The deleveraging vortex
Shipping rates for transporting raw materials to the great manufacturing economies of the world, as measured by the Baltic Exchange Dry Index, have halved over the past month - and have fallen 75% since mid-May.
This index is normally seen as a leading indicator of global economic activity.
In recent years it's been buoyed by China's voracious appetite for the world's natural resources, especially iron ore.
There may be one or two exceptional factors depressing shipping rates, such as a decision by China (which may turn out to be temporary) to consume from its vast stockpile of iron ore rather than bring in more.
But the fall in rates is redolent of a global economy on the turn, in a pretty sharp negative direction.
It's the backdrop to yesterday's forecast by the IMF that the world's economy will grow at 3% in 2009 - which is on the cusp of what it regards as a global recession.
And it's the context for the co-ordinated cuts in interest rates by central banks, from China, to Europe to North America - which extended overnight to rate cuts by South Korea, Taiwan and Hong Kong.
The emergency action by the authorities to reverse the direction of the global economic supertanker away from a seriously impoverishing economic downturn also includes the lending of taxpayer's money to banks on a mindboggling scale.
This is absolutely essential, if banks aren't going to dramatically reduce what they lend to households and businesses and to ensure that at least some of the reduction in official rates is passed on to customers.
But the world's banks are becoming seriously dependent on incremental funding from central banks, and special additional liquidity provided by finance ministries, to make up for the seizing up of money markets - which in turn stems from the fear that grips managers of vast pools of cash (typically our pensions and long-term savings) and makes them wary of lending money to any bank where there's even the faintest smell of trouble ahead.
The money managers are switching their investments into government bonds and official national debt in its various forms, on the assumption that we as taxpayers are always good for our debts - although the recent behaviour of the Icelandic government in apparently failing to honour its deposit insurance guarantee to Icesave customers makes that a slightly more courageous assumption than it was.
What's happening, therefore, is that money managers are lending to governments like ours, and those governments are then recycling that money to the banks.
The perfect illustration of this is the £250bn guarantee announced yesterday by HM Treasury for short and medium-turn debt issued by our banks - that should allow them (phew!) to refinance their debts as they fall due in the next two or three years.
There's quite a big question - for later - about how on earth we wean the so-called commercial banks off their addiction to borrowing from the state.
And if the addiction can't be broken, there'll surely be big implications for how banks are permitted to behave (should a taxpayer-supported institution be paying any of its employees 800 times average earnings, which a few that are now utterly dependent on taxpayer support have been doing?).
But for now the pressing issue is how we can pull the global economy out of the deleveraging vortex, how we can crush the devastating phenomenon of banks collectively atoning for their past sin of lending too much by lending too little.
No single government, not even that of the US - as Hank Paulson, the US Treasury Secretary, conceded last night - can contain the destructive power of deleveraging, of the de-facto lending strike, on its own.
It may require global collective action by governments on a scale we've never seen before.
You only have to look at the implosion of Iceland's ludicrously oversized financial economy to recognise that even the British government's £400bn package of support for UK banks is a drop in vast and stormy global ocean.
Today the Icelandic Financial Supervisory Authority is taking control of the country's largest bank, Kaupthing.
It's not as big as Lehman, but it's connected to lots of other international financial institutions and businesses, and it has $73bn of assets.
Some of its overseas assets were dumped on the market yesterday. If there's a fire sale of the rest, the pain would spread way beyond this small and storm-battered nation.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~11~RS~)
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What I still don't understand in all this, is that the UK government will "borrow" in order to lend to the banks.
Where do they "borrow" from? Other banks? Doesn't the (non-existant?) money just go round in a circle becoming ever more expensive?
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More reason to invest in the small businesses, particularly manufacturers, in the UK.
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Robert:
A great piece of analysis, one of your very best.
Recession is now a given - it cannot be avoided. The deleveraging process is an inevitable, unavoidable consequence of an irresponsible debt-fuelled spending boom, in which asset prices have reached unsustainable levels.
This has opened up a "value gap" between loans and the value of the assets against which these debts are"secured". Managing this gap - it's more of a chasm - is now the overwhelmingly important issue.
It is to be hoped that deleveraging can be managed gradually - this is what central banks are now trying to do. If they fail, the consequences would be ghastly.
If they succeed, on which I'm optimistic, recession is still unavoidable. But, if systemic collapse is avoided so that recession is all that results from this crisis, we'll have got off comparatively lightly. We've survived recessions before, and can survive this one.
On a lighter note, I've been amused by gags such as "Origami Bank has folded, things look fishy at Sushi Bank", and so on. Here's another one that I found very amusing this morning: "The Icelandic Financial Supervisory Authority".
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nigelpeacock
The government is just acting as the intermediary, as it can raise credit fairly easily, as its assumed its "safe".
Icelands recent actions might change that operception of "safe government" though!
What I dont understand is why they bother!
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An informative, if somewhat uncomfortable read.
FWIW, and I am by no means a supporter of this Administration, I think they have coupled together an extraordinary plan. Whether it is 'cunning' enough to work or just another one of Baldrick's wild ideas remains to be seen.
However, even if it does, how long before the 'drip, drip, drip' of leaks about tax hikes followed by the inevitable statement from the Chancellor?
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The fall in shipping rates is hardly news. To have a pretty good grasp of most economic situations, all you need to understand is supply and demand. Nothing else.
It has been quite clear for some time that the West was going into recession. Even so, central banks (most notably the ECB, but also the BoE) were preoccupied with inflation. But the equation is quite simple: a recession in the West equals less demand, equals commodity prices (ie. oil, industrial commoditiy prices) coming down. Yes, said the experts, but the economies of China, India, Brazil, Russia will march on, unaffected (as if they can't work out that without their customers in the West they too are looking at a slow down).
So, a recession equals 1. less finished goods shipped and 2. less raw materials need and 3. lower shipping rates as there is less demand.
Insightful reporting would be more appreciated Robert....
The most telling thing I read yesterday, but couldn't find it on the BBC website (forgive me if I overlooked it) was this, quoted from the guardian:
"While most of the participating banks encouraged the government to produce its plan, Michael Geoghegan, chief executive of the UK's biggest bank, HSBC, warned that it set a dangerous precedent. "I don't think it is right that the British taxpayer should need to bail out banks ... It sets a bad precedent, but the government had no alternative," he said."
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So for the last few years, our pension funds have been lending vast sums of money to banks, who then lent it back to us to buy overvalued houses. In effect we've been borrowing from our own pension funds.
Now instead the pension funds are lending to the Government, who is lending the money to the banks, who are lending it back to us again. In other words pretty much the same, but this time the Goverment (ie the taxpayer - us again!) will take the hit on any losses.
Am I completely mis-understanding this? Or is it just completely insane?
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Doesn't all this "additional liquidity" injected by central banks refer to "printing more money"
This was at one time something that goverments used to refer to as the Money Supply and if it grew too sharply it was a sure indication that inflation would follow.
Enoch Powell warned of the dangers - We shall see in the next year or two if his words prove correct
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BBC Website : On this Day 9th July 1991: "Bank collapse costs taxpayers millions
The closure of the Bank of Credit and Commerce International has lost about 20 local councils up to £30m in investments."
October 2009 "Local authority leaders are seeking an urgent meeting with the chancellor after it emerged at least 20 councils have cash in troubled Icelandic banks."
Unbelieveable (not !!)
We the tax payer spend fortunes and still the local councils gamble our money down the drain and politicians say "they will learn"
Why did these councils go offshore with the monies when they should have been held somewhere very secure closer to home. ?
Heads should roll and the council executives who authorised this should be sacked for gross negligence - They cannot say it has not happened before !!
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Robert,
The natural progress of any vortex is that it will, given time, run out of sufficient energy to maintain its own growth. It then disintegrates, essentially collapsing in on itself.
The mechanics of the global liquidity crisis are just the same. After years of pumping up the vortex - it is now fragmenting and collapsing. Just look at today's Local Authority news - 500m stg lost overnight. There will be many, many more casualties popping out of the woodwork in coming weeks.
The gov.uk has just tried to keep the vortex in action by pumping in vast amounts of liquidity and guarantees. They are saying "more of the same" will cure the problem.
The storm that drives this vortex will take its own course. Driving interest rates down will only discourage saving which is the lifeblood of the vortex. Work it out for yourself...
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Full throttle downhill and braking uphill...
What I wonder is how many of these bailouts can any government (including the UK) handle? And how are they financed? Could this lead to superinflation in the medium term?
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Due to the misguided central banks raising intrest rates, the dominoes are falling. Very hard to stop once started. It looks as if we will go into a period of very low interest rates and probable deflation. This will last a long time. Not just 1 year probably 3-4,but as always we will come out of it and learn nothing.
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Great - so now our councils have gone and done an Orange State.
Do any of them want to admit to speculating in mortgage-backed securities?
I think that there is a line between depositing and speculating and that this has been traversed with all these cross-border capital flows into Iceland.
If I were Iceland's government, I would loath to put my 200,000 taxpayers on the hook to underwrite the speculative activities of a collection of foreigners.
And personally I cannot see why the UK government is so keen to step in to fill the gap. This will only put further strain on our own economy and our own banks.
I am sure that there will be a few tragic stories of life savings disappearing, but a greater number by far will have gone from the stock market collapse, and noone is suggesting those should be reimbursed.
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Dear Robert
Ii's a lot of Naughts, 400 billion, nowt to say on the out come though, nowt to show for it. nowt can be guaranteed, 25 councils up the swanney creek, High street owned by Russia through Iceland, nowt doing on the Russian stock markets, very clever.In terms of Points, i'll give it naught, it's not going to resolve the problem, BECAUSE the problem has NOT been sorted OUT,
The Traders and Bankers have NOT been bought to Boot, it is their fault it is their Blame, and when this is all over, even twenty years down the road they should be ----Hung Drawn and Quartered,---and there names hung over Traitors Gate, its not the Institutions that bear the blunt of all this, its the General public the tax payer, they have crucified, and when the Establishmentarians suddenly go into the shadows, by having Holidays at the expense of the Tax payer, (BARCLAYS) -----YOU KNOW THEY COULD NOT CARELESS.
Know of any good council houses for rent at £12,000 a month, ots no wonder Councils have problems.
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10:
Absolutely right. Local Authorities cannot plead lack of prior experience. There should be strict rules on the custodianship of their (meaning our) funds - preferably they should hold the lot in gilts. They should certainly have had a suitably diverse spread of investments.
It would be most interesting to know if there are any overlaps between the 20 affected by BCCI and the 20 now affected by Iceland?
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Why are they trying to perpetually avoid the pain? We NEED de-leveraging. We NEED deflation. We need to start paying off our debts and stop borrowing.
The debt addicted Western governments are still at the stage of an alcoholic who hasn't admitted he has a problem. They think if only we can get the banks lending and consumers borrowing again everything will be fine. Every solution they come up with involves more debt. No.
We've borrowed too much. The government have borrowed too much. Individuals have borrowed too much. Companies have borrowed too much. We have to start paying our bills, we can't keep borrowing our way out of facing reality like a gambler chasing his losses.
NO MORE DEBT!
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I can see large scale civil unrest on the not too distant horizon.
People will lose their jobs as the banks will still not lend to small businesses, no matter what Brown or Darling say.
So people will lose their homes, repossesed by the banks that have taken £16,000 from each tax payer.
Its patently unfair and may always have been this way, but now its transparent.
Meanwhile the Fat Cats will get fatter, payed for by Joe Public being made homeless.
This is going to make the Poll tax protests seem like a mere skirmish.
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As an alternative cause to this financial mess could it be that developing countries like China 'invested' their excess capital in markets that were already saturated rather than investing in their own infrastructure?
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The fact that there are so many posts begging for answers to fundamental questions (like where will the money come from?) makes me wonder.
RP has obviously caused a storm of attention (to himself) and has both fans and detractors.
For his fans, I suggest you read a contributor on the guardian blogs called golemXIV. Then you will finally understand what calm, insightful and balanced writing is all about.
For RP's detractors, I suggest you look out for golemXIV too. Read a few of his posts, and you will understand what is going on. No more need to read the sensational journalism of the BBC, with its "Armageddon", rates "slashed", prices "plunge".
http://www.guardian.co.uk/users/golemxiv
(Have they not heard of Ben Graham's "Mr. Market" concept and the volatility of markets failing to reflect the more stable underlying values of assets?)
I wonder why RP doesn't tell us what is really going on, where this is really leading us?
From what I can understand, we will be increasing our national debt to save these incompetents (you only have to walk into a high street bank and try and open an account to see what a shambles they are). During an era when this country is in decline, when exactly do they think this debt will be paid off? It's a bit like us taking out extra loans and mortgages as we go into retirement. But it doesn't matter to them, they are only politicians. Serve your term and then go join a bank, like TB at JP Morgan. Better not make the pay restrictions too limiting Gordon, they are your future employers!
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Excellent blog, but the assumption seems to be that recession can and should be avoided. I think it is a natural corrective mechanism and that the anomaly is a too-long period of unrestricted growth. My own rule-of-thumb is to look in the travel supplements. When champagne/ spa weekends in a bedouin tent near Marrakesh are offered for a mere £5000 per person, it's time to count your spoons and get out of the markets fast!
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It seems impossible for me to post any messages here, without going through moderation.........
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hell mend anyone fired their money into Icelandic banks - our own could have done with this liquidity and it is a disgrace they are being bailed out.
I think though we are all daffy ducked
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Spot on Robert. Central bank guarantees might unlock the safes for interbank trading again, but what about the horrors in there which closed them first ?
The lack of credit which some consider the cause of the recession is merely a symptom. It is a decade of insane lending which is to blame and has to be "unwound". Unwound meaning millions of people in the rich world having huge amounts of personal debt for most of their lives.
This recession is misnamed as the "Credit Crunch". It will eventually be known as the "Deleveraging Disaster".
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"There's quite a big question - for later - about how on earth we wean the so-called commercial banks off their addiction to borrowing from the state."
How about we raise the interest rates at which they borrow? This will be unpopular, but we also need to wean the wider society off living in excessive debt.
Furthermore, if we abolished the Bank of England base lending rate and let the market decide the interest rate, then an excess of borrowers and a shortage of depositors would naturally put the brakes on borrowing and keep debt in check.
I think it is not that the banks cannot refinance their businesses, but doing so with commercial money will cost them more. This is the natural way of the market. However, the banks do not want their profits and bonuses hit so they create disaster stories like SARS and the Millennium Bug combined and pressure the government into making hurried decisions. The media are more than happy to go along with this because it is exciting like a Bruce Willis movie. (But a bit like the movie Armageddon, the solution is implausible.)
However, if the banks are talking about refinancing that need to take place in the next two years then there is no real hurry. They at least have a month to decide and debate what action to take, but I don't think the banks want them thinking about it too much.
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"Should ... be paying etc"
I'd avoid Jonathan Ross in the BBC tea bar for a little while.
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15:
I agree about HMG not bailing out in this situation.
But I've less sympathy for Iceland's taxpayers, and none at all for their overborrowed businesses.
Iceland's (elected) government and its supervisory agencies have presided over grossly irresponsible borrowing (in relation to the size of their economy); much of this was borrowed from foreign depositors; and it was matched by equally irresponsible lending (much of it to Icelandic businesses, who used these funds to buy assets in the UK and elsewhere).
The ordinary Icelandic taxpayer, through his/her government, has some culpability in this mess; but Iceland's over-leveraged businesses, through reckless borrowing to buy assets overseas, are far more to blame.
If Iceland doesn't even honour its minimum depositor guarantee (about GBP 16,000 per person) to British depositors, we should consider getting our money back by taking possession of Icelandic-owned assets in the UK.
The reason for this is simple - these assets are often the security against the loan of Icelandic banks' depositor money - to the extent that these deposits are our money, we should take possession of the security. That's what loan security is for. It's time we called it.
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Robert, for the record and in the name of journalistic objectivity, could you please post an article (or series) on ""What would be the results if no central government funding had been injected into the money markets over the last couple of months?"
I can't seem to get beyond the doom-laden predictions of "catastrophic" and "unthinkable". What exactly would happen and how would this affect people?
Please could you spell out as coherently as you are describing the current actions by central banks the actual events that could unfold if the opposite course of action to the one being taken was pursued?
I think we need to know some facts.
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One cocept that I have struggled with for a couple of years is why continuous growth is 'good'. Continuous demand feeds the belief that markets always go up and money is always there to be made. However maybe stagnation is better at a time when resources are become scarce - continued growth is not an environmentally sustainable wolution. Or am I missing something?
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Robert, as has been proven by market response to these variouis bailouts, liquidity is NOT the problem.
Trust and Confidence are missing. Without these, it doesn't matter how much is available.
The UK (and US) government have underwritten further cheap money to orgainsations that have shown themselves incapable of managing the previous, and long-standing, flow of overly cheap money.
We are then advised to be of cheerful spirit in that these institutions may, just may, be willing to lend us some of our own money back - for a fee.
The few savers (proportinally) left with anything to call their own are further penalized, as if the recent slew of Icesave debacles hadn't sufficiently traumatized them enough already, by lower savings rates.
Giving money to the banks is like giving more Whisky to the drunk. Give taxpayers' money directly to real enterprises which generate real wealth, product and service. Cut out the middlemen and their fees and interest rates and incompetence.
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Bulk shipping rates have also fallen because of the fall in bunker prices.
You're delving into areas of business that you know little about - having started with finance are you now looking to bring international bulk shipping to its knees? :p
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It is remarkable how all these problems have developed since the use of the 'wholesale money markets' spread outside the city.
Hence we got these strange 2 and 3 year mortgage 'fixes' rather than 25 years SVR, and we see that councils found it easier to raise money on these markets rather than issue their traditional bonds. These were before Mr Peston's time probably, but widely used by small investors as part of their cash portfolio. Local Authorities raised all their working capital via them. The councils now in trouble with the Iceland banks clearly were not competent to handle risk analysis correctly. It is time for the return of the local authority bond and removal of their ability to engage in more exotic financial instruments, particularly outside the UK.
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Now is the time to revive the idea of a public supervisory board for the part nationalised banks. The board would have representatives from the treasury, bank staff trade unions and non-institutional shareholders (by ballot) as well as bank non-executives and executives.
Not dealing with operational matters but concerned with policies with social and economic implications. In addition it would nominate a member to chair the remuneration or compensation committee to ensure responsible and equitable rules are set on both executive pay and bonuses.
This would initially be a temporary arrangement but one that could and should develop into a permanent feature.
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18 wrote "It would be most interesting to know if there are any overlaps between the 20 affected by BCCI and the 20 now affected by Iceland?"
Also when Northern Rock was rescued/nationalised why did the NuLabour Government jump in so quickly - was it because there was huge amounts (hundreds of £millions !!) of monies from local authorities on deposit ? - did some of these authorities jump out of the NRock frying pan straight in to the Icelandic Fire ??
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This is a fine article,
I note that many informed posters on here provide their views on the current situation (with the previous implementation of the banking system in mind). What I mean to say is that things will not go back to they way they worked in the past (consequently we cannot apply the rules as they stand now, to second guess the future), change is upon us. To me this means that the present financial problems once fixed, a new different version of world banking industry will evolve.
The old system has died, may it rest in peace.
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The devil is always in the detail. A tiny sum, perhaps £750 million!!!!, from the commercial finance arm of one of the Icelandic Banks safeguards around 20,000 UK jobs. These companies are supported by an Asset Based Revolving Credit. Understandably the UK Treasury has frozen all assets of this bank. I hope they have the time to review the operation of this activity (which was always profitable and backed by audited assets). Time is of the essence and the next 48 hours will see these jobs go either way.
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So, the Government creates a facility to fund up to £400 billion support to banks. How much of this is to be borrowed by the Govt and who do they get it from?, what rates apply? or do they just sell a tranche of gold?
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In all the discussion about the present crisis, no mention is made of the fact that oil prices have almost halved since their peak, but prices at the pump have fallen only about 10%. Even allowing for the fall in the pound against the dollar, there is surely a rip off here both for oil and for gas and electricity.this is leaving inflation far higher than it needs to be and means that interest rates are still higher than thay need to be. This in turn means more people than need to are struggling with their mortgage repayments, as well as with higher than necessary fuel bills. This inturn means less expendture on other goods.
Perhaps someone could explain why a windfall tax on oil and gas and electicity companies is not justified
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I haven't followed your situation over there, but
here in the US Paulson basically started with a
"give us $770B or we'll shoot this dog" routine.
I don't understand why we don't just start sovereign
wealth funds, instead of lending money to these
banks. Isn't that what the Chinese would do?
That way, if a CEO misbehaves, we can take
his corporate jet and ski vacations in Aspen away
from him, and make him sign for a hall pass when
he wants to go see his friends in Davos.
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Slighty of the point but ever so relevant. I think we are in trying times with an econmic crisis which is having a knock on effect with everyone. Everyday I read more and more and more negative news from robert Preston. I think Mr Preston you need to be more responsible in how you report news and when. As most people will know timing is everything. In the econmic state we are in currently. Please I ask you choose your words carefully and dont just fly at the mouth in an atempt to score points or make yourself feel as though it's your duty to report "Any News". Whilst I understand your have a job to do please spare a thought to the everyday man and women. who are effected by comments you make. I think yourself and any other media associated individual need to be more repsonsilble in the information that you release and when. On the more relavent point at hand we should stop blaming everyone else. As responsbility should be spread amongst the banks and the people. As cheap credit was available we took it upon ourselves to access it. So when the system around this credit collapses we should complain. As a result we should be partly expected to help through taxs to get this system started. As if it dosent we will eventually be the biggest losers so stop the complaining and lets rally behind getting the issue at hand sorted by any means possible. So hopefully we can secure a more stable future for the economy.
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Do you think that Tony Blair entering the banking world on $5000000 a year has anything to do with all this, he should be well qualified and has the advantage of having Cherie to advise him
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Thank you for these insights again, Robert.
