Momentous Monday
Let's add up the extraordinary announcements this morning.
1) Taxpayers are injecting £37bn of capital into just three banks, RBS, HBOS and Lloyds - with RBS and HBOS taking £31.5bn of that (this is nationalisation Jim, though perhaps not precisely as we know it);
2) RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels - which is massively more than they are currently lending (this is hugely significant - given that a shortage of credit is to a large extent behind the economy's deceleration into recession levels);
3) Lloyds TSB is paying less to buy HBOS than it originally announced, to reflect the disclosure that HBOS's problems are rather worse than it thought just a couple of weeks ago;
4) Barclays is raising £10bn from selling new shares and securities to private-sector investors, abandoning its dividend for the second half of this year, and taking other actions;
5) So total capital raising today, including fairly modest amounts being raised from private sources by the UK businesses of HSBC and Santander, is nudging £50bn (wow);
6) The Bank of England and other central banks have announced they are lending as many dollars as are needed by banks (phew);
7) Eurozone governments are today fleshing out their plans to inject capital into their own banks and to guarantee lending between banks (double phew);
8) Stock markets and money markets are in slightly better shape this morning - which is something of a relief, because if they can't be buoyed by so much taxpayers' money being chucked at the banks, then we would be in rather more serious trouble than I feared.
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'RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels'
So same old same old? Here we go again - the housing bubble has to be re-inflated or the economy doesn't work.
Bonkers.
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You forgot to mention the resignation of the chairman and chief executive of both HBOS and RBS.
Thats pretty momentous as well.
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Mmmm... as many dollars as the banking system needs?
How about the BBC following half a dozen small firms approaching their banks for additional funding in the next few weeks?
Will this bail out also bail out hard pressed households, people who have lost jobs, and those businesses already in administration? Why not?
Can't help thinking that the BoE printing presses are going to be very hard at work inflating the country's way out of this crisis.
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Great ! Panic over ..... for a Monday anyway
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This comment was removed because the moderators found it broke the House Rules.
Why is the HBOS sales to LLoyds still going ahead? Now that they have been nationalised why should Lloyds benefit?
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The eventual solution will be to print more money.
Robert please keep an eye on the money supply figures because I suspect we shall see a sharp rise.
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This basically looks like the government is giving taxpayer money to shareholders. For 20 billion the taxpayer should have got significantly more than 60%. Yet Brown is being lauded as the saviour of the world at the moment, when his measures are simply a transfer of wealth from the ordinary citizen to the wealthy. I understand that these measures were necessary but the taxpayer stakes should have been much larger in the banks for out money.
The commitment to maintain mortgage levels at 2007 figures is rather alarming. Is Brown forcing the banks to make sure the bubble in the housing market persists? The housing market badly needs to correct and not be artificially propped up.
Finally this is being referred to as the British model and Brown's plan - this was referred to as the Swedish model not more than a couple of weeks ago. I am sure however Brown will wash his hands of any responsibility for this plan when it starts unravelling as it may well do once the economy starts taking a turn for the worse.
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As far as I can tell it's 'well done Gordon' on the whole. But like others I'm surprised and uneasy about the RBS and TSB/HBOS undertaking to lend at 2007 levels.
Isn't this just digging ourselves deeper into the hole of irresponsible lending?
How are we going to deflate the bubble of patently daft property prices if they do this?
And surely we have to deflate it in a managed way or it will burst.
I'd appreciate an explanation of why this is considered desireable.
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A probably stupid but definitely serious question: where does the government get the money from? Do they print it? Or if they borrow it, who from?
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Will we now some urgently needed action to protect people OTHER than banks and investors/savers? Folk from the so-called 'real economy', or do we get left to sink_or_swim? I see one credit rating company is already forecasting ' large numbers of companies going bust'.
I want to see: Big reduction on interest rates on credit cards, capping of same, write-offs of liabilities, moratorium on repossessions and foreclosures. I want to hear some good news on this.
The PM and Chancellor say there will be a payback for the taxpayer from deals to bail out banks; that's an indirect payback of course! No taxpayer will actually get any money out of whereas the Treasury may/will. That's just not good enough. What I see is banks who've messed up getting help, whereas firms suffering the knock-on effect are expected to cope as if nothing had happened!
My revenues have dropped massively in the last month. I know this to be true of hundreds of other firms I know in the same field. Is that MY fault? Have I been IRRESPONSIBLE? I expect to be told so but I don't think so.
Tell me - How am I supposed to make up the shortfall? And it should be pretty obvious that in the weeks to come the banks who have fallen over in the crisis (and the others who are keeping pretty stumm about everything) are going to be more ruthless and acquisitive about customer liabilities than ever. I had a robust and profitable business before this all started. Take away the 'stable macroeconomics' and frankly, I'm not sure what I'm left with, except a lot of anxiety.
I predict a re-run of the John Major economic crisis now, where firms go down all over the country and the courts are in overtime hammering people over debts.
What protection - FOR US?
Guy Croft
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Odds of any any kind of apology yet from the departed?
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2) RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels - which is massively more than they are currently lending (this is hugely significant - given that a shortage of credit is to a large extent behind the economy's deceleration into recession levels);
Interesting - as we are expecting a move into recession (certainly much tougher times), and a lot of pain for maybe several years, to lend at the same level as in 2007 seems irresponsible. It is a continuation of the illness ( if this form of addiction is an illness).
Banks say to Big G "yes yes we'll agree to all your conditions, give us the money." This is sales talk. "The answer is yes, what's the question?" I'll worry about the conditions later, ignore some, renege on others - just give me the money.
Very very dangerous. Be careful.
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In recent articles I have seen the top city bankers described as "highly intelligent, highly motivated competative individuals".
My I take issue with the "highly" intelligent part of this comment.
People who devote their lives to the persuit of money must, by definition of their chosen career, only be "limited" in their intelligence.
If they were "highly" intelligent, they would be working as a doctor, for example.
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To sum up then, we keep the cost of money high, keep the hosing market high and out of reach of 1st time buyers, we keep the bankers in power, we kept high national and personal debt, we keep povety, we keep digging a hole we have no chance of climbing out of. In short we had 1 good chance of overturning the slavery to usery and the governments bowed to the real owners and carried out thier bidding.
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What did brown say ''the banks are central to everything we do'' Sounds like slavery to me
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It all sounds all well and good...
But the people are not going out spending.
The wheels of industry is slowing down. This action will not kick start world economies.
Also like the Government, the Taxpayer is hard up and has no money either. Can the Taxpayer support their plans.
The problem is that people have borrowed to the hilt and are not spending. The bubble has burst. People are now in a Precautionary Mode and are repaying debt, and if they have any spare money moving it to safer institutions.
More drastic action has to be taken to restore confidence in the economies.
These signs are good for the enviroment, but bad for economies.
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4) Barclays is raising £10bn from selling new shares and securities to private-sector investors, abandoning its dividend for the second half of this year, and taking other actions;
Barclays seem to be saying - yes we have a funding problem - we don't like the conditions that Big G is offering. We don't want the stigma of borrowing from Big G, and the sentiment that would arise. Oh, and we don't want Directors' remuneration to be interfered with. Is this right?
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As someone who was tricked into buying some HBOS rights issue by a management who must have known the true state of HBOS can I look forward to some compensation for my losses. I will vote against the deal (if I am asked!)
Now the Taboo on nationalisation for new labour has been broken how about the railways and royal mail (yes I know about the latter).
Also how does the government propose to represent the small shareholder in future decisions of the banks. Arguably it was the extraordinary difficulties of popular shareholders involvement and having information that was a major factor in banks getting to their present state.
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"The Bank of England and other central banks have announced they are lending as many dollars as are needed by banks"
Surely we are not going to give it all up for Uncle Sam? Was it not the US bankers who dealt the dodgy loans to us in the first place. I thought the object was to get the UK Banks lending to each other again.
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about time these little masonic clubs have been broken up
get the guys who run hsbc in to run the lot - now there is a bank
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I see in the USA press that Gordon Brown is being praised for moving quickly with the uK banks and giving the lead to the European leaders.
However is it not the great man they are following ....
Private Preferred Offering
Through Berkshire, Buffett is taking $5 billion worth of perpetual preferred stock in Goldman in a private offering. For that, he'll get a 10% dividend and warrants to buy $5 billion of common stock with a strike price of $115 a share. He'll be able to exercise the warrants at any time over five years. Goldman's stock closed Sept. 23 at 125.05, up 3.5%, and it was climbing past 133 a share in after-hours trading after news of the deal broke. The firm's stock last fall was worth about 248 a share
See for more details
http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080923_622401.htm?campaign_id=rss_daily
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6. The bank of england and other central banks make as much money available as the banks need (phew).
Phew!? Mr Peston i'd be slightly more impressed if you told people the truth. For every unit of money created a unit of debt is also created. All the banks are doing is creating more debt to sustain their bankrupt criminally fraudulent enterprise. Banking, in particular the creation of the US federal reserve was a criminal act. More people are aware of this now. Call a spade a spade. The monetary system IS fraudulent.
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I'd expected one more day of big sell offs and share price falls today as bank investors took in the fact that their ownership had been diluted but then for a recovery to begin tomorrow.
Looks like shares are rising significantly this morning anyway and with capital, liquidity and lending issues lloking like they're coming out of the worst in the UK at least here's hoping today sees the start of the recovery.
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" RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels "
I thought the purpose of the capital injection was to allow banks to re-organise their business into a more rigorous and less risky regime. But now the government just wants to give banks more money so that they can continue to make the same mistakes that got them into trouble in the first place (i.e. massive lending on over-inflated assets)? Up until now it was looking like the Brown plan wasn't a bad one, but if it is in fact just using taxpayer's money to keep our debt-fuelled economy artificially inflated until the election then we'll be paying for this for years to come.
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So we have decided that keeping banks going is so important (despite the fact that half the stuff thy are supporting should probably in no sensible world have ever been allowed to happen) that we will effectively pay whatever it takes to stop them gonig belly up.
So, have all the bad and badly rated debts and liablities been flushed out the system, how can we tell if they have or haven't? The mortgage market still seems to be a mess and this is what started it all off no?
What is the timescale for the unwinding of all the various different financial instruments? This could give an idea of how long volatility could go on for?
What is this 650trillion CDS number that keep getting thrown around, is it going to come round and bite the banks on the ass?
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8) Stock markets and money markets are in slightly better shape this morning - which is something of a relief, because if they can't be buoyed by so much taxpayers' money being chucked at the banks, then we would be in rather more serious trouble than I feared
Swallows and Summer. The volatility is possible because of v.v. short term market making. Your blog is great for creating moves in the markets. Unfortunately it is also encouraging the cats to play, taking the focus away from the real fundamentals that have to be corrected.
We in the phase of the crisis when a level of control and calmness is needed, to be followed by two lines - one to maintain a level of sustainable economic activity and the other to deal with the very serious fundamental problems. These require a Leader to emerge and the development of a new Management.
We are only at the beginning of the start. Calm down.
Can you explain why the Governments have not suspended the markets for a few days?
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Dear Robert
"What i want to know is, who is exactly to blame for this Crisis, who initiated it, and who made it worse"?
We keep saying the USA, but, " who in the USA, is reponsible, Wall street, but who in wall street, wicih individual is resoonsible or individuals "?
This has to be made public,
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It was the mad borrowing fest that got us into the mess. Borrowing is fine, providing the borrower can afford to pay money back. But in 2007 we had buy to let mortgages, 125% mortgages, self certification .................
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Typical.
The banking system fails, the RBS boss gets 1/2 million in pensions, Mandelson gets 1 million payoff for leaving the EU and getiing a job he has resigned from twice before.
Gordon Brown has been the steward of the financial system for the last decade and HE has failed ..BIG TIME.
If and when this mess setles down Brown should give the hard pressed pressed taxpayer what they want......an election!
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HSBC!
Have you notice how no-one talks about HSBC in all this.
I presume that's because they're OK?
Common Robert write an article about HSBC and explain to us (their customers) why they are different to the other banks.
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Exactly whose idea was this fix on the 2007 lending levels? Who on earth thinks this is a good idea?
This is the equivalent of the government buying shares in dot com companies or artificially maintaining the price of tulips. Gordon Brown is turning a burst bubble into a national disaster, alienating our neighbours and plunging our economy deeper into the red.
I can't think of any industry (with the possible exception of farming) that would be propped up so shamelessly as this when serious mistakes have been made. Bankers, shareholders, estate agents, buy-to-letters - on your bikes. The precident was set by the mine closures, there is a perfectly good system of compensation in place, it's called the welfare state.
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What a delight Robert Peston's punctuation is!
Oh, and the news about the banks is a relief too.
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"1. At 08:51am on 13 Oct 2008, Buddhaman wrote:
So same old same old? Here we go again - the housing bubble has to be re-inflated or the economy doesn't work.
Bonkers."
97% of our money comes from debt. If they stop lending, it all disappears. That's what a recession/depression IS. When the debt sucks up all of the loaned credit.
Don't like it? Campaign for Monetary Reform.
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Momentous shomentous. The main purpose of regulation in the financial economy is to be eternally vigilant in preventing vested interests from creating obstacles to free-market competition. Artificial and politically created barriers-to-entry result in oligopolies and monopolies, giving rise to the kind of crisis we see today.
The most stupid trap of the last fifty years was the way in which well-meaning regulators ? useful idiots ? were conned into thinking freedom means anarchy. Philosophy studies tell us that there can be no freedom without responsibility: so clear rules and sanctions are essential to ensure that playing fields remain level and competitive.
Management studies tell us there can be no responsibility without accountability. This issue has not been properly addressed in corporate governance ? where it is known as the agency question ? or in national governance, where corruption in the process of wielding power always seems inevitable.
If we find in the next half century that it is not possible to create structures for one party to act in the interests of another without corruption of purpose, then we will have to disband the corporation ? the separation of ownership and control ? and try something else.
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Can't see how you can maintain lending at 2007 levels without being irresponsible. Are we asking the banks to lend at low rates, high multiples of earnings and with no deposits in a falling market? If not how else are they going to maintain the same mortgage lending levels?
I get it, in a few years time Gordon wants the other half of the banks shares...
The rest of it seems fair.
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is it safe to come out now?
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So lending will have to be at 2007 levels? These were historically high levels of lending and much was innappropriate.
In order to meet these targets will they be more "prudent" than they were in 2007?
I fear the people who will be trying to obtain loans will those in difficulties and trying to borrow to repay other debts. Sound familiar?
Will the banks be brave enough to refuse the loans or will they give them in order to meet the governments "target"?
The lunatics haven't taken over the asylum, the asylum has simply taken over the world.
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The Treasury statement says
"maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels".
What does this really mean? For example, by the end of 2007 Lloyds lending to homeowners was based on LTV of 75% and better, but at the beginning of 2007 100% deals were available.
Does it just mean that people who meet a sensible criteria will find that money is available or are the government trying to reinflate the bubble to stop the banks having to make further writedowns or for electoral purposes?
Any chance of getting clarification on what the statement means Robert?
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What limits has the Government placed upon risk taking, given that the banks have promised to continue lending at 2007 levels???
And how will all this extra lending be funded? Will the banks issue more bonds then "insure" themselves like before with more complex instruments?
Or will the Government, sorry taxpayer keep the cash flowing to permit the higher level of borrowing?
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And I notice that neither Gordon Brown or Alistair Darling stated where the 37 billion is coming from, despite being asked at the conference.
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#1
I can't believe that lending on mortgages can be on the same level as 07... as you say re-inflating the bubble would be bonkers.
Nor do I think it can successfully be re-inflated with all the other real economy hits that will be taken.
The real money in the real world just really isn't there.
But the depressing thing is maybe General Brown has enough resources to expend them in one last 'Battle of the Bulge' attempt to delay the inevitable into mid 2009--- and on the back of 'a job well done' try and win an election.
Whether he wins or loses the election we'd have nothing left to fight the even worse deflation---but politicians don't always think like the rest of us.
And now he certainly has levers to pull to create short-term happiness owning somewhere around 50% of the entire banking sector... plenty of scope for creating feel-not-so-bad conditions with lower rates, deferred re-possesions on defaulting Mortgages, and so on and so forth----
I very much hope not, but I do fear so.
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Question - So why does HBOS now have to be taken over by LloydsTSB?
Comment - lending will never recover as I'm sure the big banks didn't do so much reckless lending as those smaller banks/ lenders which have now gone out of business - so things wil still be tough and the government wont want to lend knowing loans wont get repaid.
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I think it's rather disingenius to suggest that HSBC have also raised capital, albeit from private sources.
I understand they have merely transferred capital from HSBC group to the uk group in order to comply with the new fsa requirements, therefore no "new" money is being raised.
Let's make a clear distinction between the four banks who are making the headlines, and the other banks which seem be be well run and don't need any government hand out.
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Dear Robert,
As much as i detest New Labour and every thing they stand for, Brown is Putting Britain First, after Twelve years have we at last rejoined Planet earth,from the outer recesses of the Universe.
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Looking to the future, it is almost certain that whichever government is in power over the next few years will be strapped for cash.
If we assume the financial markets stabilise and some value returns to these stricken banks, the time will come when the Government might want to get some of its investment back just to help out with shrinking the national debt without putting up taxes or reducing public sector expenditure. So, the price for buying one of these banks might be very attractive to a company with cash - HSBC perhaps?
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I know the opinions of an Irish youngfella are not going to change the world but in my view an era of boom is followed by bust. The fact that the worlds banking industry is in such turmoil must suggest an inherent flaw in the sector. Overlending and short term debt were at insane levels. I don't think it's possible to find a short term solution to the issue, governments are going to have to consider long term goals and try to ride out this era as best they can. How can an industry go from making super normal profits to announcing the fact that they are on the edge of collapse.....greed and being short sighted. What were these banking officials doing, patting each other on the back and ignoring what small business' have been seeing for the past 18 months?
The english banks being bailed out should consider themselves lucky, fair play to the english government though for taking stakes, a lot more sensible than the Irish government.
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"RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels"
- Hopefully this doesn't mean a return to 2007 (pre Northern-Rock) reckless lending practices, except this time the tax-payer picks up the bill when it all go's wrong.
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I was quite disturbed to hear Alistair Darling say that any government appointees to bank boards would have banking experience rather than civil service experience ... surely more people with banking experience is the last thing we need.
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If the only problem in the UK economy was the lack of capital liquidity in the banking sector, then all your points above would be valid. The underlying long term problem has been the level of real disposable net income (after income, sales and local taxes have been paid; fuel, utility and food bills met etc.; interest and capital payments on existing loans and mortgages aacounted for) is very low. I strongly believe that the Credit Crunch was the CATALYST to the current crisis and not the CAUSE.
The BBC TV news have covered this quite well: for example office workers bringing home made sandwiches for lunch etc. Whilst people struggle to make ends meet, increased spending can only come about if everyone takes out more loans on top of their already crippling debt levels, so as to sustain a higher standard of living which otherwise they could not afford. This in my view is madness, and was the precursor to the CAUSE of the current crisis.
Bring an end to self cert mortgages. If I bought a computer on credit £1000, my financial details would undergo a credit check. A self cert mortgage £400K would have been granted simply on the basis of my say so! Mad!
Any loan can only be granted on the basis of ability to pay it back.
Taxes need to come down. Re-introduce the 10 percent tax band backdated to last April asap. VAT and excise taxes on petrol and power need to be more sophisticated. A standard tariff of x percent on the market price is too crude in today's volatile markets. A sliding scale could be introduced so that as the market price rose the tariff percent rate would reduce, effectively giving the Treasury a similar income without penalising taxpayers. G Brown has often stated in the past - its not my fault!. Well, its not the fault of the general populace either so why take it out on them.
