What Mervyn didn't say
The slightly odd thing about Mervyn King's speech last night is that it didn't address the issue of what the central bank, the Bank of England, could do better next time.
King's analysis of what went wrong is spot on, as always.
In a nutshell our banks and other financial institutions lent too much against the security of over-valued assets, largely residential housing and commercial property.
And to obtain the funds they lent to households and business, those same banks were too dependent on credit from wholesale and overseas sources (net wholesale funding of our banks went from zero in 2001 to £625bn by the end of 2007).
So when the penny dropped that the value of houses and property was falling fast, two terrible things happened at the same time: the overseas and institutional providers of all that incremental funding wanted their money back from our banks, because the formal or informal collateral underpinning that funding was shrinking; and the capital foundations of the banks were eroded by actual and prospective losses on loans that had been made into those frighteningly pumped-up housing and real estate markets.
Banks have been living with this devastating combination of a liquidity crisis and a solvency crisis since the summer of 2007. At times, the symptoms of the disease have been relatively mild. Since the beginning of September, after the collapse of Lehman, the entire banking system was almost in its death throes.
And it's not just been a British disease. This near-deadly combination of banks that lent too much to finance the purchase of inflated assets while being dependent on capricious, unreliable wholesale funding has afflicted the US, other Western economies and - as the extreme case, the sickness in its purest form - Iceland.
Which is why governments and central banks all across the world have adopted similar remedies for their banks: injections of new capital; guarantees from taxpayers to providers of wholesale funds to persuade them to keep their money in the banks; and massive taxpayer-backed loans from central banks.
Few, I think, would dispute that these are the right remedies, although there is a question about striking the right balance between capital injections and the provision of liquidity or cash.
But although the patient, the banking system, is no longer close to death, it's not out of bed and handing out squillions to anyone able to utter those fateful words, "can I have a loan please?"
Nor, with any luck, will there be a return to the lending mania of the few years before the Crunch, or at least not for a long long time.
But there can be no growth in the economy while banks contract the credit they provide to companies and households.
And the reluctance of banks to lend will continue until they're confident they can see the bottom of the fall in asset prices - and we're not there yet.
Also, all that extra money that we as taxpayers have lent to the banks and invested in them (some £600bn and rising) will have to be repaid: that too acts as a serious constraint on how much our banks can lend to businesses and individuals.
Which brings me back to where I started, which is what the Bank of England and other central banks could do better next time.
What was important for me about Mervyn King's speech was that he conceded that our woes stem from a borrowing binge that both fed and fed off the over-valuation of our housing and property markets.
But shouldn't the Bank of England and other central banks have curbed that binge before it became near-lethal?
When in the spring I put this point to King's deputy, Charlie Bean, and also to Jean-Claude Trichet, the president of the European Central Bank, they both said - in essence - that they don't have the tools, that raising interest rates to put a brake on house-price rises or on the growth of credit would have had unfortunate consequences for the wider economy.
And, in the case of the UK, to have hiked interest rates to stem the bull-market in houses and property would have led to the Bank of England undershooting its inflation target in a way that would have been deemed a failure under the mandate it's been given by the Treasury.
Which perhaps means that central banks need new tools and new targets.
The Tories have talked about giving the Bank of England the power to vary the capital ratios of banks depending on credit conditions, which is a fancy way of saying that the Bank of England would be able to force banks to lend less in a period of economic euphoria.
Many will say that's by no means bonkers - although there are immense practical difficulties in devising a credible framework for the Bank of England to exercise such new powers.
Perhaps the important point is that the ultimate strength of any economic recovery will depend in part on all of us regaining confidence not only in the robustness of our banks but also that our central banks have regained the ability to deliver a stable economic environment of low inflation and steady growth - and the important word here is "stable".
It would be impertinent to suggest the theme for Mervyn King's next speech. But he would, I think, attract a large audience for his thoughts on how and whether the Bank of England can prevent the next credit binge and asset bubble.
UPDATE, 11:21AM: Crikey. At a time when some have questioned whether central banks have lost their power, Mervyn King still moves markets.
Sterling has plunged overnight and this morning - especially against the dollar, where it fell from $1.67 to $1.62 at one stage.
That's going to hurt a few traders and speculators, and may nudge inflation up a bit.
Which, in the typical mad fashion of financial markets, reduces the likelihood of the very prospect that has bashed sterling in the first place - namely the expectation, based on King's speech and this morning's minutes of the Monetary Policy Committee, that the Bank of England will cut interest rates again in the coming weeks.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~03~RS~)
CommentsSign in
You need to sign in to contribute to this page. If you're new to BBC Blogs, creating your membership is quick and easy.
"Which perhaps means that central banks need new tools and new targets."
