Banks' most pressing problem
A shortage of capital is a big issue for banks, as I've been blathering on about for days (and see my note of this morning on our banks' meeting with the chancellor and request for a capital injection from taxpayers).
But the really urgent issue is the breakdown of wholesale markets, and the increasing difficulty that almost all banks are having in funding themselves on a day-to-day basis.
The basic problem is that the collapses of Lehman and Washington Mutual have made all financial institutions wary of lending to any bank where there is even a scintilla of risk.
It turns out, therefore, that Hank Paulson and the US Treasury were probably wrong in allowing them to fail.
But that's spilt milk.
The more important point is that, across the globe, there are very few banks that are finding it easy to raise money from wholesale sources.
In other words, all this fuss about insuring retail deposits is beside the point.
We all know that governments won't allow retail depositors to lose money - so that's not something to worry about.
A far bigger concern is that most banks are suffering a progressive erosion of the money they receive from other financial institutions.
To date, that's been replaced by colossal loans from the authorities.
In the case of the UK, the Bank of England and the Treasury have collectively provided well over £200bn of incremental lending to our banks over the past year.
It's what I've described as nationalisation by stealth.
But all governments will probably need to do more.
What the Irish government did, in guaranteeing both retail and wholesale deposits in their banks, may turn out to be something of a model for Europe-wide action.
What we may need is a cast-iron pledge from all European governments that they will fill whatever funding gaps emerge at their respective banks from the seizing up of money markets.
It's probably the best outcome that can emerge from today's meeting of European finance ministers.
Bankers all across Europe are watching this meeting, and keeping their fingers and toes crossed, that the finance ministers understand how fragile they are - and that the finance ministers will pledge to keep them afloat, whatever the apparent strain on public-sector balance sheets.
I'm 
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Clearly necessary, Robert, although putting my faith in Europe's leaders still makes my flesh creep. However after saving the banks (fingers crossed) the Governments surely then need to ensure that banks do actually lend to businesses and not hoard or the Great Depression will be repeated?
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Not sure how sensible it is to report every comment or meeting - the banks had a 'secret' meeting with the government about funding and its now all over the press causing this mornings massive share falls.
Its not for us to know every detail of every act taken in this drama - sometimes its better for everyone if some people just shut up and let the banks and government get on with the fire fighting.
But I guess where does the reporting begin and at what point does it stop?
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Robert,
Again, you skirt around the actual problem of Fractional Reserve Banking.
When will you give us your personal views on it?
BTW - a shortage of capital is what the people are also experiencing when the banks ATM's stop working.
Regards,
FWIW
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Robert
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Are HSBC bulletproof, then? Or as close as we will see (the last to fail or the last one standing?).
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How about the Banks' international creditors taking a haircut? What you are really suggesting is that the EU governments bail out the international banks who lent money to our banks and so forth. After all, they are the winners if Darling bails out the UK banks.
The Irish pledge is very good but, unfortunately, unsustainable as far as their banks' other creditors are concerned. As you pointed out on the tube recently, the Barclays liabilities alone run into trillions and are beyond the budget of the UK taxpayer.
Darling fiddles while London burns...
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Indeed Robert solvency is *the* problem confronting the banks and money markets. The Irish solution looks as if it gets around solvency doubts by bundling it up in 'not dare' to be asked questions about nation state solvency (brought to a head now with Iceland) but that could change. Moreover, the EU has not developed a unified model yet to manage the solvency crisis (forget this talk of liquidity and illiquidity). Should states take equity in banks in return for the exchequer becoming the underwriter of a potential financial armageddon? I think so, but the Irish didn't neither have the Greeks. The Swedes did howwever in teh early nineties. The Chancellor thought so in the case of NR. Does the restoration of confidence require the retirement of existign bank executives. The Irish think not, but the Chancellor, the Dutcch and Germans appear to think yes, and quickly. So with such a mixed bag of responses what is the likelihood of consistency???
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Again, why can't we just borrow from the BoE direct (via Northern Rock) and leave the rest to fight it out until the largest, best run banks devour the smaller ones? Is that just not practical?
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I have the highest respect for your journalistic integrity in these hairy times Robert.
Barclays is denying that it has asked the government for more capital but you are unequivocal in saying that it has. They are not suing you so I believe you - not them.
Some posters are criticising you for talking the market down. I am confident that you are only reflecting reality in a timely way.
-
10pm Hypo = Hippo?
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Robert
While I admire your investigative skills and the fact that you clearly have some excellent insider information I do wonder if your actually helping or hindering the situation. Clearly, breaking today's story saying that the major banks are asking for additonal capital only adds to the fear and doom that is engulfing the banking sector.
Be careful, your words are affecting the lives of real people, and the wealth of real individuals. Now, whether you feel that you have any moral obligation to keep this kind of information quiet - until such a deal can be brokered - is perhaps one which is outside your remit. But it does me pause for thought and I would hope, you as well.
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Extended Collateral Long-Term Repo Operations that is the answer to everything right?
Robert, you estimate the current level of BOE financing at £200M with the increase to a 3 month time frame this will keep the bank system liquid.
The money market is a zero sum game, a few foolish banks (or should that be foolish virgins) are caught short however two thirds (my guess) are OK, but keeping their surpluses in their back pocket (or more likely overnight money markets).
The latest fall in bank share prices is due to the realisation the HMG may bail out the system but not the shareholders of the "foolish virgin" banks.
Good
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i would be very interested if you could provide some details on banks' existing capitalisation (both book capital and market cap) so we can get an idea of how significant the government's recapitalisation plan would be percentage-wise.
here are some thoughts:
i can well believe that our banks are not current seriously short of capital. however, it has to be expected that the uk banks are going to experience significant losses on their mortgage loan/security portfolios (and their corporate loan portfolios) as the economy heads into recession and a housing slump. this means fear of future undercapitalisation could well be a big driver for the current liquidity crisis.
however, it is equally possible that our banks are being undermined by a liquidity crisis that is not really of their making and that does not reflect the fundamental solvency of our banks.
i suggest that what is driving the current liquidity crisis more than anything else is not merely the collapse in confidence, but also the entire process of global leveraging. hedge funds and certain banks (that have real capitalisation problems) are all having to shrink their balance sheets very very quickly. in order to meet margin calls and to bring leverage down to a level that their capital can support, they are liquidating assets as fast as possible. one of the easiest assets to liquidate in a hurry is an interbank deposit. hence the run on the uk interbank market.
the implication is that even if the government does all that is necessary to restore confidence in the SOLVENCY of uk banks (i.e. that their assets are worth comfortably more than their debts), the fact is there still may be a lack of confidence in their LIQUIDITY (i.e. their ability to come up with ready cash on demand), precisely because the liquidity crisis is being driven by more than just solvency fears.
this means that to support the banks, not only is the recapitalisation required, but also guarantees on deposits and even easier short-term lending from the boe. i think if all these measures are taken (both in the uk and across europe), then our banking system should stabilise in the next couple of weeks.
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WHY IS THE FRACTIONAL RESERVE BANKING SYSTEM A FRAUD?
Anyone with an O-level in maths (let alone an A-level) can surely understand that the creation of debt and hence the payment of interest only works (to continue generating huge profits) if there is a geometric growth in debt. The word geometric means non-linear. In other words debt must grow exponentially. It is a physical, undeniable mathematical fact.
This is why it's a wholly unfair and insiduous way of transferring wealth away from the many to a very select few. It's so simple and devious that when it is realised it literally beggers belief! (for e.g. R. Fuld-Lehman Bros. USD300Mn, H. Paulson-ex Lehman Bros. USD500Mn, T. Blair-JPMorgan USD5Mn p/a etc.)
Why do you think the EU state and the Euro currency was devised?....I'll tell you why, it's for the expansion of the European state (now 500 million people) in order to create a vessel in which to further expand the FRB system and to further enslave hundreds more millions with debt and debt interest.
The same is being planned in North America with the union of Canada, Mexico and the USA for the forthcoming introduction of the Amero currency.
You can bet your boots there's probably a similar plan for S. America and Asia.
Hence the Western hatred of Islam and it's aversion to the unethical use of usury and charging interest. It is an obstacle they believe that's worth going to war over.
Hence the lack of no real democracy. It facilitates the subversive transferral of power to a political and financial elite aka Brussels village, Westminster village, City square mile village, Washington village, Wall Street village etc., etc. (pssst - it's the big secret of the of the establishment). Hence the Brussels/Strabourg gravy train, the Westminster snouts in troughs. DEMOCRACY IS A SHAM. Wake up!
It's why it makes no difference which party is in power. How else could it explain a Labour government presiding over a 10 year orgy of City greed during which they have been allowed to completely privatise the profits.......only to then get away with socialising the losses.
It's all part of the new world order that is the secret agenda of the 'masters of the universe' for a one world government.
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Who were/are the 'wholesale sources' of funding to the banks? This has never been revealed to my knowledge.
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200Bn made available to date is not enough QED. Substantially more needed by definition. A Trillion needed perhaps in the UK. The effect is the same as a industry sector run on the banks, removal of funding. High Street depositor security is a red herring really isnt it. The problem is structural and the hope for the gov' of the BoE is getting liquidity flowing again. Spare us a Trill gov'.
They have a model 'City of London' sculpted out of 'dog chews' on the News at the moment, quite appropriate, especially as I first thought they said it was made out of 'dog poos'. Could have been a freudian slip I suppose.
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I wonder if the bankers in the boardrooms can see the irony of their begging for capital as a result of their reckless lending and foolish use of leverage to buy questionable assets as their employees reposess houses and persue people through county courts for ill-advised borrowing and poor debt management.
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Robert, the banks most pressing problem is that they are INSOLVENT. They created vast amounts of 'money' as debt, and now that debt is unable to be repaid, that 'money' is disappearing.
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It's time to let this ponzi scheme collapse in on itself.
A severe depression at best is coming. This depression is not just about money - it's about where we have allowed ourselves to be taken as a society.
Greed has been the goal, but in a world with a growing population of 6 billion inhabitants and scarcer resources, this path is simply no longer sustainable.
I'm optimistic for a less grinding and brighter future.
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Nick,
Keep up the excellent blog.
I am a financial lay person, have not studied economics and what have you, though I am wondering whether I might have dreamt up a simple (?) solution to all of this mess.
In the US and Europe, and also in other markets it's the liquidity that is the problem. The banks don't lend to each other, businesses that don't have enough cash to flow go bust when they can't meet their running costs as their easy source of credit has dried up and so on.
Why do not governments instead of Bailing out financial institutions instead setup a "National Bank" - and use that as a vehicle to lend money to other banks at a rate thats less than the present LIBOR.
As banks can now get credit again and the LIBOR is lower - this will cause them to reduce their lending rates to each other and the wheels of the economy get oiled some more and can start turning again.
The Govt bank charges interest - so the taxpayers who's funds setup the bank in the first place see a return thats more short to medium term than praying that the toxic mortgage backed erroneously AAA rated securities that helped create this mess will someday become profitable - maybe.
Is this too simple minded?
This also allows banking institutions that fail due to mismanagement to suffer the consequences of their actions in a free market. New institutions will surely spring up to take their place.
I always find it odd - that for a thing which doesn't even exist except as a concept in the minds of the people that money seems to cause so much trouble.
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No Robert they were right to let Lehman and Washington Mutual go under. They should have let others suffer the same fate. We shouldn't be subsidising these banks, full stop. This idea of an imminent global financial meltdown is just a scam, a useful device for ripping-off the taxpayer in order to secure massive subsidies to support failed and failing banks. The taxpayer is becoming a cash-cow for rogue bankers and large investors who've fundamentally undermined many of the 'financial structures' they've built to support their 'shadow banking' activity.
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Since the problem is said to be that banks lack the confidence to lend to each other (boo-hoo), and the deleterious effect is that the "real economy" (at last, implicit acceptance that the financial sector of UKplc is and was all smoke and mirrors) cannot easily borrow funds to do its business, why don't darling Alistair and gorgeous George instruct their own banks (NRock and BofE) to lend money directly to these non-toxic borrowers, instead of wasting my tax money investing in failing banks?
Or does this require them to show better economic judgement than the present crop of bankers? They could always ask Gordy for some tips.
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What about the 2% of savers who collectively have over 40% of savings? They may be interested in fleeing to a banking system with an unlimited guarantee.
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One final thought - going back to my point about this information being leaked to Robert on such a freely given basis. I work in the City and I would be amazed if the person doing the leaking didnt also have a vested interest in the financial consequences - ie shorting the FTSE if not already carrying a short on banks (remember you can't take out new shorts, but you can run the ones you originally had).
Has Robert checked his sources to ensure they are not profiting from any information given to him? Wouldn't be very smart if we all found out that Robert was being used for other people's gains, if not his own.
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There's speculation that there wasn't a request for capital made by the banks to the Chancellor during the meeting, as orginally speculated that they had. But the damage has already been done. Spilt milk so to say. So much depends on the confidence in the markets that surely during this time, the media must be responsible in it's reporting and ensure that the details are verified and true? If confidential meetings cannot take place, how can the required frank discussions be made to formulate an effective plan without share prices dropping some 38% prompting further panic?
I respect the reporting the BBC does much, much more than other sources but I do think this mornings report was highly irresponsible.
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I don't understand why nobody is able to say clearly what the situation is:
1) UK economy and consumers have been over-reliant on credit aka debt. This is a fine way of financing economic activity -- as long as there is a reasonable expectation that the credit will be repayed with interest.
2) Now the international money markets have realised that it is unlikely that the UK, UK banks in particular, can meet their obligations and they have turned off the money tap - understandably so. So the UK for the first time in a long time has to stand on its own financial feet rather than drawing in funds from abroad with the impression of a booming economy fuelled by the house price bubble.
There is nothing really that the government can do.
Nationalisation can preserve the status quo of what each of us owns, but it won't mobilise funds from abroad. I don't understand why otherwise intelligent people think that the government can help. People who have made unwise lending decisions will have to be burned, how else will they learn? There is also nothing the BoE can do. Intervention will lead to inflation.
The problem is also not a 'lack of mortages'. What needs to happen is that house prices fall back to realistic levels, if necessary due to massive repossessions, then the market will pick up again.
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"Bankers all across Europe are watching this meeting, and keeping their fingers and toes crossed, that the finance ministers understand how fragile they are..."
But do they understand? This crisis has shown how inadequate 'professional' politicians are. A background of being a party hack, a researcher or the like fails to prepare them for big issues that can't be triangulated.
It should also be said that the BoE hasn't covered itself in glory recently - along with the ECB. Interest rates must come down sharply.
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The statement: "We all know that governments won't allow retail depositors to lose money - so that's not something to worry about" must surely come either from a Government press release or from the offices of some City lawyers.
This can only be true if the words are defined so narrowly as to be devoid of their ordinarily understood meaning.
What happened to Equitable Life?
Is it not true that Icesave have this morning prevented internet customers from either depositing or withdrawing funds from their accounts? OK, so maybe they haven´t lost money permanently, but they have lost access for the time being - one could argue that this is a necessary first step to any ultimate permanent loss.
How can depositors money be protected? Only by taxpayer assistance. If we assume that there is some overlap between taxpayers and depositors then they still lose - albeit not directly.
Why don´t you explain what makes the "Governments" (by which I assume you to mean EU, Australasian, Japanese and North American Governments) so special compared to say Latin American Governments?
Why don´t you explain that one potential outcome to this crisis is the creation and generation of inflation, and that inflation by definition devalues money and by logical consequence means that retail depositors lose money?
You´re obviously connected to the Goverment - and if, given the circumstances, this spinning, twisting and turning is the best that they can do then the common man will reach his own conclusions as to both the motives and likely success of any Government inspired rescue initiative.
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@ no. 5 - no, HSBC are not bulletproof - they are simply the largest bank, with the greatest exposure to all these dodgy 'assets' - and therefore CANNOT be allowed to fail, since their collapse would trigger the end of the financial system.
However, in the end, fail they shall. This is inexorable. The worlds' banking, pension and insurance systems are stuffed full with at least $200 trillion (and I've read up to $1100 trillion, no one really knows as the banks won't own to what they have on their books) of dog-turd derivatives, swaps and bad debt.
A new financial system is required.
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#2
Do you honestly think that the same information is not already out in the financial market place, all Mr Peston has done is to allow everyone else know.
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Have I got this right?
The BoE *lending* money is not enough. The banks now realise that they are never going to be able to repay all the money they need, so are now directly asking for money from the government. Money that it will never repay. An unspecified sum, since none of them know their real exposure to these bizarrely-packaged bad debts.
Unlimited free money, basically. Money that I will be paying.
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It has become clear that politicians throughout are supremely incompetent to deal with such a complex crisis. That they understand little of the what has been going on over the past years, is evident in the lack of effective regulation structures. Governments should have realised that the whole investment banking industry was built on greed and short-term speculation. They must cut interest rates immediately and follow your advice, Robert. Peston for Chancellor!
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It's nonsense to blame RP for tumbling bank share prices. (They also tanked yesterday, before the post on the 'Big Three' approaching HM T - and no doubt before the approach itself.)
The approach happened. If the media learn of it and are confident in their sources, they have a duty to report it.
Withholding news of this event would have been a manipulation, not the other way around.
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re #19,
DOH!
I of course mean Robert and not "Nick" .
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As a simple afterthought to my comment #25 above:
What is wrong with funding bank loans from bank deposits? That way, all this mess could have been avoided.
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The only bailout these *ankers should be allowed is from the top of their ivory towers.
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I would also echo the comment as to whether your reporting is helping or hindering the situation
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Well you got there in the end Bob - yes of course the wholesale markets need to be rebuilt - sooner rather than later.
The other 'stuff' is the basic short term requirements to even stand a chance of rebuilding teh wholesale markets e.g near term needs: stabilise banks through liquidity and capital injections (dont skimp on a major restart (ignore ignorant nattering about toxicity and bankers benefitting - part is tru but the bigger risk affects everyone), backstop the value of the structured assets (and by the way craft a more holistic framework for assessing the risk and value), reduce UK interest rates by 2%and force banks to pass on the rate cuts. Accept national interests will be paramount in the short term , but work at the margins to coordinate.
