labelled as Treason.
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People who say that markets are "usually" right... and trade ...are lying or are fools.
Markets are ALWAYS wrong which is why people buy anything (they think it is undervalued) or sell anything (overvalued).
Markets only exist because prices are entirely inaccurate.
A market is however an ACCURATE REPRESENTATION of what MOST people THINK about the FUTURE at any given time. (this is markedly different from "right")
An example - The market has been entirely incorrect for the last 70 years (habitually overvaluing everything) - and now unwinds by consistently undervaluing everything.
A big problem with our system:
As any ad-man or hedge fund manager will tell you, it's bone easy to distort the market to your own benefit - inject enough optimism (or pessimism) with either injection of cash or information (pr) and the market will gladly follow until you're found out.
An easy ruse - much easier than the street magician who makes you think the ball is under the middle cup and takes your cash.
(An aside: don't let anyone tell you that the market is complicated or difficult - it's as straightforward as cake.)
So if someone again tells you the market is "usually right" they're hoping that you will follow the crowd - and whatever bet they made will pay off.
It would be fair to say however, the market is ALWAYS right about "The Market" (ie when it's going up - it's going up and when it's going down it's going down) but that's not saying much ..Que Sera, Sera
Problem is:
it is a barometer that bears no relation to the real world - so we should pay it no regard. - if it were goods or services that were being exchanged it would be a handy guide.. as it is, it is imaginary money that is being traded - hence as a barometer it is as useless as a thermometer in the cupboard..
..you've got to stick it in the mouth for it to work.
The Market - wrong by design - incorrect by definition.
Sell/buy/hold - it's all the same
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Never mind us suffering what in the scheme of things is still minor...ie: losing the house and having to rely on the council for shelter..what about the "3rd" world ?
How will all this affect the aid we are supposed to provide them with ?
How many children will die of disease and starvation because of this avoidable meltdown ?
Can the fat cats be put on trial ?
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However you look at it there are productive and non-productive folk in this world.
The bankers of course see themselves as wealth creators.
OK. Let them create as much wealth as they like. Let them run non regulated banks. Give them the chance to run wild with innovative clever ideas about how to create wealth.
But keep them away from the real economy.
Let them have their Fractional Reserve Banking.
The real economy will get on quite happily with 100% Reserve Banking.
How long before they would either try to infect the real economy with their system or they would get proper jobs?
The real economy is having to support the bankers. In good times and bad. How much easier would it be if we could shrug them off?
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I would raise two points that are at the top of business analyses. The first is the fundamental point that people with expertise & judgment solve problems not money and, secondly, results are generated by leaders.
For all Robert's informed analysis, I haven't thus far heard any comments on the two "human" aspects.
Right now, the total lack of leadership in the UK financial community is overwhelming as evidenced by the silence and gasps of headless chickens. The actions of Warren Buffett might be wounded right now but not for ever. He did however demonstrate leadership and the ability to take a strategic position.
Secondly, the accumulation of expertise and judgment comes from personal contact, not a computer screen. A "relationship" manager typically has 300 clients.
As Jonathan Guthrie (FT) commented - "bring back the Captain Mainwarings of this world who knew their customers" - it also happens to be a fundamental requirement of the FSA.
Just how many compliance teams imposed that on their bonus-hungry operatives ?
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Hard though it is to accept, all of this is part of the natural economic cycle. It's happened before, it's happening now, and it will happen again. The key is to introduce regulation to minimise the negative effects when a recession does hit.
What amuses me through all of this is the total and abject failure of the tripartite FSA, Treasury and Bank of England structure (introduced by this Government to bring 'stability' to financial services and the wider economy) to deal with this situation. The whole point of the regulatory system is to prevent meltdowns like this, and it has failed on the first time it has really been put to the test.
The real question now is 'what is the solution?' More regulation? Probably likely. Severe punishment of the bank executives and traders involved for conduct not befitting company directors? Would be hugely popular, but probably won't happen on the grounds that said directors will be making political party donations (ouch - cynical, aren't I?).
But one thing is certain - the FSA, Treasury and Bank of England should be taken by the scruffs of their necks and shaken very hard - for not recognising these problems before they materialised, which was, in effect what this tripartite system was set up to do.
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Robert
You seem to still be focussing on the banking sector. It has gone way beyond that now.
Whatever is done to prop up the banks nationally or internationally as you suggest is not going to stop the slide.
This is all about confidence and market is empty on this- we are in world recession so face up to it!
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Am I wrong or are the Gov't loans just creating another feeding frenzy in the pit?
Do what the Russians did. Why not have a week long market bank holiday next week and give traders,brokers and fund managers time to come to their senses and Regulators/Gov'ts to come up with some pretty big regulatory and legislative sticks to knock some sense into the heads of people who are just not playing ball.
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"Globalisation: when one of us goes down, everyone goes down. Can we please keep this in mind once this is all over and people start prattling on about the advantages of a global economy again?"
Here here. When globalisation has already caused such enormous damage, I do not believe that the answer is even more globalisation.
I would like more Nationalism, as in Build and Buy British. We have sold off or exported far too much of our economy, relying on financial services as a means to national wealth. the trouble is that this system puts us all at risk of a global downturn that is caused by global banking forces. The Rothschild's have us by the short and curlies.
We need to reign in the banks, scrap ALL imaginary and promissory trading, that means scrap ALL derivative trading, scrap all fractional reserve banking and return to sound money backed by something of intrinsic value.
ALL the CEO's of the top banking institutions that got us into this mess should be imprisoned. For their actions will lead to the deaths (through starvation or suicide) of more people than died on 9/11.
The current banking system is inherently flawed. It MUST be scrapped and replaced with a sound, responsible and HONEST system that legitimately creates wealth based on productivity, NOT shaking money backwards and forwards so fast that people think more money exists than is the case.
The derivatives market represents a debt of 1.2 QUADRILLION dollars globally. There is not 1.2 Quadrillion dollars in existence in all the currency on earth. Much of that derivatives are loans for gambles made at 10% and then passed on at another % and so on and so on. The institutions left holding the debt have on their books (in writing) assets worth trillions, BUT are in reality debts that could never possibly be be repaid as the money does not, and has never existed.
This whole multi-trillion dollar facade is now collapsing and so it should. Even if we go back to a barter system, or a very successful system of trade that lasted for hundred's of years, the tally stick. We MUST eradicate the evil Rothschild fractional reserve system that is enslaving the entire planet, all it's Governments and all it's inhabitants into debt slavery.
If the current banking system is saved, we are ALL going to be enslaved to pay the cost of our own imprisonment.
If it falls, and all fiat currencies fall with it. Then the elite bankers will no-longer have the money to control the Governments and the people will be free.
That freedom will mean we lose so much of what we take for granted in modern civilization, BUT we can build a new future based on compassion, caring, fairness and honesty and responsibility. We could have a genuine democracy, where the people actually have a say, instead of being led by political parties that only compete to show which party can be the banker's most obedient slave. Resources could be more evenly spread allowing greater prosperity for most and a vastly reduced prosperity for a tiny minority of the elite (who should be in prison anyway).
There will be much hardship ahead, but if the global banking parasites are destroyed, then there can be a much better future for all.
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Of course when there is no leverage there are no margin calls. Now that gives me an idea...
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How does any explain the fact that the $ is down, the quid is down and yet the price of oil is *ALSO* down ?? The only answer I can think of is that there are too many "traders" holding too many oil derivatives that was used to jack up the price of oil when the demand was strong and now that the demand is weak, they are off-loading as fast as their fat little fingers can bang their keyboards !!
Gormless Gordon keeps banging on about wanting cheap oil to help the poor people of this country. The solution is simple and there for all to see !! Just cut the tax on oil !!
Short of him declaring war on Saudi Arabia and Iran, he's not going to get them to increase their oil production !! Indonesia is mired in its own financial crisis and needs every $, quid, Euro, Yen or RMB it can lay its sticky little fingers on !!
Freezing the Icelandic assets is not going to make the OPEC members behave more altruistically towards him !!
Well done, Gordon. When are you going to put a matching hole in your other foot ??
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Simple answer, there is no solution - except to get all your cash out of the bank and wait until the waters are calmer. Anyone, no matter how powerful, thinking they can tame this disaster is now clearly deluded as every attempt at stemming the tide has not made a dent.
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In the long run shares go up.....up and away like the bare stern of the titanic .
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Everyone seems to be hiding from reality.
There is not a solution to be had. There was a massive accounting error - we were never that rich and we've spent all the money we thought we had. There is still some correction to be done.
If we dont let this leverage bubble deflate completely we'll always be on wobbly ground.
Every few years the economy goes tits up because of leverage or some other inflationary bubble and then comes the next economic miracle to suck wealth from the generators to the pretenders in the city until it goes sour again.
To avoid busts we have to avoid booms.
In the last 'boom' the average worker had to work harder and borrow more to stay still. Go figure.
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Hey Rob - I hear the Sun needs a business editor. As your reports are increasingly veering towards speculation and sensationalism, why not apply?
It's not all about you, mate.
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Only political parties that are enslaved servants of the banking elite would think that it makes sense to borrow half a trillion pounds to cover the borrowing of banks. This all has to be repaid with interest. Otherwise, if this is a sound proposition when banks are collapsing. How come the Government did not borrow to invest in the banking sector in the same way when banks were solvent? Surely that would have been easy money for the taxpayer?
This bail out is merely the government sacrificing the wealth of the nation to their gods in the global banking system.
I will vote for a party that puts the people first and NOT the parasitic global bankers.
This country, publicly and privately, is in massive debt to these banks. Let the banks fail!
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To Robert Peston: If you really want to contribute to fixing the system you will publish this. If you don't, you won't, it's that simple.
"The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." -- Rothschild Brothers of London, 1863
Are you one who really understands the system but pretends not to, Robert? I suspect so, because the only other alternative is that you, as well as every other mainstream-media financial "expert", are just totally ignorant, incompetent and arrogant to boot - because you set yourself up as an authority when you are anything but. So, which are you?
There is one solution to the current fully-engineered crisis. Nothing else will work. Sadly no-one is even talking about that single solitary solution - because this whole "crisis" is not about solving the situation but about making it worse. It's the old Hegelian principle all over again; create a problem, provoke a reaction and provide the solution. The problem is the economy, the situation deliberately created by central banks doing what they do best - printing money out of thin air, diluting the already-existing money in a process known as "inflation". Provoking a reaction is what the BBC and people like you do best; you only have to take one look at the headlines to see that. And the solution... How utterly predicatable that you should propose a global solution! But I bet that global solution does not involve the global abolition of fractional reserve banking, does it Robert? No. The global solution will be that we all need to give the Central Banks even MORE power so that they can inflate the shit out of the global economy with absolutely zero accountability.
Yet the whole of the problem is rooted in the fact that our money is all created in debt. Did you actually know that Robert? Do you even know how money is created? I bet you don't. Very simply, it is created out of thin air by those wonderful boys in the privately-owned Bank of England when the government goes to them and asks for a loan - a loan which is, incidentally, never ever refused because it is guaranteed by the taxpayers (mugs that we are!) That's all taxes are; the interest on loans the government takes out in our name from the BoE. Of course, that's not the end of the story. When the BoE creates whatever sum the government originally asks for, it can also create an additional 10 times that amount - and loan THAT out at interest as well. So as you can no doubt see, it actually pays the banks to have the government asking for as much money as possible - and this is why we have wars, why we have banking dynasties funding both sides. They're nearly always the ones who instigate the conflict in the first place, as the historical record shows in stark detail.
If you really do value your reputation as an economic reporter Robert I suggest you Google fractional reserve banking, the Rothschild family and the history of money. This will allow you to understand the monetary system in a way that very vew (VERY few) others do. Think of the name you could make for yourself Robert if you actually informed the public of the only solution that will actually solve anything.
Abolish fractional reserve banking and go back to full-reserve banking based on a rigid gold or silver standard. Abolish the privately-owned central banks (did you even know they were privately owned Robert? If not you need to study some history and stop spouting nonsense!) and redistribute the obscene wealth controlled by the owners of those central banks. And last but by no means least, keep government regulation OUT of the marketplace altogether. The free market will find its own equilibrium; government intervention only has one end - again the historical record is very clear about this.
Keynsian economics will not, have not and CAN not ever work. Read the works of Mises, Hayek, Rothbard and others if you really want to know how to make an economy function as it should so that it benefits society as a whole instead of just the tiny percentage of people who control all the wealth.
"The truth is well known among our principal men now engaged in forming an imperialism of capital to govern the world. While they are doing this the people must be kept in a condition of antagonism. By thus dividing the voters we can get them to expend their energies in fighting over questions of no importance to us, except as teachers to lead the common herd. Thus by discreet actions we can secure all that has been so generously planned and successfully accomplished." - The Bankers’ Magazine, USA, 1892
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Where is the government going to borrow all the necessary money from and at what rate. Surely no one will lend them at rates lower than can be obtained commercialy. This has then to be passed on to the banks who need the cash to in turn lend out and will have to charge even higher rates to borrowers.
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Although this is spoken of as a global crisis (which in many ways, of course, it is), I'm increasingly wondering if it will end where it began - in the US.
Each downwards lurch in global markets seems to be triggered either by what has happened on Wall St or by what is expected to happen there. Other markets may sometimes appear more volatile, but it's the US which looks structurally weak.
Though I'm generally very pro-American, I can't help wondering if the world community might begin to look for ways to insulate itself from the consequences of the American economic vortex. I hope I'm wrong, but I can't help wondering.
Meanwhile, sovereign wealth investors in China, the Middle East and elsewhere must be watching the falling share prices of quality western assets with disbelief. This could be their chance to buy big and cheap into key parts of the western economy.
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9:
Some very good ideas!
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It may be simplistic but in these days of technology could not all markets be closed,
wind the virtual clock back to a predetermined date cancel all transactions from that point put in place the necessary legislation to ensure that the crash would not occur and controls of the financal systems that now appear to be vital,whilst finding who was responible for the feeding frezy then open trading again slowly to re-establish a balanced system.
Or no matter what measures politicians put in place the markets will continue their downward spiral since there is no trust in those running the fiancial systems and then economy after economy will fall
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#10 How can anybody get paid by the government if the banks are all closed ?? Without money, how can anyone buy food in those 14 days ?? So, unless you know someone with a mattress stuffed with 50 quid notes or you intend to go on a fast, I don't see how you will manage ??
Meanwhile hospitals are closed because they have no staff and the staff can't get to work because they have no money to pay for the transport and people will be dying left, right and centre. This may be a way to solve the overcrowding in Britain but is is a very heartless way to solve a financial crisis !!
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Goodness, the moderation queue is so long that the economy will be flourishing again long before this comment is posted, if at all.
The problem is the word 'global'. At times like these, individual countries become sharply protectionist. America will do nothing that doesn't serve its interests. I doubt the emerging economies will do differently. So a solution will be a long time coming.
There're miles to go before the credit issues are finally sorted out and until they are financial institutions aren't going to trust each other. That's how it is. Can't blame them. There was a time when the money market was about banks balancing their books at the end of the day. Now they've been bent to serve the ridiculous purpose of allowing short time borrowing for long term lending. Crazy.
I have a suspicion that we're teetering on the edge of a disaster that's going to befall us anyway.
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Forward into the abyss we go...
What is clear is that the more that governments around the world are intervening the worse the situation appears to be. At the heart of the problem, as we are continually be told, is one of confidence, or, more to the point, lack of it.
The first step in recovery from addition is acceptance that you have a problem. Until the addict can acknowledge their direct role and instead continue insisting that they are merely victims suggests that any therapy is futile since it will be based on a shaky foundation.
Unfortunately, the fact that neither our governments nor our financial institutions have demonstrated any humility or any sense of responsibility demonstrates that they cannot be trusted with solutions. They are merely throwng good money after bad.
The only way a solution can be found is through an attempt to analyze and not avoid the causes.
In the short term it may just be better for governments to do nothing because that is less damaging than a range of costly actions that appear to be exacerbating the situation.
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How does the UK government raise the funds for a £400bn bail out?
Does it issue long term government bonds?
Why would investors be willing to buy those bonds if they are being issued to cover such high risk debt? Why would raising funds on this scale not have an impact on the cost of borrowing - would investors buying these government bonds not be looking for high rates of return?
Or is the £400bn just the total of potential public liability - much of which may never actually be required if the banks keep trading?
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I'm gobsmacked... I've just heard Brown say "we've managed to get the oil price down"...!!
"We" had nothing to do with it... The market in the shape of much reduced demand and higher stocks have pulled the oil price down... Nothing Brown has done has or could impact on the oil price..
The arrogance of the man beggars belief...
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We'd still be in the dark ages if we followed this....
"The rich ruleth over the poor, and the borrower is servant to the lender" -- Proverbs 22:7 = Usury
It looks like we will be back in the dark ages now anyway!
Governments should not borrow they should have no requirment.
What is truly amazing is that basic Maths seems to be beyond bankers and politicians.
Iflation target od 2.5% who would get out of bed for 2.5% return human nature requires a minimum of a 10% return.
Get ready for the inflation ride, it's the only way we're likely to get out of this hole. Only when everyone thinks a million £ is a cheap house will the billions being piled into the economy will the debts mean nothing.
One thing is for sure oil gas water food land and property will allways be of value. Bits of paper stamped share options bonds or warrants will be worth only burning in a fireplace.
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Sometimes the weekend can't come round soon enough...maybe a week's complete closure of all markets?
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No. No. No.We the tax payer do not have to underwrite anything. The system is not broke, so dont try and fix it.
The solution is to close world markets for 7 days of trading. Let people see that the world is not going to end. People will talk to people again and computer algorithems will have time to cool down and stop telling traders to sell because it is mathmatically the out come of a yes/no logic decision process.
Good grief, how simple dose the solution have to be!!! Take a break.
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Wykhamist is quite right, the government should declare that the primary use of any rescue fund is the protection of the UK public - eg full guarantees of deposits/bonds/pensions etc.
Using taxpayers money (present and future!) to coax back to the market those who have the created this problem in the first place is potentially a staggering folly.
They are likely to use it to finance exhorbitant commitments to various highly-paid staff. Their justification within the 'rules of engagement' will be that the right encouragement must be given to 'risk takers' to get back into the market!
Government must get the small print dead right before it commits to anything. Remember, the companies they are dealing with are masters in constructing unfathomable investment instruments, whose value was a mystery to most of their CEOs. These people are slippery!
The promise of a cash cow has done precious little to stem the stampede out of the market, be it in stocks, lending or anything else.
The market will trade when it is ready to trade, with or without taxpayers money.
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The reason why banks are not prepared to lend people money even with sizable deposits is simply because they know that with a recession/depression many will lose their jobs and so be unable to repay those loans.
Equally, with the impending collapse in property values anyone buying now - even with a hefty deposit - will soon find themselves in negative equity and so again be a bad bet for a bank. No bank is prepared to take such a risk.
The fact, which no one wants to accept is that the property market is massively over-valued and has no alternative but to collapse.
We never had a housing shortage only a shortage of properties to buy because first-time buyers were priced out by B2L owners who were able to get ever more ridiculous loans and so inflated the bubble.
This will soon change because many B2L owners will be unable to sustain their mortgages and lose them, so flooding the market and deflating their value.
The banks will only lend when everything has settled, but that means property values crashing by about 50-70%. Anyone who thinks that everything will pick up again and return to 'normal' is sadly deluding themselves.