In election campaigns in the past acommon refrain is - its the economy stupid! Please remember that the banking sector is one part of the economy albeit a fundamental one. It is though quite possible to have a very strong banking sector whilst the rest of the economy underperforms - the 1980s under Thatcher. Is history repeating itself?
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Ok, if the worst is over, time for Brown to fall on his sword too. He is directly responsible for the British economy and has been for the last decade.
Go you shifty conman. Now.
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no.1
That's what they have 'promised' just to get some quick cash. In a few months when they are still deleveraging and are short again, that will go out of the window!
The gvt is desperately trying to get the economy to even up before an election, but it's like re-floating the titanic after it's back had broken!!
At best:
Maintaining 2007 levels will only help RBS/HBOS customers who currently hold mortgages. But how will 50% of people pay them when their service/bank sector jobs have disappeared??
The road is only down!
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They could not help themselves, they had to bully the banks. Now we will see what comes of it. A small market rally does not at the moment seem a good return on £50 billion.
pension funds will be hit by the loss of the huge divi's banks paid; let's hope they have prepared for that.
Now the Government has a taste for nationalisation I wonder how long the likes of British Airways will survive....
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Are you able to clarify what 'Maintain lending at 2007 levels' means.
This could mean that the increase of Loans over repayments remains at 2007 levels, or the total outstanding debt level is maintained at 2007 levels.
I'm presuming that Mortgages at very high LTV levels might be required to sustain Mortgage lending at the levels we saw then, and presumably these loans would be regarded as poor collateral by the BoE.
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So what controls has our glorious leader put in place to stop the banks now going straight back to their old ways and dishing out 100% mortgages willy nilly again ? None I suspect. Until a set amount of deposit ( Unborrowed ) is defined by law as essential before a mortgage is issued, the problem will continue. This awful government was incompetent with it's own budgets, how can anyone have any confidence in their running of financial institutions ? I suspect there will be a continuing round of public money required from time to time now to bale out semi nationalised banks which, under the controls of the present system of regulation will be unchecked. The taxpayer will not only foot this bill but will be subject to deposit rates as defined by the chancellor or his poodle, the governor of the bank of England.
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point 2 (a) "maintain mortgage lending" is potentially deeply concerning.
If this means profligate lending at 125 percent mortgages and huge over valuations of house prices is to continue/resume the whole deal is insane and must be stopped NOW. If it is not stopped it will reflate the housing bubble and be the cause of a cataclysmic crash for the whole national economy (even if we get through the present difficulties.)
We must ask that journalists seek further clarification urgently.
The only way that this makes sense is if a strict income multiple of no more than 3 to 3.5 times income and a 25 percent minimum deposit is enforced. Anything else is totally insane (I am running out of adjectives to describe how appalling for the whole nation such action would be.) These idiot bankers and regulators who created this present mess seem to think that they can finesses a solution that will not hurt mortgage holders - they are so so wrong!
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?RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels?
How can a bank manage its risk if it is forced by a large backer to make large loans in an unpredictable market?
This is typical political interference. The government want the housing market back on a bubble before the next a election and don?t care how much taxpayers money they have to waste to get it.
The government might just as well loan directly to the house-buyers.
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The biggest nationalisation in history. Stock market jumps 6%.
I trust that Gordon Brown has phoned up Michael Foot and said, "You were right after all."
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Remuneration:
The greed fuelled mess that a significant and well off section of the Financial ?community? have put Western democracy in deserves more than a light ?shares instead of cash bonuses? rap on the hand.
We want our ?real? money back!
My idea: takes everyone in the finance sector who has earned more than one million pounds per year over the last five years, and demand they deposit in the Treasury any gold they have bought over the last year.
Vote?
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Robert
How much should we contribute for you to have another holiday?
I think the timescale should be for about a year.
I think it would be in the government's interest to take at least a 60% stake in your holiday fund!!!!
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#7
Re money supply.
I was trying to find M0 recently. Is this figure still made public? Anyone know where I can find it (and M1,2,3 etc)?
I would be very interested...
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I felt the statement to Simon McCoy by Phillip Hammond shadow secretary this morning got to the kernel of the problem. I have to note another "Ism". Sortterminism verses Longterminism. Our children's and grandchildren's future depend on the governments around the world getting it right. It is therefore the right and the duty of all the media and correspondents to monitor what policies are being pursued in public as well as private sectors. I say this because there have been calls in the recent past for more consideration as to the effect of short term measures by government and not just the private sector which have been dismissed as nonsence. Surley Gordon Brow's borrowings "Off Balance Sheet" in public accounts over the last 11years is now clearly wrong and this form of philosophy "Outlawed". So come on Robert get stuck in and begin to hold all the leaders Private and Public to account.
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Happy days!
Either this fails miserably and we go through this pointless merry go round again or we suffer massive inflation. Either way the little man looses and those reponsible benefit.
Why are they trying to rebuild this house of cards?
When will they get it into their thick,overpaid skulls that the last twenty years boom was a serious accounting error - or fraud if you tried it at home.
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Why is nobody protesting about this? People, you are being robbed! This has all been planned well in advance to rob the ordinary working people, of not only the UK, but the entire world!
There is now open talk of a New World Order coming about soon. Again all well predicted by the alternative media.
Get informed!
This wasn't done by accident!
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OK Robert, so on Friday you wrote, regarding share prices -
'But it's as well to remember that they are the symptom of the disease, not the disease itself.
The underlying illness remains in the financial system'
Now you seem to be using the slightly up figures from the markets this morning as a good sign. This is almost Daily Express journalism! When the FTSE is down, it doesn't matter, but when it's up - hey it's great!
Anyway, I acn only support most of the others - this isn't some massive nationalisation and return to government for the people over the corporates, it's merely a way of bailing out the corporates at the people's expense.
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What you are witnessing in the markets is a dead cat bounce.
We have not reached the bottom of the market yet.
It will be interesting to watch the banks trying to lend at 2007 levels when 99% of the people in the country know that we are in recession and know that it is not a good time to borrow.
Belts will be tightened and the majority will not fall further into the debt trap. The public have become much more financially astute over the last few months, your average conversation in your average boozer will tell you that.
People are more frightened than they need to be because of media scaremongering and this will make them more cautious than they need to be. This will lead to a deeper recession and more job losses. It all becomes a self fulfilling prophecy.
The really astute will get themselves into a position so that when the final crunch comes they will be immune to it.
The final crunch will be postponed by G7 actions over the next few days, but ultimately this will lead to complete and utter failure of the financial system some years down the line.
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There is a second serious whammy just around the corner.
The market crash plus the vastly reduced dividends will result in massive pension fund deficits.
The Pensions supervisors will then "mark to market" at audit time and as a result companies will be required to make good the deficit.
The sums involved will be of the same order as the current recapitalisation all over again.
Nobody in the Government so far has commented on this aspect.
Who will ask about this?
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#10
Neither RBS or HBOS could ever have been considered as Scottish national banks because they've been under the control/influence and ownership of the City and Treasury. This of course explains why they are in the problem they are in now.
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The Financial Services Authority (FSA) has said it shares concerns that "inappropriate" pay deals may have led to the crisis in the banking sector.
The City watchdog said in a statement that it was calling on banking firms to apply "sound risk management" to future staff pay deals.
While it said it did not wish to enforce pay levels, it has published its initial thoughts on the subject.
The FSA said it was talking to banks and would publish advice next year.
"We would encourage firms to review compensation policies throughout the firm - not just in trading and investment banking areas," said FSA chief executive Hector Sants.
Talk about Dithering catching.
If Sants can make that last statement now, why cant they publish their advice now
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11. At 09:06am on 13 Oct 2008, extractofmalt wrote:
A probably stupid but definitely serious question: where does the government get the money from? Do they print it? Or if they borrow it, who from?
= = = = = = = =
Not a stupid question at all...... there is no "money" to be used in any of this shenanigans.... it's really all just trading IOU's around between banks, and now the government.
These IOU's are backed up by loan repayment contracts (such as mortgages) in the case of inter-bank trading.
Many of these (sub-prime) have now proved to be virtually worthless, and likely subject to mass default.
Now, they will be backed up by Government tax demand contracts (PAYE, to you and me) which we are unable to default on!!
NO REAL MONEY IS INVOLVED ANYMORE.
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What guarantees has the Government extracted to ensure sensible lending of taxpayers money?
Remember, this all started with sub prime mortgages.
Will there be conditions of maximum 95% loan to value (perhaps even less being the property market is widely believed to be overvalued).
Has the Government extracted a commitment of prudent income multiples - 2.5 times joint income, or 3 times the main income plus 1 times the secondary?
These are multiples that before the housing bubble would have been the normal maximum.
If no commitment to sensible lending of taxpayers money has been obtained in return for this cash, it suggests that the prime motive is to delay the inevitable crash from the bubble burst, not to steadily deflate the market.
Robert Preston, it is now time for commentators like you to be asking these questions so that the public can see the real truth behind this bank bail out.
The overriding aim has been to bail out Brown from the bust that the cycle needs to correct itself. The problem, at great expense, has simply been delayed.
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If the requirement to" maintain mortgage lending at 2007 levels" means lending at today's house price levels it will demonstrate that Brown and his advisors have understood little of the causes of the current problem. The house price asset bubble has by no means fully deflated and reinflating it now will be disastrous for the future. The UK economy must be weened off its dependency on the perpetual motion machine of house prices.
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We have probably gotten outta Dodge - well done Gordon, Darling and all our European counterparts. EU Cooperation not EU scepticism has won the day.
From this posting thread you can almost taste the Brown basher?s irritation. They are clearly annoyed that today is a momentous one; as today marks the death of the laissez-faire attitudes of Thatcherism and the Right in The City.
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There is a strong case for the banks prosecuting Goodwin and Hornby for neglect of duty and bringing their respective banks down.
As a shareholder I certainly will not want see either leaving with ANY kind of pay off whatsoever.
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What I find amazing is that it has taken over one year for us to get to this point and for the EU leaders to actually have a summit on the issue. This shows a collective disregard for what is going on bordering on negligence, especially when you consider Angela Merkel of Germany has been warning about the chaos for the last 18 months. Indeed she is said to have reminded Brown on several occasions, only to be laughed at as she was seen as promoting a non-free market view.
Also if Sir Fred walks away with his pension and any payoff from this mess there should be nothing other than civil unrest.
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Do we gather then that only the Eurozone is tackling the wholesale end of the problem, which one learns from Robert's excellent coverage is the nub or near the nub of the problem, whereas the only element of control in the UK is to ramp up mortgage lending? Isn't this actually a failure to shut the stable door?
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I hope all this won't stop Sir Fred Goodwin from voting Labour.
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The ONLY BIG question is. I property affordable? Given the expected down turn in the economy it is likely to be less affordable but with rates going lower that will be countered.
A home is a requirement as are water and food.
We all need to get perspective of what is or is not value and affordable the banks are guilty of lending at unafordable levels!
The problems we are in are not down to inflated property prices but down to the way the debt on property were handled. (Other than the fraudulent lending in some parts of the US).
Anyone who looked at a banks balance sheets could see that they had savings of only fraction of lending as with northern rock.
We may be on the verge of recovering from a dramatic stall with Pilot Brown and Co Pilot Darling having pulled out all the stops thrown of all the excess weight and put the throttles on full power. Lets just hope the engine and wings can take the forces which will be put on them.
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There'll be tears before bedtime my dears, just you wait and see. Promises from the banks that they'll good boys and girls, just as soon as they get their sweetie money. You know it makes sense Rodney, mmmmm... lovely jubbly.
So lending will be maintained at 2007 levels. Why and how, for Gods sake. Mortgage lending went into overdrive on the back of over-priced shacks being bought by lemming-like idiots without sufficient income to service the loan. Homes ceased to be homes but were regarded as a short-term investment. Oh, and the "Bank of Buy to Let" was offering even better terms that the Icelandic Bank of Cod. The more that was lent, the more that was wanted. Then someone noticed the lack of any clothes, not only on the emperor but on his whole damn entourage as well, and the mirage of wealth and prosperity vanished back into the haze. If lending multiples are to be kept at sensible levels, with adequate LTV ratio's then HOW can mortgage lending be maintained at 2007 levels, with a finite stock of property? More panic and mayhem will ensue.
I do not want my tax money used to try perpetuate, or recreate, this insanity. Oh, and by-the way, will the last Banker leaving the scene (assuming that any of them do leave), apart from turning off all the lights, please take Gordy Boy and the eye-brow monster with them.
Oh dear, at least it will soon be time for a libation, maybe things will look better then.
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Once again the lack of facts (para.2) from Robert starts a few loose hares running(comments 1 and 9).
When you state - lending will return to 2007 levels - are we to assume the amount of money available, rather than the basis of the irresponsible lending with Loan To Values of 125% etc?
The lack of facts means we have to make assumptions and journalists can make up whatever story suits the "Armaggedon" scenario(apologies for my naivety)
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Robert,
On 17th September, you wrote about the proposed Lloyds TSB / HBOS deal:
"However, for the avoidance of doubt, neither side has asked for taxpayers' money - either from the Bank of England or the Treasury - to facilitate this deal."
Brown seemed to preen that he'd helped broker a deal that would avoid government hand outs...
Now HBOS will take GBP11.5Bil and Lloyds GBP 5.5Bil. Things are fast-moving, but that seems a pretty hefty injection. If the investments are designed to make each entity individually stable, Lloyds seems to be getting a state-guaranteed bargain...
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The markets are falling back already today.
Anyone want to take a bet they will end the day lower again
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Disappointed that the well-run bank, that I've been with for decades, has been dragged down by the merger with HBOS.
Good job I didn't buy shares in HBOS over the last couple of weeks, assuming they would be bought off me at the end of the year at the price originally agreed with Lloyds...
Perhaps, when this crises has finally shaken itself out, we will ultimately have the situation where all lending is provided by the Bank of England. That wouldn't be such a bad idea actually.
The Bank of England could perhaps be trusted to be a responsible lender. With that one organisation doing the lending there would less scope to package up debt and flog it off as securities. Besides its brief to control inflation, it would also control the amount of money that was being lent. The two are interelated, so it would be a good thing to do, strengthing the economy overall I would think.
The role of commercial Banks on the High Street would then become that of an agency/broker for loans and a secure facility on the high street for depositing everyday cash, which is about all they can be trusted to do.
They might get a little bit of commission out of arranging the loan via the Bank of England, but that would be as far as it goes. The Bank of England would decide whether it was a secure proposition and whether to lend or not...
Perhaps we wouldn't then see irresponsible lending fronted by google-eyed characters of a politically-correct persuasion and dodgy-looking blokes in even dodgier looking green suits ? What were the marketing men thinking of with those adverts ?
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The fact that the markets have stabilised is a good thing. The price we are all to pay for that is not a good thing.
There will be a political reckoning of which we know nothing at the moment but Mr. Angry is going to become very popular in the days and weeks to come. I fully expect Mr.Brown and his chums to be forced to sit on the naughty step in due course.
As other posters suggest the real economy is now going to get a right slapping on top of the one it has been getting since the cost of fuel and food went up and property values collapsed. I expect unemployment to top 5 million before this is over.
May I revise your quotation, Mr Preston.
`This is a recession, Robert, but not as we have known them.'
An interesting historical and political footnote is the collapse of two Scottish Banks and their bail out by the predominately English taxpayer. Is this the Act of Union being played out all over again? Who are the parcels of rogues in the nation now? Discuss.
I also wonder how Mr. Salmond's vision of a Scottish economy based, like Iceland's, around financial services is doing?
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itreallyis42 - doctors are next on my hitlist after bankers. They get paid an outrageous amount and are subject to no competition.
If you are truly altruistic and have brains, work at any highly paid job and give 50% to charity. Or, better still, found a decent political party and take over the country. (I'm guessing that post 9/11 any guy fawkes style comments are off limits!)
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Post 19, re Barclays.
I am sure they need some money but are no doubt in no where near as bad a shape as RBS & HBOS and as such can raise the money from current shareholders and new investors.
RBS and HBOS have to take whatever offer they can get as both are in the last chance saloon. Barclays obviously don't have to take Gordons terms so have decided not to.
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What they say and what they do are often two entirely different things.
So, I do not think that bank mortgage lending will return to anything like 2007 levels at all.
Because these banks, via the valuers, will take the view that there is still anything between 15% ... 40% to come off average property prices in the UK and will still require a significant deposit.
There is a house price floor but we are not anywhere near it yet, either here in the UK or in the USA.
Nevertheless, it is good to see this concerted action to try and regain some stability so that the bubble unwinds more slowly.
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I fail to understand why this is a relief. We are all in a submarine at the bottom of the sea and the air is running out. Somebody has borrowed some air from the tanks that would be used to take us to the surface. We will breathe for a little longer but our chance of rising to the surface has gone. Okay it is not a perfect analogy but you get the idea. I am not relieved, I am resigned.
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"2) RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels ..."
We're still at DEFCON 2, though recent moves are welcome. "This, too, shall pass" as the ancient Sufi saying goes, so hang in there, folk.
There surely must be a return to prudent lending with an enforced minimum fractional reserve requirement, then a gradual increase in that reserve. And we need a concerted move from money as debt to investment in real value.
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I wrote to you December 2007 (see below) when you weren't quite as savvy as you are now. The 'Brown' plan seems to be to try and keep lending going - but what we've not heard about are the lending limits and transparency we require from our regulators to set so this doesn't get out of hand again. Brown may have saved the world but he is complicit in the problems being experienced. Ask Angela Merkel.
17. At 01:27 PM on 21 Dec 2007, harry e wrote:
Robert, the link between all these disasters was the prolonged low interest rate environment boosting demand for credit with a limitless supply of it - without the restriction of either a reserve ratio (the ratio of deposits needed to be kept back by the banks to repay depositors) or a properly functioning capital ratio (the ratio of lending that needs to be kept back in the event of default).
How? Off balance sheet funding. It is a little known fact that money is created by private banks when a loan is made. The money supply hugely expanded in this credit bubble has fed house prices to the point where everyone is now saying the Emperor has no clothes.
Easy credit leads always to loose lending. Falling house prices are revealing the true extent of default. But the default now being experienced is unprecedented for the lack of capital reserves to cover it - the banks don't even have enough to put the damn stuff back on their balance sheets never mind write off bad loans!
As capital is destroyed this will be hugely deflationary. Far lower bank rates and increased Government spending will be inflationary. And we seem to be seeing a flight by investors from mortgage bonds into commodities (food, oil) - the next bubble before that too pops with the footsie with it. In the meantime this too will be inflationary.
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Not nice to see Tories on here putting party before country.
Not changed at all, have we?
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This bonus thing - why do any get a bonus anyway?
In the real world - you are paid for doing a job, if you don't do it well you are sacked!
Do you give your local bobby a bonus if you are not burgled?
Do you give teachers a bonus if your children pass their exams?
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Re Lloyds TSB is paying less to buy HBOS than it originally announced, to reflect the disclosure that HBOS's problems are rather worse than it thought just a couple of weeks ago
Given everything that has happened with the bailout, does it really make sense for LloydsTSB to purchase HBOS? Especially as they are looking to pay even less than before?
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In the last 4 years British banks have paid out more than £31 billion in bonuses.
Perhaps if we asked them nicely, those bankers would be prepared to give back those bonuses, given that they were obviously not justified in retrospect.
In this way the public tax-payer would no longer have to stump up nearly so much of the £37B required.
Sounds fair to you? It certainly does to me.
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Come on Now Robert!
You seem happy that they are injecting all this money into the system to save the banks.
Can you please answer one question? In the past what has happened when the printing presses have opened?