Overall I feel it was an excellent package put forward by the government - to be applauded - and I suspect we will see other governments, in particular the US, having to follow suit.
The move to assure all Icesave depositors that they will not lose money, and the threat to sue the Icelandic government, particularly, sends out a very strong signal indeed that the UK Govt won't take no s**t, and even though it does not say it, is protecting bank savings.
As 3. has stated it all now depends on how softly things can settle back.
Three scenarios could occur. Inflation could be allowed to let rip, we could go back to the bad old days, and all those who have borrowed stupidly could get out of jail and in a few years time be getting ready to go out and borrow stupidly again.
Alternatively an enormous number of people/companies/intermerdiaries could go bust and get out of jail that way.
Hopefully the third scenario of a managed wind down can be arranged, which will mean that those (people, companies and intermediaries again) that have excessively borrowed will just have to spend the next few years working damn hard to pay money back to the lenders, and not going very far forward themselves.
After decades of the economy being run for the benefit of those who have been able to borrow the most, it should now be the lenders who relatively speaking benefit. This will mean real interest rates (or rather the real return on cash compared to the real return on assets, that are now already busy deflating) will in fact stay very high for some time.
And once the dust has settled, we need new banking regulation/monetary control systems to prevent this all happening again.
Maybe Mervyn can arrange a global initiative by central banks to include asset prices in inflation targeting?
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So there'll be a recession? I am 57 and I've lived through the 1987 crash and the Seventies 3 day week. In what way is this going to be worse than either of those? In the 70s we had no power for hours every evening and the £ was worth not much more than a $.
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34
thanks, that made me laugh!
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32 sdwatson:
Great question, which seldom gets asked.
I think it's a combination of the healthy (human desire for material betterment) and the unhealthy (an excessive culture of materialism, acquisitiveness and greed). The former is a good thing; the latter, in excess, is dangerous both socially and economically.
Resources are, as you say, a key factor. The population of the world is increasing but the resource base is not. If oil demand had continued to grow at recent rates (2-3 percent annually), my reckoning is that we would have hit resource constraint by 2015 or thereabouts, causing oil prices to soar. At stable levels of consumption, the oil industry can meet requirements for far longer than that.
In oil as in other resource categories, availability will limit economic expansion. The pursuit of debt-fuelled growth has now inflicted severe damage on the economy.
So we do indeed need to re-think the assumption of continual growth. Maybe this crisis will compel us to do so.
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Oh no Robert! - you shouldn't have mentioned the IMF assessment! Now plenty of people will blame the World Wide recession on you and this blog!
Keep up the good work, the BBC needs you! Where have you got your savings?
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Not directly related to your current blog, but I cannot believe that local authorities have seemingly not learned the lessons of BCCI all those years ago. There is always a link between risk and reward and to think about locking in taxpayers' money to banks that are some way from mainstream is a scandal. It is one thing to exploit short term market rates with smaller banks (overnight and short term LIBOR based products) but quite another to look at 2 and 3 year deposits as many seem to have done. Now all the L/A treasurers are trying to do is to get the national tax receipts to subsidise Town Hall tax receipts once again. I hope this issue will be raised in profile over the next few days.
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Governments beware-the peasants are revolting-look after the victims first, not the bullies.
Some of the phrases going around governments at the moment sound like Marie Antoinette's 'let them eat cake'! Although it is disputed that she actually said this, the sense is the same-the rich lived the high life at the expense of the poor-haven't our gocernments learnt anything from history?
Our parliament was conceived to look after the interests of it's people-not itself or the fat cats!
Oliver Cromwell must be turning in his grave-I wonder what our former Lord Protector would say right now?
Others have mentioned Enoch Powell-he was slated years ago, but perhaps he should now be called a visionary ahead of his time-we need more of his integrity!
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The question of no conditions being put on the banks seems to be glossed over. Why loan the money and then just hope that they will start to use it to loan to each other and get the system back on track. Make them. Why are we still pussy footing around? Your point about the bonus payments is crucial and the fact that no one wants to seriously address it, or reveal the actual figures or names of individuals involved is the greatest indicator that they have no intention of changing the way they operate and however this resolves over the next few years, those individuals at the top of the pile will never suffer. It is a disgrace that everyone, BBC reporters included buys into it and keeps quiet as in reality they all just want everything to go back to normal as quickly as possible. Why don't you tell us which banks, which individuals, how much........interview them, ask the difficult questions? Ask for justification. I see a lot of blustering men on the television, self-important and pompous trying to explain why it's essential to raid the piggy banks of the working people of this country to prop themselves and their institutions up. Just as the poorest American electorate aren't given enough machines to vote with, the poorest in our society have no voice or channel to complain, and yet they will suffer the most over this.
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re: #40
He can't sell a tranche of gold because he's already sold it..when the market was at rock bottom.
Brown is out of his depth..he had an easy ride for 10 years yet still managed to rack up a massive defecit, all just to buy more votes.
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A quick Google reveals that Iceland enjoys the third lowest corporate tax level in the OECD nations. As recently as 2007 right-wing, 'free enterprise' US think tanks were trumpeting the Icelandic model of flat taxes, low corporate taxes and deregualtion and flagging up Iceland as an economic powerhouse enjoying phenominal economic growth and a model for other nations tpo follow - the American Enterprise Institute approvingly quoted the Icelandic Prime Minister - "success is because of low taxes, not despite them" and urged the US to follow Iceland's example. The Cato Institute uncritically reported the growth of the Icelandic economy and its commitment to a low taxes and almost complete abolition of banking regulation . Even today the Invest in Iceland website trumpets a range of low-tax incentives. (In a report compiled with contributions from KPMG.)
Clearly this model has now imploded - the ideology that undepins it utterly discredited - but I am very concerned about the degree to which we as British taxpayers will now be picking up the tab for Iceland's irresponsible government. I and many others have warned for YEARS that the Iceland economy was being run more like a huge pyramid selling scam - the problems itr was storing up predated the onset to the credit crunch. Surely if people were willing to ignore those warnings and put their money into Iceland then they must be reimbursed by Iceland - not the UK. It's not even as if we have been enjoying the tax benefits of these banks during the good years: I suspect precious little corporate tax has been paid into the UK exchequer by Icelandic banks taking UK savers money - though I'd be interested to know if anyone can tell me.
The 'Fire Sale' of Icelandic-owned assets will also have serious knock on effects on commercial property prices. Icelandic investors have been buying up huge tranches of the High Street at top dollar - assuming they were more important as property investments rather than businesses in their own right, and treating them - as someone said of Sainsbury's - "as property companies that sell a bit of food."
Now its payback time and the rolling over of debt and the servicing of debts, against a backdrop of declining sales - the selling of a bit of food, clothing and replica football shirts - and declining asset values is supremely painful. If we are not careful it is going to hurt us even more - unless we cut ourselves loose and let Iceland go down.
Any views?
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In a nutshell.. #33
"We are then advised to be of cheerful spirit in that these institutions may, just may, be willing to lend us some of our own money back - for a fee..."
lost for words.
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Just one small point that you mentioned - the next two-three years!!
GB made mention yesterday of the obligations that some (i suspect most) banks have taken on when using lending/finance packages that tie them in for repayments for the next 2-3 years.
How on earth are they going to fund these now with the spiralling vortex of 'asset' prices and the 98% blockage of credit??
The 'de-leveraging', seizing up of world trade + spending and rock bottom asset prices means broke banks!!
It will take 10 years to sort this mess!
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41:
About fuel prices and windfall taxes.
As you say, the weakness of Sterling has diminished the beneficial effects of lower dollar oil prices. Most of what you pay for fuel is tax, so a big fall in wholesale product prices only translates into a small fall in pump prices. Some price falls are still working their way through the refining and distribution system, so further price reductions will follow.
The accounting system inflates the profits of the international oil companies - they are producing oil at current (high) prices but depreciating the cost of reserves found and developed in the past, at much lower cost. As today's much higher reinvestment costs feed through, profits will fall back. Imposing a WPT (windfall profit tax) would be difficult anyway, as these are global companies. Only a small part of their profits is generated in the UK - the vast bulk of income is generated (and taxed) elsewhere.
The utilities' after-tax earnings aren't as big as people often think (typically a return of less than 5 percent on assets), so a WPT wouldn't raise much money. And we need these companies to invest in our infrastructure.
An example here is EDF, which is committing billions to our nuclear rebuild requirements. I'm pretty sure they wouldn't have committed to this unless they received assurances about WPT.
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Dear Nick
Okay, "wHAT BANKS ARE GOING TO FAIL", ?
when a government says so, they know who they are.If they do not the Regulators are not doing their Jobs.
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I am also very worried that Brown is attempting to prevent necessary deleveraging through conditions attached to the intervention in banks. Negative equity voters are unhappy voters.
Not once have I heard Brown admit that the housing market got out of control, and needs to return to normal levels. In fact, he has recently been saying quite the opposite, playing down the recent falls in prices by comparing them to the (insane) property inflation over the last decade.
Personally I really don't blame banks for this, when even the leaders of the country still can't grasp that things went too far on their watch.
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46:
Great post, which sums up the situation spot-on.
Your point about including asset price inflation in future interest rate policy decisions is absolutely critical. We must never repeat the mistakes that we're paying for now.
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Three simple cures to the present day problems.
1. freeze the derivatives market immediately - this would stop the speculative nature of the market re trading in any stock quoted through London, get back to fundementals and expose those who are profiteering at the tax payers expense, and still are, principally the banks and hedge funds (how are their half year profits?)
2. Legislate that the banks have to lend to other UK banks a significant portion of their funds and bear any loses that they may incur as a result of their own rash past lending - shareholders can take the pain as they took the profit.
3. Fire the senior directors, executives and managers who got us into this. A trader does not change his spots or his morality because the the PM says so. If they lacked the morality to behave responsibily in the past, they certainly cannot be trusted to get us out of this. If Nick leeson can spend time behind bars for his crimes so can these bankers and traders.
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Good article, at long last connecting the recession and the financial crisis.
I still think, however, that inflation is more likely than deflation, simply because a significant portion of the central bank money will stuck in the system (exactly because of the recession, thus because of defaults on inter-company loans). It will be even more complicated because of the parallel asset devaluation.
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#16.... so many cliches and so little use of the English language.
Example, "The Traders and Bankers have NOT been bought to Boot, it is their fault it is their Blame"
The phrase is, I believe, 'brought to book' or 'brought to account'.
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Does anyone in the Govenment care about the taxpayers?
I recently read that if a single years welfare budget (around £140 bn) was split evenly among the poorest 25% of households, they would be on abover average income!!
End poverty (almost however you define it) in a stroke.
A lot of innefficient 'makework' civil servants out of a job, but maybe they could start generating wealth instead of consuming it.
Having got away with such stupid waste, the government now think they can get away with stealing our money for private banks to rent back to us...
Gordon may laugh - but he is set up for life - some of us are working hard for every penny - struggling to generate wealth against all the government can throw in our path.
Mugabe doesn't suffer any financial problems because he is insulated from real life. Out politicians (particularly the government) are no better.
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It's pretty simple, sooner or later an economy financed purely by debt has to come to a halt. Sooner or later people hit the wall and can't borrow any more, so have to focus on repaying what they have already borrowed. Then they stop spending, and the only question is whether we experience a long slow decline or a juddering halt.
Unfortunately so much of what we regard as normal bears more resemblance to a Ponzi scheme than those in charge care to admit. Put your money in now, that money pays for people now, and there'll be plenty when you need it, honest guv'nor.
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Another lull before another storm. At least there is now some temporary stability in the banking system
Depending on whether we really know how bad things are in the banking system which at present will remain a mystery funding should trickle down to businesses without which we are dead and buried.
There is still a lot of cash swishing around in the system so things aren't totally hopeless.
The biggest challenge immediately for Gordon Brown is to massively prune public services.
Unemployment will be a huge cost to the taxpayer in months to come.
Public services do not create wealth they drain it away and this is an opportunity not to be missed for the Government to put its own house in order.
Not popular but essential.
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Governments acting in a positive, coodinated way as we witnessed yesterday, was probably the most significant event of the day. If this can be followed by equally creative and timely interventions in the future, I believe that confidence can be restored relatively quickly.
If the Brown/ Darling initiative can be followed by others, perhaps this will herald a era where we see governments taking a grip of the financial markets...that would definately be a 'good thing'!
I think the long-term effects of 'events' will very posiyive - now there's optimism for you - enough to make the Baltic Exchange Fry Index leap in anticipation!
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I agree with #20 Dr_Goats that politically the road ahead is going to get particularly worrying.
It seems likely that repossessions will accelerate, unemployment will increase, and businesses will close. At the same time, the banks will still refuse to lend, award themselves high salaries and bonuses all with taxpayers money. Even if banks do lend money to the public it will be essentially be taxpayers money and they'll charge the public interest on money that is technically theirs already.
I get the impression that the entire legitimacy of the State will be at stake here if banks carry on as normal with all the funding from the taxpayer. The only solution I see is for the troubled banks to be nationalised and temporarily bring back the Keynesian Mixed economy until the mess is sorted then sell them off.
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poster 53
You are so right-I said yesterday that the rules must have changed to go strings attached cos they all said no 24 hours before.
So any balance sheets around?
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Robert, you shouldn't report on things you don't really understand. The freight market is probably the most volatile market in the world. It has seen massive highs and lows before and these have not led to economic boom and bust. In that sense it is not a leading indicator.
The reason dry bulk shipping rates have dropped so dramatically is because there is a huge number of vessels being built. Yes, cargo demand has dropped but it is starting to pick up again as India, China and even Europe start booking coal purchases for the winter. If you looked closely enough you would see that FFA's (Freight Forward Agreements) are trading in contango meaning that traders expect a healthy pickup in future months. Typically the freight market has always traded in strong backwardation due to the excess of vessels coming online.
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56:
Spot on. In my earlier post (29), I put the case for nationalising Icelandic-owned UK-based assets where those assets are security for debts from Icelandic banks which, for their part, are unable to honour commitments to British depositors.
They borrowed money from UK savers, lent it out to their own companies to buy UK assets, and may now think they can keep those assets whilst we accept the loss of depositors money. Sorry guys, no deal. I think we should call the security on this one.
Where we can spot linkage - UK deposits (via) Icelandic banks (into) Icelandic companies (into) UK assets - we should take possession, right now.
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I think the amount of money 'owned' and 'owed' by banks needs to be put into perspective.
Using a nominal amount of cash as 'x'.
Bank1 only has x amount of cash, but there assets - (at previous values) were worth 10x. As a result of this they lent 25x to other banks in the hope of making more xs in the long term, hoping that the value of the original 10x didn't fail/fall while they lent the 25x.
However, the price/value of the original 10x assets went up to 20x in a short time, so (prior to having their first 'lent' 25x returned) they lent 50x on the premise that they had doubled there money.
This has continued with bigger multiples being used.
However, the other institutions have lent 100x after borrowing 25x from bank1 (to make even more money at a faster pace!)
Eventually the credit bubble (all backed up by ridiculous house prices) was huge and the banks had run out of decent reliable people to lend to. But the lesser (dodgy) banks/lenders wanted some of the action so they borrowed 1000x from the banks higher up the chain (in the form of ever more complicated lending tools that hid the true source of the original 'asset' value - x) and lent to people with no chance of paying - NINJA mortgages in the US.
Eventually defaults started at the top of the inverted pyramid and the cascading thundering crash started!
But the bank still has it's original amount of x in cash right? Wrong - there asset values are now worth -10x so there net worth is -9x with 1000x of liabilities!!! Oh yes, then they offset this massive loss by quoting there inflated share prices as assets and continue lending at the same rates for another 5-6years!!
Multiply this world wide and you may have some idea of how deep this hole is!
This simple illustration is based on banks + mortgages only - without consideration of credit card lending by individuals that have borrowed against there asset/house!
Do you really think there is enough money to save this mess?????
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Robert
There are conflicting statements in your blogg this morning and I'm getting this conflicting info from everywhere else as well.
You say:
1. Some of the banks most in trouble have had people paying themselves and other members of their staff, 800 times more than the national average in salary and other benefits.
2. But, also we hear/read that the same, or different banks, or American banks, have been lending to people who have no means or capability, to pay their instalments.
Which is it? Or what proportion of each of the above applies?
Please could you clarify this? I feel that this is very important. We need to avoid a witch-hunt. Is it naughty bankers or naughty taxpayers, or naughty non-taxpayers?
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Frequent improvement of the existing financial system leads to an absurd already seen in the history of humanity. The Ptolemy model of the Solar system got so complicated through all successive improvements that it became too hard to use efficiently. It was replaced by a simple Copernicus model. We called it a paradigm change.
What we need now is to lend the collected taxpayers money to the institutions that need them bypassing the existing banks that will make evaporate that capital. It?s not the banks that are the ultimate users of that capital. It is industries and all services that are of use to us.
We need a ?new? bank that is an old one: the most traditional one that exercises its basic function. One that transfers the collected money from taxpayers to those who will create an added value for us. Banks are not doing that anymore. If we accept a free market idea we should accept the creation of a very simply body of a bank that model existed already in Babylon. Banks of today monopolised the activity of lending and borrowing in order to create a fictional value even for themselves.
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Nice blog, good explanation of where the spondoolies are coming from. Anyway, let's look on the bright side, whoops forgot: there isn't one.
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Did the British government bring down the last Icelandic bank, Kaupthing?
Kaupthing, the last standing Icelandic bank did not have major liquidity problems, did not have bad loans, and it honoured it's commitments to both Icelandic and British customers.
However, after the IceSave "incident" this week, the British government seized Kaupthing Edge, Kaupthing's online savings bank, a part of Kaupthing's daughter bank in Britain, Singer and Friedlander, and then closed down Singer and Friedlander. (Business on Kaupthing Edge was going as normal, the website was open and fuctioning and people were in large numbers withdrawing their money or transferring them to other banks.) Major lenders of Kaupthing considered the closing down of Singer and Friedlander to be a breach of contract, even though Kaupthing was honouring all its commitments to those lenders.
And this brought Kaupthing bank to ask the Icelandic Financial Supervisory Authority to take control of the bank today.
Am I understanding this correctly? Did the actions of the British government against this bank, on the sole grounds, it seems, that it was Icelandic, bring down a "healthy" bank, in a financial environment where governments are trying to save banks that really do have serious problems?
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Further to 10 and 51: I agree that the question of local authorities with money in Icelandic banks deserves Robert's attention.
As well as BCCI, UK local authorities lost money on deposits with a number of small banks that collapsed in the early 1990s - such as Chancery Bank.
There was an outcry at the time, and local rate payers were horrified that local services had to be cut because of lax financial controls in some local authorities.
I understood at the time that local authorities would in future set up proper lists of 'approved' counterparties for regular review and approval by councillors - a simple and basic form of financial control that was sadly lacking.
While we should of course ask why some local authorities did not learn from the experiences of the 1990s, I suggest that it is also important to ask whether the authorities with deposits in Icelandic banks had proper approval by elected councillors to deposit with these banks?
It is one thing to lose money because a properly considered decision proved to be wrong - but quite another to lose money because of a lack of elementary financial controls.
If the authorities cannot show a proper process of consideration and approval of limits for these banks, then officer heads should roll.
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it seems the lessons of the past have fallen on deaf ears.
the whole system is in peril and in basic terms it needs an enima, rather than the supositories being implimented.
over the last few years too much power has been given to local authorities who by there own nature are corrupt and inept, thus there local areas will suffer greatly becouse of there negligence.
but ultimatly if falls to central government to take the blame due to its stupidity in giving them these powers.
the people of this country needs to wake up and smell the coffee now becouse if the people fail to reign in this government soon it will be too late.
this government is not beyond selling this country out from under us in our own interest as they would see it.
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The media in general are talking down the economy. Robert Preston uses very emotive and strong language in his reports. The central banks are putting huge amounts of effort into corecting what many banks did wrong.
If you Robert, start being positive about what the central banks are doing, then the people who listen to you and read the newspapers will start to think it is not all doom and gloom.
I thouht, is it only since trading on stock markets by computer in several different trading rooms that we have seen these regular large swings in the stock market. When it was mostly done on the floor of the stock exchange people talked face to face together and came to more sensitble dealing.
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Surely it's very easy reporting to find some doom and gloom stories every day and stoke up the fear which will lead us all into a recession.
Of course it's important to keep people informed of world events but the BBC is going too far with the negative worst-case scenarios which cause people to panic and then banks have deposits withdrawn, companies go out of business because people are too scared to spend and the BBC can say 'told you - we predicted this'.
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Why are more banks not allowed to fold and government pick up the reins from insolvency (as barclays and others did with Lehmans) rather than rescue all the senior people at the banks who got us into this mess?
And when will we get the real story of why we are in this mess? Is it really only the US toxic and similar mortgage related stuff which has has got banks into this mess, or is the Iceland situation more relevant (not to mention RBS losing just how much on ABN?
We need to know more about what our taxpayers money is really for in terms of replacing capital - which anyway is really a euphemism for meeting the banks disastrous losses.
It is also about time we had a real investigation of what banking is for and how that is best delivered, as it is by no means obvious that, for example, repossessing people's houses, shoudl be a part of that. Nor lots of other things.
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Now that the bubble has burst, there are some people who must be very happy that can now buy their first house because the prices are dropping.
With interest rates falling, it's a great time for businesses to invest and a falling pound means incrased exports.
Also, for people who pay monthly into a pension, they'll be buying real bargain shares at the monent and in the long run their pensions will be higher than if the markets had stayed flat.
And with housing not being so profitable for developers, our villages can breathe a sigh of relief as the plans for in-fill building and mass housing estates are torn up.
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Dear Bob,
Why don?t you write something about the real causes of the present crisis? That is - the belief that everyone is entitled to own things which they cannot afford to buy ? that they have the right to own property. This problem cannot be associated solely with the peasant in his hovel (the home owner) or the shoe addict; it applies to the pseudo-businessman as well.