This is what happened in Japan where their housing market crashed 80% and nearly two decades later are not even worth half as much.
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'The Peston Prescient'
- the overwhelming sense of dread that signals the imminent onset of the 'Minsky Moment'.
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Why does no one say sorry.
3 people who caused the current crisis.
Instead of saying sorry, they throw more money at the situation, diverting attention and blaming others.
Alan Greenspan stated that loans should be given to subprime borrowers, using the cheap money he created with low interest rates.
Poulson, in charge of the USA treasury, pleads for money from the USA taxpayer.
But he recently worked for Goldman Sachs, who help create the problem with their fancy financial instruments - and he received vast bonuses for doing so.
Gordon Brown was chancellor when the FSA, which he set up, allowed people to borrow 125% mortgages and many multiples of their earnings to buy
houses. This lead to a major part of the UK banks problems.
He also allowed inflation in houses to rip during the past 10 years, because he was in love with the increased taxes received from it.
At the same time he stated that the UK had very low inflation.
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In a panic, people just act stupidly, and they take their cue from stupid people in leadership.
Why are the governments, beginning with my own US government, willing to spend any amount of money, but unwilling to do simple things that don't require cash expenditure, such as:
1. Remove the Capital Gains Tax, period.
2. Significantly ease regulatory restrictions on all, and I mean all, forms of energy exploration and delivery. That means if someone wants to drill for gas, and build a pipeline to deliver it, then Auntie Mabel in Bugtussle, Alabama can't file a suit to keep it from coming within a mile of her chicken coop, and tie the project up for years.
3. Reduce the business tax from 35%(Lord in Heaven 35%!!!) to maybe 10%.
That requires no new cash.
It does require leadership.
Notice how every time the President, the Chair of the Fed, and the Secretary of the Treasury mount the podium, the market drops further?
And folks, I hate to tell you, but BHO's proposals for his Brave New World under the Democrats all are OPPOSITE of the above list.
We haven't really seen pain yet, if this man is elected.
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there are a few things here that puzzle me -1. when the government launched its rescue plan one of the secretaies to the treasury was asked where are the government getting the funds from to loan to the banks to put liquidity into the system - the answer - from the markets - so are these banks lending to the gov and then borrowing it back - presumably with some margin
2. if we are a global economy then all of the money around the globe is still there - must be in either banks or investments - this is an artificial situation
3. logic says this selling should have stopped by now - but it continues - are there other factors at work here - are the markets being undermined by indescriminate selling to destabilise the west?
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I would hope that even the most committed free-market zealots would now accept that the Friedmanite/Thatcherite experiment has been a total disaster. International capitalism is fundamentally corrupt, and rotten to the core, not surprising when one considers that it is based on greed beyond satisfaction, and above all exploitation of fellow human beings.
I find it hilarious that some of your contributers who appear to align themselves with the mantra, deregulation, deregulation, deregulation - a central tenet of Thatcherism, are now blaming the government for what? not regulating enough. The lunacy of the right is beyond understanding.
A new political and economic structure will hopefully emerge that will erase forever the cancer of fundamentalist ideology that has been responsible for recent events
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# 47 DerekVampire
Que? Sorry, you lost me at about the 4,432nd word. And your point is?
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The Emperor has no clothes! We can all see that the market's prices are grossly over-inflated where nominal prices are much greater than real-value prices based on the over-all value of production of the workforce.
We've had debt being issued backed by debt-based assets for many decades, where a huge proportion of that debt-based assets are highly likely to default. Why wasn't the true value of those assets properly discounted? I suppose players - including the FSA - were all collectively looking at the horizon hoping somehow that what was currently bad would somehow become good. Fantasizing in other words.
On top of that we have banking institutions open to huge exposure holding on to Credit Default Swaps being held as assets - and much of those are unlikely to be paid out as well, since the insurers themselves are likely to be unable to settle - since their assets are also toxic-debt-backed. I've heard these amounts are in the $trillions.
All this is just the market reacting to these glaring facts - the system is top heavy and it is falling over. To try and save it will cost many trillions. - And it can only be really saved by REAL money based on real work, i.e., taxes. Otherwise, the more the government borrows, the more it contributes to creating value which is purely nominal, and the less and less efficient tax money becomes because of the huge burden of interest payments required before expenditure can be made on real investment.
We have the government pumping billions of nominal value into the system - essentially buying an illusion. We are buying debt that is worthless. With so much more money in the economy without a concomitant increase in real wealth, it can only come out in the wash as a badly devalued currency; i.e., rampant inflation.
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Prudeboy:
"As Jonathan Guthrie (FT) commented - "bring back the Captain Mainwarings of this world
who knew their customers" "
This made me smile - my father was an old-school bank manager years ago and my sister and I used to call him Captain Mainwaring at the time! He was made redundant (from RBS) along with a huge number of other branch managers, when RBS realised they had a load of people near retirement age who were on a final salary pension scheme! They replaced the branch managers with sales managers - I think that speaks volumes for why the banks are in their current parlous state!
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I am tired of this!
Every day I read something which is either an inflammatory coment getting the average person worried about a safe bank, such as northern rock was, or the complete oppisite, such as the devastation of Asia's stock markets.
We are being lied to and confused at every turn!
The banks which were in danger in England were NOT!
Asian stock markets in turmoil isn't a true reflection of whats going on!
It seems that we are being told on one hand that our banking culture is doomed, and then to make everyone feel slightly better about it we say that everyone is in the same boat!
If this isn't true, then why did todays BBC news headline read that the Nikkie was down and asia's economies in trouble, etc etc. While at the same time the Yen and other asian currencies are at there HIGHEST LEVEL EVER against the pound?
Please explain!
I for one think there is an answer.
The answer is that we are sinking fast, but no-one wants a panic!
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People do write some awful junk on this matter. Everybody seems to be in blind panic at the moment blaming everybody and everything. Yes, the end of the world is nigh and everybody is totally corrupt and the only option is to listen to the righteous who have never so much as borrowed a tenner from their mum.
This week was always predictable, I predicted it and many others did. When the market tanked on Monday I heard many commentators suggesting it may be the bottom. I predicted a further 10% fall.
The leaders and commentators in this situation haven't got a clue what is going on because they keep looking to their history books and text books and can't find relevant references because there aren't any so then they just guess. The world changed when markets globalised and electronic trading took over. That means that anything that happens happens everywhere and very very quickly.
Right now, this week, we are in the middle of a global cash call.
1. Financial institutions worldwide are having to shore up their finances and improve their cash position and one of the fastest ways to do that is to dispose of your liquid assets.
2. Investment funds, particularly those that have been insuring the credit markets, are facing large cash calls and are consequently disposing of their liquid assets.
3. Central banks around the world are building up their cash reserves to help protect their banks.
4. Businesses needing to find cash for everything from the wages to capital projects cannot borrow from their usual sources and so look to their next source of unds, asset disposal.
5. Even inidividuals who maybe now need to find a larger deposit for a new house to secure a mortgage may consider selling their investments to raise cash.
6. Investors, whether institutional or private, are rebalancing their portfolios to focus their investments on areas they know and are comfortable often repatriating cash to their home countries in the process.
Add to this global cash call a certain amount of hysteria and in many ways it is surprising that the markets haven't fallen further.
All of the cash that has been moved around has to find a home and any indication that markets have stabilised will see a mild mannered rush to buy shares. I predict a 12% rise in markets by the end of next week.
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From the BBC website...
"Top winner
Barclays
492.75 ...251.00.... 103.83% "
This would indeed signify a major recovery of confidence.....if we could rely on the BBC website!!!!!
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#42 The trouble is, by the time the waters are calmer, your cash wouldn't be worth very much !! Unless you have a product or a skill to trade with, you will starve !!
CASH itself has *NO* value !! It is the trust or confidence in the bits of paper that gives it the value. When foreigners see no value in your bits of paper, you cannot buy anything from them, be it oil, food or other resources !!
It is easy to pontificate about Brits making things but where are the tools needed to make them with ?? How will you make computers without chip fabrication plants ? How will you make those fabrication plants without the specialist tools that make them ?? Or are you going to buy them with valueless pieces of paper ??
And if you are thinking of smithing those tools, those days are almost gone too. There is hardly any blacksmithing skills left in Britain !!
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Yes, there has to be a global solution but in light of climate change there must also be a fundamental rethink of a financial structure that seeks to stimulate infinite growth in a finite system.
I recommend reading 'The Ecology of Money' by Richard Douthwaite. Here are a few lines from the book's final page:
'[In 1994] two economists, FX Browne and JPC Fell, who then worked for the Central Bank of Ireland but later moved to the European Central Bank...suggested that central banks were losing their power to control the money supply. Professor Kevin Dowd of Nottingham University Business School agrees. He points out that banks are already providing a smaller proportion of all loans as a result of 'securitization' - the sale of a bank's loans to non-bank investors who are not subject to reserve requirements. This, and the development of electronic cash, means that more and more money can be placed in circulation on a smaller and smaller reserve base. Dowd writes, "As base money becomes less significant, it will gradually lose its effectiveness as a channel through which the central bank can influence broader money supply."
In other words, our current money system is coming to the end of its useful life. Its radical reform has become necessary as well as desirable. Only a widespread debate on the issues, by a well-informed public, will ensure that when changes are made they are on the right lines.'
This was written in 1999. And the time for that debate is now.
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What would Alan Sugar do with the UK Banks?
I would like to hear his views!
I can imagine he would fire the Directors first !
Perhaps the Gov't should create a think tank of the best British entrepreneurs and ask them.........
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Circuit Breaker -- close the stock exchange. Most countries have circuit breakers which do this anyway so why hasn't the UK's one worked so far?
It is insane for the taxpayer to throw money at the banks as this will just vanish because the banks have no intrinsic value even after the money is chucked at them.
Another method would be to de-list the banks at least for a while.
It is quite obvious that financial 'institutions' are incapable of fulfilling the listing requirements at present and without the banks perhaps the market would steady.
But above all, set out the ground rules for the new past crash regulation as soon as possible.
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45
Now, now he has a career to build.
Books to write, and so forth.
I wonder if Pestonization will make it into the Oxford English Dictionary ?
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This isn't about confidence, it isn't about needing 'more of a sign from the government' (good grief, how much more free dosh that £400bn do you need to make you feel a bit more chipper?). It's about people with big positions in the market forcing governments to recapitalise banks by selling shares, which they will then buy back once the likes of the Prime Minister have mortgaged our futures and our childrens futures...
This madness has to end. Call their bluff. Close the markets for a week, and close a few banks!
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I thought the FTSE might be at 4300 by Christmas.
Well, it's 3932 right now.
I'm wrong again.
Unless it is oversold.
Those shortsellers like a crisis.
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Global solution?
You mean the old "World Government" gambit?
So who rules the world? The IMF? The World Bank?
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How about changing the whole system.
Only governments should be able to create money - not private institutions.
Scrap Fractional Reserve Banking.
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Einstein said that if you are in a problem, you have to think in a different way to get out of it to the way you thought in getting in to it.
No one is doing that in this fiasco. All that is being done is that billions of whatevers are being thrown into a fire and the fire is getting bigger.
We have seen the end of communism in recent times. We are now seeing the end of capitalism that is based on paper not on real tangible assetts.
The real economy that makes things and provides necessary services and educates and creates is the only economy that works.
What we are seeing now is the destruction of a papers based asset system that makes all money worth no more than monopoly money.
We need a new financial trading system. Scrap the one that is sinking; don't try and save it; it can't be saved!
Nationalise the whole financial services industry now; sack 90 % of directors and senior managers; stop all bonuses etc and re think another system that works.
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AvensisTom #28 wrote
"It is high time we listen to the Austrian School for a solution. Liquidate the bad debt .. and get it over with".
The Austrian solution is to do nothing. That is a recipe for disaster. It would destroy the economy.
And having destroyed the economy, how do you expect the economy to recover when savings are wiped out, businesses are bankrupted, business confidence destroyed and millions are unemployed? That disaster would be a far greater threat to our political freedom (remember the 1930s) than the state intervening and taking steps to stabilise the banking system with an equity stake.
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Robert,
I am still fuming at G, Prudence Brown forgetting the second golden rule.
This states that you have only one chance to spend money (even the taxpayers).
I believe Prudence believes he can print money 'ad infinitum' someone should remind him of this second rule and what a mess he made of the first.
The first rule for those that might of forgotten states that the man with the gold makes the rules.
Dear Prudence can not now use the first as we all know he 'innovatively and with fresh thinking' sold off the UK's gold reserves at about $300 an ounce (now trading circa $900)!
Why on earth did Prudence believe in his vainglorious attempt at solving the Banking problem with up to £500 billion when clearly no one in government has any accurate idea as to what and how large the problem really is?
I hope my family would sanction me for my and everybodies safety if I spent our money in such a manner.
Is it all to do with appearences and the painlessness of spending other people's money that the government has done this?
What happens if the problem requires £2 Trillion pounds?
The UK government was overborrowed even before Northern Rock and Bradford and Bingley goodness knows how soon it will be before UK debt is downgraded to junk bond status?
The world would not have ended if one or more UK banks went to the wall.
The government could then have cherry picked the best assets at knock down prices for our benefits.
Instead generations are going to saddled with mountains of debt for hasty actions made solely for irrelevant and illusory political advantage.
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We already have a global solution - and it works bottom up -- no need for massive international cooperation (which never works - look at the protectionism that has kicked in all over europe...)
Everyone everywhere should only borrow what they can afford to pay back.
Everyone should only entrust their savings to people they trust.
Its simple -- if you don't follow the rules be prepared to take the consequences.
The only need for any oversight is to ensure that those who don't follow these rules (and they are PERFECTLY entitled not to) have no negative impact on those that DO follow them.
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http://money.aol.ca/article/iceland-meltdown-2nd-writethru-bgt-reuse-story-id/374362/
http://www.telegraph.co.uk/news/uknews/1584713/Poole-council-spies-on-family-over-school-claim.html
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We have more than passed the point of market correction. Sadly the people who make trading decisions do so on the basis of media hype since they have no knowledge of the economic fundementals underlying share value. Hence thay act like lemmings. The average punter in the bookies takes a more scientific approach to placing his bets. If their valuations can jump all over the place like this then they are obviously clueless about the real economy.
On the other hand maybe some of them are very clever. Feed gloom and doom to the media in confidential briefings and later buy cheap! Anyone selling at current levels is being taken for a ride!
Will the market rise again? Of course it will. It may take a few years to get back to the last high but it will be way up on these levels within a year. How many of the gloom and doom people who post on here are waiting to buy cheap?
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Can I suggest a worldwide 2-week holiday for the whole of financial sector whilst the dusts settle. It seems people are fanning the flame intentionally or unintentionally. But clearly some people must be catching fish in the cloudy waters of their own making to the detriment of all others.
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Minsky moments and Keneysian economies - thank goodness for the Wikipedia or I wouldn't have a clue what you are all on about.
I've learn't a lot about economics from Pestons blog and the related comments in the last week.
I wonder when the 'The Peston Prescient' that palladas has mentioned will gain widespread use.
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You should look at yourself Robert.
You and the media , especially the BBC have been partly responsible for this mayhem.
Every evening you and the BBC dispel gloom and fear to millions of people.
Do you deliberately set out to cause panic ?Part or most of the current problem has been created by media hysteria.
Reporting standards of the BBC have fallen over the years and now are at best inaccurate.
You and I both know it is all about conficidence. Why do you and other reporters fan the fires ?
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DerekVampire #47 wrote "Abolish fractional reserve banking and go back to full-reserve banking based on a rigid gold or silver standard. Abolish the privately-owned central banks (did you even know they were privately owned Robert? If not you need to study some history and stop spouting nonsense!) and redistribute the obscene wealth controlled by the owners of those central banks".
Sorry, but this is nonsense! There isn't enough gold and silver to go back to full-reserve banking based on a rigid gold or silver standard! Even in the days of the Gold Standard the Bank of England issued bank notes in excess of the gold reserves - I think it was around £13 million.
Limiting the amount of money to the amount of gold and silver bears absolutely no relation to the need of the real economy. How, for example, would you fix the price ratio between gold and silver at a rate that will hold over time?
If fractional banking was abolished, what would be the effect on prices, economic activity and the price of obtaining capital for development? Surely this would have a devastating effect on all aspects of the economy? In societies where a fractional banking system is not in operation (eg parts of the Third World), the charges for credit are userous, and that is a far greater evil.
Finally, I don't know where you, DerekVampire, get the idea that the Bank of England is privately owned! The Bank of England was nationalised by the Govt in 1946 and remains Govt owned.
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Is it just me or have others noticed that Robert always gets a story out just before some big event happens. It happend with Northern Rock. It happend with HBoS. It happened with RBS.
I think broadcasters have to be very sure that they are not creating the story they are talking about. In each of these three cases the big tumbles came after Peters broadcasts.
Certainly in the NR case, some would argue that a behind the scenes deal could have been made that would not have resulted in all the job losses and the exposure of the tax payer that we are now faced with. But once the story was out, the skids were under any deal. Panic spread. And people queued to get their money out of what was not an insolvent bank at the time.
This is not a game of getting news out first. This is peoples lives. Be careful what you broadcast.
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Is it just me or have others noticed that Robert always gets a story out just before some big event happens. It happend with Northern Rock. It happend with HBoS. It happened with RBS.
I think broadcasters have to be very sure that they are not creating the story they are talking about. In each of these three cases the big tumbles came after Roberts broadcasts.
Certainly in the NR case, some would argue that a behind the scenes deal could have been made that would not have resulted in all the job losses and the exposure of the tax payer that we are now faced with. But once the story was out, the skids were under any deal. Panic spread. And people queued to get their money out of what was not an insolvent bank at the time.
This is not a game of getting news out first. This is peoples lives. Be careful what you broadcast.
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keep calm it is just an economic cycle(1 wheel left)
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One thing no one seems to talk about is the other exotic derivatives which are still out there. As I understand it the market for Credit Default Swaps is alone worth $65 trillion, and from what I believe these essentially consist of insurance which has been given for a fraction of the possible default which they insure. With Lehman Bros. bonds coming up for auction and some of these CDSes kicking in on Friday, don't you think that the financial world is in for another shock, especially since the possibility of a credit default is much higher in today's scenario.
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#47 DerekVampire
I agree with virtually everything in your post (except baiting RP -- what's the point?).
The question is: how can we go about achieving the needed fundamental reform in the monetary system?
First, people have to understand what's wrong with the existing fractional reserve banking system. (Your post to this blog and those of a growing number of other people help -- until 2 weeks ago I knew nothing about the banking system!)
Second, people have to believe there is a viable alternative (which also means agreeing that the world economy cannot expand endlessly, and we must commit to a sustainable way of life).
Third, we need to discuss how to move from the existing economy with its flawed monetary/financial system to a new one.
I have only a rudimentary understanding of how a system of debt-free money would work and how we could get there. Can you and others who are better informed than I am help flesh out answers?
As we criticize the existing system, we need to offer a positive alternative.
Thanks.
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#80
I see an atmospheric vision of Mr T. Blair re-incarnated as saviour of the world and Lord of all Banking (dressed in white sheets and crown) being feted and lauded by P. Meddlesome.
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Robert/Moderator - can I ask that you vet the contributors who conflate their obsession with "fractional reserve banking" and "Rothschild". Googling the two phrases makes it clear that these postings come from anti-semitic conspiracy theorists who hold views identical to the Tsarist forgery "Protocols of the Elders of Zion".