Then sort out how an independent view of risk transfer / distribution can be assessed. The current crop of CRAs need to be replaced with more diverse opinion not in a controlling oligopoly. Key is that real investors get the relevant information and actually know what they need to assess and how.
BW
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#19......who is Nick?
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"It's what I've described as nationalisation by stealth."
And is that a bad thing?
Please explain why we should RENT our money from banks? Why exactly should they alone of all private companies be allowed to create and destroy money?
This is a *fundamental* question of sovereignty and democracy.
The world is in need of monetary reform.
"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."- Lord Acton
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Does anybody believe that one of the architects of this mess, our PM, Gordon Brown, is capable of unpicking the mess. It is just going to be more muddle along.
Any solution, if there is one, will come from the BoE, the politicans are out of their depth, it is written all over their faces coming out of meetings. Politicans talking about it and making soothing noises doesnt make the problem go away.
A politican saying to the person they want to put money on the table, at risk, - you are overstating the risk - has no impact when that person is looking for some sort of action.
What is going on at the BoE that is the important thing, something has to give in the next few months, sooner rather than later probably.
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Dear Robert
Cap in hand , AGAIN ---- its a three way operation, Politics, finanace and the economy, take one away and all fails, ah, but the compounded issue is that they all started the rot.
However, there is definate blame to be aportioned here and that blame lies squarely with this three,
Politicians, Bankers and the regulators, they caused the Economy to fail, so the creaters of this crisis and fiasco are Politicians and Bankers, no one else.
Lehmans Brothers directors personify the reason GREED, pay them selfs $10 million dollors and run, going back to the Public to be bailed out.The cretins of the banking world are are leeches of depravity, who have no respect for the ordinary man and women desparately hanging on to what ever they can salvage form the second Great Depression and recession, Black Fridays used to be once every decade or so, now they come as often as double decker bus, AND it is wholly down to speculators in the stock markets who are doing this, the exact men and women who were directors of Lehman Brothers,who went home with money taken from a liquidated compamy thinking only of themselfs and not one iota about the consequencies, and the harm they have done to ordinary people who trusted them with their money and life savings,
It is in the hands of thses same individuals to sort this crisis out, but dont hold your breath, no of them can agre to work unilaterally.
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Reported elsewhere on the BBC website:
Isn't this making the news Robert, not reporting it? A self-fulfilling prophecy..:
"Banking shares have fallen in London amid news that the bosses of big banks had met Chancellor Alistair Darling to discuss fundraising.
Royal Bank of Scotland fell 32%, Barclays and Lloyds TSB were both down 9% and HBOS fell by 14%.
The banks called on Mr Darling to come up with rescue plan proposals, BBC business editor Robert Peston said."
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Of course the banks must have cash liquidity somehwere: they would have got it from us, their customers, in the first place.
Perhaps they have bought securities and other investments with them, and in that case they need to get off their backside and pull those investments back in. If they take a loss they take a loss, but they had our money to start with and they should get it back. We shouldn't have to give them any more cash.
Cash is the fundamental basis of our relationship to our banks as customers. It was ours, we loan it them to keep on deposit for us. Or are we facing the reality that our banks have p***ed away our money chasing shareholder returns?
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"...across the globe, there are very few banks that are finding it easy to raise money from wholesale sources"
"...most banks are suffering a progressive erosion of the money they receive from other financial institutions."
Could you please explain who these "other financial institutions" are and where they are now putting their money if it's no longer being lent to "most" banks? Is the real issue here that the money is being repatriated to Asia. If so, this seems the real key to this whole liquidity issue.
#6 suggested "How about the Banks' international creditors taking a haircut?". Can this be arranged? It seems like the only way to regain stability.
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You are well sourced
However, did or did not Barclays ask for capital? If they did, and they are saying they did not, this is a real problem of trust for Barclays who have been accused of a lack of transparency in the past. If they did not...Well The Hon Robert I can't believe you would be wrong.
Credit means "He believes/ed" does it not?
Important right now.
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Don't you get the feeling that you're being used by some unscrupulous City types Mr Peston ? I look forward to your reports of the FSA/SFO investigation.
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As a previous comment alluded to Robert, you are (IMHO) in grave danger of creating news rather than just reporting it. This is a very dangerous avenue for you (and the BBC) to go down. Your comments have been freely interpreted as "Banks go seeking funding" and we see the fall-out from that this morning.
I understand your objective to be "first" with the news (kudos etc.), but please try and think through the implications of how and what you report.
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Robert
While I object to the treasury (aparantly) using you as their press officer, I certainly don't think you should (as others have suggested) keep anything back.
Lack of transparency is never the right approach - while it may seem attractive in the short term, that way lays disaster.
It still isn't clear to me what the *real* problem is...
- Share price down? So what? Surely that is a reflection of the state of a bank, not a cause of it...
Is it just that banks need to pay interest on interbank loans they have taken out and haven't got the cash?
Normally the cash would be retail deposits that they receive, and they would take out new loans to cover the rest - and now those loans aren't available?
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Peston for chancellor!! What a pleasure to have a clear head giving clear explanations.
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Why don't the government just say it?
Yes they will recaoitalise the banks and sort out the detail later.
Yes they will guarantee all savers deposits and sort out the detail later.
That's what everyone needs to hear to restore some iota of confidence.
If they don't then questions will be asked about the solvency of the country as a whole.
Panic will set in like we've never seen before.
The depression of the twenties will look like a practice run.
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I hope your mole, either within the banks or the Treasury, is accurate.
If not you will have made, and unnecessarily contributed to an earthquake in bank stocks this morning which will impact on normal everyday people, businesses and tax payers in the long term.
Don't forget that whilst you have power without responsibility you still have to look at yourself in the mirror.
Think about it.
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It is, I think, entirely correct to complain about the manner in which every twist and turn of this sorry saga is reported by the BBC and, I am afraid, Mr Preston.
I'm not suggesting that the reporting is the root cause of the banking problems, but the sensational way in which every problem is broken as a scoop, the choice of language used to report those scoops, the focus on stock market losses (rather then their subsequent, inevitable, rises) (and again the choice of vocab to describe those losses) is, in my opinion, adding to the sense of unease which we all feel.
True, these things ARE scary. However, the BBC ought to report them in a measured manner.
Also, please keep your dire predictions to yourself - predictions may or may not come true, but they are NOT NEWS.
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Robert, I have to wonder at your comments. You seem to have no idea about banks, economics or anything. Why on earth did the BBC choose you for this job? What are your qualifications for this job? Maybe a degree from some pumped up University which used to be a college? Sorry, but to say you are incompetent is an understatement. Your hand-waving does nothing for your credibility. It just shows that you have no idea what you are talking about. But then again, no doubt the BBC will keep you on, as they do such incompetents as Justin Webb in the US. Shame on you BBC.
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Does Robert Peston ever read this blog, or is it a write only medium?
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I'd imagine that the reason that Mervyn King is not happy about bailing these idiots out is that despite their almost constant meetings for the last 6 months it's now clear that they've been very economical with the truth to him. Had he known the full extent of the problems at the beginning it would have been easier to do something about it.
The very least price they should pay for their rescue is full and public disclosure of their books on pain of criminal charges against the directors.
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Robert
The bigger concern is the inability of Mr Brown et al. in failing to recognise the signs well in advance.
In this case the horse has well and truely bolted and all the government is doing is delaying the pain for future generations.
I find it laughable that anyone should believe Mr Brown is the 'man' to lead us out of this mess when he clearly got us into it.
He should forever be known as the 'spend spend spend, lend, lend, lend' chancellor.
His failure to ensure banks are appropriately monitored and regulated is astounding for someone who is supposed to be a world leader in finance. And his lack of prudence in putting funds etc. aside during the 'good' years also shows a lack of judgement.
In any other walk of life he would have been removed from post some time ago, along with Mr King of the Bank of England. Their combined ignorance and gross negligence has cost us all.
I believe many people are continuing to scaremonger and will make a lot of money from current events.
Once the Northern rock was 'saved', all banks now consider themselves 'safe' from failure, whether they admit it or not.
Banks such as Barclays are simply protecting themselves, even though their Balance Sheets are relatively sound in comparison with some other institutions.
Banks are so last season and need nationalising as its clear they can't be left to their own devices. My tip? Buy BT - just check out their current yield!
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Apologies if this has already been said:
If the taxpayer is to "rescue" a bank, then, at the very minimum, we should be doing this in the same way that the bank would do.
If an RBS customer gets into trouble they pass this distressed lending to a special department. It used to be called (it might still be) Specialised Lending Services ("SLS"). At this point bank charges would usually increase astronomically and in many cases, if SLS considered the customer viable, they would take large slices of equity in the customer for future support. Also SLS would probably insist on restructuring - cutting costs is a given
So this is the model we should copy - huge charges for our support and as much equity as we want. Slashing executive bonus schemes would be popular start.
This is not aimed solely at RBS but at any financial institution that we end up bailing out.
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Naive question: instead of attempting to guarantee deposits, or making actual loans to banks, why don't governments consider guaranteeing inter-bank loans (within limits) and thus re-starting the wholesale system?
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It is in no small measure owing to Robert Peston's clear and ordinary language that mere mortals such as many of us can keep up with what is going on.
I for one thank him warmly and I hope that the carpers who have been critical of his delivery desist. The difference is a welcome relief from some of the smarminess of other commentators. It is the content which matters - and that, in robert's case, is just fine.
When all this subsides, I hope he has along and restorative holiday.
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#21
...and who do you think is the ultimate funder of the BoE and NR if not the taxpayer?!
Like it or not, the tax payer is going to have to stump up the means to sort this unholy mess one way or the other, what is of more concern to me is were we go from here - a return to the past 25 odd years of magic-money and far fetched mathematical models that even their creators don't fully understand is just not an option, it's funny who the person who claimed to be a house-wife never seemed to understand that you can't spend what you ain't got!
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@RobertCuk
"Its not for us to know every detail of every act taken in this drama"
Utter rubbish! When taxpayers money is required to bail out these these (b)ankers then they have EVERY right to know the minutiae. Let's not forget, the bankers created this mess, and by hording money are perpetuating the problem.
I for one, as perverse as it seems, think this unfolding disaster should continue. Nothing grabs you by the goolies harder than the memory of a very painful history. Should we come out of this relatively unscathed, I predict the same problem rearing its ugly head a few years down the line.
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"We all know that governments won't allow retail depositors to lose money - so that's not something to worry about."
Do we really know that? Just because no retail depositors have lost any money yet doesn't mean they won't if more excrement hits the fan. If the government were really serious about not allowing retail depositors to lose money, then they could offer an unlimited guarantee. They haven't done so.
So forgive me if I worry.
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The solution to the banking problem?
Send RP to Iceland.
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A problem is the forthcoming cash calls under the Lehman and FMae/FMac CDS'. These could well be $400bn - $500bn payable to the bondholders, many of which are Asian investors. It is far from clear where these calls will come to rest, but in any case cash will have to cross the exchanges through the main banking system. To the extent that the calls fall on the banks, they will not be able to honor them.
If Asian reserve holders do not start to recycle these and similar flows back to their western counter parties, the system will break. Of course the "real transfer" through trade will eventually be made at significantly lower exchange rates, and the real terms of trade will crush western economies over the next few years, and Asian economies, especially China, will suffer terribly as western real demand shrinks.
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One of the difficulties here is that banks who are being observed going cap-in-hand to the BofE are, rightly, perceived to be 'weak'.
So out of the 'big four', only HSBC seems to be not in any particular need for Government handouts.
It is quite amazing that it has come to this.
Dad opened me an account with the Midland all those years ago, looks like it might be time to return to the fold.
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The best thing the Euro finance ministers could do is tell the banks to get their own houses in order and stop pleading like irritating children.
Failure to comply means the rugs are pulled. The one thing we are not short of is banks.
The sheer irony, gall and cheek of banks pleading special cases when every customer be they commercial or private, is truly insulting.
Aren't all the banks customers also special cases or just there to be abused.
Prudence Brown harks on about morals, well he has opened a can of worms there. Who gave Prudence the moral authority to allow government debt in the UK to be so out of control handicapping teh next 2 generations.
The man has totally lost the plot and the sooner these loser go the quicker we will get a resolution to all the mess presently going on.
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Some recent research comes to mind, and these extracts from Philip Ball's book entitled 'Critical Mass: how one thing leads to another' might raise a wry smile:
"Market traders buy and sell on the basis of beliefs about the market: whether the prevailing feeling is optimistic (so that others will buy) or pessimistic (when everyone wants to sell). But whether prices actually rise or fall depends on what everyone decides, largely in ignorance of what everyone else intends to do. Arthur pointed out that while economists have traditionally assumed that traders use deductive rationality - that they make decisions on the basis of solutions to well-defined problems - in fact they are in general facing a problem which is ill-defined. There is no right answer - except retrospectively, which is not much use. In this situation one can only apply inductive reasoning, based on subjectivity and experience."
Phillip Ball, Critical Mass: How One Thing Leads to Another. London: Random House (Arrow), 2004, 416-417
" The crucial aspect of all these activities is that in conducting them we are influenced and affected by the choices other people make. Furthermore, we have to make our own decisions on the basis of imperfect knowledge about what others are doing or intend to do. This interdependence is what makes group behaviour different from a trivial extrapolation of individual behaviour."
ibid, 390
"It goes without saying that market fluctuations, particularly recessions, have serious social as well as economic consequences. Economic growth is linked intimately with employment: in a slump unemployment is high, and in a boom it is low. Keynes advocated that during a major, extended slump like the one that followed the Wall Street Crash, governments should inject money into the economy to stimulate it back into a growth phase. Keynes feared that, left to itself, the economic system might spiral into a decline which would ultimately leave it frozen, unable to bounce back through the normal business cycle.
There are good reasons for believing that Keynes was correct: government intervention may be the antidote to a recession. Certainly, it seems that by pumping money into the economy after the 1987 crash, the US Federal Reserve may have helped to avoid a slump. But the questions about precisely how Keynesian intervention might (or might not) work are complex, hingeing on such issues as the lags between increases in monetary supply and their effects on the market, the question of how to define 'monetary supply' in the first place, and the expectations generated by interventionist policies. These complexities are beautifully explained in Paul Krugman's Peddling Prosperity (1994)."
ibid, 273 -274
Is Keynes about to be rehabilitated?
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It's OK everyone, I see that Gordon has asked the banks nicely to stop taking huge risks with our money and to adopt a 'work ethic'.
Nice one GB - I'm sure that will solve the problem.
Next you can try asking criminals to 'stop committing so many crimes and start being a bit more responsible'
....or tax evaders to 'please pay up what you really owe and be more honest with the Inland revenue'
....I could go on - and I'm sure he will.
I wonder what combination of the following Richard Fuld (ex Lehmans Boss) is thinking today
Monkeys
Give
a
couldn't
At least the states are trying (in vain) to bring some of these crooks to book. We're just planning to give them more of our money.
Any CEO of a failed bank should have their wages recovered under the proceeds of crime act - starting with Applegarth and his merry band of thieves.
...but of course that can never happen, because they will simply cry and blame the government for letting them do it in the first place. Plus the fact that the government hope to get non-exec posts in these banks when they're finished running our country into the ground.
Cost of bailing out the US banks - $650 Million
Cost of re-insuring the CDS market - $53 trillion
Cost of a CEO parting 'gift' - $300million
Cost of watching the capitalism fall, food riots in the streets and the end of human civilisation? - PRICELESS.
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Robert Peston like every other journalist, is a story-monger. He does not have the credentials or the experience or, one imagines the will, to be a financial pundit (see his Wiki entry). Fear and hysteria are two of the principal stocks in trade of journalism; and he is very good at deploying them in his chosen field. As has been very clearly demonstrated by science, chimpanzees are slightly better than journalistic pundits at predicting the outcomes of current events, if presented in a yes/no scenario. So Peston's work should serve as a stimulating tonic for hypothetical discussion rather than, as so many bloggers seem to think, any kind of actual analysis of how things really are, or how they might turn out.
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Re 25 HousePricesWillFall
The problem is when a bubble collapses it will do substantial damage, widespread, negative overshoot. Better never to have the bubble but that is where we are. The bubble was engineered. There has never been a bubble this big with the global interconnectivity and speed of communication. The fear present is the realisation that things have to drop to a realistic sustainable level, a thinning out process which will hit the top predators. This process is also starting to bite in environmental issues. You are watching the collapse of an entire concept, the American Dream.
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Are the banks becoming more panicky as Friday looms, in expectation of pay-outs on up to £230bn of defaulted credit derivatives linked to Lehman Brothers?
According to today's FT, Michael Hampden-Turner, a credit strategist at Citi, estimates that there could be $400bn of credit derivatives referenced to Lehman.
These contracts will be settled on Friday and ... the pay-out by banks and other sellers of credit protection on Lehman could reach a gross $360bn.
UK banks' exposure or otherwise to this hasn't been quantified or explained in any article I've seen.
Perhaps one for Robert Preston to tackle.
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If Western governments now have to guarantee that the money markets will not lose money by lending to banks then we will have reached a point in which most major banks are explicitly 'too big to fail'. Whilst we may have to swallow this to prevent total meltdown of the economy, it should not be forgotten once (if?) we get out of this crisis, and any bank given this protection should be broken up so that it is no longer to big to allow to go to the wall.
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I'm a retail depositor with my family savings (greater than the current guarantee limit) in IceSave. Is that not something to worry about?
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#40
Gordon Brown is not one of the "architects" of this mess, he might be a bricklayer though, blame were blame is due, Thatcher, Reagan and Friedman - those three are the true "architects"...
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I've posted this before, so apologies.
The only solution which will work is to join either the dollar or, more realistically, the Euro.
I really hate to suggest this, but the only way to prevent sterling being picked on (following any necessary interest rate cuts) is for it not to be around any more.