The banks cannot be blamed for the present situation. If they withheld funds ? they would be accused of discriminating against the poor? or worse (this particularly applies to the American situation).
In the discussions of recent months I?ve never heard this question even put let alone tackled.
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Also, for people who pay monthly into a pension, they'll be buying real bargain shares at the monent and in the long run their pensions will be higher than if the markets had stayed flat.
And with housing not being so profitable for developers, our villages can breathe a sigh of relief as the plans for in-fill building and mass housing estates are torn up.
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Mr 'no boom and bust' Brown could have prevented the housing bubble in the first place through regulation of the lenders. Stricter lending criteria would have prevented over-stretching to afford inflated prices which would then have kept them in check. This, I believe, is why the Germans don't have this problem.
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I find it difficult to comprehend that any thought whatsoever is being given to refunding money lost by local councils in Icelandic investments.
On balance I´d rather see my money expropriated to help out Iceland than I´d see it used to continue feathering the nests of overpaid second rate Administrators in Councils delivering second rate services, and forcing people to pay for "services" that they neither want nor need.
Before people start bleating about some of the useful services they provide - well these can still be provided by downsizing the pension "entitlements" of Council Executives. After all, we´re all in this together - If my pension can be destroyed for the greater good of the country then why can´t theirs?
I don´t care how much advice they´ve received about the probity of investing in Iceland - take ´em outside and sack them all for gross stupidity.
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I'm furious that my council tax has been gambled away. When we pay our taxes we do so on the understanding that the money will be wisely managed. This is a case for abolishing the council tax, as councils have proved they are incapable of being responsible with the money. (Seriously, what kind of freak thought that devolving responsbility for billions of taxpayers' cash to hundreds of small quangoes was a good plan?)
I note yesterday's attempt at a bailout included a requirement for banks to increase their tier 1 ratio. I'm interpreting this as a concession to the full-reservers, and a tacit acknowledgement by government that fractional reserve banking is dangerous and unsustainable.
My suggestion now is to investigate local exchange and trading systems (LETS). These allow us to barter between ourselves, in the process, cutting out the banks completely. LETS can even invent their own asset-backed currencies (as opposed to the debt-backed currency issued by the reserve banks).
"Local Exchange Trading Systems (LETS) also known as LETSystems are local, non-profit exchange networks in which goods and services can be traded without the need for printed currency." -- http://en.wikipedia.org/wiki/LETS
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I see my earlier comment was moderated. Why? I said Mr. Peston has no idea what he's talking about when it comes to the freight market. Yes, rates have fallen but this is because of a huge supply of vessels coming online. The freight market is actually trading in contango meaning that freight traders expect a significant pickup in economic activity and rates in the near future.
Does the BBC only publish reactionary, headline grabbing stories and bad news? Perhaps Robert should stick to the mass uninformed where his headlines sound plausible. Is this going to be moderated too?
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Oh come on - this is just a LULL - America will still dictate what happens here... Their foreclosures are still gathering pace... and it is affecting Main Street more and more... Read this.... http://www.cnn.com/2008/US/10/08/chicago.evictions/index.html
The Dow is heading for less than 5000... FTSE 1000 -
Why did Paulson say there would be more bank failures...? because he knows how bad it really is going to get....
This time next week GB will not be so happy or smug...
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I agree with Greg Kingston above - it's time Robert "Hello magazine" Peston stuck to what he knows and give us some (other) facts. How about focussing on Northern Rock having paid back over 50% of their government loan. How about some comment on govt involvement might now avoid the well documented greed/mismanagement by the banks, or city dealers/hedge funds - remember the junk bond scandal of the 80's.
A couple of weeks ago we were being warned of the liklehood of stagflation - not going to happen. Inflation has been quickly nipped in the bud the B of E's plan has worked. Now time for the govt intervention to start the Bank's greasing the wheels of the economy.
The latest story about freight rates really is scrapping the "Armagedon" barrel. Oil is now below $90.00 per barrel. Inflation is set to tumble, thereby providing the basis for responsible economic activity.
Less of your own opinion please, Robert. More facts from which we can all form our own opinions.
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This is good
http://www.thedailymash.co.uk/news/celebrity/robert-peston-transformed-into-pure-energy-200810081310/
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This blog now runs the global economy - enjoy it while you can:
At least ten years of 'Originate & Distribute' scamming lies at the root of the problem. Until these positions are unwound the true scale of the problem can only be guessed.
When 'Hank's Cesspit' opens for business we should have a better idea of the real state of affairs and its not going to be a pretty sight. Given previous experience the mess is likely to be much greater than is currently estimated.
One thing I'm not clear about - maybe someone out there can enlighten us - what is the position of banks' off balance sheet entities as regards the 'bail-out'? What happens to all the merde stashed 'under the carpet' in SIVs etc?
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#45 I think you have a new sketch for Harry and Paul there.
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Money is indeed going round in a circle. It always has. This time the driver is the Treasury. It borrows from the likes of the pension funds etc at X% and lends on to commercial banks at X+Y%. The important thing is that it underwrites the risk - or rather the tax payer does. Interestingly will the pension funds rebalance their portfolios away from equities towards gilts given the rate of interest the Treasury will have to pay to borrow the sort of money it needs to raise.
It is only when a bank defaults (that is it cannot repay its depositors), that the Government has to spend real tax payers money. Icesave I think is the only example todate?
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Robert, when you call something a 'leading indicator', do you mean that the economy will follow where it leads, or do you just mean that it's one of the best, or most prominent, or most used, indicators?
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#74
The part I don't understand is right at the beginning.
If I have a car, and my neighbour wants to borrow my car, I can lend him my car. However what I can't do is lend my car to nine other neighbours at the same time.
No amount of smoke and mirrors can produce nine other vehicles for my neighbours to drive.
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The other interesting story today is that Mexico and Brazil are to sell dollars from their reserves by auction. They would rather hold their own currencies than the dollar. Perhaps the Chinese will be next. Instead of buying US Government bonds with their dollars, perhaps they will buy safer currencies - sterling?, roubles?, Swiss francs? We can all stand by and watch the dollar go down the pan.
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#89 And it's just one more reason why Mr. Boom and Bust will not be PM after the next General Election.
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#23 - natural corrective mechanism comments absolutely right. The market moves in cycles and a lot of those cycles are instinctive. The longer a market rises, the more people start to look for the end and prepare for it. When enough people do this to reach a critical mass, the market tips.
With regard to champagne Bedouin weekends in Marrakech for £5,000, the major warning sign for me was Country Life magazine starting up a Domestic Staff advertising page - the surest sign that there is too much money about!!!
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I'm furious that my council tax has been gambled away. When we pay our taxes we do so on the understanding that the money will be wisely managed. This is a case for abolishing the council tax, as councils have proved they are incapable of being responsible with the money. (Seriously, what kind of freak thought that devolving responsbility for billions of taxpayers' cash to hundreds of small quangoes was a good plan?)
I note yesterday's attempt at a bailout included a requirement for banks to increase their tier 1 ratio. I'm interpreting this as a concession to the full-reservers, and a tacit acknowledgement by government that fractional reserve banking is dangerous and unsustainable.
My suggestion now is to investigate local exchange and trading systems (LETS). These allow us to barter between ourselves, in the process, cutting out the banks completely. LETS can even invent their own asset-backed currencies (as opposed to the debt-backed currency issued by the reserve banks).
"Local Exchange Trading Systems (LETS) also known as LETSystems are local, non-profit exchange networks in which goods and services can be traded without the need for printed currency." -- http://en.wikipedia.org/wiki/LETS
[reposted as mods seem to have skipped a bunch of messages]
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OspOsp at # 78
".......Kaupthing, the last standing Icelandic bank did not have major liquidity problems, did not have bad loans, and it honoured it's commitments to both Icelandic and British customers......."
You think so? I have been waiting for money from them since Monday morning. Processed a CHAPS payment and.......nothing. Repeated calls to them get nothing but baloney about CHAPS backlog and it might be sorted soon and blah blah blah. Still no money.
That's not honouring its commitment. That banks would have gone bust had ING not stepped in and the Icelandic government has just taken it over
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Now that the credit bubble has finally burst, it would probably help in saving our planet Earth. The needless consumption that started it all was causing a deleterious effect on our climate. This would have ultimately led to the demise of mankind. On the brighter side and looking at things , historians a 1000 years from now would say the excesses of today which were curbed were the defining moment in their history.
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Why does the government need to rescue the banks' mess with hard earned public money? There is no need to prop up growth rates to end up with more environmental pollution and waste of earth's finite resources. You only need to protect savings - there's no need to cradle a debt economy. Things are unlikely to get better, sorry to say that.
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There appears to be active censorship in operation on this blog. Any posts that are critical of Mr Peston appear to be removed.
I had one post removed yesterday after it had been up for 24 hours. I offered to the moderators to re-write it to remove the 'offending comments' if they would tell me what aspect of the comment was objectionable. So far I've received no response.
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What's at stake here is our terms of trade. Resource depletion aside, the world as a whole has not been overconsuming. Everything we've consumed has to have been produced so the world is capable of sustaining this level of real activity. However, as many have commented, we in the west have been borrowing heavily to do this - and don't have the asset base to repay our debts. The terms of trade have been false according to the real economy: in the UK we produce very little real output (we rely on the city cooking up wealth), yet consume heavily (we are net importers of physical products). In contrast, regions such as Asia consume much less than they produce.
If full deleveraging occurs, the financial system collapses and we have to start from scratch - I'm pretty sure that when starting from scratch, our exchange rate will be much, much worse - destroying our current standard of living.
This is why the government has had to act, perversely, to reinflate the debt bubble - to keep our way of life going for as long as we can. Once reinflated, we can attempt to let the bubble down more gently, giving us time to adjust our economy and way of life. Managed carefully, this could in the long run lead to a more even distribution of consumption across the planet.
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85 - Have you no grasp of economics? The fall in house prices in the current economic climes is meaningless. Housebuyers cannot find institutions willing to lend, and if they do the institutions want bigger deposits and no low-starter deals.
Increased exports to who? All major nations are slipping into recession - that means consumption reduces.
People investing into a pension? How much money do you think pension funds have lost as shares have depreciated. Mow much further do you think they will drop? And for how long. Are these also the same people staring recessionary unemployment in the face?
And as for your building beliefs, as soon as the market bottoms, land prices will fall and one of the first things the government will 'boost' is the building industry. You'll end up with more houses than are planned now.
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Oh goody!
Just learning that county councils across the country have invested Miliions with Icelandic banks!!
The MET POLICE AUTHORITY has lost £30 Million!!
THAT MONEY IS LOST!!!
If they have invested those numbers in Iceland, how many dodgy council investments are there in other banks that are prone to going bust??
The Army will be on the streets!!
General Election before Christmas - not that that will help matters, but someone will have to lose their political heads for this ALMIGHTY mess!!
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On another post 'UK's trade gap narrows slightly:
"UK exports have yet to see much of a boost from the weak pound"
Who writes this tosh?1
$2.116 to the pound on 07 November 2007 about a year ago and today $1.73 a drop of 39c.
Like 'oh the pound's dropped, let's buy British!' If only exporting were so easy! People looking at the UK would have said, 'oh, they are way too expensive' and look elsewhere. They don't suddenly come back five minutes later yuh know, they say, 'uh oh, the UK's in trouble'.
It takes years for these things to stabilise in case you were hoping for a quick fix.
And in case you were wondering what the heck it's got to do with me, my firm was exporting quite strongly to the USA till the wretched pound went 'thru the roof' and I lobbied my Lincoln City MP re the dire problem of exporting with the high pound over a years ago - and was treated - by way of reply - to a little treatise from HM Treasury on how much more important were inflationary targets and 'stable macroeconomics'...
Shows how much those barmy technocrats know about real-world business.
Say - Come to Lincoln and I'll show you, Robert. You can answer the phone, though it don't ring much now..
Guy Croft
Guy Croft Racing Engines.
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#5 - richardember
We recently replayed all the Blackadder dvds over a weekend and I have to tell you that the only intelligent ideas expressed in the manic scripts for all four series came from - Baldrick. Totally irrelevant I know, but let's hear it for Balders!
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Thanks to Friendlycard and to Robert. I particularly wanted to express my appreciation to Friendlycard for drawing my attention to the delightfully named "Icelandic Financial Supervisory Authority". It is all too much to bear alongside the aroma of a fishy bank and the knotty problem of an origami financial institution, which may be about to fold.
Of course we are all watching and waiting to see how well the new super conduit for money transfer, created by HMG, can substitute for the wholesale money market and make use of our pensions contributions to keep the precarious banking show on the road.
One thing seems clear, the old country (Britain), can still teach the new country (US), a thing or two when it comes to fashioning a vehicle to keep the show on the road. The idea of Paulson listening carefully to advice from Darling (and his advisers) really is worth savouring.
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The thing that is starting to bother me is where will this liquidity go in years to come. ?
Lets assume that the banks recover their confidence and start lending to other banks and the consumer - based on cheap liquidity from the taxpayer (lets kill this myth its the government, any money they have comes from us) - then does that mean that this is effectively a cash injection into the banking system ?
If it is , then the logic has to be that in order to service their government debt the banks will lend to the taxpayer money they would not otherwise have .. and so we'll get an inflationary burst - just at the time we've reduced interest rates ..
Strikes me that we've tried to fix a problem now and the cure may be just as hard ..
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#53
The money the banks want is actually to repay short / medium-term loans which fall due imminently and then for next few months as I understand it. They HAVE to pay these large amounts, so need the bail out. The rest they probably don't care that much about - there is little point in them lending lots out at say 90% of value on declining asset base (ie houses) - that will just make matters worse for them. They will probably lend to VERY sound commercial customers and probably overseas institutions, but not to firms in hand-to-mouth situation owing to economic recession making it an unwise bet from their viewpoint. This does mean recession will take longer to get out of, more companies will fail and more jobs lost.
The answer is for Govt to ringfence certain % of money lent to banks and make sure it goes into housing and small businesses by monthly monitoring. If they don't lend as described, then NO BONUSES for ANYONE at bank - if that doesn't work the loan is recalled immediately. That works!
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#74
This is the problem - its not that we're about to move into a recession, we've been in it for ages but due to lousy accounting practices we've convinced ourselves we were doing well.
The growth of the finance sector never was!
This is reality rearing its ugly head.
The truth is no-one wants to admit to this con but we taxpayers are going to be robbed something rotten to try and fill an unfillable hole - until we're all out of work!
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>>> "And if the addiction can't be broken, there'll surely be big implications for how banks are permitted to behave (should a taxpayer-supported institution be paying any of its employees 800 times average earnings, which a few that are now utterly dependent on taxpayer support have been doing?)."
I imagine that such constrained banks will find it near impossible to hang on to the top performers anyway.... surely they would just walk to a less constrained pay environment? They are probably packing their brown cardboard boxes at this very instant.
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For years the current economic accident has been waiting to happen and now that it has it is stunning to see so many educated people holding their hands in the air and wondering what on earth has happened.
The UK is a hideously unproductive economy. Given that we live in a global economy (although who asked most people if they wanted to?) almost every single job, product and service is wildly over priced.
There is a dwindling pool of fools prepared to pay for what we offer atbthe prices we charge.
For many years we have been able to sustain this un productive cost structure by importing cheaper, and inflating our assetts, borrowing against them ans using the money to pay each other too much for everything
now we cannot.
As a result the correction has to be ....
- far lower wages
- higher productivity
- selling things that are needed at an affordable price.
-eliminating endless layers of middle men, agents and pointless services and products
- currency devaluation
- Getting used to buying things with what we have earned not what we have borrowed.
The government cannot help much - they have been the biggest culprits (either party).
It will take many years of hard works to do it
anyone remember really hard work ?
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The point about the cars made by an early poster was an interesting one - how is right that you only have one car but allow ten people to act as if they own it. What of course happens at the moment is that they can ACT as if they have the car and moreover they take out a loan secured on it. This loan is then packaged up with other 'assets' and sold on. The problem comes when all ten and their myriad creditors need to drive the car at once - that is precisely what is happening at the moment.
It is incredible to me that this sort of financial tactic is used by deal makers in the City to mount smash and grab raids on British companies just to get money moving through the books and generate commissions. The idea of investing in British industry and manufacturing could not be further from their minds - hence the destruction of GEC etc. British industry was very badly managed in the past but not least because it had no access to capital. Impossible to feel sympathy for the bankers who collude in the whole disgraceful charade.
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When will all of the "flat earthers" realise that if they want to do away with fractional reserve banking they are welcome to stash their money under the mattress - or else in a secure warehouse.
But this won't earn any interest - if you want to earn any interest you have to permit the bak to use your money to lend to others - and this involves some risk - the greater the risk the higher the interest (witness Icesave!).
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"The money managers are switching their investments into government bonds and official national debt in its various forms, on the assumption that we as taxpayers are always good for our debts "
Yeah nice one. Keep loading the debt onto the taxpayer because he'll take it because he always has.
Except he won't. Not forever.
The elite keep taking what doesn't belong to them.
Remember the poll tax riots?
Now multiply that across the face of the entire western world.
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Are there any Policemen / women, Nurses, Teachers, Local Authority, Forces staff and other public sector workers reading this?
YOU WERE REFUSED A PAY RISE THIS YEAR SO THE BANKERS COULD RUN OFF WITH YOUR MONEY!
The police weren't even allowed to strike to protest. Is that a fair an just society?
Do not enforce the law of the Bourgoisie.
WORKERS OF THE WORLD UNITE!
The time has come Comrades......pick up a copy of the Communist manifesto and all will be explained.
The only country who isn't panicking is China. They have been protected by their socialist principles, free trade and free markets represent the freedom of the Bourgoisie - not the worker.
They may have started on the road to capitalism - but they will be turning around as we speak.
1917 was too early, and required too much force. This time it will be an spontaneous uprising prompted by the lack of food and the loss of everyone's material posessions.
1917 was isolated - but this time it's global. There will be no intefering from external Bourgoisie nations.
Even if it doesn't happen this time - there will be a next time. It is inevitable, the Bourgoisie will create the revolutionairy proletariate.
The fall of capitalism has begun. Even the most ardent capitalist supporters have admitted that "The credit markets will never be the same again".
The system does not work - it was proven in 1929 and it took 10 years of hardship to get out of it.
Are you all prepared to live with poverty and unemployment until 2018?
Don't think public sector jobs are safe either. Where do you think the Local government will find the cash they have lost in iceland?
.....from service and job cuts.
The government just blew all the national savings which could have helped us through the recession.
It's all over folks - bar the shouting.
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R Peston - "It's the backdrop to yesterday's forecast by the IMF that the world's economy will grow at 3% in 2009 - which is on the cusp of what it regards as a global recession."
By the IMF's definition we had global recessions in 1990, 1992, 1993, 1998, 2001, and 2002. I don't recall the sky falling in during those years.
Get a grip. (Or to use the Ministry of Information's rather more politely-phrased slogan, "keep calm and carry on".)
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I think that the issue of individuals' payments cannot be taken much later. Indeed the issue of people being paid 800 times the average wages for leading otherwise failing institutions should be reviewed rather immediately, and I feel comfortable to say this as a tax payer, customer and share holder - there is simply no justification. Amazing is that it was allowed to happen in the first place!
I fully appreciate that the effect of curbing individual slaries would be minimal, but in addition to any moral issues I would certainly rather see my rates (paid/received) reduced/increased by a small fraction of a percent.
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You got it so right Robert. The government seems to be rewarding greed and huge bonuses/salaries, when most people have to manage on £1000.
Just a thought:
Could the country/ banks get into a situation whereby they write off all loans?
So these borrowers can also be rewarded for taking risks - and the rest of us just sit and watch our savings diminish because we have been prudent?
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It seems a lot of people would prefer to bury their heads in the sand than face the truth. Robert has not been the cause of the very real and fast approaching recession with his 'sensational reporting'. The ultimate driving force has been the uncontrollable demand for debt of those in the West - everyday people such as you and I.
The banks may have played a very big role, and governments never played enough of one, but in the end those who've succumbed to living life on credit are the ultimate cause of this mess.
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111:
Exactly right. It's good to read a well-presented explanation of why government is intervening.
The fundamental point is that, for a long time, we've been consuming more than we've been producing, and we have expected others to pay for it. We've borrowed from posterity, we've borrowed from foreigners (through banks and through western government debt paper) and we're also borrowing again now from foreigners through trade deficits. This cannot go on indefinitely. The Goldliocks years are over.
One of the necessary adjustments is lower consumer spending. That will be forced upon us anyway, because the consumer credit binge that we've lived on in the past simply won't be available from now on, not least because of the slump in housing equity. At the same time, we'll need to impose some kind of new structure to prevent a repetition of the borrowing binge and the asset bubble. We'll have to back to making and selling things, at prices that the rest of the world will be prepared to pay. That's the only way to pay for imports, in the long run.
Living within our means; reining back consumer debt; imposing tougher banking rules; making things; ceasing to think that posterity or foreigners owe us a living. These may be positives in the future picture.
But - and this is going to make me unpopular in some circles, I'm sure - our newly straitened circumstances mean that we simply cannot afford the current level of public spending. If we try to maintain rich-nation levels of spending in our new straitened-nation, sobered-nation environment, productive people and industries will leave for lower-taxed climes, and we'll be in a vortex.
How sensitively we cut spending - how far we can protect services whilst eliminating waste - are valid and important subjects for debate. Continuing with current levels of public spending is simply not an option given our newly-reduced economic circumstances. This is a challenge facing politicians of all parties. I don't envy them that task.
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Time to dimantle welfare state!
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I've been saying for some time that the existing credit channels have become sclerotic in a number of ways.
Firstly, individual credit in the UK is unique in that it is governed by a socio-economic model keyed to the individual. For instance, VISA recently blocked a perfectly good card because I used it somewhere I hadn't been before. In fact, that wasn't true, I just hadn't used a UK card there before - but since when do I have to clear my movements with Big Brother like that?