These deluded people also seem to think that the Bank of England is a privately-owned institution. It has been in public ownership since 1946, and de facto a government institution since at least 1844.
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Has anyone seen any of those neo-liberal, self regulating markets are the only way forward types lately?
They've gone awfully quiet.
Is it anything to do with the fact that self-regulating markets don't work and they always need a hand-out from the state when things go up the swans?
At least if the government gives all our money to the banks there'll be nothing left for Maggie's funeral!
Or we could pay for it by selling her son to Equitorial Guinea so he can face trial.
Tee-hee
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2 week holiday for financial services workers??
What about a permanent one for the bosses?
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Doesn't all this printing of new money fuel inflation?
And there was me thinking it was decent wage rises for that pesky civil service!!
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This talk of a grand global scheme to save the world is simply fantasy. As they have already convincingly demonstrated, goverments don't have the money or the knowledge to fix this problem. The same people that were screaming for the US and the UK to weigh in with enormous sums of money as a quick fix are now yelling that they want the world to come together for more of the same. The massive injections of cash they demanded from individual governments failed miserably to achieve anything. But they have undermined the scope for global action. Would the UK and US have to find billions more to inject in a grand coalition. Where from? Do you seriously believe that any good would come of the kind of fudged, compromised, pork-barrelled package that would wobble its way out of a posturing photo-opportunity of intercontinental politicians and bureaucrats?
In the meantime, it's now clear that the only thing Gordon Brown's package has managed to restore to health is his ego. For all the fatuous fanfare that surrounded it, it was created in haste and will be repented at leisure.
If the package had worked, we should have seen markets here rise, or at least stabilise. They have crashed again. We should have seen the pound strengthen. It has weakened. We should have seen UK bank shares begin to recover. They have plummetted. We should have seen LIBOR fall. It has risen.
There are no quick fixes. And for all those who think that free markets alone created this problem, you're wrong. It started over a decade ago, when the Clinton government's affirmative actrion programmes resulted in legal action to stop banks applying strict lending criteria to people in low income and minority communities, as they said that this was discriminatory and denying people from minority the right to own homes.
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Robert, getting the G7 to agree would be difficult enough, but the G7 is not big enough to have an impact. You would need the entire OECD speaking from the same book as a minimum and that is impossible to achieve. Are you following current stories about budgetary pressures on Hungary, Mexico and Pakistan? The G7 guaranteeing interbank lending would do little about that. What next, a guarantee of intergovernmental lending? Then B2B lending? Global currency pegs? Where does it stop? You are covering this story one piece at a time without stepping back and seeing the avalanche.
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"Hyman Minsky Moment" for a piggy bank...
A timely bedtime story...
The Tales of Hans Christian Andersen
The Piggy Bank - 1855
The children's room was filled with toys; on top of the cabinet stood a piggy bank. It was a fat clay pig with a slit in back that had been enlarged with a knife, so that silver crowns could slide through it. Two of those heavy coins had made that journey, besides innumerable pennies. The piggy bank was so filled that it didn't rattle when you shook it; and higher no piggy bank can rise. He stood on top of the cabinet and looked down upon everything in the room; he knew he could buy it all with the money he had in his stomach, and that was a very comfortable feeling.
Everything else in the room knew it, too, though they didn't talk about it. One of the drawers in the chest was open; in it lay a doll. She was old and had once broken her neck, but it had been repaired. Now she sat up and suggested, "Let us play human beings, it is amusing." At once everything started to jump about. The paintings on the wall turned around, in order to show that they had backs as well as fronts. That irritated the doll, who thought they had done it just to be contrary.
It was the middle of the night, but the moon was shining in through the window, giving free illumination. All the toys were invited to join the game, even the old baby carriage, though it didn't really belong. "Everyone has his own good points," it said. "We can't all be aristocrats; some have to work for a living."
The piggy bank was the only one that had received a written invitation; the others feared that he was so far above them that he couldn't hear a spoken one, even if they shouted. He didn't answer. If he were going to watch the game, then he would only do it from his own home. He felt that everyone should comply with his wishes, even when he hadn't expressed them; and everyone did.
The little doll theater was erected in such a place that the piggy bank could watch the performance. They would start the evening by giving a play; later on there would be tea and intelligent conversation. But the rocking horse began talking immediately about the breeding and the breaking of horses; and the baby carriage talked about railroads and steam engines; they were always so professional. The clock on the wall talked politics; it declared that it knew the time, but the other toys said it was slow. The walking cane just stood about admiring its own silver knob, and the two embroidered pillows on the sofa, who were pretty but stupid, giggled. Finally the play could begin.
Everyone had been told that they could applaud or make any noise they wished, such as banging, rumpling, or whistling. The riding whip said it would "crack" for the young people in the play but not for the old: they were so boring. "I will bang away for anyone," said the firecracker. The spittoon stood humbly in the corner and mumbled, "One has to be somewhere." The play was terrible but the acting was marvelous. All the players played in the center of the stage, to make sure their performances were seen. The doll who once had broken her neck almost lost her head, she was so moved. The piggy bank was touched too, but in his own way; he thought of doing "something" for one of them, such as leaving him a small sum in his will.
All enjoyed themselves so much that they decided to skip the tea and just have the "intelligent conversation." They all felt "just like human beings," and that was not meant satirically. All of them thought their own opinions cleverer than their neighbors', and they all wondered what the piggy bank was thinking about. He was thinking very seriously about wills and funerals: long, slow-moving thoughts. But death and funerals have a habit of coming before one wishes them to come. . . . "Crash!" Down fell the piggy bank and broke into hundreds of pieces, while the money rolled all over the floor. One of the silver crowns rolled all the way to the door; it wanted to get out into the world and it did, and so did the pennies. The broken pieces of the piggy bank were thrown in the trash can. It wasn't the kind of funeral he had expected. The next day a new piggy bank stood on the cabinet. He looked just like the other one; and he too couldn't rattle but that was because he was empty. He had just started his career; and with those words we will end our story.
*
Sleep well. The sun rises again.
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They must,
INCREASE INTEREST RATES
and use the liquidity from the Banks, Houses and Companies that fail, to shore up the ones that are left.
This must be done soon before inflation is allowed the go feral.
Finally they must stop changing the rules and mechanisms that have worked before whilst removing the new rules that don't.
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It's time to return to one hundred percent reserve banking. The Central bank, debt money system just doesn't work.
Take control of the money supply out of these profit driven private entities called banks and restore it to the people to whom it rightfully belongs.
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We subscribe to "The Week", a summary of the week's news that comes out on a Friday and gives every point of view about an issue so you are left with no opinion about anything, as all the viewpoints seem reasonable.
However, I do remember that in the issue of Friday 15th February this year they gave a clear warning that Icelandic banks were in trouble, which they were forced to retract in the following issue.
How right they were, though.
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But what are the long-term effects of the emergency measures now being imposed?
www.opine-blog.com
Ed.
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In an Interview on 'Today' a couple of days ago, John Humphrys said, in passing, the government won't have a seat on the Board of the banks in which they [we] are investing. Is that true? IF NOT, WHY NOT? If I invested £50 bn from my piggy-bank in a company, I would want a say in how it was run. In most cases, I would want to own the Board and sack the whole lot of them. It would be the very last word in presumptuous arrogance and dereliction of duty NOT to do so. It is no good saying that the bail-out will cost the average tax-payer £x thousand: we want our money back - with interest - and reasonably soon, before we die, unlike War Bonds.
Furthermore, most City Bonuses MUST now be banned by Law. In the 3rd Millennium, I suggest, 99% of all bonuses should be paid to the investors, 1% to the brokers.
In all these matters the Government[s] must buy power with their [our] money, and thus force safe money management on the developed countries' economies; anything less would be a betrayal of the trust of those who have worked all their lives (and paid for everyone else).
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What a wonderful collection of comments! Surely what we are observing is a natural phenomenom, and surely the lesson is that complete market freedom cannot in future be permitted? Some sort of regulation is required, and I suggest that audit and disclosure have roles in it. More must be disclosed and auditors must find again their independence and be prepared to publish adverse opinions.
As for astronomical slaries and bonuses, has anyone yet mentioned a progressive income tax system that would render them worthless to individuals but hugely beneficial to the state? Oh, and whilst challenging shibboleths, why not cease non-domicile status? This is the time to enact the unthinkable - there's nowhere for the greedy to go!
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#56
"The arrogance of the man beggars belief..."
Just you wait till next year when the dust has settle and things hopefully start to rebuild.
Brown "Having saved the world from melt down and persuaded the world leaders to follow my policies I hereby call a General Election. Put your trust in a man of experience and vote Labour!"
I guess around September next year we will be hearing something similar.
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We must in the end remember that markets are merely herds of individuals.
It therefore is and always was a nonsense to say 'the market must decide'.
Homo sapiens will always rationalise silly ideas and panic when they go wrong.
We are in neither a financial nor economic crisis here.
We are in a species-cultural crisis.
We have folks with no ethics and values beyond money frozen by greed and fear.
We have leaders spun into office and therefore lacking either the brains or the spine to do their duty - which is to persuade people to calm down and order banks to do fulfil their historic role as supporters and guardians of the capitalist system.
Www.notbornyesterday.org is a not-for-profit website which aims to engage, amuse and persuade the sane minority that, as Robert said this morning, what we are witnessing is not a disease, but rather the symptoms of a disease.
To paraphrase Clinton, 'It's the culture, stupid'
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90 nickeljo
What a nonsense! The debt bubble has not been caused by the media, although they have contributed to it by not making those voices heard who have warned for so many years. If you think censorship could help with your personal financial situation you should consider to live elsewhere.
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The financial markets and industries have run for years on increasing amounts of greed and arrogance and reducing amounts of honesty, trustworthiness and morality - probably caused to some degree by the political reluctance to regulate them appropriately.
That's why no-one in banking trusts anyone else in banking , or anyone else, any more.
To change that then radical regulation is needed to change the entire operational culture of the financial industries.
Then, and only then, can trust be gradually restored. Trust will take time to re-build and that's why we need to get on with the process of radically changing the day to day ethos of financial interactions between all types of stakeholders, the public, traders, bankers, governments, etc., etc.
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The problem seems to be with the risk calculation.. no-one seems to know what risk a debt has..
how about this for a solution..
http://www.booserver.com/booleanbanking
I think i agree with #3
Perfect time for central banks to set up
in competition with private sector banks
with a better model
could build a p2p bank within the week probably..
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Robert! The problem is Global, I believe you and others have said.
You have to think outside the envelope for this one.
All markets need to commence trading at the same time for the next six months or so, until the "Trade your neighbours (Eng) out of doors syndrome" settles down. The Market is a sport, and like all sports the competition must be fair.
An equal start to the day, although somewhat tiresome to those chaps getting up at midnight, will create a natural slowing down of the present decline in market prices as Traders' will have all the Market Data immediately
I guess as I'm British/English/American I'd plump for GMT as a starting measurement. Think it through Robert, and the other experts, and you'll see what I mean. The term of GMT could be advanced each month Eastwards, the way the world turns currently.
Good Luck.
Loansam.
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The inexorable laws of economics are leading us to worthless money, no-value assets and debt that is unimaginable and unpayable! Half-measures like bailouts will merely prolong the ever-deepening agony. UN should convene a new Bretton Woods Conference of G8 plus China, India, IMF, World Bank and WTO. With a global economic freeze to calm things -temporarily nationalising everything without payment and cancellling all debts- we can start again with a new agreed international basis for currency, markets, business, international relations, international law and trade. The new basis of value cannot rely on the dollar which has been wantonly destroyed. The new basis must be the value of the one thing that is permanent and indestructible - all the land on earth.
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#44
Reality - boom is some scam taking the money off the deluded many and putting in the hands of the few.
Bust - the game is up, stick the proceeds abroad. Plead poverty, reset the system and repeat !
This is the 5th time in my years. We don't need the financial institutions, get rid of them.
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Interesting times... I've heard of the "triple witching hour," is this the "quadruple witching hour?"
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I'm watching channel 4 news right now - Jon Moulton is the clearest and best financial expert I have seen (sorry RP). Even before the crunch started he was warning the banks and Governments.
POLITICIANS DO NOT UNDERSTAND THE WEB OF THE CREDIT MARKETS.
JM was explaining to the BANK OF ENGLAND how CDS and CDO's work a year ago.
Confidence? - how can we have confidence?
The bankers talked so much balls they actually believed it themselves.
'We are in experimental economic territory' -Jon Moulton - 2008
Goldman and MS are on the ropes.
Get your weapons ready - we're going to have to take parliment (that's no literally)
My biggest worry is that we actually get through this - because then the NEXT time it will be fatal.
Look at Japan - couldn't drop it's interest rate because it's already at 0.5 percent.
China is the only solution to this poblem - and would you help us if you were them?
...I think not....
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#96 papanca
Much needed reforms etc.
It is not just bankers of course. If you really want to upset yourself try hanging around Heathrow on Friday afternoons when the Eurocrats come home for the weekend from Brussels. Thousands of them! All paid for by taxpayers. But all the Eurocrats can do is pass laws etc that eventually cause problems for us all and then they get repealed, eventually.
Bankers however have the power to fundamentally change our quality of life. And not just for the better. By their greed they are able to demand a "hands off" regulatory regime. Politicians meanwhile see the ability of the banking system to be their tax raising system. Without the rest of us knowing that we are being taxed!
Less regulation means more wealth being diverted to the bankers.
Where do you think real wealth comes from? Let the bankers play in their Casinos to their hearts content. Meanwhile regulate them to extinction. As they start to make less and less money then they would have to join the real economy - to the benefit of us all.
Except of course the political classes who would have to bring in direct taxation for them to exist. The beauty of direct taxation of course is that everybody can see it. Nobody minds paying fair taxes.
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#70
Exchange rate movements think money leaving the country or entering the country.
Seems the pound is worse off so I guess we see all the rich leaving the country.
It must take a man with a lot of intelligence and paid 100's of times the average man's salary to act in the interests of the country - NOT.
Stocks are going down because they always do - and that's because the turn around point will come in the next 2 years. This party is over and now it's time to setup the next party. Don't miss the boat but don't book the ticket just yet - party date and venue yet to be decided.
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With regard to any bailout.
When the Government (any) throw huge sums of money at a problem (NHS) it never goes to the areas where it's needed.
What makes this any different?
If you haven't worked it out yet - the market is the people, the people are the market.
Only the people can save this situation. A change of conscience on the part of everyone - globally.
I dont know what - I'm not that clever, but I know this is the only way to turn this ship around.
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lesliefromlondon wrote:
Robert/Moderator - can I ask that you vet the contributors who conflate their obsession with "fractional reserve banking" and "Rothschild". Googling the two phrases makes it clear that these postings come from anti-semitic conspiracy theorists who hold views identical to the Tsarist forgery "Protocols of the Elders of Zion".
Its got nothing at all to do with anti-semitism at all. Its anti greedy bankers. Whether its the Rothschild's, the Rockerfeller's the Morgan's or any of the major banking families over the past century and a half - all are in this to profit from other peoples misery. Fractional Reserve Banking is indeed the big culprit here. The ability to create money from nothing, thin air - and not have it backed by anything of value - is utterly disastrous and ultimately leads to these situations with morbid regularity. The Fed in the US is actually a quasi private/government run body that in effect prints money (again based on nothing in particular - promissory notes from the US Treasury), then sells them back to the US government - at interest!! No wonder the clock in Times Square showing the US debt ran out of zeros. Its a ludicrous system that needs to come to an end if we are to some out of continuous and never ending debt. Money is debt - every pound and dollar in your pockets is owed by someone to someone else.
Stop accusing people of anti-semitism, or dropping in references to the Protocols (on what basis of fact did you link people talking about Fractional Reserve Banking - and this anti-semitic tract?). Why dont you tell us why FRB is better than a banking system based on a real value standard instead of throwing mud?
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maroon3
Isn't 100% reserve banking what the building societies practice?
...or is this another common misconception?
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@ #96 -- papanca
Since 2002, nine Early Day Motions* have been put forward by independent minded MPs, seeking to address the problem of fractional reserve banking (with various twists). Despite these EDMs gaining signatories including such well known politicians as Nicholas Winterton, Peter Bottomley, David Chayter, Bob Marshall-Andrews and Austin Mitchell, none of these attempts at reform have won the backing of the leadership of the major political parties.
Hardly surprising, if you consider where much of the funding for the Westminster parties comes from...
As far as I am aware, the Libertarian Party is the only political party in the UK that has had the cojones to propose the changes necessary to address this issue. See here:
http://lpuk.org/pages/manifesto/economy/monetary-reform.php
* EDM 1515 - 01-02, Using the Public Credit; EDM 854 - 02-03, Publicly Created Money and Monetary Reform; EDM 323 - 03-04, Public Credit for Public Purposes; EDM 327 - 04-05, Use of Public Credit for Public Works; EDM 743 - 04-05, Interest Free Money; EDM 390 - 05-06, Publicly-Created Money; EDM 408 - 06-07, Public Credit for Public Purposes; EDM 265 - 07-08, Green Credit for Green Growth; EDM 1449 - 08-08, Taxing the Profits of Credit Creation.
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lesliefromlondon #98
You will see that I took issue with the attacks against fractional reserve banking in post 91 asking whether they had even considered how the alternatives could serve the needs of the economy and society. Like you, I also pointed out that the Bank of England had been nationalised by the state in 1946.
I do however disagree with you when you say that those who attack fractional reserve banking should be vetted. That is censorship.
The way to combat views you disagree with is by logical argument, as I tried to do, and if views you disagree with are simply supressed or censored as you appear to be suggesting, you are of course only serving to confirm their "conspiracy theory" views, however misguided they might be. They would very reasonably ask what have got to hide that you don't want discussed?
Personally, I believe the whole banking system needs far tighter Govt regulation to ensure that the banks can never ever get us in this mess again.
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Time.
That is what will stop the Minsky moment.
Having been interventionist I now think that intervention is not the rational response.
Is it time to let the unsound banks go to the wall and just to go through a bloody and messy depression in the knowledge that actually it is not the end of the world.
If we continue to prop banks up and we go into a depression anyway then what are we paying extra taxes for?
We will get out of a recession faster with lower taxes and a brand new banking system.
Lets be positive - it will cut carbon emissions faster than anything else.
We should also declare open season and a bounty on city banking executives.... ASBOs and community service for the lot of them. Their selfish greed has done more harm to more people than any number of spotty youths in hoodies.
Bah!!!! Humbug!
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#67. moraymint wrote:
Ref 47 DerekVampire
Que? Sorry, you lost me at about the 4,432nd word. And your point is?
..................
I Think 47 sumed it up very clearly, spot on Derek,
Why dont you do as he suggests, watch money as debt on you tube.
or if you have a more open mind zietgeist final version.
If you cant be bothered to spare two hours and watch it, then dont slate the blogger.
Join
www dot thezietgeistmovement dot com
the future belongs to the people
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As Abbey has just refused to pass on the interest rate cut to its customers and sparked a trend which will only make things worse, hows about a £20 million fine from the FSA, to be followed up with another one if they do not comply?
This crisis will not be solved until everyone pulls together - and Abbey's actions are nothing more than deplorable.
* I see £20 million as more than just a rap on the knuckles
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#92
Wow, another person who seem to think that Mr Peston has so much influence that he can change markets single handed just by the power of a blog or TV appearance - again if this was true the crisis would have been over last week if not the week before, all Mr Peston would have had to say was "Buy, buy, buy those stock, any stock, their are all going through the roof this week!" How blooming stupid can you all be, Mr Peston is reflecting the market not creating it and if bankers really think that is not the case then it's no wonder that the markets are such a mess...
