British banks bailed out
So Mervyn has buckled, in the face of the near lethal conditions banks were facing in raising money.
There were reports from dealing floors this morning that a big British bank was having difficulty renewing credit, which took it too close-for-comfort to the brink.
And the market for commercial paper - which are securities issued by companies to provide short term funds - has been contracting in an alarming way, putting further pressure on all banks' balance sheets.
So the Bank of England has announced important steps to make it easier for banks to borrow from it.
The background is as I set out in my note yesterday afternoon (Nationalisation by Stealth).
The Bank will now provide three-month loans to banks in exchange for securities manufactured out of corporate and consumer loans, and also for certain kinds of asset-backed commercial paper.
This may sound slightly technical. But it really matters, because it makes it much easier for banks to borrow from the Bank of England, to replace the funds they are finding it almost impossible to raise from commercial sources.
And Mervyn King is not underplaying the significance of what the Bank has announced.
He says: "In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity".
And there is big money to go with King's mouth.
There'll be an auction of £40bn of three-month loans next Tuesday, and further weekly auctions - whose size is yet to be determined - till at least 18 November.
This represents a massive increase in the help provided to banks by the Bank of England - and, of course, it means in effect that we as taxpayers are replacing all those funds that banks can't raise from wholesale markets.
What King has done should ease some of the strains in the banking system, though it won't be business as usual for a long long time.
And the Bank of England's succour is particularly important for HBOS, which was identified by investors as having the greatest difficult raising vital finance.
HBOS can now be confident that it will be able to raise the cash it needs - which means that today's action by the Bank of England can perhaps be seen in part as a bridging loan to it, till its rescue takeover by Lloyds TSB is safely completed.
PS. On the Ten O'Clock News on Wednesday night I took the slightly eccentric step of quoting Walter Bagehot, who in the 1870's taught us more-or-less all we know about how to deal with banking panics.
Bagehot was not a fan of the way that the Bank of England had reacted to 19th century banking crises, arguing that it had responded "hesitatingly, reluctantly and with misgiving".
He also wrote: "To lend a great deal, and yet not give the public confidence that you will lend sufficiently and effectually, is the worst of all policies; but it is the policy now being pursued".
Some critics of the Bank of England would say that Bagehot's criticism could apply to the recent performance of the Bank of England.
However, today's statement by Mervyn King, that the Bank of England stands necessary to provide whatever liquidity is necessary to protect the integrity of the banking system, implies that he's been re-reading his Bagehot.
UPDATE 15:16 Although HBOS is perceived in the market to be particularly strapped for cash, and is therefore a significant beneficiary of the Bank's new-found largesse, it isn't the bank that was having difficulty renewing credit in the money markets this morning.
That was another of our big banks - which only goes to show that the liquidity drought (which was acute again this morning) is vicious and pervasive.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~44~RS~)
Comments
Sign in or register to comment.
Oh dear, does anyone care about the taxpayer?
Complain about this comment
If banks don't trust each other enough to lend to one another, why should we trust the banks with our savings?
Complain about this comment
So what bank was having the problem?
Complain about this comment
not a big surprise really. any word on what the haircuts will be?
the next bubble is us treasuries.
Complain about this comment
The patient is very ill.
New symptoms are identified all the time.
This morning's actions are like an aspirin, easing the symptoms in the short term, but not curing them.
The illness will need to work it's way through, making the patient very weak in the process.
Complain about this comment
Go Mervyn
Complain about this comment
Hmmmm......
I like the way the article has:-
"There were reports from dealing floors this morning that a big British bank was having difficulty renewing credit lines, which took it too close-for-comfort to the brink."
at the beginning, then:-
"HBOS can now be confident that it will be able to raise the cash it needs - which means that today's action by the Bank of England can perhaps be seen in part as a bridging loan to it, till its rescue takeover by Lloyds TSB is safely completed."
at the end.
Do these two statements refer to the same bank, or is another of the big 4 dominos about to topple ?
Massive so these bail-outs are, certainly from the taxpayer's viewpoint, I still think it's all too little, too late.
Complain about this comment
so basically HBOS is on the EDGE... still those lucky LLOYDS investors are happy to dive into the toilet pan with them... well thats great news...
Complain about this comment
So the Banks are able to palm off their liabilities to the tax payer - Liabilities such as credit card debt and car loans - the stuff that only remains an asset if the consumer continues to pay it off - OMG - This is as serious as it is pathetic.
WHAT BANK THIS TIME WASNT ALLOWED TO FAIL? KEPT AFLOAT WITH MY MONEY?
Complain about this comment
I take it from the hints in the last paragraph that HBOS was the bank on the brink.
More reason then for Lloyds to want to renegotiate the deal then.
Complain about this comment
One gets the impression that the bankers, politicians and others involved in trying to sort out this mess are:
a. Unable to predict what will happen next.
b. Making it up as they go along.
c. Being economic with the truth about what will happen when the firefighting fails and we enter into a new economic and social era.
I say "when the firefighting fails" because you don't need a degree in economics to realise that the genie is now out of the bottle (sorry to mix the metaphors) and no amount of spraying it with a hose will get it back in the bottle.
Is there a website which provides a rational analysis of how my life is going to change over, say, the next 5 - 10 years on the back of all this bruhaha? I don't want an hysterical, armageddon-style analysis, but rather a straightforward exposition of life from here on in.
Complain about this comment
King should resign - any prudent custodian of the Bank of England would not have touched this with a barge-pole.
Let the bad banks fail - save the good ones, it's the only way this system will be saved.
It looks to me as if the powers that be are pressing the self-destruct button
Complain about this comment
Thanks Robert for your excellent coverage. The liquidity issue is paramount yet the media generally doesn't report the situation adequately. I've been wondering where HBOS etc were getting their funds from to bridge the borrowing gap. It would be good if you could spell out what's happening to the total lending from Central Banks in the USA, UK and EU. It looks like a massive injection. How much of the short term need might it be temporarily providing?
Complain about this comment
We are coming close to the real reckoning. The big clearing banks are now in the firing line with RBS/NatWest next.
The US bail-out might just keep them afloat for a while, but the next couple of weeks will be make or break.
Will it be a 1940s style 'finest hour' for New Labour, or a 'Munich' capitulation?
Complain about this comment
who is going to bail out the Taxpayer ?
Complain about this comment
I can understand why HBOS is struggling but, as the biggest mortgage lender in the UK and being partly financed by retail deposits, surely it has enough AAA mortgages left to use as collateral without having to use other assets.
Complain about this comment
Robert,
This is your most alarming post to date. Mr King is my hero, thank goodness he is in charge, but how much of this rubbish can the Bank of England stand on its books?
I will be listening to you on 5Live this evening with interest.
Complain about this comment
#1:
Taxpayers pay taxes because they have jobs.
If you want to care about taxpayers (rather than the money they've already paid in tax), then the BoE is doing the right thing because if the banks can't provide loans to companies, companies will go out of business and jobs will be lost.
Don't mix up tax-already-paid with taxpayers.
Complain about this comment
It is like being on the edge of a precipice not just a cliff.
No longer is anyone in control. They just make it up as they go along.
Thinking on your feet is one thing but you have also to make the right decisions.
These are all the wrong decisions.
Someone somewhere is not listening to the right people.
They have now jumped off and are trying to catch onto branches as they drop to slow down the descent.
Complain about this comment
Is everyone else surprised that Andy Hornby is still CEO at HBOS?
Complain about this comment
Time to emigrate to a country that is likely to have a more lenient fiscal regime for the next 50 years. France anyone?
Complain about this comment
is it just me or does Mr King look like penfold from danger mouse.
it's a shame that in a democracy the tax payers don't have a say at all concerning these matters. maybe we can get our voices heard by delaying our payment of our council tax for a month or two.
Complain about this comment
This may sound slightly technical. But it really matters, because it makes it much easier for banks to borrow from the Bank of England, to replace the funds they are finding it almost impossible to raise from commercial sources.
You keep coming so close to hitting the nail on the head, and then repeatedly miss in a spectacular fashion! Even in your special BBC News programme ("World Economy on the Brink" or whatever it was called), you noted that banks were depsiting their spare funds at the BofE rather than lend to each other, even though it meant earning pitiful interest. You also - FINALLY! - observed that the period of excessively low interest rates had sown the seeds of the debt bubble and resultant credit crunch.
Why then can you not see (or at least state openly) that INTEREST RATES ARE TOO LOW?
The banks won't lend to each other because the returns (ie interest rates) are not commensurate with the risks. If they could get appropriate interest rates for lending their money, they would! People are happy enough to agree that "the era of cheap credit is over", but that is just another way of saying interest rates are too low!
Sping, spin, spin... still very New Labour!
(And all this money that is being created by the BofE will also be inflationary, by definition requiring higher interest rates.)
Complain about this comment
Political pressure has won out in the end.
If people had took the government up on it's offer, first of guaranteeing £35,000 deposits in British banks and then they nudged us once again raising this to £50,000 guarantee.
If we had moved our money about and the government guaged that enough of us were doing it so that the pollitical fall-out of allowing a few of the rotten bank apples to fall would not be so great, then we would not have come to this point. Everything polliticians do is not based on what is right, but rather on what loses them the least amount of votes.
Politicians were ultimately left with no room for manouver so it comes to this.
Complain about this comment
Dreams have just launched a new mattress with zip sides
Complain about this comment
£40bn a week from the Bank of England to the banks?
Well, the UK will be well and truly broke by Christmas!
Complain about this comment
addendum to #24 - the implication being that movement of money would be an acknowledgement of risk and if that is the case people expect some losses.
Complain about this comment
Point 1: "a big British bank was having difficulty renewing credit lines" - people assume this is HBOS and if it is, this is worrying for millions of people. Doesn't actually matter though since there are only 4-5 "big banks" and any one of them being "in trouble" is a big problem for us all.
Point 2: RP says "There'll be an auction of £40bn of three-month loans next Tuesday, and further weekly auctions - whose size is yet to be determined - till at least 18 November". As a complete layman/novice in these matters, where does this money, the £40bn, come from? From what RP says, there would be a potential £240bn over the next 6 weeks - I say again, where is this money coming from? What assets are the BoE taking in security against these loans? I thought the banks have nothing left... Please RP or someone explain...
Complain about this comment
#3 I would guess the bank concerned to be Lloyds itself which is now up 12% on the day since the announcement.
Obviously if Lloyds did go then they could not complete the HBOS takeover which would be the biggest splash in the markets yet and who knows what would happen then.
We are far from through this.
Complain about this comment
Could the business editor remark on this aspect please:
'what are businesses supposed to do faced with the exponentially dropping sales?'
My business is being crippled by all this malarkey. I'm sick to death of reading about banks 'in isolation' as if the knock-on effect was, er unimportant or irrelevant.
Does BBC now stand for 'Bankers Broadcasting Corporation?'
For goodness sake, Robert, tell us what to do!
Guy Croft, owner, Guy Croft racing Engines, Lincoln UK
Complain about this comment
Back in the nineteenth century an ancestor of mine was a shareholder in the Bank of England. Family history has conveyed a picture of a stubborn and often cruel man. However, as his descendants we are all very warm with our money and reluctant to lend without good interest on an easy wicket. So we are of his ilk.
I do not blame Mervyn King for pushing the banks to the limit on this and other issues and only coming round when there is clear objective evidence of trouble. Anyone can cry wolf and there has been a good bit of that lately.
This shows he continues to look after the taxpayer interest as best he can. This is his duty. It is good to know there is one public servant who continues to hold to the virtue of his office.
Clearly we live in dangerous times and the economy is in a minefield. It is best that we keep our heads despite the many aggravating factors. What did Roosevelt say ` We have nothing to fear but fear itself'. Good principle methinks.
Complain about this comment
#25 - Thank you!
You made me laugh
Complain about this comment
The workers are revolting, the banks have there backs against the wall (all their own fault some may say) but to be able to work we need the banks, the fact they haven't went belly up has saved a lot of business and kept our savings intact.
We are between a rock and a hard place.
It hurts to remember the huge pay and golden handshakes bankers were taking, but we must keep going.
I want those that gambled and those who turned a blind eye to it to have their day, in court.
I want the wrongfully gained money to be recovered.
For us to have any chance of keeping up with our commitments we need our jobs.
I will never vote Labour.
So that leaves me.........again between a rock and a hard place.
Complain about this comment
#1
Yes, that's why it is being done, to (or at least try to) protect the tax payer and their unsecured finances.
OK, banks might still go down, taking those funds with them but at least the tax payer will know that Govt. didn't just leave it all 'to the markets' as the children of Thatcher would/want - even Cameron has belatedly accepting that Govt. HAS to do this.
Complain about this comment
#12 - I'm not sure if you realise what's going on.
It's not a few bad banks that are being threatened.
It's all the banks.
Complain about this comment
So, the BoE will take (interest-free) money from taxpayers then lend it to the banks so that they can lend it, presumably for a profit, back to the taxpayers (and some non-taxpayers)? This is a stupid merry-go-round and Mervyn King is a gullible fool for falling into the trap.
Complain about this comment
Does anyone know how much the govt have spent on this so far?
There seems to be a huge hoo haa in the US about a 700 bn USD bailout, but how far are we behind that ?
If you account for NR, B+B, loans already made etc, surely we must be very close to what the US have pumped in?
Any thoughts anyone (or has anyone been keeping a tally?)
Swapping car loans with the BoE ? Sounds very very bad news. No wonder Merv isn't happy!
Complain about this comment
#3
"...what bank was having problems?"
If Mr Peston named the bank then 1/3rd of those on this blog would be asking him if he wanted to cause a run on the bank, another 1/3rd would be shouting for people not to panic and the other 1/3rd would be silent - they would not be at their keyboards but down at the bank trying to get their money out!
Complain about this comment
No. 20 - Perhaps HBOS havent got the cash to sack Mr Hornby just yet!
Just how is the BoE funding these loans? Is PSBR going through the roof? Who has the cash to by govnt stocks etc or is it a case of printing more money and to hell with the growth in the money supply.
Or (most likely) am I as sadly confused as most people!
Complain about this comment
Keeps the boat afloat but how can the BoE stump up the money to plug the hole which looks a great deal bigger than the sums bunged to date. Looks like a short term holding measure.
Complain about this comment
'Mervyn's Motors' - otherwise known as the Bank of England, will soon be stuffed to the brim with merde as 'security'. How long can this go on before interest rates have to rise?
The time for half-measures is surely over. the American Model of securitization and off balance sheet trickery is moribund, corpsed, demised, deceased, dead as the proverbial Norwegian Blue!
The real question once the current banking rationalizations, failures, mergers etc., are over is what is going to replace it.
