RBS to stay private?
Whisper it softly, but there's just a chance that Royal Bank of Scotland won't be nationalised after all.
Its shares have been lifted this morning on the wave of global stock-market euphoria to around 70p, a margin above the 65.5p price being paid by the government.
At that level, it would be rational for RBS's existing shareholders to exercise their right to buy the new shares and "deprive" taxpayers of this investment.
After all, if apples - or RBS shares - can be bought from the orchard at 65.5p when the market price is 70p, you'd be a fool not to buy in the orchard, even if you plan to dump them almost immediately in the market rather than hold them.
Which means that if RBS's share price were to stay at this level or rise, the state's stake in RBS might turn out to be far less than the 60% that taxpayers would own if we bought all the new stock.
The big imponderable is how much spare cash is available to our battered pension funds and whether some cash-rich overseas investors might be tempted to buy - because the £15bn that RBS needs is a lot of wonga.
But the important point is that, for all its hideous booboos, RBS is a fearsome moneymaking machine. And its new chief executive, Stephen Hester, has a formidable record of sorting out complex financial problems (which he demonstrated from his time at Abbey).
So private-sector investors might just conclude that this is too attractive an opportunity to leave for taxpayers.
Whatever happens, RBS will still be lumbered with paying off £5bn of preference shares which we as taxpayers are buying willy nilly.
Hester didn't want these but he's lumbered with paying the 12% coupon and ceasing dividend payments on all ordinary shares till the £5bn has been repaid.
That said, it's all looking a lot less bleak than Hester might have feared yesterday.
Hester may find himself running a bank that can claim with conviction that it's still largely in the private sector.
And that's all the more humiliating for HBOS, whose shares have also risen this morning but remain firmly below the subscription price being paid by HM Treasury.
What is it about HBOS, owner of the Halifax, that makes it less attractive to investors than RBS?
It's our viciously deflating residential housing market, to which the fortunes of this market-leading mortgage lender are inextricably linked.
Probably almost nothing can prevent us as taxpayers becoming the full or partial owners of the three mortgage lenders most closely associated with the bubble years in UK residential housing.
Soon we'll have the full set of Northern Rock, Bradford & Bingley and HBOS - which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise.
UPDATE, 04:00 PM: The wobble in Lloyds TSB's share price, down again today in a rising market, will be giving the jitters to the bank's board.
Its shareholders don't seem to like the Treasury's insistence that no dividends can be paid till all the prefs sold to the state are paid off.
The merged Lloyds/HBOS would have to pay off some £4bn of the prefs before it's dividends as usual for the group's ordinary shareholders. And that could perhaps take a couple of years.
But if Lloyds weren't to buy HBOS, it would have only £1bn of prefs to pay off.
So some shareholders may well be wondering whether Lloyds should press ahead with the takeover.
If the prime minister wants the takeover to go ahead - and he seems very keen on it - he may well have to instruct the Treasury to waive the requirement to cease all dividend payments to holders of the ordinary shares.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~22~RS~)
Comments
Sign in or register to comment.
No one is talking about Lloyds TSB then
Complain about this comment
You're right about the housing bubble effect Robert. And yes things look a little better today for 'our' banks and the global banking system but let's not get too excited about a few days of glee here. There's much to be sorted out yet.
Complain about this comment
Don't always agree with what you write or how you sometimes present the issues, but 100% agree with your conclusion as to whose really to blame for this mess. Only I would re-qualify what you say and more acurately describe it as a 'credit bubble'.
Massive failure of macroeconomic policy and financial regulation.
As the chief excec at RBS did yesterday and fell on his sword, so should the real architect of this failure, Mr G Brown should do the honorouble thing and tender his own resignation.
Complain about this comment
I wonder if Alex Salmond has any cash in the coffers. His dream of an independant Scotland isn't going to look too good if he has no Scottish banks left.....
Complain about this comment
So a month ago we were told that the competition rules would be waived so that Lloyds could rescue HBOS, leaving them with 30%+ of the UK market.
How come this is still being allowed to go ahead - we have just recapitalised HBOS ourselves and it appears we had to do the same with Lloyds TSB? It seems to me the height of cheek that Lloyds then reduces its offer for HBOS by 25% and still gets dominance of the market
Complain about this comment
Ah.. so not all the banks' fault then? Would this be the housing market that GB is trying to force banks to lend to?
Complain about this comment
RBS staying private is all well and good, but... When the next Economic Tsunami comes along - and that could be in days or weeks, with CDO's CDS and other derivatives, plus a new wave of exotic equity withdrawal mortgages due for renegotiation they could find themselves back to square one.
Complain about this comment
So Thanks to the share price rise, external finance will buy up the shares, then dump them immediately take the profit and start a run on RBS.
What hope now for RBS. The government will then need to step in and buy up all the shares and completely nationalise RBS.
The law of unintended consequences rules over a poorly thought out government decision again.
Complain about this comment
Market reaction just shows you what would have happened if government had guaranteed depositors money in the first place!!
Depositors interests are not being fully recognised by the "great" BBC. In the end they are the most important interest in a bank.
Long live savers and investors.
Complain about this comment
I've been wondering recently what impact the BoE targeting the RPI as the measure of inflation versus the CPI would have been to the housing bubble?
Would interest rates have been historically higher to act as a damper on rising housing costs?
Complain about this comment
Now HM Gov't is a venture capitalist. Who'd have thought it? Maybe they should be asknig for additional warrants with their prefs in RBS and a bigger coupon than 12% in arrears.
Warren Buffett did with his $5bn Goldman investment by asking for a 10% discount for cash upfront.
Complain about this comment
It is interesting then, that the PM and Chancellor are basking in the limelight of the rescue when it seems they have been the stewards in charge as things got out of control. The bubble was predicted a long time ago and no one listened. Additionally this short term market bounce will not stop the upcoming recession hopefully only reducing its depth and longevity.
Complain about this comment
bear market rally; the shares are unlikely to hold above 65.5p until the end of November.
too many downside risks at the moment to the stock market.
+
logic.
as a shareholder you are faced with 90% losses in one year in RBS. To 'average' down you could participate in this buyback. Your average would still be several times the current shareprice. i.e. well underwater.
The rational thing to do it stop chasing your loss and accept the dilution and wait 10+ years for the shareprice to get back to where you need it to be to break even.
Complain about this comment
Bradford & Bingley.
Buy the Shares and then the Gov't will nationalize it anyway.
More Plunder for Dr Brown, I mean Dr Beeching, um no Mr Brown!
Sorry just having 50 year flashbacks.
Complain about this comment
well said offshorebanker haven't heard much about the countries which guaranteed depositors needing bank bailouts.The problem is that the run on banks is by mouse if 5% of deposits moved to Ireland then that is the£40bn the banks needed.Why did they not want to give the guarantees, they clearly couldn't understand the numbers as Icelandic banks proved.The current solution pronts more money can't be ideal.Hats off to the underwriting wheeze is this the hand again of the governor?
Complain about this comment
Lets hope so as it will save us tax payers from paying for them twice. Once by the government in our name, and for the second time when they sell them back to us like they did with British Gas, Electric and BT
Complain about this comment
Robert,
Just because a company's ordinary shares are trading above the strike price for a rights issue doesn't make it rational for existing investors to take up the rights.
The investors can sell the nil paid rights they receive, or let them lapse and receive the lapse proceeds. This money compensates them for the difference between the market price and the strike price. Essentially the decision depends on whether existing investors are prepated to stump up more money to avoid their stake in the company being diluted.
Complain about this comment
Hey, now that is actually a hint of some good news for a change. Hope it happens. I'd like to see Royal Bank Of Scotland re-emerge as a separate entity. Its good to see those grand traditional institutions standing on their own feet. It inspires a bit of much needed reassurance and confidence iin the Banking System.
I suspect the Lloyds/TSB/Cheltenham&Glos/ScottishWidows/Halifax/BirminghamMidshires/UncleTomCobbly conglomerate might need some further sorting out and separation in the fullness of time. Scottish Widows in particular, would be better standing alone, as it doesn't sit so well with all the other companies Lloyds has hoovered up. Scottish Widows seems to be a different type of business.
Complain about this comment
Shows, doesn't it, that if your 'free markets' are insufficiently regulated and you, er 'interefere' in them, extraordinary chaos follows.
I always thought Brown was looking he wrong way. He likes to come across so clever but compared with the people in the stockmarket, he's the very novice he condemned last week! Those guys know how to make money at every turn don't they?! All GB knows is how to spend it.
The only ones getting rich in this are who?
Meanwhile the UK economy is on its knees and staying there.
Ho Hum, what next guys? China to buy UK PLC?
GC
Complain about this comment
"which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise."
Robert, wasn't it our great leader, Gordon Brown, who altered the Bank of England's MPC target in 2003-12 to CPI, thereby excluding the cost of housing?
And doesn't Brown appoint about half the "independent" MPC, the same MPC that uniquely over-ruled the Governor in 2005-08 to introduce a rate cut just when the house market was showing signs of cooling which triggered another couple of years of boom?
Instead of boom and bust we've had boom followed by boom followed by boom. Now we've a long run of busts to come.
Complain about this comment
Well done Robert, another scoop. I sincerely hope the tax payer will be well rewarded for this most generous of bail outs, sorry rescue plan.
Complain about this comment
What I find funny is the comments that Gordon Brown is responsible for this global economic crisis, so is Gordon to blame for the USA's problems, Iceland's, Germany's, France's, Japan's, Spain's... people are forgetting this is a global issue... In fact he seems to be the only person who has provided a satisfactory and workable solution to this 'Global' problem. We can trace the cause of this problem right back to the development of the 'new' & 'free' banking system created by Mrs Thatcher and her cronie at the time Mr Regan!
Complain about this comment
#12
They [Brown/Darling] might have been on the watch but the design of the fiscal system was at fault, just like the Titanic with it's faulty water-tight bulkheads and to few life boats, yes the captain allowed the ship to collide with the iceberg but that was (on it's own) didn't cause the death of 1500 odd people. Sorry but the blame has to lie with the designer of the fiscal system, Thatcher.
This has been a systemic failure of the banking system and not just an economy or regulation failure, just because something isn't out-lawed it doesn't mean that bankers should have left common sense and due diligence in the wine bars of Canary Wharf...
Complain about this comment
As I understand it RBS didn't have the same degree of exposure to toxic mortgages that HBOS has. RBS's problems stem squarely from Fred Goodwin's folly in paying way over the odds for ABN-Amro just as the credit crunch began to bite. That left the balance sheet too stretched to cope when the credit markets dried up. RBS should get through this OK although it will be chastened and humbled.
Complain about this comment
The mistake was to create new banks, NR et al, which had to compete with existing traditional banks in the high street and then not regulate them. The trad banks held the bulk of the market and were not prepared to let it go easily. The new bank shareholders demanded growth which could only come from increasingly unsound lending. The government enjoyed the incomes and popularity of a 5 year property boom. The opium of the masses. The necessary regulation controls where not put in place. We now are relying on the very parties involved, the banks, the FSA and the government to sort the problem with our money. Now they want to start up the fairgound attraction again and are talking up the housing market, get the opium to the masses again. Why, because there is nothing else, the City shrinking shows the total lack of strategic ecomonic thinking. Why am I underwhelmed.
Complain about this comment
"I will not let house prices get out of control" - Gordon Brown at the start of his reign as chancellor. Together with "No more boom and bust" its clear who the culprit is.
Complain about this comment
The Government must be insane if they expect shareholders to invest without something in return and lets face it, they tax us 20% on the Dividend, Capital Gains Tax unless we spread bet (they will close that loophole for sure soon) and then without any real justification, nationalise the business. To make it doubly worse, the opposition is sitting back and letting them get away with it without so much as a whisper of objection. 10 out of 10 to Barclays for trying to go it alone and I really hope they succeed but how many large investors are going to trust the motives of UK Government?
Complain about this comment
"Soon we'll have the full set of Northern Rock, Bradford & Bingley and HBOS - which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise."
And as NR sells of its good loans and is left with the dross and BandB becomes a basket case with every passing day the possibility of the government of Gordon Brown ending up with a stonking great loss to add to the £3bn that has already been moved to equity in the bank gets bigger every day. No wonder he would like another housing boom,preferably before it all comes out in the open.
Complain about this comment
Hmm, no catastrophic failures at the FSA then. Strange ..
Complain about this comment
Shouldn't it be Mervyn King's head on the platter now?
Complain about this comment
At last! You are reporting the facts in a more balanced way. Why did it take you 24 hours to realise that the government 'bail-out' was open to shareholders to decide. If much of the money can be raised on the market, your jubilant reporting of the humiliation of the banks will look rather stupid, which is what I think it was. I would like your reports better, if they were more factual and less gloating.
Complain about this comment
Robert,
(or more sensibly anyone from NR on this site), could you confirm if theres any truth in the rumour that every member of Northern Rock staff will be getting 50pc of salary as a performance bonus over the next two years?
50PC?
Complain about this comment
I am a shareholder in RBS, and I am thinking of buying in to the new capital raising.
What I think is interesting in this is how the government has insisted that RBS needs more and more and more capital. The number kept going up through out last week. You would think they were trying to get it to a number where the private sector would be unable to provide it - maybe that was the game.
Step back and think rationally about this. As Peston says, RBS is a money making machine par excellence. It has been short of capital but this latest injection will mean its Tier One ratio rises to 9%. 9%!! So you would have to believe there's some desperately bad news still to come out of RBS for it to be in trouble.
If the funding crisis starts to abate - and under near worldwide government guarantees it should - then RBS could end up awash with capital. For a business capable of generating £9bn of cash per annum, paying back the pref shares is not that much of an issue.
RBS is oversold, surely, and the share price will recover at some stage (if I knew exactly when then I would already be in the Bahamas). So provided the share price stays in a reasonable place over the next couple of months I don't see why I want the government taking all the upside.
Unless the shares stay stuck way below the rights offer price, I'll be taking up my rights and I hope many others will follow. Otherwise I'm nationalised on the cheap!
Complain about this comment
I think the cavalry in the form of existing shareholders is unlikely to be attracted. After all, this company which we were assured 'made £10bn' last year and didn't need to raise extra capital, then raised a wholly insufficient £12bn at £2 a share. 6 months later they are worth approximately 67p.
Having burned all 8 fingers and both thumbs to just above the elbows, picking apples down the orchard may be a tad unappealing!
Complain about this comment
Can someone out there help me with this? I have heard vague mention here and there(and only in mumbled asides) of the idea of the UK being in a worse state to weather this particular economic storm than most other European countries yet no-one that I've heard in the mainstream media talk about it. It makes sense to me that since we have so much debt -personal as well as public- and since our house prices were/are so inflated we are in a bad way to handle this. And yet Gordon Brown seems to have been able to strut his stuff as saviour of the known world without anyone bringing this up? Why?
Complain about this comment
....wave of global stock-market euphoria..
since when a relief rally in a bear market 'euphoria'?
...how much spare cash is available to our battered pension funds ...
its a global market. buyers are likely to be people with cash? who might they be? think far east.
....for all its hideous booboos, RBS is a fearsome moneymaking machine....
all the banks would have gone to the wall if central banks had not taken their mortgage backed assets for bonds? So banks now playing we are still masters of the universe card is ridiculous.
...near-catastrophic failure of macro-economic management by Bank of England and Treasury ..
and no responsibility on your mates to follow sound business models?
its clear there is an agenda in these blogs. The only people this 'reporting' will fool is the financially illiterate. which are cheap and easy victories?
Complain about this comment
All these comments about guaranteeing savers' deposits are miles off-beat - the reason people haven't been talking about it is because it's pretty irrelevant. All it served to do in the countries it was implemented in was to prevent a run on the banks.
The government was sensible not to give the guarantee - Ireland's guarantee was worth more than its annual GDP! How were they ever going to pay if it was called on. To guarantee deposits would have been pure irresponsibility in the guise of populism by the government. Nothin like £40bn moved to Irish banks in any case.
In fact, the way to save the banks (and the rest of us) was the move to guarantee interbank lending.
Whilst GB must shoulder the blame for getting us here, the UK government has responded as well as, if not better than, any other national government to this crisis.
Credit where credit's due.
Complain about this comment
No one in their right mind, and certainly not the banks' shareholders, would wish to have the government anywhere near their businesses if they could possibly avoid it. It's the kiss of death!