Very true - including asset values in the target would be a good start. The Bank would have been justified in undershooting the basic inflation target, if it was trying to control the asset/credit bubble of recent years.
Complain about this comment
AAAh Mr Peston, you havent been told to mind you own business and get back to reporting on business matters by any chance.??? I don't expect Nick Robinson will be too chuffed at you treading on his patch.
Oh and by the way, if you do report on something, have the good grace not to put in the little throwaway comment ("as I say in my blog". Its intensely irritating.
Complain about this comment
Strong leadership and prudence - two sadly lacking qualities over the past few months.
Monetary policy and banking regulation should be overhauled. Problem is the Western economic model is used globally. Therefore, as new precedents are being set by this credit crisis, no one really knows how to deal with the problems.
One thing is for sure. We do need to cut interest rates and stimulate the economy. Public works are a good idea. However its the how to pay for it question that is the problem. UK plc has already hit its gilts overdraft limit, and has then asked the markets to increase this to raise more money to pay for such works. All debt eventually has to be repaid. How is this going to happen with rising unemployment, rising benefit payments, lower GDP and poor credit market liquidity.
These are not easy questions to grapple with. We, the public, have to sit and wait.
Complain about this comment
The bank's remit implicitly agrees that so long as growth is within acceptable targets, it matters not whether houses or other valuable (and vital) assets are being used as sources of wealth as well as stores of wealth. Which to my mind comletely misses the point.
To my mind, the very fact that something as vital as housing, at least amongst poorer people, could be a source of wealth and profit one minute, and then a millstone around their neck the next, is fundamentally wrong. And it stems from insufficient council housing giving insufficient competition for private landlords, thereby making the 'buy to let' decision a few years ago a bit of a no-brainer for those who could get the finance.
Complain about this comment
My word, unless I'm mistaken I think I can actually spot some economics in this blog entry!
Trying to shake off the shameful gossiping of yesterday are we, Robert?
Complain about this comment
Robert
In order for the banks to survive they have to keep lending
They cannot keep lending because everyone is broke
Therefore, the Banks will be broke, the taxpayers money will be gone and the only solution is
quote: The Tories have talked about giving the Bank of England the power to vary the capital ratios of banks depending on credit conditions, which is a fancy way of saying that the Bank of England would be able to force banks to lend less in a period of economic euphoria.
Unfortunately, the problem will have the same result in economic doom
Banks will have to have a ratio of 1/1 period.
Complain about this comment
It is good to see that the Governor has woken up at last from his deep sleep over our economy. Now that he is awake he should pause over his corn flakes just long enough to ring colleagues and say that we are going to cut interest rates by 2%. Not a quarter or a half as usual, but something bold and brave, and entirely in tune with what we need right now. And while he is at it, he can tell his friends in Government that Lord Mandeson should stop threatening LLoyds TSB shareholders that if they do not agree to the merger with HBOS he is going to take his (sorry our) money away. Most of us think that the merger is as stupid as Lord Mandelson and George Osborne going on a yacht with a Russian oligarch - they should know from the Profumo case that Russians and parties are political suicide.
Complain about this comment
"And, in the case of the UK, to have hiked interest rates to stem the bull-market in houses and property would have led to the Bank of England undershooting its inflation target in a way that would have been deemed a failure under the mandate it's been given by the Treasury.
Which perhaps means that central banks need new tools and new targets."
I'm not sure you followed this far enough. The significance of the involvement of the Treasury in creating this regulatory regime has been overlooked. It was Brown who designed it, Brown who set the targets, Brown who chose CPI as the inflationary measure and Brown who is responsible for this fiasco.
If the target had not been CPI, but RPI, then the Bank could have started raising interest rates in 1999 (when they had been at 4% for some time) when RPI began to climb. This would have eased the approaching problem and left us with only the single whammy rather than the double we have been hit with.
However, Brown chose this measure to generate a growth bubble to ensure he and Blair won three elections. So well done Prudence.
Complain about this comment
Nice to see you doing your proper job instead of spreading political tittle tattle provided by spin merchants. Seeing you go from programme to programme yesterday wriggling to justify your actions appeared to be most embarrassing.
Complain about this comment
It's interesting that many people are now saying that we are in a recession but that it will be a short recession or V shaped. Yep, I really believe that!
Complain about this comment
> his thoughts on how and whether the Bank of
> England can prevent the next credit binge and
> asset bubble.
His thoughts will be of moral hazard. In particular, he will notice that borrowers are experiencing the full force of moral hazard, as they are being turfed out of their homes. But the bank people simply keep their bonuses. If we don't severely punish the bank people quickly this time, future bank people will take note, and they will take large risks again, and again...