Laws of supply and demand dictate that a large amount of money chasing the same amount of goods (or even less products due to contraction) will lead to hyper-inflation. In fact it could unleash an hyper-inflation tsunami.
By proping up the system, Gordon Brown and his colleagues overseas have done a very stupid thing. Can't you see that?
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The bubble in the derivatives market needs to be punctured if the stabilisation efforts are going to work long term. Might a Credit Default Swap amnesty be a solution? If the hundreds of trillions out there in yet-to-be claimed are worth 10 times the world economy, is there a case for legislation that simply absolves everyone from having to pay out? The derivatives market is a form of gambling after all, and all bets in a dodgy horse race can be voided. OK there will be pain for some that lose money after a default, but otherwise there will be a great deal of pain for all for a very long time.
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Well the RBOS rights issue looks dead in the water already at 65p. The share price is well below that.
Once your reputation is gone, all else follows. There has already been one rights issue based on a dubious prospecutus and shareholders are telling RBOS where they can put their shares.
I'm not satisfied with the management changes. The whole board must go, including the non-execs.
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The government in reality had 2 options:
1) Prepare the decommission of the failing banks by handing over the private and business accounts of the failing banks to some of the many good banks that have shown proper banking conduct, and has stayed intact during the crisis (they must be doing something right)
or
2) Bailing out ALL the bad boys, step in with tons of taxpayers money, and pretend they know everyting about running large troubled banks, as if this is something like erecting a garden shed.
In line with the failing banks, the governement took the difficult and risky route, also in line with the failing banks, the goverment is putting somebody elses cash at stake. There is absolutely no guarantee that any of the failing banks can recover as their market may well have vanished, or diminished significantly. Unless of course, the government banks are prepared to pursue new dodgy ways to create profits to pay back the taxpayers, in which case the circle will be completed.
I dont think Brown and Darling nailed the root cause. It's not the subprime. It's the banking sector that simply has grown beyond means.
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So we are being told by the great and good that this is a positive step. Well, just wait until next year, 1929 will be nothing as compared to what will happen in 2009.
These desperate actions to preserve asset values will be an absolute disaster. I hope that all these experts will be brought to account when their comments are replayed next year.
Mind you, if they can get asset values to hold their values for a year then they can dump it on a unsuspecting public.
You only have to see what has happened to the share price of RBS! Of course nobody could see this disaster coming, you want to see who got out when they could and who has been left holding the baby.
I wonder if we can now see the return of short selling?
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Let's replace the failed managements with sensible people from the Mutual Building Societies.
Who would you rather trust to run the bank you now own ?
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Why do we have to have the Mortgages at 2007 levels? Part of the reason we are in this mess is that house prices were too high coupled with the British obsession with owning property, not to mention more people getting into the buy-to-rent market. The government in distorting the mortgage market which will tempt people to take more mortgages rather than put money into banks and the banks desperately need money putting into them.
Why can't the UK banks offer tempting interest rates so that people will want to put their money into them? Is this just to prop up NuLabours collapsing housing boom? The NS & I cut their savings interest rates last week. We have gone from being a nation of savers to a nation obsessed with credit - France and other European nations don't have the same levels of personal debt as we do.
People should be encouraged to save and not to spend money they haven't got to stop this rot.
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Banks - should we have driven a harder bargain?
The government has effectively nationalised the high street banks.
Possibly no bad thing.
When and business collapses or is near collapse, there's an opportunity to buy it at fire-sale prices.
(but with a bank you need deep pockets to get the business working again)
So how much should the government pay?
Hey - you're the government - you don't have to pay anything, you just say "this is ours now".
You still have to put money in to make it work again, but you can simply say the government has taken control on the cusp of disaster - and that "sorry, all shares in this bank are now worthless".
Only the government could rescue the banks - you're not bidding against anyone else - and the bank has nowhere else to go.
I think we should have got 100% of any bank rescued.
Once recovered, the government decides whether to sell-off the bank and help the public coffers - or if retail banking is too important to be trusted to the private sector.
I wonder if we might come to the latter conclusion - that retail banking so underpins our country, that it represents too much power and responsibility to entrust to a few private sector companies.
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Don't shed any tears for Sir Fred Goodwin, 'falling on his sword' over the nationalisation of his bank...the £580k pension should soften the blow.
Funny how those who 'screw up big time' don't suffer, whereas the honest, hardworking citizen sees their pensions disappear at the hands of Gordon Brown and the sharks like Sir Freddie.
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Robert Peston 13 Oct 08, 08:39 AM Let's add up the extraordinary announcements this morning.
1) Taxpayers are injecting £37bn of capital into just three banks, RBS, HBOS and Lloyds - with RBS and HBOS taking £31.5bn of that (this is nationalisation Jim, though perhaps not precisely as we know it);
This is factually incorrect, HMG is making available upto 37bn to underwrite a private sector rights issue. In order for all of the 37bn to be committed *noone* would have to participate in the purchase of new shares in these institutions, sloppy RP, very sloppy.
Aside from that I congratulate you, almost no hyberbole or grandstanding, you seem belatedly to be learning some lessons.
On the 2007 lending issue, clearly the precise same loans cannot be made this year as last year as demands will be different. I speculate that what this equates to is applying the same lending criteria in terms of evaluating new loan requests. Given that firms and individual financial futures are much different now that we are heading into recession it would not be unreasonable to assume overall lending will still decline. The difference being that it will not be unnecesscarily curtailed by the lack of trust existing between finanical institutions but rather made on sensible evaluations of peoples ability to repay.
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I would like Mr Peston to tell me where all the money is. Presumably we haven't burnt it and if we aren't spending it, it should all be in the banks so they shouldn't need tax payers cash.
Where is it all?
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Well Gordy's outflanked Cameron this time with a classic pincer movement.....he's only gone and nationalised Cameron's friends!!!
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"borrowings at 2007 levels" this is very worrying , this is going to be a nightmare.
I commented a few weeks ago asking the question Robert, why is the Goverments of the UK and the US geared so much around the housing markets. ?
I can understand the UK goverment, (Stamp Duty Tax, Inheritance Tax, LGA Council tax revenues, all geared to rising costs, the higher the cost the more revenue for the HM Treasury and the LGA's)
Can we ever get away from this, this is crazy, as I have also said previously the future "University" generations will never get on the housing markets, we will have to go back to some very large social housing schemes "council house building projects" and become a nation renting.
I am sure this is how Germany / France and most Eurozone countries get over these ups and downs in the housing market.
Can Vince Cable explain this to GB , Mr Cable seems the only MP talking sense.
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This comment was removed because the moderators found it broke the House Rules.
This morning I received various letters from banks (after not having a single one for over 10 days, wonderful time). One informed me of cutting my credit card limit and the other cutting my business's overdraft. It doesn't make a material difference, but rather interesting, especially as both were from banks that are rescued by the government.
I wonder how many such letters were sent out just before the government intervention...
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#12, you've previously identified your business as engines for racing cars.
In a recession, demand for this kind of luxury good is likely to collapse. As such, there may be nothing that can be done to salvage your situation (other than an orderly wind-down).
For many other companies, however, the 'return to lending levels of 2007' clause may be just what they need to help them. It should lead to some of the things you've called for - reduction in credit card interest rates, and (through lower mortgage rates) less repossessions.
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There's been full attention on the solution, but not much on the consequences of the solution.
There must be some downside to the government's creation of all these billions, otherwise they would have done it before for long-standing needy causes, such as the NHS, education, transport, pensions, immigration, care of the elderly etc.
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Couple of points/questions?
1) A return to 2007 levels of lending in UK should not be a problem as many people seem to suggest. The problems for UK banks stem in the main from bad investments in derivative products purchased from other overseas institutions, i..e the USA. The level of Bad debts and provsion based on UK bank lending is not as bad and in line with normal expectations that would be seen historically in any economic cycle. SME's and indivivduals need bank funding for cash flow liquidity and provide prudent steps are taken to assess customers ability to repay then go for it.
2) What happens to the pension funds of the 4 Banks mentioned. Should the current pensioners of these banks be worried?
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'RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels'
Wouldn't it be cheaper for Gordon and Alistair to just give all the floating voters a mortgage directly?
Clearly these rediculous conditions are nothing more than an attempt to get house prices on the increase before the next election.
And putting bankers on the board as our (the Tax payers) representative, rather than a civil servant ('of the people') is too stupid for words...what change will there be in banking behaviour if 'one of their own' joins the board?
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This is beginning to look like a bad deal for the taxpayer because the market has worked out the deal is no panacea. As RBS and HBOS are now below the open offer price, the govt would be better off buying shares in the market. The problem seems to me that the govt is penalising the banks too much as the loan guarantee terms are quite harsh and the management interference is signicant. I bet European banks get let off more lightly.
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Gordon Brown has just said that the problem is a global one and so requires a global solution.
However, the fact that the international banking system is in a mess should not be allowed to mask a major local contributing factor, namely the house-price bubble.
The high price of houses has distorted British society for generations. Thus far no government has been prepared to address this problem. It is beginning to look as if this government has been given a golden opportunity to do so.
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#64
Re money supply - my understanding is that these measures were quietly dropped by the ONS some years ago, certainly the broad money ones.
I'd be interested if anyone knows better but I suspect it tells a story itself....
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What a Joke this stupid Government is.
Points 1 I agree.
Points 2 resignation of the chairman and chief executive of both HBOS and RBS. NO
Sack them. And make them say sorry on live TV.
Im sick of hearing bail outs with Tax payers money.
Apply Darwins theory on the Banks.
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Just heard on the news "Gordon Brown said we are not in the business of rewarding failure". Good! Well he should start with himself and resign for his complete lack of diligence and prudence when Chancellor!
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An analogy (best I could think of): We are in a submarine at the bottom of the sea and our air is running out. We borrow some air from the tanks that could take us to the surface so that we may breathe a while longer. We borrow some more, and then some more. Eventually we have none left and none in reserve. We cannot breathe and we cannot float to the surface. What do we do now? If only we had kept some more in reserve but we did not think it would ever come to this. Well it has and we need to get used to the situation. Words and posturing from the Captain just echo around the walls of the submarine. We will work out that the Captain was responsible for this situation and will all take our chances in trying to swim to the surface. Abandon ship - every man for himself!
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Before investing in a company I do thorough due diligence, focused on the reality of the company's forecast return on equity (RoE). What RoE is the government expecting for its shareholders (er, taxpayers) and how realistic an investment (er, gamble) is this?
My money (what little I have left) is on a continued slide downwards as it dawns on the world that debt-fuelled lifestyles, predicated on endless economic growth, in turn based on the assumption of infinite cheap energy cannot - and will not - last.
I'm looking forward to hearing the first politician talk honestly about this subject and, moreover, explain how they see our country dealing with end of fossil fuel energy.
As with our national finances, the UK is atrociously positioned to deal with this huge energy challenge. Our political class is a shambles.
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As Robert has said, 'wow' and 'phew'.
A further interesting political implication of all this - given that it is Royal Band of Scotland and Halifax Bank of Scotland that are, in effect, being nationalised by the UK Treasury - is that it will surely make the break-up of Britain much less likely than it was a month ago. With both of Scotland's main Edinburgh based banks controlled by the UK Treasury into the medium term, it will be far more difficult for Alex Salmond to persuade Scots to back a quick dash for independence in the 2010 referendum.
Prof Spof
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"RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels"
Isn't that what got us into this mess in the first place?
My guess is that in a year or two RBS and HBOS will need bailing out again.
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we knew something had to happen-most bank shares rallied well this morning, but let's see what happens later on.....
As for the strings-well there doesn't seem to have been much in the way of a spanking, does there?
No mention of obscene profits in the last 2 years, no replacement of greedy directors, no forcing of full disclosure, and no whiff of investigation!
The fact that the amounts needed went up and up means that the banks were kicking and screaming as they reluctantly gave up the truth-but have they been totally honest with GB?
Maybe Barclays is just less encumbered than the others (it had already raised some last week from the East).
These delinquent executives need to be force to leave or work for nothing-give their shares to the pension plans who are shareholders. And Barclays should pay dividends to pension schemes and small investors.
At the very least, GB should ease fuel taxes, and taxation obligations for small businesses.
And clear the credit rating of anyone given a default in the past 2 years
And scrap stamp duty and house buyers packs.
That 16,000 would make a huge difference to anyone who just struggles everyday to pay bills.
Mr Brown-we all want the truth-stop hiding behind the 'aren't I wonderful' and be honest with us. We want our pound of flesh and we want it now!
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Why is it that Barclays announced that they would not be taking any government "bail out" money last week - yet all the time on the BBC it kept on saying that Barclays were "one of the four"??
Surely the public should have known about that one last week and not at the last minute this morning - i think its just one more example of the media stirring up things and making the whole credit crunch thing a lot worse than it probably is!
Im not very financially aware - but it seems to me that would have been some good news? and how can we believe anything the BBC reports on with any truth anymore if they leave out things which dont suit their doomy & gloomy outlook?
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Why is Fred Goodwin being replaced by another Fred Goodwin?
http://business.timesonline.co.uk/tol/business/article1290133.ece
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Yesyerday, Mr. Peston, in one of the most fear-mongering posts you have ever made, you said 'Thatcherism is dead'. Today the market is up 5%. Isn't it time for you to proclaim hysterically, 'Socialism is dead'?
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The British Government doesn't want to run our banks...
British bankers clearly can't run them...
Maybe we should ask the Chinese for help, they've got shed loads of money...
It would be a deliciously ironic solution...
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A couple of points.
Firstly when companies carry out underwritten rights issues it's customary for the company to pay a fee, related to the risk of success, to the underwriter. In the good times this fee has been around 1 or 2% but when companies are not doing so well the fee is much larger, Bradford and Bingley paid 13% I think. I assume the tax payer is charging such a fee but perhaps someone could aks Messrs Brown and Darling at the next press conference.
Secondly, people who put their savings with Icelandic banks, as well as other non domestic UK banks, were paid an additional amount of interest to reflect the additional risk they were taking, somewhere between 1 and 2%. Surely any compensation scheme for these savers should work on the basis that the amount paid to them is reduced by the extra interest they have received for the years they took the extra money. The term moral hazard comes to mind.
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As dar as I can understand it we now have a two tier banking system. RBS, HBOS and LloydsTSB have swallowed the medicine, taken Brown's (well our) money and thereby garnered all the benefits that go with it - most importantly the government's (our) guarantee of any interbank loans made to them. This should enable them to access wholesale money on pretty much the same terms as they used to (and therefore to lend it on).
HSBC, Santander, Barclays and others have either refused government money or never been offered it. They therefore do not enjoy any sort of interbank guarantee. Logic would lead one to expect that it will still be extremely difficult for them to raise funds on the wholesale market.
That seems to be a big competitive disadvantage.
Good thing the markets and the financial system aren't logical!
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Phew!......this hasn't come a moment too soon!
I'm off now to my nearest RBS branch to take out another GBP50,000 loan!....everything will be 'hunky-dory' in no time
BTW - I stopped at a road-side greasy spoon van the other day and ordered an egg and bacon sarny......the guy that served me was wearing a genuine Rolex Oyster watch....and he proved it was genuine!
Just another sign of the times I guess.
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Now that we add to the national debt for fun, I imagine the chief architect of this crisis - Gordon Brown, the man who has personally presided over our inadequately regulated banking system since 1997 - will borrow more to fund the invevitable shortfall in tax revenues over the next few years.
What he should do, of course, is deliver massive cuts in public spending in response to the estimated £100 billion a year tax shortfall.
But he won't. Now that he has finally rid himself of his own rules on public borrowing as percentage of GDP, he can go ahead and mortagage the country to the hilt.
Future generations of taxpayers will not see him as the saviour of the banking system. He'll be remembered instead as the man who saddled them with an unbearable tax burden and denied them the opportunties for wealth creation that this generation has taken for granted.
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no. 44, where the funds will be raised to pay for the banks' recapitalisation:
through the additional issuance of Cash Instruments and Gilts, between October 20th and end-December 2008, as announced by the UK Govt.'s Debt Management Office this morning.
And this additional borrowing categorically doesn't take into account the extra borrowing that the government will need to announce in its Pre Budget Report later in the year, as it adjusts its growth forecasts for the UK economy, and consequently revises down the state of the UK's finances due to falling tax receipts etc..
"Prudence" surely can't come out of this smelling of roses...
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What I'd like to know is: when is the USofA going to compensate our banks for the billions of dollars-worth of toxic derivatives that they flogged to us?
I read (on the Guardian website) a detailed summary by a Californian economics professor of how the sub-prime debt was parcelled up in opaque financial instruments, and distributed throughout the western financial systems - more than A TRILLION DOLLARS of dodgy loans.
The fact they're in this mess too is no consolation to us!
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when you've been robbed of your savings and pensions, have no food on the table in your cold, unheated house, if you still have one, just remember...NEW WORLD ORDER!
You'll be living in hitlerite fasist dictatorship!
Get informed people and wise up, the whole world banking system doesn't just collapse. This is a predetermined action by an elite group of people around the world to facilitate world dominance over the world's money supply.
Don't take my word for it, do the research!
Try starting with The Bilderberg Group, David Rockerfeller, The Rothschilds, The Federal Reserve in America (A PRIVATE BANK) then maybe some of you will at least wake up before it's too late for all of us!
Sweet dreams
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Brilliant Gordon.
Even if you lose the next election, labour party history will rank you possibly higher than Clem Attlee. He managed to generate a nationalisation programme out of a financial catastrophe. You went even further. You have presided over a decade of economic growth then managed to nationalise the commanding heights of the economy - and without making any of the pips squeak! To go further and re-introduce socialism on a global scale without being undermined by the CIA is possibly a first for any world leader.
Your place in history is assured whatever the electorate may think in 18 months time.
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Dear Robert
I have pinched myself all over to see if I'm still dreaming.
I've been a shareholder in my own business for years, which means I enjoy returns in the good times and I suffer in the bad times.
Even when I signed up to your blog, I was granted certain rights and responsibilities.
However, as an ususpecting part-owner of several under-capitalised banks, I can't see that I have any rights or responsibilities at all - except to keep paying taxes and meekly accepting mass-liability for their future troubles.
Where is the gravy? As a part-owner, how do I benefit when things go well? And as for all the money this mad venture requires: how will it come into existence?
How does the continuing use of the Fractional Reserve system (i.e. the way the banks can use each £1 on deposit to support £8-12 of lending) make the banks financially strong and prevent future runs like that on Northern Rock?
To try to understand a bit better, I watched Paul Grignon's excellent "Money As Debt" animation, in which he explains the whole history of money and the Fractional Reserve system, and I still don't feel any better.
http://uk.youtube.com/view_play_list?p=8A17735DF82243F9
Are we all fast asleep? I AM dreaming, aren't I?
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It's a disgrace that we are in this position at all and it is of course Brown's fault that we are. He can't even negotiate a good deal for the taxpayer when the banks are on their knees. No shareholders should have been left standing; if the state drops capitalism and takes 60% it may as well be 100% for that amount of money.
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Its a high risk rescue. If it fails, there is no more left. The markets seem unimpressed so far with HBOS LTSB and RBS up to 30% down as I write, Barclays strangely enough are up with the market average.
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can anyone in authority actually say 'it's my fault' anymore? The government advice is what caused local authorities to invest in Icelandic banks, then the government says legal action?
The bankers greed has brought the world to it's knees, and noone can even bring themselves to say sorry?
Course not-saying sorry admits responsibility and implies you will do your best not to let it happen again. A small but very powerful word.
The only way to get respect and confidence back is to apologise and take your punishment-isn't that what our legal system is for?
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We need more info about certain derivatives which may be an even more monstrous demon lurking around the next corner.