Bankers and speculators don't like the fact that they have caused this, got burnt or both, rather than looking at their own failings they are looking for a scape-goat - look in the looking-glass rather than the TV screen.
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As an indication that banks are no longer the friend of the common man, one of the few products which has seen sales go through the roof is that of the house safe.
Manufacturers and stockists in most countries are struggling to keep up with demand of them to people desperate above all to find safety, and what could more safe than a zero return place to store your hard earned cash than a home safe?
Also bullion dealers and mints simply cannot keep up with demand for gold and silver, which begs the question, just why are the precious metals markets still so undervalued when demand is at an all time high?
If I had any money myself, I would convert it into nice gold coins, buy a safe, lock it in and curl up around it and go to sleep for the next year or so until things recover. Sadly, I have a grand total of £5 to my name, so I will splurge on a pizza and not worry about tomorrow, when I will be worrying about keeping warm tonight.
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Britain is well placed to weather the "first financial crisis of the new global age" thanks to Labour's handling of the economy, Gordon Brown has said.
The prime minister mounted a defence of the government's record in a speech to business leaders in Liverpool. 4Sept 2008
This was a statement by our deluded prime minister.
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Agreed. Why is it that no one is talking seriously about suspending trading to let markets cool down? It is very telling that Indonesia and Russia, countries that both suffered from a large financial crisis recently (1997/98 respectively), are among the first to do this.
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Dear Robert,
You have done a very good job at explaining some of the terminolgy and the players in this on-going crisis.However your suggestion of deeper taxpayer participation,although eventually necessary and possibly carried out needs to be preceeded by some very sobering political decisions by our political leaders before it could become reality.In the part of world in which I live politicians rate at about the same level as used car dealers on a trustworthiness scale and that may be unfair to used car salespeople.I would suggest that certain decisions to recover monies in bank accounts in certain fiscal havens held by the very people we will be helping will have to made.Otherwise the middle class taxpayer will be poorer and those responsible for this mess will pass a few months/years in sunny climes and return to take over the economy once the mess has been cleaned up..because they will be the only ones with any money!!
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#105
"Finally they must stop changing the rules and mechanisms that have worked before whilst removing the new rules that don't."
If only someone had told Thatcher and Reagan than in about 1983...
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@ #91 Busby2
Sorry, not enough time to explain the whole economic theory right now. Go to the Mises Organization on the Internet and learn about the Austrian school of economics which is based on sound money, instead of having a whole social philosophy ultimately rooted in debt (fractional money) that we currently have from the Keynsian lot.
And if you examine the "nationalisation" of the BoE you will find that in essence nothing changed. The Government had nothing to give to the shareholders of the BoE (it's been officially bankrupt since the late 1600s, that's why they allowed the BoE to be formed in the first place, all that free "money"!) and so they gave them shares in the Treasury. In essence, therefore, the shareholders of the BoE (a surprisingly small number of people) actually own the Treasury, rather than the government owning the BoE.
@ #96 papanca
Firstly the baiting; actually I was trying to appeal to his conscience - because if he really is an expert he'd know that the Austrian philosophy as championed by Mises and Hayek is the only way that a society based on capital can work and he'd be telling us that, instead of this chaos-theory nonsense which people of the Keynsian school get so lost in. And if he doesn't know about the dangers of fractional reserve banking and fiat money I'd hope he'd very quickly educate himself and then help to educate the rest of the ignorant masses - because that deliberately fostered ignorance (necessary to hide the injustice of the Keynsian system) is the road to ruin.
And as regards offering alternatives; see as above about the Austrian school.
@ #98 lesliefromlondon
Whilst the results your search engine comes up with is of course very interesting I don't see what relevance it actually has. The name Rothschild has been synonymous with banking and mega-wealth since the late 1700s, to the point that the latter part of the 1800s was known as the Age of the Rothschilds amongst historians. It was estimated at that time that they owned at least half of all the wealth of the world.
See the point above about the "nationalisation" of the BoE. A sleight of hand trick to stop people asking questions. Check the history closely to see what they did and what the ultimate result of it was.
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well I posted on Wednesday that today would be the bad day. well I post again the next phase has only just begun. Even the combined resources of Governments will be unable to stop this now. G7 will over the weekend promise to support the banking system. This will still not restore confidence. CDS from failed banks have still to be called.
However a more radical proposal is still required. Watch this space.
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My understanding is that the Credit Crunch has mainly been caused by Banks lending irresponsibly. And now the Banks have gone cap-in-hand to Governments for help. But, this is not working and share prices are still tumbling.
I think it is high time the Banks accept reponsibility and be more pro-active. I think they should VOLUNTEER to re-schedule the dept of any individual or company who is in financial difficulty. This may mean it takes longer to pay off loans and mortgages but it would reduce arrears and defaults, still provide cash to the Banks and give people peace of mind.
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Revolution anyone?
Alternatively, give me the power to do what we all want!
I would take a sick amount of pleasure out of it having felt at first hand (like many of you) the cold faceless effects of bankers greed.
We're supposed to have a democracy!
Will the house of commons do their job please?
READ THE BLOGS AND GIVE THE PEOPLE WHAT THEY NEED!
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What would happen if the banks use the 250bn pounds we have lent them to invest in the stock market ?
I bet AD and GB haven't stopped them from doing so.
What if this was all along,, the knowledge that the stock market crash is coming and banks can't get their hands on the cash to invest ?
What if the banks are holding back cash not because they don't trust each other but to stop each other from benefiting from the bounce ?
I wouldn't put it past them.
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Robert Peston, maybe you should all help us a little bit by being so kind to explain what exactly you have in mind when you talk of a (global) solution. Do you mean a solution that will make sure that the debt bubble deflates in an orderly manner, leaving as much real economic infrastructure undamaged as possible, but ensuring the tumor is cut out completely and wont come back. Or do you - and I increasingly suspect that - actually mean how can we avoid the deflation of the bubble altogether and how can we quickly reinflate it at someone else's expense and live as if it was 2007. If the latter is what you have in mind I bet against you. I think we need a financial chemotherapy! Maybe not globally coordinated, but surely worldwide, as appropriate for each country depending on its role in this mess over the decade or so.
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Some one has fed the following information to investors
On monday you will wake up to each country having underwriten each bank and insurance company for all savings.
On Tuesday it will be realised that there is not quite that amount of money available. Full de leaverage will take place.
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We need more rates cuts from central banks except US and Japan. We have to cut rates to 2% then people will have spare cash to spend and stimulate the economy.
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Assuming a global solution is found to the current 'markets in meltdown' maybe it's time to look ahead and try to ensure that anything like the current crisis is never repeated.
Looking into the future, if anyone has answers for a long term global solution to help create a world in which things work as you'd expect in the 21st century.. a new world system able to maintain global stability..
Here's the place to 'invent the future':
http://www.superstructgame.org/
The way things are going we desperately need good ideas to put things right with the world.
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Sadly Robert does not have 'inside' information on other governments intentions before they announce which is probably a good thing.
If the actions of the government this week had been allowed to be released as a surprise with the full package and coordinated rate cuts, then the situation may have been different and seen in a different light. We could have been in a better situation
Unfortunately the bloodbath after Mr Peston's 'informed leaks' set the tone for a potential collapse of the UK banking system and the rest is going to be history. The credit crunch is likely to become a credit crisis for the regular business and the retailers are probably only praying that they survive Christmas. If they collapse, the British economy will follow suit.
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Debt isn't just a one-to-one matter between a bank and a borrower. It's an entire chain. I owe money to the bank, the bank owes money to its creditors, who owe money to their creditors and so on.
At either end of the chain there are net creditors and net debtors. They are the ones that really matter (not the intermediaries such as the banks). There is too much debt in the system. It is not sustainable. To fix this either the net creditors call in their debts (as in effect is happening now) causing a major recession. Or they write off those debts. We need to persuade the net creditors that it is in their own best interests to write off (ordefer for a long time) a large portion of the debts to avoid that recession. Or force them to do so.
Who are the net creditors though? I'm not sure how to find out the precise details on this, but I assume that they comprise rich individuals, sovereign wealth funds, and to a large extent our own pension funds.
Oh, and to an increasing extent, one of the main net creditors is now the government as it replaces the wholesale money markets as the main lender to the banks. This is not a viable answer. We need to ensure that the existing net creditors in the system shoulder their portion of the hit in this, not just the taxpayer.
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#98, oh lord, I was waiting for the anti-semitic card to be played.
Why should it be anti-semitic to state the obvious facts about the Fractional Reserve Banking system, when it is what is at the root of the mess we have now?
Comments like yours seek to stop genuine debate by playing that card, its an oft played tactic, and one that frankly is getting tiring and is demeaning to people around the world who are genuinely suffering from racial or religiously motivated crimes.
As to mentioning the protocols, only you mentioned them, nobody else seems to have. This is typical FUD to stifle debate and thankfully, nobody is buying it anymore.
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Everybody chant after me....
BASH THE BULLIES, SPANK THE BANKERS, PUMMEL THE POLICITIANS!
and
SHOW US THE BALANCE SHEETS (banks and governments)
Our frustration on here is that we all could see this day coming, we hate being lied to and deceived, and being treated as though Daddy Gordon knows best. Does he really think we can't see that what he's doing is for his and the fat cats benefits, not ours? HOW DARE HE!
The banks don't trust each other cos they know what they have done themselves. It's a mexican standoff with us taxpayers in the middle.
Let them shoot each other I say!
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The global market problems are the result of fund managers in many countries panicking and selling large quantities of the (often pension) funds they control. It's not to do with private investors and it's not really to do with banks which are inherently sound and enormously profitable institutions so long as they all cooperate.
The wherewithal for them to fully cooperate has been provided by many countrie's governments, but because the fund managers and speculative hedge funds are continuing to sell financial institutions they cannot take the risk of returning to normal business (could you run a multi-billion pound business if the market insisted on valuing it and your primary clients at £50 each?).
What needs to be constrained is the 'free' market and all the silly fund managers who are so subject to the worst of human frailties. This is no way to run the world's economies - on the bottle or lack of it of managers who can't, let's face it, even beat tracker funds.
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When Mr. Peston starts to convince the taxpayers to bail out the financial world a suspicion is born.
Why should I save the united financial planet ? It sounds too much like : “Proletarians of the world get united to abolish the mongers of capitalism”. Why should I save the system that never admitted that it was guilty of my own stress and never gave me an equal chance to acquire even a fraction of the riches vanished in the pockets of those who depart to reappear very soon again. Why not lend 700 billion to a taxpayer so that he could buy what’s rest of a doubtful value and sell it with a profit later on.
I’ve never heard a financial guy admit that he was so wrong that even planting cabbage for one hundred years would not be a sufficient lesson for him.
The problem isn’t global though it starts looking like one if those who shout load (menace, menace, menace) are the only ones to be heard.
Why not ask those who have no means to use Internet or any other means to communicate as easily as that minority that we represent.
If we let a bank down in the name of the only financial system that we know, why should we bail out a country in the name of solidarity – a stigmatised concept deformed by our own money oriented values.
As somebody said we better save our forests than our auto destructive financial system.
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Far too simple mate
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Since the middle 80s, those who tightly regulated their financial institutions were laughed at. Singapore was thought to be foolish not to make more "money" in the booming Tiger years. Then came the Asian Currency crisis and 4 of the Tigers came acropper - It Started in Thailand, spread to Indonesia and South Korea and then the Philippines. Malaysia set up the barricades and shrank within itself. Hong Kong use the new-found Chinese wealth (after its "homecoming"/handover, depending on your view point) to keep it going. Only "foolish" Singapore was self-sustaining !!
Prior to the 2000 ascension to WTO, China spent years studying the various economic models of the world and chose the Singapore model. On ascension, they set up various regulatory bodies, CBRC (China Banking Regulatory Commission), CSRC (China Securities Regulatory Commission) and the CIRC (China Insurance Regulatory Commission).
I believe that these 3 bodies cover most of those areas that caused so much pain and anguish to the Western markets in this current crisis !! I believe that these bodies help China escape much of the causes of this crisis and leave them in a fairly healthy financial state !!
Where most Western economies talk of disastrous recessions, the Chinese complain that they will see "only 10%" growth in the next year. Where Western economies are desperately printing money and deflating their currencies, the Chinese are wondering what to do with their huge pile of cash !!
All this comes about because the pragmatic East Asians know that human nature is inherently untrustworthy. Without regulation and given half a chance, they will run riot over everything, as had happened now !! George Orwell said it best in Animal Farm !! Remove the regulator and some animals will run riot over all the others !!
Now, when the financial fallout is over, we will see which animal is more equal than the others !!
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#138
"well I posted on Wednesday that today would be the bad day. well I post again the next phase has only just begun. Even the combined resources of Governments will be unable to stop this..."
So it's you who is causing the markets to crash, not RP as all these bankers claim, careful or you will become their public enemy No.1...
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#140
"Will the house of commons do their job please?"
In the main they are doing just that, their job is to talk not of the 'rent-a-mobs'..., sorry I mean the man and woman in the streets views and then take a claim collected view of the issues and problems, then (if needs be) create laws or regulations best suited to all things considered - and the longer, within reason, they take the better the end results normally are.
...and before anyone asks, I would say the above what ever flavour of political party were in power.
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#141
"What would happen if the banks use the 250bn pounds we have lent them to invest in the stock market ?
I bet AD and GB haven't stopped them from doing so.
The prospect of Mr darling selling back 'his' shares and the banks having to stump up all the money again I would suspect! It's not as though they would be able to keep that amount of investment quite for very long.
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#47 What a load of drivel. Knocking copy but no substance. Robert can only report the current streams, who really understands the currents. LTCM in the 90's is a walk in the park compared to the indiscretions of today.
The issue, the elephant in the room, is to quote the phrase we live in times of "unknown unknowns".
The reason for the cataclysmic performance of the markets is that no one can be certain of what's out there.
Small point but my wife invests a few bob two days ago in a one year bond with Chelsea BS and, surprise, surprise Chelsea BS invested and have lost 1.5% of their savings in an Icelandic Bank. No wonder the market has the wobblies.
We need a global solution. The market can't be unravelled piecemeal in spite of the nice diagrams of #2 Southbeachinc!
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Robert, 2 things are needed:
1. Corporate confidence is now falling very fast, due to falling demand and to fears that bank lending will not be available. If this is not stopped job cuts will lead to demand reduction and thus a downward spiral.
So >
Governments must force banks to lend to non-financials (banks must not be allowed to take money from govts and just sit on it).
2. A key uncertainty in the fianncial system is falling values of US housing related assets.
So >
The US must outlaw all housebuilding for 7 years.
Best wishes
JC
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Robert Peston is right a global solution is needed, and that solution is based on trust, confidence and above all leadership.
Intangible qualities that cannot be measured in trillions of dollars.
Investors small and large have been disconcerted by what are perceived to be the knee jerk, uncoordinated reactions of venal politicians and bumbling financial authorities to the loss of confidence in the global economy, further undermining confidence.
Strong, united, concerted, determined statesmanlike leadership is needed in which people feel an overwhelming sense of confidence.
We are at a watershed both economically and politically.
Comparisons with the post depression years are invidious and probably irrelevant but think what world class leaders they produced in the US, Germany, Russia and the UK. who transformed their economies for good or ill.
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#144
re lowering interest rates so that people start spending money
...and were are all these people going to get this money from?...
Many people can't afford their daily bills (gas, electricity, required petrol, higher food prices etc.) never mind going on a spending spree - if you want to buy shares might I suggest Tesco as that's about the only type of shopping most will be doing for a while!
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Just listening to news 24, seems some people are blaming R. Peston's blogs for stockmarket falls, but to keep such information from the public is so very wrong I can'nt understand how this ever made the news, maybe I got it wrong and was listening to halfwit sky news.
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I have come to the conclusion that wtorld leaders have the same phrase book.
They have learned to say nothing very well - not the phrases of:
I hope.....
Rest assured...
I will do whatever it takes
Not
I guarantee
I know
I understand
Questions...
How do we know that GB has actually done what he said he would? After all, the USA are still on a promise!
Did the Europeans approve our plan, or is it still in Brussells somewhere?
Where are the balance sheets?
GB's rules obviously no weight with banks - Abbey can afford to ignore him anyway as they are part of Santander - what will happen I wonder when Spain run out of money too?
Where is Christina Finance minister from France - she of France's banking system is the best and won't suffer?
Hmm - Barclays gets a loan from China rather from the UK - no surprises there - not only chasing HSBC, but just shows that the small strings attached to GB's deal are too unpalatable for them. What was it? Oh yes, cut back in bonuses!
If GB can invoke the Terrorism act to protect our economy from potential hostile acts from Iceland (ie freeze their assets), then why can't they do the same with the banks and their executives? Surely it comes under the same law?
Why, oh why won't they answer us?
Oh yes, I get it, we would only realise the horrible truth - we have been lied to even more than we thought!
My random thought from last night - I'm wondering if UK and USA have national reserves in Iceland? Now there's a thought? A russian bailout of Iceland would mean that our money is owned by Russia. The Kremlin in charge of The Bank of England? I'm beginning to think I may not be so off the mark here - too many smoke screens around!
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The system will inevitably fail, so why delay the inevitable?
It's a system based upon fraud for the benefit of a few and is guarranteed to collapse.
What fraud?
At base - the fractional reserve principle which is, in a nutshell, banks and other finance organisations lending money they don't have and printing and issuing currency which has nothing of value to support it.
I say to cease attempting to prop up a system which is corrupt, benefits only a minority and which will inevitably collapse.
Instead, allow it to disentegrate and to be replaced with a system which is sound, which has integrity and which works for the benefit of all.
I'm just sayin' ...
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Isn't the answer quite simple? All the tracker funds switch off their computer modeling programmes and shoot from the hip?
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Can someone please explain that 600+ point bounce in the dow earlier. What did the market suddenly find out? Seemed to wear off whatever it was.
One solution to fix current problems: Massive inflation. It would reduce value of mortgage debts, 'Sustainable' house prices would catch up with nominal debts. Then we would have to get inflation under control (difficult and painful though far from impossible) and economy could start recovery. Should take 2-4 years?
Yes, inflation would cause other major problems, but otherwise I think we are faced with total collapse of financial system.
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155
Our MP's are supposed to represent us in parliament aren't they? Yet when will they get the answers/actions that we need?
They seem to ask the questions, but just get woffle back!
Let's just hope that whoever is in the driving seat drives new legislation through after all this - why not start looking at it now - at least it's a proactive thing to do, rather than going all over the country trying to convince people with empty words that it's all going to be okay - pat on the head anyone?
Bets please on the outcome of the meetings today and tomorrow?
Also, bets please on Monday morning's big story? The Bloomberg lady was asking someone on the NYSE this evening - noone will say! LOL!
Good news, at least the DJ closed a lot less lower than of late and the bank shares went up - maybe Monday it will all be a dream!
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The top bankers are intelligent people, greedy gits, but intelligent.
They know the consequences of not offering credit, global financial collapse. But knowing that, they STILL won't do it, even after all the billions being pumped in by Governments.
WHY NOT?
They know something we don't. The Governments must also know it by now. There is something going on which is being held back. The stakes are too high to bring it all down to just plain avarice. The fear behind this must be huge.