It's time to retroactively go after the assets of the bank people. Then we can all sit back and enjoy the schadenfreude, knowing that we've done the necessary things to stop another iteration of greed.
Complain about this comment
So, no mention of the GBP in free-fall then?
Complain about this comment
Why are all the banks in the same position, did none of them see this coming?
Complain about this comment
It's not just what Mervyn King didn't say, Robert. Gordon Brown has been silent on - and has not been held to account for - his decision a decade ago to divest the bank of its regulatory powers and pass them to the half-baked FSA. I know that the banking system is more complex than it was ten or twenty years ago but that makes it all the more important that the regulation is focused in one place. One way or another we need a return to the "Governor's eyebrow" - the informal system whereby bankers invited to take tea at Threadneedle Street were made subtly aware of the Governor's displeasure when he raised one eyebrow.
Complain about this comment
So now we are to understand that it is not either a Prime Minister nor a Chancellor nor the Bank of England alone who can claim to prevent the Boom and Bust that is part of our economic cycle.
Common sense has always indicated it thus and now perhaps some unity of thought may really be given as to what strategy must always be followed whatever political party holds power.
Let that be the legacy of this current financial hiatus.
Complain about this comment
"net wholesale funding of our banks went from zero in 2001 to £625bn by the end of 2007" - quite stunning, i had no idea that it was like that, thanks for this useful bit of info. if a company funded its business activities purely from loans & credit and not from cashflow or assets, it would rightly be expected to go to the wall sharpish. never was that old dictum more true: if you owe the bank a thousand pounds, it's your problem, but if you owe the bank a million pounds, it's the bank's problem. nice one!
Complain about this comment
Dear Robert
Some of us would prefer him and the MPC to concentrate on how they can use their influence to help reduce the risk of a deep recession and surprise the market with a deep interest rate cut.
Navel gazing is for later.
Peter Kenyon
http://petergkenyon.typepad.com/
Complain about this comment
We have all been 'piping up' about the false economy of deliberately creating a housing shortage to inflate house prices for ages. You can not flood the country with overseas workers and not build more affordable homes, it's ridiculous.
Now 'Merry Mervyn' has more or less said the same thing. I would like to know what happened to all the tax payers money that John Prescott spent try to rectify the affordable housing problem. Surely it could not have all gone to consultants ? Some houses must have been built.
Complain about this comment
Maybe we're lucky we have such a talented man at the head of business.
Obviously once he gets around to doing anything about it rather than spreading lies and innuendo
Or maybe they should have given mandelson a fake job to build up a smear campaign so that somebody who's actually concerned about saving british workers, rather than playing political games (with the aid of the impartial bbc), can do something about this coming recession because mandelson and brown didnt look in the slightest bit concerned last night more interested in laughing at failing businesses.
Welcome to the 70's
Complain about this comment
Get over it! This isn't news!
Complain about this comment
What the BoE needs is surely a whole new system for bank regulation AND a new set of instruments for macroeconomic policy management...or at least for SOMEONE to have them! We have lived for more than a decade with the bizarre belief that macroeconomic poilicy is interest rate setting, and fiscal policy may play a role somewhere but noone any longer seems quite sure how, and none of it is coordinated.
Your father, Robert, once wrote a blistering short called 'Whatever Happened to Macroeonomics?' - in which he outlined the demise of macro *thinking* in the tradition of Keynes and Kalecki. We have now seen a generation pass at the Treasury for whom the levers of macroeconomic policy management are strangers. We need to start thinking again about how a genuinely integrated macroeconomic policy can be crafted for these difficult times.
Complain about this comment
As I posted yesterday.....
IT'S ALL ABOUT THE FRAUD THAT IS THE FRACTIONAL RESERVE BANKING SYSTEM....STOOPID!
It's the Rothschild's best kept secret. Get rid of FRB......and all the world's wounds would be healed overnight.
It wasn't denigrated in the oldest books for nothing you know (i.e. the Bible, Old Testament, Koran etc. etc.)
Isn't it amazing how the systemic banking crisis is now subsiding. The exponential growth of debt requires the deliberate triggering of boom and bust cycles just so that the bank ownwers remain the masters of the universe.
Expel USURY......you know it makes sense!
Complain about this comment
I'd be curious to know who decided to leave house prices out of the RPI / CPI inflation calculations.
Yes, you can have low inflation for ten years, if you leave out the very things that are inflating in price!
Where has the treasury and BoE stood on this? I'm sure even as recently as this year, this policy was probably defended.
Complain about this comment
This is a Homer Simpson moment!
Of course it's all about varying capital ratios!
Doh! Doh! and Doh! again!
The Bank of England MUST have the right tools in place to be able to adjust bank lending. Doh!