Complain about this comment
There are too many vested interests at play here. Good old Gordon seizing the opportunity to imagine he can lead the country out of recession. One last chance to resuscitate the miracle that 'was' the UK financial sector. Too much hysteria and 'buying-in' to the discourse of systemic collapse. Too few independent voices in the media, and lastly, the slow realisation that we can't run an economy on these levels of debt ever again. Lower interest rates? Not the answer. Bail out the rogue banks (for that's what they are)? Not the answer. Increase the money supply? Not the answer. Let these failed companied go to the wall? That's the answer. There's no other way to get rid of these 'masters of the universe' who are still, to their disgrace, informing economic policy in the UK and Washington. When it's over a criminal investigation into who did what and when is needed. There must be a paper trail and there's likely to be enough evidence to start legal proceedings against the people and companies that have corrupted the financial markets with dodgy AAA rated financial 'products'.
Complain about this comment
Blackmail wins again.
Why do we allow a situation where privately run businesses are so thoroughly attached to the jugular of our society, that the moment they come under threat they bite unless we help them out?
If banks are so important and cannot ever be allowed to fail then they should be forcibly nationalized, regulated thoroughly and run with due diligence in mind, and not the pursuit of reckless profit.
One thing this current crisis shows us is where the real power lies, and it's not in Whitehall.
Complain about this comment
#15
The Tax payer (as it should be), as was always the case before Thatcher and her 'There is no such thing as society, just self, self, self' type speeches.
Complain about this comment
So the BoE fianlly acts to bring stability to the UK banking sector...Hooray!!!
Or am I along with other taxpayers being hoodwinked by this apparent sleight of hand?
Bank a takes a loan using assets that are bad and in three months time puts its hands up and says.."hey BoE, we will have the same problem that we had three months ago in trying to replace the funds borrowed from you...but please oh please!! would you write off the loan and then we can all be happy that we have a sound balance sheet once again?"
Its not a bail out...or at least not yet...and it really doesn't amount to state aid if its only a short term loan.................
The fact is this is as much a of a botched solution to a systemic problem as it is a salve for those banks and there sharelholders, whose wealth was set to dimish very rapidly.
Do the decent thing Mervyn...make the loans convertible for share warrants or pref shares and then be an activist shareholder on behalf of the UK taxpayer....don't let them get away with their fialures at our expense!!
Complain about this comment
Post # 23, YummyCarolKirkwood, you are spot on. Interest rates are, and have been for some time, too low. The forest fire that is raging throughout the financial markets was started, in part at least, because dimwits were being encouraged, by other dimwits, to borrow money at stupidly low rates.
Debt needs to be brought under control, both at personal and corporate levels.
What's next I wonder? God knows as far as the convoluted financial instruments that banks have conning each other with, but as far as personal debt is concerned, how about credit card debt. More dimwits over far too many years have been cranking up their debit balances to fund meals out, drinks down the nags head, petrol in their cars, white goods, cash withdrawals etc. And this debt just rolls over and rolls over, one of the most pernicious forms of debt yet available to the common dimwit, sorry I mean common man. How much is owed on all the credit cards in the UK, does anybody know?
An yes, post #25 made me smile too.
Pip pip!!!
Complain about this comment
The public are so easy to hoodwink. Chain them to a twenty five year mortgage, give them some shiny new gadgets and tell them they've never had it so good.
Then tell them there's a chance they could bombed within 45 minutes, or tell them they need to bail out sinking banks, tell them anything, but make sure you tell that their house, their gadgets, their very freedom is at stake, and they will jump exactly as high as you tell them.
You can make them suckers do anything.
It's a good game.
Complain about this comment
just when is this government and the BOE going to be pro-active instead of these knee jerk reactions? More money to be printed, once again at the last minute before the bank collapsed, suddenly uprating the deposit guarantee after i seem to remember GB promised this over a year ago after the NR debacle. What we need is leadership not panic!
i still dont really understand the deposit guarantee, £100,000 for joint accounts and half that for individuals, so i have an individual account of £50,000 in an online account, and £100,000 with the same bank in a joint account... am i fully covered? as my bank has no idea!
Complain about this comment
18. rhysgp wrote:
"#1:
Taxpayers pay taxes because they have jobs...
...Don't mix up tax-already-paid with taxpayers."
Don't be so glib. That tax money that has been traded for second-rate assets is now money that can't be spent on other things.
That's my money that's being used and your effectively saying that I should just forget about it because the government have already taken it.
Complain about this comment
#22
Do that and you most certainly will get a hearing, one in a Magistrates court - for the non payment of Council Tax - not sure if you'll be allowed to comment on other issues though...
Complain about this comment
The real issue here is transparency.
The banks will not lend to each other because they don't know who is holding the high risk loans. There is no chance of them all being forced to be transparent; the truth is too ugly.
Those in a strong position would publish and be proud. The fact that this isn't happening says it all ...
Complain about this comment
So who is going to be the next minister to resign ?
Smart money must be on Mandelson!
Complain about this comment
Time to let these banks fail.
Complain about this comment
Dear Robert
SO, the tax payer has bailed the banks out, curtosy of Brown and Darling, Now, can you identify the Banks, that were going under, Effectively, Briatin has done exactly the same as the USA, and bent over backwards to bail out the bankers who create this fiasco in the first case," can you tell me why for the last two years the FSTE shares index has been on a continual slide downward, so who is doing this and why."?
Complain about this comment
Robert mentions specific market rumours circulating about a UK bank with imminent funding difficulties. I am not sure how accurate that is, as the credit spreads for UK banks have not been particularly erratic today, and relevant traders I have spoken to say they have heard of no such rumour. (not to say it can't be true, however)
More broadly, its worth remembering that bank's funding needs have been driven dramatically higher in many cases over the last year by having to bring off-balance sheet vehicles back on balance-sheet. This is due to lack of investor confidence in such vehicles.
The focus has moved on from things such as SIVs (structured investment vehicles), although there was a good article in the FT about them yesterday. The sums are mind boggling. HSBC's alone was estimated at $42.5bn
This move by the BoE looks targetted at the assets formerly held by SIVs, and now held by the banks.
#4 if you want to read the technical detail regarding haircuts etc refer to the announcement on the BoE website.
http://www.bankofengland.co.uk/markets/marketnotice081003.pdf
Complain about this comment
It is sounding increasingly as if the doubts over the value of the assets owned by banks is yestersay's story - and what we have now is a credit crunch whose origins lie in the unwillingness of foreigners to fund the consistent and ever growing deficit on the country's international trade that has occurred under Gordon Brown's stewardship.
The 600 bn deficicit in the value of deposits compared with lendings has arisen in no small part due to the profligacy of the UK pubblic and private sectors as governed financially by Gordon Brown. So much for the end to boom and bust Prudence!
Complain about this comment
@ 40 - glanafon
spot on
Complain about this comment
People - Let's take this GLOBAL...
Let the UK Taxpayer show solidarity with the US Taxpayers!!!
Let's meet up outside the Bank Of England on the same day...
http://www.endthefed.us/about.html
Let the truth be free (please mods!)
FWIW
Complain about this comment
Excellent. So the banks are now so deep in the hole that the only assets they have left to swap for cash are car loans, lent to people who doubtless will soon be unable to afford them, and secured against the only asset to depreciate in value quicker than a US/UK bank.
And even this cash will not last long.
Everywhere you look, there are facts and statistics screaming that this was inevitable. These were available to regulators, to the government and to Mervyn King.
And yet noone dared to speak out against the City (presumably for fear of jeopardising those £1 million a year non-exec board posts) and to attempt to curb the excesses of lending and the unregulated and uncapitalised credit insurance industry that encouraged banks to lend so recklessly.
I would like to think that one or 2 of them feel ashamed as they pop down to their country estates in their helicopters this Friday afternoon.
Complain about this comment
Re 37 how much so far
On coarse figures then per head of population we actually ahead on liability against the US but some of the liabilities may not be very high. Can't see the US has finished yet. Question is what is to come in the UK. No way of comparing like with like.
Complain about this comment
#45
Surely if they do that in three months time they will be asking to be nationalised (lock, stock and smoking bank-vault!) as these are 'secured' loans, not a version of "The secrete Millionaire" give-away.
Complain about this comment
#30- guycroft - tell us what to do!
In a nutshell, you want to adopt a defensive posture, this means trimming costs to the bone, while squeezing maximum revenue per sale. You also want to find new ways of making money from existing assets (including customerbase), eg. create new revenue streams. You also want to diversify your sources of income and your supplierbase, so that you are not overexposed to any particular entity.
You could also look at ways of quickly adding value to your products, for example partnering with a firm in a related market, so as to gain access to new markets without having to build marketshare organically, and new products without having to develop them yourself.
If you have some spare cash you should try and plough it into research + development, so that you have some new products in the pipeline, this will keep you ahead of your competition and you'll be ready to make hay when the sun shines again.
while all this is happening you do a strategic review, that means revisiting the vision/objectives/strategies of the business, and revising the business plan and the marketing plan. This way you will have a clear idea of what you're doing, and the chances of failure due to misaligned business processes are minimised.
AFAICT, this is not the time for a retreat - if you can afford it now is the time to go on the offensive. Your ability to do this will be determined by your fiscal prudence during the boom years.
Good luck, c u on the other side.. ;)
Complain about this comment
Nice one Robert, thanks.
Everone seems to agree that it'll need a big return of confidence to help the money men out of their self inflicted holes.
But does the BOE accepting credit card debt and car loans as collateral inspire your confidence? Hmm
Anyone else think it's ironic that its now Bank employees lavish high spending on flash cars and platinum cards which their employers can now use to keep their sinking ship afloat for a while longer!
But it can't be a real crisis - Parliament hasn't been recalled - does that mean we are officially a Banana Republic?
Complain about this comment
The Financial Services Authority (FSA) has raised the limit to the amount of deposits that are guaranteed should a bank go bust to £50,000.
The new limit will come into effect on Tuesday 7 October
Why not from today?
Is it because most banking failures have happened over the weekend and they are expecting one to go this weekend
RBS shares anyone?
Complain about this comment
In the current state of things the ONLY way to stabilise the banks is to guarantee all savers and depositors like the Irish and the Greeks - anything else will continue the instability and cost much much more in the end.
It is an absolute nonsense to announce '50,000 by the 7 Oct and we will continue to consult' as has been announced today.
Monday we will have to move it to 125,000 to match the US Poulson Bill's latest limit (of 250,000 US dollars) anyway. A single simple announcement to match the Irish and Greeks position is essential, and Gordon Brown MUST negotiate this over the weekend with the other members of the EU.
(He might also like to join the Euro over the weekend too - for added stability. This is an excellent opportunity to fix the pound against our major trading partners currency and thus provide stability for our businesses during the devastating storm of the coming inescapable depression. We will need the biggest home market we can get to preserve as many jobs as we can.)
Complain about this comment
So - Goldman Sachs, mainly responsible for the speculation which sent oil prices sky high and will cause such misery, indirectly, for the cold winter future of UK pensioners is to be bailed out..nice one
Paulson, just spare us the 'on the knees' theatrics though some some might be prepared to beg for the collateral advantage he will personally receive.
Meanwhile, how many pensioners on lower income have worked out that the 'cost of living' increase is STILL being wiped out in October by the slimy Gordon's tax change?
Just check the difference between income in September and October. Banks may be gearing up for FIAT currency inflation, but at leasts pensioners and the weakest will be doing their bit for deflation.
Complain about this comment
@48
At the moment, customers are only covered for one account under each banking licence so if you have two accounts with banks that are owned by the same parent company you will only have a total of £50,000 guaranteed.
Complain about this comment
#49
It's not your money, it's our money, in other words it's the nations money - that is what tax is. Don't want your money to be spent on things you don't like then arrange your finances so that you don't have to pay tax...
Complain about this comment
rhysgp 18:
Give it a rest, you know exactly what I meant. If you want to play conceptual analysis go write an essay on logical positivism.
Complain about this comment
In this situation there are no easy decisions, no snag-free solutions. On balance, this is the right move. It also seems to have been carried out with less of the dithering that characterised previous interventions such as NR.
The government needs to explain to the public that banking is not like any other industry. The 'real' economy is critically dependent on the functioning of the banking system, dependent in a way that does not have analogies with other industries. Intervention, however unpalatable, is better than doing nothing. The resilience of our banking system is also critical to our international trade.
Of course there is a lot that needs fixing, structurally and systemically. A lot of improvements and reforms need to be carried out. But trying to tackle these now would be like deciding to rearrange the furniture while the house is on fire.
Complain about this comment
If the B of E is having to accept car loans and credit card debts then the banks really are in very deep trouble.
Complain about this comment
sorry, defensive/offensive blah blah, what I meant was, hunker down, but keep your eyes peeled for opportunities.
Complain about this comment
Agree with post 40 this does sound like re arranging the deckchairs on the Titanic.
Complain about this comment
#54
Please! The bankers have not been bailed out, the banks have - yes the bankers that have caused this should be booted out without even a handshake - never mind a golden one - but this is not the time to start that process. At the moment what needs to be done is to save the banks and thus the customers of those banks.
Banks do not equal Bankers.
Complain about this comment
If the Bank of England is prepared to bail out the Banks why are they not prepared to bail out their customers (so called) the businesses, the investors, the entrepreneurs and the institutions who bank with them. These not the banks are the employers the power house and the wealth creators of this country providing the income of the people and the tax revenues for the running of the country.
The banks act as an imposition to the operation of all these people and charge them unmercifully for their services they charge for instance according to the OFT some £8.5Biillion a year in dubiously priced bank returns and referrals letters. They claim free banking but everyone pays for these outrageous profiteering charges through the people they trade with recouping them. The banks miss-sell insurance on cards loans and mortgages not caring if the insurance company will pay out because the banks will pursue the claim against the hapless individual irrespectively.
Then they exclude the poor and the needy closing the accounts of anyone who gets into temporary difficulties. In short they do not provide a service to the Nation they greedily exploit every member of the community they belong to with bad products, improper lending and then disguise their implication by selling on to debt collectors and other institutions they laugh at the regulators as one said to me we make more out of interest in one day on insurance premium sales than we have been fined by the regulator for inappropriate selling.
For Years our banks have had no need to listen to customer, regulator, government or the bank of England most of whom they treat as beneath their contempt until they get into trouble. Then they want us, even blackmail us into bailing them out threatening great economic catastrophe will ensue because they will hold onto the money and not trust anyone to invest in.
Well yes, I say, they can be supported Ibecause I believe in my country and its people and want to support not exploit them.
Unregulated banks have exploited us all, so for the Banks this time it has to be unconditional that they will support their entire community and they will act within strict regulations to ensure that they carry the proper interest of the countries in which they operate and will fulfil a unified and agreed prescription for taking the whole community forward without gung-ho speculation and buccaneer attitudes that lead to boom and bust of their countries economies and the deprivation of the citizens they sponge and coheres money from and please just once from these tight lipped fat cats could we have a public promise to do better in the future and a public apology (if not a refund) from every banker manager or investor in every financial institution who earned over £250,000 in the last twelve months before we part with a penny.