If we could just join it now at about these levels, and benefit from the size of currency bloc we'd be joining, the problems facing our banks and economy would gradually fade away, and the markets would pick on someone else.
This problem is a matter of trillions, and is too big for any individual country, even the US, let alone to UK, to fix.
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Many savers will be rejoicing over the increase guarantee of £50,000. However, what I wonder does this guarantee cover? For example a saver invested £45,000 on a fixed term for one year three months before the bank went down. The interest would have been due at the end of the term. Will that investor get just his/her capital back or the capital plus three twelfths of the interest they would have received had the term been completed. Scenario two would be where the investment was same except monthly interest. Would the amount covered include the monthly interest that had already accrued?
In all cases it is clearly going to be months, if not a year of more, before investors get funds returned, will they be getting any interest on the funds during the period between the bank failure and the repayment? If not who will be benefitting from the use of those funds – the Treasury?
Where investors have funds with foreign banks covered by the European passport scheme, will they be able to make concurrent claims under that scheme with the FSCS guarantee. Or will they have to wait on the European claim being processed before applying under the UK scheme? If so there will be an even further delay in obtaining the funds.
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I think we should adopt the model proposed in #57.
Sure, use taxpayer money to save the banks, but then charge a near illegal rate of interest, threaten the banks with court action and eviction, before rolling some bailiffs round there to remove goods.
Shoe - foot - other.
Let them see how it feels. That would be true justice.
However justice is designed from the government and they have already shown their loyalties in this.
Anyone who has their savings witheld and prevented moving them (like the icelandic bank) should immediately send a letter to the bank headed 'NOTICE OF IMPENDING LEGAL ACTION'.
It's time the law protected the majority - and not the minority in this country.
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#50
Paulson tried that stunt, it lead to the largest single dip in the US stock markets since (probably) 1929... Sorry but the information is in the details, those details need to be known before anything is announced - otherwise it's called making policy on the hoof.
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I just get the feeling that all we are doing as taxpayers is giving Banks more of that stuff (money not liquid) to throw about - where is it all going and if it doesn't exist as some of you say why should we give them more to do it again! Surely this is a never ending cycle promoted by fear by the government?
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Mr Peston, i have seen you on the TV and I am saddened to say, you dont have a clue!!! People like you are causing undue panic and apprehension, your sensationalism form of journalism is amateur and distanced from the real issues.
Get off the BBC as a licence payer I am sisckedn to think people are taken in by why you say,
God help the BBC with Mr Peston as the business editor
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"43. At 11:04am on 07 Oct 2008, amckuk wrote:
Of course the banks must have cash liquidity somehwere: they would have got it from us, their customers, in the first place."
What do you think banks do with the money? Put it in a vault?
No, they lend it out at interest. And they collectively lend out MORE than existed in the first place.
e.g. Lets pretend the reserve ratio is 20% (they have to hold on to 20%)
Bank A starts with 100, lend out 80. It goes to Bank B.
Bank B starts with 80, lend out 64, 16 reserve
Bank C starts with 64, lend out 51, 13 reserve
Bank D starts with 51, lend out 41, 10 reserve, it goes to bank A
Bank A etc etc
Bank A has 100 deposited, 80 lent.
Bank B has 80 deposited, 64 lent.
Bank C has 64 deposited, 51 lent.
Bank D has 51 deposited, 41 lent.
295 money, only 100 was originally there.
Do you see how banks create money... How the credit and debt winds up, and how it will unwind?
Thing is, the debt... is exponential. It pays interest, it consumes the credit as it is paid. You get a financial boom as the credit is created, and a financial crash as the debt consumes the credit. It's inevitable.
The only thing you can do is change the timing through varying interest rates, try to make your political opponent look bad when it crashes.
And that, is the nature of our society and of our politics. It is an ugly system which rewards the wrong people and it should be replaced.
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How different is this crisis to the 1970's secondary banking crisis? How did governments get that sorted?
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What about London as a financial centre now, Robert? Will foreigners lift their money and go away.
It seems to be beyond the pale of the Eurozone rescue, because London's accounts are denominated in sterling.
Is this the series of nuclear explosions that finally wipes out England's rotting institutions.
A catharsis that the rest of Europe and Japan benefited from as long ago as WWII.
Any thoughts Robert? Or do you think the English will continue to put their blind eye to the telescope and try to bluster and bluff on. What do you think Robert?
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Why not tap shareholders for money with the taxpayer taking up whatever shareholders dont subscribe for?
This ensures the government is only plugging what it has to plug.
And shareholders have the incentive to protect their holdings.
With so much going on, the government should be minimising the call on its own funds.
Especially as maximum leeway in the public finances may be needed later on.
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#54
I suspect many reporters that "write" blogs are in fact just transcripts of their pieces that are published elsewhere (Robert is a regular contributor to Radio 4's "Today" and "PM" programmes at the moment".
As such, I wouldn't be surprised if they are written on to the blog programme by someone else, a junior of some description.
Whether the author reads any of the comments is probably down to personal choice.
And time.
The latter item is in short supply for Robert at the moment I would think.
I will be happy to be proved wrong. :)
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That the chairs of the banks should meet with the Chancellor seems entirely unsurprising at the current time.
Presumably what was discussed was leaked out of the meeting by someone not for the greater good but for their own ends, politival or financial.
Perhaps as seems to be happening forcing the next most vulnerable bank towards the brink to permit a state sponsored take over by another bank - RBS as would seem to be.
Being first to report on the sinking of the Titanic may be the journalistically holy grail - just so long as the reporting beforehand hasn;t contributed to the captains choice of course.
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Peston, seriously, belt up. As far as most of us can gather you are one of the prime sources of information in the market at the moment - lord help us - and you are materially responsible for the current misalignment between financial fundamentals and investor perception.
Save it for the dinner parties.
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Robert,
Don't you think it's about time you reported more responsibly and use your judgement on each issue as it comes up!!! Thanks you you and other reporters this "secret" meeting with "The Big Three Banks" is now splashed all around the world and people are panicking!!!
I spoke to my financial advisor yesterday at Lloyds and he was going mental and was completely fed up at you and other reporters over this irresponsible reporting. He said that Lloyds has LOADS OF MONEY, that savings are safe and if you stopped panicing us all, this whole thing would be a lots less worrying.
PLEASE THING BEFORE YOU BLOG!!. You're getting VERY annoying
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No more bailouts. The false inflation of assets got us into this mess: using taxpayers money to underpin the system is only going to create vast inflationary pressures we'll feel in a couple of years.
We stoked the fire too hard on cheap credit. It's time to let it all fall back, possibly with a brief period of utter anarchy. The banks must learn some degree of responsibility again, and this can only happen if they are allowed to fail utterly.
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Robert,
At present it is far from clear that governments will protect all depositors.
I, along 350,000 people from the UK and the Netherlands have money in Icesave, the Landsbanki internet bank.
This money is garenteed by a passport system, that is, the first 20000 euros is garenteed by the Icelandic governent, not the our FSA.
Landsbanki, now nationalised, has many billions of UK (and Dutch etc) savers money. This is a substantial chunk of a now collapsing Icelandic GDP.
I agree that contagion from Landsbanki could cause macro-economic problems, but for thousands of UK savers (and Dutch etc) it is far from definite that their savings are safe.
Alaster Darling should make a statement to confirm that they are.
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Clearly a big part of the problem now is the media feeding frenzy that you (Robert) are a big part of.The amount of (ill informed?) comment on radio ,tv and print is incredible as you all vie to tell us ''what the problem is'' and ''how we should deal with it''.The reality is no one knows the answer because its not simple enough to put it in a 1000 word piece in the paper,on your blog or a 2 minute soundbite on the evening news.
In fact all I hear from ordinairy people is please shut up,we can do nothing it,but you make us all feel worse and induce panic among small investors which in turn make s it much worse for the banks.Blowing the Irish Bank ''Gaurantee'' out of all proportion iwas a case in point,short term headlines to get (you) more exposure and achieve absolutely nothing (the Irish CGovernment cannot even cover all their banks savings accounts anyway) .Take holiday please and save us all the hand wringing,leave that to those who can make a difference .
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Mr Peston
Surely it's just a instinctive extreme reverse action. They didn't understand the risks before hand they still don't understand the risks and how to estimate it so they won't lend fulfilling their own worse fears about risk. Basically we're still in a bit of a headless chicken panic phase but at least some governments are trying to calm things down and who knows Europe might manage it. For those wanting to know about Fractional Reserve Banking (FWIW_FWIW), apparently it is the basis of all our modern deposit type banking. Apparently stems from gold and silver smiths and a way of starting paper currency. From my understanding the system is vunerable to panic situations that exascerbate a problem e.g. Northern Rock, would have been ok if people hadn't needlessly panicked. The idea behind backing all deposits is in a way to stop the potential runs we saw with Northern Rock and to allow lending (probably mainly small scale) to prevent the flow of money from stopping. In a way such 100% backing takes banks out of the fractional reserve banking system as they will have sufficient funds to meet depositers demands. The problems started in those that probably did a different form of FRB i.e. mainly lending to each other or purely investment type banks. Hence the hoo-ha surrounding Goldman Sachs and Morgan Stanley (wasn't it?) who became depositor banks.
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So Barclays, HBOS and Lloyds TSB have categorically denied that they asked for Government capital and RBS have declined to comment. I doubt you’ll report this.
You got it wrong.
In the mean time, following your LIES this morning, bank stocks crashed ensuring the liquidity crises will be prolonged. Whilst good banks, caught up in this mess will be able to rely on BOE funding, small businesses like the one I work for will struggle to survive.
I’m sure that you think that your career with an unaccountable state owned broadcaster is more important than the 30 or so people and their families that I work with, not mentioning the hundreds of thousands of the other families in the same situation, but I can assure you that it is NOT.
Stop your ego trip and get on with reporting facts not peddling lies.
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"72. At 11:36am on 07 Oct 2008, afcone wrote:
any bank given this protection should be broken up so that it is no longer to big to allow to go to the wall."
Isn't the definition of "too big to fail" basically that the national interest will be seriously harmed if it fails? And if that is the case, shouldn't it be nationalised to make sure it can't fail?
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Slowly coming to the conclusion that Robert Peston is more concerned advancing himself than decent reporting;
1) Providing the facts.
2) Providing decent analysis.
3) Objective rather than subjective.
4) Having something worth reporting in the first place.
The problem I think the BBC, and all other news channels have, is there is simply not enough "news" to fill a 24x7 service and so you end up with noise being presented as news.
Yes there is an issue here and it does need reporting but it would be good if we could focus on the quality of the reporting rather than quantity.
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Lack of cash flow in banks? Negative balance sheet? Debts outweigh credits? How many small businesses have been in this situation, gone to their bank for support via overdraft/loan having to give their houses as security, been turned down and consequently gone bust?
SURELY THE BANKS ARE IN THE SAME SITUATION? THEY ARE TRADING INSOLVENTLY. It's about time that they had a taste of their own medicine - get the CEO's to put their own money back in, put their property up as security, and if that doesn't work, let them go bust.
Yes, it is vindictive, but why should those who they have made suffer badly over the last year bail them out? All the government is doing is paying them to break the law - if the banks can trade whilst insolvent, then why can't small businesses!!!!
I AM SICK TO DEATH OF THEIR BULLYING AND ARROGANCE BEING ALLOWED TO CONTINUE. Let them fall then we'll pick up the pieces.
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This comment was removed because the moderators found it broke the House Rules.
Since one of the justifications I have heard for large salaries in large risk, if the banks get nationalised so that the high flying city types are effectively glorified civil servants, can we expect to see them drawing civil service salaries....
Say "SO2" grade, if I remember my civil service days :-)
Just doing my cynical bit....:-)
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Robert says -
- We all know that governments won't allow retail depositors to lose money - so that's not something to worry about.
Where on earth did this one come from ? One of the dozy Bankers ?
OK so Robert and his dozy Banker buddies say that the Banks can just forget about having a solid foundation of safety first depositors.
Forget about them and don't worry.
So instead, let the Bankers have a foundation built on a bed of shifting sand of unguaranteed depositors.
Then let's see how long they stay in business when the money gets withdrawn.
Sound deposit base first and then the rest can follow.
No sound Deposit Base , no Bank.
To say ''That is not something to worry about'
is simply dangerous, opinion based, unfounded hollowness.
The Treasury would be wetting their pants if they actually understood why there is a need to guarantee deposits.
Too many Government and Banking people working around this problem are simply too dim to understand the underpinning basis of the Banking System.
The Incompetent leading the Don't Knows into Russian Roulette with our money.
Shame on them.
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I posted something similar to this on Justin Webb's blog: As the British Post-War Consensus came to an end in the mid-seventies; the 'Thatcherite' (though monetarism in the UK started with Labour government in 1976) consensus that followed it is now coming to an end. Both lasted for about thirty years. For each of these consensuses to work both main political parties have to base their policies and political world-view on it. So I agree with Justin that no one single party is to blame - it's the thinking used during the last couple of decades that is to blame. Who started this 'thinking'? It doesn't matter; the point is it worked at that time. If something works don't change it.
I don't think the Recapitalisation programme that Japan used will work this time as the economics that underpins current thinking is failing. If it does work, I believe it took Japan ten years to recover. I don't think the global economy can wait that long - history tells us what happened in the Thirties and this is something that is to be avoided at all costs. The immortal words: 'Never again' spring to mind.
Call me an old British Leftie, but the only alternatives to me are either a 'mixed' economy (Keynesianism), or nationalise all the banks (both options will get banks lending to each other, to businesses, and to us again). When the economy improves, privatise them so the taxpayer gets their money back. Then do the same thing thirty years later.
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For heavens sake, the Government must bite the bullet! They have to take a stake in the banks...there is little time left to mess around...get on with it!
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All very fine, recapitalising these banks. But how long will take to change their culture. Many of their best executives who understood and practised real banking have long since gone?
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re #17
uk_is_toast hits the nail on the head.
Banks are broke, it is time the government bought them up at rock-bottom prices and set up a National Bank to take control of this emergency and keep the economy afloat.
Perhaps Northern Rock could be the vehicle.
I see no reason, other than vested interests (in bank shares and payola), for the government to hesitate or for onlookers to waffle about capital ratios, liquidity and irrelevant niceties while the economy slides under the table.
Naturally the bankers would like us to believe that a few hand-outs and loans to them will solve our problems.
They won't
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Looks as though Russia is buying Iceland, its not called that of course, but he who pays the piper. The red empire strikes back.
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I'm an Estate Agent and hardly dare to turn the news on in the morning. The credit crunch has turned me into a horrible human being. This morning I turned on the news and thought thank got it's only a plane crash. I feel terrible about this.
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All very fine, recapitalising these banks. But how long will take to change their culture? Many of their best executives who understood and practised the real banking that had made banks like the RBS and BOS what they were have long since been replaced.
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It's never been explained yet how, given that the government has always been 'strapped for cash', just where all these hundreds of billions of pounds for the financial system have come from?
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#81 yes that is the basis of fractional reserve banking or the banking we know. But that is actually quite a simplistic model though accurate in what has happened. I would argue that the link to modern politics probably only started in the 19th Century. Yes there were bubbles before then but the actual impact of the burstings was geographically limited and limited to those who invested. And folks don't be oh so doom and gloom. We all embraced capitalism and many on here (including Mr Peston) would probably hate the idea of nationalisation and love privatisation. Don't forget we have very few nationalised industries left so maybe a bit of banking won't hurt. All we are seeing is the inevitable cycle that free markets have to create to actually exist and function. Many of us hate the idea of state intervention but crave it when things go wrong. Unemployment actually is a tool for combatting inflation (Conservative policy durin the early 80's recession). Recession doesn't necessarily mean political defeat, the Conservatives survived two before 1997.
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Right. The first depositor loss has occured. Icesave internet bank no longer accepts deposits or withdrawals. Icelandic authorities and FCSC will pay up to £50000. Fill in the form and wait ...
Either the IMF steps in now or we'll have depositors heading for their bank all over Europe. This is not good news.
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Is it really the best time to be fining Alliance and Leicester GBP 7m?
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Lets assume that the large banks in the UK are effectively insolvent - the size of these institutions, starting with HSBC, is so huge that combined the big banks dwarf the GDP of the UK. There is no way the UK can recapitalise these banks and axccquire their dodgy assets. People in the UK and the US talk about the Japan experience in the nineties but it is worth remembering the enormous savings, reserves and overseas holdings of Japan at that time and the bail out of the banking sector has left the economy effectively meaningless for two decades. The US and the UK are in no way in a similar situation.
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Dear Robert
First of all, a sympathetic comment - the majority of bank staff are but workers, doing what they are told. Just as it is unfair to shout at the cashier when you have to queue in your branch; as the Directors ultimately determined the staff levels by setting cost:income ratios, so it is unfair to allow the impression that all bank staff are "fat cats" who deserve all they get. Look to the policy makers for your scapegoats.
Having worked in retail banking (which has very little direct contact money market\city trading) for almost 30 years it has been the case for well over ten years for banks to be "sales driven" organisations. Peoples' pay has depended on them attaining lending volume goals - measured on a short terms basis not throughout the term of the loans. The motto of the Chartered Institute of Bankers - "Probus et Fidelis" has clearly been thrown in the bin.
In the eighties HSBC (then Midland Bank) acquired Crocker Bank in the USA, and allowed a sales culture far too much rope - they ended up selling out the mess to Wells Fargo and had to sell their entire Scottish network Clydesdale Bank to re-capitalise their own balance sheet. It looks like the same thing has happened on a much bigger scale. The drag of the current (and pipeline) bad debt levels will bear down on the banking system for a long time. To re-capitalise with taxpayers money (on the scale now required) will surely impede those taxpayers' capacity to consume and the resultant drop in business levels will reduce the exchequer's tax revenue. The solution of printing more money will possibly cause hyper inflation - isnt this where Hitler came in?
We'll have to take the pain - please let's learn once and for all that there is no such thing as a free lunch.
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Boilerplated wrote in #74 that "Gordon Brown is not one of the "architects" of this mess, he might be a bricklayer though, blame were blame is due, Thatcher, Reagan and Friedman - those three are the true "architects"...