Secondly, the wholesale banking sector has jammed solid due to lack of information. No bank's going to 'fess up on large losses, but existing legislation's perfectly good enough to require them to mark to market and recognise the loss. Failure to do so should result in immediate, long-term imprisonment, on the Enron principle.
Thirdly, it's time to fire the Rating Agencies. Anyone who can deliver the kind of nonsense they do at the moment, where Glitnir was still listed this morning, and government-backed Irish banks rate lower than the rump of ABN-AMRO which is so worthless nobody wants it, deserves to be shot.
Perhaps the answer is to begin over - local credit unions backed by regional development initiatives at the individual level, and the ACT for corporates.
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I agree with others who say that Robert is becoming the voice of pessimism. Whilst there are obvious concerns and risks there are also shoots of hope and advancements being made. At the end of the day what we need to get out of this mess is confidence, and a sense of normality and the continual criticism of people is not I feel doing us any good. We must not talk the situation down but talk it up... little by little. We have in the last two weeks fallen down a mine-hole and we "have" to get out of it collectively and positively despite the mistakes made.... Can I suggest we separate the comments section so we can have the positive comments on one side and legitimate concerns on the other.... that may help all of us deal with this worrying experience, in balance. We should be seeing the fall in share prices as a future buying opportunity...it is obvious that there is a HUGE amount of cash sitting on the sidelines just waiting to be re-invested... if we try and go about our daily lives a little more as normal then this investment will happen and we will claw ourselves back up again... house prices must not be our major concern ... we knew they were too high... why are we so shocked now that they fall??.. Why do we get so shocked when our pensions fall in value... do we honestly believe they can go 40 years without a period of loss?? the markets are all a big game of power and asset seeking which is going through a cyclical change .... everything will stabilise and the new President of the US will get China to write off some of the US treasury debt to get trade moving again (which will be in China´s interest too), something which will not happen whilst Bush is still in office. (It is US's debt that has allowed China to prosper in the first place).Everyone including the Middle East has an interest in finding a solution. So far everyone has tried to do it as cheap as possible. That is why we have yet to get out of the mess. ... but we will ... and we will begin a new era of growth and be wiser for it .... let us be more optimistic and hopeful... the futures of our children depends on it....
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With all due respect
There has been no war, wealth is not being lost or destroyed since it never existed beyond cyberspace in the first place .
The credit bubble was not solid ,financial institutions were paid fees and bonuses to blow up the appearances of things by pretending that there were piles inside their AAA's holes
Unfortunately the 120% NINJA'mortgages removed what piles there were and the toxic waste back up sluiced out from the off balance sheet holdings into to the main banks AAAcounting, turning them into colostomy bags to be sold to the FED or thrown at fans in congress
It was all the product of fictional reserve banking, credit bubbles and exhaust gasses sold to the delusianal insane
Now the bankerrs wouldnt be cought in a lift together lest a collective rasberry redistributes whats left of their assets to themasses
The vanity of humAAAn wishes ,they rise shine evAAAPORATE AND FAAALL
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Kaupthing.
Living abroard I put some savings for retirement into Derbyshire Offshore IOM (when you live abroard and have no UK address you can no longer open a UK BSoc a/c) who sold out to Kaupthing at the end of 2007.
A small saver (not speculator) like me doesn't know the ins and outs, but did Derbyshire Offshore, when selling itself, not have a responsibility to its savers and detailed access to Kaupthing's books ??
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+1 for comment # 121. It's a painful truth.
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Re 78#
It's difficult to know what to do in the Iceland situation. On the one hand it's in no ones interest to push Iceland into default. Who knows what effect this will have on the UK (high street etc). Freezing their assets will only make this more likely.
On the other hand the markets think that a default is almost a certainty anyway, so the government should probably assume a default and implement policy accordingly.
Glad I'm not the one having to make this decision.
I'll add that for Icesave savers, the Icelandic governments refusal to honour their compensation commitments was retrospectively the best thing for you, as it forced the UK government to guarantee.
Which would you rather have ? Compensation "guaranteed" from a BBB rated country which will almost certainly go into default or from the AAA rated UK ? Feel better about this now ?
Investors in countries that have "guaranteed" accounts take note. At the moment a "promise" from a well rated country is worth more than a "guarantee" from a badly rated one.
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123. At 12:48pm on 09 Oct 2008, FutureFinancier wrote:
Since 90% of inflation is caused by the inflation of the credit supply through fractional reserve banking anyway, doing away with the system would eliminate most of the need for interest anyway.
I guess all those people who like to let their money do their work for them would need to get a job. One that creates wealth, not saps it away from everyone else.
But since money was only designed to facilitate trade and work in the first place, not become a way of making money in itself, maybe that wouldn't be such a bad thing.
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I was just wondering how the big banking states, like Switzerland and Liechtenstein, are faring in the current situation.
One would imagine that economies like these which are almost totally dependent on the money markets would be suffering somewhat these days. Or are they? We don't hear very much about them - perhaps their discretion applies not only to their clientele but the whole economy? Try searching on the internet for information on this topic - you'll see what I mean.
Or maybe nobody's interested?
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I do not believe we can stop this deleveraging. The fundamental cause of the current crisis has been the trade imbalance between the West and east and with oil producing countries where looking at it simply, those with cash lent it back for us to go on a binge of borrowing. This binge accelerated because we freed up our banks- not least in the UK we demutualised building societies on the basis that new capital would allow them to lend more (by implication to riskier folk)- so that could fuel it all and then to make matters worse we ignored the asset price inflation as it was not counted in our inflation figures. We now have to pay for this binge and it is going to be very painful and will involve deleveraging. The banks will have to completely restructure in time to realise that in this new world they will have to rely on different forms of finance than in the past. They are also going to have to keep ownership of risk- see what trying to lay it off has done- they all thought they had offloaded risk- indeed they had to each other- and they forgot what the total quantum of risk was. I think what we have now is a world awash with cash but those with it will need some assurance that borrowers know what they are doing when they borrow it and can pay it back on schedule.
This is where Government must work with institutions to develop ways to get projects going again where risk is involved- our world economy cannot operate at any level without risk. My view is that this is about sustainable infrastructure with public private partnerships involving individuals and business entities will be the way to do it.
HMG will have to bail out all depositors invested in Icelandic banks otherwise we may as well nationalise all the banks as no Trust, Pension Fund, Local Authority or foreign bank will put money on deposit and without them, nationalising the banks and mutualising the building societies will be the only solution.
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Hello. When shares are being sold in the sort of market we have had recently - falling share values etc - who is buying ? Surely if someone is selling, someone is buying - but who would ???
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A lot of calls for Keynesian (or New Keynesian) macroeconomics on this blogs comments recently...
Could I propose something - 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 like "Home" or "Places For People" to build faster through tax incentives or loans at preferential rates.
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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No. 49 FriendlyCard
Very good explanation as far as it goes.
But it's not only finite resources that limit economic growth and make it undesirable beyond a certain point.
Pollution - damaging the biosphere's life support systems - sets a limit also. The hole in the ozone layer gave us a nasty shock in the 1980s, but the greatest danger today is posed by greenhouse gas emissions leading to runaway global warming.
The government is legislating to reduce emissions, but the target of 60% down by 2050 is not enough and is so far away as to be pretty meaningless politically - NIMTO (Not In My Term Of Office). In any case the Chinese and other low wage economies now make our goods are therefore doing much of the damage on our behalf. Meanwhile, there are plans for more roads, more coal-fired power stations, a third runway at Heathrow - all resulting in more emissions, all justified in the name of economic growth.
It's a tough one, since our whole economy and way of life are built on oil and gas and coal. Perhaps the coming recession or slump will buy us a few more years to take decisive action on this issue.
It's often said that environmental campaigns flourish during booms, when destructive developments are most visible, and are forgotten during recessions, when people have more pressing concerns.
But maybe, just maybe, the hard lesson of the credit crunch will encourage more people to question the cult of high-consumption celebrity and gangster lifestyles and rediscover the virtues of a simpler, more sociable, less exploitative way of life.
I'm not hopeful, but at least we can try.
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So the British inject GBP 450 billion into the banking system in order to keep it afloat. Great, now we can all start working out how to moderate their future behaviour and keep the economy broadly on track.
AIG which was a big company, but quite small in comparison to the entire UK banking system, has managed to burn through $85 billion in about 2 weeks, so it´s about to access a further $35 billion from the Feds.
Let´s just hope that there is no connection between the speed of cash burn by AIG and the speed of cash burn by the UK banking system - because if there is it wont be long before you need to cough up some more.
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#142
Surely LA's would (or should, assuming it's not locked up in Iceland!) be able to afford to fund (at least partially) such schemes as they should still have the receipts from RTB policies, if they don't have this money were has it all gone as at one time it was ring fenced in untouchable - bar the interest - deposit accounts?
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#143 - you're right to bring up the greenhouse-gas issue but, despite a potential reduction in energy demand, there are some downsides to a recession in this respect.
Dirty energy sources are cheaper than clean energy sources, and this price differential will increase in a recession. There is likely to be much less economic incentive to invest in low-carbon generation - and less government resolve given other priorities and soaring costs of living. With the next decade crucial in terms of which power generation investments are made (given lock-in over the long capital lifetime), we could end up digging ourselves into an even bigger hole.
There are also likely to be negative impacts on the development of new low-carbon technologies, which are crucial for the climate change effort.
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What´s the problem with paying people 800 times the average UK wage?
Not many people get paid anything like that, and it doesn´t have a material effect on anything, other than people´s emotions.
However it´s pretty clear that the witchhunt is in full swing
Do you think they care? They´ll just be off to their luxury beach front condos, enjoying the weather and maybe taking a little time to count their money.
A lot of their deals will be rigged to explode in all kinds of complicated and unpredictable ways - but they wont be around to explain how their deals work, or to help with unwinding any of the things that maybe could be unwound in a more orderly fashion.
The bankers that the public is being invited to cast to the lions must be pretty special people - because I always thought that these deals were put together with the help of equally well paid lawyers, outside accountants, financial advisors, PR and Government lobbying firms, and ratings agencies.
Why just pick on one sector of the whole rotting structure? Or is a bit of "public hate" good for diverting the unwashed masses from the roles of all the other bandits in this farce.
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#145
An extract from the Treasurys report in May 2008 would seem to suggest that its not ringfenced anymore (or is, but only in name), with the Housing Revenue Account picking up the tab for other local services when there is a funding shortfall.
The report is as below (I haven't worked out how you get the link to be just the words youre describing it as, if that makes sense):
http://moodle20.cih.co.uk/file.php/1/Narrative_No_5_-_HRA_Rules_v2_210508.doc?MoodleSession=iqoc594o43tkqu75ebofac9p20
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I was particularly interested in your comment here about huge salaries for now publicly funded bank workers. I learned yesterday that a former Northern Rock employee of my acquaintance has taken voluntary redundancy for 29 years? service which, when she has sold one of her two homes, means she can effectively retire.
Meanwhile back here in the public sector proper I will have to work for 43 years before I can retire thanks to the government?s changes to the local government pension scheme this year to which I have already contributed for 25 years. Of course now that so many of our taxes are being used to bail out banks, it is very possible that there will be a whole lot less money for public sector spending on real services and hence I may not have the opportunity to carry on providing them and contributing to my pension. I won?t of course have a second home to sell to bail me out.
PS For the right wing whiners - I think you will find that local authorities were encouraged to emulate the private sector on investments as they have been so many other aspects of their work, such as using consultants rather than trusting managers to make decisions. This has happened ever since Thatcher came to power, so it?s your fault!
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Do the British people who saved with Icesave have to pay tax on their interest to our Government?
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All you need to know:
http://video.google.com/videoplay?docid=-9050474362583451279
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Just a quick one for all of you Gordon Brown included who lay the blame for this at the door of the USA.
If our financial markets had been effectively regulated GMAC and others wouldnt have been able to package and sell their toxic waste to us. As such the market for such toxic waste would have been smaller and therefore packages wouldnt have cost as much for those that did take them up. As the returns on the packeged toxic waste would have been less the market for them would have dried up and therefore the businesses offering the original debt wouldnt have been viable would have failed and the market would have returneed to stable operations.
So Gordon Brown is as culpable for this as anyone else that he would seek to blame because he set up the tripartite system which let us down and he now expects us to believe the FSA element of that system has the power, the tools and the will to regulate effectively.
It seems he is still fooling some of the people all of the time and all of the people some of the time. He doesnt fool me, never has never will, he's been a charlatan from the start.
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It seems to me that the more money the Banks have the less wisely they employ it.So,instead of restricting dividends they should be encouraged to pay out the maximum,at least half of net profits instead of these silly buy-back schemes etc. they indulge in.The Goverment has got it wrong-surely by paying CASH DIVIDENDS, subject to TAX, all would benefit,Pension funds,individuals and most of all the TAXMAN.
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143 Jeremiah:
Some very good points. My view is that we need to move towards a more sustainable economic system, for two reasons.
First, the threat to the biosphere that you mention. Pollution is, in my opinion, a more pressing issue than global warming. Second, there's the issue of resource scarcity. As the world's population rises, demands on resources - notably including water as well as energy - will increase. The old idea that the rich countries can grab the lion's share may no longer be true - and might not be much comfort if it were, as we are no longer a first-rank rich country anyway.
As there are two related problems, there are two related approaches. First, we need to modernise our society, making more use of renewables but also restructuring - one example would be more concentrated living, making greater use of public transport; the suburb is the product of the car-based economy, and may not be viable longer term.
But, apart from adaptation, we need societal change - less emphasis on consumption, growth, 'I -want-it-now' materialism, judging by possessions - more emphasis on less materialistic values such as community.
These shock events, if they propel us even a little in that direction, will have done us some good.
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#96
"Inflation has been nipped in the bud"
"Inflation is set to tumble"
Could you explain how an interest rate cut has achieved the above? I would be fascinated to know.
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Above all else, it shows to me that when stability has been achieved we need to re-establish and shovel investment at our manufacturing base (rather than have our businesses send the oily work to China), in order to limit our present over-dependence on the finance sector. When tha thappens, it may even soak up some of the unemployed both now being created and currently hidden in training schemes and the like. Call me old fashioned, but it could come to resemble the early 20th century.
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# 81, 82 and many others
The economy needs this asset devaluation more than anything else. It is not that central banks correct the mistakes of the banks, but choosing the most effective way to achieve the devaluation or nullification of those assets. The rescue packages are stamped all over by short-term political aims - as much as it is transparent, because who knows what is in the secret clauses.
The cause of the current crisis is not psychological, but economic, thus the outcome does not depend on reporting, psychology affects the speed of events at the most.
If you believe that cheerful reports can influence these processes, then read documents of the Hoover administration. Didn't help, did it?
There are about 3OO pages in Das Capital Vol. 3 on the banking system. Some of the debates of today, and worse: arguments, were already in the Parliamentary reports in the mid-19th century. Any claim that it's something new or unheard of, just making a smokescreen. The problem is systemic and does not depend on whether the banks followed a good, prudent way of operation.
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No doubt about it Robert Peston is abrilliant journalist bur please help me with one thing. The problem as I understand it is that although ther is the same about of money in the system as there ever was the people who have it , pension fund managers etc do not trust the people who need it, the banks. The Government is saying 'we will loann to the banks', my question is why aren't the people with the money just loaning it to the banks via the government picking up a guarantee in the process. I don't really see where the costs the government anything . Robert please explain
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149. At 1:51pm on 09 Oct 2008, Hawkishlefty wrote:
"Meanwhile back here in the public sector proper I will have to work for 43 years before I can retire thanks to the government?s changes to the local government pension scheme this year to which I have already contributed for 25 years"
Oh so you will have to do a proper working "life time" at work to qualify for your "gold plated" pension which is not linked to the markets. As I have always said to colleagues "if I had the chance to join a gold plated state agency superannuation - I would be at the front of the que"
And you talk about "right wing whiners" - that's a bit rich (which you will be in retirement) coming from someone whining about the gold plated pension you have which is so far better than anything in the private sector !!
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Post 155. Inflation has been nipped in the budd by oil now down at USD 84 a barrel compared to USD 147 earlier this summer and a massive drop in consumer spending.
Wonder when we will see a material drop in fuel prices at the pump or in domestic gas and electric prices now the oil price has come down so much. I'm not holding my breath by the way.
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The IMF reckons that house prices in the UK are still about 30% over-valued, despite a recent decline of around 12%.
So, still quite a lot of deleveraging/deflating to do before the 'housing floor' is reached.
I also think there is another side to lower interest rates, in that it gives an opportunity for households to pay down debt, which they may choose to do, rather than encourage further borrowing.
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These are excellent reports on the economic situation. What I need explaining is where is the radioactive baby.
Are all bankers still unsure so they wont lend to eachother? Is it possible some have the toxic baby in hidden in their accounts without knowing it?
Is it feasible for government to force the banks to reveal whether they are holding the baby?
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All we have heard since this crisis started is how the 'city boys' get paid a whole heep of money and nothing about what they've allowed this country to do.
Growth in the UK over the last several years has been entirely driven by Government Spending and the Financial Services. Nothing else.
High leverage has led to abnormal inflation of house prices which in turn has funded consumption. Everyone benefited from this - Construction workers, retailers, everyone - not just the bankers.
Now that the high leverage cycle is over, suddenly they are subject to the most naive attacks and newspaper coverage.
We the construction workers, retailers etc... benefited hugely from what the bankers did. Hugely. Given this, now that it's over, it is surely a joke to blame them. As the saying goes, we can't have our cake and eat it.
We are all responsible for this. If only New Labour had much higher interest rates or much higher stamp duty - house prices would never have risen in such an abnormal fashion. Because of this, the bursting of the bubble will hurt the UK a lot more than any other country on earth. Think about this, the UK consumer has 20% more personal debt relative to disposal income vs. the US consumer, and vs. the French consumer, he has 166% more... Who allowed that?
We must all take responsibility. Solely blaming the bankers is the argument of the naive.
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Isn't the problem that there is overproduction in the world which has been absorbed over the years by people borrowing to consume. This is not sustainable and therefore a re-adjustment/economic crash is rerquired? The various booms/bubbles over the past years (dot.com boom, housing boom etc) have simply delayed the crash. Govts pumping cash into the system is effectively just another attempt to delay the inevitable.
Although I don't welcome a recession/depression, it should bring an end (at least until the next cycle begins) of the pointlessness of people working all the hours to service debt which they have used to buy things that they don't really need which have been made from the world's resources that we can't replace. That's capitalism for you!
Anyway, I better get back to work to earn some money so I can afford to buy some plastic toys for the kids (manufactured in China) that they don't really need or want and which are made using the world's depleting oil reserves.
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# 147
You are right it is a kind of witchhunt and yes, it takes away the attention from other bandits. And you are correct in saying that compared to the sums involved their salaries and bonuses are immaterial.
However, now that they are paid from public money, the situation is a bit different (having said that the government is suprisingly (not really) secretive about NR issues).
Also, if there is still a vague notion of equality in law: if an operatior spoils his work in a factory, he has to rectify it in his free time. If he wrecks something, even accidentally, he is held for compensation. It would be possible to apply the principle for the bankers too.
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#159 Antonio59
Stop whining. If the public sector is so good why aren't you working in one? I could get paid more in the private sector but I choose to work for the public good for less money and unpaid overtime. I'm not complaining though - I chose this job.
There was nothing wrong with company pensions; just the half wits that ran them. The company pension is (or was) a two way thing where both employee and employer paid into it. The latter didn't, so later they were faced with a huge bill which they refused to pay. It's as simple as that.
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Your analysis has been clear, helpful and blessedly free of emotional fear-mongering. Is it just me or are some of the press exacerbating rather than reporting a melt-down?
We are concerned though that we might have to adopt a new index of financial trouble, based on the black bags under Robert Peston's eyes.
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# 159
Irrespective whether there was whining in the post you refer to or not, why should any pension be linked to the market? Where does that one come from? I'm personally against any kind of stockmarket-linked pension, I think it's immoral, but people can choose, it is not compulsory as far as I know.
After all, nobody forced you to take the one that is linked. If there was no other - tough: welcome to capitalism.
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Inadvertently the crisis of confidence we are experiencing, the printing of large amounts of government paper, huge debts and shortages pf basic commodities is engineering exactly what we need ............
rampant inflation a few months down the line that will eradicate the value of debts and savings.
Given that the debts for most people seem to dwarf the savings the majority benefit at the expense of the minority for once
Or am I missing something ?
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It amazes me that local councils, police authorities, etc., have deposited large sums in Icelandic banks and left them there over the last year, especially the last few weeks.
I guess that this is a warning against letting civil servants manage banks. But, on the other hand, the industry experts have not exactly covered themselves in glory.
Unfortunately I am coming to the conclusion that there are only two types of banker: straight but dim, and smart but crooked.
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# 31 atlanticwriter
Hear, hear!!
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163. digitalJRAP
It's nice that you're shouldering the burden for much of this, but unless you're a banker, you're probably being a bit harsh on yourself.
I'm curious though, since everyone is to blame, I'd like to know how and when exactly builders and nurses created SIVs, and dubious off-balance sheet vehicles, did they trade in the multi trillion worth derivatives market etc that is so complex that not even bankers understand them. Did nurses and builders create a debt monster so large that most people wouldn't even know the word for the number to describe it?
No, they didn't, all that was done under the watchful eye of bankers and their ilk. People who are supposed to be qualified to know what they were doing, though clearly they did not.
Their reward for creating the biggest debt bubble in history? Bankers have been paid so handsomely that the gap between rich and poor has grown to proportions not seen since the industrial revolution.
So, yes, I'd say they deserve just a bit of flak.
Or possibly a lynching.
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#52 Tigerjayj
"Our parliament was conceived to look after the interests of it's people-not itself or the fat cats!"
Actually, it's exactly the other way round.
It's only with the greatest difficulty that the UK Parliament has ever approximated to look after the interests of the people.