Complain about this comment
here is a short explanation of what is going on.
there is a liquidity crisis amongst the banks that is threatening to spread to the rest of the economy. this crisis is indiscriminate - the loss of liquidity (ready cash) is a problem for all the banks and an increasing problem for companies too. this is happening irrespective of whether those banks and companies are profitable or not.
the boe's interventions are designed to ease the liquidity crisis by temporarily pumping loads of cash into the financial system. it is a short term measure. it in no way stops the inevitable slowdown in the economy, the credit crunch (i.e. reduction in long term lending) and the probable bankruptcy of many companies (and maybe some banks) that genuinely are unprofitable in the coming recession.
failure of the boe to intervene at this point could lead to serious brain damage in the uk economy.
what the boe is doing is making very short term loans to banks in return for receiving collateral from the banks. the question at issue is what collateral owned by the banks is acceptable to the boe.
please note (1) these loans are not funded by the boe borrowing or by the taxpayer as the boe can simply "print" the necessary money, (2) these loans are not (hyper)inflationary insofar as they are loans that will eventually be repaid (and the cash therefore taken back out of the system).
the risk with the collateral arises if (a) one of the borrower banks goes bust and (b) the collateral turns out to be worthless. in this case we really do have a problem for the taxpayer (if the losses are funded through taxes) or with inflation (if the losses are funded through printing money).
the banks have a lot of assets, more than equal to the value of their liabilities (i.e. their deposits, and those interbank loans that are rapidly drying up). when the banks offer these assets as collateral to the boe, the boe applies a "haircut" to the amount it is willing to lend. so e.g. if the banks provide £100 of gilts, the haircut might be 10%, so the bank receives a loan of £90. the more risky an asset is, logically the bigger the haircut should be.
because the banks are so desperate for cash now, and because they have run out of "quality" assets like gilts (or even mortgages - itself something the boe would not normally accept) to offer as collateral, the boe has been asked to accept even riskier assets, including corporate loans and commercial loans. these assets may be more risky, but to my mind the issue is not whether these assets should be accepted, but rather how big the haircut should be.
even with these assets being accepted, if the haircut is very big (say 50% or more), then there is still a risk that some banks may not be able to raise enough liquidity to meet the run they are experiencing in the interbank market. and if there is a run on deposits as well, then the banks are totally screwed.
Complain about this comment
One really has to wonder just what an effect the internet, the readiness of information and this blog inparticular are having on this situation. If the information weren't so readily available to the general public then I'm pretty sure things wouldn't be quite so bad. I'm not condoning censorship, no more I I condoning sensationalism. Is Robert striving for something personal, or is he truly doing us a service?
Complain about this comment
$59
" I would like to think that one or 2 of them feel ashamed as they pop down to their country estates in their helicopters this Friday afternoon. "
I doubt you need to trouble yourself thinking about that one.
Complain about this comment
To Boilerplated post 38
But Robert - and the BoE - DID name the bank when it was Northern Rock. What the BBC and the BoE and others have to explain now is : why the double standards? Why when the issue arose one year ago was the focus exclusively on NR whilst the bigger picture was brushed under the carpet?. A number of folks on these blogs are now congratulating Robert for highlighting a story that is over a year old and that he missed altogether at the time (i.e. that the same problem would hit other banks- just a bit further down the line).
It is not hard to see why the BoE, the FSA and Alistair Darling preferred to focus on NR in order to detract attention from the problems facing the entire banking industry- but what was the BBC's incentive for doing so?
Complain about this comment
#18
... "because if the banks can't provide loans to companies, companies will go out of business and jobs will be lost."
Banks are not the only lenders.
Banks also charge for this "service".
Not ALL banks would fail (We hope).
Not ALL companies require loans.
Why saddle the companies with high service charges from bad banks ?
Good banks will be more than happy to service solvant companies.
Insolvant banks should go bust.
We can always bypass the banks altogether and use BoE directly. I mean why have a bunch of companies with a monopoly of base interest rate money that can't risk manage and end up costing the country dearly on a regular basis ? It seems to me Mervyn King knows what is good and bad debt. Perhaps he should be put in charge of all banks ASAP.
Some UK banks are not fit for purpose - get rid of them ASAP before they cost the country even more money !
I've begun praying to god (Mervyn King) to set this country on the straght and narrow. Don't worry Mervyn, the public have faith and support you ! I applaud your efforts on behalf of the country ! GO MERV !
Complain about this comment
No-one could be more annoyed than I am about the sheer idiocy that has got us into this mess. High profile idiocy from a small number of greedy, self-interested bankers. Lower level (but more numerous) idiocy from those who borrowed much more than they could afford, or who lied about their incomes so they could just borrow even more. The idiocy of a 'me-me', 'I want it now' culture, that has put greed before common sense or higher values.
But we need to think pragmatically. The City doesn't just employ a few thousand ludicrously overpaid and incompetent fat cats. That's the caricature. It employs over a million people, most of whom don't earn huge sums. The broader financial services sector employs even more. Financial services generates huge tax revenues, and huge overseas earnings, which pay for our imports of food and energy, of manufactured goods. This huge fiscal and trade dependency on financial services isn't a good place to be, but it's where we're starting from.
Retribution, reform and regulation can all come later, and must. But the rescue of the system has to come first.
Complain about this comment
The question I want to know the answer to is whose is all this money that the Bank of England seems to be able to call upon at the drop of a hat? and where does it all come from ? Is it government money kept in trust by the BoE? If not government money whose is it? Also, how does all this tie in with what financial commentators call the national debt ? It is all very puzzling ! I just don't see why if all this money has been stashed away all this time why successive governments have felt the need to constantly raise taxes as if they were on skid row, why they ask people to tighten their belts etc etc when we now know all billions of pounds have been there all along. Sounds a bit to me too like the account in the bible of the parable Nathan the prophet said King David -in effect taking from the poor to fund the rich who already have more than enough thank you very much. Can Mr Peston do a blog please to answer these questions - am sure many will be grateful if he can - Thanks in advance
Complain about this comment
#46
Economically correct but political dynamite for a government that wants to get re-elected.
Hang on a minute ... wasn't the BOE given "freedom" to set interest rates for the long term benefit of the economy and not short term political objectives ?
Complain about this comment
I take back everything I said about Merv this morning.
He has gone to the dark side and is now an accessory to the covering up of monumental government incompetence.
It just goes to show how independent the BoE really is(n't).
I'll be taking my car loan, HP agreements and loan shark deals that I can no longer pay up to Threadneedle street tomorrow to cash them in.
This is not the way to recover the economy, this is not the way to make sure it doesn't happen again.
It's simply sending a signal to financial world that everything that has happened in the last 6 years is acceptable.
The government no longer speaks for the people. It has become a totalatarian state.
Complain about this comment
30: Guy Croft
Post #62 has given you some great advice. The only thing I'd add is to think about the nature of what you sell:
If possible, emphasise the things that customers HAVE to have, and not the things they'd LIKE to have.
This is a key business factor right now. Imagine that someone spends 50 percent of their income on essentials and the other 50 percent on discretionaries, things they want but don't actually need.
Now their income gets reduced by 10 percent. The original 50 percent still has to get spent on the essentials, so the 50 percent spent on discretionaries gets cut by the 10 percent, this being a 20 percent reduction (from 50 to 40). And so on. I call this "non-discretionary leverage".
You can see this in the stock market. Share prices of companies producing things we need to have, have held up relatively well - oil companies, utilities, pharmaceuticals, food retailers. Companies selling things we like, but don't need to have, have fared much worse - leisure companies, airlines, pubs, hotels and so on.
The message is, in so far as you can, to concentrate your business on selling essentials, not discretionary purchases.
Complain about this comment
Now let's get this into perspective: over the last seven years British banks have actually financed the housing boom, shareholder payouts and bankers' bonuses not by making profits but by borrowing and currently owe 625bn GBP.
That's $1.2 TRILLION - nearly double the US bailout figure.
Who honestly thinks the US bailout is going to make any difference at all - other than raise the share price sufficiently for bankers to bailout of their stock options?
Bankers had better start jumping from high windows (thanks, purpledogzz) because it'll be a lot cleaner end than the grizzly mess that the mob will leave when they come after them - and they will.
Complain about this comment
76 benagyerek:
Absolutely brilliant explanation. Everyone should read this post.
Complain about this comment
@ 77 idromaine
> One really has to wonder just what an effect the internet, the readiness of information and this blog inparticular are having on this situation. If the information weren't so readily available to the general public then I'm pretty sure things wouldn't be quite so bad. I'm not condoning censorship, no more I I condoning sensationalism.
>
Yes, this is a valid point to make - although it is difficult to uninvent technology.
How do you feel about the years in which the public have not so well-informed about what the 'economic miracle' was built on?
What has the prolonged and excessive use of business jargon (which appears designed to cloak simple fact) helped to do to us all now?
Complain about this comment
The UK should join the euro NOW- if they will have us, of course- and immediately start to decouple from the US economy. If we don't, we're heading straight down the pan with the Americans. Their empire is toast, time to join another.
Complain about this comment
#77
Never mind the Internet, what about the (1986) "Big Bang" and electronic trading, the old systems might have been dated and slow but due to both those factors there was always time to take a deep breath and clear the head.
Complain about this comment
Re 30 Guy
Sorry Guy no obvious answer. Expect you have looked at it more than anybody else. A niche based on a specialised product is a strength and a weakness. If there is no obvious diversification then it is very difficult to see what movement you have. My guess is you are looking at 12 months to 2 years before substantial pickup but I don't know your sector so perhaps it is just a short blip of a few months. You said you went thru the 90's dip so you know how it goes. I have known even big firms offer loss making services on the basis that it is better to make a small loss and stay alive than make a big loss and go bust but it becomes a death by a 1000 cuts unless you are careful. The big danger is the bank, who will not be above calling in any debt at 24 hours notice if it suits them. One day on the phone offering more, next post a letter saying end game.
Complain about this comment
Robert, perhaps Mervyn reads your blog and acts accordingly!
Complain about this comment
Thanks 22, that joke gave me a good laugh
Complain about this comment
#79
why the double standards?
Exactly because of what happened a year ago, if you think it was bad then it will look like a chimps tea-party should panic set in now - in fact rather than just being a run on one bank there could be a total meltdown.
Complain about this comment
Well well well. We really have got ourselves into the poo.
By we of course I actually mean those of us that know what is going on. Has been going on. Most of us are in ignorance of the shenanigans that have been going on. The bankers however knew exactly what they were doing. They were doing deals and making money.
The deals relied on confidence.
The wise, experienced bankers knew just how much they could push the system limits. The really clever ones thought that they could push the limits even further without there being a loss of confidence.
Everything works as long as everything works.
An almost exact analogy can be found in Radio 4's "I'm sorry I haven't a clue" programme where they play a game called "Mornington Crescent"
That game of course has no rules. But the players pretend it has. The winner succeeds by general acclamation.
The same with banking. As long as a banker's peers think everything is OK then everything is OK.
The difference with banking of course is that once the cover is blown then the underlying impossibility of fractional reserve banking is laid bare and poor Mervyn is left to try to instil some confidence into hard nosed bankers who know what is going on.
Best of luck Mervyn!
Complain about this comment
#11 - I can answer that....
1) Taxation up
2) Public spending down
3) Endless news reports talking about 'the green shoots of recovery'
4) Higher crime
5) Higher unemployment
6) Higher inflation
7) A new war around 2018 to boost the flagging US economy
8) The demise of the US as a economic superpower, to be replaced by China, India and the Arabian world (probably Saudi Arabia)
9) Memoirs from every politician involved which point the finger elsewhere - it was the white rabbit wot dun it.
10) Increased voter apathy as the country finally realises that nobody has actually ever been in control - it was all a big con.
Complain about this comment
#74 - Boilerplated
The Banks = The Bankers until the Bankers have been matched off the premises.
As it stands, the same execs and analysts who made the mistakes and took the huge bonuses are now telling us they need the taxpayers bail out money as they're "so important" to the economy and are perceived as benefitting from this too. An awful situation for the average taxpayer! If they weren't clever enough to stop their banks from failing, then why should we believe they know what to do now?
Every bank in receipt of these funds needs a new Board asap, conditional on release of the cash.
Worked a treat, kicking Applegarth / Baker / Ridley out of NR... Public perception was that those responsible were gone and move on.
Complain about this comment
The Bank isn't bailing out the other banks. We are!
But the MP's have just forgotten to mention it and how much it's going to cost us all in extra taxes!
Your pension and savings have been gambled away and the heads of your bank are going to get away with it.
Any one else would be arrested and banged up for fraud!
Complain about this comment
Let's hope that on Monday we are all using the Euro!
Complain about this comment
When NuLab have to reposssess all the dodgy house and car loans dumped on the taxpayer they now have just the person to run the sale.
Peter Mandelson.
Clever move by Gordon.
Complain about this comment
Does the BBC have anyone without a sneering tone!
Robert the man who single handedly brought down Northern Rock with his glib and ill informed new reporting is at it again.
It is a real shame we cannot exchange Robert for a reporter who actually understands general economics such a Evan Davies who can report the facts minus the sneer
Complain about this comment
#35 Of course I know what has happened - I just happen to have a contrary opinion to you and many other people on this blog.
If this were a harvest we would not lock up the rotten apples with the good ones - cos when we go to sell them the rot would have spread.
I just think that saving ALL the banks is the worst thing to do. I believe that the only way to save the system is with a fine scalpel cutting out the rubbish and saving the best banks.
The approach that we save all - good and bad is what will cost us many billions extra.
Complain about this comment
"The UK should join the euro NOW- if they will have us, of course- and immediately start to decouple from the US economy."
The problem will be convincing the ill-informed public of this. The press are a major problem here.
Complain about this comment
81. At 2:48pm on 03 Oct 2008, Friendlycard wrote:
"-The City doesn't just employ a few thousand ludicrously overpaid and incompetent fat cats. That's the caricature. It employs over a million people, most of whom don't earn huge sums."
Whilst this argument is true. Hitler's Wehrmacht employed 300,000 men before the advent of hostilities in the Second World War. Good for employment figures sure, but not the health of the nation in the long run.
Complain about this comment
#89 - Don't be silly
The problems are global and that includes Europe and the Euro.
We were just as irresponsible as the Americans allowing buy-to-let and self cert mortgages. This is why our financial system is crumbling. It is not that we are tied to the US though that is true to a point.
It is because our system is not fit for purpose in the same why that the US system is not fit for purpose.
Complain about this comment
#88
"How do you feel about the years in which the public have not so well-informed about what the 'economic miracle' was built on? "
Hmm, I have mixed views on this, it's great if the informed have a clue to start with - or at least uses the same technology to find a clue - but the problems start when people see a one day 200 point fall on the markets and think that a stock-market crash is (happening rather than just a one day blip) - thus a prophecy can all to quickly become a self fulfilling prophecy if you see what I mean?
Complain about this comment
What happened to the democratic process in all this? In America Congress is going over the proposals with a fine tooth comb while in this country Parliament is stilll on summer holiday. Just who is speaking on behalf of the taxpayer?
