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A very big rescue

Robert Peston | 07:30 UK time, Wednesday, 8 October 2008

The Treasury's rescue package for the banks is substantial, as big an economic initiative as it has probably ever taken.

But then the problem it's trying to fix is huge.

First, the government will make available at least £50bn of taxpayers' money to invest in banks.

The cash will be there if banks need it, if they are being damaged by a perception that their balance sheets are too weak.

If any bank didn't need the additional capital - which will be classified as Tier One under the rules that determine the strength of banks, and will probably be in the form of preference shares - it would not have to take our money.

But if a bank does want it, there will be strings attached - such as restrictions on executive pay and limitations on what it pays out in dividends to other shareholders.

Taking taxpayers' money will not be a licence to trade as normal.

Second, the government will try to fill the almost lethal funding gap created by the collapse of wholesale money markets.

For a fee, it will guarantee the money they borrow from other banks and financial institutions for periods of up to three years.

This is crucial. Because one of the great fears at the moment is that they will be unable to refinance their asset-backed bonds and other wholesale borrowings as they mature over the coming two or three years.

This will be seen as particularly helpful to HBOS - and should facilitate its takeover by Lloyds TSB - since there has been uncertainty about how it was going to pay back holders of its mortgage-backed bonds,

Third, there will be a doubling from £100bn to £200bn in the Bank of England's Special Liquidity Scheme - which allows banks to swap their mortgages for Treasury bills, which are the equivalent of cash. It's a way of providing them with greater certainty about their funding for the next two and a bit years.

Pulling this together, what the government is doing, on behalf of taxpayers is providing hundreds of billions of loans and risk capital to fix banks and a banking system that's perilously close to the brink.

At a time when financial markets across the world have seized up, only taxpayers have the resources to fix this problem.

But three questions follow.

Will it be enough?

Well, unless the economy spirals into total freefall, it should be sufficient to keep our banks functioning in these challenging times.

Can it prevent the economy sliding into recession?

Most economists think we're already there. But the package should help to prevent the downturn becoming vicious.

Will taxpayers be poorer for the rescue?

There are a number of ways of looking at this.

Plainly it would be better for most of us if a deep recession - which would create misery for perhaps millions thrown out of work - can be avoided.

But there is no guarantee that we'll make a profit on the £50bn that's being invested on our behalf (although we might).

And given the sheer scale of how much we're lending to banks, many many hundreds of billions of pounds, there has to be a question mark over whether we'll get every single penny back.

This represents the semi-nationalisation of the banking system.

And what can't be predicted with any scientific precision is how many years it will take for the system to be privatised again, for there to be a reversion to almost business-as-normal for our banks.

Comments

Page 1 of 3

  • Comment number 1.

    What will happen to the first bank that seeks help from the government? The markets will conclude that this bank is in trouble, and will stop lending to it completely. So the government will at that point be forced to fuly natinalise that bank. This plan is therefore nuts and no bank that isn't on the verge of collapse anyway will take it up.

  • Comment number 2.

    Still can't bring yourself to say Fractional Reserve Banking?

    You are a joke.

    Who's going to bail me out?

  • Comment number 3.

    Will any of this money be used to speed up the FSCS so that I get my money back from Icesave?

    I can't even ring the FSCS as their 'phone line broke once people started trying to use it!!

  • Comment number 4.

    Darling dithers to the last. Where's the 7 o'clock announcement?

  • Comment number 5.

    Where is the detail on this package?

    Why have we been givn so little information?

    We were promised detail at 7 this morning.

    What's gone wrong?

  • Comment number 6.

    George Osbourne is right. Save small businesses. Save families. They are the future. Don't pay bankers bonuses with public money. They will desert us all too easily in the future.

  • Comment number 7.

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

  • Comment number 8.

    What is the dividend on the preferred?

    10%?

    Or did we get sold down the river?

    Come on, what is the taxpayer getting paid for this?

  • Comment number 9.

    I think he may just have saved the world - well done Darling.

  • Comment number 10.

    Robert, If we are buying assets, these assets that were so worthless, that were verified by highly paid Auditors, what are we buying..
    perhaps...the debts of three friends that have chosen to go bankrupt.....
    ....Perhaps the asset is the loan forced on a disabled friend living on benefits, who cannot read or write effectively.
    Bankers and auditors should be ashamed!

  • Comment number 11.

    In today's statement from the Treasury, it says:

    "In addition the Government is establishing a facility, which will make available Tier 1 capital in appropriate form (expected to be preference shares or PIBS) to 'eligible institutions'. Eligible institutions are UK incorporated banks (including UK subsidiaries of foreign institutions) which have a substantial business in the UK and building societies. However applications are invited for inclusion as an eligible institution from any other UK incorporated bank (including UK subsidiaries of foreign institutions). In reviewing these applications the Government will give due regard to an institution's role in the UK banking system and the overall economy."

    Does this mean a possible way out for Icesave?

  • Comment number 12.

