Spend, spend, spend?
It's like an avalanche.
A snowball of tumbling share prices began in Europe yesterday afternoon, picked up momentum on Wall Street - where the important S&P 500 index suffered its biggest loss in 21 years - and has been battering Asia overnight.
And that in spite of the £2 trillion pounds of taxpayers' precious money committed by governments to bank rescue plans all over the world.
What's more - and probably more worrying for the authorities - is that interest rates charged by banks for lending to each other for three months remain at disturbingly high levels (see my note from earlier this morning for detail on this).
It means that last week's dramatic and co-ordinated cut in interest rates by central banks is having an only limited impact on the cost of credit for businesses and individuals.
What we're witnessing is the limits of what these banking bail-outs can achieve in the face of what increasingly looks like the onset of a global economic recession.
Governments have been able to prevent individual banks from falling over. There's another example of that this morning with the announcement that Switzerland's national bank is lending a staggering £30bn to a special new company set up to extract poisonous assets from the huge bank, UBS.
But they've been powerless to prevent the banks contracting the amount of credit they're providing, which has reduced the ability of companies and individuals to invest and spend, and risks turning an economic slowdown into something rather worse.
That's why the British government is being forced to think about something new: a substantial and sustained increase in public spending to offset the contraction of spending by the private sector (there may be little point in cutting taxes, since nervous consumers and businesses would probably hoard any extra cash that went into their pockets).
A rise in public spending would increase the burden of public-sector debt, which is already - on one measure - above the government's self-imposed limit.
And paying off the increased debt would limit the growth of the economy as and when the economy turns.
There's also a risk of downward pressure on sterling and upward pressure on the cost of borrowing for the government, if the UK's balance sheet were perceived to be weak by international standards.
But ministers increasingly believe that may be a price worth paying, if an old-fashioned Keynesian stimulus to the economy meant that the UK suffered a shallow recession rather than a deep and dark one.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~06~RS~)
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"They don't know what they're doing"
Darling to Gordon Bust......."Have you another cunning plan Baldrick?"
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Wasn't it James Callaghan who said
"We used to think that you could spend your way out of a recessio nand increase employment by cutting taxes and boosting government spending..."?
How did that quote end?
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Back to business as usual for Brown then
Borrow and Spend!
IT DOESNT WORK.
This government need to go now.
The best solution would have been to let the bad institutions go to the wall and take the toxicity with them, leaving the strong and sensible ones to lend to others that they also knew were strong and sensible.
The LIBOR remains high because the toxicity is still in the system and until the house of cards starts to fall no one knows exactly where it is.
I hope the world realises just how premature they were now lauding the buffoon who is PM in this country for saving the world.
He hasnt, he was never likely to. As always with his pronouncements the devil is in the detail. He and Darling "hope this and hope that" when they needed the ability to order the banks to do what they needed to do.
If Brown now borrows and spends on top of the borrowing and spending that he has already done the UK will be heading for the dark ages for 20 years
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Dear Robert
Banks are into self destruct, they are hoarding money.even tax payers money paid to them to operate.
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Might I suggest an appropriate public spending project should be to sort out the utility services under our streets? Get things structured so all services are ducted, with a single pavement service hatch for each building. The idea started with Hitler's motorways project, but given the lamentable state of the water supply and sewerage, there's an obvious target where the investment will benefit generations hopefiully to come.
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Gordon Brown is not Winston Churchill and is not going to save the world from financial crisis.
The markets have now given a clear indication.
We must stop this foolishness now.
To do so we need a new government with fresh ideas.
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Robert
The global bail outs are, as you say huge, but no where enough to eradicate the real culprit. The best government could do, was to stabilise the banking sector in preparation for a recession. I'm afraid the two are now happening together.
I am also concerned about the big rush to reduce interest rates and the reasons. I have looked at which prices are going up and those coming down. There is definitely a downward trend, which if I project accross the board results in a rate of change -18%. On today's figures that means deflation in about 12 months time. If rates are cut too much too soon that will happen.
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Spending too much now is a waste. If intervention starts too soon and isn't a global effort then the UK will be throwing cash away to no effect. There's a myth that a Roosevelt ended the Depression - he didn't. The Second World War and the massive spending combined with the massive consumption of commodities (ships/tanks being built then being sunk/blown-up) lifted the US out of Depression.
When money is being sucked into a vortex why throw more in? Trying to sustain the economy at 2007 levels or 2006 or 2005 or... is a waste of time and money. It would be wiser, I think, to let the economy deflate and then intervene with a chance of success. Aside from the waste, if the government plans didn't work, the loss of confidence would be immense AND the upturn will be even further away.
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Instead of increased government spending, an alternative is set the VAT rate to zero until the end of 2009. This would affect all areas of consumer confidence in the economy. All governments have a poor track record when they attempt to target areas of need.
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the problem is that some things haven't happened yet:
- failure of hedge funds
- more insurance co failures
- massive credit card losses
- failure of auto companies
- massive corporate debt defaults
rates will need to be cut (almost) to zero everywhere. govt deficits will need to hit 10%.
asia will go into recession too (not just a slowdown). china will have its own banking meltdown.
only when these things have happened will we have seen the bottom..
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Perhaps I'm being silly (after all I'm no expert on economics) but I just wonder if instead of cutting interest rates they should be be increased.
This crisis is not caused by a lack of people wanting to borrow but by a lack of lenders.
Reduced rates would increase the number of borrowers but reuduce the reward to lenders and make them less likely to take the risk of lending. An increased rate would reduce the number of borrowers but would perhaps make it worth lenders while to start lending to those borrowers still looking for a loan. It might slow the economy down but it would only need to be a short term step to prime the pump and get the system flowing again.
I'm sure there must be flaw in this idea so please challenge it.
You're all doing very well !!
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Say it ain't so. You're telling me that having doubled national debt and spent our way into this recession the plan is to spend our way out of recession?
Robert Mugabe will be pleased to know his fiscal policies are now mainstream.
Can I design the billion billion pound note?
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This comment was removed because the moderators found it broke the House Rules.
As I predicted the bail-out hasn't worked. The banks are still not lending to each other despite the govt conditions.
1. The 4 UK big banks must surely have enough to lend given the guarantees, so they should not need to borrow from other banks.
2. Why isn't the govt FORCING banks who've signed up to rescue to lend to small businesses in a controlled fashion.
3. Is it that the banks are hording money to repay their exposure to the NEXT tranch of CDS?
4. Bearing in mind the enormous cost of the bank bail-out and little to no benefit to the taxpayer (its little good having a banking system that won't lend). why on earth isn't the Govt lending direct to businesses via Northern Rock or B andB?
5. Broon and Darling the music hall comedy duo should do the decent thing and resign. Very costly bank bail-out, to boost PM's stature 'in a crisis' - Hallmarks of P. Meddlesome here briefing to friends in BBC.
6. Why Robert isn't your headline BROWN PLAN FAILS or is that not what your source (very close to Brown & Nu-Lab) told you to say)?
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Well, it was always highly unlikely that the bank bail out would be sufficient to stop the house of cards from falling further.
The banks and investment houses are still hoarding money, or could it be said that for a change they are being more prudent with their money like in the old days, where they were not so leveraged. That is also causing pain down the line for hedge funds who are finding that they are under capitalised and need to quickly make good the deficits on their accounts with their brokerages. Where are they to get the money? Simple, sell assets! Hence the flood of stocks onto the market to realise cash for the hedge funds is pushing all the stock markets much, much lower. Also, remember that there are some $500 billion of CDS that have been cashed in a result of Lehman, the cash to pay those needs to come from somewhere as well.
All that is leading the stock markets down, and the truth is, that is going to lead to more CDS to be paid up, and more selling until the whole house of cards comes tumbling down.
I think the US said recently it has no plans to close the markets because of the turmoil, I wonder how long it will be before markets are closed on both sides of the atlantic as the bottom drops out of them and they go into total freefall?
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More and more I feel that I am living in a Banana replublic with a self-imposed dictator who is determined to do anything to cling onto power.
Spending your way of a recession doh, has this not been tried countless of times already and does not work.
Move over Gordon as you are reason why we are in this mess.
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Robert,
can you remark on the rumour I heard that the UK Govt is shortly going to announce that banks cut interest rates on outstanding amounts to date credit cards to 4% over base - across the board?
GC
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It would make sense to use the partial nationalisation of the UK banking system to support a municipal building programme on a scale not seen since after the second world war. The shortage of housing will not get any better during the recession and if we don't start building now there is little hope that housing will ever be affordable for those on average incomes in the UK. Such an investment in housing and associated infrastructure would be of long-term benefit to us all, whilst creating employment in the short to medium term. To be able to do this the Treasury will have to relax it's stranglehold on surplus public sector land, whereby it demands that it is sold for development at the highest price possible, instead of being used to the benefit of ordinary taxpayers who can't find a home they can afford.
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the way to unblock it is for the govt to start taking on the rolling commercial loans the banks won't. once the banks start to think they will be losing business then that might focus their minds more.
it means the state stepping in to provide 3 month money but if we leave it to the banks and their psychological collapse they will drag the rest of the economy down with them.
there are billions that have to be refinanced soon including those running pfi contracts [schools, hospitals, roads, etc]. The banks should not be allowed to wreck the rest of the economy.
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To halt the share price tumbling is not such a so difficult thing to do. The key or the bottom of the problem is to restore confidence especially in the banking industry. In the past few weeks or specially past few days, the government successfully turned the total macro economic collapse and failure and laid the blame squarely and solely at the door of the banking institution. I felt the British public and opinion is so easy to be fooled and misled. Suddenly all the economic ailments accumulated for the past 15 years become solely the responsibility of the banking industry, it sems to me suddenly everyone even the opposition forget that it's the government macro economic and monetary policy is the cause of the current problem. Suddenly the most unpopular government become a super hero leading the charge to save not only the UK economy but the whole world from faltering, the truth is just plainly opposite, the government policy of driving bank share price down and try to nationalise as many financial institutions as possible is key to unlock the confidence. For the banks like RBS, HBOS, LLoyds and even Barclays, my advice is never ever expecting this governemnt will come to your rescue, the true purpose of this so-called government bailout plan is to run down bank share prices as cheap as possible and then nationalise as much as possible, within several months after robbing share holders their income and retirement fund, the governement will sell the shares at highest bid to make huge profit, use these profits to buy another general election victory from the UK public by spending huge amount of confiscated shareholders money to invest in some useless public spending projects to artificially reduce unemployment rates. So my suggestion to the public is not buying the propaganda, clearly say 'yes' to curtail excessive risk taking behaviour of the bankers, regulate the industry and limit boardroom bonus and executive pay, but say 'no' to privatisation of banking industry, robbing of shareholders and their income and retirement pension.
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We can hardly blame G Brown et al for what is a global crisis. If even the Swiss are now in the poo, we can hardly blame specifically UK policies. The idea that different policies in the UK would have insulated us from such a worldwide crash sounds like wishful thinking.
What we are now seeing is that markets are run by humans who are all too often quite irrational in all aspects of their lives. Putting one's faith in markets always carried this risk.
As we are now in uncharted waters I suspect the rule book ( and Lucky Jim's nostrum about spending and recessions) goes out the window.
Having supported the banks, as a taxpayer I now expect them to do what is best for the greater good ( ie the economy). If they will not do that, there was little point in saving them in their present form and we now need to consider their full nationalisation.
A bank that will not lend and participate in normal commerce ( ie making stuff and providing services ) is not a bank and has no purpose. This is a crisis and the economic wellbeing of citizens should not be decided by boards of directors whose first loyalty is to shareholders.
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Money being spent = money which does not exist (except as debt) being injected into debt which does exist = no effect whatsoever.
Who expected anything different?
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Does this mean that Gordon Brown is not superman after all??? Well who'd have thought?
So.... Can we have our half trillion pounds back then please?
Better still, can the Government distribute that money amongst mortgage payers and credit card holders so that we can pay off OUR debts and get the real economy going again???
It is too late for Gordon to pretend that he is on the side of the people. When the economy was about to go titsup, we will remember who he went to rescue, and it wasn't the people, who would have been very grateful at the election for some real fiscal help. No he went5 running to bail out the corrup, greedy and ungrateful bankers.
Let the banks fail and we can replace them with institutions that actually work for us. Instead of institutions that enslave us in a prison of debt.
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Oh to be a DANIEL!,
Once,Twice,Three times a Welcher?
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#16, no sadly not, you're not in a banana republic because if you were you could still trade bananas..
As Monty Python said, 'no dear, this is the dream, you're in reality..'
GC
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Last night's News Night Revealled that Barclays has exposed 2.4 trillion insurance liability, the world over the total liabilities are a mind boggling 58 trillion. So anyone can predict when this huge cannon ball will explore and what the consequences are...
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Goldmine Sachs
Daily Mail: Wednesday December 13th 2006
By Lucy Ballinger
Bank staff to get £320,000 Christmas bonuses - City payouts total £8.6bn in biggest pay bonanza ever seen in London.
STAFF at investment bank Goldman Sachs are expected to receive Christmas bonuses averaging £320,000 each. The news came as it emerged that City workers will be paid bonuses totalling almost £9billion this year.
Soaring stock markets and company takeovers have helped fuel expectations of record payments, with the biggest players likely to receive tens of millions. Goldman Sachs, the world's largest investment bank, said its employees would be awarded a total of £8.4billion in bonuses this year -40 per cent up on 2005. It comes after annual profits for the bank, nicknamed Golden Sacks, soared 70 per cent to a record £4.9billion.
The bank has set-aside a record amount for its employees across the world, averaging £320,000 per mem-ber of staff. It will be paid in bonuses and other benefits to the 26,467 employees, including around 5,000 based in London. However, the rest of the workforce is not so lucky. While the average salary for a man working full-time in the City is nearly £90,000, everybody else is on £25,000. The average salary, excluding bonuses, is just 3.3 per cent higher than last year - below inflation, despite above-inflation rises in household bills. The average gas bill has jumped 91 per cent since 2003 to £630.
New York-based Goldman Sachs has kick-started the seasonal pay-ments because it is the first to announce how much has been set aside for bonuses this year. Some employees will receive bonuses which will dwarf their nor-mal pay when they are paid out in the first two weeks of January. The biggest players, such as senior executives, star traders and deal-makers, can expect to receive £10million or more each, while many more junior staff will be on £1million or more. Goldman Sachs finance director David Viniar said: 'This was a remarkable year for Goldman Sachs by any standard.' Last year, 3,000 senior City workers took home at least £1million each in record bonuses.
Experts predict 4,200 high-fliers across the City will benefit from bonuses of more than £1million as part of the biggest pay bonanza ever seen in London. Bonuses in other firms are forecast to be between ten and 30 percent higher than last year. Total bonuses in London will be around £8.6billion, according to the Centre for Eco-nomics and Business Research. Morgan Stanley, Lehman Brothers and Bear Stearns all report their own results in the next few days, and most other investment banks follow in January.
More than half of bonus money from the City is believed to be spent on new homes or second homes. City workers' spending power has helped property prices in London rise to an average of £260,000. With more than 300,000 people working in the City, an increase in bonuses will fuel fears that prices in the South East will continue to surge next year. While some will put their money into investments or property, others will go on a spending spree, buy-ing luxury cars, yachts, race horses, jewellery and designer clothes. City bonus payouts have been heavily criticised in the past. At the Labour Party conference, Harriet Harman described them as 'excessive and ridiculous'.
The Constitutional Affairs Minister said the increasing gap between rich and poor creates a 'sick society'. Brendan Barber, general secretary of the Trades Union Con-gress, said: 'No one. should begrudge generous rewards for hard work and risk-taking. But the obscene size of these City bonuses has lost touch with reality.'
WHat a difference 24 months or so makes.......!!!
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Why does it matter if people don't borrow? Encourage folk to save awhile.
So the economy doesn't grow - grow - grow for a year or two.
Ok, no harm done there. A pause doesn't hurt.
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The bail out plan for the banks may not have succeeded in getting LIBOR rates down, but it has prevented big banks from defaulting on existing lending - which would have led to collapse.
The money certainly hasn't been wasted, it has prevented something even nastier happening.
However, the *consumer* spending bubble has certainly burst, which is going to have a circular knock-on effect in property prices, jobs and deflation.
What we should be planning for is that the recovery won't be led from Europe or the US, it will be led from the East, and we are now going to see the balance of economic power move away from the old world. How do we plan for that?
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How can anyone yet say whether or not the "bail-out" has or hasn't worked yet?? Have people forgotten that it takes weeks if not months for economic and political changes to be reflected in the economy??
We all talk about the bail out not working but are we even certain that it has actually been carried out yet? Have the banks actually been given the money?? I have a feeling from reading blogs (including this one) and news articles that it is still yet to be transferred to the banks.
I doubt anything will really change until they physically get their money. So come on Gordon and Alastair - if you are going to give them the wads of cash, do it sooner rather than later and let's set the wheels in motion for a bit of stability at least if not recovery.
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RP Wrote:
"...(there may be little point in cutting taxes, since nervous consumers and businesses would probably hoard any extra cash that went into their pockets)...."
The same could be said and was said of the billions given to the banks. So, why the difference between the banks and small businesses/consumers?
The difference is that the banks run the politicians and the country. First they ran us into deep debt. Now they're going to run us deep into the ground.
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What a pity that "borrowing", " taxation" and "economic incompetence" were not
events at the Beijing Olympics.
The labour party would have three gold
medals to parade through London.
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Bailing the banks out and leaving them more or less as they were was /is nothing more than stupid.
The crisis has caused a downturn and recession/depression is coming fast.
Now we will see millions of people and business going under and forced sales to rouques who will be buying houses and offices at auction for less than they were built for causing mass poverty and a new super cash rich class.
The companies and mortgage holders should have been bailed out, not the banks. They should have been allowed to fail so that the financial sector could be re organised and re started.
All Brown has done is save bloated and badly run banks so that they can destroy millions of people trying to buy homes and trying to run businesses.
As usual HM Gov et all listen and side with the finance sector and not the real economy.
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the banks have to hoard money as the G7 dictates - they need to get their ratios sorted before they can do anything ie they had sweet fa in the coffers all along
it's all a bit self defeating really
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Robert,
Why this assumption that, even if the banks were open to lending money, consumer's and small businesses worldwide would bow down in gratitude and borrow yet more to purchase non-essentials?
True that this has been the pattern for the last decade or so. But not true that we are all so mindless as to continue spending when it is plain for most to see that the time has come for a period of austerity (the "A" word).
The occurence of feast and famine thru natural or man-made events is embedded in our folklore. I suspect a period of financial famine will, in the long run, do much more good than harm.
The colloective will of the people is far greater than the financial markets, or governments. Whatever will be, will I suspect now be, despite the boys from Downing street.
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#33, all true I figure.
This is a time when MPs should be out and about canvassing opinions and taking campaigns to Westminster. That is what MPs are for. I'm not one but I did campaign to be one in the last election and I warned Brown would be a disaster for Britain.
But I haven't heard a 'dickey bird' from the two MPs that are supposed to represent me. Whatever you're are doing it's less important guys..
I think that is the biggest travesty of this crisis - in the UK anyhow, the complete failure of democracy to fight its corner.
GC
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Robert,
It seems not G Brown is leading the way, but the Swiss government, dividing banks into 'safe' and 'toxic' ones, a move that helped in the Japanese banking crisis.
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Robert, please do us a favour and state the bleeding obvious - "what increasingly looks like the onset of a global economic recession"... onset?? Forget onset, we're already in it!