No, Gordon Brown IS the architect of this mess. As Robert Peston explained in an earlier blog in 2001 we had no international bank debt in 2001 but by the time of the credit crunch this had risen to 625 billion pounds sterling. This happened under Gordon Brown's watch. Nothing was done to prevent the likes of Northern Rock borrowing short from America and lending long on 100% plus mortgages here with disasterous results.
Responsibility for putting in place a regulatory system to have prevented this lies with Gordon Brown. He failure to do so. This means that he was therefore responsible for not stopping the credit and housing bubble and for the mess we find ourselves in.
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Market Update (Royal BK Scot.Grp)
RNS Number : 2694F
Royal Bank of Scotland Group PLC
07 October 2008
The Royal Bank of Scotland Group plc ("RBS")
Contrary to press speculation, RBS did not make a request to government for capital.
7 October 2008
- End -
Well done to the press for creating panic in the markets - lets have more responsible reporting please.
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Robert, your name is being mentioned on broker's squawk boxes. You really need to be careful about feeding negative sentiment here. Irresponsible reporting to fill your alloted time and boost your credentials will only end in tears.
All 3 banks you mentioned earlier are now denying the rumours that they've asked for capital. So maybe it's true. However, sentiment is driven by news and gossip and it feeds off itself.
When the investigation into all this unfolds I only hope that it's not discovered you and/or your sources are not benefitting materially from your 'scoops'.
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A four bed house in my area sold for 57,000 pounds in March 1996, which is a significant date as that happened to be the bottom of the current property cycle.
This summer, the same property was 'worth' around 300,000 pounds.
That equates to an annual inflation of 15% which correlates with a statement that Gordon Brown came out with recently where he stated that property prices had risen by 180% over the past decade and had only dropped back by some 12%.
The problem here is that annual house price inflation should be around 3%, not 15%, which would mean that the house in this example should now be worth about 80,000 pounds, not 300,000 pounds.
The difference, that is, the 220,000 is what I call 'bubble money'.
Everybody is now realising that this is indeed 'bubble money' and bubbles do burst.
In the end, there is always a regression-to-mean/trend and property is no different.
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don't understand why the netherlands branch of icesave is operating normally... why uk singled out..... www.icesave.nl/english even quoting the awards it has received and how safe it is.... is the dutch subsidiary not affected?
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Paraphrased from Patrick Hosking in Todays Times:
"US accounting rules have already been softened to help to allow banks to ignore market prices and value their toxic assets more optimistically. The European Commission is pressuring the Internatiaonal Accounting Standards Board, which polices standards for UK banks, to follow"!
Excuse me?! How will this help? The banks will lie about the value of their worthless "assets"... Great! That'll restore confidence!
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Call me cynical, but if HMG/BoE is planning to part nationalise the big banks by buying huge swathes of preference shares, why not leak a story to RP which they know will cause the share prices to fall, alloing them to buy in at a lower price.
I wonder if they'd really do something like that? I guess it'll completely blow RP's credibility if it turns out that they have.
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Mr Hughes at No 53 needs to use his own reasearch skills a little more carefully. It is true that Young Peston is a graduate of some College, now part of a university. It is, I believe Balliol College part of the University of Oxford. Also a stint at the Investors Chronicle and various other heaveyweight financial broadsheets give the fellow a reasonable right to write. I am not sure the same attention to detail might be No 53's greatest skill. However, I, in common with I suspect any others know little of Mr Hughes. There may be a reason for that. keep going Robert. Ne te Confundat Illegitime and all that.
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Well, Robert, what about the Icesave customers with frozen deposits? Will the UK government save those? If so, how and when, do you think?
(I'll admit to a LOT of vested interest...)
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It is madness in the market and in the government. Government hasn't got capable people in the political office or civil service.
People with great minds went to the private sector and tried to make as much money as they can and messed it up.
Now I thing there should be changes in politics and civil service in grand scale; it would be better to bring outsiders (capable once) and make them secretaries of state and ministers, also top civil servants salary so that we can hire quality.
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"We all know that governments won't allow retail depositors to lose money - so that's not something to worry about."
In that case, could you please tell us what's going to happen to people who had more than GBP 50,000 in Icesave?
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Mr Peston would be taken a little more seriously if he could end his love affair with the first person pronoun. Every report, including his slouched, and very unprofessional one on the one o'clock news tv broadcast right now, is peppered with "I" and "me".
It's *not* all about you, Robert, and the smug, self-satisfied reporting that you put out is to say the least irritating. Please desist.
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Many people on average or below earnings, with a small nest egg stashed away will be wondering long and hard about all of this. Here are the banks, whose recklessness in the debt derivatives and mortgage markets got us into this, with their increasingly penal bank charges, a changing merry-go-round of short-term financial products with a short shelf life, and an attitude to debt default that is, to put it mildly, not particularly understanding...and the government intends to use - directly or indirectly - the money these same average or below average income households pay in tax to prop up these lazy, arrogant institutions.
I know it is important that we do so, I know that we are watching market chaos while my darling dithers...but please will someone guarantee the benefit for present and future taxpayers from any steps these short sighted politicians take to underwrite the system?
No, thought not.
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Here's my solution....
Everyone who has a pension with a bank that's on the slide, gets government bonds to the value of their pension, then the banks are left to go bust. If it was good enough for the miners it's good enough for the bankers - put em on the dole.
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Rhetoric, rhetoric, rhetoric!
We all know who, what, when where and why and how......for goodness' sake!
Let them all sink or swim - the strong will survive.
Alternatively, send the CEO's to the Dragon's Den.
And what about that French finance lady who said their banking systems were better than everyone else's so they wouldn't be affected?!!!! I expect she is in that meeting right now in Europe! Why are they meeting again so soon after their last meeting? Or was Saturday purely a weekend getaway for them?
The general public want action - even if it's to say 'No, we are not going to help you - sort yourselves out'
I would also like to see their balance sheets published for the world to see - would you lend money to someone on the strength of what they say?!
Again I say:
SPANK THE BANKS AND PUMMEL THE POLITICIANS!
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Re 113 busby2
I'm as fed up and so it would seem are a few others at the 'Brown is sound' argument.
Brown was asleep at the wheel, and thats being kind. If it can be said Brown engineered the bubble in the UK knowing the risks then what. Is Brown stupid or intelligent or both.
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If we want to revitalise the markets then we should re-nationalise the power suppliers with zero compensation - they have gouged us to the point of bankruptsy now it's time to cast 'em afloat.
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@114 - well they won't be expecting any then will they. Which, being as S and P have downgraded their credit worthiness thus making it more difficult for them to find short term credit, I find hard to believe.
Perhaps RBS and the other two banks involved would care to enlighten us as to why they were round the Chancellor's pad then. Making a foursome at Bridge?
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There is more need for check and balances. In this uneasy climate where investor confidence has plummeted to the lowest ebb, financial institutions are wary of lending to any bank where there is even a whiff of risk. Fears of the health of major banks have dragged share prices sharply to the lowest point. Individual countries have to protect the savings of ordinary savers and governments need to back depositor savings. Otherwise there would be a huge run on the bank. Of course central banks are pouring money into the system with some governments on the point of nationalising their banks.
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@117 Strange indeed. The media in Holland are reporting that the 50.000 or so Dutch customers can still access their Icesave accounts. I think it's clear though what they'll do once they are in.
Would it be possible for UK customers to access the bank through the Dutch website?
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There seems to be some confusion as to the mechanism for retrieving deposits from Icesave.
Presumably the British think they evade this low ball by applying some heat to the Ice men.
Maybe the Icelanders have covered this particular risk through their association with the Russians.
I wonder if the Russians have been informed of the need to ensure that no retail depositors can be allowed to lose money.
Maybe David Milliband could call up and explain the situation - it´s well known that the Russians hold a particular view of this gentleman.
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I fully support the freedom of the press and the BBC's ability to comment/report on these issues, but there has been a horrendous price fall this morning in the banks on the back of the very ill-judged decision to break this news in this fashion, whether considered or not.
It is the ineptness of the Government and regulators NOT to have kept their discussions behind the scenes. They do NOT understand market pyschology, especially in this highly disturbed markets. Raising expectations and then failing to deliver creates huge uncertainty. The Treasury should know this. Having watched the very public play out in front of Congress/Senate of the TARP/EESA should have been a blindingly obvious example. Hence the furious response from David Buik at BCG caried on News24.
There are very real risks of further bank runs in the UK and elsewhere. The damage caused would be catastrophic. Ww need calm and measured reporting not sensational BAD news
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From yesterdays US congress inquiry.....
....."Committee chairman Henry Waxman targeted Fuld, saying over the years he had earned some $US500 million in bonuses and wages from Lehman Brothers.
Mr Fuld owned a $US14 million home in Florida, as well as a home in Idaho filled with an art collection, Mr Waxman said.
Figures provided by Lehman Brothers showed Mr Fuld received some $US52 million from the bank in 2000. By 2006 that had risen to more than $US106 million.".........
"Bonuses totalling over £10million were paid to three departing Lehman Brothers executives just days before the investment bank collapsed.The payouts were made as the Wall Street giant pleaded for rescue, Congress was told. Suggestions that bosses should forgo the payments were dismissed, according to documents revealed at the inquiry."..............
need i say more?
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Not being a financial whizz or pretending to understand what has all got wrong, I just wonder why it has to be so complicated.
Would it not be easier for the government to set up a new bank and instead of lending the money to failing banks, lend it directly to small business who will get on with the real work of keeping the economy afloat and keeping people employed?
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Banks have a habbit of recycling their exhaust gaaases until they choke on them or blow themselves to kingdom come
AAAcountancy ,what Ken Dodd accurately called the magical world of numbers
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Some say the leaders of the G8 have his number on speed-dial
Some say he's the secret love child of Warren Buffet
Some say he survives on less that 40 mins sleep per week
Some say his dog is called Croesus
Some say Obama wants him for Treasury Secretary
Some say he's got a foldaway bed in every BBC studio
All we know is that he's called.....THE PESTON
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Re 114 - Everything depends on how your lawyers tell you how words can be used and defined.
They could simply have demanded government money ("give us the money or the bank collapses")- their statement would be technically true, but the implications for the rest us would not be too good.
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We do not have just a credit crisis we an exploding credulity bubble
Malcolm Muggeridge CALLED CREDULITY "THE 20th century illness of the Godless",which seems to have pushed its way into the 21st century for a while
In the imortal words of Elvis
There goes my ownly forever
there goes my everything
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#88 - I bet he did (your financial advisor) - as it's his neck on the line.
If he was worth the money then he would have told you to draw out everything and put it in cash or commodities about a year ago!
I don't believe that lloyds are in trouble, but the great thing about this party is that you never see the next one coming.
As you can see from the postings about fractional reserve banking, banks have been lending money that doesn't exist.
When you add into the mix the toxic assets (which no-one actually knows the true value), the pyramiding (diversification) when banks hold large holdings of other banks funds, and the CDS timebomb - then tell me how does your financial advisor know anything?
It's like pass the parcel - it all depends when the music stops. If you're the unlucky bank you will realise the following:
1) Realising you hold toxic debts which are worthless
2) Realising you have invested your capital in funds which have just lost 40% of their value
3) Realising that you have lent out money at a lower rate than you can borrow it on the Libor
4) Realising that you have lent money to householders who are now likely to default as employment dries up and the economy slows.
5) Realising all your credit default insurance is with other banks - who do not have the capital to cover any claims.
These events can take a bank with a healthy bottom line into extinction.
The reason Lehmans, Wachovia, B and B and Northern Rock went so quickly is because they had no idea what their total liability was.
NR had a healthy balance sheet right up to the last minute.
It's the same sort of 'creative accounting' that has allowed property investors to talk about x million pound portfolios.
The truth is that they never had anything - x million pound of debt is all they have built up over the last 5 years.
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@119: Call you a cynic? - No
The conflicting statements today suggest very strongly to me that there is a PR war going on prior to part nationalisation. Assuming that is the best course of action - it is in the governments (public's) interest to drive down the share price, and nominally in the banks interest not to do so.
What part Robert Peston may be playing in the PR war is a moot point. He may have been fed a line. Of course if he was found to be complicit in helping drive down the market price of banks at anybody's direct bidding, that does put a different perspective on things.
Irrespective of this. The banks are where they are - not through his words, but as a result of their own irresponsibility.
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The European approach suffers from fragmentation, but in parts appears to be addressing the problem more effectively than the monolithic Paulson bill. Quoting Mike Whitney:
..."If Paulson or congressional leaders devise a Plan B, they should look to the example of Fortis, Belgium's biggest financial-services company. This week, the governments of Belgium, the Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis. In exchange, they got ownership of almost half its banking business.
That's how a government intervention is supposed to work. The company gets fresh capital, which has the added benefit of not being fake. The buyers get equity. Legacy shareholders get slammed with dilution. And if the company recovers, the government can sell shares to the public later, maybe even at a profit." (Jonathan Weil, Bloomberg News)
Direct capital injections is the best way to recapitalize the banks and save the taxpayer money. Paulson's plan is just more flim-flam intended to reflate the value of sketchy assets. So far, investors and taxpayers are equally skeptical about the bill's prospects. Interbank lending remains clogged and the VIX, the "fear gauge", is still rising to record levels. Paulson hasn't fooled anyone."
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Re 115, roughashlar
I agree it is worrying that the BBC reports something as fact which is then denied, however there clearly was a meeting and rather than saying what was discussed the banks have just denied they 'asked for capital'. They were there for tea and biscuits and to compliment Darling, clearly.
Having watch briefly the CEO of LB in front of committe in the US I was left with the distinct feeling of him grasping at detail when asked if he had been seeking capital in the week before LB crashed. His answer after staring into space repeatedly as if seeing a spaceship approaching was that he had been 'in the week before LB crashed .. seeking capital subject to ...certain developments ..., and was therefore not seeking captial in the week before the crash'. He is subject to an FBI investigation re fraudulent misrepresentation to investors. Being simple I would say he was seeking capital in the week before LB folded which was the question, but I an sure the LB CEO would continue to disagree.
When the banks do not come clean and the government do not come clean it is difficult to think well. Whilst I could not say I am a great fan of some of the reporting I have seen, I would rather have some reporting than none. I doubt one reporter can push a market unless the market has just concerns anyway, otherwise somebody in the know would be rushing in to buy a bargain. RBS looks to be in poor shape, and ownership of the Ulster Bank with its book does not look clever, and that was reported by city analysts days ago when the Irish deposit issue errupted.
Perhaps it is time the banks actually stated their problems openly as it is clear that come what may they need our money, the taxpayers money. When a customer goes to a bank I believe they ask for some considerable detail of the customers situation, that is the process.
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#113
History proves you wrong. This mess comes out of the changes made by Thatcher in the 1980s, please don't try and change history - I'm not saying that Brown hasn't made mistakes but the people who designed and implemented the fiscal model that this country has been built on for the last 29 (and the USA for the last 28) years were the people I cited: Thatcher, Reagan and Friedman. QED.
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#114
So they say....
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# 114
Don't you think the RNS announcement is most interesting because of what it doesn't say? There's no denial that Fred Goodwin met with Ally D and Treasury officials last night, and no denial that government investment in RBS was discussed. I'm sure RBS didn't ask for more capital, but that doesn't mean that Ally D didn't say he was going to invest in the banks. All that RBS have effectively confirmed by their RNS announcement is that Ally D is the one making an offer to RBS, rather than RBS asking Ally D to make the investment. I think it's just a subtle difference that doesn't alter the basic facts of the story, namely that the Treasury is going to invest in the banks.
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Can anyone explain why the UK Government is being expect to top up people who have put their savings into an Icelandic bank?
People obviously put their money into a foreign bank for some benefit, why should we have to bail them out when the bank collapses?
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#92 Dunky_R
Whilst I agree with most of your sentiments, I have to disagree with the Northern Rock situation.
Saying it would have been OK if it hadn't been for all the panacking depositers withdrawing money, is a bit like saying I'll be OK driving my car at 100mph everywhere because I'm a good driver!
The model was almost totally reliant on the LIBOR. They were counting on the fact that they could always borrow money for 3 months at a time at a lower rate than what they had already lent it out for (in mortgages).
I had a NR mortgage towards the end, I was paying 4.2%, but at the time the least NR could borrow money for on a 3 month period was nearly 6%. The only way out for NR was the Libor falling before all the cash (liquidity) ran out.
The depositors taking their money simply speeded up that process.
I would disagree NR would still be functioning as a sucessful bank today, especially with the Libor even higher than a year ago.
If you listen carefully to the testimony given to MP's by the NR board - they admitted an 'aggressive strategy'.
To you and me that means 'taking big risks in order to get big rewards'.
They certainly learnt about the theory of probability.
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did i hear correctly on the "world at one" that this Luxembourg meeting had finally made a decision? wait for it............
to guarantee deposits up to 50,000euros!
please tell me i misheard...or are they all stricken with the Darling/brown dithering disease?
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Re 139
Well said
They have been talking to the Scottish government and
we all know what that means.
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# 143
I agree that the Fortis bailout, by taking a stake and giving the shareholders a haircut for their laxity*, is a timely move.
The fundamental problem with the Paulson plan, as I see it, is that it simply moving too slowly towards implementation.
Time is running out.
* But is anybody ever going to clobber the regulators and auditors, who must share soime of the blame.
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I do wish the BBC would stop putting people on the box, purportedly experts, telling us porkie pies.
They just had the ex chairman of RBS on saying that RBS was 'fundamentally sound' and 'we have nothing to fear but fear itself'. Yeh right!
Why not put on one of the 'crackpot' mavericks who have been telling us all along we are doomed. At least it would provide a balanced view.
I don't see how it can cause any more panic than putting on bankers who obviously failed to predict the crisis and have a vested interest in hoodwinking the public about how bad things are.
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Looks as though the Ice has now melted with Icesave from lastest reports.