The experts on Wall St are saying that in 2 years time, we'll be back to nomal. They've lied to us for the last 10 years, why should we believe them now?
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#158
"The US must outlaw all housebuilding for 7 years."
How many US construction jobs would that cost though, at what knock-on costs, and what would the advantage be - other than to over inflate the housing market as the supply of houses dry up (an advantage to the home seller only, assuming they can find a buyer that is) - surely all it would be doing is sustaining the sub-prime and over leveraged mortgage problems?
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BBC report on Bush's comments today:
http://news.bbc.co.uk/1/hi/world/americas/7663926.stm
"The White House later dismissed suggestions US markets could be suspended so international financial rules could be rewritten. The idea had been raised by Italian Prime Minister Silvio Berlusconi.
"There are absolutely no plans or discussions to interfere with the functioning of markets in the United States," White House spokesman Tony Fratto said.
- And here we see categorical proof. Bush is an idiot - for lack of a more appropriate term being accepted.
Do you think, given the keys to a car, he'd drive on the M1 as if at the fair on the Dodgems, because thats what he's been doing with the economy of late.
I have to say, poster 9 - If you proposed those policies alone, I'd vote you into government right now.
47 - Or 49, whoever wrote the really patronising article which basically boiled down to "lets have full reserve banking," I agree - on moral as well as practical grounds.
The system is fundamentally flawed. The City is too powerful in this country. At the moment we're suffering, but we have been for years due to the ever increasing political influence of banks. Capitalism is growing too strong for democracy itself.
Its time for a revolution (I feel a hippy saying that - oh dear)
Nationalise the banks.
Control inflation through taxation and interest rates.
Think of it, investment aimed at sustainability rather than retail and methods of increasing debt; everyone able to clear their credit cards without global collapse.
... or we could just start world war three, which I imagine is the more likely alternative.
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@ #165. ropadope:
Do you have the first inkling what inflation actually is?
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Time to standardise interest rates around the world
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Many people are worried about losing their jobs at the moment. I sincerely hope Robert Peston loses his before he has any more chance to increase the chance of everyone else losing theirs.
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@ #121 prudeboy:
"It is not just bankers of course."
I agree. I didn't mean to imply it was only bankers. In fact we're all in the food chain somewhere, and even I (a pensioner) currently share in the spoils of the system.
@ #126 alwaysthinkfree:
Thanks for the information. I know very little about the UK political lanndscape or the players, except what I've learned in the last month. I'm happy to hear that some MPs have tried to put forth monetary reform. I don't know that anything's been done recently along these lines in the Canadian Parliament. (I must write my MP after next Monday's election!)
@ #137 DerekVampire:
Your point about appealing to RP's conscience is well-taken. My reaction to your comments to RP was kind of a knee-jerk response, since I've grown tired of people accusing him of "causing" the financial turmoil.
@ #148 HovellingHermit:
I really appreciate your post, and a couple of other similar ones. I very much resent being labelled an anti-Semite (though #98 was not directed at me in particular) just because I don't think fractional reserve banking is a just monetary system. As far as I know, I've never done anything, or held any other view that would justify receiving the label.
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awfully quiet on here tonight - don't tell me people are still flush enough to go out! Or maybe just desperate for a change of air!
Just heard a report that - right you've guessed it-all the G7 have come up with so far is that they all agree WHAT needs to be done, but the HOW will be decided by each country?
So did they need to go to Washington to work that one out?
Oh yes, and there is 8bn UK money in Iceland....no chance of seeing that given back then! I'd best turn by back garden into my personal landfill site, buy some flashing blue lights to put on my car, and retrain as a doctor and nurse!
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#166
"Good news, at least the DJ closed a lot less lower than of late and the bank shares went up - maybe Monday it will all be a dream!"
Good news for the markets yes, not so sure about being good for certain types of trading, assuming that there is normally a drop in the final hours trading - which is what I understand is the case, if not then correct me - could todays 'free fall' to start with (down to -500 plus points at one stage) and then into the green before dropping back and closing 120 odd points into the red be proof that short selling does cause 'unusual' market trends?
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Up to now shares of a firm went up when it was announced lots of workers where out of job. From now on, perhaps taxpayers will believe again in the markets when the board and all the management become unemployed.
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I've have not felt driven to make comments on this site before but i feel i have to now. I can't deny that there is a global financial problem at the moment, however, i can't help wondering how much of the problem has actually been brought on by the press/media. I generally regard the BBC news as a good source of information but recently i can't help feeling that they are going for the big headlines and not really looking at the detail. The BBC, in my opinion, are almost becoming like ITV and the SUN in the way they report storys. Watching Robert Preston on tonights news it almost seemed like he was talking in sound bites and not really saying anything interesting. I just feel the press are not helping the situation at the moment and actually i think they're making it worse.
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Aha!
Now is the moderator's coffee break! It always happens at this time.
Perhaps the low number of bloggers tonight is because we are slowly being picked off, one by one. Don't answer the door anyone!
Good news too - Libor rate rising more slowly - 0.005 is it reaching the top of the roller coaster now?
Standing by for the ground breaking, world saving statement from the G7...........
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He he!
Some funny stuff certainly turns up at this time of night.....
Meryll Lynch have only gone and hired 2 advisors from Lehman brothers! This in an effort to avoid being taken over by Bank of America. LOL!
Are they completely mad or just plain desperate? I wouldn't hire anyone responsible for the bankruptcy of another firm!
Don't they have laws against this in the State?
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Boilerplated
Do you know of any other blogs with more action going on than this?!!!!!! I only ask as you seem to be experienced at all this......
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No155 - Refers to the House of Commons. It would be interesting to find out how many of our MPs have links to the City, and in which party are they located.
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This is not the reaction of a petulant child. This is the reaction of very very scared individuals, who know not what they are doing, and institutions who are bound by the rules governing their investments to do this, no matter that by selling to maintain their investment ratios and reserves, they are in fact making it harder to maintain either. This is the dangerous feedback loop that was instrumental in the DotCom crash, and the 1989 crash. We are all doomed because there is a fundamental disconnect between our greed and our need for rules (and the existence of those rules) to limit our stupidity.
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#175
sorry if I mis-led you I'm very flattered that you ask me to clarify.
I was just trying to put a 'positive' spin on the lesser fall of the DJ tonight - kind of a tongue in cheek comment.
I'm not a banker (though I was a bank manager many years ago in the good old days of simple mortgage and savings policies), but just an ordinary mortal, looking desperately for crumbs of reassurance!
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Just a thought.
It seems that a large part of the problem is the CDS market worth trillions of dollars and that none of the financial institutions have any idea what their liabilities are, and because of this they aren't lending any more.
Now a large part of the CDS market will net off ie for every loser there should be a winner, provided the loser can afford to pay. And that is the problem.
So why don't the G7 decide to cancel all CDS contracts by declaring them null and void, and so net them all off immediatley and end the uncertainty that is killing confidence in the banks?
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#172
Nice rant, more nutty fruit-cake Sir?...
Best you start looking closer to home for your scape-goats.
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OOOOOOH!
Exciting stuff!
A '5 point plan to smash the crisis'
'Use all available tools'
Has to be true - the newsreader was reading it off a piece of paper and following it with a pen!
Speculation please on the 5 points- this is a timed debate-it will end on the first word of Secretary Paulson
Moderators at the ready with fingers on mouses (mice didn't sound as good!)
DING DING!......................................
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Robert,
Thank you very much for your blog.
I find the articles informative, direct and a naturally interesting form.
The information has always been very apt and concise.
While I don't pretend to know exactly what is being discussed it has led me on to other sites like Reuters, Bloomberg, CNBC etc. There I've been able to gain further information and views from other journalists. By and enlarge I have found your articles to be balanced with the dangers highlighted clearly.
Without your efforts I feel I would have been disadvantaged in a world of finance where the operandus seems to b
The BBC are doing a great job IMHO. I love the blog Robert, keep up the good work - it's exactly where I would like to see my money going.
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181 - what a good idea! (155 refers to my call earlier to get our MP's to help nail the government down to some definitive answers)
Let's form the League of Peston Picks Bloggers and seek them out.......did you see the papers on BBC News with a story of William Hague having a good time with some top Barclays fat cats!
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#181
"It would be interesting to find out how many of our MPs have links to the City, and in which party are they located."
The MP's and Lords register of members interests (look on http://www.parliament.uk ) is your friend here - anything not listed on the registers is either not important or waiting to blow-up in someones face!...
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i see the revolutionary socialists are trying to use market instability to create social instability with marches and demos.
is this blog with its overblown language a front for the socialist workers?
This panic blog must be a god send to them? if they believed in god.
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Post 98, Lesliefromlondon,
Ah! The fabled "Protocols of the learned elders of zion"
The possession of said article was treated as a capital offence in the Russian revolution.
But you won`t find mention of that on the History Channel of course.
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Campaign for Monetary Reform...
The problem is the fundamental nature of our money... By that I mean... It doesn't really exist...
Isn't that just a really *really* bizarre state of affairs? Our money doesn't exist. It never did.
Credit isn't real.
Frankly I have very great problems with storing all of my hard work in a system of money based on something which doesn't exist... Wouldn't that be a really stupid thing to do?
Once you understand what money *really* is, the current Fractional Reserve Banking system becomes unacceptable as a way of storing value. It doesn't, it destroys value, as we are witnessing right now on a daily basis.
It's simple. We need Monetary Reform, as boring as that sounds.
Watch the "Money as Debt" video to understand how our current money works, and read "What Has Government Done to Our Money? by Murray N. Rothbard". To understand the nature of money. What money really is.
Frankly whether we end up with gold and silver or simply notes, I don't think matters too much. As long as banks are legally required to hold 100% reserves either would be better than our current "create money from nothing" existing system.
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A thought.
Basically let the shadow banking system collapse. Stop throwing good money after bad.
A bank is a business given a licence by government to service societies monetary needs, and in return they profit. Simple.
Most have acted completely irresponsibly by creating a 'shadow banking' system and this has collapsed, why bother to save it?
Before 2000 none of these clever money mutiplying schemes were in existence and the world worked fine.
We need a retail banking system in order for our society to operate, so create a national bank, transfer all the retail, small business
and sound real economy business. Backed by the people for the people. A fresh sound start for all that is solid and essential.
The Banks that have failed to deliver on their primary objective of creating monetary stability and meddled in the shadow system
should be allowed to suffer the full consequences. Closure. Let it all go to money heaven.
It is better to use public funding to support a new beginning than to bankrupt the country trying to support a failed concept.
Oh well.
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This is deflation on a massive me=assive scale,beyond anything we can comprehend.
hbos and rbs and hm govt future depends on next weeks devolpments.
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Tee Hee Hee Boilerplated!
Very nicely put - I suspect more of the latter than the former!!!!!
Is there a balance sheet for UK PLC on there? Shall I bother looking?
What about banks balance sheets - be a good place to put them.
Alternatively, let's ask Robert to get them for us - I bet he can - he's brilliant!
Bored with SP now - can't ANY politician give a straight yes or no? They just fudge their answers-and they wonder why we're all so distrustful of them! LOL
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This comment was removed because the moderators found it broke the House Rules.
This is deflation on a massive massive scale,can hbos and rbs take it.
Next week we shall see.
Vince Cable was right,no question bank chiefs to be sacked overnight.
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As a designer of computer solutions of many years I see the problems in our financial world as the stark realisation that we are in a devaluing economy. Simply things we spent 100 pounds on last year are only worth 50 pounds now and 50 pounds is the going price.
This was caused by the ever increasing money supply that was not curtailed during the housing boom. Simple cause, removing the biggest single part of the economy of all nations and the single largest purchase any person makes (housing) from the inflation calculations.
If in 2000-2003 house prices doubled you can only assume inflation was running way above the BOE's CPI target range of 1 to 2%. More money was printed to be leant to house buyers. Any cross marketing or complex wrapping of this money just meant that when we had to revalue to real prices we all had to revalue to real prices.
You will know when governments and central banks have a handle on this and a plan to prevent a re-occurance when they include house prices into the CPI formula. Only by preventing the booms can you eradicate the busts.
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Re 158: I wish I could think like you: Let´s all just have a more positive outlook and stop building houses and things will be just cushty.
Well I guess things will be just fine unless the homeless get to thinking "Hey: why are you living in a nice warm house whilst I´m out here on the streets being rained on and kicked by the drunks and kicked by the cops."
How stupid do you think people are? (Please don´t answer I couldn´t bear it)
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As a novice to all this, could somebody tell me if I'm being overly-simplistic? The world is trillions upon trillions of £/$/€ in debt, way in excess of assets. This is effectively no different from a corporate bankruptcy. All of the equity is wiped out and all assets fall to bondholders, or in this case the taxpayers, controlled by the state. Is this not the beginning of the destruction of capitalism and move to socialism, pretty much as Marx described?
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#190
over blown language? Socialists?
Um, let me see..............................
Well, the peasants are revolting, the proletariat are exercising their right to freedom of speech (with tidying up of course from our trusty moderators), but we do have MP's to be our voices......why should we get out of our nice warm (for now) houses (for now - maybe tents next week).
Isn't Labour a socialist leaning party anyway?
The League of Pestons Picks Bloggers are simply people with an opinion or a question sharing a place to discuss them.
Mind you, I guess is kind of like a french cafe with Jean Paul Sartre in it!
Knowing me I'm barking up the wrong tree completely
And this probably won't be posted cos of the p word above!!!!
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"91. At 6:09pm on 10 Oct 2008, busby2 wrote:
Sorry, but this is nonsense! There isn't enough gold and silver to go back to full-reserve banking based on a rigid gold or silver standard! Even in the days of the Gold Standard the Bank of England issued bank notes in excess of the gold reserves - I think it was around ?13 million."
The Bank of England was created for the *specific* purpose of issuing bank notes in excess of the gold reserves. That's the whole reason they created it in the first place...
That's the *whole* point of a bank. Of all banks. They create money from nothing.
And... not enough gold and silver? Really what is an ounce of gold worth? What was it worth 5 years ago? What will it be worth tomorrow?
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There is a vicious influence between the markets in the different countries. The huge fluctuations are due to the fact that the markets operate at different time zones.
Indeed we need to change our economic system and think sustainability of our societies. However, in the meantime, a quick fix would be to have all the tradings done at the same time (universal time). It is not very convenient but it will allow traders not to be affected by external stimulus (background noise) and focus more on the assets at the companies level.
BUT we still have to work on developing globalization of our relationships (not only globalization of our economies). As part of this small planet, this is one major source of our anxiety.
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I must say Robert, that of all the mainstream media's attempts to grasp the essence of the latest turn in the economic cycle, you've made a pretty decent stab at it but, never quite hit the nail on the head.
That said, however. You, and your cohorts, in mainstream media, have continued to obsess about the every movement of the FTSE, Dow, and the rest of the global equity indices. The surprise with which this economic crisis has been greeted was made possible by the lack of attention, oversight, and regulation, afforded to anyother financial market other than equities. It seems that all mainstream media journalists, like most equity market traders and analysts, have no understanding of fundamental economics and basic financial mathematics.
This inflection point in the economic cycle has been precipitated by the systemic failure of of the short-term wholesale lending market - known as money markets - due to the inability of each bank to inherently trust everyother maket participant as a sound creditor. Without the ability to source short-term funding, any bank's operations would grind to a halt. The money markets can only function correctly when all participants can trust eachother equally, and so, allow a liquid flow of short-term cash funding to rebound amongst the financial community.
The proliferation of poor quality loan assets and toxic structured assets on bank balance sheets, exist only with the increased leverage that the global banking community now opeate. These ticking timebombs are the reason for the lack of trust between market participants. The only way they can be moved out of harms way, and the associated leverage decreased, is after the everyday operations of the banks are stabilised. This can only done when they can fund themselves in the money markets with ease and at realistic levels. Once this is achieved, the unwind of the structured credit trade can begin. This is the actual clean-up operation.
The deleveraging of global banking balance sheets, and the disposal of the associated toxic assets, will cost the banking industry dear. Margins will be tight, and further writedowns will have to be realised in order to dispose of these troubled assets. As such, profits wil be rare and scarce over the next couple of years - even in the case of a highly successful rescue of the credit crisis
If equities are fundamentally supposed to be an expression of the expected future dividends of a company, it would therefore be clear and obvious that banking stocks would not perform well over the near-term. As such, the equity markets will tell us nothing of the success or failure of the bank bailout plans. Yet, mainstream media continues to obsess about the FTSE and the Dow.
Today, overnight $ libor rates in the money markets halved dramatically. Confidence in those who want to borrow money is built initially from this shortest of exposure to, eventually, 3-month funding. Today's fall in overnight money market rates is this first tangible and credible sign of a change in the fortunes of the global financial markets. This initial show of faith will, hopefully and eventually, spread from overnight to 3 month funding, as cofidence spreads amongst market participants.
Equity markets will feel the cost of the structured finance unwind trade for some time to come and so, falling equity prices will tell us nothing in the near-term.
There is a responsibility upon mainstrem media to responsibly report on how the market is reacting to the banking bailount packages announced over the past week or so. Obsessing over the inevitable fall in equities is, at best, dangerously close to unnecessarily spooking the markets and market abuse, and at worst, incompetent journalism.
Blind obsession of the equity market, at the neglect of all others, is what got us into this mess in the first place. Continuing to ignore the money and credit markets will do nothing to rectify the situation. Cop on Robert, and start focusing on the market indicators tha actually tell us something.
WNgC
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#193 and #197
So right.
How does one sack a bank executive?
Also, SP - good words, but no nuts and bolts AS USUAL!
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last question before I go to bed
Where do we find the LIBOR rate without having to wait for the news programmes to tell us - I got completely snarled up the other night looking for it!
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"137. At 8:26pm on 10 Oct 2008, DerekVampire wrote:
@ #91 Busby2
And if you examine the "nationalisation" of the BoE you will find that in essence nothing changed. The Government had nothing to give to the shareholders of the BoE (it's been officially bankrupt since the late 1600s, that's why they allowed the BoE to be formed in the first place, all that free "money"!) and so they gave them shares in the Treasury. In essence, therefore, the shareholders of the BoE (a surprisingly small number of people) actually own the Treasury"
Not exactly. They were given "Government Stock" (at least 20 year term with 3% interest rate) which is basically a government bond (gilt). They therefore owned a substantial portion of the National Debt.
We are of course still paying ~5% of our taxes to the owners of the National Debt, *and* renting imaginary money from the private banks at another ~5%.
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"Bad news on Lehman CDS
The pay-outs on around $400bn of defaulted credit derivatives linked to Lehman Brothers are likely to be higher than anticipated after initial results from auctions to settle these credit default swaps resulted in a lower recovery price."
..continues at http://www.ft.com/cms/s/0/25137702-972d-11dd-8cc4-000077b07658.html
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Western Governments and their Central banks have lost the plot. Why are banks still in the speculative trading of foreign exchange? I have just seen weekly newletters from banks proffering forex forecasts. There should be a total ban on speculative activities by banks as they get their act together. The situation is a horrible mess as it is, we the general public do not need any speculalators who are subsidised by the state. Why compound the burden of the real economy with the volatility in the forex market?
Detractors, don't bother to use arguments like employment and bank's profitability as justification. The banks' tarnised reputations alone points to their desperate mental and financial state, definitely not a base for continuing speculative businesses.
Don't even bother to use arguments like free-market policy and difficulty in administering the ban. We came out of an era of fixed exchange rate and foreign exchange controls. Just depending on the integrity of the banks to self-impose the ban is good enough for me. Unless of course, the banks' moralities are also in doubt in addition to their management skills and financial acumen.