If push comes to shove, would it be possible for governments to declare such bets null and void, or would international law, however reluctantly, have to enforce such mad-cap contracts?
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Over the last 4 years the UK Banking industry has paid out 31 billion in bonuses.
How about, rather than the taxpayer putting up 37 billion, we ask the bankers themselves very nicely if they would repay this money to finance their own business?
Sounds fair? it certainly does to me.
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#1 #9
You are right - I thought this was great news at first, then I began to think about the detail.
There is still the possibility of a recession - people will lose jobs and then their homes. That could happen within 12-18 months. Of course, it is the job of opposition parties to point this out.
Basically, enjoy this brief spell of sunshine and hope someone is fixing the roof!
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In the real economy (production and services) the behaviour of the Boards of management of the Banks, in particular the wholesale/investment banks would be quickly defined as disgraceful, in effect the very worst kind of capitalism :a combination of fraud with embezzlement (of taxpayers' money) and the perpetrators would have been so charged and be sitting in jail. In the banking/finance sector its called "creative, aggressive, intelligent, forward looking investment in the new economy".
The bubble has burst but you can be certain of two things : that taxpayers' monies will be used to save a bunch of fraudsters and that the fraudsters will go unpunished, even being given "golden parachutes".
As Stalin said: " one death is a tragedy , a million is just a statistic" or to paraphrase : "manufacturers and small businesses can go bust with millions thrown out of work but the financiers are untouchable".
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Is it just me!.....or does anyone else think there's more than a passing resemblance between those two scoundrels 'Laurel and Hardy' and the great comedy duo 'Darling and Brown'?
(maybe it's just the bowler hats!)
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the ups and downs of these shares today are making me feel sick! Anyone got a sea sickness pill!
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Robert off course the goverment had to bail these banks out but its very unfair that a senior number of top people in these banks who now will loose their jobs are being rewarded with massive pension pots.This is not having a go at Fred Goodwin but to have a pension pot of 8.5m is scandlous bearing in mind how many others peoples pension has fallen as a direct result of this crisis brought on entirely by banks,if he was to get a pension pot of say1m which is still a payout of 50k per annum i think the public would accept this but to be getting 580k per annum hardly hardship for him
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What a shabby performance from the government. First they pretended that HSBC were involved in their rescue plans, then it emerged HSBC had nothing to do with it. Now we find out that Barclays are raising new capital - but not from the government. (Presumably they just want to be able to tap the government's promise to guarantee interbank loans.) So it's just RBS and HBOS that the government are rescuing - the latter with some help from Lloyds TSB. So those Scottish banks weren't so "prudent" after all! What still remains to be seen is how on earth the remaining private sector banks will be able to compete with the State colossus, which now includes RBS, HBOS and Northern Rock as well as nsi. They've achieved the Socialists' dream through the ages - State control of the banking system. Still, it'll provide a good source of revenue for the next Conservative government when they sell them off again!
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Aha, the banks are now open for business. On the good side, now I can get my 6.25x income 110% self-cert interest-only offset tracker and buy a damp basement in Walthamstow. Hurray.
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Directors will be taking future bonuses in shares. Am I right in saying that later sales and profits on those shares are subject only to Capital Gains Tax rather than Income tax?
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I notice the usual English Vs Scotland debate in this forum. While it is true RBS is a Scottish company, HBOS was effectively run by the Halifax HQ with Bank of Scotland as a subsidiary. In the end though this is down to greed by the stockmarkets who kept demanding every increasing returns combined with management who claimed bonuses for reckless decisions. As all banks claimed they were not seeking a rescue, and thus lied to the media and stock market is there room for a report to the police on the basis of providing false and misleading information? Thus defrauding investors across the UK?
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What a sad state of affairs when the deal between HBOS and Lloyds has to be renegotiated as they have now just found out, as a result of the Governemnt money going in, that the bank is in a worse situation and there are more hidden problems at HBOS.
Why did they not know about this earlier? What on earth are their accounting practices and perhaps they should all call in Deloittes or similar to do a root and branch analysis of their accounting practices , reporting procedures and management. I can do better with a Sage accounting package than they appear capable of.
Time another Finance Director should fall on his sword.
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Lloyds should walk away form this fiasco now. As a long term shareholder I was happy with their strategy and enjoyed decent dividends but can see no reason to join with HBOS. All value is eroding away and Lloyds shareholders are effectively bailing out HBOS and the Government. No idea when we might get a return - absolute madness and I await with interest to see how Lloyds tries to sell it to us. Millions of small investors will vote NO to the 'takeover' as a good bank has been infected with rotten debts from HBOS.
Thanks Directors - great job of looking after shareholder interests!
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"The bubble has burst when *I* say it has burst"
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This comment has been referred to the moderators. Explain.
A loan is a contract between two parties. An institution cannot commit to lending a certain amount of money because it does not know whether any borrowers wish to borrow that amount of money.
If the banks must lend at 2007 levels then maybe they will introduce a new type of state lottery whereby people drawn out of a hat HAVE to accept a loan or go to jail? And all to keep the housing market at 2007 levels and everyone believing they are rich. Great.
Does this mean another 10 years of Location Location Location?
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Freaky stuff - How can Lloyds/HBOS and RBS undertake to maintain mortgage lending at 2007 levels?
I always thought that such things were a function of demand and supply - just because there is supply doesn´t mean there is demand. Or is the average man in the street going to be forced to contract for mortgages?
What does it mean anyway? That the banks will continue to lend money at ludicrous income multiples? Or will more prudent lending be enforced? In which case that alone is likely to lead to a contraction in supply.
Why did the Government inject cash into these entities? Because no-one else would invest under any circumstances.
How will the Government fund this cash injection? By issuing gilts. Who is expected to buy these gilts? The same people that refused to invest in the banks. Let´s just hope that Johhny Foreigner is as crashingly stupid as he is assumed to be under this whizzo scheme.
Oh what a tangled web we weave when at first we practice to decieve.
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We seem to have replaced stock market panic with money market panic as central banks now seem to be flooding the system with unlimited amounts of currency.
Does anybody else think that all we're doing here is delaying the inevitable, ie the collapse of a flawed system. Flawed because it is in essence a debt-fuelled system, predicated on permanent economic growth, in turn based on the assumption of infinite cheap energy.
The sooner we address this huge challenge, the better.
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Buddhaman is a little unfair in condemning a proposed rise in mortgage lending.
We accept that mortgage lending was completely out of hand in the years leading to this crisis, particularly allowing "self certified income" applicants to borrow at inflated values.
The situation now, with most lenders running scared is that many solid earning folk are being denied mortgages at fair values. As with so much in banking there needs to be a balance.
The housing market is an important plank of the economy, and strong applicants should be able to borrow to buy a home.
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So, we are giving the banks our money for them to lend it back to us again. What is this, some sort of fuedal system!
Also we have the almost unbeleivable statement that lending is to return to 2007 levels. If this means that we will be back to 125% mortgages and massive income multiples feeding the greed rush this is crazy. It can only be to get the 'feel good' factor back for the next election.
We need some more detail on this Robert.
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Robert ,
Your comments about Bankers being 'Humiliated' reminds me of a Black Adder sketch as being the worst of all tortures that could possibly be inflicted .
The Banking culture changed dramatically in the last decade to result in the situation we have today .
Any 'real person' sitting on that negiotiating table alongside the government would insist on a ban on ALL bonus payments to ALL staff whilst one penny of Tax Payers money is retained by a particular Bank.
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My overdraft facility is due for renewal in November. HSBC have just informed me that my new interest rate will be 19% AER. Can anyone else see what's coming next?
We bail the banks out and in return they squeeze more money out of us.
Cheers for that. In a genuine free market you'd all be left to die on your arses.
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I have no doubt that for the moment this is what HAD to be done. However, I think that indeed as someone has already pointed out what we are witnessing is the huge migration of capital to the BRIC countries. Mr. Pension Moneyman has decided that it has invested sufficient and for long enough in the Junkies of America and Western Europe and it is time to pull the plug and throw the money into hard working developing countries where they can make a much more secure and higher gain backed on real assets (just look at the shear number of new buildings in the wake of the Olimpics or at the matter on Brazil by the FT a few weeks ago).
If we are to keep at the front of the game, our most important asset is technological development and on the long run the government must take the education issue much more serioulsy (Scandinavian countries could give part of the model, where small countires like Denmark and Finland are among the richest in the world, largely based on specific business and technological bases - think NOKIA for instance or the Baltic exchange index).
The money being spent on the wars at the moment is equivalent to the one that should have been spent in our Universities, the year we started Irque was also the year the government put through the University fees. So less paranoia and more hard work addressing what we might call our "intrinsic" development is the way out and the only way to keep any leadership we may still have.
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It does seem as though banks forced the governments hand through their inaction and isnt it interesting how Barclays can now come up with something when presented with the prospect of government ownership.
I am glad that new directors have been put in, not paying bonuses this year is hardly a big statement. There should be no more bonuses until the tax payer has all of their money back and some.
Certain investment practices should be banned and regulation introduced. Heads should be rolling, who has profited most from dodgy deals and how are they helping - we should know their names!
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The taxpayer-via the government-is pouring billions into the banking system. Please will some one tell me 'WHERE HAS ALL THE MONEY GONE'??
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The banks can just go for market share now as their risk has been laid off to Gordon, sorry I mean laid off to us.
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Research "The Bilderburg Group"
they planned to collapse the world markets within 3 years at the right time for them. That was at their meeting in Ottowa, Canada in 2006 at the same meeting where they planned the merger of America, Canada & Mexico into one state called The North American Union, with the new currency of the Amero. This process will move towards a one world currency linking specific regions around the world including the UK and the EU states.
THIS WAS ALL PLANNED!
BEWARE THE NEW WORLD ORDER!
Please do some research folks!
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Brilliant, so we are nationalising banks and asking them to continue to lend at 2007 levels...... will that be 5x, 6x or 7x salaries and are dodgy application forms OK again!
I thought Brown was going to sort this mess out, not make £50 billion available to help fund the policies that got us in this mess in the first place........ whilst he?s at it I hope he?s going to put in place the same 2007 incentives for the bosses and find a big enough land fill for the new ?toxic debt?.
Keep them afloat, protect savers money and baton down the hatches. There is no way out other than the hard way, and it?s going to hurt like hell - sorry.
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So lending back to 2007 levels? - given that the lack of formal assessment of risk and the subsequent over lending boom is what got us into this decline, this seems ludicrous to say the least.
All banks, financial experts and commentators seem to agree that we cannot go back to the 100% + mortgage loans that we had in 2007 and that a more realistic assessment of risk in lending money needs to be put in place. I am gravely concerned at the message that this latest government initiative sends out to us all.
That is, our economy is dependent on a system of relaxed easy credit to sustain a housing market that was grossly over valued and high levels of personal debt to maintain our slowing service industries.
Whilst Alastair Darling realises all this much more clearly than I, he is in a catch 22 situation, let it fail and we have meltdown, say the wrong thing and the fragile confidence we have fails.
The truth is somewhere between the 2 - the economy will go into recession in 2008/9, spending will fall steadily as we begin to see more redundancies and job insecurity thus leading to a consolidation of our recent re-discovery of the real value of money.
I am reminded of the old maxim 'you have to earn it to be able to spend it' hence living beyond our means is now consigned to history, I hope we never get back to the irresponsibility of 2007, this would indeed be a disaster.
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well the bankers are laughing all the way to the bank sorry for the pun but i fear this government has lost the plot and are doing anything to remain popular.
didnt lloyds tsb buy halifax hbos?
if they did then how is it both organisations holding there hands out for taxpayers money.
it smells like a con but i may be wrong.
but i seem to remember halifax shares falliung and lloyds tsb paying billions to take them over just before the b&b was rescued partly by this government, thus why are they now wanting taxpayers money when they had enough to take over there rival only a few months ago.
or is there some other reason this government is willing to pump money into the same organisations that at least are inept at worse criminaly negligent.
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Re Post 85...
I stand by my earlier posts... the markets are heading for -
FTSE below 1000, DOW below 5000....
The recession is here... but has only just begun... It is going to get very bad.
All that has happended today is a bit of medicine to make things taste better.... but only in ths country...
Look at USA debt levels... $10 trillion - That amount of debt is going to take a lifetime to unwind... and "its unwinding" will continue to impact here.
Furthermore, what will really happen when the Icelandic bank situation unwinds... more losses - and loss of confidence both here and around the world.
Why would anyone want to buy shares under thses market conditions? Madness...
As for GB and AD... don't get me started on them...
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#96 re the purchase of HBOs by Lloyds Bank...it's just dumb now...as the entire reason for it was shoring up confidence but even rushing it through hasn't been fast enough to enable it to be done before events have completely over taken it....the buyer is being propped up now.
(Though the Govt soon to be owning over 50% of HBoS will be able to vote through their own plan anyway now---and propose a standing ovation to themeslves from the floor of the (non-existent) EGM as well if they want...)
Re # 97
Couldn't agree more.... bonuses for Bankers over the last five years are like giving medals to your own side for not dropping too many bombs on your own cities.
Re...lots of the contributions
To paraphrase Bill Clinton, in understanding the situation, we need to disregard the numbers and possible economic bases of argument and to really discern the bases of decision making from here on, where the economy is concerened only one thing matters------- "It's the Politics, stupid!"
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This comment was removed because the moderators found it broke the House Rules.
I wonder how the former MG Rover workers feel today? That firm could have been nationalised and turned round with a fraction of the money that has been pumped into the banks since the strat of the Northern Rock crisis.
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http://www.bbc.co.uk/blogs/nickrobinson/
JUst to add to a previous contribution... read this from Nick Robinson's blog 'next door' to see how deeply Political questions now play into supposed "arms length" governance....
But I suspect everyone contributing or just reading this blog already know this....
However from here on the BBC may as well merge Nick and Robert into one uber-Plitico-Banking-commentary-blog----although pausing to think about it a little more perhaps the Planet isn't yet ready for what may emerge from a "Mind-and-Shape-meld" of Nick and Robert ------ It could be a merger too far even for these direst of times!!
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This is EXACTLY what happens when you elect idiots to run the country.
As it's all about confidence, can it be established how much (or little) confidence we have in the following:
1) Gordon's prudence
2) Darling's ability to manage a crisis without everyone being distracted by his unusual eyebrows
3) George Bush's understanding of the word credit.
4) Hank Paulson's independence
5) Monetarism + Friedman
When considering your answers please remember the fatal words of Gee dubbl-yah from July
"There is no question about it. Wall Street got drunk.... That?s one reason I asked you to turn off your TV cameras....[Wall Street] got drunk and now it's got a hangover......The question is, how long will it [take to] sober up and not try to do all these fancy financial instruments?"
...and that's how the most powerful fool in the world looks at it!
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#12
Protection for the 'ordinary little people who pay their taxes' is not that important. Remember the 10% tax band? Know all about the tax loopholes and safe havens?
It's all about the moneyed at the top end. They pull the strings. If people lose their homes and businesses, share prices fall, this merely creates opportunities for those with finance to increase their wealth.
The vultures are hovering ready to swoop.
One example: look at Sir Phillip Green's behaviour; the one who does not pay his fair share in taxation, thereby allowing him the power and money to pick over the remains of others.
#32
Who on earth would you vote for? The main parties are in thrall of the moneyed. Is this because of fear or they want a slice of the action?
#95
Those at the top will still get their bonus, and continue to manipulate to 'earn' them.
Nothing changes because that is the way we allow it to be.
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Robert, either you are up to your neck in it,
or you have been very naive. The Government, having eventually realised the dangers to the UK by making the mistake of giving Scotland a devolved Parliament, has now ensured their dependence on Westminster by targeting their banks to the point of capitulation and nationalisation.
I'm going hill-walking in Scotland next year. Will I see you there?
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Just a quick note from the EU finance ministers conference at the weekend, "no bank integral to the financial system will be allowed to fail"
........the key there is the word 'integral'.
If you're not integral, you're *******!
Comments ??
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My Theory,
Gordon Brown cannot put more money into the economy through the usual route (public sector spending) as this would destroy his ?golden rule?. Instead he is going to buy huge stakes in the banks in order to pump more money into the economy (by forcing banks to lend at 2007 levels). Its another clever shuftee of the books, at the end of the day they are going to inflate us out of the problem (which needs to happen IMHO).
This plan is so mad, it might actually work (Our fiat currency supported through fractional reserve banking), is on its knees or very need collapse!
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#113 Good phrase that - "orderly wind-down".
By restoring available credit to 2007 levels (on a responsible basis - if that is what we are to ASSUME - journalist input required here) then credit exposure can be brought down gradually over a number of years. Next year, bring credit levels down to 2006 etc (subject to economic growth/contraction).
It is the sudden turning off the tap that is causing the problems, and the potential recession.
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Surely this is too much far too late?? I do believe that the Bamks should be left top fail, then re-invent the Banking system on even ground.
Somewhere in all this there is a Growing cancer which needs to be cut out of our society. The Banks will require more and more of our money, to the point where the coubtry is Bankrupt!
The alternative is to let them fail, yes savers/investors will loose out, but a new system, based on govermental control, can then be built.
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What have we allowed ourselves to become in this country?
The sheer insanity of trusting the same people that got us in to this mess to now clean it up makes my mind boggle.
It just indicates how powerless we are as individuals as we sit and pray that things will worked out by a group of people with the biggest possible vested interest in the end result.
I have a rich friend who has already bought a 3 bed semi and a 20 yr old volvo so that he doesn't stick out like a sore thumb in the coming times.
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self for-filling prophecy
Even if all key figures would be disowned and their capital taken from them it will have no effect on the current crisis.
Not only the Banks or the government are to blame for the after effect that created the economical situation we are today.
WE are only complaining about the loss WE have to bare.. keep feeding this negative flow and you will have a self for-filling prophecy... you will lose money and that's partially thanks to you.
We only focus on the media frenzy to find the one to blame and curse those who are trying to solve it.
Understandable but not useful it will only hurt your own pocket more and that's exactly the opposite of what we want to achieve.. isn't?
I wonder which actions of the government would be accepted.
Accept this.. we are going to lose some.. lets save the rest.
Lets stop complaining and get our act together start trading again!
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The thing i dont get is how we can live in a society of free markets and this happens, there are numerous institutions where savings are 100% guarenteed, ns&i, northern rock etc, however people have played the game and tried to get more interest etc and have got their fingers burnt and if people loose money through collapsing banks so be it, there are safe places to put money and there are also safety nets, if people go above and beyond that, tough
people dont realise that banks are commercial businesses that can go bust just like any other
secondly why is the government requiring that the banks start lending again to levels of 2007 when it is the ammount of debt that has got us in this position, i cna understand lending to small businesses to protect the economy, but personal levels of debt need to be brought down urgently and drasticly and this is surely an idea opportunity to do that, surely that would be a good idea
People shouldnt be able to take out mortgages for more than 3x their income and other forms of debt shouldnt be allowed to run unchecked, people need to learn to make do with what they have and not what they can afford, im sick of seeing students living on overdrafts and still going out spending money everynight, something is very very wrong with the attitudes towards money in this country
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# 118 Prof Driftwood and others .
Lots of mention here about the "house price bubble"- where is this so-called phenomenon? In the Midlands, the average house price is circa 160k or four times the average earnings of a two-person working houshold income - so what's to correct??
House prices are where they are because this Government has restricted housing supply for at least ten years through the creaking edifice of the planning system. This is something over which they have absolute control - unlike the banking system!
If you want cheaper housing, then release more land through the planning system - then watch prices fall for good.
Currently housing starts are pretty much at zero. This is because wage levels have not dropped, material costs have gone up but finished sales prices have come down, leaving no margin. Any builder, large or small, would be mad to build anything at the present time.