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I just think all of you should just get a grip. If people dont report news items unless its truly verified thered be no news. Stop blaming someone for reporting what he believes to be true. If what he said were about the American banks and the shares were falling in America, you people wouldnt give a hoot. But because its close to home, you dont want him to say it.
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re my post #50 no i didnt mishear.
charlotte green has just confirmed on the Radio4 news headlines
"we have decided to work in concert......."
....deposit guarantee raised to €50,000. .."
Talk about working together, more like left hand has no idea what right hand is doing.
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Mr Peston's blog has demonstrated once again this morning its influence over bank stock prices. The blog has become widely regarded as a leaking agent for government and economic information, with Peston as the mouthpiece.
Is it not time to think about the role of journalism and management of communication within this environment? How desirable is it to have the stock market and the stability of a banking system shying to and fro at the words of an online blog?
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Re 145, boilerplated
thatcher, reagan et al
Why not go back to the Knights Templar, they were the first to charge interest.
The problem has developed since 2000.
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#155
The issue is not the reporting of news, but the manner in which it is reported.
Sensational news stories will have market consequences.
Calm, dispassionate news stories might not be quite so exciting, but would serve the public and markets better.
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Post 110 re you money with IceSave you will have to wait and see what Iceland will come up with. You will porbably get all you money back but just no time soon.
As everyone knew that the Icelandic Banks were in deep trouble why were so many newspapers and websites still pushing them as best buys for savers as late as Sunday.
Read the Mail on Sunday if you do not believe me.
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At times like this we need steady heads, factual information and calm reporting. The fact that all of the banks that Mr Peston claimed were pressing the Chancellor for capital investment are denying so makes one wonder whether Mr Peston is reporting fact or fiction. And by doing the latter is he creating a self fulfilling profesy? Report banks need capital, the market panics, share prices fall, the banks need capital, incomes the Government like a white knight. As his source seems to be other bankers could there be some mischief making going on here? The market is bad enough without that happening.
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Can I add my weight to the inreasing view that Robert is creating more trouble in these troubled times that he is reporting it. Ever since his 'scoop' on Northern Rock which totally overblew the situation and created panic inthe public I have been amazed at his lack of knowledge, understanding and responsibility in reporting this crises. I work for one of the large Banks, I own their shares and I expect them to pay my pension and I know it a well run business and that given time and patience it will come through this crisis. It is fundementally a strong business. Robert's constant harping on about plowing in Taxpayers money as though into a bottomless pit is so far from the truth as to be criminal. This money is not 'lost', it is just like lending 'working capital' to a business, it is about liquidity and cashflow not debt. My Bank has not lent irresponsibly, it's bad debt record is good and it offers an excellent service but it is being undermined by the tone and tenor or Robert's reporting - witness this mornings events. Please, please BBC, send him to Iceland! Maybe if he had a modicum of responsibility for sorting this mess out, had the weight of everybodies future on his shoulders, as our government has, he would see how much damage he is causing!
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According to Bof E data UK banks have a funding gap of £625bn. About half of this is represented by securitisation issues. In current market conditions new issues will not be possible and existing programmes will tend to unwind (assuming they do not suffer catastrophic reductions in quality that would accelerate the unwind...) over the next few years.
This means that over say the next 3-4 years we need both to maintain interbank lending of about £300bn and, in addition, provide a steady 'drip' ('waterfall' might be a better word) of another £100bn or so each year to meet maturing (and not refinancable) securitisation transactions.
BofE funding so far has been short term - and seems to have been largely reinvested in liquid depos at the Bof E, so helping nobody.
Should we not now be looking at a total Treasury funding line of about £300bn plus another £300bn available on a stand-by basis, both for a period of (say) 5 years?
Drawings would be by way of a range of instruments for the whole of this term.
1) liquid funds (£100bn?): available on a revolving basis to provide assurance of liquidity but no drawings allowed if adequate (?) liquid funds already held at the Bof E.
2) short term (£200bn?): also on a revolving basis but available only to fund interbank lending (say, up to 6 months term). Banks must demonstrate that all sums borrowed have been reinvested in the interbank market. Any credit losses arising from this would be covered by ...
3) long-term or capital fund (£300bn?): in return banks will issue to the Treasury or BofE redeemable voting preference shares (on a 'Buffet' basis) in the bank. Available to cover liquidity and or capital deficiencies (possibly allowing also a relaxation of the mark-to-market rules) if above drawings exhausted.
On all drawings, security would be provided (with haircut). If this security is inadequate (or suffers write-offs in the future) an appropriate additional amount of voting stock will be transferred to the government's name (or sold to another buyer, if any available).
Net result? funding and liquidity continues at sufficient levels to keep interbank markets alive and replace maturing securitisation programmes.
Capital is also provided as and when needed with the discipline of potential loss of voting control by current shareholders.
Not a long term solution, but a breathing space while confidence is bolstered?
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Dear Robert
The IMF has stated that the down turn will get more serious, and that national solutions are no longer the solution.
This is not only a Banking crisis it is also Political one, as there is little evidence to show politicians have grasp the metal.
When the IMF says things are going to get worse, its is time to batten down the hatches,
EVERY MAN AND WOMEN FOR THEMSELVES, THIS IS NOW LOOKING AFTER YOUR OWN DOWN TO WHATS IN THE LARDER AT HOME.
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PLEASE STOP HAVING A GO AT PESTON
Look here you bankers - because I know you are - it's no good accusing Peston and the BBC of being pessimistic and talking the markets down
The markets are down because you have been talking them up for the last 5 years. Over -inflated assets was your game, and now it's all at an end.
It's about time you took your realism pill and came back down to earth.
Idiots
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This whole sorry global mess puts me in mind of a comment describing the Slater Walker empire, that I seem to recall doing the rounds about mid-1970s around the time when the BoE had to bail it out (la plus ça change ...?):
"A seething mass of escalating paper".
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Ofcourse the banks are going to deny the report. What's more important is whether the BBC is used in a PR war by government to strengthen its shareholder terms with the banks when the measures are finally announced.
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as the banks have the FSA to control and regulate them, albeit badly in this current climate, who is regulating the press if it becomes such that one opinion leader especially at the national broadcaster has a podium on which to pontificate across tv/radio/online endlessly. where is the counter argument of balancing up of this views to provide an up side as surely there must be one and a strategy out of this that provides a ray of sunshine rather than more doom and gloom to drag us all down...
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#165
I'm not sure if accusing other posters of being idiots is that helpful.
I'm not even a banker (merchant or otherwise).
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What does this mean??
It means Robert that you should stop rambling on a daily basis thus adding to the confusion.
You and your like are more than half of the current problem. Stop wittering ...Please?
You witter and those in the City panic at their desk. We all need to calm down. Stop buying and selling on the minute. What's the point?
There is nothing new under the sun.
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Like someone else has just said. We should guarantee people's pensions and savings in the form of government bonds.
Then just let the whole banking system collapse.
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Keep up guys, the Fed has opened up the commercial paper market through a new SPV. This is real action and how unlike our own dithering leaders
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If a bank want to see their shares shoot up all they have to do is announce that they are going to close some branches !
1. They cannot keep ignoring the uptake of INTERNET banking.
2. They cannot keep ignoring the "free for all" introduced by the previous government...namely building societies became banks and visa versa...far too many of them now.
3. Bank managers and staff have to resign themselves to working in "call centers "
Shock...horror !!
.
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Who's leaking to Peston? FSA rules (yeah, ha ha ha) clearly being broken by his announcements. Same with HBOS. Someone needs to gag this guy before he (with Brown's connivance) finishes off for good.
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What worries me about Robert Peston's comments is not the effect on financial markets - which are rumour mills all by themselves and will, in all truth, not regard the BBCs economics correspondent as a valuable source of insight
What worries me is that Robert Peston is now reporting the groundwork for a 1929-37 type depression in the 'real' economy to viewers who cannot be expected to detect the difference between Mr Peston's (always) pessimistic view and reliable fact.
It is still the case that our economy is fundamentally sound - albeit propped up on credit that the regulators and government allowed to get wholly out of control. What Peston and other journalists are now doing is stoking the fires of an economy-wide free fall. He should stick to reporting fact and not encourage viewers of the 10 o'clock News to believe that the 1930s are returning...that is the surest way of make sure they do.
Come on, Robert. Readjust the journalist view point. and report reality and the measured view of economists instead of the 'sensational story' guaranteed to raise the ratings of BBC News.
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re my #156
French Finance Minister Christine Lagarde said EU finance ministers were unable to agree France's proposal to hike the current euro20,000 minimum to euro100,000 (US$136,320).
so much for working together!
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I'd be grateful if somebody could explain precisely why banks lend to each other.
In 'normal' businesses, you want to destroy your competitors, not help them out.
I can understand (via the Wikipedia entry) overnight interbank lending to ensure that mandatory reserve limits are met but do not understand the apparently crucial importance of longer term interbank lending.
Any answers, please?
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As several posters (such as 162 Windwatcher) have said, Robert's reporting sometimes seems unduly alarmist.
Maybe he's just being swept along with the excitement of the crisis. After all, business reporting isn't usually this exciting - 'retailer posts shock 5 percent profit rise' is nearer the usual run of things for business reporters, so I could understand that these are heady and exciting times
But my real concern is that he's falling for the government line - which can be summed up as "things are really bad; stick with the government you've got; don't replace the tried-and-tested Brown with a novice".
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#158
You miss the point, interest rates are not the cause, it's how the finance industry uses them, Thatcher et al changed the rules and thus allowed bankers to do 'silly things'. The blame lies with who invented the game, not with who invention of the ball.
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Re 162 windwatcher
the well run bank..
Hmm. How many well run businesses which only have a cashflow problem and are inherently well run has your bank sent to the wall to date, or will send to the wall in the forthcoming recession. Your are just getting a taste of the private sector problems, its called exposure. It is all about liquidity.
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I thought that, once a bid was made for a public limited company their shares were suspended on the Stock Exchange. Why is this not the case with HBOS?
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Try reading french and german language reports on the broad outlook. They're hardly brimming with sunshine either.
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Robert,
Are we all guests at another ‘mad hatter’s tea party’ ?
You say that the banks’ most pressing problem is …
“A shortage of capital is a big issue for banks, as I've been blathering on about for days… … the really urgent issue is the breakdown of wholesale markets, and the increasing difficulty that almost all banks are having in funding themselves on a day-to-day basis.
Yet News agency reports today, 7 October 2008 say
“THE European Central Bank said it had pumped €37 billion ($65.89 billion) into stressed eurozone interbank lending markets in what has become a daily effort to keep credit flowing. ….
……..The central bank also said it had withdrawn almost €172 billion ($306.3 billion) from the markets at its benchmark rate of 4.25 per cent in what it calls a fine-tuning operation....
Last week, the ECB carried out three such transactions, withdrawing a total of €567 billion ($1.01 trillion) from the interbank markets…..????????
Does anyone know what they are doing?
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John Constable - some banks have an excess of deposits and some banks want to lend/invest more aggressively than they have deposits to lend (eg HBOS). They borrow from the other banks - who up to now have thought its safe to lend to another bank - but no longer believe this the case. Banks taking deposits in countries where people dont borrow very much (eg France) have often being lending them in countries where consumers are "debt crazy" eg UK.
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Robert,
The Banks Most Pressing Problem..
Could well be Robert Peston. In general, I am an avid fan, but I think that you have to face the fact that you have significant responsibilities and I don't think that you are helping the situation any.
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Re 179 boilerplated
No I havent missed the point. UK interest rates are controlled by the BoE in accordance with a binding directive from the government. Using an economic model which deliberately left housing inflation out of the model and therefore suppressed interest rates when they should have gone up. A Brown initative. A fundimental lack of control of an economy. Quite apart form all the other mechanisms which were available to Brown which he did not use.
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So Robert, Barclays is vehemently denying that it has requested the Chancellor for capital, what do you say to that?
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Several blogs, including the FT's Alphaville blog and Guido, are highlighting your frequent incorrect reporting. Several errors on Newsnight have been pointed out, and your erroneous comments today on RBS have had a dramatic effect, as some people still view the BBC to be accurate and independent in its reporting. Perhaps you should either check your facts before your broadcast, or be more honest about your sources.
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Robert, as a direct result of your comment yesterday -
"Does this mean we’re close to that fabled moment in stock markets – the point of capitulation – when investors lose all hope and dump their stock at any price"
- my wife forced me to sell all my holdings in a certain stock. Left to my own desires I would have waited 'till the mess was all over and the price had gone up again - it's not like we needed the cash urgently.
So I've contributed to the hysteria as a result of your (and others reporting). I think it's time you guys found something else to report on because you are now actively adding to the problem.
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If my bank goes down, it will just sell my liabilities to some other organisation I guess, so I figure, to me, it doesn't make much difference either way. I just don't care, any more than any banker or finance whizzo or technocrat here cares about my firm..
What does matter to me is whether I can service those liabilities, and given that I reckoned we went into this 'recession' about 6 months ago - and the Chamber of Commerce puts the same view, my pressing problem and that of tens of thousands of UK firms is what to do when_the_money_stops_coming_in..
Rob Peston runs a top-drawer line here and it's great to be able to get truthful news SOMEWHERE because there is none coming from Gov - but, hullo, this isn't a a business blog - it's all about BANKING!
Where is the Banking Broadcasting Commission's (aka BBC) business blog!?
Leaving aside RB - and I'm getting really annoyed now... at least the Icelandic Prime Minister has the courage to come on TV and tell the truth about how it is! Where is our Prime Minister? This is a time for leadership, not skulking in Westminster trotting out 'we will do whatever it takes' every five minutes..
Guy Croft
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#73
Looks like you got taken in by the one-sided advice peddled by sites like Motley Fool, MoneySavingExpert and their ilk, which concentrate solely on interest rates.
Doesn't help you now, but two sayings come to mind:
"If something looks too good to be true, it probably is"
and
"Don't put all your eggs in one basket".
Sadly, I wasn't immune in the past - had a large-ish dollop in (in)Equitable Life :-(
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#179.
So, is Robert Louis Stevenson responsibile for the Hatfield rail crash?
Is Henry Ford responsible for road deaths?
Is John Loudon McAdam responsible whenever you get tar on your tyres?
Is Gordonomics to blame for anything whatsoever in this world? Or can he only luxuriate in the glow of anything that turns out to be successful?
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Dricardo at #120, I apologize for my poor research on Peston. It doesn't alter the fact that he's never worked in the finance industry except as a journalist (many would therefore say that he's never had a real job in his life), and others' comments here confirm my view that he's out to promote his own ego, and is out to create 'news'. He should join his chums at the Guardian where his left-wing credentials/views might be welcomed with open arms.
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The truth is out.
The public are starting to wake to the fact the the banks are all insolvent, the entire economy was built on foundations of waffle and air, and their savings might have all been turned to mush in the process.
The bankers hate this moment, that's why they're all wailing and whining, because now we can all quite clearly see them with their pants around their ankles, their pockets stuffed with cash and jewelry and the luxury yacht they were planning to escape on idling on the jetty in the distance.
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to put icesave savers minds at rest!
UK savers with Icesave have the first £16,170 of their money protected under the Icelandic savers compensation scheme, with the sum topped up to £50,000 for individuals, or £100,000 for joint account customers, by the Financial Services Compensation Scheme FSCS.
Those who hold accounts with Heritable Bank, which is also owned by Landsbanki, are protected under the UK compensation scheme up to £50,000 for individual accounts and £100,000 for joint accounts.
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Can’t help but agree with the sentiment of RobertCuk (1015hrs).
Robert Peston is an excellent journalist.
But those of us who are old enough to remember “Dads Army” can’t help but be reminded of Private Fraser’s cry of “We’re doomed! We’re all doomed” (imagine “pantomime Scottish accent”).
When reputable and well-sourced journalists such as Robert Fraser…oops I mean Robert Peston…tell such tales of doom and despondency of course the markets will tumble.
The markets thrive on confidence..and confidence is woefully low at present.
Share prices represent the present value of an anticipated future stream of earnings. The fact that the market doesn’t value those earnings streams as highly today as it did last year is frankly “the way of the world”.
What we are seeing here is nothing new.
When we suddenly realised that the Dot-com Emperor wasn’t wearing any clothes, down went the markets.
When lunatics started flying aeroplanes into tall buildings, down went the markets.
Fact no 1 – The markets move in fairly long cycles.
Fact no 2 – The markets have a worrying habit of ascending via the staircase and descending in the elevator.
But Tesco are still selling food (I have just eaten one of their sandwiches), Southern Rail are still running (I go to work using their trains), Manchester United are climbing the Premiership, Fulham are struggling, Cliff Richard is still a virgin, theres a sale on at Allied Carpets……
This is “the market” doing “what markets do”.
In the words of Corporal Jones…. “DON’T PANIC! DON’T PANIC!”
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Does RB ever write here under a pseudonym? I thought that's what you did on blogs??
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"your erroneous comments today on RBS have had a dramatic effect,"
and we know them to be erroneous because.. ?
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Dear and much admired Robert Preston,
To help me (and perhaps many others)understand better what's really happening, will you please explain - your best estimate -how much actual CASH money, real money, there is in the British system. How much do the banks and all other financial institutions, including the Bank of England, hold/have in real cash money?
Many thanks.
Alan Hart
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I invite anyone who agrees with me that Peston's doomridden points, posted both here and on Newnight and such like, to post an official complaint to the BBC.
The last thing our social and economic wellbeing requires at this point is some jumped up little journalist stoking peoples fears and insecurity to inflate his taxpayer funded position.
To post an offical complaint visit.
http://www.bbc.co.uk/complaints/complaints_stage1.shtml
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#186
With respect you have missed the point, had Thatcher not made the changes that she did it is very unlikely that Brown would have made the changes he made.
To return to the ball analogy; What you are trying to do is to blame the person who invented the Rugby ball, or wrote the rules for the League and Union versions of the game that is Rugby and not William Webb Ellis - had Scholar Ellis not picked that ball up and ran with it, had Thatcher not picked up on the words of Friedman...