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Perhaps we should all adopt the Ambridge trading scheme, and leave the banks out of it altogether.
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I really think that people seem to be getting behind the fledgeling banks at the moment, even in this period where the market is tumbling day by day.
The drive to see these big banks above the cost at which the government will buy at, is impressing me. People really want the financial system to still have some control outside of the governments control.
More confidence like this is needed to keep our system going.
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Robert, you say:
'[Governments have] been powerless to prevent the banks contracting the amount of credit they're providing, which has reduced the ability of companies and individuals to invest and spend, and risks turning an economic slowdown into something rather worse.'
Well, I apologise for repeating wholesale what I posted in one of your blogs a few days ago but it explains precisely why the current crisis is a function of the way the entire money system works. It is a few lines from the final page of 'The Ecology of Money' by Richard Douthwaite:
'[In 1994] two economists, FX Browne and JPC Fell, who then worked for the Central Bank of Ireland but later moved to the European Central Bank...suggested that central banks were losing their power to control the money supply. Professor Kevin Dowd of Nottingham University Business School agrees. He points out that banks are already providing a smaller proportion of all loans as a result of 'securitization' - the sale of a bank's loans to non-bank investors who are not subject to reserve requirements. This, and the development of electronic cash, means that more and more money can be placed in circulation on a smaller and smaller reserve base. Dowd writes, "As base money becomes less significant, it will gradually lose its effectiveness as a channel through which the central bank can influence broader money supply."
In other words, our current money system is coming to the end of its useful life. Its radical reform has become necessary as well as desirable. Only a widespread debate on the issues, by a well-informed public, will ensure that when changes are made they are on the right lines.'
This was written in 1999. And the time for that debate is now - especially if we taxpayers now own (much of) the banks!
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The situation illustrates the giant flaw in the Brown plan. The major problem we face is one of confidence. Mr Brown could have achieved the same result at no cost by announcing the existence of a safety net to underpin bank activities. Instead he chooses the worse option by undermining the confidence of bankers and shareholders alike who now fear that any mistake or other unforeseen event will result in full nationalisation. They are thus paralised !
I dont think this is incompetence, I suspect Mr Brown knows this approach is a mistake, but is pandering to the financial illiterate in a desparate attempt to stay on office.
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As the UK Government now is the majority - or controlling shareholder in many UK banks, can it not define their banks 3-month lending rate.
Would this not provide some stimulus to the inter-bank lending and bring down the LIBOR rate?
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Could it be possible the banks arent lending because they lied about their need for cash and have used it not to secure their balance sheets, but to cover operational costs?
Was any due diligence done on these companies?
Does the government really know where their money went?
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It's time for Gordon and Alistair to show the lead again..
We need bold, decisive action...we need to be ahead of the curve...pro-active rather than re-active, and not be too influenced by over emotional stock markets.
Substantial cuts in interest rates and a significant increase in public spending - on capital projects that can be actioned quickly - is what's needed.
Put your 'creative' hats on lads, and lets get this show moving!
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Banks must be made to write off ALL BAD DEBTS. Simple really.
Brown demanded none of this financial bloodletting before giving banks cash. Look at how Sweden successfully handled their bank crisis in the early '90s.
Politicians continue to focus on the symptoms. Look at how they were transfixed by the threat of high inflation only a few months back, when even little old me could see growth slowing (and an end to rising inflation due to easing demand).
Now they are stuffing banks full of cash even though the banks aren't coming clean. And cutting central bank rates to help generate liquidity when, as far as I can see, there is no fixed link between them and LIBOR.
Politicians are on a gravy train. You or I couldn't do a worse job.
And look at Peston hailing Brown as a world savior only a couple of days back. With all your "knowledge" of the situation, I am surprised at you Peston. If I didn't know that an Englishman was incorruptible, I would have said that someone had paid you off...
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OK Mr.Darling, you say that LLOY can seek a better deal elsewhere.
Something better than 800-900 pts above the project BoE baserate for 2009. How about LLOY offer 8% preference shares to all the institutional investors who have been busily bailing on LLOY and reinstate the dividend rights for ordinary shareholder?
Even the great Sage of Omaha couldn't muster 12% out of GE as a preference shareholder.
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Global recession or global histeria. I think my guinea pigs would be ideal stock brokers. stupid, scared by anything including their own shadow and over rewarded for doing very little.
is it just me or is anyone else sick of seeing them glued to antique telephone handsets and shouting at each other. Go wireless and walk to the person you want to speak to - simple
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Shucks No. 18 you beat me to it.
No better use of the Keynsian response to the gathering recession/depression.
Even with reduced house prices there are hundreds of thousands who will simply never be able to buy a house and who it would be grossly irresponsible to tempt them into future mortgages which is where we and the US began with this crisis.
Private sector builders are almost floored and would have the capacity to build to council specifications in substantial volumes thus both stimulating the economy and meeting a real social need.
The Government have consistently underestimated the magnitude of the financial crisis and now they are not recognising the depth of the wind down of the real economy (a revealing phrase).
They need to take control of the macroeconomic levers like credit, interest rates, vat rates, income tax, public works etc and manage the economy out of recession or (realistically) ameliorate its effects and duration.
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to #28: My mid sized company is owed about £1.5m in overdue invoices from Big manufacturing companies. they are having trouble paying because people are not buying their end product, and their banks are refusing to lend them short term loans to get over this hump.
If they go bust and don't pay me the £1.5m in the next month, I cannot pay my staff. And guess what- my bank will only lend me more money at 12% interest. My company will go bust as well and I will have to lay off about 120 people.
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With all this tax payers' money at risk I can't understand why the heads of banks have not been dragged into the public arena and asked why LIBOR is still so high. Are they judging the amount of toxic loans on their competitors' books by the amount of toxic loans they have on their own books? Why were we not told how many of these toxic assets we were buying before Brown put up our money?
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I don't think that banks are afraid of lending as such, judging from my own experience lately.
I'm a private individual with a spotless credit record and a lot of equity in my house. Three lenders I have dealings with have approached me in the past fortnight with offers of unsecured loans/balance transfers at quite tolerable rates - between 5.6 pct and 6.9pct.
This would suggest to me that banks are eager to start lending again - but only to the very best risks. Which in its turn would suggest that they don't regard their fellow banks as being as good a risk as yours truly.
Which is a strange and disturbing thought.
And no, I'm not borrowing just now. Perhaps that's what made me a good risk in the first place.
Catch-22, anyone???
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"(there may be little point in cutting taxes, since nervous consumers and businesses would probably hoard any extra cash that went into their pockets)."
There is always a point in cutting taxes - to stop taking so much money off people in the first place.
Think about it Bob. Where would people hoard their cash? Think long. Think hard. They'd either keep it under their mattress (and see it inflated away) or stick it in a financial institution, be it a bank that hasn't got into difficulty (as not all of them have), a building society that also hasn't got into difficulty (as most of them haven't) or National Savings and Investments/Northern Rock. Hey Pesto! The good banks get plenty of capital and the bad banks wither away.
That is aside from those who would use the extra cash the Government hasn't taken from them to get themselves out of debt sooner.
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Nu Labour has finanally dropped the Nu and stopped pretending to be anything other than tax and spend Labour.
Just like the 70's we will have a government spending our money to manufacture pointless jobs and wasting billions more on loss making public funded ventures. We will have parasitic union bosses demanding inflation busting pay rises while millions more have no job. We will witness the vile spectical of a nation on its knees at war with itself, while public sector workers suck up an ever growing share of the resources to pay for their copper bottomed pension guarantees.
We will watch the next chapter of this disaster unfold - the unwinding of our currency. I can see a time if things reach their natural conclusion that we will beg to be let into the Euro.
Soon all those people under 40 will understand why labour were in the wilderness for 20 years. They brought us to the brink of economic oblivion last time they were in power, why should things be any different now. You cannot advance the prospects of a nation by removing effective regulation and encouraging destructive asset bubbles.
We need leaders to lead us, posessing long term vision not weak immoral populist politicians, that hate making tough but necessary decisions because they may cost votes now.
Go now Brown the nation despises you. We need another Thatcher to clear up this mess.
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So, the banks carry on being greedy, protecting their own interests and personal nest eggs and waving two fingers at their customers and national governments, while putting up enough of a veneer of cooperation to keep the authorities off their backs to some degree.
They've been doing that for years and governments throwing bucketfuls of cash at them won't change the habits of a professional life time. You don't change the cultures of organisations or professions overnight.
We need a whole new type of banker and a whole new type of bank, 'cos the current beasties are out of control and, basically need to be killed off / allowed to die off.
Brown and Darling - and the other national governments - just did not tie the bail-out to radical enough changes.
So what next? Perhaps legislation to out and out nationalise them? Then we can 'make' them lend money to each other and to ordinary people. Maybe that is what the banks are bracing themselves for and, therefore, why they're not lending to others. If they hoard their assets, then perhaps they can get out at the last minute with personal / corporate wads of dosh.
There are some govenments in the world who will take sweeteners to leave the dear banking people alone and not hassle them about anything. My guess is that our 'globalised' bankers are planning to get themselves and their assets into such 'safe' places, in a hurry - if the heat in the kitchen gets too hot
The behaviour model we should expect from them is paralel to what the Nazi's did with their assets once they realised they were not going to win WWII. This country and its people are effectively at war with the banks and the financial industries - and are currently losing.
Sorry folks, but it strikes me that it's them or us - it can't be both. There just isn't enough real economy to go around and to support the financial world's ways anymore. The 'live life on credit' balloon - the very building block of our 'modern' financial industries - is deflating fast.
Ordinary people need more community, cooperative and locally based financial solutions. Entities more akin to credit unions or the orginal building societies, rather than current unaccountable, poorly regulated, globalised monsters that play on the world markets with ordinary peoples' money.
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Yes spend but only on worthwhile projects that can be an investment for the future
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If it comes to big public spending projects, we could do with a couple of modern high speed rail links. Oh and could we try and return the 21st centuary and dump the diesel engines?
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Well, thought for today should be, just how long can Barclays sustain the $2.4 Trillion on Credit Default Swaps it has on its books. At some time or another, some of these will need to be paid out, lets assume a modest 25%, would be some $600 Billion! Even with the current cash injection, does it have the cash assets to actually pay that out without going insolvent?
This is why I can't understand why their shares are seemingly going up, when the blackhole of future payments is HUGE, or is it simply a short term effect of traders taking profits from the recent Govt/Private cash injection?
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You mention an "old-fashioned Keynsian stimulus" and there is an obvious candidate - the EU renewables (energy) programme. As we
analysed here yesterday, the EU targets can only be met with investment that is uneconomic, by commercial standards, at current levels of cost and present lending constraints.
If, as Barroso and Brown insisted yesterday, these projects will go ahead even in an economic downturn, it will only be possible with state intervention.
As it happens, I believe the renewables programme is infeasible: but then we will need an urgent programme of new coal-fired power stations if we are to keep the lights on.
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Here is an idea for Mr Brown.. Why not stop bailing out the banks instead pay off everbodys mortgage (probably cheaper option) which in return stops bad debt and allows everyone to start spending again !
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Oh good heavens, more discredited 1930's-style Keynsian thinking.
As a number of people have said, now that the banks have got their funds and are solvent to lend again, increase interest rates, not decrease them for heaven's sake. Will someone please start listening to the so-called 'Austrian-School' economists before it's too late!
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More money for executives and administrators in hospitals (with index linked pensions)?
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I found this presentation on 'Greed, Fear and the Brain' useful information to help understand what is going on.... http://snipurl.com/4esjl [[Unsuitable/Broken URL removed by Moderator]]
Maybe it will help us act in a way to unlock the credit so credit goes to where credit is due!
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#46, not just Bad Debts, all debts. We're really gonna have to start our economy from scratch.
#50 crikey, you're not alone. And we both know you can't borrow your way out of debt unless you have funds that are pretty well cast-iron on their way. And then some...
There is a way to stop the socio-economic trainwreck heading your way and I have repeatedly tried to campaign on this to my MPs, via my firm's website and also via a No10 petition, freeze on loan, mortgage and credit card interest, moratorium on foreclosures, repossessions, bankrupcy orders, court orders and seizures and all the ghastly repertoire of the Dickensian British insolvency system.
I watched so many friends go bust in the 90's. I Knew of numerous suicides, marital breakdown, nervous breakdowns. The Govt just smugly said (were they not always smug under Major?) ''new firms are replacing the old (ergo -failed) ones and things will be fine''. You can't replace old established firms with new ones, the expertise, technology, skill, systems, archives are irretrieveably lost once a well-constituted firm goes down. In every case I knew, which was many, the fundamental cause of the collapse was the reasons you have stated. In EVERY case.
The PM could do this at the stroke of a pen and frankly, it he wants the people behind him, he better do it mighty quick.
There are so few ways to speak out, and the time to do it is going fast before the financial system goes to work 'in the same old way' on all of us. I implore readers to get on the No10 website and sign up to my petition. Withe deadly silence from local MPs it's as close to the top you're ever going to get.
Robert Peston could open a blog on this, it would be spectacularly successful, but he won't..
GC
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#16, #25 Google Iceland+Bananas. Ironic or what?
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Robert is right. Cutting taxes will just allow people to reduce their debts.
Sadly, cutting interest rates to the general public will reduced the income for the many who so far have been responsible and saved, while encouraging those without money to borrow more and make matters worse for them and their creditors. Therefore, I suggest general rates should be slightly above the inflation rate.
One answer is for businesses that need more cash is to be encouraged them to increase their equity through a sympathetic and government-encouraged market, possibly even a special government-backed fund.
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It seems crazy that having thrown money around like water for years, and thrown a lot more at the bank crisis, the government is even considering spending our way out of recession/depression.
I dread the tax levels for the next generation, to pay for all this it means heaven knows what on basic income tax.
However, if it is going to be spend, spend, spend, then let's do it on our dreadful infastructure, railways and roads, so when we come out of recession/depression we haven't got business hamstrung with poor transport links.
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I have the answer to the finanical problems.
It's clear that the problem is a senior management issue, they have failed to control their staff.
The solution is simple - put Fabio Capello in charge of the FSA and the BoE.
He seems to have got the best out of people without having to incentivise them with huge win bonuses and although he's on a good wage, he certainly hasn't been awarding himself huge bonuses.
I'm slipping into insanity as I hear more and more rubbish from the financial industry - they must even believe it themselves.
How about 'We need bonuses or all the talent will go elsewhere'
- Well if this recession is where 'talent' gets us then I think I'll take my chances with monkeys writing shakespere.
WELL DONE DARLING - I saw you on newsnight last night and it was refreshing not to hear the crack of yet another politcian bending in the wind.
(paraphrasing - so apologies for accuracy)
"The banks saw the deal on Tuesday and they accepted it - there won't be a renegotiation on the terms".
We have an interesting situation here - did the banks agree to the deal, but like all good banks, now think they can re-negotiate after the fact....
.....or did they simply not understand the deal?
The heads of our banks, not understanding a relatively simple financial package?
No wonder they were completely stumped by CDO's - they must be bottom of the class dullards.
.....but that's the 'talent' we have been so good in drawing to the city.
The man on the street must be realising that actually he (or she) is the most intelligent on this planet - politcians and bankers ranking just above single celled ameoba.
Finally the CDS situation - well isn;t that what happens when people with no insurance experience start providing insurance?
Any big insurer takes the premiums from all it's customers and keeps a fund in case we have a major disaster (like the Hull / Gloucester flooding recently) - it is unlikely, but that's how insurers make sure they have cover for the worst case scenario.
The probability of disaster is factored into the premiums.
Bankers however took the CDS premiums and bought champagne and cars. So when Lehmans went POP - no one had any cash left to pay out with.
....and there's no need to regulate that?
I think that question answers itself.
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As the original problem was caused by a ridiculous lend, lend, lend philosophy over the last 20 years or so, I'm not surprised that the Banks are reluctant to start that again.
In fact, I'm rather pleased that they're not lending, its a sign they're being responsible again.
I've said it before and I'll say it again. Interest rates should have stayed at 5% or gone up a bit, to change the financial culture and get some of the bad habits out of our system and the way that we all think.
We've got to find new ways of pulling ourselves out of the recession. The old school economics of cut interest rates and fuel a consumer-led recovery isn't the right strategy.
We probably need to start manufacturing things again. That's what has drawn the third-world countries out of their recessions.
But this problem needs as much radical thinking as we saw a couple of weeks ago prior to the Bank bailout...
What would I do ?
Well, I'm sat around unemployed at the moment. The Government needs to find a way of getting me off this blog site and starting up a small business. That means doing something about all the things that discourage me from starting a business.
For example, there is an enormous overhead when starting-up. Rents, Rates, Insurance, Transport, Stock, fitting-out, marketing, staff. If we're in a recession, its too great a risk. All it makes sense to do, is run some sort of cottage industry from home, particulary if you are single - or if you can afford it, ride out the hard-times until an occupational pension becomes payable. Reduce the risks of starting-up and I'll certainly give it a go.
Business rates need to be re thought and accomodation rental costs particularly need to be subsidised. That's the other down-side of the property boom. Rental costs have gone through the stratosphere as landlords have to recoup their investment...
And what about setting up a scheme where the Government can help single people get together to work together at putting some sort of business together, working out what sort of business is needed and where to locate it, backing the venture, providing the advice and support that is necessary and taking some of the risk out of starting up with a complete stranger ? Its easier to set up a small business if you are married, with a reliable partner, quite difficult if (like the majority of the population) you are single ....
Public spending probably isn't the answer. We saw a huge increase in public spending post 1997 when Labour were first elected. Where's it all gone ? Consultants, expensive outsourcing, administrators, bureaucracy and more and more regulation that discourages the Householder from moving home (HIPS) or improving what they've got (Electrical Regulations)...
Its not just the banking system at fault. Everything is out of balance in the economy, because the Government has been pursuing its pet projects (Fox-hunting, Global warming, Taxing cars off the road, over regulating Homeowners, bombing Iraq etc, etc) rather than doing some joined-up thinking about the whole system. That's really why they're unelectable next time around. But I suppose they've got a year or so to start putting the whole system right. I hope they have learned their lesson, and get on with it now...
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RObert -- i would like you to spend more time as a journalist investigating the Credit Default Swap (CDS) timebomb that were currently sitting under.
Especially since the UK has a much higher exposure to it than the US.
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Sounds like a plan! As I proposed in a previous blog -
Would it be possible for the government to embark on a huge social housing development?
This would generate jobs and stimulate the economy while also keeping housing prices relatively stable by reducing the demand for stock. This in turn would go some way to ensuring we dont have another housing bubble in a few years.
Oh, and of course it would provide houses for socially disadvantaged people too!
If building them is too expensive, then encourage the huge Registered Social Landlords (RSLs) like "Home" or "Places For People" to build faster through tax incentives or loans at preferential rates. They?ve already bought huge tranches of former Local Authority stock when they were all selling it off, so the latter might make more sense, actually ? You don?t want the councils competing with the RSLs over price. That?s just counterproductive.
Margaret Thatchers dream of everyone owning their own home is doing for this country. We need to be a nation of renters for a while!
Less estate agents, more RSLs (or at least more exposure to the existing ones).
Its just an idea?
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This comment was removed because the moderators found it broke the House Rules.