Until some real sense has been knocked into the crazy UK housing market, a major destination for bank funds, and a major source of bank profits, has virtually dried up.
Until normal, creditworthy people -- nurses, firemen, teachers, shop assitants, ... -- can afford to put a roof of their own over their heads and also repay their mortgages without getting hopelessly into debt elsewhere, no reputable bank is going to lend a penny for house purchase.
House prices mustn't fall further: they must collapse. Until they do, renting is the only practical alternative, but the UK rental market is too primitive to be a viable long-term solution.
For all those budding economists, market inefficiency lies at the root of the problem. There were two: acute inefficiencies in the housing market, and gross inefficiencies in the market for money. There are plenty of people, thanks to Dan Kahneman and many others, who understand this phenomenon. Alas, not many people are listening, so they continue to live in agony. Ultimately we get what we pay for!
Complain about this comment
#5 oritteropo
I'm struggling with the Llyoyds / HBOS deal too!
Why should Lloyds now pay less for a significantly more capitalised proposition (recapitalised by you and me) than they had offered when it was wrecked?
Also what are they using to "buy" HBOS? The money the taxpayer has just "given" them?
So are we in effect just "gifting" HBOS to LLoyds, or paying to strengthen HBOS and then giving it away at firesale prices - To a company that needs handouts itself?!
Complain about this comment
Spot on Robert (again).
HBOS is a complete basket case that will simply destroy shareholder value for Lloyds TSB. What on earth is the justification to Lloyds TSB shareholders for this daft deal now? Get it over with Gordon and place all the former building society failures on the government's books. HMG can then bail out over stretched homebuyers in a co-ordinated manner.
RBS is a very different case. Sir Fred was over keen with the ABN Amro purchase, but this is a great banking business - the cutting edge of commercial banking - and should stay private. The government wouldn't have a clue what to do with such a complex international business, so leave it to the private sector. Hopefully more investors will agree - as the share price suggests.
Complain about this comment
RBOS owns the Ulster Bank, 20% of the Irish problem, and it is quite a problem. The Irish government has declared deposits in Irish Banks safe for 2 years, ie a RBOS liability on top of the toxic stuff.
The whole thing is a Nantucket sleighride and still in progress.
Too much hot air still coming out from interested parties, still swerving saying what the situation is.
The carpet at number 10 has so much swept under it that you need steps to get onto it.
As for Brown leading the way, looks to me that it has more to do with Warren Buffets move on GS being copied than anything original.
Complain about this comment
We should always have had a stake in the banks - if they're so strategically important.
Complain about this comment
Brown is unbelievable he says that RBS and HBOS/Lloyds need to resume lending at 2007 levels. In today's Times the CML said this would be a stupid thing to do. Doesn't look like Brown has learnt anything. The exact cause of this problem is because of un-restrained lending which he is now ordering to resume. It looks like he is throwing away this country's future for his re-election bid based on house price rises for ever. I notice that Mervyn King has not been visible recently, does anybody know waht happened to him?
Complain about this comment
"But the important point is that, for all its hideous booboos, RBS is a fearsome moneymaking machine."
Wouldnt RBS (along with all the other banks) be bankrupt without central banks intervention over recent weeks?
Also, wasnt it a "moneymaking machine" precisely because it was lending recklessly. Northern Rock was a moneymaking machine until last year!
With 99pc of people realising theres a recession and tightening their belts, house prices falling and lending criteria getting stricter, no bank is going to make the money it did in 2007 again for a while yet.
Complain about this comment
All that rubbish about house price inflation being caused by a property shortage... hah! Finally everyone sees that house prices are linked to what the mortgage companies are prepared to lend buyers, and mortgage salespeople on commission will lend to people who can't afford it, companies will allow 6x, 7x income, 120% LTV, to gain market share... when will we get some regulation to prevent this happening again?
Complain about this comment
AS many have said, this is not the end of this crunch (which will lead at least to recession) - its merely the beginning - with that in mind, I'll give these shares an almighty bodyswerve (as the writedowns will increase) if its all the same to you.
Complain about this comment
'... allow house prices to rise and rise and rise etc'
Why should it surprise us that our socialist government of the past decade or so was happy to see us proletariat getting something for nothing?
Don't forget that Gordon Brown's hallmark during his time in government has been to shower us, the huddled masses, with 'free gifts', treating the central bank's and taxpayers' money as his own. Allowing the housing market to bubble was just another tool in his kitbox for being able to say 'Aren't I the most clever and wonderful politician ever to have graced these shores ....?'
Er, it's now a gone a bit wrong as far as I can see. Remind me again just how much money we now have to find (God knows where from) over the coming decade or two just to get us back to Go.
Gordon Brown has played a leading role in ruining this country; please don't forget that.
Complain about this comment
Paul42 thinks Alex Salmond's dream of an independant Scotland isn't going to look too good if he has no Scottish banks left.....
If you want to be realistic about this then ask yourself the question as to how it is that despite Scotland having two of the largest and most profitable banks on the planet based in Edinburgh the company birth rate in Scotland is pathetically low and report after report has said the main cause is a lack of risk equity capital.
So in effect the "Scottish" banks are pretty much disconnected from the real needs of the Scottish economy.
Complain about this comment
Now hang on a minute! Before we get too carried away let's not forget that there were (and still are) strong fundamentals of supply and demand driving house prices. Surprisingly few people here borrowed more than 95% to fund their purchases, while many more were borrowing far less.
This is totally different to the US market where a) building land is easily available; b) shockingly badly built houses were being sold to jobless people at vast profit; c) deferred mortgages of up to 125% were being offered in HUGE quantity.
Here there is still a dramatic shortage of housing, particularly since large-scale building has all but stopped recently.
I strongly believe that as banks start to lend at more normal rates and funding levels again the housing market in the UK will stabilise very quickly.
Yes, the market overheated, but if the banks hadn't caught a cold from their exposure in the US then the UK market would probably just have paused for a while until salaries caught up...
Complain about this comment
I think we have all, over the last few days -
become a bit more
- 'PESTON-MYSTIC.'
"FOR INSTANCE .!"
I found myself proclaiming yesterday, :
"That no matter how laudable the sentiments of Angela Merkel "
(About Banks future major dealing commodity being TRUST . .)
will it be so easy to achieve, after the years of TOXIC and Cancerous mistrust, due to the foolhardy Game of OLD MAID that the Banks have played .?"
(This was slightly embarrassing, as I was in the checkout queue of NETTO's at the time . .)
Complain about this comment
Like several of your contributors, I am an RBS shareholder with every intention of fully taking up my offered quota of shares.
I am greatly encouraged by the knowledge that so many RBS shares are currently the possession of major funds, with capital at their disposal. If even a small percentage of these funds support a new - and impressively qualified - management, the governement will rapidly find itself in a minority position as shareholder.
A turnaround of more than seven per cent, from the assumed share take-up of zero, ( and where on earth did THAT come from?) will reduce the government to being a minority shareholder, and will secure the independence of RBS.
The preference shares will be bought back inside eighteen months. Profits alone should secure that, and, if they don't, the sale of non-core assets will fill in any shortfall. Eventually, the government will be able to sell its minority stake, at a profit, and the taxpayer will be a net gainer.
For the long-term investor, buying shares at today's price, and supplementing the stake by taking up rights in November, must be a really attractive option - and, I suspect, progressively more funds and private investors will appreciate that, and buy, pushing the share price higher in the weeks ahead.
Clear out the mess at RBS and there remains, intrinsically, a robust international bank. This will possibly be appreciated by a bidder - and many banks, surely, are closely examining the RBS situation. The first rumour of a bid will further enhance today's depressed share price.
RBS shareholders: hang on in there.
Complain about this comment
Clearly the LLoyds/HBOS deal has been allowed to proceed by the government due to serious lending requirements that have been attached.
One minute Darling is saying that they will not interfer commercially and the next he is saying that the banks have to commit to the lending levels of 2007. This is social engineering surely? So we have a government that is forcing a commercial bank to lend at levels which were unsustainable? And to who? House buyers? They have fallen for the no bust scam before and now have huge mortgages taken out at interest rates of less than 5%. I just do not see how this is going to work without massive manipulation. Aaahhh so that is it. Let the UK go into recession this forces down prices and therefore inflation which gives credibility to reducing interest rates (no talk of sability now just the need to boost the economy). This makes mortgages more affordable and voila!
Only problem is that it will not happen overnight and so politically not good as labour need a quick fix before the next election. Not sure where this is going to come from as there is not spare money for increases in public spending to keep people employed.
All in all it's pretty gloomy.
Complain about this comment
typical the rich get richer by the funding of a government that is blinkered to only seeing what they want to see.
banks have been given too much lea way in recent years to squander there resources get into trouble and expect to be bailed out with out repocussion, rbs etc all owe a duty towards the taxpayers of this country and becouse of this governments miss handling of the situation they may well get away with daylight robbery.
well if the crisis worsens and they faulter again i think they should be allowed to sink in to the mess they helped create.
Complain about this comment
Hmm I'm not convinced that the government is to blame here. The mortgage market consisted of, on the one hand, willing borrowers and, on the other, willing lenders. Sure, the amounts involved were silly but was it really government's role to intervene and say "We know both parties want to enter into this agreement but we're going to stop it because we know best."? Had they done so, it's a fair bet that the likes of this blog would have been full of complaints about the "nanny state" - and probably by much the same people who are now complaining that the government did not intervene.
Complain about this comment
35. bright-eyedwendym
Because our press is either corporate or state owned. And the state and corporate power want you to go back to sleep again. Their feathers were starting to ruffle for a few minutes back then, they thought you all might wake up.
You didn't think we had a free press did you?
Complain about this comment
This is looking more and more like a global pump and dump scheme - get the governments to throw a bit of money in, desperation rebuilds the old wobbly house of cards and there is a sell off and down it goes again.
There seems to be the hope that if we can get share prices back to there previous completely untenable levels - now everyone knows about the pyramid selling - that all will be OK.
Are house prices going to shoot up worldwide to support this dream.
No - but massive inflation might help.
Complain about this comment
28-skynine:
"Soon we'll have the full set of Northern Rock, Bradford & Bingley and HBOS"
So the UK will soon be one huge council estate.
Complain about this comment
Have you noticed Declan Curry has 100th of the comments on his blog that Robert Peston does. He really is the "face of the credit crunch", isnt he.
Sometimes Declan gets 0!
Whatll happen when its resolved?
Complain about this comment
Robert,
I do not want Alastiar and Gordon replacing Butch and Sundance as the the most notorious bank robbers of all time.
As a shareholder and will certainly be taking up my rights assuming on my own workings we will probably be offered approximately 1.4 shares for every share we already own. I believe in the upside over the medium term and can not believe that the Pref shares will not be paid off asap allowing for a resumption in divided payments.
Shareholders who wish to maintain their level of interest might like to also consider buying shares should the share price go below the the issue price if it happens again. I was tempted yesterday at 50p but have a few cash flow problems with the Icelandic banks at present.
Complain about this comment
I'm not sure about the way RP explains the housing 'bubble'. Let me give 2 examples, one in London W6 and the other in Leicester LE2.
A medium sized Victorian terrace house just off the Fulham Palace Road bought in 1957 for £3750. At the time Fulham was a typical 'working class' area. 50 years later the house sells for £575,000 - with plenty of work needed. During the 50 years there have been several surges in value or 'bubbles'. However the average increase per year was £11,425.
In Leicester LE2, a medium sized detached house in a leafy edge of city location bought for £140,000 in 1989 now valued at £375,000. Call it 20 years to take account of the market. The average increase per year is £11,750. Again during that 20 years there have been value 'bubbles'.
Also, I do understand that little is selling at the moment so values are suspect but this is all to illustrate a point.
Which is?
Over the medium and long term I think the market works for housing asset values. Concentrating on the short term gives a distorted view out of which can arise poor policy decisions.
Finally, just a thought.
It may be that Building Societies are the best way to finance housing, they are more rooted in real money.
Complain about this comment
"if apples - or RBS shares - can be bought from the orchard at 65.5p when the market price is 70p, you'd be a fool not to buy in the orchard"
Well there must be lot of fools in out in the market today then. For a few hours now they've been paying over the odds.
Complain about this comment
#23 If "Thatchers system" was so flawed why is it Brown and co have basked in the glory of said system for 10 years instead of putting reforms in place so our banks did not get in such a mess?
He accepted the boom and revelled in it now it is time he joins the ranks of the Banks CEO's and falls on his sword.
Complain about this comment
"which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise."
And yet the Aussie Gov't is still injecting A$10bn (as of today) into the system to prop-up the over-valued Australian property market to keep house prices rising.
Sooner or later that mother-of-all housing bubble is going to bust. When it happens, Kevin Rudd and the RBA will be similarly accountable.
Complain about this comment
Robert,
Stop wasting our time with these reports. Your reporting, whilst interesting is like re-painting the hallway during an earthquake.
We don't even know if there will be a financial system in the next 10 years - that's for China and the Arabs to decide.
The economic fundamentals of the western economies are based on sand. They simply don't make logical sense.
Surely this is what you need to be reporting on - or are you like everyone else and your eyes start glazing over when you read economic theory?
Typical - the human race dies out because no-one could be bothered to find out if they were being told the truth or not.
You all deserve what's coming to you...
Complain about this comment
Gordon may have sold the plan to the rest of the world but it was the Irish government who came up with the fundamental idea. Not only did they guarantee deposits but also the bank's commercial paper, going straight to the root of the confidence problem. Condemned as absurd by some, e.g. Will Hutton, and praised as innovative by others.
But how come HM government can buy the banks without the need for additional legislation ? Did they take the necessary powers in the Northern Rock Bill ?
Another question is why did it take so long for the confidence problem to be addressed ? A group of banks could have got together as a 'lending co-operative', given each other the necessary reassurances. Or is this too simple ? Or uncompetitive ? Not much competition between nationalised banks.
Complain about this comment
35 bright eyed
You are very hopeful if you think that Emperor Brown will come to the balcony and say anything other than he singlehandedly has saved the world. Or that everybody else has been told not to rock the boat. Or that the opposition will want to be the only negative voice in an immediate threat situation and get shouted down by the mob as jeremiahs.
'You can fool some of the people all of the time and those are the ones you should concentrate on'... George W Bush.
The level of debt is higher per head of UK poulation than any other country in the EU, The main income generating sector in the UK is the City, all else has be sacrificed and any voice questioning this policy has been ridiculed for decades and had the City held up as a shining example. Now the City has to shrink there is not a lot to take its place.
If you destroy your technological edge all you have is a cheap labour market and labour is always cheaper elsewhere, usually in a country where social services are not provided, health and safety is not legislated, and taxation is lower, and the graduates are educated in this country.
The main problem is the level of individual and national debt which will dampen down economic activity. Countries without these problems are better placed than the UK, eg France, which the IMF do not reckon is due to enter recession at present and have cheaper wine and cheaper housing. Hmm.
The problems are worse here than elsewhere, the US may be in bad shape but it does not have the tax burden of the UK and historically is more resilient. Additionally the US is more interested in recovery than inflation, whereas the UK is historically more interested in controlling inflation than recovery. Inflation at 5+%, up to 8+% for some groups means UK interest rates will not drop much.
Greenspan in the US reckons that the recovery of the US housing market is essential for the US economy, as the UK is unfortunately in a similar situation the same is probably true here so the siren song is already starting to get the UK housing market going again for short term objectives. The danger is going around the loop again.
The government is schizophrenic - on one hand it wants to put quaker style banking in place and blame the bankers and on the other it wants to maintain 2007 lending and push for a housing market recovery. At the same time it wants to say it stays out of the marketplace. There is no such animal as a free market, and regulation is the responsibility of government. It is this sort of dysfunction that created to this stiuation in the first case. Despite what all the Brownies want to say.
Complain about this comment
55 maroon3
I think the media is an orifice which passes all understanding.
Complain about this comment
The devil takes a hand in what is done in haste.
Complain about this comment
Robert Peston I am still confused about whether there is enough money to cover the "toxic debt" that I assume to be in the form of derivatives including CDS that has yet to kick in.
As this seems to potentially be a much larger amount of money would the governments have to buy it and bluntly, as we go into a recession, would there be the money to cover it?
Its assumed we would make money as with some of the "Scandic model" but I assume that ain't necessarily so.