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Lololol - just wondering oh guru of gurus - Now we are manufacturing this crash in order to weed out the dead wood - how long do I wait before I start to buy?
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The layman's finance crisis glossary
The current financial crisis has thrown terminology from the business pages onto the front page of newspapers, with jargon now abounding everywhere from the watercooler to the back of a taxi.
http://news.bbc.co.uk/1/hi/magazine/7642138.stm
All that and no mention of Fractional reserve Banking. What are you tryin gto hide BBC
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Re 192 TerryNo2
Gordonomics are not responsible for everything in the world, they just sure as hell have not helped.
Interesting isn't it that the two major industialised countries which were so keep on the War on Terror are the ones in the deepest economic mire. Were the economies in those countries pumped up deliberately following 911, or was the eye off the ball.
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There's a tendency to assume that what happens in the financial economy doesn't affect the 'real' economy. Where transient market events are concerned, that's true. But to assume that financial market events of this magnitude won't affect the broader economy would be profoundly mistaken.
Representatives of small and medium-sized businesses are already saying that this is a recession, and that their members' financing costs are increasing sharply. Consumers' willingness (and ability) to spend is under severe pressure, with implications for the economy. This is made much worse by house price deterioration. Two major sources of consumer spending power - housing equity release, and new borrowing made 'comfortable' by borrowers' apparent housing equity - are drying up. Unemployment is rising. Surveys of purchasing managers are extremely gloomy on forward ordering.
Whole swathes of the economy are in trouble. Builders, electricians, plumbers, carpenters, decorators, suppliers of building materials, estate agents, solicitors, manufacturers, the motor industry (with car sales plumbing new lows), non-food retailers........the list of victims goes on.
Some financial market events don't affect the 'real' economy. This one is different. And I would have to add that each alarming press and media report makes the problems in the 'real' economy that much worse.
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"The Russian Ambassador to Iceland, Victor I Tatarintsev, informed the chairman of the board of governors of the central bank of Iceland this morning that Russia would grant the central bank a loan in the amount of 4bn euros," said the bank in a statement.
What have Iceland had to do to get this loan, where is the incentive for the Russians?
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#200 - crikey! Complain about RB to the BBC?
That really is going way oer the top. If he's wrong the banks can sue him can't they? Say - You're not secretly Gordon Brown or are you?!
Personally, despite my criticisms about the over-emphasis on banking here - I do think it's great that he is taking time to tell us something - on a daily basis too. I guess no-one forces him to write here. There ain't much reporting anywhere else that I can access real-time (ie: left in the dark as per usual at a time of crisis, as you would know if you were old enough to live thru Black Wednesday..)
I don't see any other Robert Pestons around. You gonna replace him with 'whatever it takes' Darling?
GC
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#189
re selling your shares today
Never mind, keep the money under the mattress and then, when the shares hit bottom you can by five times as many, then when they rebound (assuming that the shares are actually available of course) you will make a real killing...
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#201. Thanks. I do get it now.
Gordonomics is Thatcherism. I guess all the analogies with the 1980s are appropriate. Boom and bust, that kind of thing.
No wonder he cancelled the 10p starting rate of tax without realising the impact it would have on low earners.
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Robert is quite right to carry on reporting as he has to date so that we all know what is going on. I have just heard a "Banking expert" interviewed in the BBC in connection with Icesave explain that the interest rates offered on Icesave's internet accounts were high and therefore all the "rate chasers" who deposited their money their should have known there was a risk! The bottom line is that Icesave was regulated by the FSA. if this is not adequate comfort to ordinary savers that their money is safe, then we might as well take all our money out of the banks and put it under the mattrass. The only benefit to this is that the expert who was interviewed will presumably lose her job as a consequence - no banks, no experts needed.
It strikes me that Robert is only letting the ordinary person in the street know what the industry knows. The players in wholesale money markets clearly are one step ahead of the ordinary saver; otherwise, why are they pulling the wholesale funds out fatser than snow disappears off a dyke. Darling also must have had a fair idea of what was hapening when he let is slip weeks ago that we were heading for the worst financial crisis since 1929.
More generally , we are all to blame for the current mess. Borrowers for overborrowing in the expectation that the economy will alway grows and asset values always increase; the banks for making risky loans; and the Govt. for not stopping this and claiming the credit for credit fuelled increases in economic growth and improvements in living standards. My rather basic analysis is that as nation we have borrowed too much to fund lifestyle improvements that are not justified by growth in the real economy. The sums involved are hundreds of billions of pounds. This money has come to us from overseas (from foreign sovereign wealth funds etc) through the banks. The institutions which have lent the money are now worried that the banks will not be able to repay the debt. Effectively, the whole UK economy is deleveraging at an alarming rate. The Govt. is trying to cushion the blow by lending funds to the banks. Presumably the govt is borrowing money from the same foreign institutions that have pulled mnoney out of the banks to lend on to the banks. The foreign institutions no doubt see the UK govt/taxpayer as a better bet to lend funds to than the banks! I can only assume that there is only so far the UK Govt. can go in doing this before UK PLC goes the same way as Iceland (i.e. bust). I would love someone to tell me that I am wrong. If it is as bad as I think, we will looking at unemployment of 3m+ by the end of 2009.
I don't think that most of the population appreciate the extent of the economic downturn that we are about to suffer. It is impossible to suck such larger amounts of credit out of an econmoy without enormous repurcussions for the real economy. At the weekend, I watched the child poverty protesters asking for an additional £3bn to be spent on child poverty; our local press have run articles to the NHS providing unlimited access to drugs for cancer treatment; public sector workers are striking over pay increases. Without commenting on the merits of these claims/arguments, it does seem to miss the big picture, i.e. that as a nation we are up to our eyes in debt and cannot afford the public services that we currently enjoy let alone look for improvements.
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most of the banks have beern making big profits during the boom years and now are struggling it makes me wonder where all there profits went?
now the british tax payer is expected to fork our to save these organisations when they during boom times salted away more than enough to survive this downturn.
thus with america wasting billions of dollars proping up there banks why are we expected to do the same?
we have to suffer a government thats basicly a yes mob to europe and the usa dont we the people of this country deserve a better government.
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For those interested in what the position is wtih their savings I would suggest the following link
http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/114.shtml
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Robert, the implication behind a lot of political comments in the UK, Germany and elsewhere is that governments will not allow their banks to fail. I assume tax money will not in itself be enough to bail out all banks, which means governments borrowing yet more to finance rescues. Given that eventuality, what are the chances of Argentina-style bankruptcies among western governments unable to service their vast loans?
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Here's an article on Reuters about bank runs, "Bank savers run at the click of a mouse":
http://uk.reuters.com/article/newsOne/idUKTRE49603L20081007
In it, the authors note that "Banks have always lent more than their clients hold on deposit, leaving the risk that none would have enough cash to pay out if they all turned up at once."
However they neglect to note that this practice has a name, and that name is "fractional reserve banking".
It concludes, '"You go from being weakened to in trouble in a matter of days. I don't think people understand how quickly events [unfold]," he said. Confidence can return, but often only after dramatic state intervention.' -- a damning description of this unstable, inherently flawed practice, if there ever was one.
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#200
...and might I ask for everyone who considers that Mr Peston is a good journalist write to the BBC and ask them to ignore the complaints by those who obviously have self interest rather than a true genuine complaint.
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This comment was removed because the moderators found it broke the House Rules.
If, like most members of the downtrodden public, you're annoyed and dismayed at your own bank's complicity and contribution to the current economic crisis, if you're unhappy about the creative accounting, the SIVs, the derivative timebomb, the debt monster that they have unleashed, if you're enraged as to the taxpayer's seeming new role in life to bail out privately run institutions.
If you're angry that no-one at the top has been held to account for any of this, or been made to pay back a single penny from the billions given out in fraudulently claimed and obscene bonuses, and the industry's steadfast refusal in changing such skewed and disproportionate reward schemes. . .
Then you might want to try voting with your feet, and pull your hard earned cash out of these rotten and corrupt institutions, and do your bit to contribute to their demise, and let the cards fall where they may.
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Richard,
Don't know if you actually read these return comments, or just drop the bombs and run away.
But simply ask that this all ends now. You are now behaving in a reckless, self serving capacity, and I honestly doubt that you realise what you are doing.
The "pre-emptive" scoops are leading to chaos and confusion.
I echo the comments of the small businessman who suggested that this half proven information is massively impacting his business and his life.
People's lives and futures hang in the balance and negative comments in a vacum of actual information is just exacerabing a volatile situation.
Factual information , correctly supplied and reported must be at the core of journalistic integrity - not constant doom prophecies and personal agendas.
Before the next post - please just stop and realise that yes the pen is truely mightier than the sword - but should be correctly and fairly wielded.
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What do governments need to do to restore confidence in the markets? Hope the US government does two things. One, restore all of the protections against exactly what has happened that were put in place after the great depression that were removed in recent decades allowing this to happen and second, that it prints about five to ten trillion dollars which it will make available immediately to the American market. This will allow all big debts including that of the US government to be paid off and provide capital for new investments. It will probably severly impact the world's economies outside the US and all holders of fixed interest debt inside the US such as banks but they are doomed anyway.
How do the banks create confidence? They already have, we are all now confident that the people who run most of them are thoroughly incompetent to be trusted to handle money. The banks need to fire all of their money managers right up to the CEOs and hire new ones with sharp warnings that they will get no bonuses and in fact get fired also if they prove they are irresponsible. We also need to see a spate of lawsuits against those who misrepresented the investments they were offering including both employees who directly handled money and those infamous highly paid CEOs and other execs who profited from this misrepresentation.
What's needed is a day of reckoning and of recognition that the world's economy has been dealt a major blow. That may be politically unpopular but the alternative is a depression like the one in the 1930s and there will be no middle ground.
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201, boilerplated
Any government which takes over from a previous administration accepts the implementations made by the previous admin and works within them, that is well established. They are free to change the game within limits and take it forward, which incidentally Brown did with the BoE. The principle avoidable weakness in the current economy is due to the UK housing boom which happened on Browns watch, and which minsters have admitted they knew was a problem, at the party conference. Massive debt growth occurred from 2000. The problems directly related to the UK housing market have weakened the UKs response to an international crisis. What do you elect a government for other than to govern. Labour has had 11years to redirect things. The issue is not globalisation of finance, it is sloppy handling of the US and UK housing markets. Brown could not do anything about the US but he could have done something about the UK. France does not seem to be anywhere as vulnerable in the current situation as the UK, they have controlled domestic debt. I am quite happy to give credit for anything positive he has done. It is dwarfed by the negative at the moment.
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You are the problem Mr Peston and I have today made an official complaint to that effect.
To whit:
"Banking shares fall sharply in London amid news that bank bosses held funding talks with the government."
That "news" which caused billions to be lost in value was broken by your reporter Robert Peston. This was a criminal act.
He may think he is scooping news stories but he is actually acting as the mouthpiece for an incompetent government and causing widespread misery and stoking the flames of a crisis, which, without his interference, would not be nearly so severe. Due to his position he had enormous power to influence the markets. Astonishingly I don't think he knows it.
I think it highly likely that legal action will ensue from some investor grouping.
In the meantime he should really learn some restraint ie when the market is showing tentative signs of improvement, shut up.
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#215
I have no self interest in this matter other than a desire to minimise the damage being done to the real economy
I would hypothesise that a large chunk of what is happening to the FTSE and the banking sector is based right now on fear and people acting irrationally moving small amounts of money out of the market / savings vehicles when in reality their money is well beneath the guarantee level.
As an anecdote I can quote an old lady ahead of me at the post office counter withdrawing her 2000 pounds national savings money who was planning to invest it in gold.
The over-hyped comments from Peston based on rumours his city mates are pushing whilst not libellious in the sense that they cannot easily be disproved are stoking this growing feeling of panic and dispair and are hence unworthy of the BBC and certainly not in the interests of the country.
People such as him need to take a few deep breaths and reported the plain facts in a calm and measured way with an understanding of the effects of what he is saying will have on the wellbeing of the license fee payers.
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Business question:
Anyone know where to apply for a share of the EU money allocated to 'help small business'?
When times were booming (a month ago, ha ha) I spent quite a lot of money to send my daughter to do an MSc in aerodynamics and I need money for a lathe now so I can be more profitable and trade out of the recession.
Thanks.
GC
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Maybe - just maybe - at the end of this we will realise that the heart of the UK economic problem lies in Gordon Brown's Government deficits and in the bloated public sector with inflation linked pension paid for out of the taxes of those of us that help to generate the nation's wealth.
All of those on this blog who revel in the problems of the banks quite clearly cannot rely on the smooth working of the economy either for their jobs or for the value of their pensions. Otherwise they would be deeply concerned like the rest of us.
Maybe we will see public workers end up having to work until they are 68 and only receive an affordable pension linked to the performance of the economy, maybe they will clamp down on the soft work-shy culture endemic in many parts of the public sector (Note I DID NOT say all) ................... and pigs might fly.
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206 pot kettle
Nobody knows what Russia has negociated but there are reports that the Russians want the old US Airforce bases, presumably amongst other things. Bush could have done the US no good at all.
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I particularly like the current "sub" headline on the BBC news front page -
"Credit Crisis: World in Turmoil"
I think we can all agree - subtle, balanced and not sensational.
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Long Live Free Press!
GC
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In times when people are panicking, 'sensational' news stories may increase the panic. If the banks were soundly managed, there would be no panic and 'sensational' stories would be ignored. Don't shoot the messenger.
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Here is the dilemna.
Do you believe Mr Peston, who as a journalist probably does like to over-play the story, or the banks and the government?
You could accuse Peston of exaggerating, but not out-right lies.
The last 10 years boom has been based on lies peddled by the banks, backed up by lies from the Government.
Let Peston have his day. He will be worrying about his pension as much as we are.
He didn't cause this crisis, it's no good looking to blame him. No bank ever went bust because a reporter suggested they were going bust, not now, not ever.
Today we have all realised we have been taken for fools - no more boom and bust my a*se.
As for the idiots I referred to earlier - they would be the people crying about how unfair it all is, because they feel foolish for being engrossed in the lie.
I laugh at you all because due to my laziness in sorting out a pension - I have no shareholdings anywhere - cash only I'm afraid.
I got burned in the 80's from the endownment 'pay off your mortgage early' lie - but I learnt my lesson.
This is not a credit unwinding we're going through - it's an unwinding of lies and the slow revelation of the truth.
The truth SHALL set you free my friends.
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216 Euro:
Nice one. I'm not an expert, but I think the position is clear; if you have price-sensitive information from an inside source, you are not allowed to divulge that information to anyone, in any way, until it is released officially, through a stock exchange announcement or similar.
So, if you knew that discussions were taking place betwen named companies; or knew any details of a possible transaction (such as the share price, heaven forbid); or in any way released price-sensitive information from inside sources; you would be in breach of the rules.
And I don't think sheer curiosity, or anyone's 'right to know', would get you off. So I suggest anyone with any sense would keep it to himself.....
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#197
I am Robert Peston!
I'm now getting my own back for Barclays turning me down for a job as a bank cashier 26 years ago!!!
Or is it......I am Spartacus!!!
Oops... sorry, this is a very serious subject.
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It is totally wrong to report on "secret meetings" concerning banks, particularly in the current climate and Peston should be held accountable for the run on RBS and other banking shares today.
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This comment has been referred to the moderators. Explain.
Our four main banks are the heart of the nation, part of the fabric of our society.
We cannot operate the country without them.
They will not be allowed to fail.
How many of us recieve our pay as cash in a brown envelope these days...none.
But the government must take serious control over them from now on.
Other companies (like Powergen and other energy companies) are also far too important to be left to the bungling City and its sharks.
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223 guy croft
Last I heard it was a EU strategy so it won't come thru quickly. Rememebr you are dealing with the organisation which produced a directive outlawing straight bananas. If a banana is straight it is not a banana in the EU. Aubergines had a 50 odd page regulation.
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#222
This has got to be the most stupid thing I have read posted on a forum in a long time.
1) Do you seriously think ANYONE is going to be swayed by Robert Peston's reporting ?
No, they are going to check what he has said here and all other sources and come to a considered opinion.
2) If things are done in a cloud of obscurity say goodbye to any pretense of democracy - I for one WILL move my assets out of the country and goodbye.
3) The stupid idea that if reporting was stopped in this country that it would be stopped in another country is completely idiotic. In fact rumour mill being what it is it will make matters worse. Do you understand what the Internet is ? Or even satellite news ?
4) The very idea that traders will be influenced by your idea is crazy. If a trader sees the ill informed public are in a loss situation then you can guarantee they will take advantage of it.
5) In the Dot Com bust I remember fianancial advisers telling me to hold my positions. And I lost a lot of money. I am now very, very suspicious of people like you. There should be a law brought out to fine heavily anyone hiding, seeking to hide the truth or misleading the public.
You really have to ask yourself what is upsetting you so much that you feel your post will in any way have an effect ?
If you feel the need then go stick your head in the sand - the rest of us would like to be kept up to date.
Last resort I will use foreign news.
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Whilst many people seem to be blaming the messenger, ie Robert Peston, they seem to have ignored the fact that nobody knows the true position of the banks. They either won't or can't come clean about the state of their balance sheet!
If the British insurance scheme covers British deposits with icesave, how much will be left in the kitty after they are compensated?
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This is interesting - the BBC have your say site has a queue of over 300 comments awaiting moderation - the last post published was submitted at 11.37 today.
Mine (submitted 12.51) is still awaiting moderation......does this mean that the BBC are holding off comments which may affect trading?!!!
How ridiculous if this is the case!
The public are angry - they have a right to be heard!
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Dont panic ,keep your nerves ,calmly reevaluate ,decide on your measured responce ,and then
SELL SELL SELL SELL Before its to late to turn worthless assets into soon to be worthless money
Do the same as everybody else ,the market is always right ,except when its wrong
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amid all this frenzied stock market action has anyone else noticed RBS shares down 30% today?
another bailout due, HSBC to the rescue?
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Gee, the move to stop short selling really worked didn't it?