    A bold move-and i think in time the correct one. If this works along the lines of the Nordic bail out, albeit on a larger scale, then the period of exposure to the risk will be shorter than we may expect and the pay offs for the taxpayer ultimately larger than anyone is predicting.

    i for one hope so.

  • Comment number 13.

    I still struggle with the fact that we, the tax payers, will effectively be giving the banks money in order for them to lend it back to us AND CHARGE US INTEREST on the loan.

    To me, this is the same as asking the guy next to you to change a ten pound not into 8 pounds.

    Or maybe I've missed something......


  • Comment number 14.

    I may be a little green when it comes to Treasury and BoE balance sheets, but where is all of this money coming from? Is the government having to borrow this on the tax payers behalf, is it coming from funds which have been allocated for other purposes.........???

  • Comment number 15.

    Captain Brown "Darling, time to unveil the bold and ambitious plan to stabilise the ship"

    1st Officer Darling "Aye, Captain, I'm sure a ship stabilised at 45 degrees to the vertical will work just fine"

    Delusions! Delusions! Delusions!

  • Comment number 16.

    Robert

    I dread it when you speak on radio/television with yet another 'scoop.' It always seems to send the markets into a tail-spin and investors to panic into withdrawing/moving money.

    Surely this is akin to insider-trading. Please try to be a bit more conservative when you speak.

  • Comment number 17.

    ...how many years it will take for the system to be privatised again,...

    most cds will mature ie expire in 2-5 years. which will remove 60 trillion worth of debt from the system. so its just a question of buying time.

    there are always ways of getting losses back from banks like taxing profits so no need to worry.

  • Comment number 18.

    unfortunatly this is an inter country banking war, if one country protects its banks another has to, this is an opening shot. but the problem is capital has evaporated and the loses are escalating 50 bn is a drip. The next countrys promises will be bigger and better drawing the money away 10 % off usa and japan and uk in days means next crisis will be pensions insurance companys. pension schemes wont have the assets to pay as promised and will want leant money back the hole gets bigger .

  • Comment number 19.

    There's absolutely no advice for the ordinary account holder. I have money in both Nat West, who are not participating, and Abbey, who are.

    So where do I move my money? From Nat West to Abbey, because Abbey is now protected, or from Abbey to Nat West, because Nat West doesn't need help?

    Absolutely useless again. Just think about the big banks, and forget the average customer who can't understand what all this is about.

  • Comment number 20.

    There's a financial tsunami wave going to hit the city in minutes. The banks will be taken out. This is over.

    Alistair Darling has put the money of hard working people in great danger.

  • Comment number 21.

    3. At 07:38am on 08 Oct 2008, svrsig wrote:
    "Will any of this money be used to speed up the FSCS so that I get my money back from Icesave?"

    In a word No - the FSCS is not funded by the taxpayer but by all other businesses within the financial industry - so you will have to wait for your savings company to be announced in'default' before you can claim compensation. Right now, you will have to wait until you are officially told you have lost your monies and probably at that time you will be told how to claim.



  • Comment number 22.

    Asking for assistance through an injection of capital should not weaken the bank in the eyes of creditors, it declares the need for help and the solution to it at the same time. Shame about the shareholders though. And possibly the taxpayer.

  • Comment number 23.

    The role of Business Editor of the BBC carries huge influence and responsibility. The impact of their views can be profound. I would much prefer to see the incumbant, aka The Grim Reaper, go back to training school and learn how to be a little more positive in his reporting.

  • Comment number 24.

    They'll be back next week for more money from the taxpayer.

    Crybaby capitalism at its worst.

  • Comment number 25.

    I understand that one of the conditions will be a tightening up of executive compensation packages. How will this be defined? Some traders for example may be on phenomenal salary packages, but will not be classified as executives. Who will oversea this area? Compensation review bodies have proved themselves to be pretty slack in drawing up contracts which take into account any clawback options when things go catastrophically wrong.

    I’m not falling into the trap of looking for easy targets in blaming “greedy bankers”, but I feel that as on ordinary employee with a mortgage, if I borrow too much and effectively gamble with other peoples money, if things go wrong I will end up paying, possibly by losing my home.

  • Comment number 26.

    The bail-out of Banks means that we're back to square one. How long before history repeats itself? It always does because no-one ever learns from it.

  • Comment number 27.

    How do you take preference shares in a building society?

  • Comment number 28.

    Your reports on Radio 4 yesterday were more like you crowing about the effect your news has on the stock market than any intelligent analysis of the current crisis. If your reports make things worse, which you said happened yesterday, how can you justify them? The BBC and other media are meant to report what is happening so the public are informed not go out of its way to get scoops and to ruin sensitive negotiations to the point where the stock market upon which we all rely for pensions is harmed. Rein in your ego please and start actually reporting.

  • Comment number 29.

    How many new bridges, hospitals, roads, farms and factories could we build with all that money? And how many more people we would then employ?

    The government are not looking to improve the country - they are simply looking to bail out 3-4 banks.

    Shame to the spineless governments. I have no doubt the Tories would not do any better.

  • Comment number 30.