I didn't think that the government investments have actually been made yet, and surely creation of preference shares would require shareholder agreement, so for the moment whilst there are guarantees ther banks haven't yet got this cash. Those banks now remaining actually didn't lend irresponsibly (it was the sub lenders that did and businesses they took over) so its hardly surprising that lending has fallen. Just wonder how the supported banks are supposed to increase lending when what the feel is prudent isn't enough to pay to enable someone to buy a house. Proces have a long way to fall.
And the increased liquidity requirements means this extra cash actually just porives this, and not extra funds to lend.
Like the banks not appreciating dividend restrictions none of this is being thought through.
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@ #18 and #49 -
Good grief, I can scarcely believe there are people out there who still believe the housing shortage myth. Don't you get it, even after all this??
It was just CHEAP MONEY that chased property prices up. It was a BUBBLE. Take away the cheap lending (via the credit crunch - you may have heard of it) and property prices tumble, leaving oceans of unsold property.
IT'S OVER!!! Please let's not reflate another asset bubble based on the property bull lies.
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Robert,
Are Credit Default Swaps the root cause of this inability by banks to lend to one another?
I don't understand them but am concerned to learn that these unregulated privately traded derivative contracts currently have total values close to world GDP.
Your thoughts would be appreciated.
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This is all very well. However, oil prices are nearly half of their high in July. If oil was $140 or thereabouts in July and pump prices were £1.20 litre (near me anyway!) then surely if oil is $75 per barrel this morning, our pump prices ought to be nearer to £0.65 per litre. Nobdoy seems to have picked this up in the national press. If this is the case then one thing the Government perhaps should be making noise about is the reflection in the barrel prices for the consumers - people would not be so worried about huge energy prices if they felt everyone was trying to help. I appreciate it is huge profit taking by the oil companies but for me anyway, a hugely reducing domestic fuel bill is a ray of light in otherwise dark times.
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#62
"Here is an idea for Mr Brown.. Why not stop bailing out the banks instead pay off everbodys mortgage (probably cheaper option) which in return stops bad debt and allows everyone to start spending again !"
That's like saying why not feed the cows on milk and cheese? Why not feed the pigs on bacon?
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"... public-sector debt, which is already - on one measure - above the government's self-imposed limit."
The problem is that accounting for debt has been fiddled. Government cannot on the one hand say that others are irresponsible when it avoids reporting debt (and other data) on a straightforward basis. Let's cease double standards and ban "creative accounting". Borrowing to assist the financial sector is debt, no matter how it is dressed up.
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As a small one man band retailer on the High St, just borrowed in excess of £100k to buy own shop, these are indeed very worrying times.
A major cut in interest rates, maybe by a full 1%, will help the economy. I know it would certainly help me and many other SME's.
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Ahhhh Keynes is alive and well at the Beeb then.!
Given the massively expansionist public spending initiatives undertaken by this Government (both on and off balance sheet), don't you really think that they have done enough damage?
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#70, well put!
I think my cats have a sounder understanding of the current financial climate than most economists and politicians. I asked the two of them to think about it overnight and let me know this morning...
I awoke to two, large, brown smelly deposits in the litter tray! I guess that is a short and sweet answer!
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Someone on the Today programme this morning said that the markets have moved on from worrying about the financial crisis to worrying about the crisis in the real economy. The next stage, he said, was that the concern would turn to the credit worthiness of certain governments. Brown's GB at the top of the list?
As other people have commented we are back to the mess created by Wilson/Callaghan governments of the 1970s. Remember Healey going with the begging bowl to the IMF because Labour had effectively bankrupted the country?
And, of course, when Margaret Thatcher had to sort things out there were massive job losses for which she was blamed. This time, let's put the blame where it belongs - with the Chancellor who promised an end to boom and bust.
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Now its just the investors gone mad, at this level fundamentals in markets are sound.
Still to avoid recession we need to cut interest rates to 3% immoderately; if its done we need not spend billions rescuing the markets. EU, UK and Asian central banks need to cut rates.
If central banks does not act government should force them to act now.
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I hate to say it, But I do think Gordon is the man for the moment, like he keeps saying it's a global problem? Which will not go away overnight.. Give him time to sort the mess?
You are always going to have times of prosperity, which will also cause times of hardship? it's natural?
I would like to see another 0.5% drop in interest rates? this will give an helping hand, and encourage spending by all (that?s if they have it to spend), and please don?t leave it too long..
If it's done to close to Christmas the sales will be flat and issues will continue. Remember a lot of this is consumer confidence, this needs to return to start the "merry go round" that makes the economy.
Gordon took the incentive to make an huge commitment in stopping the banks going under (And a good job, as the consequences would have been un-thinkable if this happened)?. He now needs to make the decision to ask the BOE to really consider another cut in rates?.
Look at the US, they have a current rate of 1.5%, and the same inflation the UK has.. It is possible?.
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Well,nothing much seems to be working does it? Finally the people round the world have come to a conclusion that the last 15 years of boom have been on shaky foundations with shady financiers,dodgy government regulations and safeguards and they have lost trust in banks,business honesty and governments alike.
Yep now we are pressing every button to see what works. Lets have a go at increasing public spending,why not?...see if that makes a difference.
Maybe now a time for a 'New Deal' for people where their bank savings will always be 100% safe. Where we can be assured the banks do not get up to outrageous speculative behavior with the publics money. Where thier business is transparent rather than Machiavellian.
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Why do you expect the sustained folly of 5 years of global and domestic bubble to be resolves so easily.
This is a dark ages war in a high tech world, the worst of combinations.
Cash has become a strategic resource and weapon.
Profit is not just volume.
Banks are predators and operate individually, any collective action is coincidental.
The same applies to countries
Banks are expecting other banks to fold. Those banks surviving gain market share. The object becomes survival of the individual bank
It has been shown that taxpayer money is available as a last resort.
The banks still have domestic deposits to operate on.
Toxic bonds have a variable value. If the minimum value has been reached they can only gain value with time.
A recession is here and the likelyhood of vulnerable people and businesses will lead to defaults pressuring the banks to be increasingly cautious about lending, irrespective of political desires.
Individuals and businesses that are seen as being solid are being approached to take borrowings, they are cautious and see no need to move increase debt yet. They are part of the upturn but are only moderate risk takers.
Economic models and comment by economists means nothing because economic models and opinion are built on empirical data and no data exists for this situation. In particular economists - please note - do not risk their own money.
It is the behaviour of risk taking predators like Warren Buffet which is the most important, they give signal of opportunity. The question at present is are they the ravens on the ongoing battlefield or a sign of the bottom being reached. Not enough predators are about at present for uplift.
The government is stupid as defined by the history of behaviour to date. It is certainly slow to respond in comparison to the dynamic of the situation. Governments are reactive not proactive by nature.
The government also has an inflated opinion of the effect of its actions coupled with a false faith in its incoming communication (moderated and poor quality) and control mechanisms (coarse, ill founded). That together with political imperitive to declare quick fixes, which the sort most likely to unravel, leads to a lack of credibility with people who actually take risk.
The jolly club of international politicans who are grasping at straws and patting Brown on the back is devisive. They live in virtual reality, blindly want to believe a salvation is at hand, and just appear to encourage Brown he has solved things, when it remains to be seen if he has. The opinion of politicans is almost certainly irrelevant in the marketplace.
Isaac Newton - The reason I have seen so far is because I have stood on the shoulders of giants. Dont think he would get a great view standing on politicans shoulders.
It was a particularly stupid ploy for the government to request party A to lend money to party B at 2007 levels when Party A will bear the cost if party B defaults, if party B is stupid enough to borrow before sure growth is indicated, and Party B also has the risk of bankruptcy. The government gets the benefit of the lending but party A and party B both get bankruptcy to deal with if it goes wrong. Third parties should not intervene in two party deals. That should be shouted at the government at every opportunity.
This would appear to be the trough and bumping along is a possibility until further collapse indicates it is the time for uplift. It is a question of what deteriorates next.
With respect to the housing market, which is key to economic recovery, the most effective thing Brown can do is provide a mechanism to allow the trading of negative equity, but he will not do this. It appears beyond his comprehension. As I have pointed out before - If you have 5 GBP negative equity and no cash you cannot get rid of your property. If you cannot pay the mortgage due to changing circumstances the bank is only interested in foreclosure and dumping the property at auction and claiming the, by then, substantial loss against the insurance policy the dispossessed housholder paid for. It is the fact this insurance policy exists which stops negoication about 5 GBP. The insurance company then pursues the housholder to bankruptcy. Until that senario is contained one way or the other, by property price rises as the default, then economic recovery will be slow.
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The asset bubble was burst on July 5th, 2007 when interest rates rose to 5.75%. Within days the FTSE peaked at 6754.10. Once a balloon has been burst, there is nothing that can be done to put the pieces back together. The writing has been on the wall since then and the market has a force and momentum of its own which neither politicians or economic advisers can do anything about. Anyone wishing to question this can look at the experience of the Japanese stock market which fell from 39,000 to 7,200 over 10 years. It took 10 years because of intervention from the government, but the final outcome was inevitable. Many people are employed to give daily commentaries which are completely irrelevant. It would have been just as realistic to say that the FTSE fell yesterday on the back of news that Madonna is to divorce.
Generally speaking, markets do not fall in straight lines and uncertainty keeps volatility high.
What is needed now is a dose of realism and responsibility. I am happy that Mr Brown has at least realised the importance of confidence in the banks, even if the banks don't trust each other yet. It won't save the stockmarket which is why the role of banks is even more important than before as lenders to companies which didn't even get a look in when all they wanted to do was lend to the virtual economy
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Obviously the banks are hanging on to the cash as they know that they will need it in the near future when the next round of CDS liabilities comes due. Perhaps this explains alot as to why the treasury is insisting on the unprecedented Tier 1 levels at this time. If Barclays is exposed to a 2.4 trillion liability and felt able to go it alone, what does this say about RBS, HBOS et al who felt the need to delve into the public coffers?
GBs plan may not be helping the man in the street but will probably ensure that the British banks stay aloat through the next 1-2 years while others fail so that there is at least some financial system to start the recovery with.
In the meantime the stock market is crashing down to a level more in line with the actual amount of money, rather than debt, in the system. A way to go yet then.
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How is public spending better than tax cuts?
Tax cuts put money in the taxpayers pockets (the people who the money actually belongs to!) - public spending puts it in the pockets of the paracitic 'public servants' whos unlimited greed means they will forever demand more, or into the coffers of international businesses (whos head office may well have relocated from London to somewhere more business friendly.
The left wing bias of the BBC and its staff is so engrained that they can't even see it.
This mornings 'today' progr on r4 went on and on about the options being 'more borrowing' or 'more taxes'. Completely missing the option of 'SPEND LESS'.
And government borrowing has to be paid back - so just helps cashflow while we wait for 'more taxes tomorrow'.
BROWN - TIGHTEN YOUR DAMN BELT! AND WHILE YOU ARE AT IT TIGHTEN THOSE OF YOUR MINISTERS!
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#2 tjccjt
The Callaghan quote (as nobody else seems to have bothered and as a few people may not know its end, although on this blog a very few!)
"Labour Prime Minister James Callaghan, who told Labour Party Conference in 1976, ?We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step." (Source various site via Google)
Jim C. told home truths at the time and he was soundly told off by the country!
Margaret Thatcher came along with the line that you can have your cake and eat it, and we fell for it - but unfortunately look where that has go us! Will the electorate be ready to accept a dose of reality or will they fall fro the blandishments of the snake oil salesmen (or as in the recent past woman!)?
So on balance we are to expect a slump followed by higher inflation - caused either by increasing regulation on the banks or by allowing wages to rocket - either way we are stuffed for a decade or so!
There are established investment strategies during such periods and some companies will do well, but discretionary spending and the business that rely on it will fall and fail. The froth will boil off and that is to be expected and a good thing, but it will hurt. The hurt will not be evenly spread and the vulnerable will need protecting - if we still think of ourselves as civilised.
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#78
Most of the price of petrol is tax. GB needs to find the money for the bail out from somewhere :-)
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If unemployment is increasing at such an exponential rate, won't the Payment Protection Insurance (PPI) that banks "forced" on unsuspecting borrowers really come back to bite them (or the underwriting company) now?
Will we see defaults on these policies?
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Lets not forget where all this trouble started . The greed and cowboy antics of the USA financial institutions. The world economies should stand up for themselves and realise that the USA has been living a dream at the expense of the rest of the world . Now that thier pathetic economy is in meltdown it is the rest of us who picks up the tab. It has given itself a lethal injection and still expects to live. If it was not for all the printed Euro dollers the condemned would have passed away long ago. It is time for the Euro to make it's debute as the leader of the pack.
PS Robert Peston for chancellor OK ;-)
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Robert
Forget the credit crunch - that is a symptom not the problem.
The problem is quite simply debt: personal debt and national debt. It is not even just bad debt, although that is what drew people's attention to the fact that it was there and was a problem.
So what has happened. People and the Government have Spent, Spent, Spent, because they were able to get easy credit and things were cheap. Now people have realised the rising debt is unsustainable and has to end. This could have happened at any time over the past few years, but because it has run for longer, the pile of debt is bigger.
Who's to blame. The people and the Government for borrowing too much, the lenders for lending too much, the BoE/FSA for not calling time on it and the Chancellor/Treasury for not setting up the system so they had a duty to call time on it.
As for the credit crunch, the Banks quite rightly judge that if they lend to anyone, including other banks, there is quite a high chance that they will not get it back - it doesn't take many defaults to cancel even a 2 percent interest margin.
What about the stock market? There aren't many companies who do well without customers and the customers have realised they don't have any spare cash, in many cases because they already have a pile of debt to service. So few are going to invest before some sort of a bottom is reached and we are nowhere near that yet.
How do we avoid the recession? We can't, we just have to work through it until the debt is substantially reduced - some of it will be repaid, some written off and the rest reduced by inflation to manageable proportions. The recession will be longer/deeper in proportion to the amount of debt that has been built up. If you do postpone it, then you only build up more debt, so more pain for the future.
So what do we do to solve it? Inflation has to rise further to reduce the debt in a relatively painless way (historically Labour Govenments are very accomplished at this, so it shouldn't prove a problem). Also they have made a very good start through creating lots of new money to pump into the banks. Interest rates have to rise so we don't get hyperinflation - the market forces are doing that anyway although the Goverment is mistakenly trying to drive them down! We are particularly fortunate in still having our own currency, which allows us to adjust relative to other countries. Rising import costs will prompt people to curb their spending on imported goods and also contribute to inflation as the pound is devalued.
Who will be hurt? Most people but in different proportions - small businesses that close, people who lose their jobs or homes, people on fixed incomes, people with savings will lose them through inflation or having to spend them to live. Those on benefits will find it hard but will get by. Those who manage to keep their jobs will break even. A few very astute people in niche positions will do well (that probably includes Government ministers and MPs, people in quangos, etc). Also, the police and security services because the Government will want to maintain its grip on power in the face of a rising tide of public dissent - let's hope that all Labour's shiny new anti-terror laws are not deployed against the understandably upset average man in the street.
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The only way to pay for this mess is by printing more money. While the outlook for sterling looks terrible, we need to make sure that some of our new excellent British companies in growth industries receive the finance they need at this difficult time to get exporting again.
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The problem with the banks, secretive at the best of times, is that we don't know what we don't know. My guess is that there is a phenomenal amount of 'badness' (or toxicity, to use the buzz word) locked up in the banking system. Much of it is so arcane and, dare I say, crooked that few of us can barely begin to understand what's really going on.
We're now all passengers in a slow-motion train crash. Unfortunately, the train crash is only just at the stage where the carriages start to judder a little and people are looking around, confused, wondering what's happening.
This will be a mess, despite the best efforts of sensible commentators to assuage our anxieties with soothing words about 'mild recession', 'things picking up in 2009', 'this won't be as bad as the 70s' etc etc.
The problem is, the situation today is unprecedented in its size and complexity. Remember: the bigger it is, the harder it falls.
For what it's worth to those of you who blog here and elsewhere: I would focus on self-reliance from here on. Relying on politicians to get us out of this mess would be a major mistake; they're all as bad as one another.
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Robert mentioned on the news learlier week that UK Government, Corporate and Individual debt totals 300% of UK GDP. Government dept is approx 40% of this.
UK GDP is approx £1,500 Bn therefore total debt is £4,500 Bn.
What is the split of this debt and how does it rank in % GDP terms with other countries.
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Government spending on public services...
will we get fixed water mains? nope.
will we get fibre-optic broadband to everyone? nope.
will we get a fast rail network? probably not.
will we get renewable energy farms? not really.
will we get ethnic diversity co-ordinators and housing development facilitators? oh yes.
A Lot of people have said for a while that the recession is inevitable, that we should bite the bullet and get it over with. Instead, we have Bubbles Brown *still* trying to prop up the housing market. The only good thing is that the next economy may be built on technology and engineering instead of selling mortgages and insurance to each other.
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"It's like an avalanche".........well, you and the rest of the doom and gloom media started it, I hope you're all proud of yourselves!!
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This Government has already over extended its public spending to little or no effect. We have as instant examples the FSA, Ofgen, Ofwat and HM Treasury (this year alone 10p tax, capital gains and bank dividends gaffes), RDAs and a whole raft of other growing public service departments that have amply demonstrated their ineffectiveness. Adding to this scenario without some serious management change is a truly frightening prospect.
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New blog picture Robert?
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#30 All this is the fault of JK Rowlings !! If she had not thrown Harry Potter at us, we would not be expecting things to be done with a wave of the magic wand !!
As it is, now people are expecting instantaneous fixes to all problems !!
#32 You forgot that most important Olympic event - Excessive Public Spendings to No Good Effect !! An instant gold medal for this government !!
#44 Due diligence done on (at least 4) massive banks in less than a week ?? Oh WOW !! Tell me who did that and I'll recommend them to all my friends !!
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"But ministers increasingly believe that may be a price worth paying, if an old-fashioned Keynesian stimulus to the economy meant that the UK suffered a shallow recession rather than a deep and dark one."
It was Keynesian economics which caused this mess and more of the same is not going to make things better. (Isn't the definition of insanity doing the same thing oveer and over expecting a different result?)
Maybe we should try Austrian School economics which at least has the virtue of accurately predicting this. In fact, Austrain economics says that governemnt intevention will make things worse turning the recession into another Great Depression.
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Just want to say thank you to Robert Peston, over the past 3 weeks have learnt more about economics than I have in 30 years, thanks to his simple and concise style of explaining what is happening, with potential ramifications either way it allows the uninitiated to understand precisely whats going on as a result of the credit-crash.
With the onset of the now inevitable economic recession, it's been interesting to read about short/long term choices we have regarding the economy.
In terms of macroeconomic spending to limit the recessions' effects and speed up recovery and position us well for when it's all over, that is the key thing the government should do. Long term thinking, taking into account the full spectrum of government, not just the media-polls.
The talk by one of the defence correspondents about cutting the navy (again!) and not building the two new aircraft carriers was particuarly frightening, given the state of national defence at the moment and how late these two are in coming into service anyway. Can the UK afford to look weak, in light of recent Russian, Chinese, Iranian and other aggressive moves, and growth.
I don't think we can, so the government must do everything it can to ensure the economy remains strong, so that we don't get put at a strategic disadvantage to unpredictable regimes abroad.
The last time that happened, Thatcher had to send our forces in hard to make up for the initial weakness we found ourselves in - a hangover from the 70's.
I'm no lover of Gordon Brown at all. His stock has risen marginally given that most of the rest of the world is adopting his governments financial bail out plan, but I'm still watching both him and Cameron closely.