Complain about this comment
So we had privatisation.
Now the potentially hugely profitable Banks are being Nationalised, robbing the small shareholders.
Later when profits magically return, we will have privatisation, again.
One way to impose a windfall tax on the entire middleclass and all pensioners.
Mr Brown is a very creative accountant.
Complain about this comment
Many people have commented that the banks will be forced to lend at 2007 levels by the Government in return for a capital injection - the commentators view being that this is effectively like trying to put a fire out with petrol.
In reality, what I think you will find is that the banks will have money to lend, and will provide that in various forms of fixed rate mortgages, personal loans, and more importantly finance facilities to businesses - the main fact which every one has missed is that the lending criteria will be much tighter. for instance mortage lending will be capped at 3.5 x salary, with the max loan to value being 85%.
As an equity investor in small businesses what I have seen on a too frequent basis recently is that banks (RBS in particular) have been unilaterally reducing company working capital facilities, such as overdrafts and invoice discounting. This has a major knock on effect on companies as they have to curtail trading to stay operating within their bank facilities.
Hopefully with the Buffet inspired banking solution being enacted we should see a return to sensible banking, that would not seem out of place 10 years ago.
Complain about this comment
Banks that have screwed themselves have very little sympathy from this poster.
So I'm a bit puzzled as to why anybody, as opposed to the Government, would particularly want to 'invest' more money in these entities.
Because even amongst the banks, some are actually very well managed, e.g. HSBC and JPMorganChase and therefore much more deserving candidates for investment purposes than these thinly disguised basket-cases.
Complain about this comment
62 mkdon
You are wasting your time trying to have rationale about accountability some people just do not want it.
Complain about this comment
Contrary to the barely decipherable rants of most posters on this page, the problem did not start in the UK and will not stop here.
We did not sell "sub-prime" mortgages here, very few banks lent at 125% LTV ratios, like the americans did, and prior to the last few months there had been very few foreclosures in the UK.
Granted, property has been massively overvalued here for some time, but that is as much to do with the fact that we are chronically overpopulated as it is to do with cheap credit. A property slowdown was always inevitable, but a crash was not - at least until the sub-prime crisis tipped of a credit squeeze across the globe.
Don't let the idiots on this page convince you that the UK housing market is responsible for today's troubles - the US housing market is primarily to blame.
Oh, and by the way, I am thoroughly sick of all the "I told you so" merchants on here. please - 1 poster point me to a pre-August '07 blog where they 'warned' GB of this crisis?
Complain about this comment
Hi Rob,
I don't know how you can lump the BofE in with the failures at the Treasury and the FSA. I think Mervyn King is doing a stirling job in the face of 'easy money' critics.
In case you didn't know, financial instutions are regulated by the FSA (not the BofE)
It was not the BofE's job to regulate the mortage market. Their soul mandate is to watch inflation, which they were doing as well as possible until they were recently bounced into a rate cut - which was avery bad idea btw.
So Rob the failures in this case are the FSA and the Treasury. Please get your facts straight.
Complain about this comment
Of course the government must share some of the blame (mainly for its consistently uncritical attitude to free markets and everything private) but there is something a bit desperate in the way that pundits are avoiding putting responsibility where it truly lies - the market system itself. The history of capitalism is one of boom and bust, exuberance and panics. The action of individuals in markets may be rational, but collectively they produce chaos. It's in the nature of the beast. As others have said, no-one forced the banks to lend far too much to risky borrowers, especially in the buy-to-let market. It wasn't governments who invented packaging dodgy debts and selling them on. Yes, they should have stopped it - but imagine the howls of outrage if they had tried to! Not least from the free-market cheerleaders in the media, who are now so ready to point the finger at the authorities.
Complain about this comment
69 thegangofone
There is plenty of money still in the world, china and the oil rich States of the middle east, Russia is oil rich. It can be borrowed from anywhere at the right price, indirect ownership of the country, nothing new. How much do you want and how much have you to sell sir. That is what Iceland is up to. Could have a Russian airbase here too if things got real bad. What luck.
Complain about this comment
Robert
All of this just goes to show how little political or government control there is over the financial sector, plus the tremendous lack of understanding by the man on the street, for if the man on the street had the slightest inkling of what is going on, joe public would have been all over government like a bad rash one or two years ago.
The fundamental flaws in the system is that the rules were written by bankers, for bankers and endorsed by governments, (presumably on the advice of full time senior treasury officials, because I doubt few politicians would understand what these rules are, or what they mean.) and these rules have been broken.
I can see no reason why anyone would want to buy RBS shares, other than to make a smash and grab profit. Have a look at what you get for your money if you do buy shares. Shaky capital growth, probable loss, and in all probability, no yield for at least the next 12 months. Compare that to government bonds, stable capital, so no growth, but no loss either, yield 4.5%ish. That strikes me as a safer and more profitable proposition. My point is strengthened further by the overall overnight appreciation of equities. Huge amounts of money is now going into shares where the yield is positivity suspect in many sectors. The reason? short, fast profit. The markets are not stable yet, and it may be some time before they are. Who in their right mind would take on board a bank that has failed and in all probability failed to follow the rules, and wont be paying out a divi?
I reckon RBS will have to go ahead with the government rescue. But those conditions laid down by the chancellor aren't going to cut it. He wants nationalised banks to lend at 2007 rates. He is of course joking. The CML yesterday said in a press release that the treasury condition is aspirational. That means they are not going to do it, aspirational in this context could mean anything, other than its not going to happen now, tomorrow, next week or next month. The chancellor can jump up and down all he likes, he has bought an expensive bank that will not comply with the conditions of sale.
Complain about this comment
Re #48 Wee-Scamp.
My comment was a bit tongue-in-cheek!
Your point about the disconnect between the 2 Scottish banks and company birth is well made though. I think employment (and the economy) in Scotland is overly dominated by these 2 banks.
I think Scotland (and the whole of the UK for that matter) needs to try to build a more balanced, self-sufficient economy. Not just one based on Finance and Service industries.
Complain about this comment
""which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise.""
Spot on Mr Peston and this is what Brown and the Labour Party must remain accountable for.
Complain about this comment
Apollo McQueen (No.32).
NR staff bonus is not 50pc of salary. It's 50p.
Complain about this comment
76 JaneB
I know what you are saying but the brutal fact is there is no proven system other than capitalism and it is undoubtedly a powerful mechanism. If you have capitalism the challenge is to control it through marketplace regulation, there is no other mechanism, otherwise the planet is stripped bare and we all die like bacteria. Bacteria replicate until the reach the boundaries of their environment and die in their suffocated in their own byproduct. The issue is control of the marketplace.
Complain about this comment
What has or is going to happen to all the 'toxic debt' that the banks and lending institutions have lumbered themselves with ? It's fine, in the short term, to pump (tax payers) money into the system but surely the underlying fact is that there are some horrendous amounts of money that will or may have to be written off, and that the monetary system will have to be re-regulated so that the 'capitalist banking system' can once again work. Probably most of the debt is totally worthless anyway !!!
Complain about this comment
The main culprit in the UK is good ol Gordon, and anyone who disagrees needs to give their head a shake.
The UK should have experienced a recession/slowdown in 2001ish, at the same time that there were slowdowns in the EU and the USA. What got Gordon out of the hole then was consumer spending - and guess what it was funded by debt.
He did the right thing by making the BoE independant, but limited the BoE to overseeing a tightly defined form of inflation, whilst removing the BoE's banking oversight and giving it to the FSA.
He ramped up government spending, and massively increased the number of state sector employees thereby increasing the % of the electorate that were dependant upon his largese for their livlihood.
To ensure that the rest of the electorate were happy and would continue to vote him in, he lulled us all into thinking he had banished boom and bust, and we could therefore stretch our mortgage to buy the house we wanted - as we wouldn't see a house price crash again.
At the same time he has fleeced us with taxation - both companies and individuals, to the point where any company with overseas operations is looking to relocate overseas to reduce its tax burden.
Therefore, this labour government has now put in place the largest ever public sector debt exposure, which gets massively worse when you factor in state pension liabilities, at the same time as government tax revenues are about to dry up due to recession, companies relocating abroad, and because the man in the street cannot pay any more in tax.
Complain about this comment
The BBC News Channel is still, of course, bringing up stock market prices every so often but seems to have stopped bringing up banking share prices.
Policy decision?
Complain about this comment
'But the important point is that, for all its hideous booboos, RBS is a fearsome moneymaking machine.'
....Moneymaking machine for whom?
It would appear that each new day simply presents you with a new blank sheet with which to report the days financial news on without having to be consistent (in any way)with any of your previous blogs or conclusions.
I'd be sacked if I worked on that basis.
PESTON....don't treat us as fools!
Complain about this comment
Fractional Reserve Banking and the Money Multiplier...
Some of you seem to be wondering where all this money is going to come from...
I'll tell you...
They are going to "borrow it into existence". The government are going to go to... The Bank of England and say "Mate, you couldn't lend me a tenner could you?". And the Bank of England is going to write "10" into the government's bank account at the BOE...
That's it. No, I'm not kidding... That is exactly where money comes from.
Here's the good bit though. That 10 then hits the regular banking system when the government spends it. It runs right into the Money Multiplier...
The (UK) banks take that 10 and loan it out around 30 times. That initial 10 becomes *300* pounds of credit in the economy... Their average "reserve ratio" is about 3% you see. That is, they have to keep 3% as reserve in case you decide to take cash out.
Well, how much are the government pledging? 50 billion?... Multiply it by 30 and you have... 1.5 trillion pounds hitting the economy... That should do *nicely*, you can never have too much money.
Can you?
Oh wait, I forgot to mention... The 1.5 trillion in additional debt this is also going to create.
Have fun.
Complain about this comment
GHBRich
'we did not sell sub-prime mortgages here'
Where do you get your facts from? Are you a Labour spin doctor in disguise?
The credit problem very much started here, and in every other wester capitalist country. The ONLY way for capitlaism to sustain growth is for the people to get further and further into debt.
I personally had an experience in this country where an IMA who was attached to an estate agent I was buying a house from - ACTIVELY ENCOURAGED ME TO LIE ABOUT THE RENTAL VALUE OF THE PROPERTY IN QUESTION.
Luckily I'm no fool and he got a short sharp shock from the back of my tongue and I went to my own broker who set me up with a BTL which is comfortably making money - even in this market.
Of course it started here - we pay commission to whoever can sell the most mortgages. The only truth in this is that (as with most things) the US did it bigger and better.
If you're looking for people to blame you will need to go back a long way - even as far as Adam Smith - the 'godfather' of economic fiction with his 'invisible hand' that works the market - yeah right.
If you wanted a fore-warning, it was everywhere. Everyone knew this was coming, but no one knew when because the banks don't tell us (or even each other) what they hold in assets.
However to make an exception - here's a couple to keep you going.
1) Capitalism WILL end someday, the economic model is unsustainable and is based on unlimited resources being available. The requirement for exponential growth will eventually lead to a collapse in the system
2) Inflation will go up, starting here and starting now. The bail-out has merely compounded this problem. The country binged on credit and has not had to pay the price yet. Brown's move has simply returned the lost gambling debts to all the casino users and they're just about to roll back in.
3) Interest rates MUST go up - in order to control the rampant inflation this will probably be in about 4 years time so you will want to get a fixed rate in about 2012
4) The Olympics will bankrupt Britain - I know that's not exactly a revelation, but it's going to kill us off.
Complain about this comment
The credit crunch – not all bad news
Because appearing on the news
Day and night in sound and vision
A man with an important mission
To explain financial gobbledegook
To us mere mortals who mistook
The intentions of bank bosses
Who seem to have made substantial losses
They’ve given out too many loans
For mobiles, cars, kitchens and homes
They’ve taken far too many gambles
Resulting in financial shambles
Robert Peston is the guy
Who can explain to you and I
The mechanics of the debt
And how world governments have let
Bankers pay themselves silly money
Which really isn’t very funny
And we cant really see the joke
And fiscal rules are up in smoke.
But taxpayers will bail them out
“that’s not fair” I hear you shout
“why should we bail out rich bankers
when they’ve behaved like total ankers”
“its for the best” says Gordon Brown
“you know I wont let you down
I will do whatever it takes
(just forget my previous mistakes)
I know I was the one in charge
And was in favour of borrowing large
But I was not the only one
And at the time it was quite fun
Blowing up a housing bubble
How was I to know the trouble
Which lay ahead of all of you
What was I supposed to do?”
Well Gordon you should have asked our Rob
Cos he’s the man who should have your job
He knows how the money works
He’d foresee where trouble lurks
Robert Peston for PM
He should be in number 10.
Complain about this comment
Has 'G Brown' made real mistakes with governance and fiscal policy? The answer in hindsight is yes.
The answer in 2005 or 2001? No.
Therein lies your answer it's only a valid response of the snapshot of time the oppinion was made. All these people on here with concrete oppinions on who to blame should have been running government or the FSA then we'd all have been saved. The fact is when the US is booming we boom. If we don't then virtually all of these critical blog's would be crying into their slowly growing asset pot's. I don't remember many journalists or blogists moaning about the rush to a huge debt based society when their housing prices went up and their jobs seemed secure.
I remember at the time that NatWest Markets were being broken up, thinking why were so many retail banks selling off their investment arms? NatWest were subsequently criticised for dealing in derivatives that they didn't understand. About that time I read a few articles in the Economist on the fact that our retail banks had sold their investment banking arms, but were now using derivatives for the investment of their retail assets. Basically retail banks were investment banks. Investment banks have a higher bankruptcy rate than the big four retail banks. I didn't understand the importance of this. Though it was a little worrying knowing that my bank was playing with my money on a risk that by 2000 it was clear NatWest didn't understand.
I read plenty of financial pages and apart from in the last year none of this was highlighted. Hey I may have missed a few articles but all you journalists and sofa geniuses clearly missed the problem. So for all you 'geniuses' to know the answer and apportion the blame is just bull. You'd cry if we didn't boom with the US and you'll cry when we bust with the US.
Fact is the US can't spend more than it earns for twelve years without some period of spending less than it earns. That is truer for Britain than anywhere else. From their policy can then change. Why aren' house prices/rent placed back on inflation rates? I couldn't care less the price of digital radio's but rising rent's or house price's hurts my pocket more than anything else. Let alone bank's leaving debt off balance books why is everyone's major cost off of Gordon's gourmet inflation pizza?
Complain about this comment
Riddle me this, Robert:
1. Shareholders take up rights
2. Shareholders immediately all sell their new shares
3. RBS share price is forced to new lows
4. RBS faces the same problem it faced at the end of last week.
Is this a plausible situation?
Complain about this comment
74 GHBRich
The press was littered with warnings about the level of debt primarily in housing, and unsustainable earnings to house value ratios. eg amongst others the CEO of Alchemy in 2005 I believe. I was not posting then.
The problem 'started' in the US. However UK housing has been overvalued at an unsustainable level and is the principle vehicle for individual debt in the UK. Most of this overvaluing occurred in the last 5 years. The whole thing would have heeled over in the UK whatever, the US just provided a catalyst and made it drastic.
Housing shortages which contribute to the supply and demand imbalance are the result of UK government policy, nothing to do with another country. The continuing argument that the problem is elsewhere, not in the UK does not help the problem being tackled here so it does not happen again.
The straightforward fact is that overvalued housing is damaging to the economy and the community. A few people benefit from it, the vast majority pay for it. Shock waves due to bubbles or bubble collapse are damaging and usually hit the innocent along with the guilty, and make investors, corporate or individual reluctant to invest.
Complain about this comment
I can't believe Gordon wants the banks to lend at 2007 levels. Sure this can only mean introducing 100% mortgages for first time buyers again, as how many first time buyers will have a 10% deposit these days? Not many, if any.
He needs to let the housing market fall by at least half rather than wasting taxpayers money trying to falsely prop it up. It will just end in even more tears in a year or 2.
In my part of the country, north-east England, ex-council houses have dropped a bit, but are still priced around £100k. The hardworking families who Gordon repeatedly says he is so concerned about are on incomes around £20-25k a year struggling to pay utility bills and have 100% mortgages that are a massive 5-6 times their incomes, is an absolutely ridiculous situation, especially for a Labour leader to have created.