This is will cause the gradual build up of pent-up demand and will fuel the next "housing bubble"......time to break the cycle perhaps??
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no.114, I totally agree...."golden rules" be blown - 40% govt borrowing limit now standing nearer 50% on the back of the market support package - I understand that the current crisis requires swift and immediate action, I just hope someone somewhere is doing their sums on the impact this will have on our medium term ability to fund the essential infrastructure of our country.
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Question,
Does this deal effectively render LIBOR as useless? Defunct?
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I'd like someone to explain to me why HBOS were just fine until recently and are this morning a basket case.
Surely someone, somewhere has been telling porkys and/or had their snout in the trough.
The result is that my HBOS (soon to be Lloyds TSB) shareholding is worth little AND as a taxpayer my money has gone into bolstering up this festering mess. And I'm sure I'll get no dividend from that payback.
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# 127
Haven't you heard?
"GOOD NEWS IS NO NEWS"
- especially where Robert "we're all going to die" Peston, and the BBC generally are concerned.
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For all those worried about future mortgage policy:
Have a look at today's Treasury statement
http://www.hm-treasury.gov.uk/press_105_08.htm
There is no mention of maintaining mortgage policy as it was in 2007 here - I wonder who briefed it into the announcement?
Also the Council for Mortgage lenders has said that it is opposed to such a proposal.
I think (and hope) some hack may have got it wrong.
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This will have to be the last contribution for a while as I have some real work to do....trying to re-capitalise my business by the bizarre expedient of working harder.
(Though If Mr Darling reads this blog I do now feel the recapitalisation claim I made to him the other day for £100K ought to be raised as I hadn't thought through the "worst-case scenario" thing.... Of course £100K is enough for me and my wife to jet around for a while..but 'you never know do you!' so I think £200,000k would be more prudent in case of extra spends!)
The main point is that I have been sceptical about the Governments ability to get us out of this until just a few moments ago--but I am sceptical no longer.
1) WE are lending money to the Banks to recapitalise them
2) So we get shares
3) They use this to make money and so can pay Dividends on the shares
4) We need to borrow to cover the amount we are lending to the banks (as we can't possibly use words like r**s* t*xes----yet!!)
5)We borrow OFF the banks...but only the ones we own
6) They use this to make money and pay dividends--back to us!!
See.... I was being so dumb, like the rest of you, I just didn't see that from now on the more we borrow the better off we'll be!
As far as I can see it's flawless!!
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"The three banks have also agreed to maintain lending to homeowners and small businesses at the levels of 2007"
Even if this was a sensible goal - I just don't see this working as far as the housing market goes. Where will the first-time-buyers come from?
With house prices still obviously overvalued (so likely to fall further) and a deposit required you'd have to be a complete idiot to buy into this game at the moment. After all, it would be YOUR deposit that's at risk here - NOT the banks 70, 80 percent or whatever.
I can not believe there are enough idiots left to make it work - or am I just too much of an optimist?
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Sheer lunacy - the shortage of credit is merely a symptom of there being next to no one left capable of servicing any more debt than they've already taken on.
The banks have woken up to the fact that the levels of debt folks are trying to tie themselves into is unsustainable and havent been lending to them.
Now the govt wants the banks to put the blinkers back on and start singing 'la-la-la Im not listening' all over again.
This can only end with a sub prime crisis of our own.
What next 0% interest interest-only mortgages?
Or sending all the unemployed out to buy flats on basis that if the mortgage payments are less than their current housing benefit rent claim then the govt will cover the payments?
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95 "Do you give teachers a bonus if your children pass their exams?"
Well yes, if you follow the mantra of 'payment by results', which one thought was just nasty tory rhetoric in the '70's, but which seems to have been increasingly embedded in political discourse ever since.
But I accept the sentiment behind your post. Perhaps guardianship of other people's funds, however indirect, may come to be seen more in the light of a public service, now that its institutions are becoming in a real sense public property.
Fat chance I hear you say. Well, maybe.
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Post 124,
With due respect that comment is utter rubbish, how difficult is it to set up a bank anyway? The Scots have a long running tradition in this Industry, creating a new bank is not an insurmountable problem IMO.
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The only thing which is clear is the sum provided by the taxpayer, even that is not clear, is it on the table now or staged or issued straight down the wire, is there likely to be more go into the black hole sucked in by this deal.
There are two sides to any deal and it is not clear what the taxpayer is getting for their money, or what the value of the purchase is. Quite how a demand can be made that money is lent at 2007 levels is questionable. These banks, at least some of them, by any definition are bust. Is this the best way to deal with a bust business. Just what was the point of Brown wishing to ignore the competition commision requirements with the LloydsTSB - HBOS tie up. If HBOS needs propping then that is the problem of the business that wanted to buy it, otherwise leave it alone and deal with it as per NR, anything else is just fudge.
Quite what Barclays has been up to, why it was/is buying part of LB in the US and at the same time in talks about getting hold of taxpayer money and why it is now getting capital elswhere is open to question.
Other than the taxpayer getting caught with having to hold the duff banks, which was always going to be the case, it is difficult to see what else has happened.
What has not been stated is what the true cost to the taxpayer will be or on what basis the taxpayer will be picking up the tab, even if it is only the figures on what money moving out of the ecomony that would have otherwise been available.
How this can be paraded as a success by Brown is beyond belief.
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Another day another dollar, lost.
As the Goverment spend another 50 billion on bail outs. How can Lloyds TSB even contemplate buying HBOS (shares down 21%) with Lloyds TSB shares down 6%.
Lloyds TSB have excepted 17 Billion in Tax payers funds, yet they still do not lend to the people who have bailed them out. It's a disgrace...
Eric Daniels CEO Lloyds TSB, do the decent thing and take your £2 million bonus from last year and resign just as the RBS Boss has.
You couldn't run a bath.
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Time to wipe the smile off Culpability Brown's face - he is enjoying this crisis of his own making far too much. As a nation, we are not paying our way in the world and as a Government, Labour has not been paying its way either, borrowing right through the good times, leaving nothing but ever growing debt for the bad. The chickens are still coming home to roost!
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Maintain lending at 2007 levels?!!!
How to turn a catastrophe into an apocalypse. It is the equivalent of using taxpayers money to keep buying tulips or dotcom shares after the crash.
They may postpone the day of reckoning until after the election but who would want to win that election? Their is a tsunami of woe heading our way and it is getting bigger, it will hit eventually.
Or maybe it is political genius? If Labour win they get 5 more years of feeding at the trough and if the lose they have stitched Cameroon up like a kipper.
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So do you think that by the Government owning RBS now, that they'll force them to pass on the 0.5% interest rate cut by the BoE last week? RBS/Natwest were conspicuous by their absence in the list of major banks who were immediately dropping their rates.
Just greedy - BoE drops rates to try and stimulate some movement and RBS just keep on taking the additional interest from customers while paying less themselves.
I just really hope that the Govt keeps a real rein on these banking clowns who have got us into this mess and don't let it happen again. However I have a sneaking suspcicion that the banks are probably more powerful than governments and once they've had a while looking apologetic, they'll be pressuring MP's to release the shackles (whilst not in any way offering them sweet deals for when they retire from government!!)
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from Guardian website about the press conference following GB/AD statement this morning. (http://www.guardian.co.uk/politics/blog/2008/oct/13/economy-gordonbrown)
"A Bloomberg journalist asks if it is "prudent" for the banks to continue with 2007 lending policies, given that that was the year when the problems started."
"Darling says these policies were agreed by the banks, and that they would not have signed up to the policy if they did not think it was sensible."
So the banks who got us into this mess advise the chancellor to put credit clock back to last year, ie the height of the bubble.
Hmmm.
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This comment has been referred to the moderators. Explain.
Dr Beeching cut the Railways after Nationalization.
What will Dr Brown now do with our Banks?
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#167 helenhey.
Unfortunately it is a case of - what money? We've all been playing the game of emperors new clothes for some time now.
Re where we stand now. I would assume that the government have given the licence for banks to loan "money" to those wishing to partake in the housing market applying more cautious criteria. OK asking for a deposit and 3 x times earnings will cause a crash in the market and a recession. However the previous situation would have had far worse circumstances.
I just have this horrible feeling that we are about to see a cut and run - Spring 2009 election, without having first sent tax payers the bill for the current bale out and of course before the onset of what still looks likely to be a long economic downturn.
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In principle, if the banking industry has been totally wrecked by the stupidity or greed of mad politicians, mad economists, and mad management, then in principle there is nowehere to go except to recapitalise and reliquify using taxpayer debt to raise the funds. So this is not Gordon's Great Plan. There was just nowhere else left to go.
However, if I were a Captain of Industry and if I were going to make a strategic capital investment of £37bn in a handful of companies, I would be wanting to do some due diligence. I would want audited accounts and the latest unaudited management accounts with full details of liabilities. And I would have interrogated the incumbent management until I was reasonably sure where the bodies were buried (before burying them as well).
So on behalf of millions of taxpayers who will be lumbered with the resulting colossal debt I want to direct 2 simple questions to those who have negotiated this 'deal' on our behalf:
(1) Have there been full disclosures by these banks to the Treasury, detailing the real liabilities of each one?
(2) Obviously that is market-sensitive competitive information. But when can we have at least a rudimentary breakdown of estimated liabilities, split by degree of risk?
Stupid questions, I know, but presumably the government & the Treasury would not have been so stupid as to agree to an investment on this scale without attempting to quantify the potential contingent liabilities?
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So it was Brown's unregulated borrowing that may need to be rescued by the "Swedish Banking Model of the 90s" and nows its
"Margaret Thatchers deregulation is to be rescued by the Brown model."
Nice to know unbiased journalism still exists at the BBC
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Hooray. The people finally got (part of) TSB back again after Thatcher stole it!
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houseflogger:
I was told by my bank manager it was 1.5 times a couple and 3 times the salary of a single person ? that's what it was like when I took out my mortgage on my £27,000 house 8 years ago.
BTW it's now worth £125,000. That to me is a bubble.
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#188 houseflogger.
My first mortgage in 1986 (during a housing boom) was considered to be at the very limits a 3 + 1 100% loan. Also the government have direct control over the planning system. The department is called the DCLG. Local authorities work within the guidelines they are set by the government
I do agree with you with respect to the demand supply inbalance. lifting some planning restrictions, coupled with reducing demand by means of careful lending (I can't bring myself to use the abused word prudent), should go some way to restore some stability at least in the housing sector. Albeit at lower property / land prices - and no doubt at some pain to those in the building sector.
It's going to be tough for all of us
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Well as predicted nationalisation.
Is this enough? No.
Meltdown paused for a short time. Same story is still out there.
As for promising to return to 2007 lending levels- who is kidding who?
Asset bubble still deflating, CDS still there- next will be rising defaults on unsecured loans, credit cards and secured second loans and mortgages in UK. How much of the £1 trillion of personal debt is going to go bad, 10%...15% still adds up to more than todays £37bn. this will begin to impact from now until late 2010.
How deep are those government pockets- given a recession? Or to put it another way how long are the taxpayers prepared to go and for how deep before they realise that they can not climb out of the hole.
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Robert,
I hate to moan about the BBC - but the more I hear about you - the more I think you are being fed by an army of Labour spin doctors.
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I have noticed that when the BBC or Peston talk about the Banks getting money it is the taxpayers money, yet when taking about feckless freeloaders getting our money i.e. those having children why can?t afford are just plain lazy or have a ?bad back or stress? it is the governments money ? why the change in description?
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Let's see where we are in 4 weeks. In theory, by then Libor should have come down to its long run position versus base rates, the currency markets would have steadied, the corporate debt market will be open and stock markets will have recovered back to their September level, and the global economy will have taken a remarkable upward swing. Then we'll all be happy monkeys wondering what all the fuss is about.
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Like many others I am worried by the "lending at 2007 level" condition attached to Brown's rescue deal with the banks. I take slight comfort from the fact that it is 2007 levels and not first half of 2008 levels. Also it's the total to homeowners and SMEs. So long as banks lend to good risk borrowers, being careful to put behind them 'self-certification of income' and lending at high multipliers of income, in the case of mortgage finance this may be ok. Of course, consumers are in a mood to repay debt, so, other things being equal, the economy will shrink. Is it not time, therefore, for public works. The government should go by the old saying,'as well to be hanged for a sheep as a lamb', and borrow to fund a high speed north-south rail link and a tidal power scheme in the Severn Estuary.
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so with all this tax payer money going into the banks, would it not be better to call it Public Equity?
Just a thought................
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198
With all due respect re 124, I do believe he's right. No one says setting up a bank is rocket science. Hardly the point though is it? Imagine a separated Scotland in the situation we've been passing through and lo and behold you've got yourself another Iceland. Either count yourself a tad lucky there or advise Mr Salmond to steer round icebergs.
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The powerlessness.
Never before have I felt like an irrelevant spec in a mass comprising 99% of the country whilst an elite spends my hard paid taxes on eachother, telling me it's all in my best interests.
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#64
"I was trying to find M0 recently. Is this figure still made public? Anyone know where I can find it (and M1,2,3 etc)?"
http://www.bankofengland.co.uk/statistics/statistics.htm
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The promise to maintain 2007 "lending" is quite different from maintaining 2007 growth in lending or maintaining 2007 house prices. Neither of the latter would be desirable. It just means that people who really need to move home can borrow similar amounts (hopefully at similar prices as LIBOR comes down)
The alternative would be that more and more mortgages / loans are withdrawn so that even the most prudent and credit-worthy are unable to arrange bridge finance should they lose their job or their boiler blow up, unable to move house to take up job opportunities in a tightening job market.
Finally, let's not lose sight of the real issue facing us now. Recession. The faster we can foster a sustainable recovery (based on hard work not credit) the faster we tax-payers can be repaid for our generosity.
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Wonderfull, a blog from Robert that sticks to the facts, pretty much. No truisms, no hyperbole. More like this please.
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Regarding housing: require a 20% deposit and a multiplier of no more than 3x salary (difficult enough to pay when interest rates rise).
This would bring house prices down to realistic and affordable levels.
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Article in Today's New York Times claims:-
""Has Gordon Brown, the British prime minister, saved the world financial system""
The writer of the article thinks so...
That will be Paul Krugman, the chap who today was announced as this year's Nobel economics prize winner.
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It is good to see the top people in the 4 banks leave their posts... it only goes so far in providing reassurance however.
Within a culture where short termism runs deep, it will not be easy to find replacements with the capability, capacity or nouse to lead in very different ways.
For, short termism has been growing stronger and stronger in the corporate world for at least 15 or 20 years hasn't it? Look at the short time they serve in any one senior position...look at what happened the mutuals?
Isn't looking to reach the immediate horizon ,the only philosophy, way of doing things that any senior banker under 50 years of age actually knows?
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Even though everyone seems to agree that the UK plan of action to try and encourage the banks to unfreeze the money markets is considered to be the best on offer it is difficult to how this is going to resolve, in the short term, the problem of which banks are credit worthy and more importantly which banks are not.
Having lost control of the money markets the bankers are now doing what is necessary for them to regain control of the money markets and the supply of money.
To gain control they must they must establish, beyond reasonable, doubt the credit worthiness of all the banks (both in the UK and abroad) and at the same time try to find out how much phoney money is circulating around inside the money markets.
The only way to do this is to shut down the money supply for as long as that takes, no matter how painful that might be for the rest of us and regardless of government intervention.
Unfortunately since the markets were deregulated, some twenty years ago, the bankers have devised and introduced all manner of accounting deceptions to bolster their spurious claims about growth and profits.
The ammount of leverage that the banks applied to the money on their books (and in circulation) has compounded the problem of trying to find out which banks are and which banks are not, creditworthy and how much real money is in the banks coffers.
Finding the answers to some of these questions might take a great deal longer than is good for the world's economies.
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I see we're paying out good money after bad to the corporate banker chavs who need our handouts to for their personal bonus bling mansions and welfare state funded yachts.
The government has truly become income support for the super rich. What a genuine betrayal of the real British people (the ones that actually do the work, instead of the bloodsuckers who drain off all the profits).
But I guess that's the way it was and always will be.
This country needs a Robespierre, or we'll never get out of the dark ages.
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couple of interesting articles about other needy rich groups who've come out to the taxpayers with their begging bowls.
http://www.monbiot.com/archives/2008/10/07/the-other-bail-out/
http://www.monbiot.com/archives/2008/09/30/congress-confronts-its-contradictions/
Makes you go all weepy at the poor little blighters' plight.
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Dear Robert,
I think you must be the 5th Horseman of the Apocalypse :-) .
Keep up the good work
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Your comment on the news last night I found strange that this was the death of Thatcherism.
Totally unfounded and not backed up by the facts, the FSA is a body that was set up to regulate the markets, it choose not to intervene eventhough it had the power to do so, as did the Bank of England and the Tresuary. The problem is succesive governments especially this one ignored the mad borrowing that was going on.
Also you failed to mention the impact of the change in EU accounting rules which have affected the Banks asset base.
But it is what I'd expect from the BBC as usual standing up for Labour and blaiming Thatcher and ignorting the elephant in the room that is Europe!
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Ah at last comment #221!
Someone with a bit of a clue as to what's happening!
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Our tax payer recapitalisation of the UK Banks is costing us GBP 37 billion if this goes through.
Does anyone want to have a guess as to how much they will be worth on the date of the next General Election?
I believe the last possible day Gordon could hold out to and then have a campaign puts the latest date as 3rd June 2010.
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Corrupt - or simply stupid?
This is the dilemna I cannot resolve.
Look at the 'golden revalation' the Treasury made during this crisis.
"Big bonuses offered to bankers creates an atmosphere for risk taking"
Well DUH!
It's very much like
"Commisison earned from selling products promotes corner cutting, rule breaking, pressure sales and effectively ripping off the customer"
For your examples, try some of the following.
Endownment mortgages
Payment Protection
Annuity / equity release
Gas / electricity suppliers
Used car salesman
Independent mortgage advisor's selling mortgages.
....I could go on for ever....
So which is it? Are the Government stupid or corrupt?
Commission sales is never a good idea, it simply tempts the seller into increasing thier targets 'at all costs'
The interesting anomoly to the list above is the used car salesman. It is now an accepted and well known belief that all U.C.S's are bent so we are all wary - the others however are sold by banks, utilities suppliers and insurance companies.
Where people get caught out is that they have traditionally believed these people as being honest.
So that means we're heading for a world where you really cannot trust anyone.
When you add into the mix the amount of lying the press and government do - then what sort of society are we becoming?
How do you teach your kids it's wrong to lie when just about everyone is doing it?
One day it will be vitally important that the people believe their leaders - when that day comes the Aesop's fable (boy who cried wolf) will come home to roost.
I just hope it's not in my lifetime....
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#176 hear, hear!
Manufacturing has been a dirty word in this country for too long.
The political elite have long sucked up to the city and its financiers. This is what happens when the country ends up being run by people that have never done a real job in their lives.
I heard a story a couple of years ago about a magazine publisher wanting a picture of Tony Blair in a factory for the cover of one of its magazines.....and guess what!....you guessed it....there wasn't one. They did searches upon searches through all the usual photo library outlets....and they couldn't even find one.
MANUFACTURING.....you know it makes sense.
PS - It also has the added advantage of not disapperaing into thin air at the slightest hint of a downturn.
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Dear Mr. Peston
Just finished your excellent book "Who Runs Britain?" Excellent work but few comments:
1. You have never mentioned the £30 +/- Billions (various figures mentioned by different studies) the non domiciled pay in VAT which I find very surprising.