I want to see:
*value for my tax (seem to be paying more and more and getting very little for it, both local and national taxation)
*keeping Britain strong home and abroad
limits to how tough the recession hits (in the next two years)
*Britain emerging stronger than ever afterwards
*no neglection of the environment or the 3rd world development issues (ah-la Belusconi "vetoing" things because Italy's mismanagment has put them into a mess).
Also just have to laugh at the SNP, asking for a £1billion bail-out... and still they're telling people Scotland would be better alone? You only have to see the Irish economy to see that without a large enough population. economic recovery is made all the more difficult.
Just some thoughts from a normal (English) British voter... (currently marginally on the side of Cameron, but watching this space)
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The problem is too much borrowing not too little. We have collectively borrowed £650 billion more than we have saved since 2000.
Brown hasn't given any tax incentives for people to save, has taxed >£5bn per year in pensions and encouraged a borrowing binge to prolong a feel-good factor. these debts need to be paid back.
Millions of first time buyers have been priced out of the market and don't ever have a chance of owning a house even at current house price levels - totally unfair on those first time buyers.
Of course the banks are 'hoarding money' - lending more, which they might not get back would risk their solvency - why is 'hoarding money' being reported as a bad thing - its absolutely vital that lending gets back to a more prudent level.
Government borrowing has got out of control and needs to be paid back eventually too. Right now isn't the right time to pay back the borrowings but when is? Gordon shouldn't have squandered every penny he could when he was chancellor. He should have been prudent and saved a little for a rainy day.
The international markets won't lend any more to the UK becasue they are scared they won't get the money back. Interest rates need to rise and tax incentives given to save money. Interest rates need to rise and tax disincentives given to discourage further borrowing.
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I agree with Robert that the Government is going to be forced into a position of spending more money to try to stimulate the economy. It could start by totally reviewing its policy on house building - by its own admission it is way down on the number of houses they say we will need going forward. Yet the likes of Barratt and Taylor Wimpey have huge stocks of flats and houses they cannot sell, and both are almost certain to go bust in the very near future. Where will that leave both jobs in the industry and the companies best suited to meet the Mr Brown's housing strategy?
Of course, even if they could build enough houses to meet the target how will the people who need them be able to get a mortgage, which brings the whole problem full circle.
If Superman could get home long enough from his bid to become head of MFI (sorry, IMF) he should know that before we send him packing, as we surely ought to do with someone whose record over the past eleven years has been so abysmal, then we should insist that he sit down long enough to draw up a joined up plan which matches resources (our money) with suppliers (the builders) and those who need accommodation (us again).
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#96 "let's hope that all Labour's shiny new anti-terror laws are not deployed against the understandably upset average man in the street."
Didn't George Orwell write about that in his books - Animal Farm and 1984 ?? How very prophetic of that man !!
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The more we spend, the more we end up shovelling into the snouts of the lowlife city executives. I say stop now.
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Oh dear, oh dear, oh dear...
Public spending is not the answer until the root cause is neutralized or... contained.
so...
What do you think of Capital Controls and full nationalization of the banking system next Monday then???
(PS. yes, if you anybody has noticed, I keep repeating my self)
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The following may assist those not claiming to be experts;
Once upon a time in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them.
The man bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort.
The man then announced that he would now pay $20 for each one. This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.
The man increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey, much less catch one.
The man now announced that he would buy monkeys for $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.
While the man was away the assistant told the villagers...'Look at all these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each.'
The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again and once again there were monkeys everywhere.
Familiar ?
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5 rahere
public spend on utilities needed
Will never happen. Cost truely, truely, enormous. Has been looked at. The utilites don't even know where some of the stuff is. Inherited mismash from the Victorians. Not helped by Thatchers privatisation, sold the assests to maximise cash, not just the management side as per French model where the assets remain in public ownership. Utilities cannot even coordinate digging up the same road. Sewers were on a 500 year replacement programme with a 50 year life before privatisation to give some idea of the problem. Gas simpler because it can explode but still a problem. Move to Eastern Europe, we are all paying for spanking brand new service infrastructure there via really huge EU grants, looks as though they will end up better off than here.
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Where do you start?
I seem to remember way back in the late 70's or early 80's the govt had a two year VAT holiday on home improvement. I think every house in Hebden Bridge [did anybody live anywhere else at the time?] had something done.
This is done by small bank loans to home owners and gives work to the otherwise idle building trade.
[Yes there's a lot of this type of work done on the black economy but they are not all cowboys.]
If you can't move then improve and keep the general housing stock in good repair.
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#96 -
Exactly.
Inflation, i.e. repudiation of debt, looks like the only option. There's just to much debt about to work off.
We're out of moral hazard territory here and into moral abomination. Once again the decent prudent citizen will have to foot the bill for the others who indulged themselves while they did without.
When the decent prudent citizen gets really angry, (s)he can get very nasty indeed - if 20th century history is anything to go by.
Absit omen!
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The Second World War cost Britain £28 billion, the USA £560 billion.
Britain came out of it almost 'broke', the USA richer than ever.
Any parallels here?
GC
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A little bit OT maybe, but fuel taxes were mentioned in previous posts. Just as a point of interest, fuel taxes in the UK are around £0.65 a litre at the moment, compared to the USA where they are around £0.30 a GALLON (=£0.07 a litre)!!!!!!!!!!!!!!!!!!!!! Ironically, it means that we are cushioned against oil price increases to a much greater extent than our cousins across the water ;o\
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#101, Sorry, but the media and the "doom & gloom" merchants are not responsible for the slump.
You cannot paint a brick and sell it to unsuspecting people as gold, then blame the person who points out to the fool who bought it that it is merely a brick made out of clay and not made of solid gold.
Why move the blame to anyone else other than the responsible parties? Lets face it, this a situation that is due in main to the banks and financial institutions deciding to go for making huge profits, then using their well paid lobbyists to get Govts. around the world to reduce supervision and regulation. In simple terms that is all that is needed to be known about it, it isn't even solely the housing market that is the problem, the problem is the trillions and trillions of dollars of the exotic financial investment vehicles called derivatives that is to blame. Why do you think the more forward thinking investors like Warren Buffet stayed well clear of investing in them. He actually called them "Nuclear Timebombs".
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9 excellentcat
Ask Guy Croft about VAT, hes UKIP, it will get him going. Since we joined the EEC we are not masters of our own destiny and cannot set our own VAT levels we have them set elsewhere.
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its all well and good lending banks billions of pounds but if the same monkeys are at the wheel nothing will change, the stock market should have been suspended and trading globaly reduced to a bare minimum thus those rouge traders would not continue to sell and drop the markets further causing more panic and further reductions.
what will this government's superhero dynamic duo of brown and darling cook up next to pump billions into?
does it matter sadly enything thats done now may well be too late and just a further waste of taxpayers money.
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We see again the effects of politicians believing they can defy natural law. Estate managers, used to put out small forest fires. They would do this year after year, believing they could save every tree from fire, and then were surprised when one year, the whole forest went up in flames. I wonder if our leaders will ever draw from this lesson.
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How about a Lloyd's insurance type bail out Phase 1 Nationalise all the Banks & assume their ongoing Liability. The Premium would allow mutualisation of CDS's Ie What TSB owe HBOS could be used as reciprocal set offs against what HBOS Owe TSB. Having established the liabilities on National levels then International set offs could be done with Nation states carrying the can for their own ultimate net loss (ie USA picks up sub prime but keeps AIG ). In the interim "son of Bankers" can be refloated into a purer market dealing with proper loans to proper borrowers , with no dodgy spiral lending . I would suggest aggregate retentions on any secondary borrowings and a beefed up Regulator with the ability to imprison delinquents
Just a view from the sticks!
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"ask Guy Croft about VAT, he's UKIP"
Haha! 'was' UKIP, sorry!
Resigned in anger over UKIP leaderships' weak (non-existent) response to the ritual slaughter of UKIP in the election.
GC
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The cat is DEAD!
Anyone who bought into the bounce rally had better sell now!
Have you noticed how the government has suddenly realised it might need the Police on it's side! That pay deal was affected very quickly and they caved in over previous proposals for a pay review body!
2.65% could be a very handy deal in an era of deflationary depression.
They'd better get the Army pay/conditions sorted out quick because they will be on the streets with the Police.
It's going to be horrible!
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#83 - I don't believe it.
I too asked my cat about the current situation and for his insight into it - and he too left me a stark answer in the litter tray this morning - and it was consistent with your response.
I rewarded him with a big bonus of catkins and some buiscuits.
If he's able to complete the analysis I left him with this morning regarding the CDS timebomb, then I think I'll get the cat nip out.
....and to think, someone on this blog thought the solution was to throw the cat out of the window to see how high it would bounce......the amateurs!
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GB is still referring to this as 'a problem borne out of America'!!!
I didn't here him saying 'our economic growth is purely a result of the World/USA bubble/boom' when he was chancellor!
DOH!!!!!
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Robert, I said it a day or two ago in a comment; it looks as though now is the time for further government borrowing to be spent on public works. It needs borrowing to spend on national capital assets: bring forward Crossrail, accelerate building for the Olympic stadium and associated works (those who say, 'scrap the Olympics', don't really get it) start design work for a high-speed north-south railway, start serious study of options for Severn tidal barrage. Economics is not an exact science, and there was a time recently when a Keynsian answer was not the answer to the questions then arising. Now it is. The government should not throw money mindlessly at things (particularly on revenue account) but it should be building for the future.
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I think the Keynsian approach to a potentially deep recession is right but are you being a little negative in thinking only of publically funded projects. There are major private infrastructure projects which even in these difficult times would go ahead if given the necessary permissions and encouragement.
The (admittedly public funded) Hoover dam rescued America in the 1930's - what about a (privately funded) Severn barrage to rescue the UK now? An estimated 35,000 construction jobs and the provision of 5% of our energy requirements would do much to offset the recession and our future energy costs
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UTTER NONSENSE!!!!!!!!!!!
I CANNOT WAIT FOR MR PESTON TO SAY WORDS TO THE EFFECT ON TELEVISION.............
"NORTH AMERICAN UNION"
"NEW CURRENCY....THE AMERO"
"CANADA, USA AND MEXICO JOIN IN A UNION"
"THE AGENDA" ROLLS ON, 99% OF THE PUBLIC ARE FAST ASLEEP....
WAKE UP FOLKS!!!!!!
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If the banks aren't lending to each other, forget them for the moment. Government should set aside the funds to lend direct to individuals, instead of the banks. The instruments to do this exist already (Northern Rock & Student Loans Co). Lend ridiculously cheaply and claim repayments from earning deductions. The banks will soon realise that there profits are being dented by government cheap loans (which as secured against earnings carry little or no risk) and they'll start lending to each other and the public very quickly.
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#125, remember to buy a bonus pack of catnip, I have a feeling that the kitties are going to be spot on again!
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This is well worth watching, somebody else posted the link last week;
http://uk.youtube.com/watch?v=LgkYjFYr2QI
It shows how banks create money, out of thin air.
And it shows where the extra dosh came from that trippled the price of UK property.
I had thought that governments caused inflation by printing money but this video explains how banks effectively print money by issuing debt.
One cure would be for us to settle for zero economic growth. A sustainable economy might also solve some other problems. I hate the way that it is always assumed that growth is normal.
Any colony of animals that grows continually must expect an eventual end to it. Bacteria, rats, people.
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Rather than rail against the perceived inadequacies of G.Brown et al, perhaps contributors to this forum could concentrate on the "what next" scenario and how to deal with it.
I have nowt in the bank, but own two properties in the West of England that are declining in value. I'm unmarried, but with partner in tow, and am in my late 50s (sounds much younger than 60, somehow).
My personal plan is to move to a Scottish island and live the life of a crofter. The idea is to eke out the expected 'nuclear winter' of present and future economic horrors in a (possibly) more congenial financial - if not meteorological - atmosphere.
My questions for the accumulated wisdom of this blog are: Am I bonkers? Am I wise? What (sensible) alternatives can you suggest?
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And don't ask the consumer again to "spend our way out of the recession" like the Government pushed last time. Because look what's happened cheap finance flooded the market, 0 balance transfer credit cards, unlocked housing equity to fund celebrity lifestyles etc meaning no-one saved and lived for the good times. Now with high personal debt how will the consumer respond? In denial who knows.
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#135 - Kitties are usually "spot on" if my upholstery is any guide . . . . .
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I have to say that I find it mind boggling that it is reported that the government seems to think the solution is yet higher public expenditure, where do they think the money is coming from. In Wales the Welsh Assembly is already boasting that it has managed to spend 5000 GBP per head of population, it is seen as an achievement, which in a way it is. To that has to be added central public expenditure not routed through the Welsh Assembly. An economy based on people working in the public sector, and people dancing in a circle servicing one another, and a shrinking private sector just cannot work. It is the inefficencies of government, national or local which cause the problems. If this route is gone down we will be paying for decades not years. The Conservatives saying a scorched earth policy is being undertaken by the present government looks to be correct. The lunatics are running the asylum.
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#133
The answers to your questions are:
1. Probably
2. Maybe
3. None just at the moment, unless there is a pub nearby.
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#96 SPOT ON!!!
Call the BBC immediately and get a blog!
Note my above comments about Police pay deal!!!
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#101 - houseflogger, and all the other Peston knockers.
Sort your lives out - lets get it crystal clear...
Robert Peston DID NOT keep interest rates too low for the last 5 years in order to promote growth
Robert Peston DID NOT invent the CDO - which is tantemount to a dodgy auction of 'surprise black bags' that used to happen about 8 years ago and were closed down by trading standards.
Robert Peston DID NOT encourage, nor sell debt to people who could not possibly pay it back.
Robert Peston DID NOT relax or remove the rules on the financial sector that were put in place after the great depression.
Robert Peston DID NOT tell Northern Rock to create a business model that ASSUMED the libor would always be available and at a competitive rate.
Robert Peston DID NOT encourage banks to go into the insurance business
Robert Peston DID NOT create the "tri-pe art ite system"
Robert Peston DID NOT cause the titanic to sink
When will you learn - it's no good blaming others for your problems.
THE BANKS created this mess
WE and THE GOVERNMENT allowed it to happen and actively contributed to it.
Robert merely told us all what a mess we made of it.
So can all the jealous journalists please get off these blogs and go and find your own stories.
Will the bankers who cannot accept responsibility for their actions also get off this blog too.
All you are doing is merely clouding the argument in order to divert the attention from your own short-comings and failures.
None of the actions of R.P. have contributed to this mess.
If he didn't break the NR story then maybe we would all still be living in 'financial credit cloud cuckoo land' and believing that it's OK for bankers to print money and invent instruments that are low risk and yet high yield.
I mean seriously - what were we thinking???
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This comment has been referred to the moderators. Explain.
#135 and #125.
Are your cat's fat by any chance?
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If the banks won't help out perhaps Government should use the Nationalised Norther Rock as a Vehicle to lend directly to small businesses.
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#6 "Gordon Brown is not Winston Churchill and is not going to save the world from financial crisis."
Thank grud for that! - Winston Churchill was possibly the most economically illiterate Chancellor of the Exchequer last century. His 1924 budget, which took Britain back onto the gold standard, resulted in deflation, unemployment, and led to the General Strike of 1926. This moved Keynes to write an analysis "The economic consequences of Mr Churchill".
As for the comment "What we need is a new Government with new ideas". That isn't on offer from any party, because very few politicians really understand the economic system. And, even those who do understand, like Vince Cable, daren't tell the whole truth because the ignorant would attack them savagely.
Money is largely an illusion anyway, but if it exists, it is only useful if most of it is being spent. A medium of exchange is no good if exchange isn't happening. in the long run the books must be balanced of course, and that should be done by vastly increased taxes on the obscenely wealthy. These are the ones who have done best out of the prevailing "pro-enterprise" rightist ideology of the last 25 years. Unfortunately, much of this so called "enterprise", often little more than gambling, is what caused the bubble and landed us in our present mess.
If the very wealthy didn't have this vast surplus, they wouldn't have been able be able to play the speculative games which are now ruining the world for everyone else.
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Increased public spending is a perfectly logical way to respend to the threat of a severe recession and we shouldn't worry too much about Gordon's precious golden rules - they never had much basis in economics anyway (I wonder wghere in the cycle he thinks we are now?). Its a pity that the government borrowed so much during the boom years but lets hope that any new borrowing is invested in capital infrastructure and housing projects - most of the so called investment he has financed previously was more like a form of comsumption. We must also hope that during the next boom, the Chancellor of the day pays off debt rather than incurring more.
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I have suggested several times before, that the only way for the Government to kick-start the economy is to by-pass the wholesale banking network and lend directly to the Retail Banks and Mortgage lenders, with the proviso that they lend onwards to consumers and home owners, at a sensible rate, e.g. 100bps over BoE Base Rate. The Government could organise this via the Institute of Bankers and the Council of Mortgage Lenders.
If Banks want to keep tax payers money then they should have to pay over this rate, say 200bps over BoE Base Rate unless they agree to match the aformentioned Mortgage Rate. This should be a three year deal.
The only other way forward is a Socialist one of Government Control of the Mortgage Rates. If an institution wishes to be a mortgage lender then they have to charge a preset rate, controlled by the movements in Base Rate, and agree to NOT FORECLOSE on people that are struggling. Those that need to have a reduced Mortgage Payment should be offered Interest only repayments for the three years. With the Mortgage Lender also only having to pay the Interest back to the BoE.
If one removes politics and bankers greed from the mixture and applies common sense in a logical way the answers to these issues is self evident This is not rocket science.
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#133 "My personal plan is to move to a Scottish island and live the life of a crofter. The idea is to eke out the expected 'nuclear winter' of present and future economic horrors in a (possibly) more congenial financial - if not meteorological - atmosphere"
It could be distinctly chillier than you expect there - if you're English, don't expect a welcome from the Scots. And I'm half-Scottish. My late Whitburn-born mother lived there for the last twenty years of her life and when she was in hospital in her last days the nurses still referred to her as 'that Englishwoman'..
I'd go to Bavaria, drier and warmer and the locals of your generation - if they talk at all - will all remark on how Britain and Germany should have been friends, plus they don't worry seem fazed overmuch about anything there..
GC
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If they embark on this then it needs to be wholesale council house building. That will employ builders (who are being battered) supplies contractors and sort out the chronic housing shortage for the low paid
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#6
Looks like we have had it then. There are no candidates with the skills you require. All relevant parties agreed with the Brown-Darling tactics. Wise up !!!
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Robert said:
"But [governments are] ... powerless to prevent the banks contracting the amount of credit they're providing, which has reduced the ability of companies and individuals to invest and spend, and risks turning an economic slowdown into something rather worse.
That's why the British government is being forced to think about something new: a substantial and sustained increase in public spending to offset the contraction of spending by the private sector (there may be little point in cutting taxes, since nervous consumers and businesses would probably hoard any extra cash that went into their pockets)."
This is crazy! The problem was caused by spending what we have not got, so surely to spend more is trying to 'put out the fire with paraffin'? Harsh thought the consequences will be, have we not - in every way - simply got to cut back to what we can afford out of current income, and that includes paying-off our debts.
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#133
I came to a similar conclusion with my colleages over lunch, but we decided that beach drifter in Jamaica sounded a better carreer path B-)
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Keynesian boosts can be useful (NASA, the US Military etc) but we in the UK no longer have the industries to make it work. The financial service sector has proved its worthlessness in a crisis. We cannot and should not pour good money after bad.