He also needs cap mortgages at 90% and encourage young people to save for their 10% mortgage deposit by introducing a tax free savings scheme aimed at young, where the government say pays in 1 pound for every 10 saved by the young person. This might help stop this buy now, go bankrupt later culture that has been allowed to flourish in the last 10 years. Also school children should be taught basic money management skills as part of the national curriculum.
He also needs to get rid of student loans and tuition fees, bright teenagers leaving university saddled with £20k+ of debt is hardly the best way be start your working life, it must be awful for them. No wonder the young are spiraling into more and more debt.
If this is what boom is all about, give me bust any day.
Any young people thinking of getting a mortgage, don’t. Just rent as cheap a place as possible and save up your 10% deposit. Houses in 4/5 years time will be far cheaper than they are now. And remember a house is just bricks and mortar designed to keep the rain and cold off you, it’s not a pension or investment, as houses just sits there doing nothing.
Gordon just do all the hard working families a favor and resign.
Complain about this comment
It is a pity that we cannot sell a few hundred tons of gold to ease the tax payers burden!
Complain about this comment
I do find it very interesting when I read the comments on these blogs.....the range of opinion being matched by the range of intellectual ability.
Is this the end of capitalism - well I don't think so. Is it the end of cheap debt finance - yes it is.
Capitalism is least worst form of economic management. What is the alternative? Communism? Don't you know what happened to the communist states - they either collapsed or converted into forms of capitalism.
The era of cheap debt is gone, and good riddance. For the past 5 years banks have been taking equity risk with bank debt - i.e. overlending, and it has caught up with them. What we have to be careful is that we don't thow the baby out with the bath water. If lending tightens up too far then a depression similar to the 1930's in the USA, where GDP collapsed by 25%, is on the cards.
If managed well and responsibly debt is not an evil. It allows companies to expand, it allows people to buy houses etc etc. It is a fact of life that debt is here and here to stay.
Complain about this comment
10:40 AM "After all, if apples - or RBS shares - can be bought from the orchard at 65.5p when the market price is 70p, you'd be a fool not to buy in the orchard"
Over 3 hours later and the fools are still paying 70p in the marketplace. Some proof that RP's comments/advice don't affect markets?
Complain about this comment
Has anyone looked at the Welfare Reform Bill ?
Much more interesting than Banks !
Complain about this comment
90 Tatruth
You can ask me what I was thinking in any year but you cannot tell me what I was thinking.
I considered things were becoming unhinged in the housing market at the end of 2002, and madness was here in 2003.
And when people want to say 'we' are all at fault and have pushed this situation forward, please leave me out, I have not been part of the Mad Hatters Tea Party, I have watched it at a distance waiting for the restraint harnesses to be delivered.
Complain about this comment
...toxic debt" that I assume to be in the form of derivatives including CDS that has yet to kick in....
cds swaps are time limited and so will expire or mature in 2-5 years. so people hope we can hang on till that happens and so that debt will just 'vanish'.
The only one at the moment that has kicked in is the Lehmans one. All this guarantees to back loans to firms etc is to stop main st from going into administration and so kicking in the the other cds.
forget getting sense out of peston. he seems on his own personal power trip?
for a good explanation of cds was discussed at the time on newsnight blogs before others picked it see the james tappan interview on yorba tv. First two segments on 18th sept.
http://www.yorba.tv/archive-2008-09.htm
Complain about this comment
#88 says that it is a known fact that the Olympics will "bankrupt Britain" and "kill us off"
How can a £9bn sporting event threaten our financial security, when total government spending is over £500bn* per annum?
Even if it turns out to cost several times the estimated fee it is still a drop in the ocean.
The impact of the Olympics is overstated in my opinion.
* see Wikipedia
Complain about this comment
Capitalism will always exist in some form or another.
As long as people say 'that is my car' or 'thats my Umbrella in the stand by the door'.
The mere fact of any ownership creates capitalism.
Of course you can have civilized capitalism, or robber baron capitalism.
I think the Banks have been victims of the Robber baron form of capitalism.
Enhanced by Gov't complicity or incompetency take your pick.
Either way lots of poorer Pensioners and small investors.
Complain about this comment
95 Forgot to mention the end of high interest savings and of low inflation.
Expect a steady rise in inflation over the next five years, probably to level off at 8 percent.
Complain about this comment
#88
"1) Capitalism WILL end someday, the economic model is unsustainable and is based on unlimited resources being available. The requirement for exponential growth will eventually lead to a collapse in the system"
Not quite. Sme perspective needed here, I think,
* It depends on what you mean by "someday", "eventually" and "the system". "Eventually" could be a very long time, and if not, it may not be capitalism that causes the collapse. Catastrophic climate change and liberating technological change could perfectly well happen in a socialist or anarchist context.
* Capitalism only requires that there are UNDERUTILISED resources that can be switched into more productive use - eg agricultural workers moving to industrial employment.
* Capitalism doesn't require "exponential growth", or even growth at all. It can flourish perfectly well with no or very slow "growth" if people's expectations change - although it's true that western financial capitalism as practised today tends to assume growth is both good and essential.
* Technological change can and will vary the price and availability of resources over time so relationships between different resource types will alter, as they have since mankind first became organised into societies with writing and currency 6,000 years or so ago.
* Mankind could well make the world uninhabitable (at least for humans) before capitalism collapses - after all, it's only taken about 300 years of modern capitalism (compared with more than 100 MILLION years dinosaurs were around) to bring the world to a state where many serious people think we have changed the climate and that it is at risk of a catastrophic feedback loop.
The world would of course recover from our extinction - 10,000 or even 100,000 years for the climate to self-balance is nothing in relation to 4 billion years.
But if we are not around in 100 or 1,000 years time it won't be because capitalism per se has failed...
Complain about this comment
#21 and others
Sometimes these anti RP 'rants' are so shallow that, had they been graves, the grave would still be open!
Complain about this comment
Thatcher, Thatcher, Thatcher blah blah blah! The war will never be over!
Get real this is a combination factors:
*Bankers greed and stupid risk taking.
*Lack of the correct strong regulation by Government, splitting of BoE/FSA and narrowly targeting just inflation, as opposed to the inflation in asset prices i.e. house prices.
*Individual greed and stupidity, borrowing to much.
If Thatcher is to blame why are countries in the Eurozone also suffering. As Gordon Brown tells us this is a problem caused by the USA, ergo it cannot be the fault of Thatcher!
If the Labour Party did not agree with the system why did they not reverse it?
Gordon Brown was happy to crow when then money rolled in to pay for the employment of Diversity, Equality and ElfnSafety professionals. Not much sign of helping manufacturing (apart from increasing the legislation burden to drive companies East).
Complain about this comment
Why are politicians memories so short? I recall the Tories under Mrs Thatcher extolling the virtues of the free market, free enterprise, global economy and something very strange called 'trickle down' A image appeared on our screens of a pyramid of champagne glasses with champagne being poured from the top, with someone glibly telling us all how wonderful it was all going to be, as we would all benefit from this brave new World. We could all become shareholders, home owners, really the World was our oyster.
Reality being the rich just got richer and the poor poorer.
Mr Cameron now tells us he knew this was going to happen and its all Mr Brown's fault!!
Honestly how can Mr Brown be responsible for global economic meltdown?
If Mr Cameron had a crystal ball, why didn't he share it with all of us, or maybe he too was enjoying the fruits of Labour with house prices reaching unbelievably ridiculous levels. Many of his friends in the City wouldn't have wanted him to pull the plug on a life style they were so obviously enjoying.
I am however pleased in many ways this has happened, as the planet could not sustain the greed and growth the west have been demanding. Why each year does there have to be more and more profits, higher and higher house prices, cheaper and cheaper goods. Over the half the World is starving, dying of hunger and all we can think about is ourselves and whether we can still afford our mobile phones, our satellite dishes, meals out, new car etc etc. How sad are we??
I will vote for the party who brings back 'commonsense' in to the dictionary because its clearly not there anymore.
The 'decade of irresponsibility' the Tories are trying to make stick to Gordon Brown is one for each and everyone of us in the Western World.
Its as good a time as all for us to stop, think and reflect, as our children and grandchildren are the ones who will inherit the consequences of our greed.
Complain about this comment
I'm with #44 and #45 and perhaps not with # 51 or the other people making the case for the Banking sector as an investment---whether in reports saying Northern Rock will be returned to the private sector or in the blog making arguments in favour of RBS as a a good investment.
It just seems to me that the entire landscape has changed utterly...a couple of days of upswing from a massive downward overshoot on the Stock markets (and also why have all these different stockmarkets anyway..they all just follow the Dow in perfect time whether up or down)
For instance it could be argued that all the recapitalisation just about gets somewhere near the overpay on ABN Amro (given that ABN would be worth 4/5ths of nothing as well by now)---and every single bank's money making machine status depended on conditions that simply are no longer present nor ever will be in the same way.
If nothing else the political control over the Banks here , across Eurpoe and the USA means the landscape now bears as much relationship to the landscape two months ago as the Austro-Hungarian empire in 1919 bore to the same empire in 1914---ie none.
I'm asking for trouble here!!...but perhaps Robbie P meant to say "RBS" " were" rather than "are" ---' a fearsome money making machine"---because they also been a pretty fearsome bonfire for £20 notes as well recently, and despite two whole days of unconfined joy it's a bit of a moot point whether they'll be making money or destroying it for a while yet.
Complain about this comment
we will see money coming in at some point to make investments, to shore up companies, and to take advantage of the opportunities that will be once in a lifetime. I recognize that not everybody has the kind of money to make these kinds of investments, but those that do will benefit their investors and ultimately benefit the overall economy by making the kinds of investments that will give people some confidence.
http://www.cfr.org/publication/17508/grasping_radical_economic_change.html
Complain about this comment
#100
You're right, the cost of the Olympics is an irrelevance in the context of the overall UK economy.
All the money being spent is going to create wealth or resources somewhere and for someone - housing, transport infrastructure, wages of construction workers, profits for reinvestment of engineering firms, etc. It's not disappearing into thin air. And it will bring in billions in tourism.
Overall, the "value" of the event to UKplc as investment, and as a showcase, may be considerable.
This will particularly be the case if we fight against the Greek failure to find long term use for the facilities and the Chinese model of ridiculous extravangance in delivery. Much as it pains me to say this, Boris-the-only-slightly-insane is right on this.
Complain about this comment
#26
"It's clear who is to blame"
Yes, Thatcher for indoctrinating the masses that everyone afford a mortgage and own our own home, not helped by her views that - just like the man on a bus or train, those who rent are some how social faliures...
Complain about this comment
Now, if the US, UK, and the developed world in general would like to truly make lemonade out of lemons:
Eliminate capital-gains tax, which punishes successful investing. If I as an investor have to clear a 26% tax hedge in order to make returns on my money, I am pushed toward more speculative behaviours.
If I can take small, conservative risks, and not pay tax on my rewards, I can fund all sorts of small business ventures, or sit tight on conservative stocks. This creates jobs and income for others, and wealth for me.
Isn't that a good thing, isn't that what we all wish to achieve going forward, all around the world?
Notice why the municipal bond market in the US went unnoticed in all this? Because(drum-rolls and fanfares) muni bonds are EXEMPT from US income tax, and the states and municipalities have to be super-conservative to keep their bond ratings.
Hmmm....sounds like a winner.
We need to create a new class of 'tortoise investors', and chase the 'hare investors' off.
We won't need Treasury to buy off the losers if Congress will stop crushing the economy with taxation.
Complain about this comment
i notice that all markets are coming back off the days highs...the initial euphoria drove them up, common sense is now setting in, all the "bailout" does is put off the evil day...the toxic debt is still there, it hasnt disappeared . Hang on to your hats as the next wave arrives!
Complain about this comment
96.
Slightly missing the point there. You will only be able to buy at 65.5p if you are an existing shareholder, subject to the market price at the time. (Which is c.67p right now).
As it happens, Robert and his ilk have so comprehensively talked down the prospects of the comapny and the sector that the government has probably missed a trick.
If the incumbent shareholders have any gump at all they will snap up the majority of the ordinary shares. If they don't, I suspect someone else (HSBC, Citigroup, Santander) might do it for them.
Banning dividends has also artificially deflated the price since a lot of investors and funds need some sort of income to hold shares. A restricition on dividends was certainly justified, but an outright ban is over the top.
Complain about this comment
#95,
I think you will find that its not capitalism folk on here are knocking, its the monetary system (i.e. fractional reserve banking and the fiat currecy system)
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Let me see.
Under Anarchy, the most powerful person becomes leader, takes what he wants, forces everyone else to obey.
If he promotes his friends, you then have feudality, as long as each friend so enfeoffed retains loyalty to him.
Now if he allows his Friends to promote their friends you have Aristocracy.
When their friends want representation you have democracy.
So Anarchy would recreate democracy and in effect capitalism, as each sub lord would want to own his piece of the pie.
But an awful lot of people would get hurt on the way.
Complain about this comment
TawkinSenz - do you actually know what a sub-prime mortgage is?
I'm afraid yours is just another post based purely on ignoranec, with no basis in reality.
Complain about this comment
It is amusing to wind up left wing political science students !
Complain about this comment
Success at last!
RP points out that you'd be a fool to pay 70p for an RBS share. It takes a while for the message to get through. So it now looks more likely that the Gov't WILL get to nationalise RBS after all. Is somebody being worked from behind?
For anyone confused by these comments - why not go to the top of this blog. It is entitled "RBS to stay private?".
PS: Having played a small part in this myself by giving a couple of prompts, can I please now claim my free national-news interview for market manipulation?
Complain about this comment
While I agree that the Government failed to put a brake on the housing market they are not alone in their culpability for that.
Whenever anyone has remotely suggested that interest rates should raised or that asset prices were over heated there has been widespread condemnation from financial commentators and - dare I say it - contributors to forums such as this one.
Where was the Conservative party on this in recent years?
The only party politican I can recall advocating any significant movement towards putting a brake on the economy over the last few on was Vince Cable of the Liberal Democrats.
Hindsight is a wonderful weapon with which to beat up people you do not like. That Gordon Brown has been over-rated in the past does not justify an equally ludicrous invective against him now.
It is equally justifiable to look at the record of other parties and individuals and how much they were cheer leading the boom or opposing interest rate increases.
Complain about this comment
Excellent news for the Scottish people.
I'm sure they would be delighted to put their hands in their pockets in a big way to keep a Scottish bank free from government interference.
The tide appears to have been stemmed for the moment which gives everyone a breathing space to sort out the problems which are inevitably involved in such a huge upheaval.
Government involvement should be only on a short temporary basis to give these banks time to restructure themselves.
Any thoughts of a government trying to run a bank are horrendous,
They should be concentrating on the problems the country is facing. That's what they are elected to do.
Complain about this comment
Labours manifesto from 1997 - it would be funny were it not so tragic:
The myth that the solution to every problem is increased spending has been comprehensively dispelled under the Conservatives. Spending has risen. But more spending has brought neither greater fairness nor less poverty. Quite the reverse - our society is more divided than it has been for generations. The level of public spending is no longer the best measure of the effectiveness of government action in the public interest. It is what money is actually spent on that counts more than how much money is spent.
The national debt has doubled under John Major. The public finances remain weak. A new Labour government will give immediate high priority to seeing how public money can be better used.
New Labour will be wise spenders, not big spenders
Save to invest is our approach, not tax and spend.
New Labour will establish a new trust on tax with the British people.
Our long-term objective is a lower starting rate of income tax of ten pence in the pound.
We will examine the interaction of the tax and benefits systems so that they can be streamlined and modernised.
We will enforce the 'golden rule' of public spending - over the economic cycle, we will only borrow to invest and not to fund current expenditure.
We will ensure that - over the economic cycle - public debt as a proportion of national income is at a stable and prudent level.
Small business: We will cut unnecessary red tape.
We will be tough on crime and tough on the causes of crime
Police on the beat not pushing paper
Crackdown on petty crimes and neighbourhood disorder
Protect the basic state pension and promote secure second pensions.
We will reject the boom and bust policies which caused the collapse of the housing market.
We will reform party funding to end sleaze
Complain about this comment
glanafon - do you not think that house prices in the UK are in any way the result of the fact that we have one of the highest population densities in the world?
Other than that, I note your post largely agrees with me.
Complain about this comment
107 Do you honestly believe Northern Rock would be returned to its Shareholders?
Much more likely to be privatised at a profit a few years down the line, with no returns to Shareholders.