Since then we have BB and now RBS plummeting.
For a government with so little understanding of market workings, what chance they'll come up with a viable rescue plan?
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# 191
Equitable Life ... well if you been a member of the 'magic circle' as MP's and some others were, then you'd have been tipped off and had your wonga spirited away from Equitable before the ship went down.
Which just goes to show that if you're in, you're in and if you're out .. you're hung out to dry.
Ps. I bailed out of Midland Bank all those years ago because somehow I'd heard a whisper that Midland had run into trouble after they bought Crocker Bank in California. HSBC subsequently bought Midland but you can't be too careful.
Remember ... only the paranoid survive ... especially in these febrile times.
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As far as I can see the existing wholesale money market has effectively collapsed because no-one trusts anyone else. Rather than scattering money here there and everywhere should not some body - ? the EC? - try to set up a parallel wholesale market which can then take over what was done previously by the financial market until such time as trust returns?
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To Nedafo post 210
How easily impressed you are. Please be aware that Robert did NOT let the 'ordinary people' know what the industry, the BoE and the government knew a whole year ago- that the banking system in general was in for a massive crisis. Rather, Robert colluded in focusing the story entirely on Northern Rock as that suited those 'leaking' him the stories at the time. It is sad that folks seem to be so grateful to Robert for trotting the real story out now- a year later.
For those of you who think this is unfair: Ask yourself why it didn't occur to Robert a year ago that other banks may be affected in the same way as NR? Maybe he just didn't think of it???
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As the central banks have the funds needed to jump-start the economy, it seems that the banks have become an unnecessary barrier to achieving that end. Any lack of confidence is limited to those wanting to use these funds for a further round of self-serving speculative risk-taking. Any bail out of the banks should be in order to provide credit to the wider economy, and not simply to replenish the banks' gambling chips.
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Hmm...how about an alternative scenario?
Labour leadership, alarmed at the increasing dissent aimed at them from within their core support base leak innacurate descriptions of talks with major banks through their personal mouthpiece at the BBC. The markets respond thereby requiring those same banks, who have generally denied in vain that they are in need of state intervention, to accept the plan for part-nationalisation in order to avoid cataclysmic drops in their share prices for the rest of the week. New Labour appeases its core, the 'man in the street' feels like something is being done and keeps his savings in place, and self-satisfied, hysterical monomaniacs get to trumpet thet fat cats are getting their just desserts.
I realise I am slipping into self-parody here, but sometimes I find I can't tell when reading this blog and comments whether I am in fact living in a world invented by Lewis Caroll.
What people never seem to learn is that you don't cure and counter excess with equal and opposite excess.
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Any predictions as to the outcome of Broon's meeting with Mervyn King at 5pm? I'll hazardous a wild guess, not really sure if it will be said, but here goes, Broon will say "We will do whatever it takes...." and everyone will still be none the wiser.
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It may have escaped the regulators attention but one of the reasons that deposits are so at risk is that it's so difficult to open an account in the first place. I sold my house last year and looked to place the proceeds with up to 10 institutions. I literally gave up trying after a while. How many original and recent utilty bills can one have to hand at any moment? Once three or four had been posted to banks none were available to open further accounts and without them it was impossible to open an account. The idea that depositors can simply remove their cash to another bank if concerned is fanciful. As to getting it out once in, that's another matter altogether. And now with the demise of Icebank and with deposits only protected to the FSCS limit of £50,000 we know that British savers are not to be protected if a bank is foreign owned. Which reminds me, Santander is Spanish.
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Oh dear, the Bank's share price is a little off...... Suppose that means that the executives share options aren't as appealing as they were this morning.
Their problem, not mine. Until they put their house in order OR the government pushes through fundamental changes to banking, then not one penny of OUR money should be used to bolster these fat cats.
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When did we decide to adopt the US Billion instead of the Great British billion? (both of course are French) Serious question...i would like to know
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It's beginning to look like Gordon Brown is conducting a vendetta against the banks.
He's got it into his head that they are the ones responsible for wrecking his boastful 'no more boom and bust' economy and he seems to want them, their bosses and their shareholders to suffer. And no thought for any collateral damage.
It seems that any action is always a day late and a dollar short despite having had a full 12-month 'heads up' about what was going on demonstrated to him by Northern Rock. Not that he should have needed Northern Rock to warn him of the potential dangers of the in-your-face property bubble. What with it being in his 1997 manifesto to avoid such bubbles so you'd think, you know, he'd have been on the look-out and acted in a timely fashion.
I don't think he fully appreciates that every day this catastrophic manifestation of his economic mis-rule endures increases the likelihood of further economic devastation. It's not enough that he is paralysed by indecision but the hierarchy he has set up means that until he makes his mind up the rest of the system remains paralysed.
His economic mis-management gave the banks just enough rope to hang themselves and now, instead of shoving the barrel back under their flailing feet, he's hiding in the corner wondering what to do or how much he can charge them for the barrel. Or if he just leaves them to hang will anybody realise he was in a position to help and condemn him.
What's he waiting for? Lines of people outside every single bank demanding their life savings in cash? Suitcases full of it if necessary. Because they don't know which bank is safe and so better take 0% interest under the mattress than 0% capital?
Gordon Brown is a clear and present danger to the economic well-being of the UK.
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Robert,
Your story of this morning suggesting that three UK Clearers were 'dissapointed' that the Chancellor wasn't ready with his equity injection plan has, I believe, drawn at least one strong denial. Given the sensitivity of the current situation don't you think you should be more restrained and perhaps attach a higher standard of corroboration to any information that comes your way. The last thing any journalist should want is that he becomes the news; you are in danger of crossing this line. Additionally I think in the interests of openess and honesty we should be told if you have been contacted by number 10 or the Treasury and 'asked' to temper or restrain your reporting or your sometimes frantic style.
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"Après moi, le déluge" - Gordon Brown's epitaph
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3 days before they had problems HBOS said everything was sound, no capital problems. If banks don't like questions being asked or people reacting to will-o-the-wisp they need to tell the truth.
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Its hardly any surprise that shares in HBOS and RBS have collapsed today when thanks to the "clever" way that the Government engineered the bankruptcy of Bradford and Bingley, the bill for any losses arising from the incompetence of BB and of the Government is going to be borne by the other banks.
So if, God forbid, as a result of this fancy footwork HBOS were to go down then the losses caused by this would be borne by the remaining banks. So who would then be next to fall? The dominoes would all fall over!
How anybody can believe we would all be better off if the Government owned and controlled the banks I cannot possibly imagine. The prospect of this is terrifying.
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There are now 406 comments awaiting moderation on the BBC Have Your Say site!
Curiouser and curiouser!
Is there now going to be a blog blackout?!
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All the bank guarantees I have seen are specifically for private investors only. Where do companies keep the cash on their balance sheets, and do they stand to lose all of it if their bank(s) go under?
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i cannot see how reducing interest rates will help the situation we find ourselves in..have we not had low rates now for 10 years!!! have the usa reduced interest rates to virtually nothing...and i notice the interest rate in japan is 0.5%......who actually saves in a japan bank i ask my self!!! surely the way forward is to realise house prices are totally unrealistic and unsustainable . increase interest rates markedly in the long run this is the only way,ok there will be pain, but we have to live in the real world, without viable banks we are all up the creek without a paddle.
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Alas, for the Pension Funds.
Biggest Shareholders in the UK Banks, and the biggest losers in this shameful affair.
Many people will get a shock when they review their Pension Plans.
The Banking Professionals have been asleep at the helm, and really should be consider for Prison sentences.
They are all certainly complicit in one of the worst cases of mismanagement the western world has ever seen.
The Governments slow and unhelpful response has just made things worse.
Don't get me started on the shortselling piranhas.
Oh well, the economy will now get much worse.
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#236:
So are you suggesting the media has no role in causing market panic? That arguably reckless reporting outside of the public interest will have no effect whatsoever??!
HA! I think you have just managed to post the stupidest thing I'VE ever seen on here.
Congrats to you.
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This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
Hmmm....markets closing and now the comments on Have Your Say are trickling through.
Any suggestions anyone?
Or am I just being cynical?!
Government by the people for the people?
I don 't think so!
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#220
You really don't understand this, the brick layer who lyes the last brick before the building collapses is not the person who caused the building to collapse in the first gail, the people who designed such an unstable building are - yes the brick layer was involved and yes the brick layer could or should have stopped laying bricks on that building but he is not the one ultimately responsible.
I very much suspect that (before this economic crash) had Blair or Brown started to rein back the credit, put regulations back in place, tell people that they don't have a 'right' to own your own home if you can't afford a realistic mortgage etc. that they would have been booted out as "Oh look, they are going back to their Socialist roots" such was the UK publics intoxication with the debt driven economy that Thatcher set up.
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oh for some sense here...i bet the people on here are quite happy to see their house s rise in price, no problems with gordon brown then.the trouble is people want their cake and eat ..well thats to bad ... bite the bullet and stop whingeing.
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Tony Blair knew when to leave the building didn't he.
Any chance someone at JP Morgan can find it in their heart to sack him from that £2.5 million a year part time job.
After all, this all happened on his watch.
I'm pretty sure the markets might rally if they did.
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Robert Peston: is he the busiest man in the world? In the past few weeks, he seems to be on, live, at 6am on the Today programme, all the way through to 11pm on BBC2's tonight. Seven days a week!
Not that I am complaining, I greatly appreciate those insightful and bold comments about our current crisis delivered in that idiosyncratic style! But please let him have a rest. Even Duracell Bunnies run out of energy in the end.
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I'm sorry, but all of these people having a pop at RP are way off the mark.
Does anyone seriously believe that the multi-million deal makers in the city look to Robert's blog before making informed decisions?
Can just see it now.....
"So Mr CEO, why did you make that decision over hundreds of billions of sterling?"
"Well, there's this blog you see that is gospel in the city. We all make our decisions on the back of Robert's blog"
Get real!!!
I for one appreciate Robert's work, even though he is sensationalising some of it (I forgive him, he is a journalist!).
I do spot that he likes to point out when his predictions have come true, but come on guys, this is a blog!
He isn't the only one reporting meetings between the bank chiefs and number 11!
OK, onto other things which may pop up in the blog in the next few days....
CDS!!!
A lot of activity in the sector which I assume will cause other institutions to increase their position on the credit derivatives.
Things which come to mind are....
The ICESAVE parent in receivership
Apparently Lehman are owed a couple of hundred billion from those who they took a CDS out with.
Oh...and RBS having their rating cut....surely that will be classed as a "credit event"??
As RBS have had their rating cut, does that mean other companies have to increase their
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#266 i seem to remember the media and the normal do gooders were instramental in blair leaving office.i would trace the problems way back to a certain woman pm.she has a lot to answer for.
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Boilerplated, Thatcher wasn't in power when the 70s nightmare happened. It was a Labour government that got us into that mess. It was Thatcher that repaid the Humongous debt left by the Labour government.
All Thatcher did was to reverse the insane policies of the then Labour government and the current (New??) Labour went the same route again - massive borrowings to fund unnecessary spendings. In addition, to raise the taxes to fund this spending, this government encouraged the construction bubble because it created wealth in terms of funny money, so that it too can be taxed !!
It also taxed the hell out of fuel and then blame the energy companies for fuel poverty.
It was Gormless Gordon, as Chancellor of the Exchequer, who should have kept an eye on the doings of these banks. He is the responsible person !! The very same doings that put these banks in deep doodoo now !! He has no one to blame but himself !!
He should either put things right or resign (if he has any shred of honour) !! Darling is just a convenient scapegoat to dump his 9 years of sins on !!
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257 glachlan:
Good and important point, on which I've tried to get some information, without all that much success.
The guarantees tend to refer to 'retail customers', i.e. customers of the branch ('retail') part of the bank, not the corporate side.
If you have a bank account as a private individual, then presumably you are covered.
If you also have an account as a sole trader, you might be covered, but this is not clear.
Likewise, if you have an account as a small limited company, you might not be covered, this is not clear either.
So, if you have a sole trader account, or have a small limited company account, you might be wise to transfer most of the funds from those accounts into your personal account, leaving just enough in the sole trader/company account to meet immediate requirements.
We really need clarity on this issue.
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#134
"How many of us recieve our pay as cash in a brown envelope these days...none."
It might not be such a bad idea to go back to those days, then people might actually
have a sense of monetary worth...
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#264. The trouble is we just can't accept the logic. It's not a case of being difficult for the sake of it.
The first part of your second paragraph said it all really.
Brown and Blair should have been sensible.
Instead they played politics.
We're now all paying the price.
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News of this meeting left me thinking about the Churchill quote that we can always rely on "them" to do the right thing once they have tried every other option (OK - usually this refers to the USA but in this case it seems to apply to any government). Given the collapse of various US and EU banks and financial organisations surely we should be considering the possibility that we have reached a turning point in economic affairs akin to the collapse of the gold standard. Even some national economies (e.g. Iceland) are now too small to survive global shifts of economics. This implies that national security is at risk and this is the primary function of any government. What does the future look like? Such economic collapses in the C20th led to wars and coupled with current US and Russian foreign policies and the energy / oil crisis things do not look peaceful but hopefully diplomats on all sides recognise this danger. Therefore, looking for an economic solution, de facto nationalisation of financial institutions appears to be the current position both in the US and the EU (I particularly liked the Texas senator's comment about President Bush being a socialist). This is unpalatable to governments who worry about the national debt but surely what this says is that it is better to take this bitter pill early (before a collapse) rather than later? Current "bail-out" and "intervention" lending on the money markets appears to be keeping (most of) the companies afloat but isn't actually solving the underlying issue that banks won't lend to each other and therefore fulfil their basic capitalist role of liquidity movement. In a nationalised banking system the banks would lend to each other because all would be guaranteed. If, as we are told, the "real" economy is sound then such a move would allow normal service to be resumed. With the exception of the "toxic" loans the value of other assets would recover and, let's face it, the "toxic"s have to be dealt with and sharing the costs at a national and international level is more palatable than dumping them on real (and mostly innocent) people (although I accept the comment that we have all lived on too much credit and are paying the price for it but I for one can't afford to find $700bn). Given that the banks themselves are clearly pushing for major government backed investment it would appear that even they are looking for new ideas. Paradigm shift anyone?
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264 boilerplated
I am no great fan of Thatcher but I do not remember 125% mortgages and 6.5 multiples of earning or self certification with Thatcher. You are saying that Brown could do nothing. He could have done a great many things including introducing measures on a 5 year taper. It is not a question of hitting things with a hammer. Brown is the one who claimed he was capable of controlling economy. Thatchers measures may or may have appropriate, they were judged appropriate at the time, a long time ago. I am sure Brown was under pressure to play the bankers game, and also enjoyed the extra treasury income and all the voters feeling happy, he was not exactly a disinterested party. If you want to blame Thatcher that is up to you. This is a sterile debate and a waste of time.
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Now let me understand this - the Banks are saying they need more capital? But they have assets (funds they have lent out) of hundreds of times their capital - right?
So, as it is these funds they have lent to others that are possibly not repayable and somehow recapitalising the bank will help? I still don't get it - as the sums they have 'lost' are many times their capital how can a tiny increase in their capital (and that is all we can, or are likely, to afford) help in the slightest?
What is needed is full disclosure and popper accounts as no amount of recapitalisation will help if the basis of their accounts is not trusted.
Nationalisation of the banks confiscates the banks from their existing shreholders (mostly pension funds etc.) and replaces these by the Government. (There is of course no question of the shares having any value as the banks have compounded with their creditors by begging for the funds.)
Governments are notoriously bad at running anything - it will be like going to the taxman and asking for a loan! (A total disaster for present and future borrowers.)
But I suppose it has to be done - I don't think however the government has nearly enough money! My guess is that the banks need of the order of between 5 and 50 trillion pounds. Totally unaffordable given the UK's annual GDP is about 1.4 trillion pound ish. The pound will tank (10 US dollars to 1 Pound?) and this will compound the recapitalisation that the banks need so it cannot be done.
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I have followed the Financial crisis in the news relatively closely. I read/heard in the media that American taxpayers would end up paying an average of $2,300 per taxpayer for the bailout state side. I am now presuming that the UK will in turn issue a bailout of c £50bn and that would presumably be funded by UK taxpayers. I fully understand that,as Michael Hesiltine put it on Question Time, it is a necessary evil ( he was referring to the bailout in the States)
So, presuming we don't get that paid back by the Government/taxman when sanity resumes I have a proposal and it is a serious one:
a) Taxpayers receive shares in these banks that benefit from our cash input as a return for our 'investment'. There can be stipulations on when we allowed to trade these shares to give an element of control
b) Bonus' in those institutions are frozen until such time they get back to a normal state
c) Decision makers in these institutions are investigated for gross negligence ( I presume that should one of their clients have gone bust they would have foreclosed on them but now they seem to be 'telling' us to bail them out aka The head of Lehmans in the US yesterday. The irony and arrogance was quite incredible from a man who was approving huge bonus' just days/weeks before Lehmans went south)
Thoughts Robert? It would make the 'bailout' much easier to sell to us
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Regulation is the only way to smooth over boom and bust.
Governments throwing money at every problem does nothing to solve the problem. Root cause analysis is the way to prevent problems. If you are having to try and reduce the headache of a problem then it is too late and you have filed.
What was the root cause this time? it was irresponsible lending to house buyers. Self certification? anyone who is desperate to get a house will do crazy things like exagerate their income. Applicants were even encouraged to do so!
Rising heating fuel and oil prices didn't help either.
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#236
Well said.
The facts are, the real cause of this mornings banking share dip, run, crash (call it what you want) wasn't Mr Peston's blog but the fact that Island nationalised all their banks, closed access to them from the UK and not only that RBS had it's credit rating reduced - nothing what so ever to do with the BBC or Mr Peston, so please all you wingeing bankers and speculators, put a sock in it!
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#268
Hilarious skit, notverysmart, but not very smart. I don't think anyone is saying that what RP says is responsible for determining the direction of multi-million pound deals.