2. I find Chapter 7 "who stole our pensions?' not compatible with the title of the book, but extremely informative.
3. Although this might require a separate book, but I wish you have dedicated a chapter on wasted government spending in the 10's of billions of pounds, in wasted budgets on the MOD (meaning BA), six wars since Blair & Brown came to Power, wastage in the NHS , etc, etc. Afterall these blunders are changing our lives ?!
Farih Tabbah
[Personal details removed by Moderator]
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There's an interesting theme: "why was it only the Scottish Banks who needed the Government bailout" playing here. Trying to avoid obvious divisive comment there are some issues that warrant discussion.
It's true that after their rapid expansion from their traditional and typically north-of-the-border business base 15 years ago they had indeed become British banks regulated in London. However the parallels with Icelandic banks and Iceland are inescapable: smaller banks with the possibility to be more flexible and move faster came under aggressive management teams and expanded recklessly beyond their competence and capital base making several overpriced acquisitions along the way which destroyed shareholder value but boosted management status. (eg RBS?s recent contested acquisition of ABN Amro for considerably more that the whole of RBS is now worth).
Barclays and HSBC (which used to be Midland Bank for those with longer memories) have been considerably more prudent in the last decade.
I think sadly the effects of this will bite on the call for greater independence for Scotland. The thesis that Scotland has a thriving financial sector to drive and finance its growth seems to be busted. Moreover the Iceland example shows us that the size of the population and local economy must properly limit the size of a country?s financial system. Sad for those of us who are looking for independence for Scotland.
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Where has all the trillions of pounds gone?
Is there a black hole in the Universe?
I blame the new (Labour) machine invented.
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....here's some more Government logic for you.....
The economy is deflating (like a baloon) - so what do you do as a Government?
1) Discover the source of the leak, get a patch, fix it and ensure any other 'weak' areas are looked at immediately for future breaches.
2) Do nothing - the markets will decide. If the baloon goes POP - then it was meant to be.
3) Get a bigger pump and simply pump harder.
It looks like this bunch of dullards have gone for option 3. It will save us in the short term - but I don't want to be in the country the next time this happens (which it inevitably will)
The package of measures will simply re-inflate the housing market. This is following a sucession of re-inflations since 1987, saving us all up for the 'big one' later down the line.
Nigel Lawson put it as "we have binged on credit for so long, and now we face the hangover"
.....however Darling and Brown (and all the other world capitalists) have just got another round of drinks in for us all.
Wall Street got drunk? - well now the world is drunk and sooner or later we are going to collapse in a kidney failing heap.
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On the whole this looks a good move, but one aspect should surely cause concern - the idea that lending should be restored to 2007 levels.
If this simply means interbank lending, fine.
If it means lending to businesses, it is important to ensure continued support, but the virtual certainty of recession - implying lower levels of business activity - suggests this can be achieved at far lower lending levels than 2007.
If it includes mortgage lending as well, it is plain daft. Are we going to urge first-time buyers to take the plunge in a falling market, thereby running the risk of saddling themselves with negative equity?
And if it means restoring credit card and other consumer debt to 2007 levels, it is even more daft.
If one lesson emerges with crystal clarity from this crisis, it is the compelling need to move away from the debt-fuelled binge of recent years; in short, that we should all, individually and collectively, start living within our means.
Restoring lending to the 2007 level seems to me quite absurd.
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RE: Council of Mortgage Lenders (CML). & The governments plan.
When I see statements like this from CML: 'But the plan would not fit with the picture of falling house prices and low demand, the CML says.'
Do the CML actually know what they are talking about??? Why do they think house prices are falling and there is a lack of demand?
There is a lack of demand because people cannot get a mortgage, and house prices are falling because of this. As soon as there is some confidence back, i.e. the banks start lending again, then I am sure the demand will be back, there is a shortage of housing in this country. So if this plan does encourage banks to lend again then it will have a direct effect on house price falls and demand, so I think this plan fits the picture perfectly.
I just cant believe organisations like the CML just do not see the bigger picture.
Negative comments like this, will make the problem worse. many thanks
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2007 levels. Genius.
Mr. No more boom and bust, AKA, the Great Clunking Fist strikes again.
We can all be pleased as we've just been robbed blind so that we can all go back to the process of over-inflating already over-inflating assets, to try to save a financial system that is better off dead.
It's not as if a bubble, can pop twice is it?
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Q) Why are the Americans being so slow to actually release any of their own 'bailout' funds?
A) Well, they have...;
".....set up teams to determine the best ways to buy mortgage-backed securities, acquire equity stakes in banks, identify home loans that need to be purchased, insure trouble assets, preserve homeownership, deal with the executive compensation at banks that receive capital injections and assure compliance with regulatory laws..." blah blah blah blah (and this form of words is repeated in hundreds of reports and USA government announcements)
Bur no real cash.
What is going on?
Are they waiting for Europe to bail out the mess and without feeling the pain?
How clever!
Comments?
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I am not sure that by the time you get to comment 200 and something anyone is reading it at all but here goes.
This is a disaster and not just for the taxpayer, who may/ may not make money from this "rescue plan". Severla commentators have compained about the wealth transfer from the average man to the weathy, this is at bst somewhat misleading. Your and my pension funds and small shareholdings have been BLITZED. !2% return on prefs is way too high and means that again a fundamental misjudgement has been made as small savers income funds dump shares - why because the Govt in supposedly protecting the taxpayer is taking the lion's share of the income. one reason why RBS and HBoS shares have slumped this morning.
This is massive incompetence as is the demand that banks return to overlent positions of 2007.
It is abundantly clear that with the connivance of banks and irrresponsible borrowers who mistake houses for investments that we have now brokem a successful inmdustry. Prof Congdon poinyed out on today's World at One that it is the bank's job to lend and the Government's to regulate. The latter has beem pitiful as usual focused on the wrong things. You have to look not only at credit but funding 101 in banking =solvency.
You also HAVE to ask of the management of retail banks, what on earth were they doing investing in securitised debt? Purely chasing yield and hence no better than the people that piled into Icelandic banks accounts, including the incompetent local authority treasurers.
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In the post-apocalyptic-monetary world the majority of people don't need to worry.
As long as you have skills that people will pay for then you will be OK.
The ones who need to start worrying are the socialites, the famous, the politcians and all the other useless members of society.
....so maybe that's why the Government is so keen to fix this mess - because I can't see Alistair Darling laying bricks, or being strong enough to do any manual labour.
In fact looking through the fat, lazy and weak members of parliment - I really think they are in trouble.
I'm not fussed, I can barter my skills as an electrician, carpenter or plumber in order to get food.
This is merely a case of survival of the fittest - I think it's high time we really found out who is fittest.
Sir Phillip Green harvesting crops - me thinks not......
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I am not sure that the government is capable of running the banks. The treasury put out their version of debt details last week, and there were a lot of items of government debt 'off line', or contents of the red book that are not added.. I am cartain that this can not be considered as transparent accounting. Return to 2007 lending and mortgaes??? Where is the sense in returning to what is the cause of our problems. It beggars belief, ah and now we have G Brown comparing himself to Churchill!!! Time will reveal that though the present wave has been prevented from drowning us, we have yet to see what destruction has really been done. Denying that they have presided over the biggest balance of payment deficit, increased public spending and borrowing. Don't crow too loudly Gordon, we are a long way off recovery, and you have not sorted it out by a long shot.
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147.
"Is it just me!.....or does anyone else think there's more than a passing resemblance between those two scoundrels 'Laurel and Hardy' and the great comedy duo 'Darling and Brown'?
(maybe it's just the bowler hats!)"
Looks more like Tweedle-Dum and Tweedle-Dee to me. Have you noticed how GB's eyebrows seem to be getting thicker?
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Beyond reclamation of past year bonuses mentioned in the thread above above I presume any previous honours('Sirs etc) bestowed by the Queen for 'banking related services' will be rescinded across the UK banking community in general. Preferably with a letter from her Majesty beginning 'Dear Ex-Sir, I should like to draw to your attention the current state of your bank overdraft....
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How come Robert Peston did not even understand Andrew Marr's question - "Where has all the money gone?" on 'The Andrew Marr Show' last Sunday? I can't believe he is a spokesman on finance.
After considerable thought he began to speak but even then it was obvious he had no idea and just waffled.
Even I as a novice could proffer one answer which is that the sellers of all those sub prime houses got their money from the mortgage providers. We never hear that mentioned - I wonder why.
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There are several issues/questins that will surface over the next few days.
1. Where is this money coming from exactly? How come it wasn't there for pensioners, council housing etc etc , then when the fat cats need it it magically appears. Where exactly did it come from?
2. Why is it in dollars? If it's UK money for UK banks why is it in a foreign currency? What if the exchange rates alter dramatically? What did we use to buy this foreign currency?
3. Is the taxpayer gurenteed to at least break-even over this even after inflation is accounted for? How long will it be before the money is back in the Governments (our) hands? And can we then have it spent on us please?
4. Why are these banks being 'forced' to lend at 2007 levels? Surley that will re-inflate the housing bubble and lead to more unsustainable unsecured consumer debt which was the major cause of this to start with?
5. If the banks/lending houses off-sheet borrowing is to be brought onto the books, will the Government be doing likewise (ie leading by example).
6. Can we afford to plough more cash in if this isn't enough? If so how much, for how long and from where. Already in the US, of the usd700BN plan they launched a couple of weeks back they have already pledged nearly usd800BN and it is widely believed they will reach usd1TN by the end of this month. There must be a theoretical limit to all of this otherwise money will cease to have any value in the real world once culminating point is passed. If we just keep pouring it in then surely eventually we get hyper-inflation.
7. Why were working people shafted over FarePak, but are expected to belt-tighten and dig deep for bankers?
(some diligent ones amongst you will have seen this on a previous RP blog. I posted it on an old one by mistake)
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A proposal to mobilise global 'people power' to help turn the tide of institutional panic selling on stock markets, then consume a little more to encourage the ?real economy?.
'Dare a Share November?
From being plain daft in giving loans/ All we now hear are bankers' moans/ 'We need more confidence,' they whine/ (It serves them right, some might opine.)
Some cowardly banks won't even lend/ On one another won't depend/ Sad financial institutions/ Won't invest share contributions.
All they do is sell, sell, sell/ And sell us short - our kids as well/ Jobs at risk, with social tensions/ Our futures (not to mention pensions).
Let?s stop the rot this very hour!/ Grow confidence through ?people power?!/
Shame the City?s reticence/ By showing them we have confidence!
Across the globe, as common folk/ The power of people now invoke/ For some of us have put away/ A little for a 'rainy day'.
But wait - that rainy day is NOW/ So spend a little to allow/ For each of us to BUY one share/ To show those fainthearts that we dare.
Choose any stock that takes your fancy/ (Such small investment's not too chancy,)/
Coordinated world-wide/ We?ll help to turn this 'selling' tide!
In fact, NOW is the time to BUY/ With prices low, do not be shy/
The stock could rise, gains could accrue/ One crisis over - thanks to YOU!
The ?real economy?, it?s true/ Has its own problems ? quite a few/
But we are tired of doom and gloom/ So spend a little ? let?s consume!
This doesn?t mean imprudent debt/ (We?ve seen enough to know that threat!)/
Let?s show Joe Public?s global gumption/ With conspicuous consumption.
???????????????????
Many millions of 'men and women in the street' around the developed world feel totally helpless in the current financial crisis. They feel 'let down' by their financial institutions' reluctance to lend - even to each other, despite guarantees - and also their ongoing frenzy of share selling.
The UK government should take a lead and urgently create some simple 'Dare a Share? mechanism to allow the man in the street to buy (not to sell, at least for a year) a small number of shares (even just one or two) in the stock market, persuade other countries throughout the developed world to do the same, then coordinate global publicity to highlight the opportunity, which should be timed to happen within the month of November. The very act of preparing for this could engender a feel-good factor. In the UK, and probably elsewhere in Europe, the purchase of a share or two by each willing individual would clearly be in addition to the general taxpayers' huge commitment within governments? recent financial bail-outs, but it would be felt as a much more immediate, direct and personal involvement. Probably too much to hope for, but might it even shame financiers into more positive behaviour?)
In order to encourage civilian ownership and enthusiasm, the concept would best be perceived as a spontaneous citizens' idea for raising awareness of the need for a more positive buying attitude, However, it would require official government involvement in order to arrange world-wide participation and individual payment methods. Media and internet publicity could include invitations to individual citizens to submit their own suggestions for encouraging global participation in Dare a Share November. (The poem above is just my amateur attempt, but initial creative suggestions could also be commissioned from professional copywriters, etc., in order to inspire others.)
But whatever we do ? let?s all go forward as positively as we possibly can!
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Why is everyone suprised that Broon wants lending back to 2007 levels?
With Fractional Reserve Banking the only way out of this mess is to borrow your way out.
The whole scam only works if people keep borrowing more.
I am off down the bank to borrow half a million quid from HBOS to buy an overpriced flat in Reading. Knowing full well that when I fall behind on the repayments with approaching election there is no way Gordie's new bank would reposses peoples homes.
I can then sit tight and wait for hyper inflation to wipe out my debt.
Whey hey the good times of irresponsible lending is back again! This time underwritten by the government.
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Watch what's happening in the Eastern European markets now, and other less high-profile markets and countries. This crisis will soon be switching from 'global financial' to 'geopolitical', complete with all the attendant security implications. Ukraine, Hungary, Romania ... even Poland ... all struggling to cope now. And as for Pakistan, I shudder to contemplate the course of events here.
It's amusing listening to and watching politicians trying to telling us that we're now at the beginning of the end of our problems. Deluded! We're moving into a new era for mankind, defined solely by the end of cheap energy.
Virtually all the world's woes right now, and even more so going forward, can be attributed to the end of cheap energy.
We really ain't seen nothing yet.
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Lets look at how well Brown and Darling have done today as of 14:45
HBOS deal, loss is 1.257 billion
RBS 275 million
LLOY is 83 million.
Total loss of Brown and Darlings share trading in just one day is 1.615 billion.
No bonuses for them next year.
If a trader in any bank lost 1.615 billion in one day, they would be sacked.
Perhaps Brown might like to comment?
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#237
The reason the government got rid of manufacturing is because the city fools actually though making money off the back of the movement of money was an industry.
The fact that it can only work when money is moving, was a rather large oversight on their behalf - especially now money isn't moving.
They also had to get rid of manufacturing to make more people feel that they were middle class, and therefore their allegiance was to the ruling Bourgoisie, otherwise they ran the risk of revolution in times like this.
However, their second oversight was that they killed the goose that laid the golden egg.
Now that goose lives in China / India and it is about to start popping eggs out like no tomorrow.
When China has the world at it's knees it will be able to dictate it's Marxist-Lenninist ideals to the rest of the world.
The west and any revisionists will be running scared at the thought of the most ruthless form of Communism taking over.
Who can you thank for all this? George W Bush. The man will have advanced Marxist-Lenninism further than Lennin, Stalin or Mao themselves.
Unfortunately the fool didn't realise what he was doing.
The historical way out of this problem is to start a war with the offending country to regain control of the wealth.
Unfortunately both China and India have nuclear weapons so mutual destruction would be assured.
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"RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels "
The fundamental problem is that salaries have not kept pace with prices. Salaries have stayed stagnant for years, due to:
- policies by the government
- fears by economists of an inflationary spiral
- outsourcing to cheaper countries
For the economy to be health, salaries have to be healthy too. This means people can envisage owning their own home outright in their lifetime. People have been forced into an unreasonable amount of borrowing because of low salaries.
Giving money to the banks doesn't solve the fundamental problem, it just makes people save a little longer to do exactly what they were doing in 2007 i.e living beyond their means.
Pay people the right rate; stop outsourcing; and economists should devise a new model.
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246:
Good insight and good question.
My supposition is that the US economy is far weaker than we've been led to believe. $700bn may be nowhere near enough to cope with toxic debt. Though sounding like a big number, $700bn is a lot less, pro-rata to the size of the US economy, than countries like the UK are committing.
So why isn't the US committing more funds, and actually using them? My guess is that maybe they can't. With huge amounts of US government debt owned by overseas investors (most notably in the Far East), there must be limits to how much more borrowing the US can actually obtain. Would you lend money to the US? I wouldn't.
It's not impossible to envisage a situation in which the economic recession/depression is far worse in the US, and lasts far longer, than elsewhere. Whilst most observers seem to be watching stock market indices as a barometer of economic health, I'm watching the dollar..........
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#113 - re: #12, you've previously identified your business as engines for racing cars. In a recession, demand for this kind of luxury good is likely to collapse. As such, there may be nothing that can be done to salvage your situation (other than an orderly wind-down).
Yes, I heard that said during the 90s recession. You think it's any different in mainstream UK manufacturing?? I can tell you is categorically isn't.
However there is plenty that could be done, esp by a PM so overtly and smugly (?) committed to good of his congregation, here are 2 things for example:
1. Moratorium on repossessions and foreclosures for a period of at least 6 months
2. Freezing of interest charges on loans and credit cards.
Why? Because it's completely BARMY to allow businesses to fold over the cashflow problems induced by this fiasco. Because, de facto, we are assured by Brown that the measures he is taking will reconstitute the economy. Some banks get help why not other types of business? Those measures above won't hurt the taxpayer any. All they ever did was take from people. Barmy because hundreds of firms like mine are big export earners for the UK and big spenders in the UK economy. My spend keeps other in jobs. Until this situation broke my sales turnover per-capita was higher than most multinationals, and the firm robust and profitable; think on that the next time you say 'ah but that's a luxury business'..
Why I would have to fold my firm over something I never could have foreseen, nor planned for, and certainly did not cause.
If anything could have been learned form the last recession in the 90's it is that measures can be taken which will give firms a breathing space. All it takes is the political will and ultimately that will be the mark of the man Brown.
GC
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247:
Yes. The incompetence of highly-(over)paid local authority treasurers putting money into Icelandic banks is staggering. As long ago as March, the popular press were warning how risky this was. LA money should be put into gilts, not used for speculation.
I live in one of the counties which has lost most in this debacle, but I don't think the government should bail them out. This means that council tax will rise and/or services will be cut, but that will be bearable if the idiots responsible are sacked. Ideally, we'd cancel their index-linked pensions as well!
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While I was at lunch today a small protest came past which was protesting against Capitalism and the mis-use of taxpayer money.
I was in a place frequented by bankers who were guffawing at the small number of protestors there were.
First of all this tells me that they really don't care - they couldn't give a monkeys about the problems they have caused - because in classic Thatcherism "I'm alright jack".
However I did think to myself that although the protest was small, you wait until people are starving and homeless - then you won't be laughing anymore.
Don't be fooled by the Government - there is NO REMORSE here in the city, they're all planning how to make the next killing out of the Government hand out.
Get off your backsides and get organised.
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From the Nobel laureate!!!
Ask, and you shall receive. I asked plaintively for policy makers, at least once, to exceed expectations in this crisis instead of falling short ? and it seems that the eurozone governments have delivered, more or less adopting the British plan.
And I should have given props to the British government, which vastly exceeded expectations last week ? and has effectively shown the world the way forward.
http://krugman.blogs.nytimes.com/2008/10/12/worthwhile-british-initiative/
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Clearly my comments at No 5 have hit a nerve, otherwise they'd be published.
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Instead of allowing fat cats to just move from one to another and keep their steady supply of bonuses, wouldn't it be a breath of fresh air to have some ordinary people on the boards of these banks?
These people would want everything explained in clear terms (not jargonese) and wouldn't have the greed factor of bonuses to tempt them to line their own nests and stuff the tax payer.
Still no disclosure - how insulting to all of us in the 99% who know the boat is sinking but haven't got a lifeboat?
The arrogance still exists, the greed still exists.
There is a huge amount of rhetoric floating around, and smoke screens and mirrors.