Btw, the BBC techies have fixed the ampersand problem, and you can now type it - &
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The metaphor in the news is that the Banks are the oil that lubricates the economy. It is they who help create money from nothing (not nust and bolts or widgets), and without the money there is no lending or borrowing, so no businesses to make the widgets we need.
The government cannot let all the banks fail, unless we all go back to bartering and very simple financial relationships?
"...money managers are lending to governments like ours, and those governments are then recycling that money to the banks."
As many point out, the banks are lending to the government to lend to the banks. And so money is miraculously created out of nothing!
The government will pay back using taxpayers money. So basically the banks are getting our money via another route - not from savings, investments and mortgages but our taxes.
It isn't the Higgs-Boson, but money that is the building block of our universe.
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In amongst all of this gloom I have a question that is perhaps only vaguely related.
I asked a surgeon acquaintance of mine what the prevailing rate of significant disability is in a normal adult west european population
It is I believe about 1 in 200
We have over 2 million citizens on long term incapacity benefit. Amongst the population between the ages of 16 and 70 this equates to around 1 in 20.... hmmmm
Now apart from occupying all of those vacant parking spaces in town centres and supermarkets - why should we have such a high proportion, at a direct cost of some £30 billion per year?
Perhaps when considering city regulation the Government might also look at welfare state regulation as part of the process of helping us re build a sane economic fabric
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when I see people blaming RP for the financial meltdown - i laugh my socks off - how stupid can people be??
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173.
I read some where recently that the government has become the welfare state for the rich.
Words I couldn't agree with more.
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#163
You just can't see it, yes 'bankers' have fuelled the economy, that is the point - they created this bubble which is about to pop - assuming that measures are not taken to deflate it dammed quickly - just look what is happening in Iceland, a country that is all but destroyed economically by this bankers bubble (6x the GDP in debt)!
We didn't need interest-free credit, we didn't need derivatives or 100% or 10x annual salary mortgages etc. - yes we (the gullible 'average Joe') lapped them all up, became ammeter stock brokers, took up the offers of 0% credit to have that 50" Plasma TV etc. that we didn't really need but made us feel good. Professionals within the finance industry should never have allowed this as they should (and did, I suspect) know what the end result would be but they were only looking short term - towards their next million pound bonus - Next week, unless they had to refinance their CDS derivatives, who cared about next week?!
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168. At 2:50pm on 09 Oct 2008, redjsteel wrote:
"why should any pension be linked to the market? Where does that one come from? I'm personally against any kind of stockmarket-linked pension, I think it's immoral, but people can choose, it is not compulsory as far as I know.
After all, nobody forced you to take the one that is linked. If there was no other - tough: welcome to capitalism."
The point I was making (I did not say stock market - just markets)
-- public superannuation - guaranteed gold plated
-- private sector - pension linked to markets not just stock markets but also all other types of investment including property, gilts, deposits in banks etc.
All private sector pensions are linked to markets while public superannuation is guaranteed paid for by tax payers.
redjsteel Please show me a private sector pension that is not linked to some form of investment and is guaranteed like the public superannuation..
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#178 Boilerplated
All I know of Basel II (the regulatory practices recommended by the Basel Committee on Banking Supervision) is what I've gleaned from the net.
However, it seems a strange co-incidence that the problem arose in 2008 when it's 2004 recommendations, how much capital banks need to put aside to guard against the types of financial and operational risks banks face, were finally being implemented in the US & Europe.
It does rather look like the CEOs of the major financial institutions were making as much as they could in the period 2004-8, knowing that their practices would be outlawed in 2008.
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The markets may be smiling faintly for a while, but my guess is that those smiles will be wiped off soon enough. Today the LIBOR-OIS spread (the measure of cash scarcity) is at a record high. So, we're underwriting the UK banks to the tune of half-a-trillion quid and they're still hanging on to the spondoolicks?
Presumably, this will dawn on the traders at some point soon? More to the point, the effects of the banks continuing to withhold funding for virtually any activity must surely slam into the real economy soon?
We've succeeded in delaying the inevitable. I think this could hurt. Keeping some cash under your pillow might be a good idea in anticipation of the forthcoming bank holiday.
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# 166.
Your analysis is a gross simplification but I accept that everyone has a choice of whether or not to work in the public sector. I just wish that when the unions are arguing for pay increases for their public sector members and compare public sectpor wages with the private sectore they would acknowledge the value of their members pension schemes. For a private pension to provide commensurate benefits would require the employer and employee to contribute in aggregate well over 30% of salary.
# 168
Maybe we can all join the public sector and have our pensions funded from current Govt revenue; then we won't need pension funds. Alternatively, I could hold my pension fund in a deposit account with a bank. I hear the Icelandic banks are offering good rates. Maybe not. I'm trying hard to find something I can hold my pension fund that won't involve speculation and benefitting at the expense of others. May be there is something I can buy that nobody else wants. Now there's a plan! What about turnips! I'm off to start the next bubble; the brassica bubble.
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What we need now, for the public to start gaining some confidence, is the price at the petrol pump to fall 15-20% to reflect the massively reduced oil price. The government should be threatening the oil companies with a windfall tax if they fail to respond to the dropping commodity price.
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178.
It is not the fault of the bankers that the remainder are naive.
If avg. salary increases are 5% p.a., it is blinding obvious that house prices rising at over 10% cannot be sustained...
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#175
Not all who have a disability are on benefit, many hold down full time jobs, and please don't assume that all who have need for a 'Blue Badge' are burdens on society - more money gets spent by Govt. picking up the pieces of smoking, drink, drugs and other voluntarily inflicted problems.
Please don't pick on those who have the miss fortune to (mostly) non fault injuries, and in some cases injury brought about by a fully fulfilled and productive economic life.
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Ah well, at least House prices are falling.
The landlords will be out snapping up bargains.
The shortsellers will wish they hadn't banked with Icesave.......
Pay freezes all round, rising bills, less spending in the shops, fewer jobs, lower pay, less spending etc, etc.
Lower interest rates on Deposits, with higher Inflation of quality goods.....
Need I go on ?
Oh and if you have a private pension, review it now and plan ahead.
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The bankers have been gambling with our 'take home' pay and in the process bankrupted our banks.
Now Gordy is gambling with our taxes (and future taxes) on trying to save the bankrupted.
When do we get to have a go?
Oh dear!.... the pot's empty now!
Oh dear2!.... they've pinched the pot as well!!!
Moral of the story.......Those who gamble with everybody elses money will never get caught short!
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it's pretty clear that the only people with time to post to this blog are civil servants and the unemployed, oh, and me ofcourse. I have yet to see a response to that brilliant point made on post 158
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#184
"It is not the fault of the bankers that the remainder are naive."
Yes it is, the banking industry wanted deregulation (saying that self regulation would suffice), the industry took the responsibility on themselves. The 'products' that allowed 'average Joe' to over inflate the economy should never have been offered in the first place, QED.
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May I just mention to you Earthlings that a more pressing problem is awaiting around the corner:
21 December 2012
The Sun will cross the Galactic plane (strong gravitational effects from the SuperBlack hole at the centre of the Milkyway)
Plus, planet-X (Suns twin Dwaf Star) is getting closer sending comets from the Oort cloud earth bound.
So....can you hurry up and sort the money problem out so we can afford a party while watching the firework display :-))
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# 9
Enoch Powell warned of the dangers - We shall see in the next year or two if his words prove correct
# 52
Others have mentioned Enoch Powell-he was slated years ago, but perhaps he should now be called a visionary ahead of his time ...
Tell me something .... just how exactly does Enoch Powell fit into the context of this particular discussion?
That 1968 - Rivers of Blood - speech was about the controversy of continuing immigration from the Third World, and what it could mean for the future of racial harmony within the UK.
To equate Enoch Powell with today`s economic situation is plain daft!
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Please correct me if I am wrong...
I have seen the occasional post blaming the root cause of the Credit Crunch fiasco on Thatcher & Monetarism. Wasn't a central tenement of Monetarism a tight grip on the money supply? Therefore the last thing that would have been allowed was the unchecked growth in the money supply that we enjoyed under Brown's chancellorship. Indeed, didn't the Tories get blamed for causing a recession by raising interest rates to head off such a situation? I disagreed with some things Thatcher did but I don't believe that this particular crisis would have arisen under the monetary policy that she employed.
However, some might blame her for the lack of manufacturing base that might dig us out of this hole but (as an engineer) I honestly believe that this country has always been sniffy about manufacturing. We are about to learn a painful lesson in real wealth creation.
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184. digitalJRAP
'It is not the fault of the bankers that the remainder are naive.'
And there you have it folks.
This is the arrogance and attitude of the City. It's your fault you got screwed out of your house, your job, your pension. Not theirs. Oh no, all they did was take your money and run.
Serves you right. You were naive. Like suckers you believed what the government, the economists and the bankers told you.
Unbelievable.
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Antonio59
I should have read your comment a bit more precisely.
Yet, my point is that you are not forced to take out a market-linked company pension, though I admit the state pension is not a very attractive alternative. But if I look at the figures over 42-45 years (normal working life), market linked ones are not particularly attractive either.
The issue is really, that salaries should be calculated as wage+any other benefits (including pension). Then the discussion is not anymore pension in private and public sector, but wage levels in the two sectors.
To have a fully funded final salary pension scheme, you would need about 25% contribution. When firms (and for that matter the government) reduced or stopped contributions to pension funds, in effect they reduced wages, thus to make up the difference, the individual would have to increase the contribution (hence reducing disposable income). Thus, what happened was wage reduction in the private sector through reducing the pension element of the wage.
Thus although the most generous pension public sector pension schemes are based on 18-20% contribution, hence part subsidised by the government (the tax payer), it is not an element one can simply compare without comparing it as an element of the overall wage package.
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At 189.
Right, so the bankers wanted deregulation. Ok. Who gave it to them?
The answer to that is the Government that we democratically elected. And so we all share responsibility - that is democracy.
The problem with the politicians is that they were out-witted by the bankers. The reason being is that the most intelligent business-oriented people going into private industry because the public purse offers non-competitive salaries. The net result is that we end up with politicians who don't have the brain power to compete with the private sector.
The solution to that is making public sector salaries competitive. The problem with that is that you then end up with a the majority of the population complaining about the salaries. So, where do we end up? We end up with people who lack the competence to manage the country.
But that is our fault, because we got them elected. So we must take responsibility.
When average Joe took equity out of his home to buy a car and plasma, he didn't complain. What right does he have to complain now?
He benefited from it and elected the government that povided the regulatory framework to allow such banking practices. He never complained then. What right has he to complain now?
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Funny how if you say anything about the BBC being overly negative the moderators won't publish it.
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Hi Robert,
Quick question. If the Iceland government reneges on it's committment to pay back depositors, does that mean it is insolvent and in default?
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I worry what all these average joes with their credit purchased Plasma TV's are going to do when they realise that Plasma doesnt last forever and they need a recharge
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190
Ooo - I must save up for a Telescope !
Reflection of course.
Let me see - shareholders have lost nearly all their money, bankers are losing their jobs right left and center.
Pension Funds have lost out big time.
So when will the ratings agencies be taken to task for not doing their jobs ?
Still sore over Bradford and Bingley.......
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Santander did by luck what the Spaniards couldn't do with a fleet !
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196
The time when this crisis could have been dealt with quietly and without drama passed over a year ago.
Now it is too late, and it really doesn't matter which company suffers Pestonization next.
All the normal Share investors have run for the hills.
Market confidence has been broken.
It is too late.
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Grow Potatoes !
And other Vegetables.
You can barter them or indeed eat them if hungry.
Very useful things vegetables.
But not in Government.
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#194
The Government introduced tax changes to prevent companies from over-funding pensions schemes. Then when the market went down companies had to ratchet up contributions to 35%+ - and they had only just covered tha last deficits when the current crash occured. So they will be contributing at 35% again soon.
Once again it is Government meddling that caused the problem and in no small way contributed to the death of private sector final salary schemes.
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#192
Surely money control just stops inflation, inflation is low at the moment (hold onto your seats though), it doesn't stop credit bubbles - which is what we have at the moment, more debt in the world that can be paid back.
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While the PMs at it now might be the time to sort out Pulic Sector pensions - given that we must face up to higher taxes and cuts in services why not start with Public Servants.
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Re 181 :
The answer to your question about when this will affect the real economy is within the next 2-3 months.
I saw a lot of posts from people last night saying "I'm OK, petrols down, rates are down, what's the problem ?"
The answer, simply put is this.
The government lends to the banks. The banks are hoarding money to pay of their huge CDS liabilities etc and are not releasing it to business.
Business needs this money to buy stock, pay suppliers etc. No one at the moment is paying each other because they are worried that they cannot get more cash, so no one is making any money. So in the long term (1-2 months) they are not going to be able to pay their staff wages. So there will be redundancies. Lots of them.
For those on benefits reading this thinking "I'll be allright", the benefits will stop/be reduced because there will be no/less tax receipts to pay for them.
This is happening NOW and if the government doesn't get a handle on it soon there are going to be some major issues for everyone.
Watch out for record nunmbers of small business bankruptcies in Oct/Nov. This is the precursor.
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#192 -
Powell wasn't just "Rivers of Blood", y'know. Even though it looks like that's all he'll be remembered for . . . . .
Read some of his speeches and articles on economic subjects, and see the sheer intelligence and grasp of the man.
He was lucky - he did not live to be proved right.
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195 This governement was not entirely democratically elected, more people voted for another party.
This sleazy lot (and getting sleazier by the day as more disgraced NuLab cronies reappear) only stayed in because they did not implement the boundary changes to maintain a reasonable facsimile of democracy. I am not sure if the boundary alignements have to change by law, but the government has no overall mandate and is surely due for a realitry moment now they have put us back into 1973!
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#191 -
Powell wasn't just "Rivers of Blood", y'know. Even though it looks like that's all he'll be remembered for . . . . .
Read some of his speeches and articles on economic subjects, and see the sheer intelligence and grasp of the man.
He was lucky - he did not live to be proved right.
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The way I see it - my tax money is making life easier for my mortgage lender - who just keeps making my mortgage more expensive. They say the markets are making life difficult for them - but they seem to be able to offer new customers very nice rates indeed.
There is no quid-pro-quo here, and I think it stinks.
We pay more tax to support the very organisations that are making us poor. H-E-L-L-L-O ??????
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Still time for Hank to declare an interest re. AIG and Goldman S. No shortage of relatively unencumbered public money showing up there. I'm sure that informed US commentators must be putting two and two together by now.
In the meantime we are still inundated with unrestricted loan offers from the 'vulnerable' banks. This morning - minimum 'entitlement' loan £13,000, credit car cheques galore and even an offer to consolidate an existing 5.8% loan with a much larger one at 7.7%....
Do we really want this just to continue, backed by taxpayer money?
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@nigelpeacock:
The banks have been winding down their interbank lending. They have placed some of the money that they would normally have lent to each other on deposit at the Bank of England.
They tend to want place any spare liquidity that comes their way with the BofE rather than lend it to you and me (or to each other). That way they know they are both liquid and 'safe.
If the government now 'buys' loans from the banks it is transforming the loans into a deposit in favour of the bank at the BofE - liquid funds that the banks can then pass on to customers or each other. The cash is created by a book entry at the BofE - just as it is when it prints (real) notes and money - and ultimately that shows up on the national debt. In exchange the state owns the loans that were previously the property of the banks.
The 'money' does not come from anywhere other than a book entry, and that is why it is potentially dangerous and tends to create inflation - except that at the moment it is replacing liquidity that has dried up elsewhere in the system.
We have to hope that it is not inflationary in the long run - but inflation is a tempting way for governments to wipe out debts over time and the danger is that real interest rates (interest rates minus inflation rates) are already strongly negative.
You can bet that Messrs Brown and Darling will be secretly hoping that inflation will get them out of the hole in the long run...
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#203.
That is the cause of the problem - Government meddling. Incompetence. Lack of vision. And the UK voted for these guys.
If we continue living in a capitalist society, it is about time that we come to terms with the fact that a Prime Minister should be paid one of the highest salaries in the land. If he/she were, the job would attract some of the best talent in the country. Had we had talent at the helm, we would never have had such a mess. The problem is global certainly, but the UK will suffer most.
Just think about this. One of our most talented businessmen could have been paid £10m a year for the last 10 years to run this country. We would never have ended it with such a problem. The problem we now have may cost the economy over a trillion pounds. £100m on a PM's salary would have been worth it.
Instead we have people complaining about politicians' salaries... It goes beyond common sense.
What also goes beyond common sense is that is plain obvious that one cannot sustain expenditure growth at twice the rate of income growth. Any man in the street would easily understand that if we give him 5% additional salary every year, he cannot go and spend an additional 10% every year on a sustainable basis... Yet we are meant to have one of best educational systems on this earth...
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#195
Pure b****y minded arrogance...
The banking industry said that they would self regulate, they haven't, so (according to your logic) not only are they greedy but they are out and out liars too...
Average Joe should NOT have been able to over stretch himself on multiple BTL mortgages, 10 maxed out credit cards, 6x salary mortgages on the family house, a deposit only 100% loan to by the latest car, 4 years credit on a new kitchen or lounge-suit but they could because bankers were only looking towards earning their bonus, not regulating their practises so that they didn't cause the economy to over head the wider economy - pure greed.
Stop bleating.
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195 - friendly card..!
"The answer to that is the Government that we democratically elected. And so we all share responsibility - that is democracy"
You're talking "all" as in everyone who voted Labour, right? Not everyone per se?
Certainly you're not talking about me. When I campaigned as a UKIP candidate in the last Parliamentary election I warned that Brown would be a disaster for Britain. Mind you, I can say it is jolly hard to know whether folk are voting for the party or the man, not that it mattered in my case because dear Douglas Hogg won by his usual 'Lincolnshire blue-rinse' landslide.
"billions are the new millions"
GC (formerly of UKIP)
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#196
Strange that, if your logic is correct I shouldn't have been able to read to your comment - never mind reply to it.
Perhaps it's not what you say but the way you say it?...
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All those responsible have got to pay. Short sellers, banker and brokers....
Sugar got to cut this comment short, I forgot to pay my credit card bill whilst I was moaning about everyone else's debt.
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Deep sea freight rates out of the Far East have been dropping most of this year. They have increased on the North Atlantic as the USA destocks dollar based inventory by selling it cheaply to the Euro-zone. Now the Euro-zone is in trouble. I feel sorry for those makers of luxury German cars.
The question as to salaries in the now semi-nationalised financial sector is easily understood as the going rate of salary increase in the public sector is 2%. Given that the alternative is unemployment with no immediate prospect of re-employment then I suggest those remaining employed in the financial sector will like it and lump it.
As for house prices, well forget it. If you have a house then be thankful. If you have a mortgage on that house which you can repay then be doubly thankful.
As for the rest of it, well it is going to get very dark, very austere and very unpleasant. In the last few days the world has changed, the glass has shattered and a new paradigm - remember that old constant - has asserted itself. It will be with us for some time: at least a decade if not two!
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The interesting factor is the stark contrast between the balanced view of your blog and the "we are all doomed" statements when you are on screen. Yes, taxpayers' equity and loans are at risk if we invest in UK banks, but these investments are not certain to be lost - which is the tone of your comments on TV come across. You may be be seeking to achieve balance, but you appear overly pessimistic.
Report the facts, you are not JM Keynes.
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Crikey!
The BBC has FINALLY finally been able to afford to send a lone reporter onto a High St to gauge some opinion.
And Lo! The usual suspects are doing very well, butcher, greengrocer and mobile phone shop. The cafe owner is struggling a bit, but, hey..!
Now, turn right at the end of the High St and go to the industrial estate area and have a word with them, OK?
GC
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195, digitalJRAP wrote:
"Right, so the bankers wanted deregulation. Ok. Who gave it to them?
The answer to that is the Government that we democratically elected. And so we all share responsibility - that is democracy."
I'm assuming that you are a banker, since you seem to be completely absolving them of any blame by retreating further and further into various arguments.
As you put it Average Joe was to blame because he benefited from the credit boom, then he was to blame because he was too naive because he trusted bankers to look after the economy, then he was to blame because out of the two parties (that were both offering exactly the same economic direction) he voted for the wrong one.
Might as well blame Average Joe for being born a sheep, if he was a wolf, he might have become a banker.
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Where have the banker's professional ethics watchdog been over the past few years? If a doctor, teacher, architect, surveyor or solicitor can be "struck off" by its professional body for incompetence or unprofessional conduct, why haven't we got the same controls on bankers?
They have the power to wreck peoples' lives and should be required to adhere to ethics of the highest standards. The Institute of Bankers appears to have been silent over the past decade, as the very strange and dangerous practices that have brought us to the brink were developed by some of their ilk.
To compound matters, I've hear nothing from the Institute as this tawdry saga now unravels. Shouldn't we be demanding an urgent and total overhaul of their role or, better still, a stringent legal requirement that, in order to practice, all bankers have to conform to a strict and transparent professional standard, and will be ruthlessly "struck off" if they transgress?
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I just discovered that Banks do have a sense of humour.
Opening the mail today at my business I have received this from one of our High Street banks....
"Making your business a success in these tough economic conditions means making the right decisions at the right time, But when you're looking ahead to your business' future it can be all to easy to lose sight of your day-to-day cash management - the ins and outs that represent the lifeblood of your business.
That's where our free 360degree Cash Management Review can help. Let our experienced specialists analyse your daily banking operations and create a cash management model that is tailored to the needs of your business. If there's a way to make your money work harder and smarter we will find it for you....."
I have the phone number if anyone needs it!
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#208
"...now they have put us back into 1973!"
Being back in 1973 (god forbid, a Tory era of power cuts...) might not be such a bad idea if we start to live within our means again - that we only buy something after having saved up for it or get a mortgage (not multiple mortgages) only after saving x% for a deposit with a mutual building society etc...
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Please could someon clarify that the £250 Billion guarantee the Government is giving is for:
Any new loan they sign (ie money the bank is borrowing from a third party for a period up to three years).