Complain about this comment
Any one else getting a little tiny bit irritated about the way profits are privatised, and losses socialised?
Complain about this comment
re 90
Maybe we should scrap computers as well and go back to ledgers written on papyrus - and use carrier pigeons for the "newswire".
Get real!
Complain about this comment
Why are the moderators so slow - if you don't publish this I won't renew my television license :-)
Complain about this comment
#98
"The Bank isn't bailing out the other banks. We are!"
[..//..]
"Your pension and savings have been gambled away and the heads of your bank are going to get away with it."
You are of course correct, but only if the banks fail, if the banks don't fail the these loans get paid back and the tax payer quite possibly makes a profit. Yes it's Russian Roulette, but the only other option is sitting in a room, hands tied, with a ticking time-bomb!
Complain about this comment
re 108 - but all "privatised" profits (excluding the gains realised by cronies of GB in the venture capital industry) are taxed at 50% - so automatically 50% of privatised profits are socialised. And despite the current problems - profits are many times greater than losses.
Complain about this comment
My Grandpa lived until his 90’s ran several businesses and was still running one on the day he died. He never drew a penny in benefits or pension and he never put his money in the banks. He did his own baking, kept hens for eggs and grew his own vegetables but he was not a farmer. He saved to buy everything including his house working up to 20 hours a day and he paid his taxes.
He also fought for his country, Air Corps, in the First World War. He called the welfare state the “farewell state” and bankers “highway robbers”. He was generous to all his extended family not only at Christmas but all year and was polite and courteous to everyone he met at 90 he would stand to let a lady have his seat on bus or train. He went to church on Sunday but he would consider himself a practical self sufficient man not a saint as my eulogy here might imply.
It is sad that none of us his children or his grandchildren followed his example for there may well not have been a “credit crunch” today if more had followed his example. As grandpa would have said if you don’t give it to them they can’t play with it can they.
Complain about this comment
How much is money worth?
One of the gravest mistakes the UK made in the last few years was to increase the money supply so drastically while at the same time claiming inflation (CPI) was very low and also at the same time keeping interest rates very low (compared with long term average).
For example, if money supply goes up 14% but inflation is 2% then we must have been 12% more productive. (I know this is a very simplified example btw).
But the truth is we were not that much more productive - our houses did all the hard work increasing in "value" while we slept like babies.
But of course for something to have value it has to have "valuer" and valuers are notoriously fickle beasts.
We're gubbed.
Complain about this comment
I can't wait until the high court decides about bank charges.
I wonder if the judge will be 'influenced' in the same way Merv has and find that the charges were all fair - because nobody wants to upset the banks do they???
If you all want to do something positive, use the 'they work for you' website and start sending your MP letters saying how disatisfied you are with the economic system (if you can call it a system) that we operate in this country which fails us every 10 years or so and obviously has some serious flaws.
It doesn't matter which party they represent - they all back it, they all helped implement it and they are all responsible for the problems at the moment.
Complain about this comment
@105
Buy to let is not the problem.
Rental incomes are increasing and most BTL's were 80% loan to value with income set at 150% income to repayment.
Most BTL's are not in negative equity and most BTL's are earning even more than the 150% income to repayment thanks to the rental income increase.
In case you hadnt noticed people are still moving home but they are moving into rented property so that they dont invest into a falling market. This is what drives up the rental incomes.
People still need places to live and there arent enough homes to go around. Wise money will still invest in that market to increase their property portfolio. The major BTL players are cash rich and can afford to pay cash. The money is better there than in any of the banks. If a bank collapses you have nothing. If you have paud cash for a property when there arent enough to go around you have a saleable and valuable asset.
It only comes down to having a long term plan
Beleive me if I won the lottery rollover this weekend it would not be going in a bank it would be going into bricks and mortar
Complain about this comment
i am unsure as to why anyone thinks joining the Euro would be a good move? This present crisis probably marks the end of the single currency experiment!
Already Ireland and Greece have broken ranks, one day soon germany or spain are going to say enough is enough!
(do you think mandelson would have left the golden goose if there was a future for the EU?)
Complain about this comment
I don't what all the fuss is about - joe blog in the street couldn't care less. I was in Paris at the weekend - what crisis!
If BoE and Gordie want to bail out the fat cats then let them get on with it and those moaning about it should remember "when two elephants fight, it's the grass that suffers"!
Complain about this comment
Here's another myth buster from the inside.
I know of several traders and managers who held Lehmans products on the Friday before they went bust.
They incorrectly believed they were covered for any losses by collateral and therefore didn't react to the rumours regarding Lehmans.
Losses ranked in the millions - but who cares, it was client money.
That's the attitude of the city with your money.
.....who says they know what they're doing? Why would we take advice from the same people who got us into this mess and who don't know what to do themselves. They didn't see it coming, so they are NOT experts.
Complain about this comment
#112 - 50%? Not likely. Tax rates are 28% for corporates and a very maximum of 50% for individuals (but only after student loan deductions). Where do you get the notion that 'profits' are taxes at 50%?
Complain about this comment
112- FutureFinancier, where does your tax rate of 50% come from? Last time I checked, the banks were being taxed at a top rate of 30%, and the bankers at 40%. And that assumes the profits aren't being creatively accounted for through some tax avoidance scheme.
Complain about this comment
109:
I agree entirely that you cannot abolish the technology - that would be Luddite, and futile.
But what we COULD do is go back to some of the principles and structures that were changed by Big Bang.
For example, pre-Big Bang, stockbroking firms were partnerships, with unlimited liability. They took far fewer speculative risks - the risk was too great ("liable down to your cuff-links") and they hadn't the access to capital. It was a club, but with rules and sanctions.
The removal of the unlimited liability structure brought in outside capital and a substantial removal of personal risk and responsibility.
One of the problems since Big Bang has been the movement of banks into City dealing, replacing the previous system of smaller-scale brokers and jobbers.
Another has been the conversion of building societies, with their emphasis on prudence, into banks, with their profit- and bonus-culture. I think it would be hard to believe, from where we now are, that these 'diversifications' of banking have been beneficial.
So we can keep the technology, but we should think about the business structures of the institutions that use it.
Complain about this comment
The people moaning about their pensions going down their river really get my goat. It just goes to show how little they understand about pension investments and how they operate.
Yes the stock market is down this year but £100 invested in the UK Footsie five years ago is still worth £158 now even with this years falls. So it has done a lot better than sitting in a savings acount. Remember shares like property should be considered a long term investment.
Unit prices will fall but that merely means that you will get more units for your investment. If or when the price recovers then you will get your return.
If your pension is diversified, as it should be, then losses in one area will be made up in others, on average over the investment period.
For people not retiring in the next five years just sit tight and wait it out. If you are retiring in the next few years then your pension company should have been moving your money into very safe places.
Complain about this comment
#109
"Get real". Yes I wish the financial sectors would, then we might not be in the utter mess we are now...
I wasn't suggesting that the world should un-invent the computer or Internet, just that the irresponsible use of the technology has caused problems.
Complain about this comment
116:
I think BTL is a mixed picture.
The earlier BTL investors certainly fit your description, with solid income-to-mortgage ratios and plenty of asset backing. As you say, they won't be in negative equity, not least because they bought well before prices peaked.
But then there are the lemmings, the ones who followed them into BTL later, because they thought it was easy money. They bought at the top; and they were assisted by developers who provided overstated valuations to help them get round LTV restrictions.
Radio 4 did an investigation of BTL some months back. They interviewed smart BTL investors - many of whom, incidentally, had already sold out - but also lemmings. One person mentioned had GBP 3m of borrowings based on capital of sixty thousand.
So I think it's a very mixed picture where BTL is concerned.
Complain about this comment
Hi Rob,
On a totally different tack.
Virtually all economists who have been schooled in the easy money economic policies of the Greenspan era are calling for a rate cut from the BofE. Their implication being that this will reduce the cost of borrowing.
I am a bit lost here. Banks are not lending to each other, one of the reasons why we are in the current credit crunch and lowering the repo rate is unlikely to start them lending again so Libor is still going to remain stubbornly high. (Rates have gone down since last year, but borrowing rates have not.)
Can someone on this blog please explain to me why if lowering the repo rate is not going to lower lending costs (because banks are not lending and are unlikely to suddenly start lending) but will encourage inflation to rise, anyone in their saine mind would want a rate cut?
Complain about this comment
Where's the Bank of England getting the money they're lending to the banks?
Are they just increasing the money supply (printing more)?
Complain about this comment
#117
Mandelson returning from the EU
Yes, 'Mandy' would, in fact I suspect that he his appointment has more to do with a wish/need for the UK to be more integrated within the EU - the fact is that an EU working as one has the size and diversity to tackle the problems than individual countries.
Actually if the EU was about to implode, and 'Mandy' would be far more likely to jump ship to the UN than return to the UK of no future.
Complain about this comment
Has anyone noticed Robert's update on this blog? The big bank having problems wasn't HBoS. That's the problem with making it an update, Robert. I, along with lots of others I expect, was waiting your next story and not looking again at the one I read some hours earlier. Please make them new blog entries, even if they're minor clarifications. Moderators, can you suggest this to your bloggers please as policy.
Complain about this comment
#119. That can't possibly happen. Haven't you seen posts from people like benagrerek (post 147, 'Smack smack, you're dead')? The bank system is a closed system, and all the trades are MTM'd and collateralised against the hedging trade, so it can't possibly happen that a bank goes pop sitting in the middle of a loss making and profit making trade, and the other half of the profit making trade boosts the bank's books, without a similar outflow to the loss making trade... It simply cannot happen.
Yeah, right. Grow up and read some insolvency law. ISDA would not have been runnig around like a blue arsed fly on Sack Monday trying to clean up it bits of the Lehman's mess if this was true. At last, someone who sees, knows and recognises the score.
Complain about this comment
The assumptiomn is that to kick out the bankers running the banks will serve no purpose as they are needed to get things sorted.
Have we all gone mad? It is the self same management that allowed this mess to develop whilst amassing massive bonus payments and taking huge salaries. Thriving on being called masters of the universe.
Now we know it was all based on nothing and they actually havent a clue. Why then keep them when they are as much use as a chocolate tea pot beggars belief.
I will offer my services for half what they are taking out of teh system and not take any bonus or pension contribution till I get the job done.
I guarantee I will get the job done and done well.
Complain about this comment
@ 106 Boilerplated
Yes, point well made. I do see what you mean.
Like most things, instant information is a mixed blessing. Great when you control it and very handy when the momentum is in your direction - ie. the last decade of economic miracle! (and don't look too closely at it thank you very much).
But very much less handy now when, frankly, events look out of control. The efforts being made (perhaps understandably) to conceal the full extent of the problem(s) are largely pointless. Think people can see, smell and hear what is happening to them.
Complain about this comment
I am the only one who thinks a lot of the doom and gloom is brought on by the media like Mr Peston. It seems that there is a proliferation of doom and gloom merchants at the BBC in particular. A few thoughts - why didn't the economic journalists forsee this? Why have important economic indicators such as the balance of payments and the glut of public sector spending been ignored in all of this. Also there seems to be little scrutiny of how our banking, electricity industry, nuclear industry etc is now largely foreign owned and therefore subject to such shocks. Not to mention the decimation of agriculture and mass Eastern European Immigration and the fact that all manufacturing now is done in China - the UK economy has been shot to bits for years. The reality of that the Beeb went along with a lot of this and didn't challenge it in fact it has feted big business - one only has to look at the apprentice and dragons den . Yet all is secure at the BBC the license fee poll tax is in the bag - having shafted the post office in the process and no redundancies like ITV. Also no challenge of city fat cats as the Beeb has its own breed of these. Perhaps as the economy is in the dumps then Messrs Peston, Davis and Ceitlin Jones et al should now been laid off - I am sure we could get cheaper Polish economic journalists in who might be a bit more independent and who knows a lot more competent.
Complain about this comment
There's a lot of talk in this blog about car loans being bad security. I'm not so sure. Car loans are over short terms, so repayments tend to match depreciation. Even in this difficult market, in the event of default, used cars are easier to recover and sell than houses. House mortgages are over long repayment periods so the capital balance reduces very slowly and houses are, right now, a depreciating asset. Mervyn may not be as mad as a march hare after all!
Complain about this comment
#124.
"I wasn't suggesting that the world should un-invent the computer or Internet, just that the irresponsible use of the technology has caused problems."
Just as well. There's not much use in feeling the collar of the superficial symptoms.
Some say the irresponsible use of the Garden of Eden started all this trouble. So, more recent irresponsibilities in politics and finance are understandable as a result.
Forgive and forget. Especially forget!...
Look into my eyes...
Complain about this comment
#23 is correct, a global repricing of risk is taking place and governments are standing in the way as if before a steamroller. It is necessary to allow it to run its course come what may, as no-one lends or invests without adequate compensation. Not even ordinary savers.
To paraphrase some movie, this credit market isn't big enough for all of us.
Complain about this comment
Dear Everyone,
I'm sorry the banks in the UK are having this trouble. I wish I could ease it. As it is, the banks in the USA(where I'm from) are having the same problems--tight credit, lots of worries, and that bailout to contend with. My hope is that everyone will be OK, especially the everyday person and small business person, and the poor need our support more than ever.
Peace,
fyrefaywilde
Complain about this comment
#123
I don't agree.
You are comparing the bottom of the dot com boom to now. A better comparison would be dot com boom peak to last years peak.
If you extend the graph to 6 to 8 years you will find you lost money.
If you invest long term you get burnt.
The best thing is to spot when you have made a good profit from the current "boom" and get out of the market. Wait for it to go "bust" and then buy back in later.
You cant do this with most pensions. You also dont get a choice when the money is put in.
You see it may get your goat when people moan about pensions - but it gets most peoples goat that financial companies KEEP getting it WRONG over and over and over again.
Complain about this comment
126 iang-b:
Yes, your analysis seems right. They're likely to cut base rates as a knee-jerk reaction to political pressure based on the assumption that low interest rates supply economic stimulus. The assumption doesn't really work in the current situation; base rates are an extremely blunted tool at the best of times, and at this moment are too blunt to cut through a paper bag. But I still think they'll do it; and that the market will ignore it. It could even make the situation worse.
Here's my thinking on this. I'm not an expert, and if anyone can correct my analysis, please do.
Conventional thinking is that lowering interest rates stimulates the economy, principally through consumption (because mortgage payers, etc, have more money left in their pockets). Conversely, interest rates should rise if inflation rises, to choke off inflationary pressures.
This logic is fine as far as it goes - which isn't anywhere near far enough. The first point to note is that interbank lending isn't determined by base rates - but mortgage rates are generally linked to base. Therefore, if interbank rates rise - which can happen for various reasons - whilst base rates stay low (or are reduced), banks have a serious problem - a narrowing spread between lending and borrowing rates.