The Shareholders have rightly or wrongly been supertaxed by Brown.
Complain about this comment
I see the cretins in the city are following the same old patterns-share prices go up in the morning---"ooooh let's make a fat little profit"---boing! 200 points down in the afternoon. I give up.
Complain about this comment
#105
Because they to have taken to the teachings of Friedman, the basis of Thatcherism - it could be said that 'Friedmanism' and 'Thatcherism' are interchangeable terms for ultra free market economics, what is more those countries that have not adopted this ultra free market approach (such as Germany and France) are not as badly affected, suffering from rather than being a cause of the current crisis.
Complain about this comment
#106
"Mr Cameron now tells us he knew this was going to happen and its all Mr Brown's fault!!"
Even more gruelling as Cameron was an economic adviser to John Major, had he really seen this coming why didn't he tell his boss back then?!
Complain about this comment
#81 Mainstumper
Very funny, that made me laugh. Now do you want to know what really made me giggle? -
Northern Rock bonus scheme will indeed be 50pc of salary over two years (cumulative, not 50pc in each year), dependant on reaching "repayment targets" to the government.
Payable in installments... Announced to staff this week!
Funny!
Complain about this comment
I can't believe how Gifted Gordon is being feted by the press just for spending the UK into deficit!
GC
Complain about this comment
So today's unbridled joy in the U.S. lasted about 90 minutes before it hit red territory. Does the long slog back to financial health starts here or are we in for more shocks and bad news as those pesky debts keep mounting?
Complain about this comment
Complaining about unregulated capitalism or Gordon Brown's failure to see this coming is shutting the stable door after the horse has bolted. Nobody was complaining a couple of years ago and it is remarkable to see how many people are wise after the event. I do fully agree with a number of posts here that what would have made a difference was a broader measure of inflation for the BoE to work to, and especially one that included house prices. We have absolutely not been living in a low inflation environment over the last few years. We have been operating in a credit/low interest rate fuelled hyperinflation that has expressed itself in house prices, the one thing the BoE has studiously ignored. If Brown (and lets not forget our old friend Tony Blair here who we all voted for in droves),and of course the Tory party who were also silent, made a mistake it was in not giving the BoE the power to recognise and stifle this inflation much sooner. We are all now going to pay a very heavy price.
Complain about this comment
Paulson has to go!
Britain led the way with a solution that looks like it might work, the rest of the world is instituting variations on the same theme that have sent the markets on the way up. The US finally dropped the awful notion that the taxpayer should just buy-up the worst assets. All Paulson had to do was give the details and stress that this will help.
What did we get? Talking down the right solution at the right time as he institutes it simply because it doesn't sit with his irresponsible market mentality. If he was being made to do something he did not believe in then he should have resigned. If he agreed with the plan then he should have said so. He has set everything back with his negativity. He is incompetent and irresponsible and it is in the interests of everyone that he be removed from office.
Complain about this comment
Old South - One of the few things that kept a lid on the housing market was that you have to pay CGT on property, other than your permanent residence. Now what do you think would happen to the housing market if that were abolished?
Complain about this comment
Lloyds TSB has been the boring non risk bank during the last 5 yrs or so. Well capitalised and according to the CEO 'well placed to take advantage of opportunities that may arise'. Why is it taking over HBOS?
The share price has plummeted since the anouncement. The dividend has gone. I thought the management were running this company for the benefit of shareholders and customers.
I haven't read anything (broker recommendations/Analyst opinions) that it's a good merger.
Vote against it! Why increase shareholder risk?
Complain about this comment
#95 "Don't you know what happened to the communist states - they either collapsed or converted into forms of capitalism."
WRONG - These were not Communist states, they were degenerative workers states which were run by a small number of people against the interests of the workers. Don't believe everything your Capitalist education has taught you. I too believed what I was taught at school and college, but since then I have got off my backside, read books and found out for myself. Now I am a man I can make an informed decision - unlike when I was a child at school where I presumed everything I was taught was true.
'If managed well and responsibly debt is not an evil. It allows companies to expand, it allows people to buy houses etc etc. It is a fact of life that debt is here and here to stay. '
ANOTHER LIE - debt is evil, you cannot see it but you are on a slope which you can never reach the top of. The propertied classes are so far ahead of you and me that we could never catch them no matter how entreprenurial or risky we are. We are in fact SLAVES.
#100 - It's the timing of the Olympics, not the amount. I'm sure Bradford and Bingley couldn't understand how a small number of GMAC mortgages would bring them down - but it's about CASH FLOW not expected income or asset value.
#101
'Capitalism will always exist in some form or another.' - The only way Capitalism can sustain itself is if more and more workers resign themselves and their descendants to slavery. PLEASE DON'T TAKE MY WORD FOR IT - read for yourselves, open your eyes and see that the surplus value (the money sloshing around) in the economy all comes from underpaying workers. In the same way that slavery itself was unsustainable (because there weren't enough natives to keep capturing and forcing to work). Look at the current situation, it's taking billions and billions of pounds to keep this boat afloat - at what point do we go back to shore and make a new one?
All forms of Capitalism is robbery - someone explain how an entreprenuer makes money if it's not by ripping the worker off?
Raw Materials + Labour = Product = Price
In Capitalism it's Raw Material + (Labour - markup) = Price
#103 - I take your point regarding the climate - which means if we don't move from capitalism then it will be the end of the human race - ah well, Communism or the end of the human race mmmmmm.....
Capitalism DOES require constant growth, look at the production formula above. When the goods go back into the system, the worker needs to work harder (and produce more) in order to pay for the goods which the capitalist has added his markup to. Imagine for a moment there is only 1 good in the world - then it's much simpler to understand.
Have you never wondered why the west wastes so much? Why there are surplus goods? Why we have grain mountains and rubbish tips full of discarded items which other poorer nations would baulk at the sight of what was being thrown away?
If we do not keep producing, the system fails - whether we need the damn things of not - they will be produced.
Technological advances fit very well into Communism, there is no conflict there. In fact as we would all be working 2 hours a day the communist state would be far more advanced as people would have time to spend the afternoons inventing, reading, learning etc. as opposed to the current system where we work harder and harder (and as I have stated above) - never catching up.
All I ask is that you read the works of Karl Marx and decide for yourself. It's not an easy read, much tricker than Mills and Boon, but once you get your head around it you will see it makes logical sense.
I was taught Economics at college and I completely believed the Monetarist theory of economics. However now I am a man - I can see how this was so ill conceived.
I think most people when they talk about how Capitalism is here to stay actually mean 'I have too much invested in Capitalism to loose it all' - well let me tel you this, I have a good job in a bank, I have several properties and even a large inheritance. You are unlikely to have as much to loose as I do. However I am prepared to hand it all over to the state - for the good of my fellow man because to me money is fictional and only serves as replacement chains for the slaves in capitalist states.
When you think of Communism - DO NOT think of Russia, China, Vietnam etc - in none of these states did the workers hold political power - and therefore the state worked against their interests.
That's exactly what the Capitalists want yo to believe, because they have a hell of a lot at stake, they have built up their wealth over years and years and do not want to hand it back to the people they ultimately stole it from.
As for property - well look at it like this. Where my mum lives (in the country) we used to let neighbours borrow our gardening equipment whenever they wanted to. The items were never stolen, because everyone knew there was no point. Imagine that on a much larger scale - everywhere.
No property right - NO CRIME.
Start thinking rather than simply accepting what is put in front of you....
Complain about this comment
The government forces taxpayers into loans from those that won’t support the banks direct but will support the government. Presumably because gilts pay better returns than the banks. Then we give these borrowings to the banks for shares to increase capitalisation and re-lending of our invested funds along with general deposits. Or if fat cat lenders cannot be found I am forced into long term commitments via rising taxes to pay down a notional borrowing.
Then as a taxpayer-consumer I can go to the bank and borrow the same money I have invested (for unknown future return ) at a commercial rate. Some of the money that ends up in bank shares might be my hard earned taxes or it might be the borrowed money my taxes are paying the lender’s interest through gilts. Either way I end up paying double interest as a taxpayer-consumer for borrowing my own money and with an uncertain future return I am sure will not benefit the taxpayer but those we lend power to once every 5 years, not to mention the inflationary effect of this double interest (tax).
It is an elaborate mechanism to move money from the lenders account to the bank's credit no doubt in the same bank! I, not the recalcitrant banker, politician or regulator, am obliged to make a Faustian pact on his behalf, without obvious reward or benefit other than the bankers survival that is thought to be essential to our social fabric.
Why not slash taxes, let me spend as I choose on real goods and services, and let that money end up as larger deposits in banks to improve their liquidity instead of the cockamamie creative kite flying that seems just as dodgy as the route by which we all got into this mess.
Since Gordon Brown has some serious questions to answer about his false prudence for 10 years, I have little confidence he has the right answer to these much bigger issues
Complain about this comment
# 101
Capitalism has not always existed, thus it is unlikely that it would exist for ever, though it is very, very unlikely that the current crisis would bring an end to it. Anyway we have only the surface of it yet, the lovely spur of the recession has not yet cut into our sides.
You also confuse private property with capitalism. While capitalism presupposes the existence of private property, private property can exist without capitalism.
Civilisation and capitalism derive from the same root in a way (as far as citizen is one side of the bourgeois), but capitalism is not a civilised form, inherently it cannot be. If you offer 100% rate of return in exchange of destroying humanity, capitalism will undertake it. When you think, the subprime mortage was not simple a way of creating "investment" but also sucking the money from the borrower knowingly that he will not be able to keep up with the payment, thus the money that he paid up to then AND the property would be both that of the banks'. The miscalculation was a minor thing: the drop in property prices. Thus capitalism is inhuman in all aspect, but the brute force of other agents of the society can limit it to a degree.
The British government has traditionally (at least since Peel's Act) been the agent of the City, there are only short periods when the government facing the alternatives chose other interests than that of the City.
Complain about this comment
The share price of HBOS is 92% down from a high of 929p (to 78.2p this year). An absolutely extra-ordinary fall. Especially as the company has never failed to make a profit.
Complain about this comment
"Soon we'll have the full set of Northern Rock, Bradford & Bingley and HBOS - which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise."
You are joking aren't you? Time and time again you get this wrong. The Bank of England was given one job and one job alone - keep inflation at 2% plus or minus 1%. This the BoE tried to do.
Unfortunately two things worked against it - Brown and Balls fiddling the inflation figure so it quickly detached itself from measuring the economy as a whole.(By and large excluding house price inflation from the measure) The other thing working against it was the pressure from Brown and Balls to lower interest rates when the housing market previously began to slow. A bubble had been created thanks to Brown and Balls, and Brown and Balls were determined it should not be allowed to deflate, or worse, pop.
The Treasury itself shoulders more of the blame through lax application of regulations and studiously burying it's head in the sand over off-balance sheet assets. This all happened under the regulatory regime of Gordon Brown. The buck stops with him.
Complain about this comment
Olympics: For your continued interest, £9.3 billion is about US $ 17,272,574,547 and here is the list of countries (source CIA factbook) whose Gross Domestic Product (GDP) is LESS than that:
125 Burkina Faso $ 17,200,000,000 2007 est.
126 Armenia $ 17,150,000,000 2007 est.
127 Mozambique $ 17,020,000,000 2007 est.
128 Zambia $ 15,920,000,000 2007 est.
129 Chad $ 15,900,000,000 2007 est.
130 Nicaragua $ 15,840,000,000 2007 est.
131 Equatorial Guinea $ 15,540,000,000 2007 est.
132 Mauritius $ 14,060,000,000 2007 est.
133 Mali $ 13,470,000,000 2007 est.
134 Congo, Republic of the $ 13,230,000,000 2007 est.
135 Laos $ 12,650,000,000 2007 est.
136 Macau $ 12,500,000,000 2006
137 Iceland $ 12,140,000,000 2007 est.
138 Benin $ 12,100,000,000 2007 est.
139 Papua New Guinea $ 11,940,000,000 2007 est.
140 Tajikistan $ 11,820,000,000 2007 est.
141 Haiti $ 11,140,000,000 2007 est.
142 Namibia $ 10,720,000,000 2007 est.
143 Guinea $ 10,690,000,000 2007 est.
144 Malawi $ 10,510,000,000 2007 est.
145 Kyrgyzstan $ 10,500,000,000 2007 est.
146 Moldova $ 9,821,000,000 2007 est.
147 Malta $ 9,396,000,000 2007 est.
148 Niger $ 8,902,000,000 2007 est.
149 Rwanda $ 8,440,000,000 2007 est.
150 Mongolia $ 8,420,000,000 2007 est.
151 Bahamas, The $ 8,332,000,000 2007 est.
152 Mauritania $ 5,947,000,000 2007 est.
153 Montenegro $ 5,918,000,000 2007 est.
154 Swaziland $ 5,626,000,000 2007 est.
155 Somalia $ 5,575,000,000 2007 est.
156 Barbados $ 5,317,000,000 2007 est.
157 Togo $ 5,208,000,000 2007 est.
158 Jersey $ 5,100,000,000 2005 est.
159 Fiji $ 5,079,000,000 2007 est.
160 Gaza Strip $ 5,034,000,000 2006 est.
161 West Bank $ 5,034,000,000 2006 est.
162 French Polynesia $ 4,580,000,000 2003 est.
163 Bermuda $ 4,500,000,000 2004 est.
164 Suriname $ 4,073,000,000 2007 est.
165 Kosovo $ 4,000,000,000 2007 est.
166 Sierra Leone $ 3,971,000,000 2007 est.
167 Eritrea $ 3,619,000,000 2007 est.
168 Bhutan $ 3,359,000,000 2007 est.
169 New Caledonia $ 3,158,000,000 2003 est.
170 Central African Republic $ 3,099,000,000 2007 est.
171 Lesotho $ 3,092,000,000 2007 est.
172 Guyana $ 2,920,000,000 2007 est.
173 Burundi $ 2,896,000,000 2007 est.
174 Netherlands Antilles $ 2,800,000,000 2004 est.
175 Andorra $ 2,770,000,000 2005
176 Guernsey $ 2,742,000,000 2005
177 Isle of Man $ 2,719,000,000 2005 est.
178 Timor-Leste $ 2,608,000,000 2007 est.
179 Guam $ 2,500,000,000 2005 est.
180 Belize $ 2,444,000,000 2007 est.
181 Aruba $ 2,258,000,000 2005 est.
182 Zimbabwe $ 2,211,000,000 2007 est.
183 Gambia, The $ 2,106,000,000 2007 est.
184 Cayman Islands $ 1,939,000,000 2004 est.
185 Saint Lucia $ 1,794,000,000 2007 est.
186 Liechtenstein $ 1,786,000,000 2001 est.
187 Djibouti $ 1,738,000,000 2007 est.
188 Cape Verde $ 1,603,000,000 2007 est.
189 Maldives $ 1,588,000,000 2007 est.
190 Virgin Islands $ 1,577,000,000 2004 est.
191 Antigua and Barbuda $ 1,526,000,000 2007 est.
192 Seychelles $ 1,378,000,000 2007 est.
193 Liberia $ 1,340,000,000 2007 est.
194 Comoros $ 1,262,000,000 2007 est.
195 Grenada $ 1,108,000,000 2007 est.
196 Greenland $ 1,100,000,000 2001 est.
197 Gibraltar $ 1,066,000,000 2005 est.
198 Saint Vincent and the Grenadines $ 1,042,000,000 2007 est.
199 Samoa $ 1,029,000,000 2007 est.
200 Faroe Islands $ 1,000,000,000 2001 est.
201 Monaco $ 976,300,000 2006 est.
202 Mayotte $ 953,600,000 2005 est.
203 Solomon Islands $ 948,000,000 2007 est.
204 Northern Mariana Islands $ 900,000,000 2000 est.
205 Vanuatu $ 897,000,000 2007 est.
206 British Virgin Islands $ 853,400,000 2004 est.
207 San Marino $ 850,000,000 2004 est.
208 Guinea-Bissau $ 808,000,000 2007 est.
209 Saint Kitts and Nevis $ 721,000,000 2007 est.
210 Dominica $ 648,000,000 2007 est.
211 Tonga $ 526,000,000 2007 est.
212 American Samoa $ 510,100,000 2003 est.
213 Kiribati $ 348,000,000 2007 est.
214 Micronesia, Federated States of $ 277,000,000 2002 est.
215 Sao Tome and Principe $ 256,000,000 2007 est.
216 Turks and Caicos Islands $ 216,000,000 2002 est.
217 Cook Islands $ 183,200,000 2005 est.
218 Palau $ 124,500,000 2004 est.
219 Marshall Islands $ 115,000,000 2001 est.
220 Anguilla $ 108,900,000 2004 est.
221 Falkland Islands (Islas Malvinas) $ 75,000,000 2002 est.
222 Nauru $ 60,000,000 2005 est.
223 Wallis and Futuna $ 60,000,000 2004 est.
224 Saint Pierre and Miquelon $ 48,300,000 2003 est.
225 Montserrat $ 29,000,000 2002 est.
226 Saint Helena $ 18,000,000 1998 est.
227 Tuvalu $ 14,940,000 2002 est.
228 Niue $ 7,600,000 2000 est.
229 Tokelau $ 1,500,000 1993 est
What the UK's GDP is likely to be at the time of the wretched games at the rate Gordon Brown is spending is anyone's guess.