    Sounds like a sensible plan to me. There is probably no alternative to it. However, God forbid that the banks go ever back to "almost business-as-normal" if that means they do what they did over the last decade or so.

  • Comment number 31.

    #19

    So when did RBS sell Natwest?!...

  • Comment number 32.

    #19 - Natwest are owned by RBS, and so are covered under this proposal.

  • Comment number 33.

    What's all this about negotiating until 5am?
    Negotiating what? The banks are stuffed, we should be dictating terms to them. "They don't know what they're doing" as they sing at the football. The banks should be nationalised.

  • Comment number 34.

    About time - even the announcement was later than had been pre-announced which means something else had gone wrong.

    Now, where are the honourable men? The role of the Chairman of a company is primarily to look after the interests of shareholders and in this they have all failed. Who will fall on their sword first?

    The main boards of the banks too need to take an honest look at whether they have run the companies in the best interests of the company itself.

    And, lastly, this is an opportunity for the previous chancellor to face honestly his role in encouraging profligacy rather than prudence, of smiling whilst he rode the crest of the wave of the housing bubble and encouraging a 'home-owner' society whatever the cost whilst refusing to reform the public sector.

    And, for the previous chancellor to admit that his much vaunted separation of the Bank of England from its previous regulatory role, encouraged banks to push the boundaries of prudence as the FSA were clearly not watching them very well, at best.

    With firm and honourable actions from Chairmen, main boards and the former Chancellor, some sense of honour, trust and respect might also be re established and a focus of getting the Country into a good state of which we can be rightly proud.
    NM

  • Comment number 35.

    This looks bold and big enough- well done HMG. The aspect that bothers me though is that if directors take the money, they get a big pay cut and shareholders will get lower returns. Will they do this willingly? The answer I think is yes because they have to act in the best interest of shareholders and the company as a whole and the company cannot make money if it cannot trade- basically what is happening now. What is interesting here is also that individuals who invested in bonds will get their money back and in effect savers have been guaranteed too. On top of this, it is possible that this will not cost the taxpayer money at all.
    Shares will continue to slide because we are in a recession and sterling will weaken because the UK has a weak economy but Euro land and USA is just as weak so I think the Yen will be the place to be.

  • Comment number 36.

    It's high time the banks were brought to book. Nobody seriously expects prosecutions or civil actions against the banking leaders responsible. Defence lawyers will be into the middle of it before you can sneeze. That is why we need wholesale supervision by the government. I, for one, don't want reprivatisation. We have to change the system.

    Permanent nationalisation is the most extreme revenge we can have.

    Where the banks are concerned, I want revenge - and I want it now.

  • Comment number 37.

    So who WON'T get the £50bn [or is it £150bn inc the extra £100bn for the Special Liquidity Scheme]? Is it our schools, hospitals, poor children, O.A.Ps .... or is it supposed to be coming from the future tax-payer?
    Mr Bewildered

  • Comment number 38.

    Will it be enough?

    No. Just wait for Lehman's CDS auction tomorrow ;)

    Can it prevent the economy sliding into recession?

    Definitely not, it is locked in, and Q4 will be much much worse, with further banks going under and entire governments going bankrupt.

    Will taxpayers be poorer for the rescue?

    Whatever happens with this specific bailout, taxpayers will be a lot poorer.
    They will have to pay more tax as a result, and they will have to put up with years of much higher inflation as a result of this.

  • Comment number 39.

    Well hes done something,

    BUT in the next 6 months people will get there private pension statements and their endowment policy statements.

    This is when the true effect of this crisis will hit a lot more people.

    Oil has dropped but because the value of the pound has also dropped the price of oil, gas, electricirty and petrol at the pumps has hardly moved since the hi.

    If lucky this massive increase in out debt levels will not end in a run on the pound.

    We will be re-paying this for decades. We need to cut back on public spending and the size of goverment NOW

  • Comment number 40.

    Another disasterous fudge of epic proportions. When in a great hole, stop digging.
    ALL sizes business are in melt down and estimates of one third of a million unemployed by next year is probably out by a factor of ten. My view is we will see unprecedented numbers of companies go to the wall in the next 3 months.
    The users are feeling the pain of the debt addiction and the pushers are obtaining further supply from the misery barons of Browns inept government. NONE of this money will help householders and businesses. It will be lapped up by the bankers.
    Brown has broken Britain and he should carry the full responsibilty. The Country has no confidence in Brown and our puppet MP's should do what they are paid to do and reflect their contituents views and force Brown out NOW.

  • Comment number 41.

    Hopefully a consequence of this plan will be that the takeover of HBOS by Lloyds TSB will be shelved for the time being if not permanently. I doubt it though :-(

  • Comment number 42.

    The longer this goes on the more angry I get with the bankers. They have REALLY cocked up the way they run our banks. I really hope there are some Chairmen and directors heads rolling at AGM's as they have proved beyond doubt that they are incompenent. If they are sacked by the shareholders they should not receive golden handshakes (although I suppose they are written into the contracts of employment).
    I also hear of billions of pounds going from government (the taxpayer) to the banks but as yet nothing about how the banks WILL be regulated SO THAT IS CAN NEVER HAPPEN AGAIN.
    Maybe as an election looms in 2010 and maybe as things get better the bankers will start lobbying for no real change to regulation as no doubt the two main parties will need their funding.