A second point is the long-standing assumption that base rates should be set in relation to retail price inflation - and nothing else. Indeed, this is the specific mandate of the BoE.
But there are other inflationary pressures which this doesn't include. You can have a combination of low retail price inflation and high asset price inflation - this is precisely what's happened, and is the root cause of the current crisis. RPI/CPI was kept low, in part by cheap imports of manufactured goods; central banks kept rates low, perceiving no inflationary threat; the cost of borrowing was therefore low; cheaply-available borrowed money flooded into property and other assets, causing an unsustainable bubble.
Hindsight is easy; it is now clear that rates should have been set by reference to a combined calibration of retail and asset inflation, so when house prices went far above trend growth, rates should have risen.
Where we go from here is harder. There is huge pressure on the central banks to cut rates, even though retail inflation remains well above target. Interbank rates are likely to remain high, but returns aren't the main consideration here; the market is pricing risk, and interbank lending isn't going to be unblocked by a few extra bps of return. Strong banks are hoarding their money; they don't know quite how at risk counterparties are.
Logically, central banks seem likely to cut rates because they are under pressure to do so, but the rates charged to mortgage and other borrowers are likely to rise, reflecting both perceived risk and the need to address the narrowing retail/Libor spread.
Ultimately, interest rates are pricing risk; risk is perceived as high; the rates that the public (and business) pay are likely to go higher, almost irrespective of base rate policy.
Complain about this comment
Media manipulation and spin from NuLab and the BBC at its finest.
The head story on the 6 o'clock news is of course the return of the Black Prince. What a coincidence that this cabinet reshuffle is announced today.
At least the Yanks get to watch a live vote on TV to see if their tax is used to bailout the banks ....whereas we're given the government line with even more spin and lies on ever dumbed down TV, meanwhile this is discretely slid in under the radar by the BoE.
Pesto's currently live on radio4 on some special 'talk-in' feature on the 'crisis'. So probably 3 old ladies in retirement home and a couple of gardeners get the better analysis of how we are all gonna be fleeced by this bailout. I guess he won't be on the 6 o'clock news then.
Fridays are always a good day to bury bad news as they know most people in this god forsaken country are so disillusioned with this awful place that they all just want to get obliterated on booze come the end of the week.
Complain about this comment
UPDATE 15:16 Although HBOS is perceived in the market to be particularly strapped for cash, and is therefore a significant beneficiary of the Bank's new-found largesse, it isn't the bank that was having difficulty renewing credit in the money markets this morning.
That was another of our big banks - which only goes to show that the liquidity drought (which was acute again this morning) is vicious and pervasive.
If you leave holes people will try and fill them so my bet is RBS. They only had £70 billion of wholesale funding before the ABN Amro deal but now have £270 billion. I have also heard a rumour that one of the directors has been transfering money recently.
Complain about this comment
If the Bank hadn't wrecked the commercial bill market ten years ago (which had served the daily provision of liquidity to the banking system for a century) - and the highly effective dicscount market with it, none of this nonsense would be happening now.
Complain about this comment
Bagehot's maxim to provide ample liquidity but at a premium price would have served the current situation perfectly adequately. But no. The Bank knows best. Oh dear.
Complain about this comment
Interesting news elsewhere on the BBC, that the Dutch government has taken 100% control of the Dutch operations of Fortis. Fortis' troubles seemed to be linked with their part-takeover of ABN, along with RBS and Santander. I'm pretty sure Santander sold theirs on, but RBS still have theirs.
I've mentioned RBS before as my top tip to fail next. Given the report on Fortis in the Netherlands, and RP's tease about a big bank that wasn't HBOS not being able to get funding this morning, I think there are two banks in the frame to be this morning's lame animal.
The two are RBS (their own Fortis investment etc), or Lloyds (the market really doesn't like the HBOS deal). Then there are two interpretations of why Merve did the decent thing and changed the collateral rules for obtaining BoE funding. In either case, it's just that they're too big to allow to fail unless they really have to. Both have implications outside the UK, as they both have big overseas operations, including a big retail presence in the US in the case of RBS. For Lloyds there's the additional matter of taking one for Team GB (as in both Great Britain and Gordon Brown), and helping save HBOS. Relaxing the collateral rules is an element of payback.
Gut feel tells me it's RBS that had the problem this morning, but interested to see what anyone else thinks.
Complain about this comment
Looks like the penny has finally dropped, I am only a humble accountant and not in charge of the most important finance organisation in the country. But I could see from the start that the Bank of England needed to step in and perform its function as market maker of last resort whilst banks responded to the change in market conditions.
Any moral hazard could be obtained by simply charging a penalative rate of interest so that banks that had over exposed themselves made less profits.
Mervyn King is a waste of space.
Now we have a situation where on one hand the govt. is forcing Northern Rock to shrink its loan books to repay loans to the Bank of England. Whilst other banks do not have to shrink their loan books and can borrow freely from the Bank of England.
This stinks to high heavens.
Complain about this comment
re brown and darling tonight.
Mandleson brought back.
Committees being set up.
Trip to Europe tomorrow.
Mass Bank nationalisation on its way?
Have the press twigged yet?
Or am I paranoid!
Interesting times.
Complain about this comment
#76, benagyerek, there is something that I don't
understand - if the banks run out of quality assets,
then doesn't that indicate a collapse of demand
by quality borrowers?
And if we (or you, because I am on the other
side of the pond) run out of quality borrowers,
then don't we have to invent them by government
spending on infrastructure, or something like
that?
Complain about this comment
The root cause of this crisis is lending too much money ie. 6/7 times salary for a mortgage (nowithstanding 125% of assett value).
I have heard no direction to restrict the lending to, say, 3 times salary. Which would, in itself, regulate the price of property and bring the 1st time buyer back into the frame.
But, of course, none of the financial institutions want this, do they?
Not to mention Credit Card debt. - How are they going to restrict what people are allowed to borrow?
respectedColonel
Complain about this comment
I am no fan of the USA, but at least their congress got to vote on the bail-out.
Brown and King seem happy to completely circumvent parliament and just do their own thing.
This evening Brown was talking about a 'new system of government' involving his 'economic council'. Excuse me, but should I not have some kind of say in any change in the 'system of government'. For God's sake, Brown was not even elected as Prime Minister!
Also, for what it's worth, lowering interest rates isn't going to change anything, except to make the gap between base rates and Libor even higher. Not that the banks won't use it as an excuse to cut savers' rates.
Complain about this comment
The management of the banks need to be taught a lesson.
I have today removed all my money from the two banks I had it in and put it all into a mutual building society.
I will not even consider transferring it back until I hear that the boards of the banks concerned have resigned and apologised to the nation for the mess they've created.
I recommend everyone else does the same and to blazes with these appalling people.
Complain about this comment
#134
Cars (and other consumer debt) might be easier to reposes but the depreciation factor is a lot worse - remember that a car looses a circa £1000 just being registered and driven off the forecourt, then there is depreciation as age and mileage increase.
Complain about this comment
anddrewh @ 130
i see you like putting words in people's mouths.
let's clarify a few things.
under isda master agreements, legal title of cash collateral passes to the recipient. this means that your counterparty exposure on any derivative (be it a cds, interest rate swap or whatever) is 100% mitigated at the snapshot in time that the last margin was calculated and posted. insolvency law does not come into it. you already legally own cash equal to the value of the contract at that point in time. and at the moment your counterparty goes bust, you have the unilateral right to cancel the entire isda master agreement with that counterparty and pocket the cash collateral (assuming you are the net collateral holder).
this does not mean that losses cannot occur when there is a counterparty default. if a counterparty is severely distressed, they may simply fail to post margin in the day or two before going bust. from the time of the last margin payment to the time that you are able to reestablish your hedge, it is very possible for the market to move significantly against you (especially as markets will be inevitably volatile at that time). this "gap" risk exposure is a big problem for banks and something that their risk management departments look at very closely. however, gap risk exposure can just as equally work in your favour (e.g. if you are the protection seller on a cds).
in any case, my point still stands that the bulk of counterparty exposure within the interbank otc derivative (incl cds) market is well collateralised and not subject to insolvency law wranglings.
the reason isda has been running around like a headless chicken since the lehman bankruptcy is nothing to do with counterparty exposure as far as i am aware. instead it is to do with cds contracts that referenced lehman as the underlying credit (i.e. not where lehman is the counterparty) that were triggered when lehman filed chapter 11. lehman's bankruptcy triggered the acceleration of all "lehman" cds, meaning that under every contract the protection seller has to pay an amount in cash equal to the notional amount of the contract (and the buyer has to deliver equal notional amount of lehman bonds). given that the total notional of outstanding lehman cds presumably runs into several billions of dollars, for the market to actually move that volume of cash and bonds is totally impractical. instead, isda needs to calculate the net settlement of all contracts across the entire the market in order to make the entire settlement process manageable - a pretty mammoth administrative task for isda.
the examples cited by TheresOnly1Soupey @ 119 seem to me to refer to fully funded transactions (bonds, loans, abs or possibly clns) that were assumed to be secured on assets legally owned by lehman. this would absolutely be an issue of insolvency law, and of course the realisation by secured creditors of the value of that collateral (if it actually exists) would take weeks if not months to realise while pwc sorts through the mess. but my point is that these transactions are completely separate from the collateralisation in the interbank cds market that i was talking about.
Complain about this comment
#141
I've said this before and I'll say it again; It seem to me that Mr Peston is damed if he names a bank and 'causes a run' on the bank and is damed if he doesn't name the bank...
As for RBS, don't forget LTSB who some say wanted out of (or at least change) the HBOS deal, although denied, but there did seem to be some very high level meetings about the deal so something was obviously happening - what I'm saying is, any of the banks could have had short term problems that would have caused long term issues if left.
Complain about this comment
# 150
Guess what - the Building Societies are as nearly as reliant on the money market as the banks - your kidding yourself.
Complain about this comment
#149
"For God's sake, Brown was not even elected as Prime Minister!"
Nor was Blair, Major, Thatcher, Callaghan, Wilson, Heath, Wilson, Macmillan, Macmillan etc. etc. etc. (I don't need to list them all...).
The UK electors elect a person to be their Parliamentary representative, we do not elect any Prime Minister, it is just custom that the leader of the majority party becomes PM - I think that it's even still constitutionally possible for a member of the house of Lords to be PM!
Complain about this comment
We must stop blamimg everyone else- we were all partly to blame and if we come through all this turmoil with a manageable recession without the real misery of a depression, the system will have worked OK. But we do have to look at all the factors and futureproof modern banking in this information age.
The US and Britain in particular have run large deficits in trade - getting goods from China on the cheap keeping inflation down.
Markets work well in theory but Governments interfere and human behaviour spots flaws in the markets and exploits them
Bankers have been tasked with meeting targets to fuel their own paypackets and under pressure from shareholders
There has been a mantra that shareholders are all that matter and the obligation to the best interests of the company overlooked
The government has gone for PFI in a big way and we just do not know what sort of dostortion that has caused in the market
Asset value increases were ignored from an inflation point of view
Credit was just plain too easy and too much has been dished out
The Banks are too reliant on wholesale money
Deals and transcations were given undue prominence
We all seem to forget that now we all have the same knowledge- traders only know what we know
We are not saving enough for our pensions and so we want an unrealistic return hence the growth of hedge funds
The leverage of hedge funds was unbelievebale and it got crazy
The bonus system was so crazy that if 29 bankers met their targets, they all got a bonus even if one trader lost more that all of them put together.
Accounting rules came in that meant on conventional lending to a risky customer at a premium rate, the fair value of the loan was written down straight away- hence the need to create a method of taking those risks off balance sheet.
The answer to all this is not to try and turn the clock back- tempting though it is- to say that banks should stick to corporate and retail banking and investment and not go in for the fancy stuff. In this global village with instant communication we need to develop a different culture in banking that encourages total transparency and where risk can always be quantified. This will mean a lot of retraining and a thorough review of financial reporting in banking- fair value accounting has always been a bit iffy but has proved to be empty of value when it comes to monitoring the solvency and credit worthiness of banks.
We may have a short breather now but boy we have got to get it right this time- the West in now bankrupt so there is just now slack for a cock up.
Complain about this comment
And whilst I am on the subject, I am a current employee of the big four. Prior to this I was employed by a large US investment bank in a fairly low ranking position in the grand scheme. My responsibility - to protect the bank by only agreeing to lend where justified. I can assure you now that a far far greater number of advances were declined than granted, and what about the cases that were less than prime? The ones that because of unforseen circumstances (I am not making reference to over indulgement on credit) that have restored there ability to repay and prove themselves? I find it amazing that shareholders and the uneducated are now criticising. Were the shareholders complaining when profits were up - in a word no
Complain about this comment
As a simple engineer I never really understood the financial system but have always mistrusted it, nothing so complex could be controlled easily.
I've always been sceptical of the don't panic brigade, an economy which relies on selling each other insurance, mobile phones and coffee can never be thought of as robust.
I tried to protect myself by having as little to do with these institutions which I considered to be making stupid loans and thought that even if times were tough it would be a case of keeping your head down and riding it out.
In the last day or so there have been some very scary posts which have a ring of truth about them. I am beginning to think that civil unrest and a breakdown in society are not out of the question.
Complain about this comment
fyrefaywilde @ 137
"the poor need our support more than ever."
That I think says it all.
Thank you.
Complain about this comment
#117 jolo13
unsure as to why anyone thinks joining the Euro would be a good move?
Let me draw you a picture and see if you like the view. (I am assuming that you do not have a political or visceral dislike of anything foreign and are open-minded about economic matters.)
It is, I believe, a reasonably widely held view that the whole World is an entering 'interesting' economic decade or so. There will be banking problems that will last many years. The banks have got themselves and us into the worst possible mess. This will most likely include periods of highly unstable and irrational exchange rates no matter what the regulators do.
If you are in business of trading in goods or services on an international basis then it is extremely commercially disconcerting to find that the exchange rates have change over time in a way that adversely changes your costs or revenues. Small countries (such as the UK) that has minor currencies who traditionally do most international trade are particularly exposed in these times.
Now, let us suppose there is a way to provide a fixed exchange rate, or even a shared currency then this risk is substantially reduced and hence it is probable that your business with thrive rather better.
We can make Euroland a 'home market' in terms of currency risk by joining the Euro.
Let me also present the other argument: let us suppose we live in Bristol and we have our own currency that is floating against the London Pound. Let us imaging an international border at Swindon where we have to change a London Pound into a Bristol Pound. Now, business in Bristol can reduce their costs by devaluing their currency against the London Pound (and by so doing reduce the wages of their staff, etc. etc.) There will be huge potential advantages to Bristol or London, but there will also be huge risks to manage and huge administrative costs mainly charged by the banks to exchange and hedge currency. I am sorry I cannot keep up the argument for separate currencies....
In essence we do the majority of our international trade in goods and services with Europe and having our trading partners using the same currency reduces a huge element of risk and reduces business costs and because of the increased stability should help us weather the coming financial store slightly better.