GC
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
#115
Anarchy is surely every person for themselves, no leader and no laws, what you seem to be describing is a dictatorship.
Complain about this comment
The Lloyds board should be ashamed of themselves. Why on earth are they buying into HBOS? It stinks for Lloyds shareholders and the board is supposed to act, amongst other things, in the interests of the shareholders - at least that is what I thought.
Lloyds shareholders are doing the job of the government in proping up HBOS when they should be getting on with looking after their own issues. They could have raised the money needed to meet altered regulations easily without the Preference shares and being tied to the misfortunes of HBOS.
Sometime in the future the truth will come out about this terrible 'deal'.
How can Eric Daniels say
“We feel very good about the purchase,” Mr Daniels told analysts on Monday.
He's the only one apart from a smirking Gordon Brown
I know that small shareholders won't make a difference in the vote that is to come but we must all vote NO - maybe the number of voters voting NO will register something of the disgust to the board while all the funds who hold both Lloyds and HBOS shares will breath a sigh of relief as they vote yes.
I'll be attending in person to see the fireworks.
Complain about this comment
It's time the younger generation in school and college formed a political party, with the manifesto pledges:
1. Renege on all public sector pension pledges issued after 2000.
2. Cancel all planning restrictions around urban areas, and allow 10 million houses to be built.
Why should my children be the mugs to pay for the baby-boomers' splurge ?
(Of course, if my children come out with any left-liberal claptrap during their salad days, I can put them in their place with two words - Gordon Brown !)
Complain about this comment
# 111
There was CGT in the 1970s and yet the average shareholding was about 7 years, so the evidence you offer as an explanation and exclusion of speculative behaviour does not go far.
Complain about this comment
#122
The Conservative Party Manifesto of 1979 - Labour isn't working, yet the Tories ruled over 3.5 million, a mixed economy doesn't work, yet the fiscal system the Tories put in place in the 1980s has caused the worst financial meltdown since 1929... If it wasn't reality, the Tory Manifesto of 1979 would have made a good script for a Hollywood horror movie.
Complain about this comment
The Lloyds HBOS surely deal won't go ahead if the prices stay as they are. Great news: a black eye for smirking Gordon - go and protect HBOS and leave Lloyds alone.
http://newsnow.co.uk/h/Breaking+News/HBOS+Lloyds+TSB+Merger
Complain about this comment
95. propsupthebar wrote:
“I do find it very interesting when I read the comments on these blogs.....the range of opinion being matched by the range of intellectual ability.
Is this the end of capitalism - well I don't think so. Is it the end of cheap debt finance - yes it is.Capitalism is least worst form of economic management. What is the alternative? Communism? Don't you know what happened to the communist states - they either collapsed or converted into forms of capitalism.”
Well if capitalism has to change into socialism by nationalizing all the banks, to survive then I guess Capitalism doesn’t really work does it? So much for the free market.
It’s nice to see they don’t him President Bush in Venezuela anymore. Now he's known as "Comrade."
http://www.commondreams.org/headline/2008/10/08-3
Complain about this comment
#117 - Do you know what a mortgage is?
Don't talk to me about ignorance, you seem to take your knowledge from that black box in the corner of the living room which is why you use phrases like 'sub-prime'. Watching too much Peston and his city guff talk.
All sub-prime is debt which has a higher risk of default. If you want me to I can explain to you how the ratings for debt work (and recently haven't) at great length.
However it won't make a difference to your life and it certainly won't help you understand why you and many others are likely to all loose your jobs.
Sub-prime is a red-herring - a nice label to stick on people so we can blame them for the troubles our government (and capitalist system) created.
Complain about this comment
Let’s look at some numbers from the Mail on Sunday. Bankers’ bonuses were equal to £17 Billion as the crisis was being fermented. Taxpayer bail out of the banker system £37 Billion.
Now tell me that the banking system wasn’t really just looting the taxpayers, as well as ruining pension funds and the economy.
If this kind of disparity and lack of justice isn’t addressed, it can only end in civil unrest.
Complain about this comment
#119
As #113 has already pointed out you really are missing the point. The fools can only be those people that have access to the orchard, i.e. existing shareholders. Everyone else only has the option to buy at market price, hence the reason there will still be people buying at 70p.
I don't think you can take credit for any market manipulation!
Complain about this comment
Robert,
On your 4pm update - since when have shareholders had influence over the terms of a multi-billion bailout to a bank unable to find its own way out of the mess its management got it into? If you are a shareholder, tough. HMT, remain resolute. This deal is the one game in town, and they take it or sink.
By the way, for my sins, I bank with Lloyds...
Complain about this comment
I posted this on the previous blog, but will repeat it here - this is a very bad deal for existing shareholders in Lloyds TSB:
"Lloyds TSB - can somebody explain to me what happened to Lloyds TSB. They were the rock of stability which could take over failing HBOS - but as of today they have become one of the failing banks receiving a Government equity stake. This makes no sense to me, unless the senior management of the bank have been cuckolded by the Government - I have a feeling they should have walked away from HBOS and from the Government's (i.e. taxpayers) money just as Barclays have. If I were a Lloyds TSB share holder I would be rightly furious now. It is clear that RBS and HBOS had become basket cases which needed nationalisation, but Lloyds TSB looks like a fall guy - a fig leaf if you like.
Theoretically, could the existing Lloyds shareholders stop the wagon in its tracks and prevent both the HBOS deal and the Government equity stake from going ahead? If I were a major shareholder in Lloyds TSB, that is exactly what I would want to try an do."
Seems to me that Brown's mate Sir Victor Blank has forgotten that his primary responsibility is to his existing shareholders....
Complain about this comment
Forget blaming Thatcher.....I blame Guy Fawkes!
He was (oh) so close to being the greatest Englishman of all time. I guess, in true British fashion, he gave us cause to celebrate yet another great British failure once every year. Meanwhile....the Westminster Mafia live on.
Now!... there's an idea!... maybe 13.10.2008 should become a national day to remember; a national ‘Bank Holiday’ with a REAL MEANING! ....so that this fiasco is never ever forgotten.....it would at least help swallow this bitterest of tax (and inflationary) pills…..all GBP50Bn of it.
What better way could we make sure that we never allow our (and future) generation(s) to endure a repeat of the mistakes that have caused this whole debacle.
A new national BANK HOLIDAY every year on the 13th October may just help us all to remember the time when the Banks became too greedy, the regulators fell asleep at the wheel and our government put party politics ahead of the long term good of the country.
Yea or Nay to a new national BANK HOLIDAY?
Complain about this comment
#118 - Massive mis-conception supercalmdown.
I work in the city of London - in an investment bank - I'm no student and I think my position - right next to the engine - allows me to see how this system really works and who the real winners and losers are.
Complain about this comment
On October 9th the FT wrote that Lloyds TSB was well capitalised and had avoided much of the mess but would need to strengthen its balance sheet with the acquisition of HBOS. Now Lloyds will need our cash to recapitalise the bank. Suddenly the market is telling us that LLoyds TSB is a poor bet re: falling stock price. Is this the reward of a government sponsored shotgun marriage with HBOS? And why hasn't LLoyds TSB opted to seek capital from the market? What does Mr Peston know that we don't?!
Complain about this comment
118 supercalmdown
You don't need to wind them up, they are self-winding. Some are like doorchimes, same message everytime you push them. ROFL
Complain about this comment
The answer is simple and has been known for years - just follow the example on Startrek! They don't have money and it works fine (apart from a few problems with the Cardasians). And it must be real cos it's on TV!
A damn sight more real than X factor anyway.
Complain about this comment
As to RBS remaining in the private sector,
let's wait and see.
In all the news over recent weeks about the financial crisis bankers, regulators, politicians, even the public for daring to borrow money, have been blamed for the catastrophic events that have occurred.
But there has been hardly any mention at all that I've seen about the role of auditors and rating agencies in this extraordinary situation. Both these professions, if such they can be called, will have extracted huge fees from banks and other financial institutions over recent years, but have given no apparent warning of the insolvency of some of the biggest financial entities in the land. Never mind the strictly legal position (which both auditors and rating agencies will plead in their defence), but aren't investors, customers and the public entitled to expect some assessment of financial strength from these people?
Perhaps it's because of the glaring conflict that exists between an auditor or rating agency reviewing the financial strength of the very institution that pays its fees.
Can the BBC ask those concerned, please?
Complain about this comment
131 Exactly
What everyone forgets is that all the money washing around in the past would have shown itself as domestic inflation.
However as all the expenditure on German cars, flat screen TV's and foreign holidays goes out of the country it does not show up as domestic inflation. While the rest of the easy money went on inflating the property bubble. Will we ever learn?
My Dad lives in France and he cannot believe the rampant consumerism in terms of the number of new cars on the road here. Even last week someone told me I should get a new car, because it needed repairing (the repair £40 of welding to fix 2 exhaust brackets). This just highlights the rampant consumerism and although I probably should not say it maybe a recession is a good thing to bring society back to reality.
Plus affordable house prices aids social mobility, as again my Dad is amazed by the clear visible differences between an affluent and poor area in the UK.
Still at least the Arabs and Chinese can now lend the government back some of the money that we have spent on oil and goods! We just get the benefit of paying the interest on it through our taxes!
Complain about this comment
Lloyds TSB should walk away from the merger with HBOS.
Why should Lloyds TSB suffer because of the way that HBOS was managed ?
This is not the time to take on large mortgage liabilities.
Complain about this comment
Whilst I agree that this may sound like a good idea buying share in RBS in 'the orchard' or wherever - what of the toxic stuff - is this still in the cupboard in the vault and if so will the problem will just re-appear later?
Complain about this comment
TawkinSenz
Please stop patronising everybody else and do a little critical reasoning of your own.
I too was an idealistic socialist myself once upon a time. I read the Communist Manifesto and Das Kapital and reached the same conclusion as you. I told everyone who would listen that Russia and China were not what Marx envisaged.
But then I grew up. I began to ask myself why there were no examples of socialist states in the world, despite numerous attempts to create them. The reason is that none of them ever got past the 3rd stage - dictatorship for the proleteriat. According to Marx, the state should then 'wither away', leaving us with a socialist utopia.
The only problem is that that then creates a power vaccum, which people like Stalin and Mao step into. Human nature will not allow the state to wither away and true socialism is therefore doomed to fail, as it has done repeatedly.
Complain about this comment
#95, not if Brown has his way...
http://news.bbc.co.uk/2/hi/uk_news/politics/7667284.stm
because the way to deal with a bust is to reinflate that bubble and hopefully when it bursts again worst than before he has been re-elected!
Complain about this comment
#135, that worked a treat in Libya. People would go shopping and come back to find other people in their homes. Didn't last too long.
Complain about this comment
the bbc have made this so called crisis worse..that joke of a programme 5 live breakfast think that its all a joke. ok great lets all have a good laugh......i would say all decent people around the uk refuse to pay your energy bills...make yourself bankrupt get this joke of a government to bail you out.also we get the person on 5 live tonight saying "old peoples" inflation is higher than everybody elses inflation!!! wow i could have told you that years ago mate.
Complain about this comment
@ #72 JohnConstable wrote:
... "Because even amongst the banks, some are actually very well managed, e.g. HSBC and JPMorganChase and therefore much more deserving candidates for investment purposes than these thinly disguised basket-cases."
[end quote]
I don't know enough to argue about what constitutes "well-managed", but you might want to have a look at the following article by Martin Weiss, "The Ultimate Wall Street Nightmare":
http://www.moneyandmarkets.com/the-ultimate-wall-street-nightmare-11008
In it there's a histogram showing the exposure to derivatives of the major US banks. JPMorganChase heads the list, and the author of the article comments: "As you can see ... the pile-up of derivatives greatly exceeds the total assets of the firms. At the same time, in most cases, the default risk related to these holdings greatly exceed the banks’ capital."
(I think the histogram for HSBC is for the US subsidiary of HSBC.)
Someone correct me if I'm wrong, but isn't one possible reason for shoring up the capital of UK banks the risk represented by very large derivatives exposure?
Isn't that why some people are calling for banks to completely open their books (and why the government may be reluctant to make them do this)?
Complain about this comment
yes 95..as long as you do alright whos bothered?you sum up whats wrong with the capatalist system...your greedy!!!.
Complain about this comment
132 foxesforlife
paulson has to go etc...
The toxic bond auction route looks to have been dropped because there is apparently no chance of developing a market for them. The proposal was that in the event of an auction failing to raise circa 23 cents in the dollar at the end of auction the US Treasury bought by default to put a floor in and encourage trading and get interbank lending going again. The objective was not for the US Treasury to buy everything but to create a market so the toxic bonds could establish a market value. It looks as though the decision has been made that things have declined such that 23 cents is unlikely, therefore pretty much the only route is to buy into the banks as per Warren Buffet with GS or Gordie Brown/Darling in the UK. The US bill catered for this option. Not that I think Paulson is a hero. The toxic bonds have no value at present because there is no market for them, however they are based ultimately on property which always has some value in the long term. Write-downs are evidently between 50 and 90% at present.
The problem is that things can move quicker than the (any) administartion can meet and agree a strategy. The same may apply here it depends how the game goes. If you look at the Lloyds situation reported above at 4pm it is clear that the situation is more than just Lloyds and the Treasury meeting and agreeing a deal, the market has its judgement and the whole thing can unravel. Brown may well regret claiming success is gained, success does not depend on his opinion. Personally I hope Brown is successful, simply being unsuccessful is dangerous to all.
Complain about this comment
Folks, you are all wittering away on this board as if this was all about finance. No longer. Now that government is involved, it is politics. One of Gordon Brown's major fears is that, once he has defined himself as the new John Maynard Keynes by saving capitalism from itself, he will be robbed of his chance to rule by the Scottish Nationalists. The hard truth is that any UK Labour government depends upon Scottish Labour votes to form a government so a successful Scot Nat referendum is completely poisonous to G Brown. Edinburgh is the fifth largest financial centre in Europe and RBS and HBOS (well, the BOS bit) prints its own Scottish banknotes. These institutions are central to Alex Salmond's case that Scotland can go it alone in Europe. It is vital to G Brown's political future as UK Labour prime minister to do whatever he can to weaken Scottish banks and bring then under London control. The feeding of HBOS to LLoyds (the TSB bit was a previous gift from Scotland) is a perfect example: "set all the competition rules aside folks, this one needs to go through". This is G Brown's heaven sent opportunity to spike the Scot Nats guns and ensure his own future. Don't believe me? Check out the history with Michael Portillo at http://www.open2.net/thingsweforgot/dariengap_programme.html
Complain about this comment
I am a RBS employee & have made, in proportion to my annual wage, a fairly big investment in RBS shares over the last eighteen months.
During this last year there has been nothing mentioned within the workplace regarding any impending doom or failure.
The message has been even clearer; that we are progressing with our ambition of becoming one of the world's biggest & most successful banks.
There is a 'map of the world' in most departments in my workplace that shows our pre & post ABN acquisition representation within the globe. It's quite astounding. Pre ABN shows a rather smallish global presence, whereas, post ABN, it shows an almost complete picture of the world map.
I am more than miffed at the losses I have incurred over the last 18 months. However, I will be working to find the money I need to take up all my new rights within the Group.
Man Utd were relegated in the 70's by a back-heeled goal scored at Old Trafford by a former Man Utd terrace idol, Dennis Law.