The invisible hand that guides the economy is partially closed and moving up and down rapidly at the moment.
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Replacing private lending with public borrowing has worked in history, contrary to some of the views here. For example, the US got out of the 1981-83 recession (and brought closure to the 197Os) in this way. Of course, in the meantime it became the largest debtor of the world and decimated its manufacturing. But I agree that it would not work in the case of the UK, simply because of the lack of power over the world markets. In theory it still could work, horror and horror, if the government started to finance private investment directly, switching off the banks completely. Of course, it's only fantasy, this government or any of the major parties would turn their eyes away with horror.
One of the key mistakes with the rescue plan was that now, as a result of the rescue package, the banks are liquid both in securities and in cash. They will become less and less responsive not only to the meek voices of the Treasury, but also to the incentives of the BoE. At least until the emergence of the next problem.
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#29
But if the west goes into recession so will the east as they have built their economy on selling to the west, come the recession (or worse, depression) in the west not only will Asian order books dry up but people in the west will be prepared to work for considerably less that they have in the past - the rule book won't apply and will be the only thing safely locked in a safe, with the key melted down for scrap - for example, people in the UK will buy UK or EU made products and the same will apply to other nations and their own industries, human nature will cause them to protect their own. If a depression happens it's the end for globalisation - don't assume the 'east' will save the west...
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@113 Glanafon
And that is precisely why this is the kind of project needed - you have to find work for something like 5 million unemployed which will do the country some real good and build for the future. The fact it will cost the absolute earth is the pump-primer, and it's expenditure which is unavoidable if we want to stay out of the middle-ages. Part of the wider problem is lack of courage from HMG - if the solution's global, then we need courage on a global scale, and an end to the halfway-houses we've been seeing.
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#146
Don't go to Bavaria, go to Mecklenburg. The Germans joke that if the world ends tomorrow it'll happen 100 years later in Mecklenburg.
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#139
Hear, hear!
However I've heard that he IS responsible for Global Warming.
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Credit Default Swaps - Nuclear Time Bombs.
It does seem possible that fear and ignorance about CDS volume and whereabouts might be a major reason why banks are just not lending to each other, and also why the "Brown Plan" made such very high estimates of how much recapitalisation of banks was needed.
If this could be the case, CDSs bear a grave responsibility for what might yet be cataclysmic social repercussions. It is said to be wise to "know thine enemy".
Please, then, to help a layman who does not pretend to know what a CDS actually is, could anyone amongst Mr Peston's obviously much financially better-informed posters provide a very basic, Noddy-book
description of a CDS? Thank you in anticipation.
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#133 guycroft wrote:
"It could be distinctly chillier than you expect there - if you're English, don't expect a welcome from the Scots. And I'm half-Scottish. My late Whitburn-born mother lived there for the last twenty years of her life and when she was in hospital in her last days the nurses still referred to her as 'that Englishwoman'..
GC"
I'm a quarter Scottish (grandfather) and a quarter Welsh, but proud English.
Most of what Guy refers to - is hyped up by the SNP nut cases, on "how well off they'd be without England".
Then Alex Samond goes asking for money from Brown, because Scotland simply doesn't have the population size to weather the economic storm, much like has happened to Iceland.
Some lies told by the fair-weather SNP are about to be shown for what they are, Scotland needs England (for access to workforce and capital) as much as England needs Scotland (for access to natural resources).
This new tier of government (assembly and scottish parliament) are about to be shown for the waste of money they are - merely duplication over what we already had so fat politicians can get fatter on fat "expenses".
6 months ago, Samond was claiming how well Scotland would be doing if it were like Norway or Iceland.
Now his chickens are coming home to roost, or more like ROAST.
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Gordon should stop watching "Life on Mars" and living the dream.
1973 through to 1979 was a period that should be titled "How not to inflate your economy".
It resulted in a call from the IMF.
We've had Keynesian stimulus since 1997 and look at the result! There's certainly been no monetary control, M4 has grown 10-15% year on year since.
More of the same is only going to stoke inflation, government are NOT the best mechanism to get money working to create value.
The government should cut public spending to limit its borrowings, cut interest rates and cut some taxes.
Get off people's backs.
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Went into Southampton city centre today at 11am.I`ve never seen it this quiet.
Things are going downhill quickly,so all the optimists and "system-pigs"(bankers,politicians etc) saying everything will be just dandy are living in cloud-cuckoo land.
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I get the distinct impression, from the way things are developing, that we are being led to where the banks and those in power want us to be.
After a decade or so of deregulation when the money markets and stock markets (around the world) were allowed to get completely out of control, those who have the necessary powers are now trying to impose some order on these markets and our everyday lives.
Before we reach that stage and because of the magnitude of the global financial problem (debt) I am of the opinion that there is a lot more pain to come. I strongly suspect that a good many more banks around the world will be declaring themselves technically bankrupt and until we know the true extent of their collective misdemeamours then we will still be heading into the eye of the storm.
Whether those people who are supposed to be steering the ship through these turbulent times have the necessary skills to get us through these troubled times without too many casualties remains to be seen. This looks likely to be one of those once every century financial storms. However I do believe their is the collective goodwill to get us
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LITIGATION!
The only way to fight the banks will be to attack them at their weakest point. This has been their total lack of transparency.
Banks, by their very nature, are very secretive about their dealings. They have created a shadow banking system by dealing in SIV's and CDS's, all off balance sheet, so as to deliberately fool the regulatory authorities in terms of their tier 1 capital requirements (with regard to the expansion of the money supply). This was done primarily to inflate their own earnings and personal bonuses. However in doing so, they knowingly and deceitfully misled their shareholders as to the true financial positions of their organisations. This is illegal!
What they have done mirrors the ENRON fraud, but on a much, much bigger scale. What's made things worse is that they have colluded with each other (thinking there would be safety in numbers - no pun) but this has just made the mess a whole lot bigger. Because they were all at it, and being masters of the universe, they thought they would all get away with it!
Others are beginning to picked up on this thread (in this and other blogs).
The only redress will be to LITIGATE, LITIGATE and LITIGATE again. Take the banks to court and make them pay for their mistakes.
This will not help to fix the mess they have created, but at least it will make the rest of us feel a little better.
LITIGATION.....you know it makes sense.
JOIN A CLASS ACTION TODAY!
(BTW - I am not a lawyer or in anyway related to one)
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Quote from SNP (Scottish national party) last Aug:
"The SNP wants a safer, healthier and wealthier Scotland. We believe nuclear weapons are the wrong choice for a successful Scotland. That's why we won't waste £25 billion on new weapons of mass destruction, when it can be better spent in our schools, hospitals and other public services"
Nuclear weapons - the wrong choice for a successful Scotland! Speaking as a 'half-Scot', I have to agree, Scotland's nuclear arsenal (not quite sure where it's kept) should be scrapped immediately. Might be pointed at England, and then what?
Quite so SNP. Much better to waste Scotland's OWN money on schools, hospitals and other 'public services' - rather than England's. All the SNP needs to do is figure out how to earn that kind of 'dosh' once all the English assets pull out.
GC
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Is this correct?
The problem is the bottleneck in bank lending.
The Govt formally owns 2 banks - B&B and NRock so why doesn't it use them to channel lending to borrowers (or just threaten to) rather than rely on the other part-nationalised banks?
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#162 - you'll get your bank account summarily terminated if you carry on like that!
GC
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#157, a Credit Default Swap is simply insurance, but by another name so that it is not regulated like normal insurance is.
Say you have company A, you are company B.
You loan Company A 1 million pounds, but you are worried that it may not be able to pay you back. You therefore contract with company C for a CDS. In return for a payment to them by Company B, they will pay out if Company A goes bust and cannot pay back the loan.
However, that is only the simple version. In reality what happens is that company D and E and F and so on, also bet that company A will go bust, and so take out a CDS and pay company C or any other company that is willing to take the risk on for a payment now. Remember, the other companies are not party to the original loan. Its would be like me taking out an insurance policy against your house catching fire. I might be the slightest bit tempted to saunter over and drop a match through your letterbox when you are away.
Anyway, back to CDS. It gets even sillier if you imagine company C that has sold the original CDS to you, then bets on the company going bust with company F or G, which in turn hedge their losses by doing the same. You can see that after awhile it gets so convoluted and messy that to pick the whole mess apart if night on impossible, with the risks and losses not at all clear. It also means that if a link in the chain goes down, like for example Lehmans, then you have companies who have to honour the bet they made, in the case of Lehman, I think it amounts to somewhere in the region of $500 billion. If any of the players cannot settle the amounts due, and as I understand it, they must be done within 14 days of the auction date, so the 24th of August is when all outstanding monies are due for the Lehmans defaults. Strangely enough, the auction for the Washington Mutual defaults is due on the 23rd....
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In spite of our government throwing the largest amount of our money they could think of down a giant black hole... markets continued to reflect the current and future prospects for the economy...
economists commented:
"they might as well have put our money on deposit at Icesave and least it might have been better protected there"
obviously not traders....
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@133, you may not have noticed, but the solutions adopted thus far were first discussed here.
The problem is indeed global: the World Bank and IMF's failure to take a lead. To plot a way out will mean financial restructuring globally, and that may not work - for myself, I recall that we have thus far seen the demise of at least four generations of bank, at roughly two hundred year intervals, so another may be overdue.
At root, we've grown the cake of the world economy as far as it will grow, during the globalisation phase, and the next phase was to grab as big a bit for yourself as possible. That came unstuck because it started pulling other things apart with it, as anticipated and so the next stage will be to get it working efficiently. After that, there's nowhere else to go: we now need some serious socialist economics, as the other extremes have discredited themselves. Bring back Ken George, Cardiff's socialist economics Prof, all is forgiven!
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No. 53
Probably late arriving post.
I received one of these personalised invitations to card and balance transfer too, with similar financial background as you stated. Out of interest tried (I won't need any new card, loan whatever for 12 months so I'm not really bothered by the blamish of application on my credit record) and my application was duly turned down.
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Your analysis that taxpayers will hoard extra cash they get from tax cuts is seriously flawed. People are in debt, the cost of living is rising remorselessly, council taxes are rising and people are finding it difficult to make ends meet. People will not hoard money as they don't get to keep enough to keep their heads above water. So cut taxes let people keep more of their own money and they can pay off the debts & mortgages owed to the banks that were worrying that they won't get repaid and the system will unclog. Taking too much in tax is partly to blame here - the result is that most people especially those with children live month to month with no resources to back them up if something goes wrong, like losing a job or health problems.
Brown's plan is going to backfire spectacularly and we are going to be paying for it for years to come
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To all the armageddon merchants, like I said elsewhere here, there's a firm thesis for that too, on a number of very serious non-economics heads. Oddly enough, centred on Brussels, and with some seriously ancient roots long predating the EU. However, this is drifting off-thread, declare where you want to continue (Religion forum, perhaps?) and continue there.
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#55
The last thing the world needs is another Thatcher, she caused this mess with her Friedmanism.
As for not supporting the population, I thought that the dog-eat-dog world of only the strong and rich survive was put to sleep in the late 1800s but your message suggests that it's still alive and well in 2008...
I'll tell you what though, carrying on spouting on about letting people stave just so that the rich get richer only ever leads to one thing, revaluation and pay-back time, although a certain person called Guillotine did manage to make his fortune in France at the time!
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If Gordon is really set on spending his way out of this mess, and given that Europe is "resolute" on climate change targets then environmental technology is still immature and an area where there is big growth potential. Surely this is the one area where it would make sense for government investment in industry. Get some proper manufacturing going again with products that the world wants and is willing to pay for, and then, and only then, will we start coming out of recession.
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If we have to increase public expenditure how about investing in the train network? That will stimulate the economy and improve the environment (fewer car/plane miles).
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#163.
"The SNP wants a safer, healthier and wealthier Scotland. We believe nuclear weapons are the wrong choice for a successful Scotland. That's why we won't waste ?25 billion on new weapons of mass destruction, when it can be better spent in our schools, hospitals and other public services"
Nuclear weapons - the wrong choice for a successful Scotland! Speaking as a 'half-Scot', I have to agree, Scotland's nuclear arsenal (not quite sure where it's kept) should be scrapped immediately. Might be pointed at England, and then what?
Quite so SNP. Much better to waste Scotland's OWN money on schools, hospitals and other 'public services' - rather than England's. All the SNP needs to do is figure out how to earn that kind of 'dosh' once all the English assets pull out.
GC
You missed the point GC though.
Scotland doesn't have the money without England, hence Samond went asking for a bailout from Brown.
Working in the energy industry myself, there simply isnt the workforce in Scotland alone (without England) for Scotland to tap it's economic potential. Thats a fact. There's only 5 million inhabitants of Scotland, which is insufficient. And if they brought people in from abroad, then thats more money going out of Scotland and out of the UK.
But its something an ideolog like Samond would never get, because he's merely interested in getting a few people richer, but play on people's age old anti-English prejudices.
On the nuclear issue, you only miss something when you need it. And when a rogue state or regimes point a gun to your head, you'll be the first to cry when we are unable to defend ourselves. And infact the Scottish economy is a net benefactor from them being based up there.
Finally before we return to the subject in hand, it's simple. Scotland WILL NEVER earn the levels of dosh that it can use within Scotland, without English support because as I say again there isn't the capital or workforce to do so.
And in the subject in hand, its up to both Scottish and English to get their banks in order:
to fund the energy sector growth in Scotland so that the entire British population benefits.
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re 133 You are not Gordon Brown are you?
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Brown continues to delude himself into believing that he is a modern day King Canute. There is now nothing he or his colleagues in Europe or America can now do to stop the inevitable. We are heading into a global depression, which will lead to many businesses collapsing and millions of people unemployed. The elephant in the corner are the $54 trillion in credit default swaps that could prove highly toxic and if so will collapse the whole system irrespective of what has been done.
However, whatever will be, the consequences for the UK will be considerably worse than for its neighbours.
Though Brown is wont to blame everything on global pressures emanating from America and that France and Germany have higher unemployment than the UK, this is completely disingenuous. in spite of his claim that the fundamentals of the UK economy are sound, they are anything but. He conveniently forgets that the UK followed the self-same policies as America and frighteningly we are about a year behind, so our problems are soon to get a lot worse. Secondly, Germany and France have a strong manufacturing base, and did not follow the reckless housing and credit boom. Importantly they did not create a number of facile jobs to camouflage the failure of free market economics to create well-paid jobs for all.
The free-market system failed in the 1930s and it has failed again. Indeed, in a world where employers can exploit the system a) through globalization by using cheap labour abroad, then sell here and thus keep profit margins high; and b) through technological advances, which require less people to the work, capitalism has shown itself to be no longer up to the mark.
It is time for new ideas.
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Let the banks go to the wall cut put the money into peoples pay packets get spending started have one large retail bank for everyone,one large mortgage bank and one large commercial bank, there are still a minority of fat cat city boys making a fortune in todays markets kill them off once and for all
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#139 Theresonly1soupy
Just to say: Hear Hear!
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Regrading the last sentence of the last paragraph from contribution 96.
Exactly, A bit off topic but highly relevant. With concerns about our financial security and whether we will have jobs in the near future, I wonder if the announcement by the home secretary that there will now be a data base (but it won't be called a "data base" though...) of emails, mobile phone calls and our internet access is an example of "a good day to hide bad news".
If this isn't an example of totalitarian government I don't know what is. I even consider myself leaning towards the right of politics (especially as I get older!) but we really are sleepwalking into a neo-fascist regime.
It doesn't really matter whether it's failing banks, failing businesses or the imposition of of ID cards terrorists the world over are probably watching in joyous disbelief whilst we do their work for them by basically destroying our society.
Lets not forget that it was anti terrorist laws that were indeed used against Iceland.
It doesn't matter what assurances are given, if the circumstances dictate these laws WILL be utilised to suit the political agenda of the day. To believe (the home secretary) otherwise is nieve.
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As part of some sensible public sector expenditure I suggest we build an old bankers home (OHB) for the Boards of Lloyds TSB and HBOS. The security provided must ensure that once they are in they can't get out again. And after his comments on Daily Politics today, they can add Vince Cable to the inmates.
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If, during the coming depression, you find yourself out of employment, as many of us will. You might take a little time to wander the streets. You will see goods on sale, yet few customers able to afford them. You will notice the infrastructure of civilisation complete around you. The cables, the trains, the roads.
If you reside in the countryside, you will note the clement weather, the abundant fields and crops. On your travels you will encounter, men like yourself, full and fit and able and all with a strong desire to work, but there is no work to be found.
You will notice that there is everything a healthy society needs to function.
Except of course, money. Worthless bits of paper, numbers on a screen.
You might start to question what money is in the first place. A tool to facilitate labour, trade and commerce. A medium of exchange (originally barter) (in simple terms: your labour in exchange for goods).
You might start to question, what the hell went wrong, or if you think a little deeper, who took control of the money supply away from you? And why?
You might even become angry, because by then, you will realise that you have been robbed.
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No. 78
Check the taxation model of petrol and you'll see why it doesn't work like that.
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Dear Banks,
So long, and thanks for all the rotten fish. We really loved your 24% APR credit cards and your £35 overdraft fees. My recycling bin will not be the same without a new 10-page book of terms and conditions every second month. And where will I be without your generous 2% interest rate for savers?
Sure, your accounts are convenient for sending and receiving money. But they are useless for storing it, because you just gamble the money and force me to pay it back with my taxes when you lose it.
As it happens I've learned to live quite happily without credit. You need me, but I don't need you.
I know there might be some dislocation as the market comes up with safe methods of money storage and transfer. But that's the price I'm willing to pay to get rid of you.
So buh-bye, and good riddance.
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RP: "the British government is being forced to think about something new: a substantial and sustained increase in public spending to offset the contraction of spending by the private sector ... an old-fashioned Keynesian stimulus to the economy meant that the UK suffered a shallow recession rather than a deep and dark one."
It would be a good idea if they increased spending on infrastructure (a high-speed rail link between London and Leeds, a Thames esturary airport, renewable energy, etc.) and on education (particularly on science and mathematics teaching and research in schools and universities). Spending of this kind is urgently needed if we are to be competitive in the future.
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#166 GC
they wouldn't dare....I'm in too much debt!
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Labour destroyed the savings culture, as the savings ratio plummeted from North of 10% in 1997 to almost nothing. This was driven in part by the destruction of occupational final salary pension schemes. Hence a shortage of savers money to lend to borrowers.
So what did people do? They thought I can borrow some money to buy a flat and let it out to pay the mortgage (if you bought into the market early i.e. mid to late 90's rents covered the repayments) and at the end I will have the increased capital value of the property and the rents to provide income, that will most likely go up by inflation or average earnings. Then when you die, as long as no care fees are payable £630k of the value can be passed tax free to whom you wish and at worst only 40% of the rest is taxed. Oh and everything will be paid by your early 50's if you start in your 20's, or earlier if you use your salary to increase re-payments the interest also being tax deductable.
The alternative save/pay your own money into a pension not knowing what it will be worth, to be forced to then spend 75% of the fund on an annuity losing all your capital in order to provide a income at a low rate. This may end up being fixed depending on your choice and cannot be taken before the age of 55, 60 or 65 depending on the scheme. The only benefit is tax relief but this favours the higher rate payers.
To cap it all Labour proposes to reduced GCT to a flat 18% from 40% with relief for long term holding. So removing the incentive to hold assets long term and therefore making the yearly CGT rate 22% better than earning money at 40% tax rate.
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#176 - satire is dead or what?!