Remember the USA has a massive home market of its own and that will help it. China is mostly home market with small foreign trade. So why would we want to shoot ourselves in the foot by not joining? Has the city of London (that was the reason for not joining before) been so successful? Have our Banks been so magnificently managed that we must still damage our economic prospects for the whole country just to live off of our hugely successful financial services industry? Of course not - so we need to join the Euro now.
Complain about this comment
#158
"As a simple engineer I never really understood the financial system..."
Don't worry, I doubt that simple bankers have ever really understood engineering either - and there lies the problems of the last 200 years!
Complain about this comment
#160
Excellent post, and I suspect that Brown bring back Mandelson has more to than Mandy wanting to 'help man the burning decks of UK Plc' - why would he jump from one ship to another, what's in it for him (his next logical promotion was appointment to the UN or similar). This appointment has been done now for some reason, even though Mandy could have been brought back at any time, just in time for the big meeting of EU political and banking leaders this weekend. Also many people have said that UK interest rates need to rise meaning that we could easily see parity with ECB rates, whilst there is only in the region of 0.28 pence difference between the Euro and Sterling...
Could be interesting times, as long as you're not a member of UKIP or some other Europhobe, for them it could be extremely depressing!
Complain about this comment
John_from _Hendon
I have always read your posts with broad agreement over the last year or so. Your posts are always considered and measured (which is more than I can say for myself!)........and your last post I broadly agree with again.
I, personally, have worked (maybe uniquely) for both German and Japanese manufacturing companies....and visited their manufacturing facilities in Germany and Japan....and believe me, both are under no illusion as to what is required for national wealth creation. One lived through the Weimar Republic....and both were 'losers' in the second world war. No coincidence I bet.
Neither allow their finest brains to only enter the world of the finance 'industry'. Something Merv the Swerv has commented on recently.
Unfortunately, I'm old enough to have experienced the bad times of the Thatcher years. Yes...she was successful in smashing the unions (goodness), but in parallel she succeeded in smashing the great british industry (badness).
I guess what I'm saying is that we are fast becoming a low cost country of manufacture and supply. God help you if you work in a the service industry!!!
Complain about this comment
This is supposed to be a democracy but instead the Government is being led by the unelected bankers.
The Americans passing the Bail Out bill is another example of short term thinking much of which has caused this current banking failure.
Governments around the globe are failing to lead and this is the biggest example yet. When the first vote threw this bill out I felt that the American Congress where showing leadership and resolve. Unfortunately fear and greed has won and whilst there will be a short term restbite the long term effects will be disasterous.
Complain about this comment
# 158 scargillwasright
Yes, my own view of unfolding events is that social unrest could well be on the cards. It will be triggered when the impact of all these breathtaking shocks and surprises in the money markets feeds through into the real economy (which it will, as sure as night follows day). Bear in mind that in a similar timeframe to all this hitting home - let's say the next 1 - 3 years, we're going to experience the added impact of the end of cheap energy (not to mention our almost total lack of energy security). The real economy will be hit hard and it's not inconceivable that we reach a point where electricity supplies falter and food doesn't arrive in the shops. Throw in home repossessions, corporate and personal bankruptcies and high unemployment and you realise that there is only so much crass incompetence (on the part of our politicians) that a citizen can take lying down.
Complain about this comment
I would have thought the struggling bank was either Lloyds or Barclays which are both on negative ratings with Fitch. But we shouldn't let that overshadow the great news that Mandy is back. The housing market might now recover if he can help us to all to fill out our mortgage applications! Surely i am not the only one to remember this.
Complain about this comment
#76 Yes this is an excellent description. BBC should place it as a 'sticky' somewhere.
It seems to me (as a novice), that BofE now accepting the banks' assets as collateral stands banking principles on their head, and shows how far the system is collapsing.
Complain about this comment
It seems those who have large sums of wealth want to continue living on the credit creation spigot.
I hear things such as, "If business is unable to get credit they will be unable to pay their bills."
Again, this isn't a liquidity issue. This is a solvency issue.
All of this talk and all of these games are so we can try and roll over a massive amount of debt. The money is gone now because it never existed and we are left with the fake bill created by the process and are scratching our heads trying to figure out how to pay for it.
This was created by fractional reserve lending and manipulating the interest rates to low and thus lending to much. People bought houses on speculation and then sold them and bought them again and again totally on credit, NOT profits or wages. There was never true profit; it was all credit manipulation in a massive ponzi scheme. A global game of musical chairs with credit on top of credit on top of credit! They drove up the price with credit and the central banks waited until it was so far out of reach of average citizens wages and profits that they had to reign it in. To little to late, and with capital finally free to go everywhere, the problem went global. Everywhere capital took their ill created money the problem exists.
Now the house crashes down around us and we ask, “How do we save the system from itself?” “How do we get credit to work again so I can pay my bills?” Why isn't the credit working now?? I wonder why?
So you say, “We have to regulate better?” We have to price fix? We have to limit the creation of money and that will solve it? Use something of intrinsic value, that limits it pretty quick.
You sound like drug addicts looking to get a fix. “If we can’t get credit it will be global financial Armageddon! We must get our credit NOW!”
"Without credit creation we can't make a living! I can't pay my bills!" That is because without credit we don't actually make an honest profit. We just roll over debt on top of debt on top of debt. I wonder what the problem is? Why did this happen? How could this happen? If we just regulate? If we just had morals??
If we had morals we wouldn't be creating money out of thin air. The moral hazard is in the core of the process.
And here we have been for months thinking what the best solution is so we can make credit work again. All of it comes down to, “Let's make more credit/money out of thin air available and that will fix the problem! It is a liquidity issue and we must fix it or else it is the end of the world!!!”
You say, "We must have banks lend again! They have to do business. Lending is their business and our society cannot function without them! If we fix the lending problem everything will work again!!! We can pay our bills with credit!!!"
We are all insolvent who are they going to lend to? They don't want to lend because we are broke! And yet you want them to lend while we are broke so we can pay our bills.
Are you awake yet? Society in aggregate is insolvent because we owe more than we can service with our wages and profits. We drove the price up with credit and now we have the bill! We have nothing of intrinsic value to repay our debts because gold and silver were outlawed by the central banks to be used as legal tender. We played musical chairs with credit and the last one standing is holding the bag. Except this time the bag is so big that it engulfs the whole of society.
So we owe more than we make in this deadly scheme. That is a problem isn't it? Maybe that is the problem? Or is it? Is this the problem? And again you think, If we just get that credit moving again we can pay our bills, right?
I will say it again.
This is NOT a liquidity issue.
This is a global solvency issue.
To much debt, nothing to pay it back!
Credit creation and expansion is the problem.
This is what happens when you price fix interest rates in any currency. This is even worse though when you don't allow precious metals as legal tender because there is nothing to hold the system back or to fall back upon. You didn't let the free market of risk aversion work. In fact there is no free market in a fiat central bank system by the very nature of it. By promoting a free market and having a central bank you seek your own destruction. You cannot have a free market with a fractional central bank system and manipulation of interest rates.
Keep looking for a solution and ignoring us tin foil hat fools. I know you want the game to go on as it had been. You are all looking desperately for the game to go on so that you can get back to the party and make easy money trading credit in ponzi schemes and declaring yourselves, “Masters of the UNIVERSE”! At this point you might as well simply tell everyone all debts are forgiven, let’s start over. That is basically what you are all looking for. That is the solution you want isn't it? That is the solution wanted on Wall Street with the 700 billion handout by their buddy Paulson.
I am a nobody and can see this. I'm not even an expert in any of this and I can see the problem. Maybe that is why I can see it. You are all so highly invested in the system that you say, "IT MUST WORK! IT HAS TOO!". You are Alice stuck in wonderland and want to find a way to remain there. You are being forced out of wonderland and don't like it. Wonderland is a great place to be because anything is possible! If you control the credit creation process you control the world! If you can grab a piece of that musical chairs process you can be rich too!
Well keep hoping your banker buddies will find a way to make this game work. At least now after years of seeing it in action I know the entire system is a lie. Every time we do this we create larger amounts of liars and thieves. People have to become thieves and liars to survive in this system especially when you promote ideas of only the strong deserve to survive. The environment chooses those most fit and this system by its very nature rewards the most corrupt willing to play the credit ponzi scheme. It is at the core of how it works.
Complain about this comment
Post 168,Sir Blogger,
Excellent comments.I have been watching the market this past decade,and wondering where is all this "wealth" coming from?
I rationalised it away as just the spoils of our "financial services" sector ripping off other countries.
I then got the internet connected.There were many answers I sought to some very murky questions that cannot be answered by visiting a public library(snicker!)
It took me no time at all to discover that our entire political/financial system is a gigantic hoax.We are literally swimming in a sea of lies.
Indeed,it seems as if the Father Of Lies himself is in charge of our earthly affairs.
We need to base our currency on man-hours of work done.No need for taxes,loans,interest or the rest of it.
It`s much too straightforward for the majority of the pseudo-sophisticates who imagine this fraud will last forever though.
As you say SirBlogger,it`s like living in wonderland.
Complain about this comment
SirBlogger, perhaps you would agree with this.
All I can say is that the Emperor's clothing appears
to be extremely threadbare.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
The bank of England is basically taking more and more riskier loans belonging to the banks.
This is because the banks will not lend to each other because they don't trust the value of these loans as security.
If the Bank Of England did not lend against these mainly worthless loans the banks would go bust due to lack of liquidity.
A bit like me having a van and the skill as a plumber; someoine giving me a job to install a new boiler but me having no money to put diesl in the van or cash to buy the boiler to instal. I don't think any bank or the Bank of England would give a hoot about me.
Surely it would make sense to Nationalise all the banks as at the end of the day, as the bank of England will be taking most of bad debts at the end of the day.
Complain about this comment
The BBC's analysis of this crisis is OK, up to a point. However, Auntie Beeb seems to be bending over backwards to avoid offering a truly thorough analysis of what's really going on right now and where this could be heading. Robert Peston teases us, but then fails to deliver the killer facts and analysis.
Try this to understand what is most likely to be current situation:
http://tinyurl.com/qcmlv
Time to head for the hills?
Complain about this comment
#38 - However, by mentioning that "another bank is in trouble" without naming it will sow even more Fear, Uncertainty and Doubt (FUD, which used to be an IBM specialty) ! Then the runs will be on *ALL* banks, thereby creating a self-fulfilling prophesy !!
Either wait for the facts and name and shame or not mention it at all !!
All this is starting to make Dita von Tease look prim and proper !!
Complain about this comment
#48 - You'd be surprised but the banks usually do know who has multiple bank accounts unless you opened your online account as Mr. O. bin Laden !!
Complain about this comment
#173 Its too late to head for the hills.
The markets played pyramid selling with our capital. At some time in a successful (?) pyramid selling scheme things start to go wrong and the call on some of the imaginary capital starts a collapse of the scheme.
The current pyramid sell was based on inflationary house prices. As soon as they started to drop the game was up. It has exposed the pyramid nature of a large portion of the rest of the market.
$700billion seems to be just money down the plughole - the US market knows it not enough and fell after it was signed into law - that should be clue enough that the true market correction has started. This will eventually (even if governments can engineer a soft landing) lead to a completely new market model.
Perhaps its becoming apparent why usury is banned by most religions - even Christianity before it got too rich and corrupt.
For an economic model to be truly stable you have to see how it works if you apply it to everybody, or go back to an economic caste system where the proles are not allowed to truly invest, only feed the monster.
Complain about this comment
#58 - The truth *is* free !! What cost money are those shiny new gadgets like what you are using to post here !!
That is the root cause of the current evil !! This veritable tsunami of buying on the never-never !! Well the day of reckoning has come !!
BTW what I use to post here was bought abroad using good, hard cash earned abroad in my pathetically feeble way of increasing the sum total wealth in this country !!
Complain about this comment
Robert do you think you could get a definitive explanation of Fractional Reserve banking published on the site by for and against experts
It seems to me that there are people who are quite passionate about it on both sides of the argument.
Is it effectivly pyramid lending? In which case we are eventually doomed or is it a sensible way of making funds available in a controlled fashion?
On the current evidence I tend towards the pyramid theory, if for no other reason than it explains the current disaster
Complain about this comment
#63 - No, we are a Banana constitutional monarchy masquerading as a Democratic Peoples' Republic !!
Complain about this comment
One question nobody seemed to have asked or answered is - how many shares has Poulson accumulated in his time as boss of Goldman Sach and what will happen to those shares if Goldmans is not bailed out !!
Of course he will not allow such a small matter as a conflict of interest to influence him !!
Complain about this comment
#67 - unless one of the subsidiary banks happen to be Irish or Greek !!
Complain about this comment
#76 - The one class of the banks' assets that has never been mentioned are the real estate owned by these banks !! Their HQ buildings, for instance !! The High Street branches (even if they are on leases, those leases could still be worth much since they are inevitable in prime locations) !! Perhaps this is what the BoE has finally got to banks to cough up, even if the banks are very loathed to part with their pride and joy(s) !!
Complain about this comment
Is it just me or does this photograph of Mervyn King resemble those of the hostages held by the Islamic terrorists just prior to having their heads lopped off ??
I truly hope it doesn't happen to him !!
Complain about this comment
Thank you very much 62,85 and 91 for your kind and encouraging remarks in response to my post about coping with a business in the face of what is happening.
I've been in racing engines for 17 years and never known it so bad. My firm depends on a decent percentage of export trade to the EU and outside it, and that's quite right too. In a world dominated by cheap imports we do our best to fight back. A race engine shop is part retail and part manufacturer, a kind of funny 'in the middle' setup that never figures in Govt statistics of how well the country is doing. Plenty speak for retail, plenty speak for industry. No-one speaks for us and there are hundreds of other non-motorsport firms completely isolated in the same bracket. Out their, wondering what tomorrow is going to bring.
FWIW there have never been any 'boom' years. No chance to set back and say ' we're doing well'. Just a steady decline and a battle to be more profitable with what's left. And before anyone says 'oh, but racing engines aren't a necessity' I'll just say tha tone could level that at any product that isn't clothes/food/petrol. We're not the ony type of retail/mfr firm suffering - badly. But it was certainly better a year ago, this kind of economic crisis blows up so fast you have no time to prepare for ir, none. It was the same in 1991. You can't run a firm looking over your shoulder and there certainly hasn't been enough coming in to set aside any kind of contigency, not this time round. And you can't just jump ship and 'go and do something else'. Sure, I do racing engines, but do you think it 's any easier for ANY small business, like the self employed courier van drivers we depend on? Except maybe pawnbrokers or loan sharks.
Why? Simple. The principle problem in the last four has been the excessive value of the £ against the US$ (and other currencies too, notably the Australian $). This makes it impossible to export! The US stopped buying our products 2 years ago - imagine - the world's biggest export market closed to us. That little stunt where the £ went from, what, 1.75 to 2.10 halved our turnover..