If I have heard right does this mean (I hope it does) that the Government will have to approve each and every loan prior to the bank signing up for each and every new loan they want from a third party?
Or as I fear the bank just will give the Government the signed loan document after the event and so the taxpayer could be liable for any and all debts of one or more bank that defaults with all sorts of questionable asset backing again?
I fear this is going to be a farce, as what happens when the banks surpass the £250 Billion and their sources dry up again will the bank directors come with their gold begging bolwl whilst sipping their Petrus once more?
If that occurs and it is a real possibility we will have no leverage but to get the country further in debt to the detriment of all except the few yet again.
The government is acting recklessly for their own personal survival. This is not thought through.
Why should the UK taxpayer be entering this bailout when the beneficiaries have not got any idea apparently how much of a mess they are in?
In what reality are they a suitable case for charity?
A few banks going belly up is not the end of the world especiially as the Government can conjure up all this money in anticipation of a perceived problem, as proven yesterday.
I note that the Government felt so generous yesterday that they committed to pick up the tab for up to a mere extra £4 Billion (public sector workers please note) for Icesave depositors.
Surely the Government must have been aware of the AIG saga?
For those not up to date AIG said they only needed $20 Billion to continue in business to start with three days later they needed an $85 Billion bailout and would you believe it a very short month later AIG have got through the $85 Billion and have been bailout again with a futher $37.5 Billion.
In my darkest moments I can now see the taxpayer being on the hook for at least twice the £500 billion before this nightmare not of our making is finished.
(I lay the blame at the door of the directors and the auditors of the Banks).
A whole generation of the UK will be blighted by the hubris and greed of these selfish 'self anointed masters of the universe'.
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213, digitalJRAP wrote:
"If we continue living in a capitalist society, it is about time that we come to terms with the fact that a Prime Minister should be paid one of the highest salaries in the land. If he/she were, the job would attract some of the best talent in the country. Had we had talent at the helm, we would never have had such a mess."
Great logic. The Prime Minister should get a massive salary, because then only the best would get the job.
A bit like a banker's salary, because, as demonstrated when you pay top whack, you get the best.
I mean it's not as if any of those guys messed up, did they?
Oh wait. Yes they did, they created the biggest credit bubble in the history of mankind.
The trouble with these jobs IS the high wages, the more you pay, the more you attract incompetent greedy vultures.
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#220
re BBC Vox-pop's
The BBC (News Channel) had a report from just such an industrial unit only yesterday, someone from the auto trade, he was complaining that conditions were tough and that he couldn't afford / get finance to replace written down (aka worn-out equipment). His outlook was indeed gloomy.
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Re #125: Huh? Perhaps a nice walk in the park, some tea, and remembering that the sun rose this morning, and will likely do the same tomorrow, should be prescribed.
We're all going to go through some major changes, and it will not be pleasant.
But the sun rises in the morning, right on schedule.
As for me--I've already put in 60 hours this week.
I'm heading for the golf course. It will all be here waiting for me when I get home.
Golfers of the world, unite!
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The telly was pretty good in 1973. It was rather missing in 1931 though.
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Stop whining so much about bankers, please!
This is NOT a banking problem per se. The banks being the institutions that handle money are the TRANSMISSION MECHANISM of a society's financial position. The West has simply lived beyond its means for far too long. The fundamental problem is that a speculative binge by everyone in the UK and elsewhere borrowed more than they could afford (the banks played along as the mechanism for that greed/stupidity) and now that the loans are defaulting and the assets are falling, everyone is blaming the banks. Please see John Gapper's excellent piece in today's FT on page 15 or better still Martin Wolf's article on how poor countries' surpluses from Asia were channeled into rich countries' housing bubbles. The popping of those bubbles is bringing down the house of cards.
Sure very few bankers made silly bonuses and sure smaller fry like me don't deserve our 6-figure wage, but neither do the estate agents their commissions, the restaurant waiters their tips, the chefs their menu prices, the claimants on the dole, the new parents utilizing child benefits, the prisoners their Sky TV, Gordon Brown his budget, the holiday travel companies their passengers, etc. etc. etc.
The fact unfortunately is that our little island is bust. It is time to wean ourselves off debt and repair our balance sheet. The taxpayer isn't bailing out the banks, its bailing out the pension funds that are the banks' shareholders, the small businesses that need loans, the homeowners, etc. etc. i.e. the COUNTRY.
As a saver who stayed out of the property bubble, I too am dismayed by a bailout turning the value of the pound and my future earnings into nothing. But we are bailing out society as a whole, and it stands to reason that recapitalizing the banking system is the way to do that.
This crisis is overdue, the credit crunch is the healing mechanism that will hopefully return sanity to everything, including the great British obsession with high and rising house prices which I'm sorry to say, makes a society worse off.
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Amazing plan (or is that scam?) - the government uses tax-payers' money to lend to banks to lend to each other to lend to - erm, taxpayers, inter alia - to save the banks and thus safeguard taxpayers' deposits.
In short, our deposits are being saved with our own money!
What goes around comes around.
Or should that be, what one hand gives the other takes away...?
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how about this.....
Freeze and seize all bank executives assets
Appoint administrators for the banks
Publish balance sheets
Investigate and prosecute all those responsible
Severe any connection with political parties
Disband the FSA
Create and enforce proper regulation
Use funds from government to create interest free loans to businesses
Force banks to repay all charges incurred on bank accounts
Stop interbank lending
Anyone who has lost their home,business to be or savings paid compensation by the banks
No selling on of debts
Cut taxes in half
Cut mortgage rates in half
Make the state pension scheme worth having
Halve energy costs
Halve petrol costs
Pay all teachers, police, nurses etc a decent wage
Invest in NHS, police, schools etc
Abolish rhetoric organizations
PUBLISH THOSE BALANCE SHEETS
Wake up government-your people need you to act for them not the banks!
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158 - ianperfect wrote: - why don't ...
What you suggested is what's happening, in my understanding (although I might have it wrong, I've been a bit busy researching bartering exchanges).
Eg, the bailout is being funded by government borrowing, what that means is that the government issues bonds (IOUs) which are worth a certain amount on redemption, plus interest.
Those with the money (investors) buy the bonds and the government takes it and gives it to the banks - who then presumably use it to pay interest on loans taken from those same investors!
The bonds are debts, backed by our future taxes. Eg., taxpayers will pay the debt off over the coming years/decades.
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But the food in 73 was shocking.
Apart from "The Texan" - a kind of chewy thing covered in chocolate.
Two of those in your mouth at once and you couldn't talk for a week.
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# 226
It is amusing how although 5% of the bankers may have created a problem, the remainder get tarnished with the same brush. Great logic.
The missing link here is that the highly paid bankers are the people who allowed for average joe to enjoy so much consumption and remove equity from his home to fund a better life. If you think life has been bad, imagine how bad it would have been without.
Being in construction, I can safely say that we benefited hugely from this additional consumption. And so can anyone relying on consumer expenditure. Given this benefit over the last 10 years, it is totally hypocritical to then knock all bankers.
It seems like you want everything. High consumption, massively rising house prices and no negatives... Is that logic?
This problem has been coming for a long time. Well over a year. Is it logical for our PM to stand up at PMQ and say the country is well placed to deal with the problem? Instead, he should have told people to deleverage themselves as much as possible... That is sheer incompetence.
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230
I like the way the responsibility for this shambles is slowly getting pushed onto the ordinary Joe. It is now all his fault for not stopping it.
Sorry, but some of us tried, got shafted and so failed.
Back in the Nineties I, and others, said that the introduction of the bonus culture into management would unleash a disaster. Weren't wrong were we?
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Disappointed that the moderator took off my comment, I really can not see why ? Maybe it reeked of common sense !
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110 - I wouldn't get too wound up. I had one of mine removed yesterday and I was praising Robert!!!
I think the Mods have been overrun a bit just lately, and are making the odd mistake and pulling the wrong post.
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230. courteousnewcitizen.
If you think you don't deserve your six figure wage, then do the decent thing and hand it back.
Maybe you could give it to the waiter who you think doesn't deserve the tip for his very very low five figure wage.
It's true our island is bust, maybe it was always going to be. But thanks to the banks, and the bankers who work for them, it is really, really, really, really bust.
If you are a banker, then stop bleating and accept your role in that.
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This comment was removed because the moderators found it broke the House Rules.
Why bail out a system with such debt - it is only the debt, ultimately of a very few super rich people who control the money markets and banking system.
Why not use all the money that governments are pumping into the system to create a new banking system. We can cover the deposits on all the books, but we wouldn't be able to cover the huge debts of the few super rich - sorry. We could choose to keep Northern Rock, as we already own that one, and one other and dump the rest of the rotten apples along with their toxic rubbish. Or else we will giving the banks money until they have gotten rid of all their debt, and they aren't telling us how much that will be. Looking at the CDS and other derivative markets it may be tens of trillions of dollars or even more - greed knows no bounds. The Prime Minister and Chancellor are complicit in this.
There is plenty of money still in the world, it is just that the old system has seized up through it's own misadventures. We don't even need banks to lend to each other, we just need them to lend to us. We can rebuild the economy, but not if we carry this huge debt of ever increasing size on our shoulders and the shoulders of our children.
Or is Gordon thinking about his future directorships on these same bankrupt banks he is hoping to save.
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#169
I think the point you're missing is that to engineer the erosion of debt at the cost of a devaluation of savings would be a truly immoral act on a grand scale. Wicked in the traditional sense of the word.
One the one hand you have millions of people in the UK who don't live beyond their means. They save up to buy goods they need and they put a bit away for a rainy day. In other words a traditional, albeit unfashionable, way to live. Also a very sensible way to exist, or so it seemed.
Then at the other end of the scale, moving past those who have manageable debts they've taken on, you've got the 'problem debt'. These are people who've bought things on credit they can't afford and didn't consider the implications of what they did. In addition, there are the very substantial number of people who took out that increasingly popular type of mortgage - the self-cert or lie-to-buy. In other words people who in many cases have commited fraud to buy property.
What you are suggesting is that those people in debt due to their own stupidity are given the keys to the vault containing the savings of the prudent ,and told to help themselves. Simply put, it would be government sponsored legalised theft.
See the big problem yet?
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bbc political editor just asked gordon brown outright if he could guarantee some guys money in the banks and he couldn't even say an outright yes - what a joke!
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235.
You don't get it. Maybe we all benefited from the boom, and so a recession is justified to bring it all back to normal.
But WE all didn't create off balance sheet SIVs, or trade in the multi-multi-trillion derivatives market that only a crazy person would have thought was a good idea. Or didn't decide to buy chopped up and repackaged dodgy debt money from the states.
Bankers did that. Try researching some of their little money spinners. You will be amazed at their recklessness greed.
And it will cause, if we are lucky, not the recession that the economy deserves, but, at the least, a severe depression that may well last over a decade.
The average person didn't know what was going on because the banks were attempting to re-write laws of economics and hardly knew themselves.
The ordinary person is NOT to blame.
The crooks who amassed billion pound bonuses (in the uk alone) are, and nothing, at all, has been done.
If the banks want to re-establish trust and confidence, then a purge of senior management, MUST be carried out.
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#230 - not a banking problem? !
That's an incredible thing to say. How come the banks are getting massive financial support then? If you think there is a thing called fairness or 'deserving case' associated with this rescue package - just ask yourself where the Govt support was when Rover went bust.
And if the open cynicism about banks/bankers upsets you it's hardly surprising: look at the usury - extortionate rates of interest on credit cards, up to 5 times the base rate - for years. Why did banks have to do that? And then banks' readiness to foreclose and shut accounts, yes, refuse even basic clearing accounts altogether completely denying access to the banking system to tens of thousands of people and their readiness to repossess homes. Do they really think (though of course some banks are better than others) that they have the public on_their_side?
As for blaming the banking public for greed..? Some people are undoubtedly greedy but most folks just want to borrow within their means according to their best assessment at that time and people are ultimately loaned money by banks entirely on the basis of the bank's assessment of their abililty to pay. That has been accepted practice, well, forever. One can hardly say that the idea of borrowing is novel. Don't forget that most household budgets are run by the wife in the family and they tend to be pretty conservative and cautious with money.
Take away folks' livelihood and means to generate an income and service those debts and banks tend to move in for the kill -pretty quick. Forget then the 'caring' 'listening' bank - that's blatant self-interest , ergo - greed.
FWIW I have filed a petition to No10 regarding the consequences that befall people when this happens.
http://petitions.number10.gov.uk/list/open?cat=564&sort=date
GC
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#235
You still don't get it do you, it wasn't the bankers job to allow 'average Joe' to afford two holidays a year or what ever, that could only be done via the link between productivity and earnings - not the offering of credit and personal want/greed, credit that needs to be paid back at some point even though many who were offered credit had/have no means to pay it back. The link between what people earn and what they could afford got smudged by bankers looking to sell ever greater levels of debt to each other (CDS) purely because by doing so they boosted their own bonuses.
I'm not anti bankers, just bankers who can't accept that they are the cause - put it this way, if a mechanic leaves the wheel nuts loose on a car he has serviced, or forgets to put oil back into a engine, is it the car drives fault for driving the car or the mechanics fault when the wheels fall off or the engine seizes?...
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244.
Great logic. Ever wondered how so much leverage was made available to people? You will be amazed when you find out. Perhaps off balance sheet SIVs and Derivatives helped, perhaps. We may not have created them, but we certainly benefited from them.
The ordinary person is not solely to blame. The entire society is.
Relieving yourself of responsibility is the argument of the naive.
I agree however that we face the real prospect of depression. That however, could have been somewhat avoided in the UK had the Government not allowed house prices to rise so much. That was easy to accomplish. They should have raised Stamp duty to ensure house prices rose steadily. The bankers could still have lent out the money but credit default would have been a far smaller issue. It is credit default which is the problem. That is a problem which could have been avoided by the government. Instead, let's all blame the bankers. Yes, great logic. Easy excuse as well - the easiest of them all. But I don't blame you for that. That is human psychology - finding the easiest excuse.
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# 246
Next time, go to the right garage.
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Not sure if it was evident, but I am in fact admitting that the 6-figure wage is undeserved. This is not about pure numbers. Simply pointing out that everyone at different wage levels has been bingeing on debt, some without realizing it. The waiter may be relatively low paid, but even his pay and the tips he received were a function of this bingeing. Our very way of life unaffordable and has t be toned down, and this will have to include everything from french wine to child support to the nhs to silly mortgages. A weaker currency is one way to do it, and that is what the bailout will eventually engineer.
As no. 235 points out, what happened to individual responsibility? If all on this blog have really been so responsible, then how can a tiny irresponsible minority of borrowers (houses. cars, credit cards, vacations, clothes/shoes) bring down our entire banking system?
I am a saver and a taxpayer with no debt, living within my means, but whining against bankers solely is pontless when the fault lies elsewhere, i.e. as a country learning to live within our means.
Lastly and importantly the USA i special in a very different way to us. They have effectively replaced gold (wealth) with the dollar. They issue debt in their own currency and can spread their pain. We simply can't, that's what gives the like of George Soros to have a go at the pound every so often. The Americans can afford to run continuous deficits in a way that we never will be able to.
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Robert it's your comments that are having a detrimental effect on the market if I were you as a reporter whose job it is to report the news not make it, I would hang my head in shame if the comments emanating from the commons were anything to go by. Blogging is one thing but your view on this is entirely warped... it's sensationalist reporters like you who have got swept up in the hysteria that you are generating. For gods sake have some dignity a know when things are out of your league. A reporters job on the Financial Times is not a qualfication it's a job!
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Wow, just finished reading all these 240 plus blogs, why are we in this mess with all the solutions out there in the ether already?
Time to review my Icelandic compensation package to resore what little sanity I have left, Kaupting Edge cod fish fingers, thank you Darling, nice and Brown, if you please.
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I still dont understand why we're subsiding banks.
Isnt the whole idea of capitalism is free market, supply/demand etc.
Banks that cant survive this mess should be allowed to go out of business.
The car industry, coal production etc. was eventually allowed to wither away in the UK because it could not compete. Why should banks be any different?
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#246 Boilerplated
Sorry, analogy with Motor Mechanic rejected.
The idiotic excessive borrowers had a choice whether to take on more credit or not, they must share your valid anger with the equally idiotic greedy bankers for lending.
Liked your BBC Good Life repost last night.
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247. digitalJRAP wrote:
How about we blame both the bankers AND government.
As for absolving myself of responsibility, well as someone who voted against the current administration, and those prior, someone who has worked all his life, paid taxes, never lived beyond his means, or taken out a loan or owned a credit card, I already have.
But I'm sure you can understand my resentment at having to face the bill for a meal I did not eat.
If that makes me naive then I must be. Certainly I won't be naive again.
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I hope this all reflects in the banks` new credit ratings.........
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In the good old days, when I borrowed money I was asked what I wanted the money for and it was expected that that's what I would spend it on. In other words the lender dictated what I could spend ther money on. The government, FSA, Bank of England even David Cameron or Vince Cable (!) should tell the Banks how they should spend the loans from us the tax payer. Whilst in the long term we do need strong banks, in the medium term we need the economy to get moving even if the recovery of the banks takes a little longer.
A little grovelling from the banks would not go amiss. They are not my main concern. They are an important cog in running the country, but the country isn't there for the benefit of the banks.
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For God's sake will some of you posters get a grip! How is Gordon Brown responsible for the implosion of the Icelandic economy? (See my earlier post 56) And as for poor old Robert Peston, I doubt they read him on Wall St - and certainly not in Rekyavik.
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I get the impression looking at the market that there is no prudent stock to buy at the moment. Maybe government consuls/bonds as they were called in my day. But I suppose you will be paying for the government rescue plan twice, once as a taxpayer and once as an investor!
If it's a bear market (is it?) maybe we should all hibernate for the rest of the year? Now where did I put that jar of honey.
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Vince Cable is the only one that talks sense. Lets have a revolution and appoint him PM.
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215 Guy Croft:
I'd just like to point out that I didn't write post 195.....
Friendlycard
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I've just got back home and,reading this blog, am struck once again by the range of views and quality of analysis. I hope Robert reads it, though I can't imagine he would have time!
I've never been (and am still not) an admirer of GB, but I take my hat off to him and AD. They deserve praise for the comprehensive nature of the intervention (much better thought-out than the US version).
And they also deserve particular credit for freezing Icelandic-owned assets in the UK. I know I've gone on about this before, but I think that Iceland's grossly irresponsible practices are outrageous.
So, too, is any idea that Iceland can, on the one hand, abandon any obligations to British investors and, on the other, expect us to let them keep/sell the UK assets that their companies have bought using, in part, British depositors' money. Think of it that way and it's absurd; nearly as absurd as "The Icelandic Financial Supervisory Authority"!
Where UK-based assets are secured against loans which were, in part, funded by British depositors, we are quite entitled to 'cut out the middle man' - which is the inept Icelandic banks and authorities - take posession of the security (i.e. assets in Britain), and compensate the investors from those assets.
Never thought I'd ever say it; well done on this one, Gordon; well done Alistair.
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re 258
If you think there is going to be a recession, then maybe stocks that will do well in a recession ?
Actually, the best advice is that if you have to ask questions like this you shouldn't be going anywhere near the market in the first place.
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#248
That reply just about say it all, what do people do when all the mechanics start leaving wheel nuts loose or oil out of the engine, and how does one know which garage doesn't allow those things to go on - so that one can go to the 'right garage'?
It seems to be that what you have basically said is, to put it back into a banking perspective, keep your money under the mattress and only buy what you can afford, in cash - DIY banking - with the exception of keeping money under a mattress, rather than a safe-vault, isn't that what 99% of banks should have been doing with the vast majority of 'high-street' customers money?
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IMF to bail out countries.
I am surprised that Robert Peston has not picked up on this story
Can he advise us?
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#85
"Now that the bubble has burst, there are some people who must be very happy that can now buy their first house because the prices are dropping."
Prices have not come down yet but within 2 years I am sure they will be 30 to 50% less than now. So no I will not be buying anything thankyou. You are very free to put your money where your mouth is though.
"With interest rates falling, it's a great time for businesses to invest and a falling pound means incrased exports."
Ah, so Ken Clark - that's the Chancellorin the last recession - saying business should hld back on any expansion. Tighten spending and make efficiency savings is wrong ? He also said for people to wait on buying a house.
"Also, for people who pay monthly into a pension, they'll be buying real bargain shares at the monent and in the long run their pensions will be higher than if the markets had stayed flat."
Ok, so if I look back 10 to 15 years if I had invested my money in a high interest bank account I would have made the same amount of money - or more in fact cos the stock market is still going down.
There is a problem with upbeat messages in times of recession - they will bring years of pain for anyone listening to them.
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#87
I was going to reply but I jsut can't be bothered with the level of intelligence being shown.
Go see a doctor.
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Kaupthing
The question to me is not whether Kaupthing was liquid - it must have been fairly close to the edge for the seizure of its UK deposits to have crippled it completely -but this episode raises two much deeper questions.
1. Was the UK government's action legal? I understand that it used anti-terrorism laws to seize the assets. Given that they were clearly not being used to fund terrorism, this means that the anti-terrorism laws have either been misused or allow for massive government discretion. Either way, I find that very scary. It certainly seems that Gordon Brown has a brass nerve to say that it was 'effectively illegal' for the Icelandic government not to guarantee deposits. I haven't noticed him rushing to do so in the UK.
2. It now seems that the Icelandic banks (I assume we mean Landsbanki here) were given an AA rating, which is why councils invested in them. Now, you could argue that there always seemed to be something a bit fishy about Icelandic banks, and councils should have known this but surely this argument applies in spades to the ratings agencies. Indeed, I rather suspect that councils making investment decisions without refering to ratings agencies would have been open to criticism. So, anyone for suing Fitch, Moody and S&P?
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#265
Would that be the same Ken Clarke who steered us into the last recession too - if so, 'nough said!