Random thought - if the US hasn't put any money in, has anyone else? Perhaps they all just talk it up in the hope that they won't actually have to dip into their pockets?
We will never know unless we see balance sheets, off book debt records (they must exist somewhere) from banks and our governments.
I have never trusted any politician, nor banks (and I used to work in one!)
'My word is my bond' is a phrase that has long since lost it's validity.
BTW - remember all the banks saying they didn't need/want to take money offered by the government, and these are the same ones refuting the back to good old 2007 statement?
Or are the Treasury moles who feed Robert his info just testing that t heir supply line is still open? How on earth is Robert supposed to check the validity of the info? I'm absolutely certain that he wouldn't report it if he hadn't received it in the first place!
Don't you just feel that someone, somewhere is playing games with us? Just like that old film where the Greek gods play chess with human lives for fun......! (Jason and the Argonauts or something)
That someone is having hysterics watching us all run about like headless chickens
Oh I know, we're on a reality TV show for the Martians!
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A question:
Most financial institutions have rules and regulations stipulating that when an employee leaves that firm, then they have to sell that shareholding that was accrued as part of their benefit package. As directors have large salaries and benefits in their financial package it means they will tend to have sizable shareholdings.
Should that rule be put on hold as a temporary measure until the markets settle down?
HBOS down 26pct today
RBS down 11pct today
Lloyds down 14pct today
as at 3pm.
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246. At 2:25pm on 13 Oct 2008, englishjoe wrote:
Q) Why are the Americans being so slow to actually release any of their own 'bailout' funds?
Thanks to procrastination, the US taxpayer has saved a lot of money.
Brown came along with a better idea and application...
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1} Buddhaman
I couldn't agree with you more.
I was feeling quite confident that at last they had got some grip on stemming the tide but when I heard this my heart sank.
They just cannot leave the politics out of what is a systemic failure of a totally discredited government They should be apologising to all of us for the mess they have led us into.
Only government could have allowed this catastrophe to happen in the first place and only government can get us out.
Seeing Brown doing his Churchillian thing this mornig was scary.
It is only one day but there are many dark days ahead. No one can be triumphalist at such a time.
Trying to dictate the mortgage and lending markets in a time of recession is basically suicidal. They have to find the right level naturally.
When it reaches bottom is the right time to have the plans in place ready to reinflate the economy. Not when it's half way down.
Everyone knows there is still far too much debt which needs to be squeezed out. What this government are saying is that they will try to control this. Far too late!
Electioneering madness!
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In the country of the blind, the one eyed man is prime minister.
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and further to what I said at #261, for the less-well off EVERYTHING becomes a luxury during a recession.
GC
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So it takes massive govt intervention for the senior execs to be forced out. Have these people NO honour. They should have resigned, or been booted out, weeks ago. It ill-behoves the so called independent non-execs on the board that it did not happen before.
How has Barclays got away with it? Its PR/communications department has been putting out that it needs no new capital. This was a downright lie upon which basis people have invested in and relied on Barclays. The whole of Barclays PR department should be fired along with Diamond and Varley asap. Transparency has failed big time
I note that the new head of PR at Barcalys was the old head of PR for the Civil Service. That says it all.
We all knoiw why Barlcays did not go to the Govt in the end. Bonuses, Bonuses Bonuses. Its own; and the guarenteed pot for ex Lehman people. DO they not get that it is preceisely this that got much of the flack in the first place.
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#226 Good idea - quite right....but I doubt anyone will listen!
With 'nationalisation' of some major banks now i guess the Government can make savings by closing all the post offices!
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#244
There is a lack of demand because people cannot get a mortgage, and house prices are falling because of this.
So you're basically saying that if it wasn't for the fact that the government and banks have spent the last decade encouraging a pyramid of debt which is now so huge that even the banks don't dare lend to each other then it would be a good time to borrow even more money and buy an even more ludicrously priced house.
Pure Gordonomics.
The banks have been punished for borrowing too much money. Their execs have had their P45. Their shareholders (that's most of the staff and most people's pension schemes) have taken a real hiding. And how does Gordon Brown 'thank' the people who propped up his bubble economy by enabling the great British public to borrow themselves into penury? By driving down the price of the banks to practically zero (Shades of Railtrack) then borrowing even more money than the 330bn he's used to double national debt since 1997 to buy them at knock-down price.
Okay. The great British public won't lose too much sleep over that. Serves 'em right they'll say. Encouraging us all to get into such horrendous debt on the tails of our insanely over-valued property bubble.
But what else does he do? After punishing the banks and their execs for 'irresponsible' borrowing? He then encourages more consumer squandering by ordering the banks to lend money at the same 'irresponsible' rate that had them go bust in the first place.
It's Kafkaesque.
He berates them for 'irresponsible' behaviour despite himself having doubled national debt with spiraling defecits going into a recession. Then he practically confiscates the banks by declining to support them at a higher price, prints up another 50bn quid and orders them to start squandering that back through the system. It's only slightly more subtle than George Bush posting taxpayers rebate cheques. There you go, squander that. Prop up the economy for another few months till I get out of here.
The banks are the scapegoats here. The 'miracle economy' was just a mountain of debt encouraged by the borrower-in-chief and now it's come to an end his solution is to pour more money into the banks to try and reinflate his housing bubble.
It is economic insanity. If I were Fred Goodwin or Andy Hornby I'd just call in the receivers. They're 90% out of pocket on their shares anyway. Might as well go the whole hog.
Why would I support a government that drove the economy onto the rocks, failed to intervene in a timely fashion with money on reasonable terms and then insisted I be fired. And after spending the previous ten years basking in the glow of all that feel-good borrowed money that he'd poured into the economy and the reflected glow of all the knock-on borrowed bank money. They're more forgiving men than me.
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Last week I complained that we could not assess the impact of the bail out on the banks shares because the Government withheld the basis on which they would value the banks. This created a false market in the banks' shares. Now we know that through carefully placed leaks the values were massaged downwards to ensure that the Government gets the greatest possible proportion of the banks' equity (arise Lord Peston).
Now the Government is repeating the error by failing to say what will happen to the rights of preference share holders in the banks - more false markets and more market abuse.
Why won't the Government give out the information required to calm the markets? Why do they want to create uncertainty in the markets - are they planning another smash and grab raid on the banks?
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The situation is very like Japan in the 1980s. Rapid growth came to a halt due to market saturation and the economy collapsed. Why?
To put it simply - the banks loan money as they expect a return on their investment i.e. THEY EXPECT MORE MONEY BACK THAN THEY LOAN!
This means that money is taken out of the economy and given to the banks - of course it is hoped that the economy will grow due to the investment. If it does then the bank has more money to loan - taking even more money out of the economy as the loan is repaid.
Eventually the economy can't grow - lack of money to spend or no new markets, customers fail to earn enough to pay the loans off, the banks don't get the return on their loans and stop lending and those who have large loans oustanding are basically bankrupt. Japan hasn't recovered in 20 years so we must assume that the effects of this will take at least 20 years to recover.
Pumping money into the system will just postpone and make worse the final crash - we have already had two crashes which have been 'saved' by pumping money in - and each time the result has been a worse crash a few years later.
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I have to agree with the other posters who point
out that requiring continued lending at 2007
levels is patently absurd. Any attempt to dictate
to the market what lending levels should be,
or to try to prevent a market correction of, say,
housing prices, is like continuing to give
heroin to a junkie.
People in the US and the UK who want to
get the debt monkey off their backs will just
have to accept that collectively and, in many
cases, individually, we have made a mistake
by trying to fuel ourselves on cheap credit.
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# 247
I'm there too! 50m has just evaporated! And to think they wanted to charge me for emptying my brown topped wheelie bin!
Even more worrying is that the last time I looked at the figures, our police force also has the most committed in Iceland - I think it was about 1.1m.
So, rubbish on the streets, poll tax riots, and gang warfare?
All the events of the last few weeks begin to look more and more like a science fiction film!
Isn't it strange how everyone is using catastrophic words from other areas - biblical, climate etc. Just an off the wall comment!
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The problem with all this is that politicians, financiers, economists are in a state of panic, as are most political, financial and economic journalists.
They are desperate not to let any bank or financial institution fail because they are afraid of a repeat of 1929. In other words they are reacting, in a state of panic, to the wrong problem.
In 1929 it was the Local Economy and the people who panicked not the government and the financial institutions. The Local Economy panicked because (a) they did not have 24 hour news and so were mainly informed by word of mouth and Chinese whispers (b) they had no government guarantee on their bank deposits (c) they had lost faith in the management and probity of the banks. In 1929 it was actually rational for individuals and small businesses to withdraw money from banks that might fail rather than loose it.
Now it is Government, Economists and Global Markets that are panicking because the big institutions now longer trust the value of their own or anyone else's assets. You are not going to lend to anyone if you can not trust their balance sheet and you are not going to trust their balance sheet if you can not trust your own.
Global Economics has imploded because it was only ever based on trust and that trust is now dead. No amount of taxpayers money is going to compensate for the continuing lack of trust in corporate asset values.
Local Economics will eventually trade us all out of this mess, if and only if, it is not hampered by additional regulation and additional taxation. Throwing additional money at Global institutions is likely to reduce liquidity in Local Economics instead of increasing it.
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#249. You cannot be serious.
Begin salary inflation in order to tackle the ludicrous inflation in the housing market that we've seen over recent years?
It's tantamount to bombing Iran in order to tackle the war in Iraq.
The way to make homes and the cost of living more affordable is for house prices to fall to a sensible level and salaries to grow at the same pace as the economy (which may mean pay cuts in the short-term in order for some to keep their jobs.)
I would rather take a pay cut than my P45
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258:
Excellent analysis. It has long seemed to me that we've been turning a blind eye to the true nature of the Chinese regime, a brutal, militaristic, one-party state in which no dissent is tolerated, human rights seem virtually non-existent, and freedom of religion and freedom of expression are rigorously surpressed. The idea of Chinese economic and political dominance is a scary one, but is a logical implication of western incompetence in general and economic idiocy in particular. The Chinese see the world in competitive terms; we, in our ignorance, do not.
We need to recognise that globalisation is one-sided - anyone who has tried to export to China or India will know what I mean.
And we need a cultural shift. We need to move towards a culture of manufacturing, and of paying our way in the world. With the financial sector, hitherto the biggest generator of overseas earnings, now in deep trouble, how do we pay for imports of food, energy and manufactured goods?
We need to get away from three deep-seated, fundamentally-flawed attitudes - that manufacturing is unnecessary and beneath our dignity; that if you want it now, you can have it now, whether you can afford it or not; and that we can sustain a huge public sector irrespective of what is happening to the value-generating parts of the economy.
We have loaded huge costs and regulatory burdens onto industry, fallen for one-sided globalisation, scorned our manufacturing sector - and yet still expect it to pay for the public sector. It's time to get real.
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Post 221. Re the elite spending our money without giving us any option.
Surely you cannot have fogotten Tony Blair and Peter Mandelsons Millennium Dome.
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#236
For a clue to the source you only have to look to the top. Gordon Brown to establish credibility has said 'Trust me, I'm a son of the manse'. e.g. vicarage. Where then did he learn to cheat and lie? It was not in the Church of Scotland that I remember.
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Hey everyone, hope you're watching The House of Parliament on the BBC?
Opposition is asking all our questions for us!
It looks as though someone is reading these blogs!
There is hope of getting answers.......?
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236. At 2:08pm on 13 Oct 2008, TheresOnly1Soupey wrote:
Corrupt - or simply stupid?
I think the answer is stupid......if Brown was corrupt, he would have known that the credit bubble would fall apart and would have taken the opportunity to abandon ship along with the ships captain 2 years ago, and then watched it sink from the safe confines of the Bahamas.
That he didn't take that option, particularly in light of his "There are two types of Chancellor.." statement leaves one with the undeniable fact that he must indeed be stupid.
However, the captain of the good old "HMS New Labor", who did jump overboard just in time clearly cannot be stupid, and, given only two options in your question, must therefore be corrupt.
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The reporting on this is a bit over-complicated for my liking - I'm not sure if this is intentional? As an average Joe, here's my interpretation.
The last 10 years' of growth have largely been built on consumer debt funded by banks
When it became apparent how much bad debt there was the banks stopped lending to each other and the amount of debt available for Joe Public to borrow disappeared
This simply means there will be no growth and a probable global recession
If the banks go back to lending again (with the same processes as before), then the economy will falsely grow again fuelled by this toxic debt
This seems to me a ticking time bomb that will still eventually go pop, but not in the short term, but the consequences will be an even deeper recession than the one we would have had
For the life of me I can't work out why the Govt don't let the market do it's job now and cool off like it's supposed to. Anyone with a basic grasp of economics surely knows this????
I do wander if the Govt has secretly taken over control of the BofE again as Mervyn King has been so against cutting interest rates to support short term growth and has seemed more worried about the longer term trend of inflation - as a true economist. How long before he resigns?
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#252 queryq
Robert peston knows exactly where the money comes from (or rather how it is created out of thin air!).....but it's the subject that is not allowed to be discussed by public servant broadcasters on any official media website.
Pssst! - It's the line they have to toe for being in the 'establishment' club. Don't tell anyone else though. Mums the word!
Google 'Money as debt' to find out more.
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Post 253 Red Lenin some very valid points. Not from my political perspective but hey live and let live.
To answer your question re why Gordon Brown rescued the banks it is simple in that some of them are run by his mates. Conveniently some of them are also his experts on business and he appointed a number of them to Quangos.
Apparently Gordon Brown even suggested the merger of Lloyds and HBOS to them in mid September during a late night meeting.
As to Farepak I doubt very much many of their members were close personal friends of Gordon Brown.
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So the government is now arbitrarily setting risk management policy for these banks with one eye on the politics. And, as few people probably want to take out mortgages right now how can the banks maintain levels of lending made at levels from the height of the market - and at what rates?
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286
"For the life of me I can't work out why the Govt don't let the market do it's job now and cool off like it's supposed to. Anyone with a basic grasp of economics surely knows this????"
Yup - but you're forgetting: Gordon comes up for election in 18 months and this package will probably keep things ticking over nicely until then....
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OMG! The world is saved!
Well done to Darling Gordon for generally excellent financial leadership.
Perhaps the optimism will last beyond the day's end, but here's the big question:
Will the banks REALLY co-operate in ungumming the financial system?
So far, the last year has seen them behaving more like medieval moneychangers or Hanseatic city states.
Since their balance sheets were (allegedly) so desperately in need of refinance, are they now about to do a backflip and start lending again?
Are LIBORs falling? I hope so. If not, then this optimism will soon evaporate and we'll all be the weaker for it.
Fingers and toes crossed.
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#279 - "In 1929 it was the Local Economy and the people who panicked not the government and the financial institutions."
No it jolly well wasn't!
Not if you're referring to the Wall St Crash. According to the Pecora Commission that was set up by Senate in 1932 to investigate same blame was firmly laid on bankers and stockbrokers.
The Great Depression? Well watch the recession we're in now after a Crash of even greater magnitude. Watch history repeat/unfold...
GC
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Post 274 re why don't the banks just call in the receivers?
I would imagine that because all of the senior directors have large shareholdings and that 10% of GBP 10 million is still worth holding on to. If, or when, the share price recovers what is worth GBP 1 million today could well be worth GBP 5 million in five years time.
Also if they go quietly and keep quiet after a while they will get another job just like Gordon's new best friend Lord Mandelson.
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This comment was removed because the moderators found it broke the House Rules.
Presumably if Lloyds TSB, HBOS and RBS are going to lend at 2007 levels that will ease the slowing down of the growth of the money supply or even reverse its contraction, as other institutions are going to reduce their lending.
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#263, see #62.
Its is because they are insulated by the notion their pre-credit crunch wealth will protect them from being hurt financially.
Also because the current crisis is seen as a huge opportunity to do "business as normal" but with large pots of our/government money.
The ethics and morals around the rescue plan are perverse, regardless of how "necessary" the various aspects of the government bailouts are.
There needs to be the Uk's most severe and wide ranging public enquiry when the dust settles. Otherwise to those bankers tittering at the protests in London this will have been a bit of a 'difficult' October....
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Gordon Brown wants banks [as a condition of 37 billion injection of public monry ] to return to pre credit crunch mortgage lending levels , in order to prop up the unaffordable housing credulity bubble ,thus ensuring that banks will not return to solvency in the short or medium term or ever fot that matter
Later laws will be passed to stop moneys from those exiting housing bubbles from transfering receipts abroad
At 37 billion it will be the most expensive fig leaf to cover inflated digits,ever produced
Or to put it anotherway[ha] ,government wants to continue inflating the credit bubble to infinity and beyond .
The purpose of the bail out is to save Labours sorry AAA's[and the value of MP' S declining London residences] before the next e[]ection
Tracker rates are being phazed out [like the titanic] and will be replaced with large spread rate differences between BOE rates and bank mortgage rates .
A good plan to inject capital into banks [Nouriel Roubinis idea anyway]is being used by Gordon to save Labours credibility by hiding its sins of omission .
A fig leaf to cover Freek sophistries ,whilst blaming Mrs Thatcher when it was Labour stewhardship that allowed the most ludicrous lending criteria in the history of modern banking [120%ninja].
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So we're now paying 50bn for the privilege of being able to say 'WE'RE ANGRY'!!!!!!!
Ain't life grand!
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An alternative glossary to all the acronyms floating around:
LIBOR Low Incomes Bail Out Rich
HBOS Has Brown Opened Safe?
RBS Relax, Britain's Saved
TSB Taxpayers Subsidise Brown
FSA Frittering Savings Away
CDS Confused Darling Surrenders
LLOYDS Labour Lemmings Offer Your
FTSE Forget Total Sumission - Emigrate
MPC
IMF
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Here's a pertinent thought.
"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."
Lord Acton 1834 - 1902
You may remember a couple more of his writings.
?The one pervading evil of democracy is the tyranny of the majority, or rather of that party, not always the majority, that succeeds, by force or fraud, in carrying elections."
"The danger is not that a particular class is unfit to govern. every class is unfit to govern."
"There is no error so monstrous that it fails to find defenders among the ablest men."
And his most well remembered phrase, forever after known as Lord Acton's dictum
?And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that. All power corrupts; absolute power corrupts absolutely.?
Writings from around one hundred and fifty years ago.
Makes you think, doesn't it?
Lankidden
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Today's a technical rebounce of the global bourses from the past 3 weeks of meltdown.
The financial crisis may be arrested by the G7 goverments just yet. The result is left to be seen in the next few weeks in the banking industry.
But the world's economics crisis still remain in view of the rising US unemployment figures which impair the ability to pay and spend for housings among other things for instance.
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Can I ask a simple question? With all this talk of borrowing - who has the money?
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The BBC censors are deleting comments referring to Michael Howard's letter to the FSA asking for an investigation of Robert Peston's reporting of market-sensitive information. Why is this?
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An alternative glossary to all the acronyms floating around:
LIBOR Low Incomes Bail Out Rich
HBOS Has Brown Opened Safe?
RBS Relax, Britain's Saved!!
TSB Taxpayers Subsidise Brown
FSA Frittering Savings Away
CDS Confused Darling Surrenders
LLOYDS Lessons Learned Over Years Duly Scrapped
FTSE Forget Total Sumission - Emigrate
IMF Imaginary Money Found
You get the drift. You've got to laugh, if it weren't so serious!!
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Where do all this money come from?
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At last, some sense from a government tragically addicted to thatcherite economics!
BUT, and it's a very big BUT, these spivs and charlatans posing as bankers should be sacked for gross misconduct and sent packing without a penny of MY money. Now that they are state owned they should be on civil service rates of pay, no stupid nonsense of "performance related pay" and the same 2.5% limit on public sector pay rises which is "all that can be afforded" - yeah right.