There will no doubt be a lot of folk (who don't run a small business, never mind in my sector) who will say, 'should have known better, do something else, diversify etc etc. No. The HAS to be a right to a reasonable expectation that it is possible, with the right education, experience and funding behind the firm that is possible to operate reasonably well in one's own country. Take that away, ie: destabilise Brown's famous 'macroeconomics' and there is no hope for any business and that is what I think the UK is facing.
I can say this for a certainty because I saw it in the 90s and because our customer base encompasses such a diversity of professions and trades. We're not a take the money and goodbye operation, no ho. Not like the filling station or supermarket where you spend hundreds a week and they never even learn your name. A firm of that type, which knows its clients personally is a terrific barometer of what's happening 'out there'. People don't spend when they are scared. People are scared, believe me. The phone stopped ringing 10 days ago and it hasn't rung since and it's not because we are suddenly useless at what we do, it's because people have stopped spending.
Again, FWIW, whilst people outside of the motorsport 'industry' crow about how robust and important it is, the reality for those of us who actually work in (I mean, outside of F1) is that it has become a complete nightmare. And I know a lot of people.
I write this merely because I think it important to speak out, on my own behalf and that of others less literate than I am. And again, I say, the BBC site should be giving more precendence to the effect on non-governmental organisations and banks, they are, after all, a media group and thus a pressure group, but, given the rather, er 'focused' style of their reportage I see little 'indirect' pressure being applied by the BBC in this context.
So, despite the kind advice offered - which I do appreciate - there appears to be nothing we can do except wait for the next bombshell, whatever that is.
Guy Croft
Owner Guy Croft Racing Engines
Complain about this comment
How come when UK banks and building societies have bad loans they have to be bailed out ultimately by the taxpayer whilst at the same time hedge funds and private equity funds are making millions buying bad loans from such institutions?
The UK government should set up fund to manage the bad loans and use the money (that others are now making) to give back to the taxpayers who are bailing out the banking community.
When you look at the Times Rich List next year watch out for the hedgies who have made fortunes from the housing/mortgage market crisis.
Also, proprieters of mortgage lenders who have contaminated the market with sub-prime bad loans should be banned from setting up new mortgage lenders. Once the mortgage market returns I am sure you will see some of the old UK sub-prime guys back in the market to make another killing. This happened in the US with the Savings and Loans crisis - a number of the people involved were also leading players in the US sub-prime mortgage business and unless stopped by the regulators will probably make more money from the bailout.
We need to have proper regulation of the UK mortgage industry. Only properly capitalised instituions with a strong track record should be allowed to lend - not fly-by night bucket shops who are built on leverage and an abiltiy to flip loans - optically it looks like they are big lenders but once problems come they disappear and leave us , the taxpayer, to pick up the pieces.
How can the FSA have any credibility when it allowed (and still allows) these lenders to operate as regulated lenders. Watch out alos for the unregulated businesses that will try to expolit distressed borrowers through credit repair, or purchase at a significant undervalue and rent back - where a borrower is saved on his mortgage, pays rent but ultimately the "provider" makes money on increases in the house value. The borrower becomes aa assured tenant on a short lease and can be evicted if they can't keep up the rent leaving the "provider" with the property to sell. These unregulatd schemes are going on today right under the nose of the FSA and more will emerge - there is a lot of hedge fund money chasing high returns from the market turmoil and a lot of displaced sub-prime mortgage lenders who are clever enough to make money at the taxpayer's expense.
Complain about this comment
To those that think that the US is toast, well that is what the Japanese thought in WWII. The US is a HUGE country and they can easily afford to close their borders and live off their own land. They have the mineral resources, the land and the weather for agriculture and the technology and industry so they do not need to rely on anyone. They can do what they like to the dollar and look inwards. They live on exceedingly rich, and abundant soil.
The same mistake was repeated by the Germans and their dealings with the Russians. In the beginning of WWII (1939) Germany at its peak of industrial power was making 900 tanks a month. Towards the end of the war, 1945, Russia was building 900 tanks a day. With its own resources. There is footage of Hitler being informed and being astonished that the Russians had lost 30,000 tanks and yet kept coming.
Now look at the UK. The island we live on does not have the resources to sustain us with the standard of living we are used to. No gold mines, no oil, no industry, no agriculture. We need other countries to invest in us (thinking they are making a good investment). Our financial industry is currently feeding the UK.
Once the other countries realise the UK has nothing of value to sell then they will pull out. Then we will be in real trouble. And this time we may not have convoys of Liberty ships with provisions from the US to bail us out.
The reason for the repeated wars of the past decades was to show off to those nations that we are a super power worth investing their money into.
We need to spring back into action, teach our children to become scientists and not footballers or pop-stars. We need factories, industry and agriculture. We do not need celebrities and "media studies".
Complain about this comment
At 10:40am on 04 Oct 2008, akist1970 wrote:
You are right, only other thing I can add is over taxing will drive people with skills out of this country.
I don't know why we pay people to be on benefits, be single parents (having kids with different man), make them not want to work, etc. Rather than this, we can skill up people and make them stand on their own leg.
Complain about this comment
WELL said 186!
But from what I hear, which is more than many, most politicians think the country can (will) be (kindof) put back together by encouraging yet more foreign money into the UK. That, of course, will mean China. Poor UK, out there begging for foreign capital again. Embarassing.
We need a new political party that says what you said too. This is what I wrote to David Cameron and Nick Clegg this week:
"There is a miracle cure to Britain's ills and if you were to announce it you'd get my vote and my support and the support of everyone who knows me. That's a lot of folk. I believe it is the ONLY miracle cure. At present I am a floating voter and dream about leaving the UK because it's becoming near impossible to make a living here.
I stood for UKIP at the last election by the way, against Douglas, got thrashed of course, history now. But I mention that en passant by way of saying that I follow politics quite closely.
The miracle cure is encourage 'making money' and not spending it. Turn Britain back into a manufacturing nation again, reward firms who do this with VAT or tax incentives and slam punitive tariffs on goods from low cost 'tiger' economies.
Britain's only hope - the only one - is to bring British earned money back into the country and stop shipping it out. Our technology and expertise is still widely recognised but it's vanishing very fast (and being snapped up on a huge scale by China) and time is not on your side. Inward investment and out-sourcing - put an end to this.
Everyone would applaud you if your took up the cudgel on this. Please give it some thought."
Guy Croft
Complain about this comment
#155 - Only if they gave up their patent of nobility, as Anthony Wedgewood Benn did in the days of yore !!
Complain about this comment
#186 FYI, It was not *the Japanese* that underestimated the US economy at that time. It was the Army faction. The Navy faction, led by Admiral Yamamoto knew what the danger was but the Army pulled off a coup and forced the Navy to attack Pearl Harbour, Hong Kong, and Malaya (as a prelude to taking Singapore) !!
Also, the Russians did not do it alone. Despite all Communist propaganda, many brave (and not so brave) men died in the Atlantic convoys to Murmansk to keep the Soviet war machine supplied !!
Currently, the US has very little oil (compared to their usage) within their territorial boundary !! Hence the "oil wars"; invasion of Iraq, threats to Iran, big spats with Venezuela and kowtowing to the Arabs !!
If Canada pulls the (electricity) switch, half the US will have blackouts; as was shown by accident in the recent past !!
Most of the mineral and other resources used by America are imported !!
Festung Amerika will turn into ravening packs of barbarians and cannibals within 20 years unless they conquer Canada and Mexico !! It is not a nuclear winter but a serious lack of energy sources that will destroy America. Hence their desperate attempts at biofuel !!
Complain about this comment
#188 - Since UK is a member of WTO, punitive tariffs on imports will result in punitive tariffs on British exports, thus making them unsalable, unless you are advocating a sweatshop economy in Britain also !! In addition, those punitive tariffs will instantly and massively increase the inflation here that had been exported, so far, to those foreign shores.
The only way to increase the real wealth here is to have a knowledge-based economy with well qualified and knowledgeable Brits working abroad and getting paid well there for their knowledge and abilities and bringing that money back to Britain !! This is the REAL economy, not funny money !!
I seriously doubt that foreign countries and companies will pay very much money to employ those hordes of British media studies graduates though !!
Complain about this comment
#189
Not sure that is correct, you are making the mistake in believing that the Prime Minister needs to sit in the House of Commons - he or she doesn't - the reason I say this is because after Chamberlain resigned some wanted Lord Halifax (if I remember correctly, certainly a Lord though) to replace him and such a decision would not have needed any special (war-time) legislation as the Constitution already allowed it. Has the Constitution been changed since in this respect?
On the other hand someone can't sit in both houses, or have a right to sit in both, which is why Tony Benn had to give up his title upon the death of his father, wanting to carry on being an MP instead.
Complain about this comment
#191
"The only way to increase the real wealth here is to have a knowledge-based economy with well qualified and knowledgeable Brits working abroad and getting paid well there for their knowledge and abilities and bringing that money back to Britain !! This is the REAL economy, not funny money !!"
We did that with Japan in the early '50s, we showed them how to make motor vehicles, now who shows who how to make them?!...
No country can survive only as a service economy, the UK needs to replace much of what was destroyed in the 1980s and make things for years rather than show someone else how to make the same things once, more importantly though we need to learn to live within our means - and yes that might mean the possibly of lower wages, living on much less credit, so that if we can't afford that new car or sofa then we make do with the old ones or even none at all until we can afford it from savings!
Complain about this comment
#184
Could your advanced technology from motor racing enable you to operate as a consultancy to design modifications to standard engines to produce high-performance or fuel-efficient engines for high-end luxury / sporty road cars or even mass-market third world polluters? Won't smaller manufacturers and some third world exporters to Europe be having trouble with new emission targets? Maybe you could help? The idea is you use your brains and someone else does the volume manufacturing bit - it can work alongside your racing bit as well.
This is just a thought, so more informed feedback on the suggestion would be welcomed!
Complain about this comment
Re: "Since UK is a member of WTO, punitive tariffs on imports will result in punitive tariffs on British exports, thus making them unsalable, unless you are advocating a sweatshop economy in Britain also !! In addition, those punitive tariffs will instantly and massively increase the inflation here that had been exported, so far, to those foreign shores..."
Not so, not at all.
The whole point is that Britain is a net importer, so arguing that we can't stop imports because it will hit exports doesn't stack up. Other countries WILL buy our products soon enough when their own industries collapse that are churning out cheap junk by the container load (and who says it's too early for that). Then they will have to diversify too. The notion that we can survive by exporting knowledge? Well -predisposing that there even enough educated folk to support that it will not be long before other countries won't need that either.
It's much easier to import that's why so many people are getting rich doing. Walk round the household goods in DIY and any supermarket and see for yourself where all this junk is coming from. Like we can't make that stuff ourselves? How about imported agricultural produce. Supermarkets won't go bust if they are forced - because of tariffs - to buy British.
Frankly, I really think now, after what's happened, none of that WTO stuff matters anymore. You can impose tariffs selectively. A reduction in dependency on SE Asian goods Europe-wide is what's needed. Tear up all the EU agreements too and start again because all the old systems have failed this time. You think not? How come the Irish Govt was able to underscore savings to an unlimited extent? You think the EU would ever have permitted that - given the chance? That's called 'standing on your own feet' and GOOD FOR THEM.
This is no time for charity. This country is going to have get on a economic war footing and start doing things itself. An economically reconstituted UK is the ONLY way we can guarantee a future for us as a proseperous nation. And, Lord knows, we will need to be one in order to devote our best brains to the even_more_pressing_issues of climate change.
This 'made_in_China' thing - it's a real theat you know. Stuff made in HongKong used to be a joke, now they brag about made in PRC!
Sure they do know how to make decent stuff, submarines, rockets, but right now they are milking our domestic markets dry with rubbish that falls to bits the second time you use it to fund cutting edge technology which will put them at the forefront of world power within few years. Their students and doctorates occupy our university campuses and research locations at an ever-increasing rate. These people are better-educated, cleverer and more highly motivateed than UK students and when they home they will all get top jobs!They are all card carrying communists and they are all quite openly here to find out what we know and take our knowledge back to China so they can use it to their strategic advantage. I wonder how many in the UK know this?
And they are copying and counterfeiting EVERYTHING ever made in UK, stuff going back 50 years. Eg: Check out the catalogue of any tool supplies firm. Even down to kitchen mangles and mincing machines.
The unforgiveable thing is that, encouraged by the UK retail sector folk have built up a dependency on 'cheap', it began in the USA when they invested in China and Taiwan after Nixon and it spread here very quickly. In fact the retail sector has forced a dependency on it by buying cheap and the end result is so little decent choice. If that starts putting UK manufacturers under, that is NOT good and has to be discouraged.
I say again. The reason this country is in such a weak position is because it doesn't export enough.
GC
Complain about this comment
#184 - guycroft:
Guy, a few points, please excuse me if I overstep the mark..
1. I think your core business, which from here seems to be 'propulsion devices', is sound, in that there will always be demand for propulsion devices.
2. I think that hydrocarbon-based engines are dead in the water. Their fuel is going to run out, and prior to that it will be hideously expensive. Certainly, its uses will become restricted to essential services only, at some point there will be no recreational use of hydrocarbons, at all, anywhere.
3. Bearing points 1 and 2 in mind, it seems to me that you must diversify. You say "[there] HAS to be a right to a reasonable expectation that it is possible". I cannot see why this should be true. More than that, as a general rule you should not be trying to force the market to accept your product. Rather, you should be trying to force your product to accept the market. If the market is running against you, I do not advise fighting it. Instead, I advise embracing change. You cannot buck the long-term trends, no matter how much you want to.
4. Given that diversification seems unavoidable, it might be prudent to consider the possibilities. Your key asset is your existing business, you can leverage your existing brand, employees, facilities, tools, systems, skills and knowledge to move into new markets. BP is a good example, an oil company, they have spent the last 10 years repositioning themselves as an "energy company" instead. Now, they sell renewables alongside hydrocarbons. When the hydrocarbons run out, they will simply drop that product line. Robotics and "cleantech" are my current darlings, so I'd recommend looking for a niche in those markets, especially since both those fields will have uses for propulsion devices.
5. I'm going to call it and say that the pound is on a downward trend, at least for a while, this due to poor macroeconomic outlook and the likelyhood of falling interest rates. That means your export sales will pick up, all else being equal.
6. I do not agree at all with what you say about import tariffs.
Other misc points:
> You can't run a firm looking over your shoulder
It's true, but that's OK, because the things you need to worry about are in the future! You do need to constantly have at least half an eye on the future.
FWIW, I run a small biz, have done since the dotcom crash, I make websites and software, and I build/repair computers and networks. The IT industry is very dynamic, and if I had not diversified my skills I would certainly no longer be in business.
The thing to remember is that the world is constantly changing, so a successful formula of yesteryear does not have any intrinsic value. It only remains successful if it is still relevant.