  • Comment number 43.

    #19

    As Wikipedia puts it:

    National Westminster Bank Plc, or NatWest as it is commonly known, is a commercial bank in the United Kingdom which has been part of The Royal Bank of Scotland Group Plc since 2000.

  • Comment number 44.

    Thanks, Borwn for this morning borrowing another £10,000 per house hold (250b from 25m households).

    Hopefully you have put in place conditions such that the city's bonus pot will be used to pay back this loan before handing millions to city traiders.

  • Comment number 45.

    Even with the banks getting this money, what is to stop them from sitting on this money and not use it to help people out?

  • Comment number 46.

    Yesterday you told us about the £50bn well in advance, the banks did not sue you - you were right. They were spinning.

    My advice to your naysayers is to read a different blog. For happy news read:-
    http://www.thedailymash.co.uk

  • Comment number 47.

    At last our govenment does something which could make a real difference.

    What also annoys me is that this blog often states 'to encourage them to start lending again'.

    Either they should be forced to lend again as part of this deal, or the banks should be able to borrow from the government just like they would another bank. Their should be no opt-out here for a tight bank to say NO.

    Also... The Tax payer.

    If this measure brings stability to jobs and the economy Im all in favour.

    We should however, CANCEL THE OLYMPICS, and claw back the 12Billion that was originally gonna cost us. How on earth can we afford that in times like this ???

  • Comment number 48.

    DISGUSTING.

    Bail out the pensions - the banks ought to stew in their own greedy messes.

    Put The Bankers on the Dole!

  • Comment number 49.

    RBS is down 40% already.

    Darling has failed.

  • Comment number 50.

    Our money is gone already!

  • Comment number 51.

    The FT has published a comment stating the following in relation to the question of 'where the money is coming from' - "At £50bn – roughly equal to £1,400-£2,000 per taxpayer – the recapitalisation of the banks would more than double Britain’s planned public borrowing this year, pushing public sector net borrowing close to £100bn and more than 6 per cent of national income, worse than any year since 1994-95."

  • Comment number 52.

    Presumably the govts stake in the banks to be taken by the bank issuing new shares, thus diluting the value of those already issued. How much will the Treasury pay for the shares, and how is the price related to the dwindling value of the shares already in circulation?

  • Comment number 53.

    So where is this money that we are giving the banks? In the bank? Does this mean that we will have to sell gold to make more money and will inflation be the result?

  • Comment number 54.

    So, this clearly isn't going to work, so what's next? Clearly there is going to be a run on the l'old pound.

    I presume in seven days times, every commentator (and probably every Tory...) is going to claim they wished we had joined the Euro.

  • Comment number 55.

    Yellow journalism can be defined as inflammatory, irresponsible reporting that exploits, distorts or exaggerates news to create sensations or attract readers.

    You, Sir, have taken it to a new level.

    What is slightly bemusing is the motive. Surely merely creating sensations or attracting readers can hardly be worth the price that was paid today as a result of the uncertainty.

    The uncertainty, was not your creation. However, the panic today, was.

    The rescue package, if indeed required, would have been passed without your contribution to the mass panic and erosion of confidence.

    Many are likely to look forward to a judiciary / parliamentary that examines the leak and the decision to deal yet another blow, a useless one at that, to a wavering economy.

  • Comment number 56.

    Thinking about the longer term (and yes, it's crystal ball gazing to a certain extent).

    If there are conditions in the deal that executives' renumeration is capped in some way, those executives will jump ship to another industry in order to maintain their high renumeration packages.

    This will leave gaps in the upper management layers that may be filled by people of lesser ability. This is because they are the only ones who will accept lesser renumeration packages.

    The effect of this would be to reduce the effectiveness and competitiveness of the banks on the world stage.

    You could argue that the banks haven't done a very good job anyway and that the current executives are not worth diddly. However, I would say that the bankers were doing what bankers do. Making money (short term) at other people's expense. I believe all bankers do this.

    So, it's a catch 22 situation. Do you introduce a mechanism to restrict renumeration packages and therefore potentially weaken your banking industry. Do you allow the free market to operate the way it wants and hopefully rebuild it's place against foreign competition? Or is there another option?



  • Comment number 57.

    Does the Treasury have any evidence of liquidity shortage? It has to be something very secret, because all other banking figures show plenty of liquidity. The three largest clearing banks, the main sources of inter-bank landing say that the inter-bank landing has collapsed... Or is it just some PR exercise by the Treasury ("we are working, you know and do it better than other countries") and helping the banks to cover up their own blunders?

    How does the Treasury know that 5O billion would be enough? The banks told them? The same ones who said that everything is OK? Will there be any new regulation related to the use of these publicly financed capital increases, any scrutiny? Or is it a present from the nation to the beloved banks?