Granted my MP has a gold plated parliamentary pension (so why should he worry?) - but right now if he pays off these robber barons who have been systematically looting our society he will be joining them at the next election.
Perhaps then the so-called Labour government will have closed down the tax havens, stopped non-doms getting away with paying less tax than their cleaners etc. etc. etc. etc.
And please don't fall for this tosh that "they will decamp to Mumbai and Dubai" if we don't pay them kings' ransoms. As if the Arabs and Indians would be so daft ...
Not a penny more for the bank robbers!!!
Duncan Stewart
Henllan, Denbighshire, Wales
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I wouldn't concentrate too much on what a Nobel Laureate's in Economics opinion on Brown and Darling response to the crisis is as it is too early to say: these are the same people that created the financial models which created the mess we are in now.
One such case is Robert C. Merton and Myron Scholes won the prize in 1997 for "a new method to determine the value of derivatives." which is pricing options - complex financial instruments spun off from traditional investments (sounds familiar?).
After they won the Nobel in Economics for their wonderful theories, their hedge went spectacularly bust in 1998, lost $4.6 billion and was bailed out by the US government.
The US Federal Reserve got banks and other organisations to pump money into the system so that there was enough liquidity for the banking system to survive.
Even people (like Friedrich Hayek) who have received the Nobel for Economics have subsequently said that had his opinion been consulted, he would ?have decidedly advised against? its creation.
Read France 24's page on this:
http://www.france24.com/en/20081013-nobel-prize-economics-abolish-hayek-stockholm&navi=ECONOMIE
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#253
Its in dollars because thats what they will need to repay the CDS loans from Lehmans, Fannie May, Freddie Mac etc which have become due (there's more later). Also needed to repay sovereign wealth funds etc who want out of UK.
The lending to be at 1997 levels is Gordspeak and VERY hot air. Not only can't the potential borrowers raise 25% deposit, the banks won't have any money because they have spent it all on the above repayments. If it was just about UK mortgage over-lending, there wouldn't be a big problem. The reason excessive USA and UK mortgages are being blamed is to avoid Govt taking blame as it appears that house purchasers were mostly to blame this way.
Whilst the market liked todays news, they may not do over next few days and weeks when more repayments become due.
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Stock markets go up, up and up, but what does it mean?
Does it mean that we have created a 5.xx% more sustainable, safe, healthy and fulfilling life for everyone today?
I don't think so!
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I definitely think this was needed and the right thing to have done and in some ways am proud of our government taking the initiative and setting an example for the world.
One thing raised on here though that I hadn't thought of really grates and that is the reference to Farepak and the double standards implied. I think it's a very sorry state of affairs that we can all pull together to (rightly) save the Finance Industry but couldn't pull our fingers out to bail out the (mostly) poor who lost their Christmas savings through misselling and poor management.
And as for those still going on about fractional reserve banking on here, get over it, we're not going back to the dark ages.
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You know what!.......this Fractional Reserve Banking system thing reminds me a bit of that Jim Carrey movie 'The Truman Show'......except with the FRB system it's not just one person living in a fictitious environment......it's mass populations that are being duped by the FRAUD that is the FRB system.
WAKE UP EVERYBODY!
It's the real reason why Gordy is creating yet more and more debt (payable from our taxes) to throw at propping up this corrupt banking empire. If he didn't do it, the inevitable ensuing collapse would mean the lie wouldn't be able to be perpetuated and the 'cat would be out of the bag'.
He have some explaining to do then....and then some...
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#240 Warrenden
You say you "think the effects of this will bite on the call for greater independence for Scotland. The thesis that Scotland has a thriving financial sector to drive and finance its growth seems to be busted. "
Couldn't disagree more. If you look at Norway they've certainly had a hiccup but they will come out the other side with their oil fund and their now extensive high tech industry intact. Scotland will come out of it with a couple of banks severely weakened by Brown's policies, still no oil fund and not a lot of high tech industry.
However, lets be honest about this. Even pre credit crunch the Scottish financial sector was of little real benefit to us. It didn't invest much here and despite a couple of the biggest banks on the planet being based in Edinburgh our company birth rate was pathetic due to the lack of availability of risk equity capital.
The Treasury and the City have a lot to answer for but for me their record only makes me more convinced that we need to get out from under their malevolent influence and do our own thing.
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#252:
"Where has all the money gone? ... the sellers of all those sub prime houses got their money from the mortgage providers. We never hear that mentioned - I wonder why."
Yes, I wonder why this has been so quickly forgotten. OK, our banks had lent far, far too much, but what tipped them into a domino-like chain of insolvencies were the write-downs on the American CDSs, the derivatives that concealed the sub-prime motrgages.
What is also noteworthy, if hardly surprising, is how the American problems seem to be regarded as our own. No mention of the fact that it has been another country that has shafted ours. As I said earlier, the Americans flogged their opaque derivatives over here for huge amounts of money. Our banks were idiots to buy them ... but when someone sells a dodgy financial product and someone else buys it, who is most culpable??
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Well done boohoousa (#227) and roddymccorley (#264) for spotting that today's announcement for Nobel prize-winner for Economics, Paul Krugman, is also wondering in the New York Times "Has Gordon Brown, the British prime minister, saved the world financial system?"
I knew the name rang a bell. So I just looked back at Professor Paul Collier's landmark book The Bottom Billion. Sure enough, Professor Krugman is one of the key thinkers explaining agglomeration or clustering - the economics of why places like China and India have suddenly exploded in growth in manufacturing. In fact, the way Collier tells the story, the middle four billion of the world have experienced unprecedented growth since 1980 - to the very great benefit of the poor in those countries. We don't hear nearly enough about that. One of the great tragedies of another 'Great Depression' would surely be dashing the hopes of such hard-working people who have only recently experienced such good things, worldwide.
So when Krugman praises Gordon Brown so highly today, I take it extremely seriously.
And it brings to mind another expert, from a rather different field: Andy McNab. The SAS commander of the ill-fated Bravo Two Zero team behind the lines in Iraq in 1990 makes this key point: great leadership is shown more than anything by what you do when everyone under you knows that you've just cocked things up something rotten.
I think it might do us all good to salute our Prime Minister today on exactly that basis!
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one last desperate throw of the dice by numpty boy to keep his job.
Trying to maintain borrowing at 2007 levels is a best reckless........
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Every decision GB has made during any crisis has been a bad one. But this time it's different?
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#276 - Weejonnie
You do realise that this analysis only works if the 'money the Bank's take out of the system' in the form of interest, just stays locked up in their vaults don't you?
As that interest forms part of their profits, from which are paid:
1) Dividends - which go to their shareholders who either spend it themselves, or pay out to pension holders for them to spend it;
2) Corporation Tax - worth billions a year from the Banks
3) Yes - salaries and bonuses for their employees
this money isn't taken out of the system as you seem to suggest, but is recycled back into the economy.
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Do have a look at the 'explanation' at the Lloyds TSB website (see http://www.lloydstsb.com/government_intervention.asp?link=container3) - which manages to make it sounds as if Lloyds is doing the taxpayer a favour...
For goodness sakes, banks, you will NEVER recover a measure of the confidence of either investors, depositors or borrowers until you say, clearly and unequivocally, "We made this mess, sorry".
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I still have one question when
Ireland guarantees all bank deposits ($563 billion dollars of exposure)
France increases bank deposit insurance (exposure unknown)
Danish government guarantees all bank deposits ($6.5 billion dollars of exposure)
Norway guarantees bank deposits up to $330.000
UAE guarantees all bank deposits ($13 billion dollars of exposure)
Germany guarantees all bank deposits ($549 billion dollars of exposure)
Portugal guarantees bank deposits ($28 billion dollars of exposure)
Australia guarantees all bank deposits (exposure unknown)
Spain increases deposit guarantees (exposure unknown)
UK increases bank deposits (exposure unknown)
New Zealand guarantees all bank deposits (exposure unknown)
EU guarantees interbank lending in unlimited amounts
EU raises bank insurance limits by 100% (but still only $68,000 per account)
UK plans to take majority stake in RBS and big holdings in Lloyds, TSB, HBOS, and Barclays ($60 billion dollars)
And the US? $1.5 - $2 trillion total cost for the next year.
And so on...
The question is: Where will this money come from?
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I'm one of those irresponsible buy-to-let landlords that everyone hates. Of course i thought i was being entrepreneurial, improving britain's lousy dated housing stock with a bit of development and renting to young professionals who weren't yet ready to buy. And i always put at least 20-25% down, which is the norm for buy2lets. Not everyone took 125% mortgages on unbuilt birmingham city centre flats.
Now i realise that i and those like me, are responsible for the mess we all find ourselves in through my blatant profiteering in what i thought was a long-term investment. My naivity in assuming that the banks had shown some due dilligence in their practises and were profiting from my business is very clear to me now. Fellow bloggers appear to be taking great pleasure in the demise of myself and my fellow instigators. Please accept my humble apologies.
Clearly, i have a vested interest, but i'm unsure what everyone has to gain from houseprices dropping to their so called natural levels... whatever that means... given that such a level is presumably linked to affordability and therefore tied not just to wages, cost of living etc but of course prevailing interest rates. Strikes me, that not just the perpetrators such as myself, but the majority of houseowners will suffer pretty badly if we drop to mid 90's prices.
In reality houseprices in the capital have already fallen from their peak by 25%, possibly more if you actually want to sell your home. How bad do people want it to get? I suspect there is some merit in trying to arrest the collapse in house prices beyond just the blatant electioneering it is portrayed as.
Given that the size of this debt we are bailing out has a direct correlation to the falling value of the assets they are tied to, there is an argument for trying to soften those falls. If that doesn't happen to some degree it won't just be me handing back the keys to my properties. It might be your house i'm squatting in, whilst you're fighting for site space in the new boom industy of camping.
I have just bought a field, to cover that eventuality and as i'm not a man to hold grudges will welcome your business. Whilst i see this as offering a service, in 25 years time i expect to hear (by pigeon post presumably) of the how the irresponsible behaviour of rachmanite camp site owners has led to the next great drama in british economic and social history
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Step 1: Borrow money.
Step 2: ?
Step 3: Profit!
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If this works then the next step is for there to be an inquiry held as to how it really developed and not rely on assumptions made by politicians blaming it on the US is a joke.
Certainly Politicians on all sides have screwed up, save the Liberals Vince Cable.
The Regulator has been overwhelmned and the primary control zone i.e the Bank of England has been handicapped through consultations with those who haven't a clue i.e The FSA and Government.
We need a clear out of bank mnanagement as to keep them in their respective positions is insane and send the sign that failure pays. Lets face it no other conclusion could be made.
Finaly we need a complete cessation of the ridiculous rhetoric coming from all sides. The public may not all have Oxbridge qualifications or speak with a shed load of plums in their mouths, but teh one thing the public has is common sense and can smell a rat or a con or total bull 10 miles off!!
Prudence and co have shown a total disregard for the public and the sooner they too take the honourable line and retire off the stage the better fo us all.
To leave the same incompetants who created this mess stiill running the show is a total insult to all our intelligence!!
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This seems to me that the titanic is going down and it's only the bougeiose being invited onto the half full lifeboats.
This wont avert recession.
What about the rest of the country?
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My my - isn't everyone a bit gloomy here?
Some people seem intent on talking themselve into a depression - both economically and mentally!
Let's be honest about all of this:
1) Did de-regulation under the Thatcher administration in the 1980's set all this in change?
Well - yes, it would probably one of the primer movers in so far as Britain is concerned. There is at least an arguable case that an environment of greater regulation could have avoided this debacle.
2) Is Gordon Brown responsible for this mess?
Well - partly. This IS a global issue, but it was NOT unforeseen. The Government could have (and clearly should have) taken steps to limit the problems developing in UK Banks. One has to suspect that the tax receipts coming into the treasury coffers from credit funded spending may have blinded them to the reality of the situation.
3) So, are the Banks mainly to blame?
Again, partly yes. Whilst this the trigger for the crises was the collapse of the US housing market, clearly the lending rules were far too lax in this country as well ? 110% mortgagees ? ?self-certificated? mortgages?
4) Right, so it?s all Thatch, Gordo and the Bank?s fault then?
I?m afraid not. It?s your fault to. Did the Bank put a gun to your head and force you to take out a mortgage at 6 x your salary? Did they put you in an arm lock until you signed the papers to purchase your ?buy-to-let? investment? Did they creep into your bedroom at night and whisper in your ear until you decided to take out a home owner loan to fund that holiday in Bali? And finally, did they lobotomise you so that you could no longer work out that the ridiculous increase in house prices over the last few years was unsustainable and fantasy land?
We are where we are. In the circumstances, the Government plan is as good as we could hope for and it will probably stave off a complete economic collapse. However, we are in for a recession and the next couple of years will be difficult and painful ? but we will get through it, and in a 3 or 4 years time, the worst will be over and the economy will be ticking along nicely (growing at about 2% p.a.). The Banks will be making profits again and the government will be able to sell off their shares for a tidy little profit to the taxpayer.
Always look on the bright side of life.
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At 00:50am on 13 Oct 2008, neoGrandad wrote:
Good morning Mr Peston
Please stop being such a pessimist in your reports, it's frightening the horses.
Re: "the Treasury will underwrite the shares, thus providing certainty that that the bank will get its money."
Seems to me to be an excelent retail buying opportunity this morning"
And at 15:30pm on 13 Oct 2008, wrote:
There we go, 8% profit on FTSE today. a whole years bond profit in one day. Lovely.
Can we have some positive comments now please?
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Re : Comment #3
As co-owner of a small business which approached half-a-dozen banks last year for investment under the Government-backed Small Firms Loan Guarantee Scheme, I am very sceptical as to whether any of the taxpayers' bailout of banks will ever reach companies like mine.
SFLGS is supposed to be intended for existing and start-up businesses that have exhausted their own available funds and those of their families, fiends, and private investors. You can (in theory at any rate) take out a loan for up to £250,000 with the Government underwriting 80% leaving the lending bank's exposure at no more than £50k.
Despite all the banks we approached congratulating us on the quality of our business plan and the "enormous potential" of our business we were rejected on each & every occasion. Every one of the banks told us that if we could match the £250,000 with a similar amount from an outside investor the SFLGS would be granted. This is a flagrant breach of the rules as directed by the Government.
I can only say that it is my strong belief that none of the money in this bailout that is supposedly earmarked for small businesses will ever reach its its intended destination.
The time, energy, and bureaucratic wrangling you have to go through to challenge an SFLGS decision is quite frankly mind-numbing and generally futile - that is, unless you have some more influential voices backing you up (for example, a major media organisation...).
So, should the BBC decide to get behind a small business and follow their quest for bank funding in this brave new banking world, we would be more than happy to take that role on.
With luck, we would get a positive result and the funding we need. But at the very least, we would have the chance to show the banks for what they really are to so many businesses and individuals - greedy, duplicitous, and manipulative of every rule in the book in order to serve their own ends.
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#319 - Steinsvala
"...where does the money come from?"
It comes from Government borrowing.
The Governments of the countries you list will issue Treasury Bonds to the money markets - who may be unwilling to lend money to the Bank, but are more sanguine about lending it to major western countries (on the grounds that - Iceland notwithstanding - they are not likely to go bankrupt and so the lenders will get their money back (+ interest))/
The UK Government is using this money in 2 ways:
1. It's investing in some of the Banks (and hoping to eventually get it's money back and so repay their own borrowing)
2. Lending it to the Bank's - and (I hope!) charging interest on it at a higher rate than they are paying on the money they have just borrowed.
We might just end up making money on this deal!
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I only wonder how much money is left in the coffers for when the recession actually hits?
Me thinks not enough!
Anyway, recession is a natural process of capitalism. Gets rid of bad blood etc. Delay tactics will only cause a bigger drop and a hader fall and thus a deeper depression. MT had it right. Don't interfere - let the process roll out naturally. It's only business. How many homes for the homeless could £37bn build, or schools or houses, or youth clubs.
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I feel the BBC is not reporting this RBS injection of funds correctly. From the "Post" this morning on the London stock exchange RBS are to first ask their share holders to fund this required injection of funds in the form of a rights issue. Its incorrect at this point in time to assume that the Gov. will be the biggest share holder. When rights issues like this in the past have been issued the market price of their shares usually settles down 0-10% below the asking price. After issue the price usually goes up quite sharply. From what I have seen today I feel the existing shareholders will support this rights issue the Gov. will be lucky to get their hands on over 50% particually when the banks are pledged to buy back, as soon as possible, the preferance shares the Gov. are taking. They are getting a bargan!
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What's wrong with returning the housing market to 2007 levels quickly? I need to sell my house bought at inflated prices in 2007 (with a hefty deposit I might add - hard earnt). So you think I and others in the same situation should take the loss on the chin?
What needs to happen is for risky lending to be curbed, that's all.
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The Treasury statement says
"maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels".
Robert has reworded that as:
"RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels - which is massively more than they are currently lending (this is hugely significant - given that a shortage of credit is to a large extent behind the economy's deceleration into recession levels);"
Many have called for clarification of that statement. I haven't seen any clarification.
However many seem to think that this implies a return to 2007's madness. This does not need to be the case.
If over each of the next three years Lloyds, RBS and HBOS lent the same amount as Lloyds, RBS and HBOS did in 2007 it does not mean a return to 6x interest only 110% mortgages.
Firstly 2007 was a year of two halves in lending terms. It will average out below 2007 madness.
Secondly some of the big 2007 players are no longer actively involved (Lehman, GMAC, Northern Rock, Bradford and Bingley). The Treasury statement has not said that the newly part nationalised banks have to replace their lending.
Thirdly Northern Rock and B&B are going to be actively trying to get borrowers to go elsewhere so they can wind down thier books. Most of this is good lending that can be taken over by Lloyds HBOS RBS. This will count as advancing new money.
Without looking at the detailed numbers I can therefore suuggest that these banks can do the same amount of lending as they did in 2007 without lending at silly multiples of income, without going above a genuinely prudent LTV and without over reflating the bubble, infact with house prices continuing to fall.
So what this clause may do (subject to finding out what it really means) is prevent the morgage market drying up completely, as it has threatened to over recent weeks as bank hoard cash, even for those who want to borrow sensibly, and possibly stop an over correction in the market. It may also stop competitors jacking up inerest rates and fees on remortgaging when your discount period comes to an end as Lloyds, HBOS rbs will be supplying capacity to the market.
Therefore the statement that look daft when first read may actually be sensible.
It just depends what it really means.
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324.
Actually I love the analogy that you can talk yourself into a depression. It's a nice way to divert attention from the real culprits.
Try getting drunk just by talking about beer.
Recessions and depressions happen when the banks turn off the credit taps, and the money supply contracts.
Right now, the banks aren't lending, because of the multitudes of black holes in their balance but mostly off-balance sheets.
Until those holes are repaired, they won't lend, no matter what Gordon says, they won't be able to, as deprecating assets and unwinding debts suck all of the money out of the system.
The depression (and we will count ourselves lucky if that's indeed all we suffer) will last exactly as long as this process takes. Which with the many trillions of debt and complex derivatives etc lurking out there in the ether, this will probably take some years.
The current credit driven, debt based, fractional reserve financial system creates depression and recession as a by-product of its normal functioning.
Talking about it, understanding it, is the first step and the only chance we have got of changing it.
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#292
...and further to that, the enquiry also put in several measures to prevent it happening again, seperating investment and retail banks, the uptick rule and other legislation.
The same legislation that banks have been crying out that 'it's too restrictive' and ever since then have been eroded and removed by sucessive Governments.
Imagine if the AA decided that seatbelts were no