Gc
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I don't think we can blame Gordon Brown for a global economic crisis that started in the US. I live in France (although I'm British) and the effects are being just as keenly felt here than in the UK, which I'm sure isn't down to Brown's economic policies.
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#71
"The old school economics of cut interest rates and fuel a consumer-led recovery isn't the right strategy".
ABSOLUTELY!
And why? Because consumers have no trust in the banks, insurance companies, etc., etc. (Not surprising - even banks don't trust banks at the moment!)
And that's exactly why we need something new and significantly different.
We need a new type of banker, a new type of bank, a new type of banking and financial industry. One that wipes the 'trust' slate clean and re-builds consumer trust.
We might well even learn something from the times before Thatcher and Reaganomics. When people were encouraged to save, from real 'earnt' wealth, to afford significant purchases - not to take out loans for them. When most people did not own there own house and, therefore, there were many fewer mortgages. When credit cards, overdrafts and bank loans were hardly heard of.
We have been here before, in some respects, but I'm not advocating going backwards. We need something new, though we also need to learn - now that it has burst - from how things worked before there was any 'credit bubble'.
We need deposit facilities and we need loans, but my view is that we need these in a completely different way.
For example, perhaps each and every local authority, or NHS trust, shoud be charged with running a publicly available credit union facility.
Immediately then there would be so many of them that none of them would grow too big. And they wouldn't be allowed to take each other over. And, as there would be existiing governance structures and accountability to central government, it would be easy to keep them in line.
It would be pretty cheap to implement too.
I'm sure there's much better ideas out there than that, but the point is we need a new way of doing it all.
Propping up the existing system(s) will, at best, be a mediocre quality, short-term solution.
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CNN Headline:
"Bank of England to start new facility -
Bank of England to introduce new borrowing facilities from Monday"
Can this money go aboard?
How can we be sure it doesn't just disappear overseas and never get paid back?
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#116 Yes !! It's called creative accounting and that is the problem that caused this crisis.
1) Britain's costs did not include the costs to the rest of the Empire or the Dominions !!
2) The US military like to buy $10 hammers that can be bought down the road for $1 !!
3) While Britain's industries had their backs to the wall trying to save the country and the empire, many American industries became ridiculously rich from their war material sales !! Therefore much of their "debt" was shifting of money from the Public purse to the private purses of their war material producers !!
Sounds more familiar now ??
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I attended a conference on house building yesterday. The overall conclusion was that the government's target of 3m new homes by 2020 has absolutely no chance of happening as it requires 240,000 houses per year - and we are going to build c. 100-120,000 this year and probably about 10% less next year. No-one is predicting the situation to improve until at least 2014.
It is a widely held belief that there is a shortage of housing in the UK, and what housing is available is either a) far too expensive (although this problem is very rapidly resolving itself see below), b) the wrong sort or c) in the wrong place (or a combination of all 3).
The major UK housebuilders are in no condition to step up production as they have massively over-valued landbanks which when the write-downs eventually come will almost certainly bankrupt some/all of them. Infact from the discussions I heard yesterday if it were not for the fact that the banks want some of their money back (as opposed to none) several would have gone already.
If, the government wants to have ANY houses built at all, it will be forced to support the housebuilders - it already controls them indirectly via a mass of regulations (which don't help very much) and by the fact that the banks (now under control of HGM) effectively control the housebuilders.
Potentially, we could see the effective nationalisation of our housebuilding industry. Whether this is a good idea or not is debatable. although if Keynesian measures are required then doubling the output of housing - at affordable prices would seem like a win/win solution.
Incidentally, the price probelm will be solved as the consensus is that the current 13-15% drop in prices from last years' peak will be more like 40-50% by this time next year - and there is no reason to suppose it is going to stop there.
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No 84
Your knowledge of history is a bit short or fuzzy or both. It was the Tory government that bankrupted the country - when the Wilson government came to power, they were completely shocked by what they found in public finance and in hidden economic statistics and had to abandon the policies on which they were elected.
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"I'm Robert Peston, the BBC's business editor. This blog is my regular take on the bank stories and currency issues that matter"
cummon Robbie!
Give us a business story! You know you want to!
GC
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This is Gordon Brown's fault ? and the sooner he steps down the better ? billions and billions of pounds have been WASTED by this inept Labour Government ? like giddy children they spent all the money that was coming in.
Gordon thought he had the midas touch with the economy, but like the so-called genius 'Property Developers' who thought that their efforts 'Doing-Up" their newly purchased house was actually responsible for the rising prices ? we now know that whatever Gordon did ? it was not affecting the booming economy ? because it was all built on unsustainable debt.
And now, here we are, tittering on the edge on bankruptcy... and all Gordon knows is BORROW and SPEND and quite remarkably not even TAX! We all know that Mr Brown thinks he is some kind of 'Jesus' figure born for one mission ? to save the world and bring economic peace to mankind. OF COURSE he was upset last month ? he couldn't work out why his Premiership was turning out so badly... he had got the Power and Position he so richly deserved... so why wasn't everything perfect? Why was he unable to lead the masses into a paradise on earth? And then it became clear ? this was His mission. His chance to save the world. Others had missed it! But He hadn't! Oh joy! This WAS His moment! He MUST SPEND 500 BILLION POUNDS HE HASN"T GOT!!!!
And now after all this... Labour Ministers are telling us that we might even make a profit from the BANK DEAL! WHAT?????? The entire economy is in freefall... the one thing we need is stability and confidence YET LABOUR is dreaming of MAKING MONEY BUYING SHARES IN FAILING BANKS!!!!! Are these people absolutely crazy!
PLEASE Gordon, please step down ? don't sell off the family silver (we know there's no gold left) just to cling onto power ? please please step down and give someone else a chance to rescue us. After all, nobody has even voted for you, you have no mandate.
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#105
That is the first time I've ever heard someone suggest that Thatcherism is Keynesian in principle!
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Hi Robert,
That's it. It is official. You have lost your marbles. Gordon Brown's ideas of increasing public spending and employing more civil servants is limited to mindless, pencil pushing jobsworths who dot the i's and cross the t's. Employing these people actually detracts from the economy, because they were previously on benefits merely draining society, not (it such a case) acting as a drain and an additional line of red tape ever increasing beaurocratic system.
If Gordon Brown was able to expand his very limited mindset to include employment new indsustry which created items for export (thereby creating wealth) then maybe you may be onto something.........
But I forget all these kind of people have left the country for greener pastures in the Far East of Middle East, or are in gainful employment.
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#119
Sorry but that is totally wrong in the most part, countries can and do set their own VAT levels - it is true that once the tax has been implemented it can't return to zero, this is why Blair could only reduce gas and electricity VAT to 5% after Major placed VAT on to them. The rates are not set by Brussels but by individual Govts.
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#118,139,180.
Sorry for the delay in replying - had to go out and do some real work!
Go to the home page, click on "Business", then "Your Money", then scroll down to the bottom right and click on "property developer looks to the future".
Here you will find an interview that has been on this site, for public consumption, for over 12 MONTHS - long before the general public at large had even heard of the banking crisis. Clearly the developer sold out at exactly the right time (fair play), probably to some honest punter's pension fund. Equally clearly he is sat on a huge cash pile and has a vested interest in talking the market down.
Why is the BBC colluding in this? Why is this interview still on the website after 12 long months? What effect does this have on Joe Public other than to shake CONFIDENCE?
I take all your points about how the banks have behaved like a bunch of crooked shysters and clearly Bob is not totally responsible, however it cannot be denied that he has played his part in this self-fulfilling proffecy.
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What do you expect?
We need to get rid of the Government that got us into this mess.
Their excuses will not do and the media and opposition parties should be asking for their immediate resignation. No UK Government in history has ever caused such an economic disaster without resigning.
Until we get a strong Conservative Government with strong conservative policies we will not have the basis for recovery.
Then we have a stupid American electorate saying in the polls that they want a left-wing spendaholic in the White House when they already have Pelosi and Reid running the Senate and Congress. What a mess.
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#156 - Is that a 'hot air' reference?
I'm sure that Peston emits no more methane than a farting cow - even when he's in full swing on the evening news....
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#173 No he didn't !! Dr. Guillotine was one of the earlier victims, oops sorry, I mean valued customers, of his own invention !!
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@ #194
What about the fact a predicted 500000 eastern Europeans are due to leave the country for more monetary-appealing climes (i.e. home)?
The construction industry boom is over, and the demand created by these economic migrants will lessen the need for housing.
Its like a negative feedback on those building targets. (we've had a positive feedback since 1997 due to the levels of immigration).
And there is unlikely to be any change in that - why? Because those migrants are unlikely to return, because other industries, unlike construction aren't available to flexible-migrant-workers.
Personally speaking as a non-xenophobic person, it might allow British people a little time to breath alittle, since the last few years, with all the people coming in for 6 months not paying tax then returning home, has been detrimental to the British economy, but just isn't included in official statistics.
It should be a welcome relief to communities here too, with better integration because communities arn't being "overwhelmed" by incomers.
Look at the positives. Then this country may be able to sort itself out abit than on the last 5 years in particular.
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The best thing to do with this scab of banking turmoil is to do as Granny advises and not pick at it, leave it alone to heal naturally.
As for Gordon, the longer he hangs around the more antagonistic voters will become. So he will get his come uppance for all his attempts at market manipulation within the next two years. Given the current voting trends in Fife he may struggle to get back to Westminster as the MP for Kirkcaldy. Scotland is no longer held in the grip of Labour hegemony.
So Mr Peston be careful what you wish for and promote it may come back to bite you.
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the banks arent lending - what does it matter theres no-one left in any sort of significant numbers capable of borrowing any more
the banks know it, the markets sense it, the govt can't admit it and the population wont face up to it.
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#170 - Yes, but two of these lenders actually rang me up - and one confirmed the offer by post, so I know the call was genuine.
Wish you were right, but I don't think you are in this case.
Alas.
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Rather than closing or suspending the markets, why not simply start them off 1000 points down on the day before.
That way we can all live in the belief that markets are rising and everything is good in the world.
Confidence will return for the day traders, and it will look great for day returns.
(this idea was brought to you from the "Investment bankers guide to confidence accounting")
I have officially succumed to madness, but fortunately there are no banking concerns in the nut house.
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There are three issues here.
Firstly, we have the run on the banks caused by the implosion of debt due to previous assumptions that a debt necessarily constitutes an asset. This was fine until the Clinton administration forced mortgage companies into making sub-prime loans on the basis of human rights rather than the prospect of a future repayment.
Secondly, we have the collapse of global stock markets. No doubt a product of the latter but largely anticipated by the simple logic that we have not had one for ages and the oil price got very heavy.
Thirdly, UK government debt and the waste of about 1.3 trillion sterling by Blair's neo-Trotskyite passion for perpetual reform in the public services. The money has gone, so forget it; but kick Labour out at the next opportunity.
All three cases constitute a triumph of optimism over stark reality. This can reasonably be viewed as the zeitgeist of the turn of the millenium during which gravity was suspended, the pot of gold at the end of the rainbow was discovered, and there was endless provision of motherhood and apple pie.
Now gravity has returned, the faerie gold is brass and the apple pie eaten. We are feeling heavy, broke and indigested. Powerless is a good word. We have sown the wind and the whirlwind is now with us.
It will pass in due course but ruining lives, changing lives and refocussing ideas and dreams in the process. Everything now is in flux. Soon there will be nothing left to fear but fear itself. Then we can start to rebuild.
The banks are now largely secure. Equities will rise again. The big question is what do we do with the state: need it always be with us?
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I agree Robert. If we are looking at the abyss of recession then a dose of Keynesian public spending may well be the best short term remedy.
I have a proposal that may redress the longer term problems of funding government expenditure. Check out http://www.dingoes.org.uk/forum-view.php?thread=19.
The proposal removes the ability of private sector companies to act as banks using Fractional Reserve Lending and place this write with a nationalised bank. Profits made on lending by the nationalised bank can be used to offset taxation or pay off the national debt.
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I believe there is too much doom, gloom anger and frustration being expressed here. Like it or not, something had to be done to put the wheels back on the bus. Gordon Brown and Mr Sants were the men of the moment (whether this was a Churchillian one or not only time will tell). Come on, we all know this is going to work as something similar was done in Sweden a while ago and by tweeking their plan a little we the people stand a much much better chance of making money on the deal. He/they therefore richly deserve their moment of global fame and not to mention the satisfaction they must be getting to see Uncle Sam et al follow suit. Oh hang on a minute. it now seems that THE plan was not our beloved leaders' at all. Would you believe it, behind the curtains were a pair of bankers. It seems it was them who conjured up this cunning plan, so our heartfelt gratitude for saving the financial world, as we know it Jim, is being foisted on the wrong person(s). So you see, its obvious it is going to work as otherwise the Telegraph would never have been supplied with the information as to who we should really be thanking for saving us all.
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#202.
Au Contrai mon amie...
Robbie doesn't have an interest in talking the market down, and nor does the BBC.
Why?
...because I know who runs the BBC pension fund, and it has declined in line with all the other pension funds during this crisis.
He's in the same boat as the rest of us, and if I had to guess his age, I'd say he's gat about 5 - 6 year until retirement, meaning he'll be cashing in during the slump - not good for him at all..
As for the interview, I think I know the one you mean, but alas this is there still due to the laziness of the webmaster and the fact that half the BBC's IT department spend all day moderating this out of control blog.
ROBERT - SHUT IT DOWN, SHUT THEM ALL DOWN - THE BBC CANNOT AFFORD THE SERVER SPACE FOR ALL THIS ENDLESS DIATRIBE FROM CONFUSED MUGS LIKE ME WHO SIMPLY WANT TO GROW VEGETABLES AND EXCHANGE THEM FOR MAGIC BEANS.
....there....I've said it now.
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# 194 Spot on!
Any housbuilder would be mad to build now - wage cost are still the same, materials have gone up and prices have come down. Net result, build houses to lose money - it ain't going to happen. Therefore your prediction of only a 10% drop in build rates will be well wide of the mark. The only housebuilding that's going on at the moment is finishing off existing stock - and that's only because it's worthless half finshed (much to the chagrin of the banks).
Result of all of the above:-
Hundreds of thousands on the dole, eventual shortage of supply and fuel for the next housing boom - unfortunately there won't be any builders left to build them!!
Still, Gordon can partially offset the dole numbers by employing more civil servants to administer the whole mess.....time to leave the country and do some voluntary work in Africa!
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Following on from the suggestion of sunatra :
''For example, perhaps each and every local authority, or NHS trust, shoud be charged with running a publicly available credit union facility.''
This sounds an excellent idea, in line with the ideas expressed in the outstandingly clear explanation of the perpetual motion machine that is banking -MONEY AS DEBT -surely essential viewing for everyone in these days ( simply google MONEY AS DEBT).
Are Building societies and The Cooperative Bank existing examples which could be built upon?
Creating more and more debt (ie money) is unsustainable.
I heard the other day that Mr Brown's remaining eyesight may go at any minute. This would be personally very sad and I certainly don't wish it for him but ironically it would then literally be the blind leading the blind.
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#202, just because a site is slow to update content doesn't mean that it is part of some conspiracy.
Check out the sports section and the formula one information is from 2 years ago and still needs to be updated to reflect whats going on in the F1 world now. It is simply a case of resources and slow updating of what is a HUGE site.
While this blog does provide information for all us "outsiders", the real problems are not the reporting or the stories that Robert Peston puts on here, if for a moment you think the entire financial world goes by the stories that Robert puts out then either the financial world is stupid and deserves to go down, or you are simply trying to find an outlet for your anger and this blog is a neat way to do it.
The Financial world spends a fortune on research and market intelligence, the few stories that Robert has scooped and have appeared on the BBC have not caused the huge financial mess that the global system is in. Lets face it, the system is in collapse because the Fractional Reserve banking/FIAT currency/Free unregulated market capitalist system is not sustainable, and creates bubbles which then collapse, or in different words, Boom and Bust. You cannot build a debt based economy which can have sustained growth over more than a few decades without the system having a readjustment by way of a crash.
I suggest that you take more time out to research what has been happening in the markets, what exactly the banks have been up to with the exotic investment vehicles that the clever chaps came up with and that today are turning into toxic contracts with huge debts.
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#206
Well that just goes to prove my point!
Far to many bankers / speculators seem to be saying the equivalent to "Let them eat more nutty fruit-cake" when they have no jobs and there are no jobs - remember what happened to the person who was reported as saying 'If they have no bread, can't they eat cake instead'...
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If you've read "The Long Emergency" by James Kunstler, this quote from his Blog of Monday this week won't surprise anyone. It's chilling.
"Here in the USA, the Treasury, enjoying new and seemingly limitless powers of discretionary spending, has begun shoveling dollars into every truck that backs up to the loading dock.
The numbers are staggering. In ten days it's reached into the trillions in loans and handouts. Most of this money is getting sucked directly into the black hole of debt and margin calls of one kind or another.
This is previously-presumed wealth that is now un-presumed. It's leaving the system, never to be seen again. One useful way of thinking about it is to regard it as our society's previous borrowings against our own future.
Thus, we are seeing our future vanish into a black hole -- our future comfort, health, and basic nourishment.
This is the kind of fiasco that brings down governments, propels societies into revolutions, and starts wars. In a few months, America will be full of angry economic losers".
Same could be said of the UK, maybe?
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It's not a great combination. Governments with a ton of national debt trying to bail out financial institutions that are in even more debt. Of course the markets aren't going to recover, of course the banks still aren't lending and of course real interest rates are not coming down for people. We're in a big recession. Trying to fuel another housing boom by buying stakes in banks to get them to lend at the favourable rates they have been is utter lunacy, and pretty dangerous.
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At last....recognition for the great man.....
http://www.thedailymash.co.uk/news/celebrity/robert-peston-transformed-into-pure-energy-200810081310/
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#141 - Wot my cat?!!!
He is a sleek, honed to perfection, furry feline who is a good predictor of the current situation!
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#208
"The best thing to do with this scab of banking turmoil is to do as Granny advises and not pick at it, leave it alone to heal naturally."
But not if the wound is infected, that only causes a deeper infection, blood poisoning, gangrene or even a long slow painful death - no the wound needs opening and cleaning out, it might be painful (for the patient) but it's their only chance of survival - and Ganny would know that needed doing, unlike the young up-start doctors who have never seen an infection like it before...
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Avalanche probably also applies to the number of comments you are getting here...
Probably a good thing, if it gets ordinary people interacting with the story.
But how many of the people that matter, the politicians, read this I wonder.
Are we all wasting our time.
Things don't seem to be getting any better.
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My Grandmother used to say, "Never a Borrower or a Lender be"....
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#203
I said that the banking system was usury - which it is by name and nature - and it got moderated out.
Be interesting to see the email from the moderators, if they bother.
GC
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Robert,
You make the point at the end that ministers seem to believe that an old fashioned Keynesian injection would turn a long deep recession into a shallower one. Probably true, but why?
Back in the late 1970s Bruno Frey and other economists began to discuss 'politico-economic cycles' - in which the coincidence of elections and economic cycles determined the likely path of economic policy and, hence, the demand management impact of government.
Much as both monetarists (for they were in their heyday at the time) and neo-Keynesians (for nobody wanted to be thought an unreconstructed Keynesian) thought this was all hogwash, and smacked of right-wing libertarian cynicism - which it did, Frey and colleagues were on to something. There is an empirical relationship between the type of policy a government chooses and the proximity of an election.