    The Treasury spoke about increments of 25 billion. How many times? Taking open ended committment on preference shares, nice move. And if the banks cannot pay dividends (as they need the liquidity and the capital, supposedly because they are in trouble), will the government vote with the shares then? If so, then in what way? How will it manage the conflict of interests?

  • Comment number 58.

    @lunatics_and_asylum (comment 13) - "I still struggle with the fact that we, the tax payers, will effectively be giving the banks money in order for them to lend it back to us AND CHARGE US INTEREST on the loan."

    If a bank takes up the offer and then profits from it, so does the tax payer, because the tax payer gets a stake in the bank. (Of course, as far as banks normally pay tax on their profits, this was already the case, but now it's even more so.)

  • Comment number 59.

    #35

    If they need the money but they don't take the package, then each banks chairman becomes the First Lord of the Treasury - in other words as they fail the state nationalises them! It's actually in the directors and share holders interest to take the 'Kings Shilling' and a pay/dividend cut...

  • Comment number 60.

    RBS.L ROYAL BK SCOTL GR 100.00 p 8:10AM 48.10 (-32.48%) 15,023,086

  • Comment number 61.

    All you jokers complaining that Peston is unduly pessimistic make me sick. Seems to me he is being rigorous and sceptical and rightly so. These financial machinations are complex and need to be questioned, not just nodded through in the hope that banks can get back to the good ole days of business as normal.

  • Comment number 62.

    If a bank is in such trouble that it needs MY money to bail it out, how can it afford to pay dividends?

  • Comment number 63.

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

  • Comment number 64.

    Comments 16, 23 and 28. Spot on. There is a word in German that is creeping into the English language 'schadenfreude' which is aptly translated by one source as 'malicious joy in the misfortunes of others'. Mr. Peston positively languishes in it. Shame on you, sir. If you had any decency, you would quit now.

  • Comment number 65.

    #2 re dickie56 comment.

    Like the comment but we should not have to wait for AGMs.

    Restoration of trust is paramount and that is best achieved by Chairmen of failing banks together with their main boards taking honourable action and resigning because they have not done the job for which they were appointed.

    We don't want another situation where the CEO of Northern Rock in front of the House of Commons Select Committee could not even see that he had steered the company into trading at too great a proportion of risk by borrowing short and lending long for the bulk of the business model.

    He should have resigned in a timely manner.

    We need to see good, honourable actions to build trust and restore respect.

  • Comment number 66.

    I agree with several of the comments re your dispatches on the current situation. Whilst not disputing that events require reporting you need to be more circumspect in what you say and importantly when you say it as currently every utterance you make is seized upon to the detriment of everyones savings, investments etc.

    Scooping the events of the banks meeting late on Monday, was partly instrumental in yet more loss of my pension fund and, reduction in what limited investments I have, being saved for my retirement together with millions of others beside me.

    You have a privileged position for access to information, it should be used wisely,please consider what you are saying before you say it

  • Comment number 67.

    You say “there is no guarantee that we’ll [ie tax-payers will] make a profit on the £50bn that's being invested on our behalf (although we might).”
    Surely if the government is taking preference shares in any of the banks (a la Warren Buffet in GS) then not expecting to make a tidy profit would be tantamount to saying the current share prices of these banks are indeed too high. Surely HM Treasury and BoE have lots of inside information that says they should know they will profit from the deal big-time. Isn't this the UK Gov't calling the floor for these stocks? How am I being naïve?

  • Comment number 68.

    Just watch the pound tank now!

    The speculators will switch from our banks to our currency.

    Remember your last holiday abroad?.....you should do....because it will probably the last one for a very long while.

  • Comment number 69.

    The weakness in this presentation is that he's also underwriting the UK subsidiaries of foreign banks, without ring-fencing their intercompany debt structure. It 's understandable, if the UK wants to remain a leader in the banking sector, but it's still wrong, as most of this will leak out unrecoverably into the world economy inside the next 2 weeks.

  • Comment number 70.

    There have been several comments regarding the problems with the Icesave bank.
    Investors in these accounts surely weighed up the risks involved before investing?
    I considered opening an account before deciding not to risk my life savings for less than 1% extra interest above what can be earned with a solid UK building society.
    Stop whingeing you took a risk, it didn't pay off so now you pay the price of waiting and worrying.

  • Comment number 71.

    Robert
    Are you to blame for the Monday's share price drop.

    Do you have to report bad news with such glee?

    It seems that you want banks to fail!

    Tone it down a bit - this is now affecting real people.

    Your negative reporting is having an influence on the market.

    I for one will be complaining to the BBC about your reporting......

    Seems to me that - those wo can, trade and those who can't, report........

  • Comment number 72.

    Brown, Balls, Cooper and Darling should all be forced to give an undertaking not to take emloyment in the finance sector for a period of say 10 years.

    This bail-out is misconceived, very poor value for taxpayers, too expensive AND won't work.