No-one doubted, however, that the club were nothing other than a Great British institution - & history has proven to everyone that they are nothing other than the biggest & best football club in the world. 'What doesn't kill you only makes you stronger' sounds a bit naff, but I believe this is a classic case.
Complain about this comment
146
Why did the Labour Party not implement the manifesto pledge then?
We will reject the boom and bust policies which caused the collapse of the housing market.
Personally I really yearn for the long Winter nights with no electricity, the un-collected rubbish and un-buried dead.
Don't worry though Gordon Brown has had Margaret Thatcher round to both Number 10 and Chequers for tea, as he is also a conviction politician like her.
Complain about this comment
I am a RBS employee & have made, in proportion to my annual wage, a fairly big investment in RBS shares over the last eighteen months.
During this last year there has been nothing mentioned within the workplace regarding any impending doom or failure. The message has been even clearer; that we are progressing with our ambition of becoming one of the world’s biggest & most successful banks.
There is a 'map of the world' in most departments in my workplace that shows our pre & post ABN acquisition representation within the globe. It’s quite astounding. Pre ABN shows a rather smallish global presence, whereas, post ABN, it shows an almost complete picture of the world map.
I am more than miffed at the losses I have incurred over the last 18 months. However, I will be working to find the money I need to take up all my new rights within the Group.
Man Utd were relegated in the 70's by a back heeled goal scored at Old Trafford by a former Man Utd terrace idol, Dennis Law. No one doubted, however, that the club were nothing other than a Great British institution & history has proven to everyone that they are nothing other than the biggest & best football club in the world. 'What doesn’t kill you only makes you stronger' sounds a bit naff, but I believe this is a classic case.
Complain about this comment
There are several mistakes in this package but the most obvious one is the lack of dividends until the prefs are paid off.
It's in Labour's interests for the ordinary shares to rise, for if they don't the Government has a very transparent loss at any time between 8am and 4.30pm on a trading day on its investment.
Imagine Cameron pointing out regularly that the Government has lost £5b or £10b or £15b or ??.
The Government may be keen to steal a large proportion of RBS and LLOY/HBOS at a knockdown price from its shareholders by not allowing dividends, but it might be a Tory Government that benefits from the uplift after divis recommence in a few years.
It can't even fully nationalise in future should the highly transparent share prices drop without claiming the ords are worth next to nothing with therefore its equity investment largely worthless.
Therefore the success of this massive £37b investment by Gordon Brown and Labour as we approach the next election in 18 months is dependent upon the ords rising.
The curtailment of ordinary dividends will be a drag on the share price until after the next election as with a fair wind the prefs won't be paid off until about 2010/11.
This is a grave mistake probably made in the heat and excitement of the negotiations where clearly the government were in pole position and being very dictatorial in their bid to fleece shareholders, so I'm not surprised this point is now being reconsidered in the cool light of day.
As an RBS, LLOY and HBOS investor who has lost a fortune, also on the nationalisations of BB and NR, nievely thinking I was investing in stable blue chips in an investor/saver friendly country, and not anticipating the gross incompetence of the BoE, Government, FSA, auditors and bank directors, all of whom will no doubt wish to avoid negligence accusations as they are all at fault, I am buying up in the market my entitlements in all three banks at prices below the offer prices, as politically the Government must now make these deals work, or face much criticism even from this hopeless Tory opposition. A contrarian view which not many might share, even if they could find the cash to take up the shares, and stomach zero divis for years!
I hope the public does not forget that the sight of a run on a British bank, given London's standing as the premier financial centre, and the subsequent errors of judgement by the authorities contributed substantially to the lack of confidence which is now resulting in recession. Sadly London will have difficulty retaining its standing with long term consequences for the whole economy.
Foreign (not to mention domestic) investor confidence in the UK has also been severely dented (many foreigners have invested in British banks only to see their investemnts practically wiped out), again having long term implications for the UK economy.
Complain about this comment
# 135
Before you suggest to others that they should read Das Capital, you should brush up a bit instead of serving up a Ricardian or Cambridge school version of Marx's views. It is a serious distortion, but it would be far off topic to go through all your claims.
But one example is enough to show that you didn't understand Marx and the surplus value at all:
"Raw Materials + Labour = Product = Price
In Capitalism it's Raw Material + (Labour - markup) = Price"
Firstly, it is value embodied in materials and machinery + new value that in capitalism splits to wage and surplus value. However, it is not labour + mark up, because it is the wage and the value that are determined (and not the mark up), that is, it is not a sum. Strictly speaking, by the rules of capitalism, there is no cheating as the worker gets the price of his commodity (the ability to work), just his commodity is the only one that is capable to produce higher value than his own.
Where it becomes robbery if we move away from the rules of markets and we examine the social relationship between labour and capital. But a very different and much more significant issue than "cheating" or that "labour doesn't get its produce", which are just petty bourgeois (including Trotskist) whining.
Complain about this comment
Bush is "forgotten but not gone." In the UK's Brown is someone who understands economics, is articulate, and hopefully by now has regained the confidence of his constituents.
Bush's deregulation is responsible for the current crisis just as a lack of hygiene can be held responsible for the resulting infection.
The transfer of wealth resulting from Paulson's dithering will produce an Obama/Frank/Dodd/Pelosi victory and a continuation of amateur hour, with its inconsequential occasional stimulus checks in the US.
Every time Bush assures people he knows what is going on, the market plummets.
Complain about this comment
I am certainly no financial expert. However, surely it would make sense for Banks to offer a combination of Preference and Ordinary Shares so that both existing and new shareholders could buy one Preference Share when five Ordinary Shares are purchased, or a similar ratio. With a guaranteed yield on the Preference Share and a possible yield on the Ordinary Shares, this would seem an attractive offer to me. They could also lock in the investor for a period (say 2 Years) to help reduce the share price fluctuation caused by profiteering. I am guessing that there must be too many pitfalls in this approach otherwise it would have been done by now.
Complain about this comment
#151- kazblack:
"#119 .. As #113 has already pointed out you really are missing the point. The fools can only be those people that have access to the orchard, i.e. existing shareholders."
Accepted. But would everyone read it that way?
#151 "Everyone else only has the option to buy at market price, hence the reason there will still be people buying at 70p."
Don't you think it's strange then that the market price is now nearer 65p? Do you still think those with "access to the orchard" will still be piling in to buy? Going back to the topic of this blog, is 'RBS to stay private?'.
#151 "I don't think you can take credit for any market manipulation!"
That's a blow - I was hoping for my "15 minutes of fame". Lighten up - it wasn't meant to be serious :o)
Complain about this comment
#161, it is mortgage ASSETS. Just because RP can't tell the difference isn't a reason for you to be ignorant of finance 101.
Complain about this comment
#155, let me guess IT support?
If every single communist regime ends in repression, mass murder and starvation wouldn't someone be allowed to ask maybe communism doesn't work. Especially someone who proclaims capitalism doesn't work after a month of some market chaos.
Complain about this comment
#157
...but at least it's the same chime every time - that's because it's the truth.
Ring the capitalist doorbell and you will get a varied chime because hey make it up as they go along.
- The market is always right
- The market is nearly always right but peoples behaviour messes it up
- The market would be right but we need Government assistance to help us counteract the human behaviour
- The market would work, but intefering Governments mess it up.
- There won't be anymore boom and bust
- There will be boom and bust, but it's a natural thing, and is caused by inteferin Governments
- Oh dear, we're going down, please can the Government help us, but the market hasn't failed - honestly!
...and all the people dance to this tune....
Complain about this comment
I for one will be taking up the RBS offer. All this credit crisis is doing my head in. If everybody thought before using credit the world woud not have fallen apart!!
PS, my limit on my credit card has just been increased. I dd not even ask HBOS!
Complain about this comment
163 GHBRich
....ah comrade, I understand exactly what you mean. It is tough to watch a world where we're following the wrong road but you're not driving so there's nothing you can do about it.
...but that doesn't mean you should give up on what you once believed was right.
All you need to do tell the ohers where it's going wrong, tell the world, and be prepared to take up arms (if neccessary) for the struggle when the time comes.
Most people study Socialism when they're young, but years of batering in the capitalist society often makes people give in to the system.
I have revistited everything I was taught in Economics - and my life experience now helps me to make my own judgement and decision regarding what is right and what is wrong - not simply trusting what the leturer decides to tell me.
Remember, MOST people believe that Russia, China etc are Communist states, but in the same way most people think the United states is the land of freedom and democracy
....but try telling that to the people of New Orleans after Hurican Catrina hit, or the men locked up in Guantamano bay.
Complain about this comment
#147
Surely a black eye for the Chairman of LTSB rather than the Govt, it was after all LTSB who had been trying to purchase HBOS before all this blew up, all Govt. did was to facilitate what the LTSB board had been wanting.
Complain about this comment
GHBRich,
Here's an article from Feb 07 - Hamish McRae does indeed describe the essence of the current crisis, in particular, he says:
"..liquidity created by the long period of cheap money" ... "the old mechanisms of the public markets [...] are being bypassed" ... "a lot of new instruments are on the market and the buyers of these may not fully understand the risks involved"
and
"There is, as it happens, one type of investment in the US that has suddenly appeared much more risky than holders thought. This is "sub-prime mortgages", with sub-prime being a euphemism for rubbish"
http://news.independent.co.uk/business/comment/article2279383.ece
Complain about this comment
#137 redjsteel
I think the difference this time is that the recession is likely to be deep - and for the first time - worldwide.
The failures of previous attempts to bing about Communism was that the other Capitalist countries intefered to prevent it happening, obviously because they don't want it to spread.
Secondly Capitalism has survived previously because other countries in the world did not go into recession, and therefore provided a 'hand out' by providing a functioning market.
This time that country is China!
I'm not sure what you mean about private property existing without capitalism - sure it did during Feudalism, but it's not neccessary.
As soon as you introduce private property you enter a world of 'whose, and how much' - which is a road back to capitalism.
I completely agree with your statement about the sub-pime loans, they were like honey traps and they caught millions in their grasp. Those people WILL lose their houses and they WILL not be able to get credit for a long time.
I was at a propety auction this week, 80% were reposessions and it was not uncommon for the properties to be selling at a 40% to their price a year ago.
Who is buying all this?
James Caan, Phillip Green, Alan Sugar etc.
The Government has and always will look after the city - it's like a broken record.
JPM - Tony Blair, Hank Paulson - Goldman sachs - our governments are not independent and are LAUGHING AT US.
My question to evey worker on this blog - WHAT ARE WE GOING TO DO ABOUT THIS!
Are we destined to be suckers for all our lives?
What makes me laugh is George Orwell's Animal farm - which pigs are those, the pigs of Communism or the pigs of capitalism?
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
There is a lot of confrontation tonight. All good fun but not very constructive.
#95. Just because someone opposes the kind of free for all system we have developed doesn't mean to say that we want to adopt communism. A bit of self restraint and a recognition by those who have some advantage over others that they have a duty not to overexploit that that advantage.
#62. I happen to despise that woman and all she stood for but I recognise that she was a reaction to the "winter of discontent". Just because Gordon didn't reverse what she did (not that he could have anyway) doesn't make her right it just makes him wrong.
#74. Sometimes you listen to the so called experts who will explain to you that this time it is different, we have low inflation and historic employment, etc. You may not believe it but what evidence do you have, a simple view that if you spend more than you earn you are heading for disaster and the lessons of history (which you are told do not apply this time).
It is no wonder that we are now coming out and saying we told you so, we may not have been able to predict the nature of the crisis but were sure as hell that there would be one.
I voted against demutualisation of the Halifax and Bradford and Bingley. When they demutualised I sold the shares and moved my money to another mutual.
Cheers
Complain about this comment
175 - redjsteel
I was over-simplifying the concept of Marx's theory in order to try to get the others to understand.
The elitism of Marxist-Lenninst thought often puts people off, and when something needs to be understood by the masses, it cannot be complicated (look at X factor)
It's inescapable that in the capitalist economy there is profit made on the production created by the worker who does not get paid the full value of what is produced.
Complain about this comment
@ #117, #123, #133, #166 GHBRICH
Interesting views -- can't say I always agree.
When posting could you include the number of the post you are commenting on or replying to? It would make it easier to follow the discussions you're involved in.
Thanks.
Complain about this comment
If you gentlemen will sell your RBS shares tomorrow I may get a better price when I buy. Opportunities like this come so rarely. Hoping to feel really smug in 6/7 years.
Complain about this comment
#180 - Ouch
Complain about this comment
# 167
I took a look at the link you kindly provided and to a layperson such as myself, it is very disconcerting.
If only because there has been a relative silence about these 'derivatives'.
As the author pointed out, if one goes down i.e. Lehman, then this drags all the other counterparties into the pit as well.
Paulson made a shocking error here when he pulled the plug on Lehmans.
You assume that the world wide Governments have been full appraised with respect to the possibility of complete collapse of major banks if these derivatives are not unwound in a very controlled fashion.
Looking at Lehmans, the market rated these at only 10c to the dollar so maybe mega-haircuts but no total collapse .. let us hope so.
But it only puts off the day of reckoning ... the financial system will have to be totally recast, with much greater emphasis on morals and ethical behaviour.
By co-incidence, I do believe that one or two small institutions in the UK do actually try to practise that .. e.g. the Co-Op (Bank).
Thank you for the information.
Complain about this comment
181 TawkinSenz
Progess is made through flexible adaptaion to the environment.
If you think you are the chimes of freedom that is up to you, keep pressing the button. ROFL
Complain about this comment
173 Sir W
If you think that the guys upstairs tell you everything you have a problem. They usually use something called 'need to know' as censorship. A director I knew in a rather large business said the last thing he wanted was an informed workforce. It is a bit like they always shut the companionway door when a plane is coming in to land so you don't see just how hairy it really all is with the horizon moving all around.
RBS shares have to be underpriced at present it is how long before they recover. I don't like long games myself.
Complain about this comment
#180 - Cool vitriol, maybe enough to deflect attention away from the fact that your core premises are incorrect.
Very few communist/socialist Governments around - anything that looks like it may work has been remorselessly attacked by the US and their mates in the UK.
Think Vietnam where the US invaded to save Vietnam from the Vietnamese (sic).
Think Nicaragua where the US launched and sustained a terrorist war against the Sndanista´s (World Court Judgement requiring the US to cease its aggression - ignored by US). Recall Reagan declaring a National Emergency becasue the Sandanista hordes were only 2 days march from Harlington Texas.
Think Chile in 1973 - please remember Victor Jara.
Remember Pat Robertson - God spoke to him and told him it was his Christian duty to depose Chavez.
Poor old Cuba persecuted without end since 1959.
Guatemala, Haiti, El Salvador, the 1953 overthrow of Mossadeq and his replacement with a Fascist - the list is long.
You may want to judge capitalism by reference to 1 months market turmoil - but the poor and the dispossessed can offer a longer reference period.
You should try and get out more - just because people are poor and don´t know much about interest rates, hedging, bond markets, and yield curves doesn´t mean they don´t understand what the real deal is.
Complain about this comment
TawkinSenz. #186.
I wish I could think of something, being essentially powerless we just have to try and persuade as many as we can not to participate in thier own slavery.
Even my own wife is fed up of listening.
Are you working to bring down the system from within ?
Cheers
Complain about this comment
Brown and Cooper have just invented a new Government Junk Backed Asset
...a Bank Share that doesn't pay a Dividend
No doubt they hope they can parcel up packages of 'zero income' and sell it on to the Income funds.
But the economically Rational Players who looks for a return would not invest in an asset of Zero return (the Economists)
And neither would the economically Irrational Players (the Punters)
So no self respecting Economist or Financial Analyst would give this 'offer' a lot of credence.
Which only leaves Brown and Cooper who think it is a 'good idea'.
No wonder their credibility in the City sinks, every time they come up with their latest 'good idea'.
It must be Brown and Cooper who turned Government Economics into the 'Dismal Science'
(and 'Dismal' is understating it)
Complain about this comment
glanafon it was not directed at you but was a post directed to the general masses. If you took umbrage then where's your revisionist history?