#266
Telling someone to "see a Doctor" just because you don't agree with an opinion says far more about you than who you were replying to...
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#247
Obviously you were a major cause of the present problems.
My advice is if there is a subject you think you know something about, keep away from it.
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Re 247. You claim that relieving yourself of responsibility is the argument of the naive.
I don´t know abouit naive but taking responsibility for something that is evidentially nothing to do with you is asinine.
How did the average guy in the street benefit from SIV´s and derivatives? - Answer not all. The main effect has been to drive up asset prices and force people into financial servitude by the need to service bizarre levels of debt. Given that these assets were mainly houses, and that social housing barely exists, then most people were faced with the stark choice of paying up or checking out how life is lived on the streets. In case you haven´t noticed they got laws against the homeless.
The politicians played a full role in creating the market for the debt by simultaneously atomising the population and increasing the overall population. You think these things were done by some kind of accident?
You think these people care about the consequences? In the US you´ve got 400 people with aggregate wealth of $1.57 trillion. You think they are going to be subject to having their houses repossessed, or thrown out of work?
They are looking forward to the future as it will provide an ideal opportunity for them to pick up more of the wealth of the world for a price somewhat below "fair and reasonable."
For so long as people like you insist on blaming yourself or people like me - these guys will rolling in the aisles.
Open your eyes to what is going on here. As Goethe said "There are none so firmly enslaved as those who falsely believe themselves to be free"
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test
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Cash flows, whether they're debt or equity, follow information flows. That's why stocks go up on good news, down on bad, and why bond rates and ratings change. As Paulson admitted, there is not enough cash available even in the government treasuries of the world's largest countries to jumpstart debt flows and end the credit crunch. Governments do have the power to jumpstart information flows by requiring any and all institutions that are receiving taxpayer support to open their accounting ledgers to the taxpayers ? and by extension to each other. Some will fail instantly. Others will survive. Most importantly, cash will flow through the interbank arteries, commercial paper veins and consumer credit capillaries of the global economy. Our leaders have the power - do they have the will?
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So, the Government creates a facility to fund up to ?400 billion support to banks. How much of this is to be borrowed by the Govt and who do they get it from?, what rates apply? or do they just sell a tranche of gold?
Er.....that esteemed dear leader prudence brown flogged off the UK's gold years ago for a pittance...smart move that, eh?
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# 261
And what do you think, how much money was from British speculators in those Icelandic banks? What do you think how did they manage to get 12 times as big asset value than Iceland's GDP (at least on paper)?
But if it satisfies you that GB and AD show the 'ard fist to Johnny Foreigner...
Oh, and UK firms tend to finance their international expansion from the host markets too... It's not an Icelandic patent. Both Iceland and the UK learnt it from the US.
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bankinvestor
You're right that we will probably not learn anything but one thing you got wrong. Raising interest rates was right but much too late. The debt bubble should never have been created in the first place and that was through low interest rates and other irresponsible behavior. Now the rates go down again and will make things only more complicated and dangerous in the long run. They should have raised them and then go and sort the mess ax in hand and chop off the bubbles so healing can begin. Anyway, either way time's up for those who thought they could live on debt forever.
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If the system is rotten to the core, then no amount of applying of cosmetics is going to make it palatable.
It is high time that we as a nation and indeed globally sat back and looked at how we conduct trade and how financial systems work. The free market, capitalist system has failed us YET again. In other fields, if a system is as unreliable as this, you don't patch it up and keep with it, you get rid of it totally with something that you think will work better.
Isn't it time that we stopped gambling with the worlds finances, no matter how you name them as futures markets or other fancy names, it is gambling using people pensions and savings no matter how you cut it.
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At a stroke yesterday we match the Germans for increasing our share of public debt towards the 65% of GDP benchmark out Teutonic friends enjoy.
Gilts are safe for now, but where else do you stick your cash?
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#276
"The free market, capitalist system has failed us YET again. In other fields, if a system is as unreliable as this, you don't patch it up and keep with it, you get rid of it totally with something that you think will work better. "
Or, and to put this into a computer perspective, if you install a new operating system (or program) and it proves to be unstable anyone with a bit of clue will revert back to the last stable version - at least in a revenue earning system. This is why I keep on about Keynesian, it's not perfect but it did sort of work, we simple don't know yet what has really caused 'Friedmanism' to fail and now is not the time to start rewriting it's source-code on the hoof!
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I do not think it is right to see this as a failure of capitalism. We have human behaviour going into uncharted waters and not understanding what consequences would be and that if actions were not right eventually the change would be catastrophic (combination of chaos and catastrophe theory) That does not mean that we do not have to make a root and branch change- the global market and instant communications mean we have to redefine risk and then reinvent the way we trade internationally.
The big lesson to me is yet to come and it is not to do with economics or banking. We do not understand the risks we are taking with the environment- we know how we behave cannot go on and we are not very clear of what the consequences of our actions are. Putting Chaos and Catastrophe together, when our environment starts collapsing- no amount of human intervention will stop the meltdown.
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20 September 2007
Mr King told the committee that he has had a difficult balancing act between restoring public confidence in the banking system, and creating a "moral hazard," where banks believe that they will be always be bailed out even if they behave recklessly.
http://news.bbc.co.uk/1/hi/business/7004710.stm
Poor Sod!
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#276
I couldn't agree more.
To think banks are able to use our savings money in the financial markets against our pensions.
WE CAN all do something about it.
If we take our business elsewhere then the situation will HAVE to change.
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Anyone who understands addiction knows that you don't give a crack addict more crack. None of these banks should get any taxpayer money until the CEO's are replaced.
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The longer this show goes on, the more I am convinced that the wrong people are in power. The way this all goes suggests that governments will not try and correct the situation at the root. They will fiddle and try to avoid the consequences of a correction that is only coming over us because the bubble was allowed to form, essentially by the same people. In life, trying to avoid the inevitable usually makes things worse.
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Two things: 1] Re local authority deposits; they are placed through money brokers who match up the amount and terms on offer from town hall treasurers with the best rates being offered by rated banks in the market. The councils did not wilfully place money with Icelandic banks - their names met in the market. 2]On Tuesday the BofE was offering bills to mop up excess cash in the market for those banks still too scared to lend to each other - Steward on B92.
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#280
Mad_Mad_Max
Exactly but not as poor as these two: MD of Landsbanki and the Icelandic Gov of Central Bank as of May 2008 on C4 news (at about 10 mins ish):
http://www.channel4.com/news/articles/business_money/how+safe+are+your+savings/1697147
not predictable? Hmmm....!
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I'm not sure I like the freezing of assets. Imagine if the boot was on the other foot, for example, say that some British banks went bust, and, say, a load of Chinese investors got burned, would we be happy that the Chinese govt seized unrelated British assets in order to recover the money?
Something tells me that that kind of action has, historically, led to war.
The fact that the UK can bully Iceland due to the size differential does not bode well for the UK, with respect to the relative size of the UK when compared to some of its own creditors. Nobody likes a bully...
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#279
"I do not think it is right to see this as a failure of capitalism. We have human behaviour going into uncharted waters and not understanding what consequences would be and that if actions were not right eventually the change would be catastrophic (combination of chaos and catastrophe theory) That does not mean that we do not have to make a root and branch change"
If we were discussing the GDR in 1989 would you say the same thing, for surely, you could replace the word "Capitalism" with 'Communism' and the above comment would still stand?
Capitalism (at least the current flavour) has failed, it's failed due to the human nature you cite, the question is - can human nature alter so that this fiscal model can thrive.
Communism failed because it was recognised that human nature naturally creates 'leaders' who will always build pyramids - "Lord of the Flies" style...
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Dow at 8579 down 7.3%.....
Seems my comments in my earlier post (no 95 ) ... will happen very quickly...
FTSE100 must go below 4000 in the morning.
Scary times....
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Ho Hum......
3 weeks ago, I predicted the initial failure of the USA rescue plan, and also said it wouldn't be enough!
Oh woops! All hell has broken loose over there again!
Perhaps the Dow Jones reflects the appalling news that more banks could go bust, the 450m dollar 'retention' bonuses for Lehman executives while the poor workers can't even get redundancy!
I hardly think it can be blamed on a Jewish New Year holiday as has been suggested on the TV this evening.
Local authorities and friends are being slated for depositing in Icelandic banks - they did this following Gordon Brown's advice - namely...
Ensure security and liquidity (obviously didn't feel they had that here)
Ensure high yield
Questions-
1. Would GB have frozen their assets if it was personal investors only at risk?
2. Was it the whiff of Russian involvement that caused him to freeze Icelandic assets? Imagine the headline 'Oxford Street is owned by Kremlin'
2. My local authority (Kent) has 50m in the frozen assets pool - why hasn't that been spent on improving services? They had the audacity to ask me to pay to empty a brown top wheelie bin for a year!
Arrogance in rife! Some funnies for you...
GB has only written to the G7 and European leaders suggesting they take his model of financial rescue for their countries! He's obviously been talking to that French finance minister!
Russian stock markets kept being closed because their markets were plunging too low - they were closed again today cos they went too high! For goodness' sake!
Libor rates overnight down, three month rate still increasing
Abbey National raising tracker rates (last night the news said trackers would go down) - Liars! Liars! Pants on Fire!
Opec having an emergency meeting cos oil is below 84 dollars a barrel - serve them right-petrol was 1p cheaper today - surely it should be half price now?
There's yet another meeting about the global financial situation - AD has gone to Washington - duh! Like another rhetoric-filled meeting is going to do anything - I bet the phrase will be - we will do everything we can.......
As the US bailout has failed - when will they be asking for their 900bn dollars back?
If our bail out fails as resoundingly, will GB ask for ours back too? Actually, has Europe approved our 'State Aid' package yet?
Foreclose, foreclose, foreclose. Governments should stop meddling, wait for everything to bottom out then pick up the pieces.
Until the people of this country perceive that the government are looking after the people's interest, not their own, there will be no confidence.
GB - DO SOMETHING DRASTIC! Stand up for your voters, not your bankers!
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Now Holland is doing the same - 20bn to protect their banks
Next?
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#278
Coding computer programs takes analysis, millions of lines of coding, testing, implementation, training and support.
With continuous improvement via upgrades.
Bank lending is not that complicated.
It's not a very good example.
And I think the public need certain guarantees "on the hoof" to try and bring confidence back in banks.
As regards the long term solution, I think the boffins in banking have done far too much damage over the years. Under this cloud they have moved wealth from the many to the few. Many of which don't pay tax.
I don't think the public will stand it happening again.
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Whoa there #230 courteousnewcitizen,
I cant let your astounding comments go without a challenge.
"It is time to wean ourselves off debt and repair our balance sheet." - Really ? ? ? lets just examine the maths behind that statement:
In a debt-based, fiat Fractional Reserve banking system the money in circulation exists purely because of debt. i.e. when a loan of any kind is first instigated the principal of that loan is spirited into being by the bank and added to the general money supply (call it pot). When the debt is repaid it is repaid with interest. For arguments sake lets say 3x the original principal must be repaid. If only the original principal was ever created and the principal + interest is withdrawn from the pot then the cash outflow from the pot is 3x greater than the cash inflow. If you don't top up the pot by the other 2x then the pot will quickly go empty.
So you need another 2x loans (assuming the same value) so that the principals added to the pot from those loans provide sufficient cash for the first debtor to fully pay off his loan. However, now we have 2 new debtors in exactly the same position. For the 2 new debtors a further 4 debtors are required to provide sufficient principal for the other 2 to have sufficient to pay their principal + interest. And so on it goes doubling every time 1,2,4,8,16,32,64,128,265,512,1024 etc etc. So, to work, the money supply in a debt-based FRB system must increase geometrically. If the supply does not increase geometrically then the pot dries up becuse the outflow is greater than the inflow.
The banks facilitate this (expansion) mechanism by their corrupt and fraudulent Fractional Reserve Banking system. This is a very nice way of saying that the banks lend you something they don't even posess and have the gaul to charge you interest on it. The 'magic money' represents no asset or labour on the surface of the earth. It is truly worthless.
So lets return to your original statement. "It is time to wean ourselves off debt and repair our balance sheet.". If we wean ourselves off debt then there will be insufficient loans being taken out therefore insufficient new money being added to the pot. The pot will dry up if outflow is greater than inflow. The speed at which it dries up depends on the in to out difference.
When the money pot dries up it is called a 'Contraction of the money supply'. The 1930's depression was caused by only a 3% contraction of the money supply, magnified of course by the Fractional Reserve Banking system. That demonstrates how sensitive the money supply is to small contractions.
So I have to come to one of the following conclusions:
1. You are not a banker after all because you'd understand the oxymoron in your statement.
2. You are a banker and you don't understand your own industry's model.
3. You are a banker and you do understand your industry's financial model and you are spreading disinformation for the purposes of gaining sympathy and to maintain your precious FRB system.
Please let me know which one it is. I am more than a little curious. Thanks.
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What we need right now is a PAUSE! Close the markets and let everyone refect on the true value of our companies and their true earnings as opposed to the fear/histeria factor which is driving everything at the moment. The market is no longer acting as an instrument of financial logic, it is acting as an expression of fear of what could happen ! STOP the fear! Close all the markets (like the Russians) for one week to stop these violant "occilating" swings inorder to have a dampening effect. (If you loose control of the car and its bouncing all over the place ! Hit the brakes, stop and regain control)
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#286
re the UK seizing assets
But who is bullying who, according to http://news.bbc.co.uk/1/hi/uk_politics/7660438.stm the UK Govt. has only seized assets belonging to Landsbanki bank, not unrelated Icelandic assets as you appear to suggest.
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And another thing!
Sorry but noone in my house is at all interested in all this so I've got to vent my spleen here - GB isn't going to knock on my door with 16,000 pounds is he?
America has seen a massive growth in tent cities - aka ghettos - especially in California - these are ordinary people who have lost their jobs, lost their houses, and now in no position to get out of the mire.
The same thing is happening here.
When you lose your job, or get a cut in pay, or can't pay your mortgage cos of spiralling food and fuel costs, you get a default registered with credit reference agencies.
when you try to get another mortgage to move downsize and make your bills more easily affordable, you can't get one - even if you have a steady job and 20 percent deposit cos of the reference agencies.
What then?
Also, the current valuation of my house now means that we have now become a so called toxic debt, when a year ago we weren't anywhere near that!
How many people are now in a negative equity situation?
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#286
re the UK seizing assets
But who is bullying who, according to
http://news.bbc.co.uk/1/hi/uk_politics/7660438.stm the UK Govt. has only seized assets belonging to Landsbanki bank, not unrelated Icelandic assets as you appear to suggest.
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#292 - your line of argument is still wrong. See my comment #219 on the "why bank shares are falling" thread.
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poster 293
I've been suggesting for days that we need to close the markets and banks for a week to do exactly what you say. Stop the hysteria, and take a breath then decide what to do.
Does Downing St have anyone reading these blogs? If not, they damn well should do.
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#289
Nice rant!
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NorrieC,
Fractional Reserve Banking and Fiat currencies aren't laws of nature you know.
Perhaps it's time we tried a different system (ie one that's not based on unsustainable unrepayable debt), because this one clearly doesn't work does it?
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WHAT!
DID I JUST HEAR GORDON BROWN SAY 'WE HAVE NO DEBT IN THIS COUNTRY'?
Where on earth did he get that from?
I say - PROVE IT GORDON! SHOW US BALANCE SHEETS FOR BANKS AND OUR COUNTRY!
I'm afraid I don't believe a word you say!
(As for recession, we've been in one for ages - the measure of 2 periods of negative growth has to be thrown out! Ask the person on the street - they knew it months ago)
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I am a bank employee of 27 years. I am also a UK tax payer. I have read with interest the amount of tax payers money being used to prop up the ailing financial system, which all seems to be the fault of banks. Anyhow my point is this, does anybody know how much tax UK banks have paid to the government over the last, say, 10 years? I do not know the exact figure but i can assure you it will be tens of billions of pounds and will have benefited every single UK tax payer in some shape or form. I am not condoning the actions of those responsible for the financial difficulties being faced in the economy right now (i include the press in that) but i think a sense of perspective is needed here.
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In the words of a famous blogger on here,
This is getting HAIRY !
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Dear Fellow Bloggers
In case you hadn't noticed (and, to be fair, many have) this thing is now seriously out of control. Don't bother with Brown's and/or Darling's platitudinous pronouncements (they're idiots); don't be taken in by Peston's relatively measured tones (talking about 'sluggish growth' - is he mad?); don't be swayed by the stock exchange traders. Look at the LIBOR-OIS spread (the measure of cash scarcity) - record high; look at the TED Spread (measure of money markets' anxiety) - record high; look at the demand for gold - the mints and the dealers can't keep pace.
I'm neither a crank nor a cassandra but, hey, this is looking so much worse than the situation being conveyed (if reported at all) in the mainstream media.
May I suggest that if you're reading this post, start thinking 'self-reliance'. Draw some cash (at least a month's worth); stock up with essential provisions; take anything/everything spouted by a politician with a pinch of salt; adopt the military philosophy of planning for the worst case (I'm ex-Army).
I think we're about to enter a new world order. What do you think?
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#242
"Simply put, it would be government sponsored legalised theft."
ManOfAThousandFaces, your analysis is completely accurate. Spot on.
However, your conclusion is less so. Just because you and I would find the instigation of a programme of legalised theft by the government abhorrent it provides absolutely no insurance whatsoever that they wouldn't do it anyway. In fact, that's what AD did yesterday.
Its not until you teach yourself how the money system works do you really find out how crooked these people really are.
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274:
Fair points, but I'm not saying that what Iceland did was unprecedented.
I'm saying it was grossly excessive, and utterly irresponsible. It's a question of scale; of banking magnitude in proportion to the size of their economy.
Totally reckless. And it's about expecting to keep UK assets whilst ditching responsibilities to UK investors. No way, frankly.
They have an obligation (under their own rules; not ours) to reimburse the first GBP 16000 or so of retail depositors' money. To call in their security to meet their obligations.
Instead, they want to walk away from that; let UK taxpayers pick up the entire tab, "but we would like to keep our assets in the UK, please". Ridiculous. Time they got real. To say "We'll reimburse our own nationals, but not foreigners who were stupid enough to trust our banks; go hang" just won't wash.
If we did this in China - I agree with you entirely - we'd deserve the same treatment; and, I dare say, we'd get the same treatment. As Iceland should.
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Blog black out again? Or have the moderators gone for a well deserved cuppa?
I sincerely hope you are ok Robert - When all this started a couple weeks ago, you were the only one who made sense of it all - keep going - we need you!
Take heart - at least you're not being blamed for the fall on the Dow Jones today - it's because of a Jewish New Year holiday apparently.
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Why thank you Boilerplate!
I just wish governments would listen to their voters - I'm not the only one that feels like this
Anyone know where Robert is this evening?
Has he been whisked away by the secret service to have his thumb nails pulled to make him divulge his sources?
Has he had a breakdown as he is apparently totally to blame for the entire global crisis?
Has he been sacked for doing his job - do I need to watch another news channel now?
Or...has he castaway on the plane to Washington in AD's luggage?
Or is 'Jewish New Year holiday' his code name?
I hope he's having a well earned break!
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Hi Pesto, have the FSA felt your collar yet?
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There are rumours that markets will be closed worldwide following G7 meeting. Certainly the FTSE will probably go over the cliff tomorrow following another terrible day for the DOW.
Will Lehman's CDS sale tomorrow bring some respite ? Lets hope so, because otherwise things are going to get very nasty, very qucikly.
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If there's one fashion the world doesn't need at the present time it is aggressive deleveraging: it could turn a recession into a slump. As the credit arteries unclog over the next few weeks the need to repay debt will be reduced. Those who have overborrowed, such as the buy-out operators, and given there will be a recession, will probably go bust.
The biggest danger for the UK plc is that it is perforce gearing up into that recession. I expect the £ sterling will be under great pressure against the US dollar. As for Euro, some of the EMU members may well defect, given the evident disunity amongst members.
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Hey everyone! Guess what I've just seen?
Our rankings for soundest banking systems
I can't stop laughing!
we're 44th (used to be 5th) and the USA is 40th
Good news in the report - our banking system competitiveness is scored at 6.0 ...1.0 being insolvent and possibly needing a government bailout, 7.00 being healthy with sound balance sheets
Our competitiveness has been assessed based on the opinions of 'executives' - would they be the same ones with massive bonuses pending at Christmas?
This is according to the World Economic Forum.
Check it out! It's hysterical!
How can we be 44th but highly competitive?
I WANT TO SEE BALANCE SHEETS!
What will that do to the markets in the morning I wonder? Guess a fall will be my fault now then?
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Re:287 and others
You are incorrect to interpret current events as a failure of capitalism. Market crises are an integral part of the capitalist system, and they cannot be avoided.
The powerful understand this completely that´s why they only want the discipline of the market to apply to others, and to themselves only to the extent that it is beneficial to their interests.
The moment that markets cease to favour them the powerful demand, and ordinarily receive, protection. Witness current events.
Banks and financial systems in Africa, Latin America and parts of Asia are routinely allowed to collapse because the maintenance of such systems is irrelevent to the powerful.
According to Lt. General Dallaire (the senior UN commander in Rwanda at the time of the genocide) the Pentagon created a computer model that sought to demonstrate that the lives of 80,000 Rwandans was worth the life of 1 US soldier. - This is capitalism.
The financial crisis that the western world is currently experiencing is as nothing to the horrors that capitalism routinely visits on the truly poor and dispossesed.
Only the "educated" believe otherwise
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313 comments. When is the BBC going to invest in some decent blog software that allows threaded responses?
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#305 and #292 NorrieC
"Its not until you teach yourself how the money system works do you really find out how crooked these people really are. "
You still have some way to go before you understand how this works. See comment #297.
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#304
Whilst I agree that things look worse than they did a week ago I'm not sure there is a need to retreat to the bunker just yet - but if we did, what would you suggest we take with us - I'm not sure if we should all be stocking up on fruit-cakes at the moment or not...