    They should nationalise any bank showing signs of failing. These banks are insolvent and cannot continue trading. Darling HOPES the banks will lend to their retail customers. If they were nationalised or at the very least had voying rights, they could FORCE the banks to lend. In fact, they will use the money simply to repay short-term borrowing.

    This set of muppets do not know what they are doing in my opinion.

  • Comment number 73.

    #40

    Brown has not bankrupted Britain, those who have are Thatcher (who put this idiotic ideology in place) everyone who has taken out a mortgage or other loan that they knew they couldn't truthfully afford, and anyone who has speculated on the BTL markets. Brown will no doubt get the flax from those who have short sight (that is political shortsightedness, not clinical) and those to young to remember the period from May 1979 through to May 1997 and the damage done to the real industries that earn real money in any economy.

  • Comment number 74.

    It is not only executives' salaries but also middle management and traders who get paid millions in bonuses for trading nothing much than hot air between themselves.

    What do I mean by 'hot air'?

    If you sell me an apple, that is a tangible product exchanging hands. I go home with an apple in my bag and can eat it when I want.

    But when you trade in 'apple' derivatives then we get so far detached from the original product (the one apple) that we make believe that the economy is worth 15 apples when in fact we started with only one apple.

    Having sold the derivatives on that one apple 15 times, for ever increasing prices, and with every trader earning a hefty commission and bonus, until, one day someone in the chain calls and requires the apple because he is hungry. This generates a chain of events, where all the people in the chain will lose money as they have to back out the initial trades in order to find that real apple and give it to the one who wants it.

    The system can cope with the above case except when there are many people hungry and they all, at the same time, require their apple. Then the system implodes and we see it for what it is. One apple supporting 15 traders who all lived off it on the assumption noone would ever need to eat that apple.

    This is what we are seeing now. A big chunk of our economy based on nothing more than hot air and make believe riches.

    I will quote you from my life insurance quotation. I will need to pay 50 pounds a month to get cover in the event of my death. If I take out this insurance then 1000 pounds will be paid, instantly, as a bonus to the agent (middleman) who introduced me to that insurance company. 1000 pounds! This is 20 payments and it will take me one year and a half to simply cover for the agent's fees, before even start putting money into the pot that is supposed to guarantee my life's savings if I ever need it.

    The above is an example of how much flowed our economy is, and how a large part of the working population is producing nothing more than hot air, just like that insurance agent above, instead of working in a hospital, a factory or a farm producing tangible goods that would really benefit all of us and which we could not possibly lose save for a natural disaster or an Act of God.

  • Comment number 75.

    So, Darling's package is truly 250bn which nicely plasters over the cracks of the banking system. But at what price? This is intended to put confidence back in the markets. Hasn't worked in the USA and won't work here.

    Will ANY of these banks now relax their lending policies and start to support business and individuals needing finance. I very much doubt it.

    The small business sector of the market has for years been forced to secure its borrowings on individual homes. You can bet that the first answer from any of these institutions, when being asked to prop up a small business will be "too risky".

    The economies are going into freefall not because of the banks liquidity, but because it became impossible to prop up asset inflation any longer.

    The worlds economies have a long way to fall before any sensible "bottom" is reached, and then a good few years rebuilding.

  • Comment number 76.

    Like most commments above I hope that this stabilizes the system but I have my serious doubts. What is very worrying is that the focus will now switch to countries and their burgeoning deficits and their ability to keep financing these.
    Brown , Darling and King have had a year to work out a plan and have totally failed as has the much vaunted tripartite system. This needs to be completely restructured. In the bad old days the Bof E had a direct link with the banks as a suprevisor. The unintended consequences of desirable Central Bank independence was to create a system where everyone was involved yet no one in charge.

    It also has its roots in issues like Equitable Life and the endowment mis- selling scandal. People lost confidence in the insurance and pensions indutry and moved en masse in property even referring to it as " my pension". The Government and the Opposition has a great deal to answer for in not watching any of this. Thus they have had a long time to assess this and have failed to act until 5 o' clock in the morning on Oct 8th 2008!

  • Comment number 77.

    To add to my previous comment, perhaps the only way stabalise the market in an instance is to see BROWN RESIGN with immediate effect.



  • Comment number 78.

    For years now Gordon Brown has described every penny of Government expenditure as "investment" - whether it was money spent on inflationary pay awards to public sector workers or whether it was increased aid to corrupt African countries.

    Now that the Government is making a genuine investment with the prospect of not just earning a return in the form of income - but also a potentially massive capital gain - the word "investment" has become so devalued that they are having great difficulty in describing the true nature of what they are now doing.

    Well done Gordon!

  • Comment number 79.

    #41

    No I doubt it will, I get the feeling that one of the aims of all this is to get back to a smaller compact banking system, the phrase that got used some place was core business.

  • Comment number 80.

    If I heard Mr Darling correctly, the UK is going to guarantee British depositors in an Icelandic bank. Fair enough, these are British depositors.

    But it sounds as though Iceland isn't even going to honour the minimum guarantee (about GBP 16,000 per person), and plans to support only their own nationals.