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I think in a world made up of different people with differing agendas, getting a 'global solution' is a bit naive
It would not surprise me to find that there are some people profitting from the current crisis
I think this is a wake up call to us as individuals to save guard our income. The are no iron clad investment programs. Diversification really is the name of the game
I repeat.
The onus is on us as individuals to safe guard our assets and given the current crisis diversification really is the name of the game
Webmaster
http://www.affiliatemarketingintro.com
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This comment was removed because the moderators found it broke the House Rules.
One of the problems I as I see it is people wanting short term gain. I have always invested in bank for the long term, its cost me a fortune.
People I know who have never bought shares are jumping in. RBS @79 selling @112
How can a share price recover when the majority (i would guess) are purely in for a day, share goes up and shares are them dumped. A victim of there own brief success.
Can there not be a ban on short term share selling (similar to the short selling guidelines) of say 30 days before buying and selling. This will get rid of the pump and dump guys who will make a recovery more difficult. I can understand why they are doing it but I think it add to the problem.
Also GET RID OF THE OLYMPICS in 2012. Yes it is good for the country but why expose ourselves to potentially billions of extra liability in costs etc. Lottery cash destined for this could help people who always loose in a recession. Charitys for one.
I enjoyed the last olympics but at what cost will the next one come?
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Robert,
you have a right to report on what's happening but a responsibility to use judgment about the consequences of such reports. Thus far you have contributed to the crisis not reported on it. Governments, occasionally must be given the space to solve the problems. You're bagging journalistics scoops is a selfish indulgence. Any chance you could take a holiday?
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# 204 WaldorfMcCity
Nothing new there old fruit. Peston and others have been explaining your thesis time and again since this started. Yes, the headlines have been about the market indices because they are ultimately populist: they're about economic prospects, pensions etc and therefore make "good" news, so to speak.
Most people taking an interest in this matter beyond the headlines (and I accept that many choose not to) know that the fundamental issue is that banks ain't lending to each other and so end-customers are being starved of credit.
We've built our economic well-being over the past 10 years or so on the false edifice of cheap debt bearing no relation to the quality of the underlying assets and/or debtors' ability to pay. We've been kidding ourselves, thanks to the politicians and bankers colluding to make us all think that we can all be rich for nothing.
Now, we're going bust. Simple law of economics as far as I can see. It's amazing that Gordon Brown demonstrated no grasp whatsoever of this simple law, but is now strutting about the world in his inimitably arrogant way lecturing every government and its dog about how to run an economy. A quick look at the UK economy now and you see a flashing neon sign saying "Stuffed Beyond All Recognition".
You couldn't make it up.
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The market is global: the solution must be global. We have already seen the chaos caused by Iceland causing a jurisdictional conflict with the UK, what happens if HSBC decides it's actually the Hongkong and Shanghai Banking Corporation? It's already divested some of its decision-making to India. Or if Scotland devolves, leaving RBS Natwest in the hands of a foreign jurisdiction? No, the time has come to regulate globalisation globally - it at least removes judgment from local politicians whose interests are often biased by parrochial or even personal concerns.
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What is bad for stockmarkets is excellent news for the consumer and the global economy.
This market correction is a necessary step to providing a global solution. Commodity prices and shares based on them were grossly overvalued and ripe for correction.
The price of commodities has fallen dramatically. Oil, for example is down to $78 a barrel from a high of $147. Some wags were predicting oil at $200 a barrel only recently!
When these price cuts (and falling interest rates) are passed on to the consumer the pressure on inflation, the global economy and household budgets will ease considerably.
G7 leaders, central bank governors and their regulators must demand that falling price cuts and interest rates are passed on immediately.
Also, LIBOR the rate at which banks trade with each other has halved. It is problems in this market which has caused the government to step in as lender of last resort to the banks.
Bad for the markets but good for the consumer and the global economy.
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Maybe the global solution is for each country to unilateraly block the assets of any bank of another country? It speeds the demise of these banks, but who cares, they're in another country.... They can probably find someone else to help them.
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KAUPTHING ISLE OF MAN COLLAPSE
I have a very personal example that describes the lack of coordinated effort and its sad consequences . I am (was) as depositor in Kaupthing Singer & Friedlander on the Isle of Man which have just gone down. Before you start thing Offshore tax evasion let me explain that I am just an ordinary guy who was forced by my UK bank to move out of the UK when I went abroad to work for a few years.
Looking at the situation now I can see that my bank clearly had some problems dating back Months. However these problems became unsolvable once the run on the bank started in earnest at the beginning of the week. The run was clearly fuelled by the uncertainty the average depositor felt as there was not coordinated EU effort to save the bank and no coordinated compensation scheme in place.
The UK government and the Icelandic government have both agreed to compensate their depositors 100%. The Isle of man on the other hand is currently advertising their new scheme to compensate people for up to £50,000 through the BBC and other news outlet. So far so good, however here is what they don’t tell you:
In reality the Scheme will be financed by the 37 or so Banks on the Island each paying in £500,000 annually to a common fund that currently is empty. Given the number of people who have lost their money a little math tell you that it will take decades if not centuries before the £50,000 have been paid out to each of us.
This so-called scheme has therefore purely been put into place as a smoke screen to avoid a general run on the IOM banks once people find out they have no protection. Once the word gets out however this may in turn fuel a run on the banks in the IOM. The same problem apparently exists for the Channel Islands.
The general point of this story is that lack of coordinated rules creates a self amplifying system of uncertainty and in some cases panic which then again perpetuate further bank collapses and so on.
If the Western powers really wanted to solve the crisis they would have to do two things in a coordinated manner:
1. Guarantee inter-bank loans in a transition period to get the banks to lend to one another
2. Guarantee peoples deposits 100% to dampen panic and subsequent bank runs.
The latter should be a common insurance fund for all banks (which of cause in the end is paid for by the consumer).
I think there has been a tragic that the lack of oversight and regulations for the last 30 years or so has perpetuated a system where a few where wealthy people have taken unprecedented risks with normal people’s money in order to enrich themselves and where governments have encouraged excessive spending. The management structure of many companies simply does not reward leaders who think long term for the best of the company and the general society. Instead the system has rewarded corporate leaders with short term strategies primarily designed to optimize their next bonus package with decisions which often was not to the advantage of their own companies.
I guess the only good news for someone like me who lost money is that my great great grandchildren will be reminded of me from time to time when they receive a few pounds here and there from time to time from the IOM compensation scheme.
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This 100% reserve banking stuff sounds solid but comes from some really flakey people. Edward Hamlyn is one of the ghurus on world finance and homeopathy!
Beware of simplistic solutions from ghurus. I'd rather rely on Pete Doherty's advice!
The system is wounded but not broken. We will all be wondering what all the fuss was about in a few years.
Remember how the falls in 1987 and after 9/11 were going to end the system.
Those who preach gloom and doom are assisting the rich who will soon start to by up cheap. In 12 months the markets will be 20% + higher.
Sorry but you won't hear that from media experts because it's boring. BUT LOOK BACK to previouis scares
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With oil falling to $77 and other commodities falling there is going to be deflation with in few months, so all the central banks should cut interest rates.
Governments around the world should make price falls passed to consumers, it could be done by political pressure, legislation, wind fall tax or curbing salaries and bonus of these companies. Should start to investigate these companies for price fixing as well.
In UK, BOE can now cut rates to 2% or below now.
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No. 98 lesliefromlondon
There's a long tradition of complaints against usury, national debt and fractional reserve banking, and it is seriously contaminated with anti-semitism and loopy conspiracy theory.
You do us all a favour by pointing this out.
A quick survey of the literature (e.g. William Cobbett, G K Chesterton and Hilaire Belloc, the Social Credit people) will confirm this.
I've recently complained about an anti-Jewish comment on this blog (the moderators agreed with me and removed it), and have seen another one that, shamefully, I didn't get round to complaining about (and I'm a Christian Jeremiah, not a Jewish one, should anyone ask).
There are, however, serious problems with our system of commercial banks creating money by lending at interest. We can see this in the current financial crisis, and also in the destruction of the natural environment that makes human life possible and worthwhile, when done in the name of 'economic growth'.
We need to discuss this openly. But we must do it without stooping to anti-Semitism and other forms of stereotyping and abuse.
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What were the results of the CDS auctions?!!?!
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If we would nationaliise banks, to give their profits to the working class, we tend to call that communism.
But, if the political and the political establishment nationalise banks, to share their deficits with the people, I tend to call that corporatism. And then, only political nationalism lacks as ingredient, to rightfully call that fachism.
Does nobody wonder, that billion worth decisions of the executive are not put to parliament anymore, but were dealt out in some back rooms on sunday afternoons?
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No. 74 Buddhaman
I second your recommendation of Richard Douthwaite's "The Ecology of Money" (http://www.feasta.org/documents/moneyecology/contents.htm)
He describes several types of past, present and possible future money, and addresses many of the questions raised in comments on this blog about debt, usury and possible alternatives to fractional reserve banking, all in language that a non-economist like me can understand (and with no rant, conspiracy theory or anti-Semitism!). I don't pretend that he has all or even many of the answers, but he's asking some of the right questions.
No. 29 Uncletheelephant
I'm pleased to hear that you are coming to our aid. But not with treacle I hope...
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#190
re the far left 'making hay'
So what if they are, obviously the right of centre-right Thatcheright tendency don't truly ascribe to democracy, only paying lip-service to it whilst they are allowed to control the country / world - and before you ask, no I'm not of the mentioned political faction. If the popular vote does swing to the left then that is the people speaking surely?
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One thing I would recommend is that the UK govt should not guarantee savings in Icelandic bank if that money was placed there to keep it out of reach of the UK Treasury.
The tax payer should not bail out those who were not willing to pay their fair share in the first place.
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very funny robert!!!!! a global solution!!!!
THIS AGENDA WE LIVE IN IS SO BORING......Y A W N....HAVE I NOT EXPLAINED IN DETAIL WE HAVE THE AMERICAN UNION FIRST..MEXICO USA AND CANADA WITH A NEW CURRENCY...THE AMERO...
THEN A FAR EAST UNION ,INCLUDING THE AUSSIES ETC ..WITH A NEW CURRENCY AND MAYBE A SMALLER ONE IN AFRICA.....
THIS WHOLE AGENDA WAS WRITTEN ABOUT BY THE PROPAGANGIST H G WELLS IN THE BOOK "THE OPEN CONSPIRACY", ALSO KARL MARX, WHO SPOKE OF 3 MAIN TRADING BLOCKS.....WHO DID THEY WORK FOR?
MONEY IN ALL ITS VARIOUS FORMS, WOODEN TALLY STICKS, CLAY TABLETS, METAL COINS, PAPER AND NOW DIGITS IN A COMPUTER SCREEN HAS ALWAYS BEEN A TOOL TO CONTROL POULATIONS, WE ARE NOW BEEN LEAD INTO A NEW SYSTEM OF CONTROL...THANKFULLY THERE ARE ALWAYS PEOPLE WHO SEE THORUGH THE SCAM...AND ARE ABLE TO CHANGE PUBLIC OPINION.
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It is ironic that the investment model which became fashionable after 01/02 Crisis,namely the Hedge Fund, is contributing to the downside pressure on share prices Robert Preston describes. Bascially the Hedge Fund multiplies smallish gains by the use of gearing, maybe 4or 5 times the original investment. Now banks can't or wont lend to Hedge Funds, they are forced sellers.
Looking back in 5 years time we will all say what a silly idea it was! Furthermore the downside protection from hedging is in practical terms only possible for a very small minority of investors. It is impossible for the majority to be short the market.
At the moment a savage wipe out of wealth is occurring in Hedge Funds. Fortunately only the rich were allowed to buy them, so Main St America will not be effected by this problem and provided employment remains stable Main St can carry on consuming and buying the products and services of big boring blue chip companies. The current value of your home is irrelevant provided you can continue to service the mortgage. Meanwhile the cost of motoring and debt service is falling sharply.
So Robert Peston look at the Crisis from somewhere other than Greenwich Connecticut.
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#211
re yet another anti Peston rant
So lets get this right, Mr Peston and the BBC get a scoop (even a leak if you like, but before anyone says anything, may the first media outlet who have never broke a story based on a leak case the first stone) and the media competition start sqarwking...
Perhaps these other media outlets should just take to selling their nutty fruit-cakes rather than trying to print them!
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Most ideas start to sound a bit loopy when the situation itself gets so loopy....so apologies in advance for this one if it sounds like a socialist rant.
But it seems as if in The USA and here, and no doubt elsewhere, one aspect of the crisis that tends to emerege time and again, is that proposed actions fall foul of the perceptions of ordinary people believing they have one undesirable effect, which is rewarding the people who created the mess...as those people engage on yet another round of self-congratulatory multi-million bonuses.
But as the entire industry is effectively either nationlised or depending on tax payer support either completely or to an enormous indirect extent ------why can't the Govts impose a temporary pay and incomes policy by just banning payouts to big "Finance" ...say that are more than just basic pay.
After all upon what basis is "success" being measured by these firms---as the "old one" of shareholder value creation has been directly and indirectly destroyed.
It seems the most successful at the moment are those most effective in most quickly destroying the real world economy anyway... as the only people making money are short sellers.
I know getting the whole world to join in may be tough but really if USA (where the voters and legislature are even more sensitive to this aspect of the moral hazard of bail outs) UK and EU(Where the whole thing is laid at the door of Anglo-Saxon capitalism anyway) and Japan, did this it would be extremely comprehensive.
Then governments would have removed the single biggest constraint on implementing rescue plans...the perception that they are rewarding the people who have wrecked their own companies, their sector and now the entire economy worldwide.
If a Bank, Hedge Fund, Private Equity firm etc decided they wanted to pay bonuses their shareholders would be informed that their company would be unable to apply for or benefit from any Tax payer funded bail out---and be prevented from trading with or in the shares or any companies who were benefiting in such bail outs.
Then these people who do feel they deserve rewards because they can beat the system can have their own system to play in together----and leave the real world one that the rest of us live in to us poor saps ready to perhaps forgo the chance of stellar 20% per annum returns for a quiet life ---but who also wouldn't have to see our money syphoned off to their private yachts either.
It's just a thought.... provoked by Alistair Darling's repeated Karmic chant that "We're prepared to do whatever it takes!"....
The various people on multi hundred thousand bonuses will no doubt feel it's not fair at all...... but basically while they used to live in a system we all knew as "capitalism", we all now live in a somewhat different form of "Capitalism"... although we still do live in democracies and unfortunately for the Finance industry Universe Masters where the currency of influence is votes...they don't have more than a few thousand in a sea of hundreds of millions.
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#216
"What is bad for stockmarkets is excellent news for the consumer and the global economy."
I wouldn't say that rampant inflation and recession or rampant interest rates and recession are good news for the consumer and the global economy at all, about the only people who it might be excellent news for are those who have caused this - at least those speculators shrewed enough to keep their shirts, sell high and buy low, as such the cycle starts all over again and everyone else pays the costs...
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I see my contributions are often falling in next to those by boilerplated...I'm not sure whether this is down to covert action by intelligence agancies,....or a convergent set of life circumstances.
I actually feel, it is overwhelmingly the second possibility ... ISo wonder if as well as setting his alarm clock to the same time as mine; and having his at-desk sandwich at work around the same time, he shares my own staggering ability to both predict everything happening ahead of many professional commentators... coupled to a 100% inability to make any money from this prescience.
It's like having the most useless super power gift ever.... knowing exactly what's going to happen but finding the knowledge only leads to my investments falling faster than those of my friends and accquaintances who entirely lack my own predictive gifts.
Anybody else share this condition...??Perhaps there ought to be a group formed--- for people who know exactly what's going to happen but still don't get their money out in time!!
Or maybe I am totally wrong about Boilerplated and others on this site...and they are in fact George Soros or Warren Buffet, writing under assumed names and always get their money out in time!!
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Wow - global control of the world banks - is this the World Revolution than Karl Marx predicted and Lenin was keen on?
It is very ironic that it occurs courtesy of President Bush.
Time to reread Das Kapital (or at least dust it down)! J.K. Galbraith's and texts also need re-visiting as does Keynes. Has Milton Friedmann been deposed as high priest (off to the Dustbin of History)?
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#219
But that have been looking back, just not with rose tinted glassed like some, there has never been anything done since 1929 that would prevent another 1929 - and indeed the same stock market conditions were almost meet this week - so to say that because the world recovered from the little blips in 1987 and 2001 this time it will be the same is being a little to simplistic/optimistic (take you pick).
Yes banks have gone bust before but normally we might get one going down in a 5 year period, one might even take another with it but to have (in effect) 6 or more banks and one whole country go down, whilst other countries state they also have problems, in a 20 day period has not happened since 1929.
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Just as global warming can be laid at the feet of huge industries in the developed world - we all, as individuals, have helped to create the problem. Similarly, although the banks, regulators and credit markets are hugely culpable for the present financial and econimic mess, we too must share in some of the blame. In particular, our eagreness to accept the massive overvaluations of house prices which has helped to fuel vast personal debt. We've all been living in financial cloud cuckoo land for far too long. Now the chickens are coming home to roost and the fabled goose has no more golden eggs to lay.
Above all: measuring, realistically, the true monetary value of "things" - houses, salaries, bonuses, investments etc is at the core of the present financial and economic problems. If we had reliable measures of the value of investments there would be no huge ups and downs in markets and we wouldn't be facing financial meltdown. But then assessing the true value of something is perhaps the most difficult problem in economics.
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Much of last week's asset dumping was not simply panic but the inevitable result of the carry trade unwind. This is a key, and very much needed, step in the process, as markets continue to de-leverage at break neck speed. We should hopefully now get closer to understanding what the true value of assets are, be they shares, commodities, property etc., as credit continues to be flushed out of the system. Painful to see these falling numbers, but important to remember that they were at completely unrealistic highs in the first place.
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No. 221: "There are, however, serious problems with our system of commercial banks creating money by lending at interest. We can see this in the current financial crisis, and also in the destruction of the natural environment that makes human life possible and worthwhile, when done in the name of 'economic growth'."
If fractional reserve banking does depend on steady growth, then this is indeed a fundamental flaw. This form of banking was appropriate when there were thought to be unlimited natural resources. But, as there limited and running out, steady growth will soon lead to disaster. This is explained in a lecture called 'Arithmetic, Population, and Energy '. This is available on You Tube under the heading 'The MOST IMPORTANT Video You'll Ever See'. The lecture explains that 'steady growth' is in fact exponential growth and illustrates the dangers of this wrt energy.
If the present crisis leads to recession or even depression, then one positive outcome may be a more careful use of remaining natural resources.
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How is an ordinary degree educated person with little knowledge of economics supposed to make sense of the current global situation?
It does indeed seem a very serious situation, but it's hard to get a real understanding of what it all means in layman's terms. If a country has "gone bankrupt", what are the practical implications of this? If the banking system collapses, what does that actually mean for real people?
The economy does seem to go in cycles, so it seems strange to me that all the politicians keep banging on about avoiding recession. Avoiding something far more serious, I can see is a laudable objective, but surely to get the next cycle of expansion we need recession first, even if it is a less comfortable time...
Surely journalists aren't able to say what they really think anyway for fear of influencing the real life situation?
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That global caretaking is needed is true.
But it is almost impossible.
There a big differences between the problems different states and that means, that there is not one single solution, that works eqaly for all countries.