The fact that ministers are now in favour of a broadly Keynsian solution is the classic example of the demand management response of government to a recession being dictated by the fact that an election is in the offing. A fiscal, monetary and investment stimulus now will have an effect that is plain for just about all to see within 18 months, just in time for an election. Win that, and worry after about the inflationary and budgetary consequences, or LOSE the election and let the Conservatives wrestle with the consequences including the inflation and the budget.
Actually, I'm with those for whom a mix of interest rate cuts, public capital investment programmes and (some) tax cuts would make a good mini budget at this point regardless of the politico-economic cycle. But the Frey model does suggest why ministers might be more likely to choose that than the alternative - which, for the younger readers of this blog, means waiting it out, bearing down on inflation and letting unemployment rip or (worse still, and the product of Mrs T in her 'supply side' phase) cutting taxes on the rich and big business in the hope the benefit will trickle down to the rest of us and cutting government spending to shreds.
I think someone not a million miles from a Conservative government once called that 'a price well worth paying', didn't they? Could it have been a Chancellor once advised by the present leader of the Conservative party?
Of course, the government's policy has to be put in place once the banking crisis is over and confidence in the structures restored: otherwise the fiscal and monetary stimuli will not result in a necessary growth in aggregate investment.
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After 11 years Brown spent over 640 billion and we had nothing to show for it but huge stealth taxes.
Now he plans to give away over 500 billion in a few weeks may I ask what we will have to show for it apart from keeping the super rich accompanied to the lifestyle they are used to am I right to say that we can expect huge increases in the stealth taxes we have become used to.
Going out with a bang or should I say bust.
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#216
Wrong, there will be many builders - that is, bricklayers, plumbers, electricians, carpenters etc. - willing to build houses (or what ever), what there won't be are the housing speculators big or small...
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Robert,
Forgive my ignorance, and please allow for my young age and inexperience; but this all seems very simple to me:
There's not as much potential or money around as everyone thought.
I'm not surprised that there are still big losses and huge difficulties in conducting business - expectations must be downscaled.
I don't think we're anywhere near the bottom of this, and the global economy must contract massively after years of outrageous hubris.
There has to be a major change in the way expectations and ambitions are managed - especially at the corporate level where they've been believing for too long that growth knows no limits.
Company X would rather double their size than double their profits - and therein lies the problem.
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200 boilerplated.
VAT clarification
Thanks for the clarification. Perhaps if I had said that the VAT situation was not entirely in UK hands it would have been more accurate. You are welcome to correct me again but wasnt there the case recently where a UK attempt to reduce VAT on some energy saving products to 5% needed agreement in europe. Not that I ever want to be an expert on VAT
Cheers
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#143: "...in the long run the books must be balanced of course, and that should be done by vastly increased taxes on the obscenely wealthy."
Hear, hear! There has been a lot of talk of cutting taxes, but no one has explained why we can't have higher taxes like they do in the Nordic countries, where the standard of living is higher.
http://en.wikipedia.org/wiki/Tax_rates_around_the_world
There is a great deal of infrastructure work to be done (e.g. home insulation, renewable power installation) that is going to have to be done to deal with climate change. We will be paying a lot of people unemployment benefit. Why not spend a bit more on employing people productively for the common good?
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# 216, no,
"Still, Gordon can partially offset the dole numbers by employing more civil servants to administer the whole mess"
See Ed Milliband has a plan, you should have heard him in full (boyish) flood on Ch4 News last night, they're going to use the unemployed to do loft insulation to make homes more thermally efficient (perhaps incl the homes of people who don't have to work themselves). Crikey. Who breeds these MPs? Next they'll have the 'unemployed' building motorways through Germany, invading Russia and holidaying in the Crimea.
Hang on...
GC
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If we are looking at the abyss of recession then a dose of Keynesian public spending may well be the best short term remedy.
I think there's waaaay too many abysses in the discussion. The only abyss worthy of the name was total systemic meltdown, leading to breakdown of day-to-day running of the country, civil breakdown, social breakdown, famine and pestulance.
Compared with that a recession is a welcome scenario.
The problem as I see it is that Gordon Brown won't make the tough decision. We need this recession. We need the lessons to be hammered home. We need to pay back all this money. We need to refocus our available cash on some semblence of a real economy rather than one based on perpetually spiralling house prices.
You cannot borrow from the future indefinitely. It doesn't work like that. You cannot simply print notes with more zeros and expect people to keep accepting them at face value. We were on the way to becoming an economic satellite of Zimbabwe.
Hurray, the banks are saved (for now). The integrity of the currency is maintained.
But Gordon won't have the courage to follow through on the next stage. He'll take the soft route and store up another world of trouble to tip in somebody elses lap.
He will simply print money until the cows come home. Inflation will run riot and destroy an entire generation's savings thus totally nailing the lie that he's about prudence.
That's what will happen. And he'll blame the Americans. After all, he'll say, the US interest rates are 1.5% so why shouldn't our interest rates be 1.5%. The same excuse he used to keep interest rates low in the boom and the same excuse he used when US house prices were on fire. And the same excuse he used when the US was 'deficit spending'.
I've been predicting the busting of this housing bubble for years and I've been predicting the subsequent rumbling of printing presses too. I expect to be proven doubly right.
Our savings and pensions are about to get torched. We will all be working for the state until the day we drop dead. There will be no reason to save money because, just like Zimbabwe, it will have evaporated in value between pouring the cornflakes and pouring the milk.
1984 wasn't a warning to these clowns. It was an instruction manual.
We will all be like Boxer the carthorse. Clinging to the hope that these porcine clowns have our best interests at heart right up until the second they ship us off to the glue factory.
This economy is utterly destroyed. It was destroyed on an ocean (Finance) of debt and Gordon Brown's solution is to force the banks to lend even more money and have a dose of 'Keynsian' economics for good measure.
Insanity. Utter insanity.
We need to pay this decade of borrowed money back. Or take our hits and lose the money/assets. But we certainly don't want to printing more of the stuff to bail out all these clowns who borrowed too much while the sensible ones were saving diligently for their retirement.
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What I find most incredible about the crash is the fact that 100 years of applied economic theory was not able to prevent it.
The phenomenon of bubbles has been well known since the 17th Century, and yet when one was staring all the experts in the face they failed to recognise it.
Or is it that they did recognise it, but they were only interested in how they could exploit it for their own personal gain, disregarding the pain to everyone else?
I suspect that all those Phd economists were simply not clever enough, which doesn't say much about man's ability to predict the future.
As Robbie Bruns wrote: 'The best laid plans of mice and man aft gang awry'.
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#217 textastony
I think the money as debt video (which I have watched) is a symptom of the problem rather than the cause.
I'm not an expert, but I thought Karl Marx said that Capitalism requires more and more capital to be poured in to maintain the same profit margin due to the diminishing return (profit).
Before this capital was generated by selling goods to other nations, but now they're all playing the same game, the only way to obtain this capital is through borrowing.
Sounds like an ever decreasing circle to me and eventually we'll all disappear up our own hosepipes!
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The only sales you get in a depressed housing market are forced ones, you know, people who have died, people who get foreclosure etc. It is not a real market. Sooner or later those sales taper, they don't disappear, but they reduce, and the price has to lift as demand grows. There are plenty of people out there ready to buy, but not until the bottom is clearly reached. Same goes for the stock market. This is nothing new, things overshoot either way and people make money on it.
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Mr. Peston, I respect your opinion, but I believe you are in denial right now. We are in the Minsky moment and the response by central banks is Keynesian. The LIBOR spreads, rising US Treasury yields, etc. are already showing how the public views the situation. Fiscal Keynesian responses will just shove on the other end of an overboiled noodle.
Nobody has models or experience in dealing with the leverage and deficits extant today, and stimulus responses will not reinflate economies that are reverting to long term value,
It's time for some statesmen to emerge and talk about the tough steps necessary to manage us down an unavoidable road.
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# 206 ishkandar
So you think Dr. Guillotin was yet another headless chicken eh?
He must have had some neck to think he could get away with that.
Well, heads of businesses are often chopped off in their prime, as we have witnessed recently.
More prosaically, Dr. Guillotin died of 'natural causes' according to his truncated Wikipedia entry.
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With all this talk of "transparancy"...
Can anyone tell me if, once RBS is "nationalised" Joe Public will be entitled to information under FOA?
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Even if one wants to spend spend like before it is impossible. Baks are in peril so now time has come to only save save save because the cash has become King again.
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The sooner things are sorted out and we return to the law of the bungle in the jungle ,then the sooner we will think that we are better off .[sinCe when has reality had anything to with banking?]
The PM will soon discover that iff you give bankerrs enough rope they wont do anything with it ,except splice the main brace ,drop AAAnchor , invite the customerrs to walk the plank and weave a bonus out of it .
History will judge that bankerrs were simply not paid enough to delude themselves and others .
Their pay should be tripled [A] immediately !
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...and if the Dollar now goes into a tailspin!!!!!?????!!!!???
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Ah well so much for that experiment back to the gold standard then.
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Shares in loft insulation and draft excluder companies are on the up!
(or was it daft excluders?)
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The three words that are going to define all of our futures are 'worse than expected' (WTE).
Things are going to be WTE for the next couple of years. Commentators are talking about a 'bottom', but frankly at the moment they are talking out of it in the desperate hope that they haven't blown all of their money on a clever trade involving Kazakhstani mining shares, carbon credits and US mortages.
There are all sorts of whiny millionaires popping up and saying that 'everything is ok really, all you need to do is get out there and spend' , making it sound like some sort of patriotic duty.
What they fail to understand is that the man in the street is terrified. He has seen his pension disappear, his shares go down the toilet, the accumulated value of his property shredded and even his local High Street bank threatened. Not to mention the fact that his job may be on the line as well.
The Government has spent the last ten years behaving like a teenager with his first credit card, and is now waking up with a hangover and a flurry of letters from the baliff. Their plans have gone from 'what crisis?' to 'we're well placed' to 'oh sh*t, nationalise everything' in a couple of months.
It's no wonder then that Joe Public is trying to hold as much money as he can (provided he can find a bank that won't go under) and now we are confronted with morons like the guy from Dragon's Den telling him to go out and spend it on a new tv.
It's definitely worse than expected.
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Don't all these people going on about fractional reserve lending realise that our current problem is deleveraging and full reserve lending would effectively equate to zero leveraging, utterly destroying the economy?
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#194
The idea that the housing prices drop by 50% is not as depressing as it first sounds.
People it will help or have no effect on.
1. People who have paid off their mortgage
2. People who see their house as a home and not an asset to raise capital against
3. New buyers
People who will lose out.
1. Property speculators ? who helped cause the problem
2. People who borrowed rashly ? who helped cause the problem
I know some will comment about people who have to move for their job etc. but if houses fall everywhere that should not be an issue.
Let?s say someone had an outstanding mortgage of £250,000 and their house was now valued at £125,000. The house they wish to move into is £125,000. They sell their house and buy the new one, they are no worse off. The rules on selling while in negative equity would have to be revisited by the banks but it could be done.
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Folly! Folly! Folly! We are brutally exposed to the folly of irresponsible Brown for deficit spending throughout the years of growth. To pile more debt on to future tax payers on top of the debt already incurred because of Brown's folly can only make things far worse in the long run!!!
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#235
" We need this recession. We need the lessons to be hammered home. We need to pay back all this money. We need to refocus our available cash on some semblence of a real economy rather than one based on perpetually spiralling house prices. You cannot borrow from the future indefinitely. It doesn't work like that. You cannot simply print notes with more zeros and expect people to keep accepting them at face value. We were on the way to becoming an economic satellite of Zimbabwe. Hurray, the banks are saved (for now). The integrity of the currency is maintained."
Who are you talking about when you say 'you' and 'we'? Are you talking about me? The banks? I've never read such arcane drivel in my life. You live thru a recession on a shoestring and you won't be so cocky about it.
GC
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Is it just me, or are the collective economic genii getting it all wrong?
1. Shouldn't the senior management of these big banks be out in force making statements and reassuring everybody with press conferences and positive statements about their strategies? Where are they? Surely they haven't reached a point where they don't have a clue. I haven't seen one 'Fat Cat' press call since the start of this debacle. They should all go fall on their swords, or more precisely their paperclips.
2. Surely if the volatility of share-price is a problem, companies should have a buy-back strategy for their shares that enables them to reduce the number of shares traded on the markets, to stabilise price, then as demand outstrips supply you counter-balance the down-turn in price and drive up demand? Control of shares is an important way to manage stock value, not a license to print money by issuing more!
3. Valuations - so under-rated. All these firms should be pushing their auditors and accounts to the fore to substantiate the value of their business. With less uncertainty about value the market should correct. It is a lack of certainty and panic that is creating irrational trading conditions. At the very least it should create a floor price below which it is not possible for the price to fall so long as the company is posting profits. Facts and figures should be in overdrive and this is where the market is failing.
4. Banks need to be regulated so that they only lend what they in terms of capital to ensure an end to shadow banking practices and credit based trading on the never never, which is the banking equivalent of the Insurance LMX spiral of the 80s. Disclosure of debts and FSA style regulation of minimum funding levels are required.
5. The Bank of England should be able to act as a deposit bank for Local Authority finances, so that soverign funds and tax payers money remain protected within the UK.
6. A tax should be added to all forms of credit to deter unwarranted borrowing other than for homeloans
7. Bank of England should provide a different interest rate for savings and investments, to the mortgage rate.
8. The Cost of Living Index should not include luxury goods and non-essentials but only overheads, fuel and fuel costs, so that we are not misinformed about the true cost of living.
9. Credit rating agencies should not be allowed to drive businesses to the wall with untimely rating adjustments. All of these activies should be centrally controlled using the same consistent financial criteria and minimum requirements and this should take into account the type of business underwritten and it's volatility rather than simply making an assessment of the balance sheet.
Throwing more money at these companies is just like throwing petrol on the flames. The system has to change or it will fail.
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While we're on the subject of solutions to the world economy.......
How about the US (and others) stop running a 'war economy' and start running a 'space economy'.
That way they can boost their internal industries and employment by throwing Government taxes at the space industry.
Building rockets to the moon is surely better and more popular than building rockets to destroy people.
The new space race would be like the endless war that's needed to keep the world economy going. (because for the time being space is effectively infinite - just as the earth was to man years ago)
It would be rather useful if we were able to populate other planets - thereby solving the population problem here.
It would also get round the capitalist problem of diminishing capital - by simply creating more and more markets.
It might even help us get more resources - because the one's here will start running out soon.
They (we) can even compete with other countries in the race - China, Russia etc. for nationalistic pride.
It will be like the good old days of Magellan and Columbus where exploration was the driving economic factor of most economies. Technological advances would come from the increased R and D would help enrich our lives.
We might even learn something, and if we want to practice more sustainable alternatives to Capitalism, we can by creating whole worlds and testing social and political ideals which we can't really do on this 'mixed' world.
I would much, much rather my taxes were spent on a shiny new rocket to the moon than a rocket to destroy Bhagdad.
It all makes perfect sense - well at least as much sense as the current system.
The human being was born to explore. Since we have already explored earth we're now all getting bored and started messing about with money - and this is where it's got us.
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formerly mindthegjc:
the next step is obvious for the market/capitalist socialist.
Oil for $39.99 a barrel?? Perhaps.
Put up the ''Great Britain for sale'' sign.
Chinese Shell ? Why not ??
We will still have the Jolly Green Giant-BP, and we should be developing/using our green technology anyway.
Saudi Sainsbury's ? Why not ??
We will still have Tesco's, and the consumer should have learned their lesson anyway.
A few big deals and the
Chinese and oil/Opec cash will be re-routed.
It will also stiffen the stock market.
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#245, yes, we have all that carefully hoarded gold in the vaults... oh wait, Didn't the last Chancellor of the Exchequer sell it all off at a pittance?
Still joking, one way to fix the problem would be to stop using a FIAT currency and move back to a gold backed one.
It is high time that banks went bank to doing the basic things, taking in deposits and looking after them, and lending out those deposits in a sensible manner.
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234 guy croft
Well if they use professional insulation firms it will take 10 years evidently to complete the proposed energy saving installations, which will cost every household 38 quid per year whether thye qualify or not. Next they will be saying that we need more unemployed to keep the loft insulation programme on speed. You have to admire the totality of the insanity.
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Peston, you're clueless. You can't spend your way out of debt.
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I have been reading about LIBOR.
LIBOR has not been around for very long (since 1986) and is obviously exercising various parties at the moment due the large drift away from the BBR.
I was very surprised to see that banks offer unsecured loans on this wholesale market because went sentiment turns negative, as per right now, then it is hardly surprising that LIBOR has shot up.
So, why don't these banks (we'll leave the BofE out of it since as it prints money then it is an exception) simply change the rules of the LIBOR game and put only secured loans out on this wholesale market.
There must be a big flaw in this approach so let us hear it.
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253 theresonlyonesoupey
You think they went to the moon then.
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259 glanafon
What do you mean Magellan and Columbus?
Nah - I'm not that stupid.
I know Columbus didn't discover America and Magellan Cirumnavigated the world.
Now Bush has 'lost' America and Brown has Circumcised the world.
...or was that Thatcher, Friedman, Peston, Reagan, Clinton, King Canute or Fred West?
...confusion rains - or does Confucious reign?
I've got a new financial instrument - does anyone want to play it?
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Inflation today is our friend. It reduces debt.
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#257
Hmm, isn't that what all redevelopers do all the time, don't companies borrow (buy) money to invest, in fact isn't selling shares not selling your way out of debt - unless the company doesn't pay divis.
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Sorry to post twice.
New laws.
All UK banks to lend and borrow to UK institutions onshore at 0.5% above below central bank rate for 18 months or face automatic nationalisation without compensation. Dividend moratorium.
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#251
Who are you talking about when you say 'you' and 'we'? Are you talking about me? The banks? I've never read such arcane drivel in my life. You live thru a recession on a shoestring and you won't be so cocky about it.
So printing money will solve that problem. That way the ones who saved can have the same recessionary experience as the ones who peed all their money away.
I suppose you think that's fair.
I don't. I saved my money instead of remortgaging my house for the lifestyle others seem to think they're entitled to. I don't see why all my savings and pensions should now be trashed just because the great British collective has had a ten-year borrowing binge.
I want to enjoy the fruits of my frugality and labour not have it extinguished by rampant inflation as a sop to the imprudent and profligate who, when the times were good, simply squandered the lot.
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No. 257.
Mr Peston is right on this matter.
Study Keynes, Spending your way out of debt increases inflation, this decreases debt levels (over time).
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This bank problem is getting worse as time passes. I think that we will witness one of the worst Christmas financialy. Can you imagine Christmas and Recession together. How will parents buy gifts for their young ones if they are unemployed?
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I've heard that the Aussie Premier Mr Rudd is giving pensioners and I believe young people something like A$1,000 each with orders to spend it to boost their economy. However it appears that the Aussies have a budget surplus - in UK we don't do we?
Wasn't it David who predicted the Pharoh's dream of seven good years followed by 7 poor years? As a result they put something by during the good years and didn't starve later. We seem to have said "Let's be greedy and borrow during the good years" Governments never learn do they?
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#264 - bully for you.
Hang 'em high and hammer them in the courts. Yup. I can only judge from your tone that you were a Michael Howard supporter.
FWIW I've worked intensely hard all my life incl quite many years in the Armed Forces and I haven't been able to save - ever, never made enough to, just did my best always and hoped for the best. So try and think of others when you're laying down the law about "the imprudent and profligate who, when the times were good, simply squandered the lot" - when you're crowing about how prudent you've been. If you want to be specific about those to whom you refer - go ahead.