    If true, this is outrageous. If this is the situation, we should seek to recover our money from Icelandic-owned assets in the UK.

  • Comment number 81.

    Dear Robert
    "IT AINT GOING TO WORK, you know."
    BCCI AND BARINGS, i wonder where the lessons learnt in these crisis have gone,
    There can be no stopping the Traders operating in the markets, who are driving the worlds Economy, from exploiting the wests Economies for profit
    "DEREGULATION OF THE MARKETS IS THE CAUSE OF THIS SICKNESS."

    That is the name of the game and the only game, USA will be bought to its knee's followed by Britain, UNLESS, politicians stop the traders from doing the damage.It is too late for America, its Economy is Bust.

  • Comment number 82.

    Robert
    Could you go on holiday for a week - and give a chance for the economy to recover?

    Your reporting is so dismal and down beat, that it's causing the negative sentiment across the country.

    Why don't you, look at Peter Jones' (Dragon's Den) appearance on Breakfast yesterday morning, for some influence. He said that if we continue to talk about recession, it will come true....

    Your appearence on the news makes us now cringle.....Can you really be so happy about all this.

    Is this your big chance to make a name for yourself. Just do it for all the right reasons.

  • Comment number 83.

    Looks like this deal is pretty one sided in favour of the banks.
    There is no clear possibility of the taxpayer taking part in the rising stock price of the banks that it is bailing out.
    A preference share, without conversion benefits, only allows a coupon (rate of interest) to be paid. There is no suggestion that the preference shares will have conversion options.
    No detail is given on the coupon.
    Darling tells us that in exchange for this deal, the Government has guaranteed bank to bank lending.
    So in return for providing the banks access to money from the taxpayer, on undefined terms, the banks have managed to negotiate that the Government also guarantees bank to bank lending.

  • Comment number 84.

    With the Government now owning shares in our High St Banks; can anyone tell me if there will be an impact on Offshore Branches of these Banks in places like Jersey. Will the Government be able to stop the Tax evasion by these branches? Do UK Offshore centres have a future for (partial)State owned Banks?

  • Comment number 85.

    Once you get your head around the Debt-based, fiat, Fractional Reserve Banking System it becomes absolutely clear that it is mathematically flawed. It does not work and cannot work. It gives the illusion of working in the short term but the growth of the money supply expands geometrically (exponentially).

    When you get to the steep part of the geometric curve it is impossible to get enough traction (new people taking out new loans) and the fill rate of the public money pot falls behind the emptying rate. The money pot starts to run dry. Thats called a Depression.

    Bear in mind, the money supply 'only' contracted by 3% during the depression of the 1930's. Such is the instability of the FRB system a 3% reduction in money supply causes systemic collapse.

    The ONLY weapon the government has in its armoury is the Printing Press. For those asking above 'Where does the money come from' the answer is not some public bank account which is sitting there stuffed full of pound notes. No. When the money is required, Mr Darling simply trots along to the mint and prints some more.

    Remember the cancer that is inflation. Inflation, wrongly and complicitly reported by the BBC and the mass media, is actually a measure of the devaluation of the pound in your pocket. Every new pound printed devalues the pounds already in your pocket. When AD or GB say they have little or no control over inflation they are lying. The Printing Press causes inflation.

    When AD says you 'might' get some or all of your £50bn back don't forget that the £50bn was spent today at today's value. When we get it back it will be spent at the future, devalued rate. i.e. the purchasing power of that £50bn in future will be less by the fact that you printed the new £50bn in the first place.

    Roberts reporting on this issue is reprehensible. He complicitly and steadfastly refuses to explain the true nature of this supposed 'fix'. What happened to Public Service Broadcasting?

  • Comment number 86.

    re 74 - all you have to do is negotiate the right price- go to an IFA that charges by the hour and has all of his commission entitltment written back into the product pricing. Sorry that you spoiled an interesting post with a totally invalid example.

  • Comment number 87.

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

  • Comment number 88.

    I think Robert Peston is actually being quite positive about this one - he seems to think it will work. It does need wide support however including from the doom-mongers on this blog.

    Weren't we expecting bank shares to go down as a result of this announcement? Therefore, the drop in RBS share price is no reflection on the likelihood of success.

  • Comment number 89.

    #47

    We can't cancel the Olympics, we can ask for the contract to be cancelled but at what cost though (although the IOC could decide that the worlds economic situation is such that they will cancel the games) or we could simply default, which would not only make the UK a laughing stock inn the world but it would reduce our ranking in the world to about the same level as a 'Banana Republic'!

  • Comment number 90.

    The only snag I can see is the effects of the inevitable publicity given to any bank asking for money - the cure is to take investments in all banks if any bank asks for such investment.

    Also Poulson included protection fro savers and borrowers - where is this in the proposals?

  • Comment number 91.

    An American commentator described the US Government bailout this way: "The banks go to Las Vegas to gamble. If they win, they keep the profits. If they lose, the government takes the losses."

    I can't see how this is any different.