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errr everyone......remember when I said to watch out for insurance companies taking a tumble..........
Oh, and as OPEC are meeting to discuss the drop in oil prices, watch oil rise tomorrow in anticipation of them slowing production!
Time to buy a bicycle (if you haven't already!)
I'm sure you've all thought of this anyway!
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Boilerplated,
I'm not clear that the seizures are limited to the assets of Landsbanki (although they may well be).
For example, on Reuters, it's covered thusly:
"His Icelandic counterpart Geir Haarde had earlier expressed anger at Britain's use of anti-terror laws to freeze Icelandic assets in Britain,"
http://uk.reuters.com/article/domesticNews/idUKTRE4988F020081009
Also, in the BBC article you mention, GB threatened "further action", without specifying what that would be, which I also found disturbing.
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Sorry 230 courteousnewcitizen it just wont wash.
I'm sorry to say it, but there is no question that bankers and their regulatory authorities are the principal culprits here (and.... we do need to get rid of a large number of them!).
Why?... Well, in simple terms because they have (.....ok, like any company, it is in fact because their boards of directors, supported by their shareholders have) created an absolutely gigantic pyramid selling scheme..... using their principal product, money.
This has been to the benefit principally of themselves, although as in any pyramid selling scheme (a number of years ago I believe it was water filters) there is obviously a multiplier benefit to others as they spend their loot.
And the facts are that we don't actually need nearly so much of this product that you produce and trade and pass round the system (like water filters).
To explain it a different way, a huge part of the job you (I'm generalising here of course!.....) have been doing has simply been passing the parcel around amongst yourselves, and kidding yourself you've been "adding value".
The heist has been perpetrated by introducing products that are as complicated as possible, and running businesses as opaquely as possible (yes, I'm referring to CDO's CDS's etc etc), so that customers get confused and do not realise what value for money they have received. Of course the irony is that the major mugs in this whole heist have been the other banks and traders in the same product. But, of course.....it is always like this in a pyramid selling scheme.
But the nasty thing is that the starting point you have used for all this ridiculousness has been our money!
In the US it is the case that nearly 40% of total domestic corporate profits now come from the financial sector (see http://www.iht.com/articles/2008/01/07/news/07oxan-uscorporateprofits.php). This incredible figure indicates the amazing heights to which this pyramid scheme has grown, and does not bode well for the magnitude of Robert's deleveraging vortex that will occur in the US over the next few years, circulating principally around their financial institutions.
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287 - BoilerPlated
Whilst I agree with many of you earlie comments, I do not agree that Communism failed for the reasons you gave.
It failed because he very same people who have enslaved us in debt (the banks) made sure the communism would not survive.
They funded inernal rebellions and forced the Communists to use oppressive methods to rid them of the provocators. Which created the unpopular regime.
That said, it's debateable if Communism did actually fail. Stalin took the USSR from a near broken agricultural european country to an industrial world super power (one of two a the time) with the biggest land army in the world.
As many people died in the great depression as died in the purges of Stalin. In both systems the people suffer the most.
I would much rather live with the devil you can see than the devil you can't.
The world believed the west when they said democratic capitalism was the best way forward, I think this is a good time for people to re-assess what they have been told.
Capitalism is unsustainable, even it doesn't collaps this time, then it will collapse next time. The debt mountain is growing faster and eventually will consume us all.
....and just for 228 - I hope your golf ccouse is free, because you on't be playing much of it once inflation kicks in an it costs £3000 for 18 holes!
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My last post of the night - honest!
Just heard that Paulson has said that he hasn't put the 700bn into the markets yet....he'll do it when he gets round to it.
I know what's happened....
The Federal Reserve invested in Iceland to get a massive rate of interest and thus offset the cost of the bail out.
Oops! Iceland has declared it's banks are bankrupt and we have frozen their assets in this country.
Paulson can't get at his money cos it's gone!
He now has to apply for compensation of £16,000. Not only that, but Russia is looking at bailing out Iceland. Now we know why the Russian stock market rocketed through the ceiling this morning and had to be closed!
He's busy filling in the form now to ask the Kremlin for his money to bail out the market, then he's going to write to Gordon Brown and tell him that he wants Hamleys' assets unfrozen so he can get his compensation.
Finally, he's going to church to ask God for the inside info on how to invest his 5 loaves and 3 fishes to make his £16,000 fill the liquidity gap!
That's twice I've had hysterics tonight!
(I really hope this hasn't happened!)
Night all!
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There is not enough real money to fill the bubble puffed up by the global banks over the last decade. Countries will default, Iceland look close to that now. Gordon Brown beats up that small country because he can. What happens when other countries decide to beat up us? We are about to engage in bloody and destructive times.
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sorry, couldn't sleep for laughing!
Random thought....
Poster 310 - Chris
Closing the markets? We've been saying that for days.
I guess a trip to Washington HAD to be made first - after all, all these Treasury staff need a break I guess!
So not only are we waiting for Europe to say our bail out is ok as State Aid, we now wait for G7 to say it's a good idea to close the markets!
What a load of rubbish! Just an excuse for a trip around the world!
By the way Chris, you're not Robert are you? After all, people seem to think every rumour/leak comes from him first! No offence meant.
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i would feel a lot better about this if there were people of calibre intellect and experience in charge...i look at the so called leaders, G Bush, G Brown A Darling, S Berlusconi, N Sarkozy etc etc...i wouldnt buy a used car off any of them. Luckily the british economy is well placed to withstand the current world financial turmoil due to the past ten years of prudence......
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I am glad to see that one or two people are as outraged as I am that the culprits of the underlying cause are not being penalised. Why is there not more of this???
Can we not demand retrospective action to claim back the VAST bonuses and salaries, which would probably equal the sums the taxpayers is being asked for now, syphoned out of the system by the creators of the sub-prime scam.
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Robert, please ask the BBC to appoint more moderators at this crazy time-these posts are taking way too long to get posted.
Either that, or software like crispblog #314 says
The delay is ridiculous!
Or (said in a whisper) is this news blog blackout by stealth? Has the BBC been silently taken over by a government quango?
Is my computer going to fizzle out and explode?
Can I expect a load of gun toting persons with black jackets and face masks to kick my door in at 3am?
Funny how all this talking from behind a smoke screen quickly leads to distrust!
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test
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you can call it greed, I bought 3000 worth RBS and Hbos shares today, thought this is real deal. anyone can give me some insights - like what could happen if the both banks get bust or nationalised - does it mean I will lose all my money? sorry for sounding me so naive
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you can call it greed, I bought three grand worth RBS and Hbos shares today, thought this is real deal. anyone can give me some insights - like what could happen if the both banks get bust or nationalised - does it mean I will lose all my money? sorry for sounding me so naive
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I've never dabbled on the stock exchange personally, though my past endowment policies and my pension are somewhere in there!
I have heard that the rule of thumb is to buy when stocks are low, and sell when they are high.
But then I'm no broker - nor an expert. I was a bank manager in the 'good old days' when customer service actually meant something. I got out after it became a make the most money for the bank situation.
I guess it's like going to a casino - don't gamble if you can't afford to lose it!
Your money, your choice what you do with it-there will be people around on here tomorrow who will be able to advise you far better than I can.
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Fractional reserve banking at 10%interest ultimately requires 90%participents to become economic canibals in order to repay debt plus 10%interest This is assuming that they do not all invest in colapsing assets thus putting the loans [currency]beyond legal recovery of the initiating bank [what has now happenned]
When the gold standard existed gold could be used to pay off debt and extra fiat currency was not absolutely required
Banks pump ever increasing ammounts of fiat currency into the system to try and recover unrecoverable debt , thus inflating automaticaly asset prices and recreating the appearance of solvency for debtors through what is called a credit hubble bubble toil and trouble ,as prices rise everyone can reammortise hopefully to infinity and beyond [The delusion to those who would believe a lie]
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W
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When Nick Leeson bet Barings Bank on a gamble, he went to jail for 4 years. The money involved was small compared to the maniacal amounts now being talked of. Have the Police started their investigations yet into the frauds?
The gamblers, they are not bankers, leveraged their money so they could gamble with up to 35 times the amount they had. Then when they lost the bet they came and said the world would explode if we didn't fill their gold begging bowls.
The banks that can't survive should be taken over by those that can, like A & L, HBOS, Heritable, Derbyshire etc were. As with any other business, in a fire sale, the auctioneer knocks goods out at any price they can fetch. Savers must be protected, but shareholders must lose if there are no assets. That?s what shares are, risky.
The people who gambled the banks away, their "supervisors" and Directors must be sacked. It appears the Auditors were asleep, and the FSA plead ignorance !
Real banks raise money, not acronym paper, and lend it at a higher rate than they pay. The difference is their profit. They can have other business as well, insurance, credit cards, etc, but they must never again be allowed to be gamblers.
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Tony Blair has 6 houses [so we are told of six pack tony]he must have understood this scheme of things ,which explains why the bulk of relaxation of lending criteria[INCREASING DEMAND AND THEREFORE PRICE] took place under his stewhardship of the titanic economy [lacking sufficient lifeboats]that crossed the atlantic bumping into the good ship lolipop [the icelandic]on the way out .
It also explains why the FSA was separated out from the Bank of England allowing the most lax lending practices as defined above to be undertaken by Northern Rock and others against the advice of The governor of the BOE .
Will NEaRO LABOUR be fiddling whilst
A RM burns into equity
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I tend to agree with NorrieC, Maroon3, Boilerplated and MorayMint.
Let's change the banking system (to one which discourage debt and planet destruction), the government and the electoral system and in the meantime stock up before the troops come home (for martial law.)
ps And sack nearly all the bankers including those bank salespeople in the high street
yes, those non-fat cats who have been trying to lend money to me and sell me things I don't want or need and who have been lying to me (in ignorance or deliberately) for the last ten years about the 'soundness' of their organisation.
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#333 Oh good !! When can I buy Aberdeen Council ?? I hear that they owe Landsbanki 120 million smackers and they can't pay all that back immediately !! I squeeze their pips till they squeak and flog the lot to the Siberian salt mines. I hear that they are in a permanent need for more workers. I wonder why ??
Re. poster above who spoke of banks borrowing from the pension funds and lending back to the public.
Well, about 40 years ago the Singapore Government short-circuited that process by setting up a national pension scheme. They then allowed the contributors to borrow from that fund as though it was a bank BUT only up to limits set according to some formula where his contribution plays a big part in it. Interest earned from the loans were added back to the pot !! That scheme is now the envy of many in East Asia and the Singaporean pensioners are very well looked after.
Since it is a Singaporean government-run scheme (i.e. lean and mean), any hanky-panky will be rooted out and dealt with ruthlessly !! Singapore still had flogging and hanging as part of its judicial punishments !! Both Tarbuck (Slater-Walker debacle) and Leeson (Barings debacle) used every trick in the book *NOT* to be tried by the Singaporean judiciary !!
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The "devastating de-leveraging vortex" can be easily handled if the banks' assets were dealt with in a proper commercial manner instead of loading them with all sorts of unnecessary and unpalatable political agenda !!
The Middle East and the Far East are awash with cash. All the distressed banks have to do is to say "please" and for the relevant government to keep out of the way and let commercialism take place and the problems will be lessened if not solved !! The boss of HSBC can afford to sit back and smirk because he (and his) bank can tap into a source of funding that the others cannot !!
As for those who bang on about banks that are bigger that the government they are registered with, just note that the HSBC is a *Bermudan* bank !! The assets of HSBC are orders of magnitude bigger that the entire economy of Bermuda !! I have yet to hear of the Bermudan government going into a flat panic !! I can just visualise the Bermudan PM sitting somewhere in his short-sleeved shirt and (dare I say it) Bermudan shorts, relaxing over a rum and coke while Gormless Gordan flaps around all over the place like a headless chicken !!
Welcome to the truly globalised economy !!
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the good thing to come our of all this is that we all know a huge amount more about how banks finance things. Hopefully global governments will listen to the people.
When this is over, an awful lot of people will have learnt an awful lot of lessons-hopefully the right people and the right lessons!
Suck it and see shall we?
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Post 315, crispblog
I know that you did not address you`re comments to myself,but I am in total agreement with NorrieC on the danger of Fractional reserve banking,so I feel I should respond.
Yes,I`ve read you`re post 219 on the "why bankshares are falling" thread which you say demonstrates you`re superior reasoning regarding the FRB concept.
An excerpt consisting of you`re last paragrapth:
"It[Fractional reserve banking fraud] does not in itself lead to geometric growth of liquid money the way you describe it. It is at the moment very much threatening to massively reduce liquid money, which is what happens if it crashes."
It does`nt lead to geometric growth of "liquid money" i.e debt?
Chuckle,chuckle!
It is very much threatening to massively reduce "liquid money"(I`ve not noticed mention that particular term by the way!),which is what happens if it crashes.
Indeed it [FRB] is!
The historical record is all the proof needed to convict fractional reserve banking,no matter how "well" it is administered.
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Whether individually or globally, it is unusual (and generally illegal) for a bankrupt body to be completely valueless. The Icelandic borrowing was spent on something, and even if that something went bust, it too had recoverable assets. Unless it was put on the 2:30 at Cheltenham, or the equivalent, then it's hard to see where Iceland disposed of the cash that's valueless. We know they hold a portfolio, the real answer is to dispossess the directorate and assign the assets to the cheated investors.
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# 292 NorrieC
Calm down. You assertion that the Great Depression was caused by the money supply is a non-sense. Friedman got it wrong and you are using his argument, knowingly or not. On his chart you can see that the FED money (monetary base) actually increased, but he wrote that it it reduced because he was so desparate to show that it was the fault of the government and not a normal, recurring part of capitalism. This statement then is endlessly repeated in economics textbooks, but it is factually wrong. What collapsed is the inter-company loan. That did. But the cause of the Great Depression was not that. The cause was in the coupling of normal cyclical recession with a highly oligopolistic economic structure, plus the fact that all the major economies were in the same phase of the cycle and there were extensive international lending problems. The reason it lasted so long, because the oligopolistic companies were capable of resisting to the devaluation of the assets (for a while).
You also slightly misrepresent the fractional reserve banking system. You can operate it on the basis of prescribing the securities that can trigger it (as they use to do it in France in the 1960s) and then, except for crisis situations, it would withdraw the additional money every time a loan is retired - in effect, only bill of exchange should trigger the money creation. Capitalist economies need it (even when Peel's Act introduced the gold basis of the pound after the Napoleonic wars, it was not perfect, as the state debt was taken out of it) - it's the fourth function of the money in Marxist political economy.
However, you are perfectly right in saying that a very large proportion of the "assets" is phantom and there is no "balancing" that can deal with it, there is no rescue for that. It has to be destroyed.
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#313
"According to Lt. General Dallaire (the senior UN commander in Rwanda at the time of the genocide) the Pentagon created a computer model that sought to demonstrate that the lives of 80,000 Rwandans was worth the life of 1 US soldier. - This is capitalism.
The financial crisis that the western world is currently experiencing is as nothing to the horrors that capitalism routinely visits on the truly poor and dispossesed."
The content of your message just prove that, at least in it's current incarnation, Capitalism has failed, the idiocy of above says it all...
Of course, capitalists and speculators will never admit until we are in depression that they 'had it so wrong'.
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Just another thought for the future. Markets have freefall cut-outs in, nationally, to stop irrational drops driven by computer. However, there's no such thing at the international level, and a Spanish wave of panic can have exactly the same effect washing round and round the world. Perhaps the G8 should consider the possibility of imposing a week's freeze on the entire markets, subject to warning so short positions can be squared.
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# 302
You logic is incorrect. Had the banks (OK, most) recognised the risk element of their balance sheet appropriately, they would have to accumulate risk provisions, that has to be done from pre-tax profit, hence there wouldn't have been any profit, actually it would have reduced equity, hence the shareholders would have paid for it, and thus the banks shouldn't have paid any tax as they wouldn't have any profits.
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# 331
The gold standard system was supposed to operate like this, but it has never operated like that. Any time, when there was a tension, it was suspended (in every recession after 1857) . And when the first real trial happened (1931), it went bust and never seen again.
Moreover, a number of countries has never had gold standard and yet operated pretty well.
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Sorry 260,
did not mean to hijack your blog name, just meant 'friendly card' as to 'red card', ie: trying avoid flame war. I shall not use it again.
Guy
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#339 Thehoaxofalltime
Chuckle all you like .. I have had a fair few on you guys.
A number of people here labour under the misapprension that banks create money by simply writing it into existence. It is correct that banks create money, but they do this by taking a deposit and relending it, hence both the depositor and borrower has liquid money to spend (but no one is richer, as the borrower also has debt on his balance sheet). I use the word "liquid" to distinguish it from long term savings and bond-like instruments.
Banks (and other institutions) also borrow and re-lend through these routes. This does *not* create money in the normal (liquid) sense of the word. It creates matching assets and liabilities, but the savers *money* is taken out of circulation and given to the borrower. It is an important distinction, for the following reason:
A main assertion is that FRB is a "fraud" because the bank doesn't have your cash in a vault and relies on confidence to ensure that not all depositors withdraw at the same time. With long term savings and bond-like instruments, the saver has given up to option to withdraw or cash in. Where is the fraud?
The second main assertion is that FRB by its nature automatically creates more and more money. If by money you mean long term savings and bonds - it has not really got anything to do with FRB, lots of institutions are engaged in this, including pension funds and mobile phone companies. If by creating money you mean liquid money (deposits and cash), as I have explained - money is only created to the extent that individuals and companies on average decide to perpetually *increase* their deposits relative to other forms of assets. And why would they.
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RE post 288...
Yep, FTSE100 is now below 4000....
8.28am = 3935.09 down -378.71 -8.78%
I bet Markets get suspended....
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After continued turmoil last night we really need to accept there will be no going back the world as it was even 2 weeks ago.
It's pointless continuing with those old assumptions, assertions and undertakings. The more money is ploughed into the systems the worse it's getting, either because of that or in spite of that.
I predict that we over the next few days more countries incl UK will go the way of the Icelandic model, such as it is. Thus a new system needs to be drawn up, and fast.
I am sure there is an upside to this, however oddly it ends for world economics (I hesitate to say catastrophically because the old systems have failed and should be binned). I have felt for several years that global warming could well be cured by some major event, either man-made or from nature. I think this economic chaos could well be the trigger. If nature chimes in now, which it easily could via disastrous flooding, earthquake or tidal wave or tornado (and let's face it with winter coming it may yet), world attention will rapidly be drawn to another set of unforeseen circumstances that will, frankly, knock the relative importance of all the ecomomic failure into a cocked hat because nations will really have to pull together. It could equally well be a major terrorist event, would not wish to remark overmuch on that at this time.
GC
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346 Guy:
That's quite OK, and sorry I missed the red card reference. Enjoyed your post 349, by the way - very good and thought-provoking.
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#252 Why are we subsidising banks? I don't want to sound alarmist but what happens to the credit lines which our banks provide to industry if banks go bust? I'm not just talking about companies going bust and layiong opff workers. I don't know how the supermarkets are funded but presumably they use bank credit. What happens to a supermarket if its credit is disrupted through its bank collapsing? Does this affect food supplies? Would the Govt/BoE havr to start providing emergency credit lines direct to essential businesses? I don't know the answers but all it takes is a little imagination to think of possible implications. After all Iceland has already gone bust. What about the other supermarkets!!
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This comment was removed because the moderators found it broke the House Rules.
I would also expect that UK must be close behind Iceland in terms of having an unsustainable economy, which is over-dependent upon invisible earnings.
How long before we see panic buying and martial law ?
Or will the G7 declare New World Order - all your bases are belong to us :)
No, Tiger, I'm not anyone serious or important, but I did qualify as a *anker 40 years ago, so we have something in common.
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No. 319 Noideaatall
quite a few economists here and some experts on FRB, although I do feel that there is a difference between 'normal' banking and the crazy levels of leverage we as a society in the west have allowed to build up in our shadow banking system.
I am indeed not a banker, but just someone who admits that we are all living on tomorrow's money and my wage (modest) is as unjustified as most people. We are pretending that we are entitled to a standard of living that we cannot afford.
People who earn £100 and spend £90 think they are living within their means, but not if £50 of that £100 was from custom based on borrowing. Then when its payback time and it disappears suddenly, we start blaming the bankers, the politicians, etc. etc. The fact is that whatever MOST of us have earned in the past years has had a huge element based on borrowings. i.e. tomorrow's money. It was never real, and even if we lived within our means, we actually didn't in aggregate.
How many would have spent the way they did on credit cards, etc. without the knowledge that they were building equity in their houses? If overnight, ppl accept that their houses are only 'worth' half which is closer to a sustainable price, what will they be willing to spend and what will lenders be willing to lend? Take all that demand out of the economy and your past wage is as undeserved as mine.
Exceptions: - Yes, GB should have built up a surplus in the good times, but from the NHS to teachers to 10p taxpayers, we have ALL benefitted one way or another in an UNAFFORDABLE way.
And yes, when Stan O'Neal takes $160m from a bankrupt company that is downright criminal. But 99.5% of bankers are just normal ppl. A 6-figure wage will nicely rent you a whole 500 sqft in London and everyone here lives with 2 mortgages anyway, i.e. house + school fees.
90% of ppl on this blog are venting their spleen at others. Its pointless. I'm only this bitter about my savings and taxes being shafted in this bailout because I shouldn't have (say) half of them anyway. It is a bit similar to accepting the fact that the taxes coming directly and indirectly out of the banking sector have paid their share for the welfare system of the UK!! Nobody was cribbing then, but the taxes were as unreal as the banks' earnings!
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Any new exclusives!!!!! I mean has any of your city friends told you anything yet?
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Mr.Peston is truly a financial colossus. He speaks and the financial world listens...!
As a practising shipbroker myself, if he has seen fit fit to pronounce on the world of shipping, the situation must be critical..... time to stop baling and bale out.
Now where's my cv ?
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