You speak for yourself - I speak for many who converse with me every day at my works and on my doorstep and on the telephone - because they know my background and because they are worried and desparate and know that they could never speak for themselves.
As for indicating that I have a preference for printing more money I have no idea how you gained that notion.
GC
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Any 'extra' spending the Government does now should be of two types:
(i) On measures that help us to be less wasteful, E.g. a huge drive to raise the energy efficiency of the nation's homes. Doing this will create much needed jobs right now in [parts] of the construction industry, and it will lead to people having more disposable income for spending on other things for evermore, once there's less pressure on their heating bills.
(ii) On science and technology that will bring short - medium term benefits in terms of being able to use resources more efficiently. This means forgetting interplanetry space travel, for example (a useles, fanciful concept).
Sadly, Government spending on 'optional' activities like the arts and sport isn't really going to help the economy. Real wealth is derived from using natural resources wisely and effectively, being inventive, and making things that other people need to buy.
Venerating the financial sector and imagining that encouraging spending on the high street creates wealth, is, and always has been, a recipe for disaster. What do people do when they have a false impression of the nation's financial status ... they borrow money, buy unnecessary junk, and are wasteful.
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Any 'extra' spending the Government does now should be of two types:
(i) On measures that help us to be less wasteful, E.g. a huge drive to raise the energy efficiency of the nation's homes. Doing this will create much needed jobs right now in [parts] of the construction industry, and it will lead to people having more disposable income for spending on other things for evermore, once there's less pressure on their heating bills.
(ii) On science and technology that will bring short - medium term benefits in terms of being able to use resources more efficiently. This means forgetting interplanetary space travel, for example (a useless, fanciful concept).
Sadly, Government spending on 'optional' activities like the arts and sport isn't really going to help the economy. Real wealth is derived from using natural resources wisely and effectively, being inventive, and making things that other people need to buy.
Venerating the financial sector and imagining that encouraging spending on the high street creates wealth, is, and always has been, a recipe for disaster.
What do people do when they have a false impression of the nation's financial status ... they borrow money, buy unnecessary junk, and are wasteful.
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#266
"Can you imagine Christmas and Recession together. How will parents buy gifts for their young ones if they are unemployed?"
What, like all those years in the 1980s you mean, yes I suspect that many can remember (never mind imagine) what you describe above...
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#248 chivalrousStephenG
As I see it the solution does not depend on 100% RB. The problem is that there are so many hangers on not contributing anything. Those hangers on are financed by FRB.
Think about it. What constitutes the real economy? What constitutes the rest of the economy?
The tail has been well and truly wagging the dog. Gordon had hoped that banking services would be able to finance both economies.
If we need the end of FRB to force bankers to get proper jobs then so be it.
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#248 chivalrousStephenG:
No, the problem is not deleveraging, that is a symptom of the problem.
The problem is over-leveraging (excessive debt), facilitiated by the ability of banks to lend much more than they take in deposits, such that their reserve is tiny fraction of their loans.
This creates money out of nothing and inflates a credit/debt bubble, which can take many forms - tulips, equities, property - whatever people are willing to bet on.
Eventually the bubble bursts and deleveraging ensues.
We do appreciate that a full-reserve system would have peculiarities of its own, and for this reason I have stopped short of suggesting fractional-reserve banking should be made illegal. Instead I've advocated a full-reserve bank competing alongside the rip-off merchants, let the consumer decide for themselves.
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# 237
Correct with one important constraint: the loans (at that time bills of exchange) were financing current production from future profit, thus the present depends on the future which can create rather weird outcomes as we can see now.
Actually, it was not only the banks that are culprits in this nice mess - they only played the role that they were given. In effect, in the lack of productive investment opportunities (partly through being crowded out), profits increased the liquidity of the speculative securities markets. These got a nice little piece of paper that from the future profit they will get their shares. It was more or less like in the Producers - the promises well exceeded 1OO% (I wouldn't even dare to guess by how many folds). Sooner or later it had to come out (or would have needed a nice big inflation to devalue all these promises).
So after all, the greed of the banks were only the function (which, of course, does not diminish individual responsibilities) of the problems in the productive sphere.
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re #217 texastony
Yes - perhaps that IS a way forward.
If the Governments directly controlled their own bank-type facilities / services, via Town Halls or whatever, then they could have increasing control of the banking industry's creation of money by a mixture of competing with the banks for consumer deposits and loans - which due to the lack of consumer trust with banks should be fairly easy - and out and out nationalisation of the existing banks, be that directly or by various forms of stealth.
If done collectively by Governments around the world, it would perhaps be possible to wean the masses off of their obsession/addiction to money as debt, before the planet is totally consumed by the vast and increasing levels of debt.
If there was a coordinated and staged reduction in the banks' fractional reserve requirement ratios, perhaps we could move in the direction of Governments actually controlling the creation of money and therefore their national economies, rather than banks.
A phased return perhaps even to a real value based, 'permanent money' economy of some type.
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In post 261 someone naively said: "Inflation today is our friend. It reduces debt."
No, it only pretends to reduce debt. The real way to reduce debt is to save more than you spend, and pay off your foolish borrowing.
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#249.
You are quite right, I would imagine that there are more people in the country who would welcome a very large drop in house prices than those who would not. Just about everybody who is looking to move to a more expensive house (including me) as the first group.
Getting back to sound money must be the most important thing. A 6% base rate NOW.
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269 guycroft
I can only assume that some posters do not live on commercial street. They either work in the public sector or don't work one way or the other and therefore feel immune to what is going on. They may not be hit as hard as some will be but they will be hit. Perhaps there are now so many people who do not work in the real world that creates the wealth that they make the voting majority.
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We have had 10+ years of good growth funded (more than obviously) by very large increases in personal and public debt.
Increasing public expenditure may keep growth going for a bit longer but make the eventual outcome worse.
Also its worth mentioning that public expenditure is just about the most useless possible in terms of real financial return - its spent and gone - no return.
The real economy needs a good shake particularly of the public services which never suffer insolvency experienced by commercial entities.
So cut all public expenditure aggressively except for healt and education starting with the salaries and pensions of chief executives of local authorities and public bodies. We will have a much healthier economy and society following this.
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#179
Sorry but after that sort of shake up we probably won't have a society to be healthy, people are just not going to stand for a second Thatcher style recession - they know what it means for all aflicted...
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Alt.a market to send footsie down to 2000 by next year
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Boy, everybody is cheerful today!
It looks to me like the policy of taking preferred
(non-voting) positions in banks isn't working,
the government needs to have seats on boards.
Has this happened already?
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Oh where to start?
Perhaps this was what Brown and Darling might have been muttering over their cornflakes the morning they'd realised that they'd got a real humdinger of a mess to sort out.
It didn't take long for the Government equivalent to Dumb and Dumber to play poker with all of our lives and get us into a half trillion pound gamble that has never been tried on this scale and has absolutely no guarantees attached. After all, this money (OUR MONEY!!!) is being entrusted to the very same banking buffoons who mismanaged huge amounts of money in the first place. Hmmm. Seems like the old adage of shutting the door after the horse has bolted doesn't apply here. Talking of old sayings doesn't the once wise and amusing 'A fool and his money are easily parted' sound a little scary and too close to home now?
The salt in the wounds is the media slurry that proclaims Brown as Superman or as some sort of global financial Messiah. Err.. If you've been responsible for creating a leviathan problem and find yourself with only one high risk solution available then God help you should it go bad. The financial markets are as erratic as a cat on fire, banks are happy to take our taxpayers loan but reluctant to actually act in the way Brown and Darling have instructed and fuel companies are sticking two rigid fingers up to all of us by paying upto two thirds less per barrel and yet pump prices and quarterly bills remain ridiculously high. All these and many more leave Brown looking as toothless as a toad and certainly not wearing a cape and his pants outside his trousers.
Just a final thought...Would Britain be up the creek it's in if we hadn't spent and continue to spend untold millions pursuing wars in Iraq and Afghanistan with no end in sight.
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96, 118, 139, 149, 236
Good Stuff
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Dear BBC,
I am writing to ask you if you believe the disclosure of a private meeting between the Chancellor and three banks by Robert Peston, via his blog on Tuesday 7th October was to some degree, as irresponsible as the bankers who started all this mess in the first place. This meeting was private and the knowledge that it had taken place had dire consequences for the markets from which we are still suffering.
Do you think it would have been better to have held the story to wait to see what the government was going to do instead letting it be known that the banks were strapped for cash? The blog was written one hour before the markets opened and therefore sent the share prices of some banks into freefall, particularly RBS down 33% at one point. I would like to point out that in these 'extraordinary' times a little restraint might have been shown instead of running out with a story first which has now caused so much damage to the financial system.
I know some may say that there was pressure by the banks to have this story put out to get the tax payers money faster or that the government allowed the leak so that it would get the share price of the three banks lower. However, the fact still remains that I believe a restrained approached should be taken to sensitive information like private meetings in these uncertain times when gossip can spread wide and very fast in financial markets.
sb273wall
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This should mark the end for Thatcherite monetarism, which taught that the government should let the market make all the important decisions, and that interest rate changes were the only acceptable way of controlling the economy.
Markets work on their own terms, but they work within a society consisting of normal human beings. There's no point in saying that if the markets had been allowed to work properly everything would have been OK, but interfering humans did stupid things to alter market solutions.
Markets are made up of stupid, interfering humans, without whom there would be no markets. The point is to try to find ways of controlling them, then to debate what direction control should take, hoping that wiser opinions prevail over less wise one (though knowing that often they will not)!
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has anyone heard our esteemed PM being applauded by other countries in the last couple of days? No, I didn't think so!
Is their world so full of make believe that they really have no notion of what the common people are going through, day after day? Not everyone is a spendthrift, nor greedy, and all we want is some straight talking honesty! Just say it-
"we're in a recession"
"we are conducting fraud investigations and prosecutions are expected"
"here's the true fiscal situation of our banks and our government"
"I'm sorry, I was arrogant and ignorant'
"here's your charges back"
"we'll take half repayments on your mortgage to make sure you keep your house"
"here's 16,000 pounds from the sale of a CEO's house-have a good Christmas"
"I've cut fuel tax and you will have your electricity and gas payments halved immediately"
"have an amnesty on tax and ni payments so you don't have to lay anyone off"
Surely some of the above would help us spend-we don't want, and definitely do not need more loans-compensatory payments would be far better-then we could spend and save!
Why did the banks get the money when we all need it more?
Fruit cake for supper please boilerplated!
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For those annoyed shareholders who are claiming they are being conned as a result of our Government becoming a shareholder in various banks. Please excuse any naivety but I have to ask, what was the realistic short term alternative? Would those shareholders who are now squealing have felt better if their bank had gone into receivership?
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#27, and worth every penny. Goldmans called the credit crisis right. A few months later Goldmans would be one of the few banks not have been caned by MBSs.
If only the Treasury had had such foresight....
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#66, how exactly is that going to help? Apart from whacking ABSs values and banks?
Under "smug Major" you got a relative short and shallow recession and an economy that genuinely was growing, genuinely low inflation - as opposed to the messed- around measure Brown came up with - and an extremely healthy surplus.
Maybe you should wait and see how long this recession takes before you get too excited.
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#286, Thatcherite monetarism went out in 1997. What you have had for at least the last 7 years is good old-fashioned tax and spend Keynes-ism. Worked well hasn't it?
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#280, the only "Thatcher style recession" was in the early 80s when she killed off the hyper-inflation under the last Labour government. There was a short, shallow recession in the 90s when - as per monetarist principles - they killed off an asset bubble causing expanded money supply ( you might think this is "Thatcherite" because your command of recent history is so poor you think Thatcher left in 1991 ). Note this reaction was the exact opposite of what Brown has done and continues to do.
But as we know facts mean nothing to you.
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I'm getting fed up with this.
Huge, unimaginable amounts of taxpayers money are being given and lent to the banks.
This does not seem to be getting lent out again. Regardless of whether one thinks a resurgence of lending is a good idea, it is not happening. The banks are keeping the money.
The bankers are, in the most part, still being paid ridiculous sums in return for failure.
Why do we continue? Where does it end? When the govt cannot sell further sovereign debt? When the future cost of the bailouts exceed all private deposits?
We are told we cannot survive without the banks, and that they will fail without our future earnings, but in that case, how come some banks are having second thoughts about how much money they need?
This stinks, and the smell is getting worse.
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If the banks still aren't lending, I think that proves we didn't need them in the first place, doesn't it?
Life has gone on quite successfully while they've hoarded our childrens future earnings.
Its time this facade ended.
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re 288 I am complaining about being conned. both by the Government and the Board of Lloyds TSB. Lloyds TSB would not have gone into receivership - it is one of the best run banks in Britain (see Jeff Randall's excellent piece in the Telegraph today). The board seems to have been seduced by The man who would be king into taking on HBOS in the interest of the country. One problem with this crisis is the fact that being a shareholder seems to have become something to apologise for. On the announcement of the merger the Lloyds TSB shares halved from £3 to £1.50, which ought to have meant something to the Board. HBOS was already a dead duck (shares down from £9 to 70p in a year). I am sorry for HBOS shareholders, but their Board got them into the problem and I dont think it is fair to bring Lloyds down as well. The Board of LLoyds TSB should scrap the merger (on which they have told shareholders nothing) re-instate the dividend (cancelled by The man who would be king and on which the Board has told shareholders nothing). Finally the Board should resign en masse for taking actions that were against the best interests of shareholders. Then Brown come stump up the extra billions to bail out HBOS, if it is something that can be saved. Sorry this is a bit short on economic theory, other than perhaps the fact that Boards are elected by shareholders and shareholders approve dividends. PS when Vince Cable was asked the question about dividends on Daily Politics he scoffed about bankers, forgetting entriely that dividends are an essential part of pensions and income for a great many people of ordinary means.
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Once all this blows over my guess is you will disappear back into nowhere land where you belong, in my opinion, off course.
BBC reporting standards are hitting new lows and missing huge chunks of fact.
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#252 sounds sensible to me
#286 correct
#183 very poetic
#113,127,128,186,174,175,253 all have the right idea but investment in training/education and jobs for the less employable should be first priority. Thatcherism sorted the unions but created a benefit dependent and 'happy to remain unemployed' subclass when she destroyed much of the work ethic and industry in my locality and it still persists. No point creating jobs if you have to import a workforce.
#72 are all banks holding CDS debts, someone mentions a figure for Barclays , is there a figure for LLoyds and does it explain why it wants to oblige HMG and take on HBOS - shareholders be informed before voting, the blogger who wants to fling her son's full nappy at the management has my support.
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292
No, facts mean everything to me, that is what you so dislike, Thatcher had two recession within 10 years, 1982 and 1987, whilst Major then had a recession in 1992 - on the other hand Brown has had a boom time for 11 years with full employment most of the time...
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#291
Yes it has, near full employment, much infrastructure improvements etc. etc. etc. - what has failed of late is the old Friedmanism economics of the un(der) regulated free market...
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Why do we need a new aircraft cariier? If we need to spend our way out of a recession why not mobilise our resources gainfully in alternative energy. Look at Wavegen's Limpet Plant for instance, a national effort to build similar sites around the country would find employment in construction/civil engineering , have lasting benefit to the economy, reduce our reliance on oil. Did it work for Hoover?
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Spending on defence should be limited to that required to keep the forces, élan, skills and industry that we have. I'm talking about the same 3% of GDP that everyone else interested in long term defence is looking for.
So called Keynesian spending on increasing productivity sustains a vital component of the economy through a time when market forces are living off seed corn. I don't think the government are trying to spend their way out of recession, just retain some structure and skills for when the economy recovers.
Brown has already announced that he will be addressing regulation and the mechanism of the financial system.
I would like to see any mass unemployment put to work on public projects to boost long term productivity (Severn barrage, wind farms, urban light transit, teaching assistance, nuclear power stations, training and skills, etc.)
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This comment was removed because the moderators found it broke the House Rules.
Now isn't necessarily the optimum time, but Rahere's point regarding ducting all public utilities is a good one. There must be an intrinsic reason why this hasn't been done already. My guess is that it keeps plenty of groundworkers on the go to constantly dig up the roads, and it would put paid to the lie that the utilities are actually giving us value for money. If they started working on replacing water mains etc. then carried on until the job were finished, without going to another location, digging another hole and then moving onto another etc. the whole wretched business would probably be complete by the end of the year and the water companies would have no justification to carry on increasing our water bills. Ducting the utilities would be similar. The same is true of work being done on major roads. Why cone off six miles of motorway when all that's happening at any time of the day is one guy looking into another guy's bucket?? It's not the banks that need to be regulated but the utilities. If the banks were that profilgate a waste of time and money then people would be rightly screaming for more value for money, whilst in the meantime, billions of pounds are being directed to public road and works schemes with ZERO oversight.
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What the current government is clearly no better at understanding than the last one is you can NOT spend your way out of a UK recession by buying GERMAN goods!
The chancellor was last photographed next to a GHIA car, OBhama was ferried around in a Merc van (not a Rolls, Bentley, Jag, Range Rover), the police, my local (conservative) council have all foreign cars.
Now many of you might be wondering why this is a problem - so let me explain...
The BRITISH government takes £30,000 from the British people in taxes - money the British people can't spend in their shops, business, local economy, creating a loss of business locally. The British government then transfer that money direct to Germany for goods, worsening our 'balance of payments' and thereby forcing up interest rates - further taking money from the people and lowering the money in the British economy. The Germans take that money, employ people, lower their taxes increasing their demand, and invest in new and more competative products to further undermine the competativeness of British industry on the world stage. In short, we have shot our local economy, and our future in the foot, and raised taxes for us all!
If the government had spent that £30,000 on a Jaguar...
a) Someone would have been employed to build it, that someone would now NOT be claiming unemployment and housing benefit - saving us all money
b) That someone will pay tax - cutting the net cost of the £30,000
c) That someone will also have money to spend - in local shops and businesses, creating demand there.
d) Jaguar will have money to invest making their product better and more competative, ensuring its long term future
e) Jaguar will also pay tax on its profits, thus further reducign the net cost
f) Jaguar will source some of the components in the UK (steel, energy etc) providing knock on employment.
Now some will claim that the German cars are better, or that the European union won't allow it.
Lets tackle them...
If German cars were so wonderful then how come the French use French cars, the Swedish Swedish, Italian Italian..... They aren't that wonderful, I've had both German and British cars and they both worked! And I'd rather a Jag than a 'beemer' anyday - much snobbier!
And similarly if the EU don't allow you to manage the purchasing in such a way as to ensure the results you want all of these other European countries wouldn't get away with it. Its quite simple - look at the above - the 'economic arguement' just needs to be a country wide one and its won!
There is one final arguement for the British government buying British and ensuring that British industry continues that goes away from economics. Remember the Falklands? Why did we win? I know our army was 'better trained' and 'more determined', but they were outnumbered, a long way from home, and had to get on the beach. The Argentinians were quite happily sinking our warships, the most successful weapon they had being Exocet. They stopped sinking our ships because they ran out of Exocet - they coldn't make them, couldn't buy them, so they couldn't sink enough of our taskforce to avoid losing the war. Our Army is currently driving Renault trucks, what if the French don't like the next war we fight and won't supply spares? We are sunk - and we will lose - we HAVE to be able to build our own - we NEED to have an industry left.
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