    Is it possible to ask for my share of the money in this bailout package to be withdrawn? I mean, it does divide up to over £800.00 for every man, woman and child in Britain and I think I could put my share to better use.

  • Comment number 92.

    16, 23,28,64 - a few voices of reason in this increasingly irrational world. Sadly, Peston's judgement (or talent) won't be questioned. The BBC will instead "praise him" and there'll be lot's of ego-massaging and self-gratification in an around broadcasting house today no doubt. "Well done Robert".

    I've said before that the media will create its own demise (and that of society). It will certainly do so as long as the BBC (oh yes, something else the tax payer owns a slice of), continues to scaremonger and proffer journalism which is little more than vacuous speculation.

  • Comment number 93.

    #51

    Just prove how much the bankers and speculators have taken down this country, by the end of all this they will have done more damage to this country that the unions ever did...

  • Comment number 94.

    I've not read the Treasury statement, and the queries below might be answered if I had done. Apologies if that's the case, but my questions are:

    1. What's the dividend on the pref shares? 10%? More?

    2. Is there any talk of taking warrants or options on the banks' ordinary shares so that the Treasury shares in any upside on the price whilst public money is committed to the banks via the pref shares? If so, how will the Treasury measure the upside on shares in non-quoted banks and building societies?

    3. Is there any talk of putting government appointed reps on to Boards of banks that take the pref shares help? In particular, is the Treasury going to ensure it has actual representation on bank remuneration committees in order to give teeth to its requirement that bonuses etc be reined in?

    4. Finally, looking at similar bail outs in the US, and Hypo Real in Germany, in every case, I think, the CEO has resigned. Is acceptance of pref shares investment going to be conditional on the Chair and CEO of all institutions that accept it having to resign?

  • Comment number 95.

    I'm with 61.

    It makes me laugh out loud when I read the comments about how negative RP is.

    He's been blamed for everything from the NR fiasco to the sell offs yesterday.

    What did he do this time to cause the FTSE to be plummeting today? Nothing. The governement have announced a rescue package and it is worthless already.

    The whole global economy is suffering, and no matter what the Chancellor or the PM does is going to be a blip in the ocean. Better to keep the powder dry so we can use these funds when the proverbial finishes hitting the fan.

    I still believe that for as long as people keep thinking that we can boost the economy back to where it was, then we have a long way to fall.

    What we had was an historical anomoly of easily available global credit which caused a massive bubble in lots of sectors. The party is now over.

  • Comment number 96.

    There seems to be no reporting of what these measures will cost tax payers in the future.

    Its as if we've found a magic treasure chest in the corner of a room that will make it all better.

    Inflation and chaos is my guess, all because the government was too soft to stop banks lending beyond their means.

  • Comment number 97.

    So the UK state now has ownership effectively of a large fraction of the UK economy but this ownership will not mean intervention to change prices set by the market. Striking similiarities to the Chinese economic model? Do you think so? Are we adopting something akin to "Socialism with Chinese characteristics" ?

  • Comment number 98.

    A big rescue with a short term solution and why should the government worry they will be writing their memoirs in two years. Not that we cannot do without the rescue but what is it doing, sticking sand bags in a 20th century semi destroyed financial temple when we need a temple to sustain us through the 21st century.

    That needs a massive re think for while this rescue may put us back on the road to recovery it has also put us back on the road to the next boom and the next bust. We need to have a very radical re-think about the way we manage economics and social stability in the next 20 years and then beyond.

    We need some radical thinking we also need a strong fiscal regulator not the ineffectual FSA an authority with some real clout and the remit to serve the fiscal interest of the entire nations community not just the financial sector which it has to achieve through controlling the financial sector.

    It is not the big issues that breaks any defences but the small excess that affect every one of us and damage minorities that destabilises systems (10%tax) They economy and social cohesion must be safeguarded in the next ten years while we come up with a real solution to the global social and economic problems we face otherwise this so called rescue will be good money after bad and we might as well have let the lot go and started a fresh with current knowledge

    The problem is with a rescue everyone breaths a sigh of relief and with that exhale goes half the lesson learnt. It is vital that some start thinking about the alternative solution the route to the 2nd half of the century in tact. Some positive suggestions may be found amongst the wheat and chaff by clicking the link to my other recent BBC blogs responses.
    There is a future as well as the present only the past is gone.

  • Comment number 99.

    Restrictions on executive pay? In the US executives are having to give account of themselves in front of Congressional Committees. When are we to call on those who put us in this mess to explain themselves? I think resignation of the CEOs
    should have been part of the package. Should greed, vanity and self-delusion on the part of those in charge go unpunished?
    It was said by a BBC correspondent, that those in 10 Downing Street had been working hard over night to put the package together. They are all in jobs which they wanted, and being paid well enough for doing it. What of those who had no sleep last night as they face total wipe-out, through no fault of their own?

  • Comment number 100.

    i agree with post 1. the problem with this deal is the voluntary aspect. would have been better for the government to announce an audit of all the banks, and those found wanting would be capitalised on the government's terms, whether they want it or not..

 

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