But sensationalist journalism in such sensitive times is grossly irresponsible, and if you think it's not then you're being incredibly naive. Dropping the story today had a direct consequence on share prices. That is fact.
Peston is becoming the story! Something to be avoided at all costs in both journalism and PR.
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265 rvpisneverinjureds
Many people in rural communities have been worried for years about house prices rising and wrecking communities, pricing the young out of villages, houses being bought up as holiday homes and empty most of the time, funded by asset stripping city homes. Not everybody thinks high house prices are great whatever you want to think. At this point, houses prices despite falling are still too high for many.
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Of course people don't blindly follow Peston's blog. However, in the land of the blind, the one-eyed man is king. Peston has the mouthpiece and the leaks at the FSA or otherwise. He's helping to stoke the fires and they are feeding on themselves. Investors sit at home watching or reading Peston knowing he has the leaks.
In this climate of fear, any inside edge is acted on, often irrationally. These investors then phone their brokers and the brokers start spreading the word even more. One of my brokers said to me earlier he has no idea who this Peston bloke is but his clients were selling on the back of his reports.
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271 - I am not proud of it - but this is exactly what I have done. Our rapidly depleting cash resources have been paid out to the directors personal savings accounts ready to be repaid as and when the company needs the cash.
In so doing I have made one of the headline making banks problems very marginally worse - and doubtless I will get a hard time from our bank manager when he visits to re-new our overdraft facility in a few days time.
But I have to look after the interests of the busines.
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#219 The problem is not one of confidence within the US but one of confidence that foreigners have of the US economy. Printing 10 trillion dollars will instantly devalue the US$ and instantly destroy what little confidence there is in the US being able to pay back its debts.
Already the US has 5 trillion in debts to the rest of the world. If they simply print money to devalue that debt, the foreigners will simply refuse to lend them any more money for fear of the same happening again. Since the US depends heavily on borrowings to survive, its economy will implode !!
Perhaps the French will buy back the Statue of Liberty that it so generously gave to the Americans !!
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Somewhat related is the latest from AIG in America.
Less than a week after their $85 billion government bail-out, the AIG executives treated themselves to a week at a posh resort and spa to the tune of $440,000.
Typical of the corrupt, worldwide financial system.
Value for money? I think not.
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#251
" Gordon Brown is a clear and present danger to the economic well-being of the UK. "
...but only after all the bankers, speculators, hedge fund managers and general fiscal whizz-kids who dream up ever more insecure schemes to earn ever greater million pound bonuses to fund their ever growing collection of fast cars etc.
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#275 - Then you are sadly mistaken.....
As a child of the 80's it was very much 6x wages approval for mortgages. Endowments which allowed you to have interest only mortgages and pay very little into the endowment in the hope the markets will always rise.
....and just like now there were cries of 'never going back to 6x lending'.
You are obviously represent the public as you have a very short memory - that's why the government is always sourced from 2 parties - because you forget how bad the other lot were!
I'm sure you'll be front and centre promoting Cameron and his 'change broken britain'.
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Robert,
Please explain why your blog has materially changed since this morning and why it is labelled as 7am.
I wish we could all change our views when we like, looks like you are spending too much time around the Labour party.
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There can be no value in offering ever larger incremental funding if banks don't get their houses in order and come clean on what their real liabilities are, both on and off balance sheet.
If they don't trust each other why should anyone.
Fuurther if they are only now conduits of the Bank of England then nationalise a few, dump the rest and let them adopt their new position as glorified civil servants.
We may get less choice but they were all so much of a muchness would it really matter.
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Thanks Rob
Were you 100% certain of your source...if not, I hope this does not lead to the eventual collapse of one of the UK's biggest banks. Imagine what that would do for the economy, let alone the shareholders and savers.
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280
Following your logic then, we need to get Robert to write a few upbeat articles and hey presto(n), credit crunch over?
Excuse my cheap pun above, I do understand that the media have a big part to play in all of this, but the way some people are attacking RP you would think he was the architect of the credit crunch.
Saying that Robert's blog caused share prices to drop today and stating that it is a fact - where is your evidence?
There have been a lot of articles on the meeting last night regarding recapitalising, not just Robert's, and anyone in their right mind could see this coming.
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#270
Sorry but I think someone needs to book an appointment with Specsavers! I was talking about the 1980s to the present - not the years before May 1979...
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"We all know that governments won't allow retail depositors to lose money - so that's not something to worry about."
How are you so sure about that?
They've stood by and let the Equitable Life members lose plenty???
I'm an avid reader and respect your observations but if things got really really bad then I'm not sure about that one.
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287 TheresOnly1Soupey
I have already been accused of being a Conservative and I have already said that in 30 years I have not voted Conservative and have no intention of voting Conservative. Most of that time I have voted, guess what, Labour. Seems to me that if you disagree with Browns policy it is automatically assumed you are Conservative. Quite frankly I doubt you will find many people who are chuffed with what has been going on. War, Bubbles, Surveilance Society, tell me what manifesto where those in. And by the way Norman Lamont threw a lot of my money in the fan so don't tell me I cannot remember. What is coming has every chance of making the early nineties look like a picnic.
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"We all know that governments won't allow retail depositors to lose money - so that's not something to worry about."
On the contrary there is something to worry about. Retail depositors are unsecured creditors of the bank. Their deposits have long since lent on to third parties. The banks retain only enough cash to fund the difference between receipts and withdrawals.
Estimates of bank deposits range from 950bn to 1,200bn. The government has a national debt of 450bn and forecast annual deficit of 65bn. How can it fund a guarantee of the deposits? There is a limit to how much it can raise by issuing Treasury bonds.
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As someone who has just left the UK due to its depressing slide into materialism, this crisis is exactly what the country needs; a wake up call before it is too late.
Hopefully it will bring back a few basic values like:
* work related to reward
* living off money you have saved, not borrowed
* time away from work to spend with your family
* teaching your kids some meaningful values in life
* re-developing communities again
* a sustainable and lower resource intensive lifestyle
The banking crisis shouldn't be fixed with sticky tape; let the shake-out begin and let everyone look at themselves in the mirror and ask themselves how they are going to change?
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IMF in 'severe downturn' warning
This headline must rank very high in the Department of the Bleeding Obvious !!
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I know you have your job to do as a BBC journalist but should you not act as a responsible citizen and NOT report secret meetings that in such a volatile times negatively influence stock markets!
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The key now is to act fast and be willing to act again and again until the system stabilises. HMG must not delay although their record is pretty blemished- 10p tax rate- announcing a change to CGT months before it happened and so creating a false market, speculating on changes to stamp duty.
They must announce that savers will be 100% protected and that they will inject capital into the clearers- say £50bn. The time to announce an investigation into the whole thing will come. Get the ship stable and moving slowly and then deal with the medium term later. At current share prices they could probably nationalise the banks and make a killing!
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We are already seeing reports that the taxpayer will make a profit by part nationalising the banks.
The Government clearly believes a bigger profit is to be had by spreading rumour and uncertainty before taking their stake at very depressed prices.
Most of the gullible UK public will not realise that they are the shareholders through their pensions and savings funds and are paying the price for the gross incompetence of our leaders, and if they do, are fobbed off with the statement that their long term investments will recover - what a joke the FTSE was 6900 in early 2000 and once the miners bubble is fully blasted (Billiton's share price is still about three times its net asset value and its share price of a few years ago, despite its recent 50% fall), the FTSE will be much lower than the current level of about 4700. Stripping out the miners and adjusting for the failed FTSE companies, the FTSE would probably now be at about 2500.
Most seriously for the UK economy in the long term is the fact that investors both UK and foreign will lose faith in the UK as a place to invest their money-we will be viewed as third world due to the expropriation of banking assets (and who knows, housebuilders next?) - I bet the Chinese are regretting their puchase of Barclays shares.
Should the government swindle the shareholders (i.e. us) of the major banks for a relatively short term gain, investor confidence which has been so battered by the relatively small nationalisations of NR and BB, will be obliterated and we will no longer be the world's premier financial centre.
Given our manufacturing base has been decimated the long term outlook for UK plc will be extremely dire.
This Government, for relatively short term gain and "spin", ably assisted by the idiots at the BoE appear intent on destroying this country's prospects and the wealth of many residents built up over many years, in little more than a year.
Unfortunately the Tories in the odd comment they make seem pretty incoherent - at least Gordon Brown and Darling don't look like spivs.
Watch the rise of the BNP when the rising number of claimants find the remaining taxpayers can't afford to fund them, and the ensuing social unrest.
I imagine there are many people in the UK who would like to emigrate but can't sell their houses!
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#292 Exactly so but I wonder who !! Thatcher repaid the horrendous borrowings left behind by the previous Labour government and proceeded to repay other government debts, thereby raising the rating of the GBP !! This lasted until Brown got into his stride in 2000 !!
It was under Brown's "Prudent Management" that the government debts soared again !! It was under Brown that the disparity between income and debt occurred. One paid off the debts, the other increased the debts !! Who mismanaged the economy ??
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Robert, this funding from wholesale markets (and I understood that's what you've agreed to in earlier blogs), isn't that precisely the core of the problem, what has led to the creation of a finance bubble? I see this shortage of money not as an illness but as a cure. It is and needs to be the mechanism of the correction. The politicians are now in charge of following very closely how the bubble deflates. We need surgical finance politics, which allow the non-real wealth to turn back into hot air but protect the savings that represent real productive work and the banking infrastructure needed for the real economy.
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When is RP's day off? I don't think my blood pressure can take any more.
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Nedafo at 210. last paragraph
I've been saying this for years.
Nobody seems to take any notice. How on earth can we afford all these demands on the public purse.
Notably
An ever increasing number and percentage of pensioners.
An ever increasing number of OAP's needing looking after
An ever increasing number of costly ways of making you better.
An ever increasing number of illiterate workshy.
the list can go on forever.
At what point can we no longer afford it. The tipping point must come eventually.
GB has managed to pay for it over the last seven years by allowing or indeed encouraging the tax payer to put the the bill on his credit card.
Now where is the money going to come from when tax payers credit cards are up to their limit and all their spare money is taken up paying back their debts.
To say the future is not bright is an understatement of monumental proportions.
Its very very scary
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Many folk seem to be losing their senses. If HMG guarantees deposits- why would they have to cough up- only if people withdraw funds and take their cash abroad in vast quantities and the cash cannot be met through normal banking methods.
People are silly if they think they can secure money by moving it around- if one big bank is allowed to go, the whole system collapses. We are seeing the impact of two big US banks going down now- just think what it would be like if one of our clearers went down- they are just too much part of the system of trade.
Come on Chancellor- act now - you may not get it right but inaction and dithering will finish us all off
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I've written several times to this comment blog, my comments never make it on, why not? They are not controversial in any way. How odd ....
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Oh I forgot to mention public sector pension liabilities. Can't beleive I did that
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Just happened to watch a bit of Bloomberg on satellite TV.
1) Seems Iceland is seeking a loan from Russia - about 5.4 billion dollars was mentioned.
2) Approx 100 companies are suffering payback from lenders losses of 112 billion dollars. Banks and investors who are losing money on the record 1.7 trillion dollars of high risk high yield loans,,, etc
3) Lehman money managers to get 400 million dollars in bonuses,,, etc
4) Spain has created a 41 billion dollar fund to buy bank assets,,,
5) Even the 1930's look better for stock traders as 6 trillion dollars worth are taken of stock equities in the last year,,, etc
Give Robert a break.
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It would seem to me that the biggest problem at the moment is how the markets are behaving.
I would suggest the G8 leaders get together and universally close all markets.
This would give chance for plans to be made, and put in place, without the interference of speculators. The reopening of markets would then have less chance of bankrupting perfectly viable companies which is what seems to be happening at the moment in response to rumour and innuendo.
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The issue clearly is one of confidence and the mantra that the government keeps repeating that they will 'do whatever it takes ' is not clearly not cutting any ice with the money markets.
It now looks like Paulson 's decision to allow Lehmans to go bust has infected all markets worldwide. The only way to disinfect this is now to have a major injection of public funds in return for a stake in the major banks.
Anything less than this will have a catastrophic effect on bank shares when markets opne tomorrow.
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"270. At 5:00pm on 07 Oct 2008, ishkandar wrote:
Boilerplated, Thatcher wasn't in power when the 70s nightmare happened. It was a Labour government that got us into that mess."
Sorry.
That, and this were both directly related to money. In 1971, America first, then all the other countries, left the gold standard and started loaning and printing money like no tomorrow. -> Inflation.
Now, we have allowed an almost identical credit bubble to expand to the point it threatens to take all the banks down.
Basically... Bankers are not able to be trusted with money...
How's that for irony?
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I'm not the only one wanting to take a"swipe"to those in high office and business management who should have better responsibility than corporate greed. In a few months time we have yet again another fruitless"World economic forum" presumably hosted again in Davos.To the point, the way things are going in financial circles one cannot see any point in having another"meeting over a meeting"; and mighty expensive forum at that if it accomplishes the ridiculous and ficticious nothing. Of course other than winetasting and there the winner takes all.
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Just a simple question,I understand that money is in short supply,but who exactly is holding all the cash.
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"almost all banks"
NO
only the greedy ones
the mutuals steered clear
so (largely) did HSBC
let the greedy fall
why should we bail them out?
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306 - you are probably using symbols in your text such as the 'and' symbol or the 'at' or plus's etc. For some reason, i doesn't like them. Just stick to text and punctuation marks and it should work fine
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We should recognise that it is not possible to remove the commentator from the problem and here, one is challenged not to think that much of the problem is the commentator. Your contributor heard and read the reports today and is forced to think that the back peddling all day along the lines that 'it is not what I said' is the slow realisation that being a privileged media soothsayer has its responsibilities. However we appreciate that had it not been this one it would have been another. If this is a crisis then we might do well to remember that careless talk costs (period).
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300
"Should the government swindle the shareholders (i.e. us) of the major banks for a relatively short term gain, investor confidence which has been so battered by the relatively small nationalisations of NR and BB, will be obliterated "
Come on - get real - what planet are you living on? I'd be perfectly happy for the government to leave to you, the shareholders, if that's what you'd like.
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I just sent a tongue-in-cheek e-mail to a friend who like me owns and manages his own business:
Hi
On behalf of Her Majesty, I have been asked to offer you whatever you want for your business. Infact I might only take a small part of it, so you can do whatever you like, and all those capitalist taxpayer fools will pay your wages, and let you run your business how you like. Sound ok? I'm off to bed now, so just let me me know by the morning. Cheers.
A Darling
From your friendly Labour Government
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no need for all the skilled jargon, put it simply the general public have been robbed of their money by the government and the bankers,nothing ever changes, the people resposible for this mess will still get away with again and again, there is no one who will stand up for the simple man in the street, simply because those in power have their hands deep in the till. They will even escape their just rewards in heaven.
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With reference to your comment that governments will not let private individuals lose money, I regret to say that if Icesave goes bust I will lose a great deal of money over and above the £50,000 compensation. Sadly neither the Icelandic government seem to care much about UK investors nor the UK government which seems to regard this as a foreign bank's problem. The fact that UK citizens will lose out seems to be not on the UK Govt's radar!
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#310, WinEcon, it is true that letting Lehman
go under showed the state of contagion between
institutions. But, letting Lehman go under did
not create the infection; it merely exposed it.
Adding liquidity to the system will not, in and of
itself, solve our problems. Some kind of regulatory
oversight is needed to prevent cross-contagion
from happening again.
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Haven't the banks over the last few years made absolutely mega profits, and have these not been put into reserves? How much of these reserves are the banks using to help their cash flow? Having owned a business for many years in times like this in my business reserves are used, and staff laid off, with salaries cut also for Directors. Moving forward are we going to see more prudence by CEO's on bonus payments to reflect this cash flow crisis.
As a tax payer I feel that there is insufficent transparency in what is going on. How much interest will I be paid?
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Seems to me that Banks lending to each other is the root cause of the problem and not the solution. It increases the cost of borrowing quite unnecessarily, seemingly without any controls or regulation to stop the undoubted abuse.
Their unimaginable greed led them to borrow on terms they would never lend to Joe Public, yet they want the BOE to bail them out so they can start the merry go round all over again.
Not one Bank boss has offered to resign or admit that this is their fault, yet they have begged the BOE to save them from going to the wall, while they're happy to send countless businesses and families to the wall themselves, by foreclosing or calling in loans on properties that have been devalued by their own irresponsible actions.
Surely it makes sense to support those hard working people through this mess so that they CAN eventually start to repay when things improve and when Banks, hopefully, start to behave more responsibly and less like a casino.
The Stock Exchange has become an up market betting shop and we all know what happens to mug punters.
Their current attitude is that it;s everyone else's fault without accepting the responsibility for their massive role in this debacle.
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# 184 mereholme
Thank you for the explanation of interbank lending.
I can see why risk management in this area is so important now.
Something about it still does'nt add up though ... if banks have a surplus of deposits then why don't they lend directly to businesses and consumers rather than their competitors?
For example, if French banks have lots of cash from thrifty French people, why don't they directly lend to businesses and consumers elsewhere in the EU, i.e. like the UK, where their is a heavy demand for debt.
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Further to my comment last night, I see that the Government have realised that if Icesave depositors were to lose everything over £50,000, confidence would be rattled everywhere in the British banking system, given that many banks here are actually owned by foreign companies. So I was wrong to say that Icesave depositors were not appearing on the Government's radar. I was also wrong to doubt Robert Peston's view that the Government would not allow private depositors to lose out. It does make one wonder though about the sustainability of the £50,000 guarantee?
Puckieuk
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The point about Peston's reporting is NOT that it will affect financial markets, but it WILL affect the real economy. Tell people that the world is about to end, and the effect on the FTSE will be the least of your problems...the irresponsibility of Peston's reporting has to end here.
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A number of web sites are reporting that Michael Howard has made a formal complaint to the FSA regarding your reporting of this story, and additionally that several posts disagreeing with your actions in reporting the story have been removed from this site on the grounds that the content was either defamatory or illegal (or encouraged defamation, or illegal behaviour).
Is this true?
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