For example:
There never was a real estate bubble in Germany.
Prices for homes in Germany were low for several years, mortgages did not collapse more or less than any other of the last 15 or 20 years.
And their is no estraordinary privat debt problem in Germany.
The ordinary german has savings at the bank, not debts and credit card using is far less than in other countries.
Only 10 percent of the people ever bought something at a stock exchange. The ordinary german puts his money in ordinary bank accounts, live insurances, state guaranteed retirement plans and in state backed home owning plans, to first save about 30% of a house price, bevore lending the rest.
Germany has only 2 big international commerce banks, but hundreds of local public owned banks.
The ordinary german has his savings and his monthly income art one of this small banks. The business modell of this banks is to care about ordinary people and small businesses, extensive profitmaking is ruled out by law, so this banks don't care much about global investments.
Of course, the germans are hit by the crisis as well, as the two big banks with the big companies and the wealthy as custommers made the same mistakes that happenend all over the world. And they are hit by the same international big bank to big bank lending problem.
But the main problem for Germany is different to the problem in the USA. Here we have fear for losing to much export orders.
So, how will you find a solution, that works fairly in the USA, with big privat and state debts, in UK with the finance industry as the main branche, or in Germany, with a big export industry?
How should financial solutions look, that benefit countries evenly, if in some countries the retirement is financed at the stock exchange and on rising house prices, while in other countries it's based on savings and live insurances?
How should a common solution look, that equaly benefits countries with the Euro as currency, as such with Dollar or Sterling?
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Executive remuneration is often said to reflect the fact that executives are 'risk-takers'. It is not often admitted that the risks are taken with shareholders' money.
'nuf said?
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"219. At 09:29am on 11 Oct 2008, Augher wrote:
This 100% reserve banking stuff sounds solid but comes from some really flakey people."
You think the people making up the Austrian School of economics are "some really flakey people?".
Mises, Hayek, Rockwell etc. are all firmly opposed to Fractional Reserve Banking, because it is effectively counterfeiting. Fractional reserve credit debases and devalues the existing money in circulation.
Mises described exactly the process by which Fractional Reserve Banking credit causes inflationary booms and the resulting economy busting credit crunches. He did this in 1913, a full 20 years before America's Great Depression.
Now, the Austrians don't exactly advocate 100% reserve banking. instead they advocate "free banking". In this case, there is no standardised currency, the banks get no support from the government and ordinary people decide what they are going to choose as a medium of exchange.
They believe the effective result of this would almost certainly be gold and silver used as the medium of exchange with banks holding close to 100% reserves for any lending.
What would keep banks honest in this case is the phenomenon we are seeing now, a complete lack of trust between the banks. They would call on the reserves of other banks immediately when they receive deposits of other bank notes. Any bank which lent beyond it's reserves would be immediately bankrupted and would fail.
Whether this would work in practice is debatable, the corrupt nature of politicians and bankers put it to question. Any bank, or cartel of banks which received government support would have an advantage over the rest.
Nevertheless... The only alternative to Fractional Reserve lending, is Full Reserve lending. The former causes booms, busts, inflation, deflation and the centralisation of power, influence and encourages corruption of the machinery of government. The latter does not.
It's simply a question of the kind of society you wish to live within.
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doesn't all the huff'n'puff from governments worldwide mean that the only thing they know will work is a plethora of soothing words? What's so frustrating is that recent interventions and promises don't really seem to make that much sustained difference. A bank went down in the East yesterday (sure that was on the news).
LIBOR overnight rate halved? Where can I find that?
Any suggestions on what the IMF and G20 will say today? !!!!!!
Will it be more fluffy stuff and huff'n'puff I wonder?
Still searching for those balance sheets-any sign of them? Can we find disgruntled employees who can print them off and leak them to Robert! Bet they're a work of fiction anyway! If these people are able to get away with all the stuff they have, maybe I'm being naive thinking the balance sheets are a true indicator!
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It looks suspiciously as though the banks know that some of the banking community are vulnerable and likely to fail, (Paulson has commented to that effect also, mentioning months as a timespan) and therefore the banks are sitting on their hands waiting for those businesses to collapse.
Interbank lending freezing takes those vulnerable banks to the wall sooner rather than later and leaves those still standing in a stronger position.
When the cull has reached a critical level then the money will flow between banks. If you think you may lose your money, or lose for a long period access to your money, due to the failure of somebody you have lent money to, then no matter how high the interest rate goes it doesnt provoke the money to flow, what makes a difference is those banks you are dubious about actually failing.
Therefore a seige would appear to be in progress using cash starvation as the weapon. The banks are effectively seeking further failures and are culling their community.
It is the marketplace in action. Those surviving achieve larger market share. Governments have repeatedly shown that they do not understand the market mechanism.
The closer the failure point gets for some banks the closer the uplift horizon gets for those who believe they will survive, and the less incentive there is to sell toxic stock below the near horizon value, or to borrow money from the government with operational strings attatched.
However believing you may survive can be misplaced, LB declined a low rescue bid days before collapse, QED. The signs are that the bottom of the trough may be approaching although how long things bump along the bottom is open to developments and may well depend on the number of failures and how quickly and how many occur.
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#221 Agree with your initial comments, but you go on to saying that lending with interest creates money. Depending on what you mean by money, lending creates money, interest or no. (Lending of deposits creates liquid money in form of your bank balance, long term savings and bonds creates money in a broader sense, ie. bond holdings and long term savings balances, pensions). Repayment of loans destroys money, in equal measure.
Interest (priced correctly) is the very thing that regulates this process, to ensure that it stays balanced. Lending and borrowing without interest would very quickly get out of hand, as the money creating process would explode. Which is the very reason that lending and borrowing in this case would stop. Everyone would be forced to store wealth in whatever physical objects they themselves could purchase with their savings, after determining the degree of return they could make from these objects. It is a hugely inefficient process.
The problem we are seeing is due to *too little* interest, not the existence of it. It is easy to blame the banks for this, but it is in my opinion not correct.
Banks and financial companies are simply intermediaries that (as long as they operate within the law and regulatory frameworks) legitimately make money from channelling savings to borrowers. Every year or quarter they get independent confirmation from their auditors on the amount of profit they have made. They then follow rules set down by the FSA and pay out profit to shareholders, but only what is not needed for the business to stay stable. The shareholders (in effect) pay large bonuses to individuals in the company because it is an environment where the profit is closely attributable (with auditor approval) to individuals or teams actions and decisions.
They and their auditors take advice from credit ratings agencies (and the FSA also relies on these) to assess the riskiness of their assets. They themselves get assessed by credit ratings agencies for riskiness. They listen to the government and Bank of England to assess the broader economic picture, and to see if there are any potential storms on the horizon.
And there was a big storm building, clear for everyone to see - massive savings building up in other parts of the world, channeled through this system, not into sensible profit making investments, but into inflating property prices, and resulting collapse in property yields. Some of us have been saying for years that this was not a sensible development.
Imagine the bridge of the Titanic, not sinking, but listing heavily. The designer (Gordon Brown) has emerged from his snooze and is busy running around telling all the passengers that this is the captains fault (the banks), and the owners for paying the captain to sail as fast as he responsibly can. He radios all the other ships in the area to give them advice on how to save their ships. For good measure he throws over board a party of slightly fat Icelandics with a couple of lifebouys to try to stabilise the ship.
All the captain did was sail as agressively as he could according to the ships manual (written by GB) and the advice of the engineer (Mervyn).
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A solution to the Inter-bank Credit Freeze would be for governments to force all banks to publish detailed analysis of their exposure to sub-prime mortgages and other toxic debts. This would enable the banks to see who they could safely lend money to. It would, of course, also mean that many of the more unstable banks would collapse; but, the money that governments are making available to the industry as a whole could be used to protect savers in those banks that do not survive.
The result should be that money would flow between sound banks, and the Credit Freeze would end.
When this crisis has been resolved, governments must regulate the banking industry properly. The Bonus system must end, and efficient professional bankers must be properly remunerated for managing the world's money.
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William Hastings
The "true value" of things is what someone else will pay for it. Of course on a more philisophical level there are many things in life which are beyond monetary value. We as a society have become obsessive about material values. We are letting ourselves of the hook if we blame all of our on the banks and governments.
Any attempt to impose a "true value" fails, but while it lasts it breeds even greater inequality than capitalism and requires forced labour camps etc.. The old Soviet Union was a prime example of this. The differences in standard of living were greater than in the most rampant capitalist societies.
As individuals we need to reassess our own values. Governments and banks do not make us overextend on our mortgage to buy a flashier car than our neighbour or treat houses as status symbols rather than homes. The very same "experts" who are moaning about irresponsible lending were bemoaning the lack of 100% mortgages and "restrictive" borrowing limits a few years ago. The problem is that the "media experts" know no more than the man in the street. They listen to gossip and spread the best stuff. If the truth is not sensational it does not get reported.
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222 - a fraction over 91 cents on the dollar. Is that more or less than expected? Is it as bad as was expected? Who got hit hardest?
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I'm confused-I don't understand why my comment was referred to the moderator-I'm sure I didn't break house rules-how strange-there's been a lot worse said on these blogs over the last few days!
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Have I got this right?
The Washington Post reports that CDS holders in Lehmans will have to pay a substantial 91.375 cents in the dollar in order to settle their contracts. Over the next few days we will find out which institutions have done an adequate job of offsetting this risk and which - if any - haven't. That should give everyone an idea just how serious an impact this and subsequent CDS calls are going to have on the system....... and we (and our various governments) will finally know whether we are looking at a repeat of '29 (perhaps even worse) or just a recession.
Until then any planning is conducted in a partial vacuum since no one knows quite what they are planning for.
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"235. At 11:01am on 11 Oct 2008, William_Hastings wrote:
But then assessing the true value of something is perhaps the most difficult problem in economics."
No. it is the simplest.
The only thing that makes it difficult is the measurement stick keeps changing length.
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I cannot see global control ever occurring. At best you are looking at a huddle of maybe similar policies. That is what is evolving at present. Can you ever see the UK, France and Germany having a shared vision when their economies have different driving forces and strategic positions, let alone Japan or the so called tiger economies (tiger economies who do not provide social services and therefore have different taxation structure). The future is local regulation with communication locally and communication internationally, not global regulation. It is clear communication is not sorted out at a local level yet - eg queries raised about Iceland and ignored. The start is local. Effective policies and local control would have kept this problem at a smaller scale. The problem is political.
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#248
Same here #229, and I was defending the BBC, seems very strange!...
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#252
I just used a catchy phrase for hot air (no swearing), suggested balance sheets might not be accurate, asked how to find libor rates and wondered what might be said at today's meeting-hardly rule breaking stuff!
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#253
I suspect that I know what the string of words were that sent my message off to the mods, I won't even try to get around the mods on this one - as I suspect that their decisions are being driven by the legal stuff - other than to say that we all know that it goes on and all outlets use it, so for one outlet to complain about another it's obviously not a true complaint just a case of grapes.
Oh well, never mind.
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Beware.
The governments are playing the markets.
They who have the final winning position, wins the economic war.
Western economies versus Oil/Opec and the Chinese cash machines.
Money is relative, power is real.
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''We will do everything it takes...''.
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# 216
Yes, except that there are major inflationary pressures in the system (not last because of the reduced orders on China's output). Furthermore, the governments' rescue plans (pumping liquidity in the system without means of withdrawing them) will act as inflationary pressure too.
So, while you can have a devaluation of assets, you can also have inflation.
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More fruit cake anyone?...
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239 - very interesting....
Could this model in Germany actually be "Monetary Communism"?
Local banks, community lending, no global investments, no fractional reserve, no need to expand rapidly, no need for greed.
Very interesting.
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Islam.
Has anyone wondered why Islam (via fundamentalism) has become the enemy of the west? - as opposed to traditional 'threats' - Communism.
Maybe the islamic banking system is a threat to the money men. No interest - no profit - no financial enslavement.
Maybe we went to war to create the opposition - which is what war generally does. So the people would believe there was a threat.
So who decided to go to war? Was it the leaders - or was it the bankers?
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# 239
An excellent point. The two major German banks removed themselves from the German economy in effect and the German banking system operates independently of them.
Countries' financial system are very, very different, they are incomparable and they are also affected to a different degree and in different ways by the current financial upheaval. Furthermore, they are at different phases of the economic cycle.
Thus the "global solution" is a pseudo-name for solution for the US. And this solution is more or less solution to other countries problems: more for the UK, less for Germany, even less for other countries.
Oh, and of course, the solution is for the cloud-region of the current crisis, that is, does not affect the recession factors of the real economy the slightest bit.
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# 241
The Austrian School is a bit fleaky, you know. Just read the transcript of the Cambridge debate of Hayek's speech in which to J. Robinson's question whether it causes inflation if in rain she buys a mack, he answered with yes and added that probably unemployment as well.
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For all those, who criticise the fractional reserve system. You are criticising a particular form of it and ignore the experiences of the 19th century.
In the 19th century Britain operated a 100% gold coverage system (except for state debts that were never covered). In every single recession it increased the crisis, thus after 1857, it was routinely suspended.
You can have a fractional reserve system that is less open to speculation, if banks are allowed to increase the money supply through fractional lending, if it is accompanied by securities emerging from company-to-company transactions (bill of exchange), because then once the transaction is completed, the created money is withdrawn from the circulation. Before the Euro, 30% of German money supply still derived from such transactions (through Lombard credits). Of course, if there is a recession, the money still stuck and there could be a ride on securitising the securities, but it's part of capitalism.
Thus, non-fractional reserve systems do not work once it is taken out from the static equations and fractional reserve systems can be tied to the swelling and contracting of the real economy.
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i just cant believe whats going on...it could be all a con trick..but how is it british people put money in overseas banks to earn interest to live on!!!...is it because british banks pay such low interest? and now we reduce interest rates!! to make more people save else where!!!....also i dont blame the government for all this...joe public is to blame as well...we are all quite happy to see our house price rise...no problem there...quite happy to borrow beyond our means...no problem there..we all need a reality check here.
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ive got a awfull feeling theres an awfull lot of people making an awfull lot of money out of all this.the loosers are ordinary hard working people.also we keep cutting interest rates . so these people who live on interest from savings lose out....but thats ok as long as we can lend cheap money to people who then keep the bubble going...making sure house prices are kept nice and high. the whole system stinks......its the rip off merchants who have gained out of all this.
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Crisis? What crisis?
Mervyn King comes up to Gordon Brown and says, "I'm in terrible trouble! the Bank of England is nearly broke! I've only enough for next month's salaries and if I can't pay the rates, Boris'll be mad at me, and there's nothing coming in! What'll I do?"
Gordon thinks for a moment and says "Don't worry Mervyn. This is easy. Two things: first of all, don't tell anybody else. Second thing: get your printing presses going and print up as much money as you need. I can't really get any more off the taxpayers, you know."
Mervyn says, "That's a great idea Gordon! Why didn't we do this sooner! But, " he says, "supposing somebody comes to me with a twenty pound note, and says 'Can you give me twenty real pounds for this note, like it says on it?' - and I haven't got the money?"
Gordon says, "Well that could be a problem. I tell you what," he goes on," You can fix it with a wee change in the notes. Where it says 'Promise to pay the bearer...' just put 'We'll do our best...'"
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can someone explains short-selling for me - there is something in fox news today that all the ivy league universities professors (economists) are involved in this scam to force the market price down#
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This comment was removed because the moderators found it broke the House Rules.
OK. So I know about fractional reserve banking and how money is debt and how banks print money from nothing. What I cant get is if this is how it all works, then why are there countries out there with no money?
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I find the suggestion that there is no plan "B" inexplicable. If plan "A" doesn't work, and given the critical importance of maintaining the banking system, here and in the other main economies, then full nationalisation is surely the answer. With the stockmarket quote removed, the stabilisation programme can be implemented. Shareholders can currently panic and sell bank shares if they are so inclined, so spreading fear: that would stop.
At some future date, when calm and rationality returns, the respective governments can refloat the shares on their respective stockmarkets, to the benefit of their taxpayers.
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Robert, according to Wikipedia there were many "Financial Experts" who attended the
Bilderberg Group meeting 2008 (June 5-8) at the Westfields Marriott in Chantilly, Virginia, United States:
Including
• Keith B. Alexander (2008), current Director, National Security Agency
• Roger Altman (2008), former United States Deputy Secretary of the Treasury
• Harold Ford, Jr. (2008), current Chairman, Democratic Leadership Council, former US Congressman, Vice Chairman, Merrill Lynch & Co., Inc.
• Robert Gates (2008), current United States Secretary of Defense
• Richard Holbrooke (1995 - 1999, 2004 - 2006, 2008), former U.S. Ambassador to the United Nations
• Vernon Jordan (1979-1985, 1987, 1989, 1990, 1991, 2005, 2006, 2008)
• Henry Kissinger (1957, 1964, 1966, 1971, 1973, 1974, 1977-2003, 2004,[6] 2005-2008), Secretary of State, 1973 – 1977
• Henry M. Paulson, Jr. (2008), current United States Secretary of the Treasury
The list goes on so is better if you check yourself...
Anyway because the Bilderberg Group holds "Private Meetings" many theorists conclude they have a hidden agenda.
It can be seen from this list that there were alot more "Financial Experts" at this meeting than previous years. May we all ask what did they already know about the problems with the banks then. Is it a coincidence that after this meeting a global financial crisis has occurred or has this crisis been cleverly planned? Let's ask the Bilderberg Group attendees to comment and produce the minutes of their meetings! They owe us this "Right" in the name of "freedom of information" act during these difficult times. Lets clear the air so we can be sure there is no financial "New World Order" agenda!!
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Are we taking this all too personally, guys?
What about the bigger picture?
I for one will be happy if our hundreds of billions secures the Christmas bonus of just one investment banker!
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the G7 have decided to blow multi billions of dollars to prop up the failing stocks and shares market and banks.
its just plane stupid of them to waste so much money whilst at the same time refusing to do anything seriously for the environment.
typical of american bullishness there leadership is under pressure to secure the stock markets and save those who trade from unemployment.
sadly our government will follow the american lead, stocks,shares etc are all over valued and the inflated prices need keeping up becouse so many companies have borrowed against these higher prices and would fold if there prices fell.
they all need a reality check and governments need to take stock of there reasons for wanting to pump so much money into this problem, is it for the good of all the people they are supposed to represent or is it purely financial.
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For Brown/Darling and Bush/Paulson to categorically state that they will do "whatever it takes" to stabilize the system has given the traders on the floor the opportunity to play fast and loose with our investments and pension funds, knowing that in the end the governments (taxpayers) will keep filling the pots for them.
Is it too simplistic to suggest that markets are closed for a period until protocols can be put in place that will, rather than as now fueling the panics, react by preventing the spread of panic?
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Britain ( and some other countries ) is about to realise that it is an empty shell.
The financial service industries have been propping up the UK's GDP, employment, and general standards of living for a long time. Now that prop has collapsed.
What can the UK export to balance its books with the imported cars, fuel, chemicals, foods, electrical gadgets and so on?
Perhaps a few jet engines and jars of jam. The pound deserves to sink.
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The underlying issue is too much debt secured against over priced assets isn't it. The assets are overpriced due to unprecedented levels of cheap credit due to artificially low interest rates. And banks have over lent against these assets. They now have a solvency problem not a liquidity problem. They need more capital. The answer therefore isn't even more debt. Governments can only create inflation when they print money to refinance banks. So banks need more savers.