Maybe more later if I get some more time. :)
Complain about this comment
Well I was trying to diversify because I know the long-term future for race engines is, er, unpredictable, and to be honest I don't see that in principle as a bad thing. I invented a new fastener but so far, 7 years on the only millionaires are the patent attorneys and now the modest capital I had set aside for that project is going to have to be kept for 'other purposes'...
As for import tarrifs, try exporting from the USA to Greece from the UK to non-EU countries Canada or Australia or New Zealand as I do. You'll soon find out who applies 'preferential' or 'selective' tarrifs already and why...
GC
Complain about this comment
So BOE are trying to calm nerves, America has finally passed the rescue deal, what do you think will happen with mortgage rates over the next 6 weeks -- will the LIBOR reduce and banks start to offer better rates again, or is that some way off?
Complain about this comment
#151
Car loans are over 3 to 4 years, so the balance o/s falls much more rapidly than a 25 year mortgage. Often there are trade ins as deposits day 1. Many manufacturers offered low rate programmes (through banks) that required 30%+ down payments.
House values are falling and capital balance o/s reduces very slowly because of the long term. Many mortgages were granted with minimal down payment. Repayment terms were extended to 30-years. Which means the LTV on some car loans may well be better than on mortgages, even though the car depreciates quickly. And surely the BOE will apply a real short back and sides haircut.
Guy Croft - can any of your technology be applied to diesel engines and biofuels? Agriculture will boom for the next 5 to 10 years as people in the East become wealthier and eat more grain / meat - is any of your technology of interest to tractor manufacturers etc?
Complain about this comment
#199
Car loans are toxic due to the fact that cars are often bought as fashion statements - even 1 or 2 year old cars (especially if there has been a model or face lift change since) are just unsellable at anything near their true value. Also in the present climate who is going to voluntarily change their cars, people can survive without a car unlike a house - house sales might slow but car sales can stop altogether, I've seen it happen! Large commercial vehicles / plant equipment do retain value, perhaps it's this sort of loan that he BoE will be taking?
Complain about this comment
#180
Paulson had a substantial stake in Goldman Sachs which he was forced to sell on becoming Treasury Secretary. However, best not to feel too sorry for the chap - the deal agreed, to allow his income to be so depressed as to work for the government, was that the $500m he got for the shares would be tax-free.
I admit I've been wondering in recent days where exactly he put that money. Now that would be interesting to know.
Complain about this comment
#201
re Paulson
"I admit I've been wondering in recent days where exactly he put that money. Now that would be interesting to know."
He probably asking that question himself!
It would not surprise me to find that he had to submit to some kind of 'blind management' - otherwise he would have claims (quite correctly IMO) directed towards him that he was benefiting from insider information.
Complain about this comment
195, guycroft:
The US did almost exactly what you're suggesting in 1930. Look up the Smoot-Hawley Tariff Act in Wikipedia. It devastated US exports.
Limiting imports hurts exports. Put (over-)simply: If foreigners can't sell their products to us, how will they obtain pounds to buy our exports? Fewer imports means fewer people selling pounds for other currency, which means the pound appreciates, which means our exports are more expensive.
The reason the UK has been able to import more than it exports is because foreigners have been lending to us and buying assets here. (They've been doing this in part because we have much higher quality capital markets than many poorer countries, and the Chinese have been doing it to hold their currency down). Import tariffs won't change this, AFAICS. Presumably, foreigners are going to be less keen on doing this now, so you might get some of your wishes - with no tariffs required.
As for agriculture produce...surviving only on our own products for no other reason than national pride is just silly. Quite apart from not having enough land (we can produce about 60% of what we consume), there are many products which can only be or are better grown abroad . We'd simply be impoverishing ourselves for no gain. Besides, we can have much more predictable consumption by participating in world markets. UK harvests for particular crops vary, depending on UK weather. It makes sense to import in bad years and export (or import less) in good ones.
Complain about this comment
In Robert Peston's pick of the day, "British Banks Bailed Out" of 3rd October, 2008 he said that HBOS has been identified by investors as having the greatest difficulty raising vital finance.
Surely, banks and companies go to length to raise cash, such as rights issue to share holders. I think there is another way of raising cash. It is by offering borrowers, especially those with mortgages, a sort of sale or discount to pay off their debt. I for one have a mortgage with HBOS. I am prepared to pay off my mortgage if they offer me a reasonable discount and waive any penalties for early repayment of the mortgage.
Regards.
Najim al Khafaji,
Senior Broadcast Journalist,
BBC Arabic Television
Complain about this comment
Re: Robert Peston's, "British Banks Bailed Out" of 3/10/08.
Surely, there must be another way of raising cash for cash-strapped banks and companies.
It is, I think, by offering borrowers, who are willing, and can afford, to pay off their debt a sort of sale or discount.
I for one have a mortgage with HBOS. I am willing to pay off my mortgage, if the price is right and provided that the bank waives the penalities, if any, levied on early payment of the mortgage.
Regards.
Najim Al Khafaji,
Senior Broadcast Journalist,
BBC Arabic TV
Complain about this comment
What is the real meaning underlying Brown and Darling’s use of eloquent words such as: Confidence; Stability; Liquidity; Security; Securitisation; Recapitalisation; Nationalisation; Global – Well, they simply mean, that You the Peasant Taxpayer will pay for the Greed of the unscrupulous Fat Cat Bankers.
Complain about this comment
#199, WestCountryBumpkin wrote:
Guy Croft - can any of your technology be applied to diesel engines and biofuels? Agriculture will boom for the next 5 to 10 years as people in the East become wealthier and eat more grain / meat - is any of your technology of interest to tractor manufacturers etc?
Unless Guy Croft has hidden his light under a bushel for all these years, he doesn't have any engine technology, per se. He has (previously) valuable knowledge and experience built up over many years in tuning engines. Those are engines which others have designed.
If nobody wants to tune engines, GC has no business. If nobody wants to tune engines at the prices GC charges, others will step in; that is what happened with, say, ship-building, where Asian yards simply picked up all the business which was formerly ours when our wages were that low. There is, as far as I can tell, no IP in GC's business applicable to the needs of the future.
There is, therefore, no "right" for GC to operate his particular business, any more than there is a "right" for me to continue to operate a, say, mangle manufacturing business in the face of other domestic appliance advances.
I do agree, however, that the Government realistically must do its best to manage the economy (including setting import tarrifs and manipulating exchange rates) in such a way as to foster small and medium-sized businesses. After all, it is those businesses which (much to the chagrin of the civil service, or so it seems) employ the vast majority of people in the UK. Without a reasonable expectation of being able to run a business (assuming there is a market for your products or services), the economy will simply die.
As at least one other has posted, the UK is not a charity, although its desire to (a) attone for Emprie, and (b) be seen as some munificent pocket-superpower has seen it all-too-often operate as one despite the more urgent needs of its own people. We need to remember that greed, as Gordon Gecko said, is good. Perhaps not greed in the form of personal avarice, and certainly not greed at the expense of lawlessness, but - at a governmental level - greed, in the sense of wanting a higher standard of living for the population and a greater stake of the global "pie", is most definitely good.
We need to sweep out the dead hand of the civil service, along with a whole generation of politicians, and replace them with a cadre who believe unshakeably and absolutely in the need for the UK to once again be the strongest nation on Earth. I don't for a moment believe that is an attainable goal but, in the same way that most reglions promote belief in "one true way", we need to have unstinting devotion to the needs of our own people, at the expense, if needs be, of the needs of the people of other countries.
And if not? Well, China doesn't give a damn about our welfare, except in the sense that we might continue to buy cheap immitations of the products of our own long-dead industries, so why should we alone fall upon our swords in some bizarre desire to be the only ones left standing on the (presumed) moral high ground?
Complain about this comment
oh sorry just noticed the capital (sic) B on your British bank- now let me think, a Uk bank beginning with B-- could that be Barclays?
Complain about this comment
oH yes it was Barclays-- my wife who has a modest sum on deposit got a phone call last thurs and they were trying to persuade her to lock in to an 18 month agreement at a much higher rate of interest, if the other banks wont lend it money, then go back to the savers. If barclays is close to the edge- who is next. OK you got £35,000 guaranteed, but no-one actually mentions when the money will be returned, next day, next week, three years, oh but you will be able to borrow against your secured deposit from another bank--- 17% APR anyone?
Complain about this comment
and about cars,
just got my wife a very nice 18 month old saab 93 convertible( she's been nagging me for ages), 18,000 miles, metalic black, leather and all the goodies, new £28,000 got if for £11,000 from a saab dealer with full warranty-- if you've got the dosh now is the time to leap in.
Complain about this comment
So lets see if I have this right. My savings (what little they are) are protected, but in the unlikely chance my bank goes bust and I have my mortgage with the same bank they take my savings and pay of some of my mortgage with it Ie: I have £2,000 savings £20,000 left on my Mortgage, they take my £2,000 and take it off my mortgage leaving it at £18,000.
What then happens if I have direct debits coming out of the account? if they take my money there is nothing in the account to pay the direct debits one of which would be the mortgage which would then leave me defaulting on my mortgage which they have taken my money to pay towards it. Catch22?
This probably makes no sense at all.
Complain about this comment
How to engineer an end game to the crisis? The circle of destruction tightens its grip, leaving an ever more alarming trail of collateral damage. Banks are becoming their own sector's quarry, weakness or simply suspected weakness threatening their very existence. Despite hundreds of billions of dollars in liquidity provision, bail-outs and underwriting, the self destruction is gaining momentum. The global authorities appear to have little to no control of this unfolding nightmare, a truism given validity by the distinct lack of tangible improvement. Meanwhile, as corporate credit lines seize, payment dates pass unfulfilled and unemployment rises, the real economy is obviously stumbling - directly into a potentially deep and prolonged recession if a more decisive response is not immediately forthcoming. How to engineer the end game? Governments and Central Banks have been trying in vain to fight fires window by window, allowing the crisis to develop into a systemic and latterly economic firestorm. The piecemeal approach, while at times ingenious, has in the final analysis proved to be an abject failure. The time for a concerted, finely coordinated all encompassing approach is now: A complete guarantee of all deposits, a huge government sponsored re-capitalisation programme - for a meaningful stake, substantial and sustained monetary easing, Central Banks completely by-passing the money market, to act as intermidiary to all and any institution, as the provider of short-term and period money. This combination, delivered simultaneously could provide a period of relative calm, that vital break in the circle, relieving the financial sector of impending attack and helping to ensure at least some flow of credit around the system. The even more epic task of re-building the long-standing conduits of credit and capital could then be undertaken in a less febrile environment. It might just work. Will it happen? The dearth of political colosi is not reassuring. SC
Complain about this comment
Can someone please get rid of Robert Peston?
This entire blog is against Lord Reith's doctrines. He must be spinning in his grave Lots of unsubstantiated hysterical bilge left hanging in mid air, terrifying the life out of everyone.
Where is the opposing view of Peston's ludicrous diatribes? We've been told everyone will switch their accounts to Ireland (which they wont) and the amazing news that the swedes and Danes have been giving guarantees to their customers (not so surprising as I believe their banks are largely state owned). The city is one of the largest banking centres in the world - Stockholm Dublin etc are not simply going to get all that business because they could not even begin to think about servicing it.
We've also been told that that there is some sort of magic point where shares will go into freefall? But Peston should know that is bunkum, the vast majority of shareholder are institutions - where are they going to put the money? The value of the stock market like the housing market only matters if you are selling (or borrowing) today.
I've sailed through storms across the Atlantic and I know if Mr P had been on board he would have been locked down below for the duration, while the people who really knew what they were doing go on with it.
Please BBC turn this wretched excuse for news off.
Complain about this comment
The problem seems to be that banks will not lend to each other.
Throwing money into he market to increase liquidity merely means banks keeping this money to strengthen balance sheets.
So why not encourage banks to lend by governments guaranteeing these interbank loans if they are made responsibly?
This way banks need not fear their loans will not get repaid.
Complain about this comment
I am more than a little worried, we keep hearing about private savers funds being protected - up to a certain limit - but I have yet to hear anything about businesses. We run a very successfull business, no loans or overdrafts, in fact we have a very large sum of money deposited in our bank (over 1m) most of which is to pay our suppliers. Will we lose all our cash and therefore the business if anything happens. I would just like to know where the successfull business stands in all this. Not all businesses are in debt to the bank.
Complain about this comment
#1 We are all Taxpayers, stupid comments like yours are not helpful or wanted!
Talking about stupid people when are Darling and Brown going to do something???
Complain about this comment
Thank you whoever you are. This was the first time I have ever made any comment on a blog before and to be called stupid and that my comments are not wanted I dont think is very friendly. So this blog is really not worth even botherering with. I shall leave all you pompous little people to it !!
Complain about this comment
If 'banks are not lending to each other', that implies some banks have surplus cash to lend to others. If so, how come they all seem to need govt help? Or is that overseas banks, eg middle east and china, have the money that UK banks need?
Complain about this comment
ps. Don't blame Robert Peston for spreading panic. An Icelandic bank with thousands of UK customers has just gone bust. I know of one UK company who banked with them, not covered by savers guarantees, whose bank accounts are now frozen, and can't pay suppliers. It's not just rumour, banks are actually failing one by one.
Complain about this comment
What about Bank Managers
while having a clear responsibility for the instability and being in charge of banks which need government bailout many hundreds of millions are being paid every month to at least 5000 individuals earning more than £1m per year
when will the goverment stop this
Complain about this comment
seems to me that the government splitting up the money and giving to the individual banks is just being absorbed into their toxic debt, why doesn't the government start a new nationalised bank so all that money is allowed to be used for new mortgages and loans, worked out for people that can afford it. ie just 3.5 x earnings for mortgages.
Why do the americans say they want to get the money moving so you can get loans for your new cars, I have been brought up that you save then buy the car !
Complain about this comment
Amongst all this woe about no-one being able to obtain credit one thing everyone seems to have forgotten is.........
Debt is BAD. My parents' generation knew this clear and obvious truth its kinda well..... Duh.
We all need credit sometime - for example to buy a house - but sensible advice is to take on the smallest debt possible and if you can avoid it altogether.
If you want something - save.
Quite frankly it is simple economics. If you want a big telly costing £2000 then if you save the money - you make a profit because you get interest on it while you save. if you borrow money then it costs you more than £2000 for your plasma screen because you have to pay interest.
Now I'm a smug git. When we took out a mortgage (a long time ago) the lender was desperate for us to borrow more - we could have had twice the amount. Now - we have a paltry mortgage - no worries about paying it and loads of equity. Other than our mortgage we have no other debt.
So my point is..... don't borrow money ..... live within your means. If you are a bank then you really shouldn't have to borrow money to stay in buisiness at all. To build your profitability on the back of borrowing is, as any wartime houswife will tell you, little short of suicidal. If you were properly capitalised then all this wouldn't matter.
Its simple really - if you don't borrow money then you donly get into trouble when you can't pay it back.....
Duh
Complain about this comment
View these comments in RSS