I left the country in 2000 and decided not to invest in houses because of the average wage v average house price ratio. I came back in 2002 and couldn't believe how'd they gone up. It didn't take a genius to know the multiples were crazy both historically and in actuality. The easy credit was well established in the 90's. I understood these things but had no answer for them. I suggest to you that virtually all these people demanding Glass-Steagall regulation, a return to traditional retail banking and prudence didn't have a clue what this meant last week. Let alone would they have swallowed it in 2001 & 2005. If you can give me policy at any point between 1997 to today, that would have been acceptable and led to a Labour victory I suggest you should go and work at Millbank or the Whitehouse and collect your very big cheque.
A recession after 2001 would have threatened both Bush and Blair. Bush's ridiculous tax cuts for the rich got us out of that one. We wait for the US to move and certainly follow the same mistakes, but benefit from their upswings. What I will question is you'd have done anything different in Brown's place. There's no naked genius in knowing broad macro-economic facts. Why don't you go and live in Germany if you want more predicability and a more recent recession? The other week you were praising Paulson's poorly thought out solely monetarist plan whilst you criticise Brown for copying Buffet. Very easy to do.
Complain about this comment
This comment has been referred to the moderators. Explain.
#196, Thinking of Chile - around 3,000 dead over about a decade. Mosadeq's overthrow resulted in a max of a couple of hundred deaths ( for comparison, the Islamic republic executed around 60,000 people in the first few months of it's existence ).
Compare to North Korea - an estimated 1-2million starved to death. Or Kampuchea, 1.5-2.5million killed. Or USSR 40million killed under Stalin, 17 million under Lenin/Trotsky. Or Mao, at least 70million dead. Or repression of all dissidents under Castro - that's before you look at their interventions in Africa. As for the Vietnamese, when they finally weren't being saved - ie the country was "reunited" - it wasn't the americans who risked life and limb to get in flimsy boats to travel to the communist paradise that was Vietnam.
There is a reason there are very few communist regimes and that people out of not into them.
Complain about this comment
#197, I suspect you need to put quotes around "working".....
Again, we have heard so many lies about this current crisis. Here are a choice selection:
1) "Deregulation" or "light touch" caused this. No. The sole reason structured products exist is because of regulation. They are a form of regulatory arbitrage. The key regulation here are that some firms cannot take credit risk but can take interest rate risk. So a CDO takes inputs that have relatively high credit risk - subprime or credit card flows - and transforms that risk into interest rate risk via variable coupons. Now your pension can invest in it and your bank can use it for reserves.
2) The difference between a cash loss and an accounting one. When you first sell these products, you book the discounted cashflow as "profit" and then it is marked to market. Think of it in housing terms. You buy a house for 100,000GBP. Your neighbour sells his for 125,000GBP so you have made a "profit" of 25,000GBP. Your other neighbour sells for 110,000GBP and now you have made a "loss" of 15,000GBP. These are accounting losses. Now imagine you have borrowed against your house 120k before the neighbour sold for 110,000GBP and your mortgage requires you to post cash if the price falls below that 120k then when your neighbour sells you now have to post 10k cash - that is a cash loss. First example no money changes hands, second example money does.
3) The marxist notion there is some "intrinsic value" in assets like houses. There isn't. It's value is precisely what people want to pay and that is a mixture of what they can pay and what they think the value is. Brown is trying to reinflate a bubble but restoring access to easy credit.
4) That there was some giant conspiracy or fraud. There was fraud but mostly at the point of origination of the underlying asset - the mortgage application or credit card. These products are perfectly well documented and the risks well known - and people were pointing them out for at least 4 years. Vince Cable in the 2003 or 2004 budget claimed that the Brown "miracle" was based solely on debt and Brown dismissed him as having always been wrong. The CIO of Insight Investment wrote an article in the FT about the underpricing of risk in 2004. Frank Partnoy wrote a book. Lots of people pointed out the problems but whilst the party lasted everyone was happy.
5) Only one man has claimed that boom and bust was permanently banished and that is Brown - although apparently he is now claiming he only promised to banished TORY booms and busts. Bust is the price you pay for boom. You want total macroeconomic stability move to the DPRK, they haven't had a boom or bust in a couple of decades. Hope you like tree bark.
6) That this somehow is anyone's fault except Mr Browns. He starts every sentence with "This crisis which began in the US....", except it didn't. It just manifested there first followed very rapidly by the UK. By every single measure most of the growth in the UK from the last 7 years is from an asset bubble and massive public sector spending and like all ponzi schemes it sometimes has to end. Look at inflation, share prices, house prices etc and see the difference between the UK under Thatcher and Major and that of Brown. When the first signs of an asset bubble came up in the UK the Tories pricked the bubble, Brown is trying to reinflate it.
Complain about this comment
@ #202 laughingblacksheep
Interesting, informative post -- too bad it got posted so late in the life of the thread.
I hope you will post more examples in the future of what you consider to be lies (or mis-information) relating to this crisis. I may not always agree with you, but it really helps an inexperienced reader to identify oft-repeated "truths" that should be carefully examined.
Complain about this comment
@ #202 laughingblacksheep
I've just come back from a long weekend in a former Communist Paradise of Hungary. From what I can gather, the Hungarians are very happy and eager that Hungary stays a *FORMER* Communist Paradise.
They even cheerfully showed us this huge bunker under their castle in Budapest where the Communist government "cordially invited" dissidents for "tea and cakes" !! Of course, being proper little "former" Communists, they charged us for the privilege of viewing those torture chambers !!
Whilst I was away, it looks as though you have taken up the cudgel on behalf of urban-myth busting !!
Unfortunately, there are too many religious fanatics nowadays, be they Islamic, Communists or Socialists, who still cling to their myths and sprout them endlessly without providing a single shred of evidence !!
Gormless Gordon just proved this when his proud boast that the economy can grow endlessly despite very high public spending has been well and truly busted !!
Educated Hungarians truly despair at the useless and meaningless "educational qualifications" churned out by this government. They will cheerfully change places with *ANY* UK professional who wants to set up a socialist paradise in Hungary while they earn the wealth their proper qualifications so richly deserve. Doctors, dentists, engineers, etc.; male and female both !!
Complain about this comment
#180
Many, notionally capitalist, dictatorships have ended that way too - in fact the only nation to implement the monitory principles of Friedman, before Thatchers latched onto them, was Chile...
Complain about this comment
#205, care to name any free-market capitalist countries that did so? I'll lower the bar, they only have to have killed 100s of thousands of people not millions. Or is this going to be yet another unsubstantiated claim
Complain about this comment
#201 - With regard to Chile I think you are confusing a decade with a single day.
The rest of your comments contain equal absurd inaccuracies.
Leaping to the defence of #205. Tens of millions of Indians were regularly killed off through starvation during the British Raj. Suharto in Indonesia accounted for rather a lot (the 100´s of thousands criteria met just in the case of East Timor).
According to my history books WW1 seems mainly to have involved free market capitalist countries.
South Africa under Aparthied seemed keen on free markets and capitalism - yet still managed to get through the lives of several million people.
Once again there is a long list.
Funny how you know an awful lot about the micro aspects and effects of markets - but seemingly nothing about their macro aspects and effects.
Complain about this comment
#207, don't think i am:
http://www.guardian.co.uk/world/1999/jan/15/pinochet.chile1
Suharto didn't run a free-market, capitalist system in the 60s. Rather it was post-Suharto that free-markets were imposed on Indonesia and it is bizarre you claim that South Africa had unbridled free markets when most of it's population didn't have property rights - which is a key tenant of capitalism - nor rights to trade - which is the other. Also "tens of millions" didn't die under apartheid, the actual figure is in the low tens of thousands.
WW1 involved free market capitalist countries - what like Russia? Austro-Hungry? Imperial Germany? The only two countries you can vaguely call free market capitalist were the UK - at least the mainland part, not so the empire - and US which was free market. Is your point meant to be that at some point in WW1 the US starved to death and otherwise murdered between 20-25% of its population? What history books mention that?
India under the Raj most definitely WASN'T free markets. The whole point was that the population was forced to buy goods from the UK at marked-up prices and forced to sell at marked-down prices and it is far, far from obvious that there is any relationship between capitalist policies in mainland UK and what happened in India.
I guess the list is not so long after all.
The point is that there is a 1-1 correlation between communist regimes and these atrocities. Every single one has repression, every single one has incidents of mass murder, every single one has a collapse in living standards. There is a reason people aren't queuing up to live under them.
Complain about this comment
#203, the other misconceptions is that somehow these products are "defaulting" or not paying out. Most aren't:
1) Firstly, "default" means that the instrument is not meeting it's obligations. The whole point of these products is that by having variable payouts when the **underlying mortgages** default the coupon paid is lower by design. So it is meeting it's obligations but that it is paying out less than expected - by the buyer and possibly seller - but that is described in the initial sale document. You may ask what the difference is. There is no **economic** difference but a massive regulatory and legal distinction.
2) Secondly, most aren't even lowering their coupon payments. It is just people are either dumping the bonds because having them can hurt your business so it is worth taking a hit on selling below par but at least no one is going to write about how you have lots of "toxic waste", ahem, ahem. Or if people are not willing to sell them. Either way the price is artificially lowered and due to mark-to-market you get accounting losses and due to people posting them as reserve capital - as they are allowed by the rules - it means they become capital constrained which just like someone who is struggling to pay a mortgage on a house with negative equity can quickly lead to a cash loss.
Complain about this comment
#202 Laughingblacksheep
What you say makes a lot of sense. I have a couple of questions about your points 1 and 2.
Point 1. These structured products seem to have been a way around poorly drafted regulations which were intended to prevent certain institutions exposing themselves to risk. I imagine that many people spent a lot of time and effort trying to comply with the letter of regulations whilst avoiding the spirit.
Point 2. Was Mark to Market introduced when assests were consistently increasing in value so as to take advantage of the appreciation ? This would be like the homeowner remortgaging to withdraw equity - it all works well until values fall.
Cheers
Complain about this comment
Thankyou laughingblacksheep for some very enlightening responses.
Can everyone get off the peurile ridiculously accounted top trumps of murder regimes? Accept it's absolutley true that true liberal democracies do not kill their citizens in thousands through terror and inactivity. Rolling out deaths for World War One regimes is a bit rich considering universal suffrage wasn't present in the UK until 1928. Whilst blaming every death that occurred on Stalin's and Mao's watch, admittedly they took a big toll, is the libertarian crank's justification. Chang Kai Shek and the Romanov's want some action. What about the twenty five million killed in China during the war, most through starvation? Does Mao take that too? Frankly it's all a bit ridiculous. The central tenet is true.
armagediontimes you criticise macro and micro but have the most appalling grasp of history, let alone your subject. Millions died in famines during the Raj can't be denied. But is the fact that the industrial development of India under the Raj, resulting in no pan Indian famine post 1900 a great acheivement? Whilst the Raj was never a democracy your snapshots of hippy history are so ridiculous as to call into question your sanity.
Complain about this comment
#202 Laughingblacksheep Re: my post #210.
I think you have laready answered my point 1 in your previous posts.
Complain about this comment
#210, Market to market has been around for a while. It is really the only quasi-objective way to value a product.
There are three main issues with it:
It brings about an extra volatility in asset values. Imagine a housing market where your houses are valued real-time and you are required to post cash when the price goes down EVERY day as and when it happens. A bit of downward pressure can become a death spiral quickly.
There is usually not an exact fit for you particular OTC product. So you have some wriggle room to value the product. Also in a thinly traded product, outliers disproportionately affect the "value".
Closely related to the above is the ability to game the valuations. For example, Global Crossing could inflate it's asset book by do Swap trades where it would swap identical assets for an inflated and artificial price. So I have something booked at 100USD, I sell it to company X for 200USD who in a simultaneously transaction sells it back to me for the same price. No value has been created and more importantly no money changes hands because both legs of the swap are equivalent but suddenly all my 100USD assets are twice as valuable - not this is perfectly legal, but can only work in a thinly traded market as in a liquid one there are too many trades to to game the price.
Ironically, financial products are one of the only products that have an "intrinsic value" a la Marx - that of the discounted cash flows - but it is impossible to model accurately. A lot of them are still paying out and trading for lower than their discounted cash flows but given that anyone with "exposure" to CDOs is getting hammered it is not rational to hold them at any price,
Complain about this comment
laughingblacksheep, may I add my thanks to those of others, not least for caring about the human cost of real-world communist regimes. Martin Amis made the point in his book on Stalin Koba the Dread: go round the UK displaying a swastika or giving Nazi salutes and you quickly become a social pariah but among the left it's still possible to have a good communal laugh about cheery folk like "big moustache", because (it seems) all the mass murder was done with the very best of motives. It's amazing at the same time the vitriol spewed forth on this blog over a fully democratic politician like Margaret Thatcher, whatever mistakes her government may sometimes have made with the benefit of almost thirty years hindsight.
I have three areas of query for you. First, when did the house price bubble start to manifest in the Thatcher years? Did this relate to the differences Mrs T and Nigel Lawson had at the end of their time together and the subsequent ERM debacle? Do you think we kept interest rates too high at that time, killing off too many useful SMEs? Are policy rates any use to deal with an asset bubble in any case?
Second, how does marking to market relate to Value at Risk and the Basel II accord? Is Basel II partly to blame for the current debacle or was it a necessary move, in your view?
Third, your explanation or how CDOs exist to get round regulation (in effect) is very helpful. Do you agree with those that blame the Community Reinvestment Act (CRA) and other extreme measures by the Clinton administration to encourage mortgage lending to the poorest in the US, which Bush failed to reverse, for creating the subprime problem? You also seem to imply the 'toxicity' of stuff like CDOs is pretty notional. How did that come about?
I'm asking you the last two (cos you seem to know what you're talking about and have some common sense to boot) but I note that in another thread in the last 24 hours starquin10 wrote:
"Regulation, such as the CRA in the US and the Basel II accord over here, caused the problem so more regulation will cure it?"
Is this fair? I know I have sympathy, partly because of the very dodgy history of the Bank for International Settlements in the 30s. But they have come clean about some of that stuff, from what I've read. So has Basel II been OK? Presumably you do agree that the FSA was not at all good in its oversight role 1997-2008? We do need regulation of banking but it must be knowledgeable and effective, right?
Thank you if you read and especially if you reply!
Complain about this comment
Laughingblacksheep.
Thanks, things are getting a bit clearer.
Complain about this comment
There are a lot of reasons why HMG would not want
a Nationalised HBOs
In fact make that “could not” nationalise HBOS.
First is the row just starting up in Scotland over BOS.
BOS issues Scottish notes - and the idea that the 'English'
parliament should take over one of the only two Scottish
note-issuers is not just a joke but a mega constitutional
issue in Scottish Law and English banking Law as well -
Bank of England would be in a very odd position - issuing
the UK notes and coins, managing sterling internationally.
I think the government just wouldn’t want to take it on.
Then there is the rest of HBOS - private wealth management
international operations, Clerical Medical Pensions, fund
managers, life assurance - just doesn't 'fit' with state
ownership. The mortgage bits Halifax and Birmingham Midshires
(A similar but possibly worse than B&B) are bad enough given their
size (19% of the mortgage market) - our secret controllers in the
EU competition department would have a fit over that.
- each and every business represent a nightmare of conflicts
of interest for civil servants if they had control.
Then HBOS has significant 3rd party investors in its equity,
its preference shares, its CP programmes, its SIV's - the
potential law-suits - many in foreign courts - would make the
Attorney General's office blanche.
Bradford and Bingley was a walk in the park - once its clearing
bankers pulled its cash lines it was bust overnight and was just
a relatively simple matter for HMG - but even there Santander
had to agree to run the savings book and take away some of the small
invisible legal problems as part of the gift.
If Lloyds shareholders revolt
and HBOS really tanks
then the sky would fall in on Gordon's famous rescue (Rescue
my polical career)
Lloyds Shareholders should make whatever demands they can - believe
me they are in an incredibly powerful box seat at the moment.
Complain about this comment
As an investor in outstanding RBS prefs we need to know that the dividends will be paid. Pricing does not reflect this. Certainly seems that UK Gov is clear-- ords will not pay dividends but while not explicit pref dividends will be paid. RBS will wish to to raise in the future not only ords but prefs--they need to be explicit as soon as possible that current pref dividends will be paid.
Finally on ords--UK goverment should allow modest dividend on ords, say 3%, to encourage take up.
Complain about this comment
Where use American terms like "Spike in Oil price". What is wrong with rise in oil price or drop in oil price?
A good article but really do we need this insidious creeping Americanisation of our language????
Complain about this comment
View these comments in RSS