So the solution is ... more saving, less spending. Quite simple. But it means the consumer economy has to end.
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262. At 1:47pm on 11 Oct 2008, redjsteel wrote:
# 241
The Austrian School is a bit fleaky, you know. Just read the transcript of the Cambridge debate of Hayek's speech in which to J. Robinson's question whether it causes inflation if in rain she buys a mack, he answered with yes and added that probably unemployment as well."
No, they simply have a better understanding of the nature of money and inflation and deflation...
ALL purchases increase inflation. Lack of purchases decrease it. Inflation is dynamic, it exists on a transaction by transaction basis. Hence the "velocity of money". If you drop a billion pounds into a market, the inflation doesn't increase the same everywhere, it's like dropping a stone into a pond. It spreads in ripples. The people who receive the money first spend it before the prices are inflated, the people who receive the money last are receiving already devalued money; prices have already increased everywhere else.
The further you are from the source of money, the more subject you are to inflation. This means the poor, the retired etc. Since banks create our money that means anyone with difficulty gaining credit. When banks create billion pound loans for hedge funds to buy companies, they created that money from nothing, and devalued all *our* money at *exactly* the same moment.
...and... If you have just purchased a macintosh, that is simply one less which is required by the market... The market for macintoshes has just shrunk by one in that instant. Isn't that obvious?
"269. At 3:44pm on 11 Oct 2008, peterbaldwin wrote:
OK. So I know about fractional reserve banking and how money is debt and how banks print money from nothing. What I cant get is if this is how it all works, then why are there countries out there with no money?"
Because they don't understand fundamentally what money is, take a look at Zimbabwe. They equally have no clue what money is and look how much of it they have. It's laughable, they keep printing larger notes to meet the demand for money. I am just amazed by how high they can make their inflation figures.
Money simply *represents* wealth. Real wealth; houses, farms, products, cars, roads, plant, machinery, buildings, infrastructure. Money itself has no use but for the fact that you can exchange it for something else easily. More money doesn't make you more wealthy. Less *money* doesn't make you less wealthy. Give everyone a billion pounds and what is a billion pounds worth? Increasing and decreasing the supply of money as banks do is simply an attempt to manipulate the perception of wealth to the benefit of the bank (and government).
Countries with no *real* wealth have no money, or as much as they can print.
ok...
If the money supply is increasing at 10% per year (it's actually 12-14% in the UK, didn't you know? Have a look at the BOE web site) and the real stuff is only increasing at 1%-2% per year, what's actually happening? How can the 10% increase in money possibly represent the 1-2% of real stuff? It simply doesn't, that is inflation. The CPI and RPI figures are total fantasies. 14% represents a doubling of money supply every *5* years BTW... Do you see all the cars, houses, plant, machinery, power consumption doubling every 5-7 years? No. It's ALL inflation. Devaluation of the currency. The *real* rate of inflation is closer to 8-9%, which funnily enough is approximately the average rate of increase in the stock market. How's that for a laugh, most of the increase in the stock markets are simply inflation... Devaluation of the currency.
You see... Inflation of the money supply is the primary mechanism by which wealth is transferred from the poor, the working classes, anyone dealing primarily in cash to the wealthy; those with plenty of real assets. It's how the rich are constantly able to become richer and the poor are always becoming poorer. Inflation is a big downwards elevator for anyone who is paid in units of currency.
Ironically... Deflation is the opposite... With credit being destroyed, those paid in cash, earning cash are earning relatively more than they were last week... The distance between the rich and the poor just shrank markedly. THAT is what the banks are really screaming about.
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# 260
I think the reason why fundamentalism has become the enemy of the West is because a bunch of them flew two planes into the WTC and killed about 2,500 people. Not quite sure where the link to international banking fits in with that one.
And as fas as I know, the West and Islam are not at war, in fact quite a lot of Muslims live in the West. Some of them even work in western banks.
Finally, I think you'll find if you actually study the processes of Islam-based banks that they do earn an income for lending money. They simply structure it as a fee as opposed to interst in order to maintain compliance with their faith.
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Price we pay for destroying the backbone of the economy which helped build a great nation: the manufacturing industry.
Now we see the rise of China. I wonder if they'll decide to destroy it at some point, or will they learn from the history we so easily discarded.
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# 277
It is clear, providing that you start from the Walrasian beautiful world (based on Say's dogma). But the world is not at all like this, only if you really think that all markets are in balance, markets clear themselves. In that case, you would be right as at the given price any good that is sold is equilibrium, hence an additional purchase creates additional demand that adds to inflation. But as I said the world outside of the beautiful graphs of economics is not like this. Or do you think that the marginal cost curve is U shaped and Marshall's cross has anything to do with the reality?
The assumptions of mainstream economics just do not hold. It is true only ex-post and not ex-ante.
These assumptions have held back economics by at least 40 years.
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R9obert you have a common sense approach to this crisis which I wish world leaders and traders would adopt.
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# 277
In the second part of your post, for your assumptions about the relationship between money supply and inflation one would have to stick to Fischer's equation (in which money has only two functions: money as means of transaction and money as treasure or hoarding) and forget about the function of money "as payment" in which case the value of the money is measured by future profit and not by its volume, hence its growth does not necessarily lead to inflation.
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Er, by the way, why have local councils got so much of our money to invest in foreign banks that promise Alice in Wonderland rates of interest? I thought they were supposed to keep Council Tax to a bare minimum to pay for their obligatory services, not horde lucre for gambling.
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Main thing is....do not worry..... what we are going through now is financial evolution.
This transition phase is "financial Ethics". The previous phase was "financial Power". I guess the USA won and lost that phase. Now we can evolve to the next level where all humans will be encompassed by Ethics in all spheres of life. It is not stoppable....it is the natural progression of the human species. The mind has reached the collective knowledge that things are not Ethical in many areas of life (not just the Banking systems). Governments will try to stop the transition to "Ethics" its only natural as they are part of the old "Power" phase. Do not worry though, it is unstoppable. Do not worry Earthlings.....good times are ahead. Just watch!
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Ethical Resolution and Ethical Financial System:
1. Suspend all Banking Sector trading on Stock Exchanges world wide from Monday 13/10/08
2. Redirect bailout money to finance an Income Tax reduction of 5%
3. Increase state pension by 5% and then increase proportionally as Banks increase profits (see 7) based on pensionable/working age ratio
4. Central Banks must declare all profits to purchase either Gold, Diamonds or Silver stocks in exchange for bonds (from the Treasury)
5. Central banks must honour all other banks requests for money. If the Central bank does not have enough money it can trade with the treasury bonds for new money notes.
6. A bank can return to the stock exchange only when their books are balanced again (FSA to authorize)
7. All bank profits go to a pension fund for all the work force including bank Stock Exchange profits. This will resolve any countries pension conundrum. (Yes, even bankers will get a pension this way instead of bonuses)!
8. A new mortgage scheme from banks where they buy the house for you. However, after 20 years you have to save enough money to buy the house for the original price plus 20% interest (if you default at the 20yr point then each year the interest increases by 2% until you do repay the full amount. If you want to move after 1 year then you have to pay the bank 1% of the original price and 1% of the 20% etc, etc (This scheme is based on your current income with a projected income increase of 3% per year over the 20year period to obtain the affordable House price.) This will encourage/force everyone to save and to progress their potential while releasing people from debt.
9. All Landlords who rent a property must relinquish the property to the bank (Bank will buy the property) and those who are living in the property revert to the new mortgage scheme.
10. All credit cards must become Credit/Debit cards where the interest is fixed. 5% whether credit or debit balance. However, due to step 8 everyone has more money (No mortgage payment) so they should be able to stay out of using the card as a credit card. Each day a savings balance figure required to meet the amount to pay for the Mortgage (see 8) is highlighted in the account to assist you keep track of your commitment.
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Why is there suddenly no “liquidity”? What would happen if we banned currency trading?
My “Tribal view”
The Aussie dollars nosedive is simply astonishing – over 30% down on a few weeks ago – and the crash is still showing no signs of a slowdown... We are third or fourth amongs the bottom 5 countries in the world, alongside Zimbabwe Iceland and Korea, etc... Australia is DEBT FREE – has no external debt. It cannot spent what it earns and dumps billions into its “future fund”(Otherwise known as “Sovereign wealth funds”) http://en.wikipedia.org/wiki/Category:Sovereign_wealth_funds 64 Billion last year, this fund has unallocated cash amounting to over 34 billion dollars.
We are in surplus and our banking system is sound by any international standing and YET, - the USA is in meltdown, it's currency is (currently) soaring... Thailand, another country I love, is on the brink of political annihilation – it's currency is virtually unaffected... the dichotomies are endless. Australia has lost almost as much as Thailand did in 1997. The “spin doctor's” who want the status quo are working overtime and the public are oblivious.
My “global view”
I for one, simply do NOT understand the currency fiasco.... Why governments allow this obscene trading of an average of FOUR TRILLION DOLLARS A DAY(yes trillion) (See link). http://en.wikipedia.org/wiki/Foreign_exchange_market
($US4,000,000,000,000.00) is beyond me, where the filthy rich, shuffle paper for staggering profits.
This trade IGNORES the effect on human beings.... Countries can and ARE destroyed by these faceless monsters.
A “one world” currency, would go a long way to stopping this obscenity. Even a group of four currency blocks, would help enormously...... IT IS DOABLE. E.G..... Euro, Aligned US dollar, an Asian currency and the Non-Aligned. Attached to a universal “PEG” e.g. gold, platinum OR WHATEVER.... THERE SIMPLY HAS TO BE A BETTER WAY!!!!!
(Please do not get bogged down in the history of the “Gold Standard” - it DID “work” after a fashion and WILL work again – what we have now is NOT better). Google the analogies and you will find Gold is approximately $US1000.00 per oz, translated by all the global “paper” COMBINED, currently circulating...
Currency Trading - The % daily share(April 2007) has now (2008) grown exponentially.
United States dollar USD ($) 86.3%
Euro EUR (€) 37.0%
Japanese yen JPY (¥) 16.5%
Pound sterling GBP (£) 15.0%
Swiss franc CHF (Fr) 6.8%
Australian dollar AUD ($) 6.7%
Canadian dollar CAD ($) 4.2%
Swedish krona SEK (kr) 2.8%
Hong Kong dollar HKD ($) 2.8%
Norwegian krone NOK (kr) 2.2%
New Zealand dollar NZD ($) 1.9%
Mexican peso MXN ($) 1.3%
Money has been sucked out of traditional markets and now, a great deal of the global “liquidity” is focused on the paper shufflers within the currency market, with only one motivation – profit. (some argue – given their power – political).
QUOTE:Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange.
In second and third places respectively, trading in New York accounted for 16.6%, and
Tokyo accounted for 6.0%.
SOURCE:http://en.wikipedia.org/wiki/Foreign_exchange_market
Should “WE” (Humans) find a way to curb this obscene trade where will this money go?
Some at least will return to the share market, with the USA probably being the main recipient... Banks will see a massive influx of liquidity.... It would certainly create a renewed vitality within business, where all nations can advance, grow and do what humans do. Governments should take the opportunity of regulating and making sure that “pure speculation” is at best undesirable.
I am cycling around the world on a recumbent trike http://www.pcw.iinet.net.au/: which was made in the USA... I have never been there and it could well have been made in ANY country. However my point is, one man started this business – with a vision...
He and his workers now produce over 400 “trikes” a month... He did NOT put his money in the currency market or the stock market... He produced a tangible asset.. for the benefit of both his staff and the end user... His “raw material” use benefits countless more people around the world. There are a myriad of “suppliers” to his business, from many countries.
Exploration, innovation, enterprise etc.. requires funding to get all nations back on track... Tying up money with those who shuffle paper, without producing anything... in a market that NEVER produces anything except profit for the wealthy, (currency market) is in my view obscene.....
On a related note... I only grow intellectuality by attempting to always see another point of view.. In many discussions that I have with People, I find that I must remain open to their views. Where their views are convincing, it is I that must change... If the currency market is if fact the answer then I am wrong
I sincerely wish I had answers - convincing answers, that would change our global financial direction to one where “humans” dominate in the financial equation. All the time retaining our basic freedoms to advance as unique individuals.
Alas I see money and the power it generates, dominating until we find a better way...
Mal (Currently in Thailand) Perth Australia.
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Can the BBC including Peston,Radio 4 and TV news please stop making the headlines so dramatic.We need confidence not "systemic meltdown" why not global solution.On Friday iit was stock market down 10% then clarified for 10 mins.It is irresponsible and causing too many people excessive anxiety.
Responsible reporting without being over dramatic please.
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Everybody grab a shovel - lets clean up this mess! The financial sector has been partying too hard, has woken embarrassed and hungover. Having gotten into bed with the wrong people it has also caught more than it bargained for. Finally, it seems that it has sort help, having come clean about what it has been up to and has been given a prescription that we will all be paying for. But everything in life turns on our relationships with others, and financial institutions need to start interacting again. However, this time they need to ensure that they use 'protection' by not taking silly risks. Investors, do not flee the market, it is a catch 22. Common sense please, populations continue to grow and so will the worlds' demand for commodities, land and housing. Traders get your head out of your hands, steady your nerves, we need you to do your job. Everyone else grab a shovel lets clean up this mess. Buy shares, some are very cheap and are a good investment. The £50 or £100 you could spend on some shares is a drop in the ocean compared to the loss to other investments if you don't. Use your common sense when choosing, think about society's needs, spend a small amount don't go mad but every little helps. I have put my money where my mouth is and bought £150 of shares on Friday, they were an excellent price and have increased in value. If we all make an investment, no matter how small it could make all the difference and send a message to those in the financial sector to stop panicking! Warren Buffet is no idiot and bought shares Goldman and GE for good reason, the price was right, the shares are a good investment. Just look at Phillip Green heading off to Iceland with his cheque book! So I urge you again, grab a shovel and do your bit to help clean up this mess, because you can.
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When the US and Britain call for more concerted action from the G7 what they really mean is" hey Germany, hey Japan why don't you direct more of your tax payers money and state reserves via your banks to prop up the failing and bankrupt financial systems of the US and UK". This crisis was made in the Anglo Saxon economies.
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Why not try something completely different!!
Why don't our government stop ringing their hands, dashing here there and everywhere to a desparate attempt to find a solution to the problems of the credit crunch, and............
CALL A NATIONAL DAY OF PRAYER!!!
It's worked before in times of great need, and as the bible declares that God is the same, yesterday, today and for ever, and also promises that if we call on Him, He will answer, why not?
Brian Harris
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The root of this problem is the creation of 'money' out of thin air. The monetary system operated in most countries in the world is:
Debt-based
Fiat
Fractional Reserve
Each one of those terms refers to a different part of the system. They can be applied iin different permutations but in our current case they are applied concurrently.
Debt-based means that all of the money in circulation (Notes, coinage and binary) exists as a result of debt. ie if we had no debt then the money would not exist. Every time someone takes out a new loan the value of the loan is added to the money supply.
Fiat means without backing. The value of a fiat currency is based on trust and confidence. As long as you believe it has value then it has. The reverse is also true
Fractional Reserve Banking is where the bank 'lends' you money it doesn't have. For a deposit of, say, £1000 the FRB system allows the bank to make loans of almost £10000. THe £9000 difference is created out of thin air.
The operation of a debt-based, fiat, fractional reserve banking system is highly expansionary. The debt and everything associated with that grows at an exponential rate.
For those posters and readers who have never heard of this system before please look at this link. It is the instruction manual from the Federal Reserve on how to run a Fractional Reserve Banking system.
The BBC moderator blocks this link so it is placed here in two parts:
[Unsuitable/Broken URL removed by Moderator]
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Robert,
My thoughts on the government backed guarantee-- assuming this will not involve having 250 billion locked up in a vault somewhere,it must boil down to the credibility of the guarantor.In the case of the U.S and U.K,despite their reckless prolificacy,they do have their own printing presses- in the final analysis they can simply print money,indeed did'nt Bernanke boast as much in his "helicopter" remark?
As for Germany,France etc they still retain an ,albeit diminished ,credit worthiness and should be able to borrow, Spain appears to have some leeway with a budget surplus,although it's property market looks horrible.It is the likes of Italy and Greece that worry me,what is their guarantee likely to be worth sitting on a mountain of debt already?With no access to their own printing presses how can they give a credible guarantee? This could all turn very nasty, there maybe no alternative for them but to ditch the Euro(or get kicked out) it may even bring the entire european project down.Dust off those presses reenter lira & drachma stage left
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#287
So you don't want the media - including the financial media like Blomberg - to report what the head of the IMF has said - on camera? I wonder why ever not, another whining banker or speculator worried doodoo style that your investments are going south by any chance perhaps?...
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#291
I suspect that link is only being blocked due to the fact that the cited link/document is in the PDF format, and not either text or HTML, and as such requires a browser plug-in - read the house rules - and not due to the trying to stop people reading up on FRB.
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Has robert peston ever stopped to consider his role in what is going on? The success of holding a short position on the shares of any company depends on the rumour mill being spread wide enough to persude other investors that the company is overvalued by being in more trouble than is apparent or is real. The run on Northern Rock was not a scoop but a self fulfilling prophecy once Mr Peston had given his gloomy analysis and then told everyone not to panic. Has he not see Corporal Jones in Dad's Army? This was repeated to some extent in his reports about B&B, HBOS, RBS and now he suggests the same about Barclays and Lloyds TSB. What are his sources? Do they include the hedge fund and pension fund managers who lend their holdings to the brokers who hold short positions so they can gamble on the failure rather than success of shares that hold short? How does marry with the requirement for impartiality?
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As governments around the world pledge billions of their taxpayers' money to support the banks and financial institutions, has anyone asked the question as to whether the current model is actually worth saving? Is it the best one or, indeed, the only one?
I wonder whether it's really worth sustaining a system so heavily dependant on the reckless giving of credit. If 125+% mortgages hadn't been so readily available would we have been any worse off? I doubt it. Sellers would have had to settle for less and property prices wouldn't have been force to rise in such a wild, uncontrolled and unsustainable manner.
Before we rush to sacrifice billions in resuscitating a system which has allowed top directors - unchallenged - to stuff their pockets with company cash (viz the reputed $500m payout to a director of Lehman Bros) and where backroom whizz kids have been given unfettered rein to gamble their investors' deposits, aught we not stop to consider if there is another, better, way of organising our banking and finance?
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Would this be a good time to peg the Pound to the Euro? I have not noticed too many commentators discussing the merits of consolidating with the rest of the European Union and joining the Euro Zone. Surely Europe, and the UK by association, would be stronger with one unified currency.
I can't imagine a better, easier, time to do this, as the UK could include pegging the pound to the Euro as part of a European EMERGENCY package, avoiding the messy, and costly, business of having a referendum.
It has to happen sometime, so why not now when it can only benefit the economy! Well it can't make it worse - can it?
The Euro and the Pound are just about converged now, so why not peg them before the pound falls BELOW the Euro?
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Note from the EU finance ministers' conference at the weekend; "no bank integral to the financial system will be allowed to fail"...the key there is the word 'integral'. If you're not integral, you're *******!
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No189. Thank you for your advice. A preliminary investigation has shown that members of both Houses of Parliament with links to the City are found, overwhelmingly on the Tory benches
I am surprised that they have not, to use a Thatcherite phrase, rejoiced, rejoiced and rejoiced again that an Old Labour man has saved their industry from total oblivion as a result of their greed and incompetance.
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