Complain about this comment
Within the current framework, it would have been possible for the FSA to mandate the criteria that the banks/building socs must use to assess home loan (mortgages).
For example, the FSA could rule that loans must not be offered beyond say, 4 times earnings.
If such rules had already been in place, then we would not now be trying to painfully deflate this particular bubble.
Which, incidentally currently shows average property prices at just over five times avg. earnings, down from just under six times a few months ago.
Complain about this comment
Erm,
Forgive me if I'm wrong but didn't the BoE have such tools to constrain bank lending BEFORE Brown took them away?
Incidentally, that inflation of asset prices?
Did that have something to do with rampant M4 money supply growth of 10-15% actually inflating house prices & other assets.
And a government unwilling to stimulate more supply of homes?
Perhaps you should stick to gossip because lumping the blame on the banks isn't the whole story and you know it.
Complain about this comment
Many will say that's by no means bonkers
Yawn - back to your old games eh? Damning the tories proposal with faint praise - you are completley transparent...
If many say it isn't bonkers, that implies that some people do think it is bonkers -- maybe you could tell us who these people are? Do they have witnesses who are prepared to go to court? Or were you told at a party, so can't let on?
Complain about this comment
Growth. 1767-2008. R.I.P.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Nice to see you have finally debunked the idea that Maggie was to blame. Wholesale borrowing was the cause - Zero in 2001, rising rapidly thereafter. Definitely on Mr Brown's watch. We've had the bankers on whose watch it happened resign...
Complain about this comment
"there are immense practical difficulties in devising a credible framework for the Bank of England to exercise such new powers."
No actually. The difficulties are political. It would be very ease to create and manage the banks, their lending and their capaital or prudential ratios.
The current difficulty is that a loan is seen as cheaper finance than equity and at a time when the realistic value of the 'equity' is still too inflated (ie questionable collateral) and the risks too high.
Banks local business managers might set up matching businesses in need of money with investors, perhaps 12% conv. Preferred, and take a fee. But the businesses will demand a loan because they seek leverage, dismiss risk and see cheap money as an entitlement- much like Benefits. Indeed loans seemingly have been.
If businesses was replaced by property/houses the exact same would apply.
The Governor has consistently voted on the MPC for higher rates during his tenure. The Treasury representatives lower. Sterling is now dropping off a cliff CPI, RPI, Rossi, etc are all well above targets and the country in a slow meltdown; difficult for the Governor to be other than diplomatic about the MPC and its remit.
Complain about this comment
The UK economy was not large enough to sustain the high cost of property, so we had to borrow from foreigners. We shall now see how small it is when we try to borrow off foreigners to dig ourselves out of the slump we are in. For too long we have been told we can get by in this world selling fast food and cheap imported tot.
That is not enough to sustain a mordern ecomomy for long. Only this morning India has launched a rocket to the moon, while here we worry about what was said on some Russian's yatch.
But in trying to start borrowing his way out of trouble Brown seems to have started a run on the pound, so he will be happy, now that we have another financial crisis to worry about.
Complain about this comment
I am going to be impertinent too and suggest that the subject of your next blog is why Brown hasn't made a speech explaining what he could do better next time!
Complain about this comment
The fall in the pound is about to make headlines as the rest of the world cottons on to the reality that the printing presses will soon be going full steam to "make" money for the financial and economic bail-out. This should make conditions easier for the few exporters we still have, although some will struggle to deal with volatility in the forex markets. This is the time for the UK government to woo high tech industries back to the UK. What on earth is the benefit of building aircraft carriers to be used in situations which would result in the UK spending even more money it does not have?
Complain about this comment
Mr King and most mainstream commentators still avoid mentioning the elephant in the room...the big banks as yet still unknown and unquantified liabilities. Apart from their direct exposure to "sub-prime" of much greater concern are their indirect exposures. These relate to their offloading (sale) of the financial instruments that guarantee certain types of debt. The timing of these sales in certain cases could be seen as suspicious, especially those carried out in the months leading up to "the Big Bust".
Buyers of these financial instruments now find they have incurred huge liabilities, don't like it and of course are resorting to litigation.
Actions placed in US courts are likely to take some time to pick up momentum, but when they do, we can expect to see some mind boggling numbers claimed as compensation and financial penalties, and our big banks are likely to be on the receiving end of some of these.
And never mind the criminal actions....
Complain about this comment
How to get volatility out of the housing market? Housing should be respected and the government should promote stability. So many jobs are linked to housing that surely it would be better to remove the boom and bust nature of the market and to avoid the mess of repossetions etc.
Perhaps a capital gains tax on potential mad gains in housing equity is a way to push wealth to poorer areas and to dampen the speculation? I believe that sustainable economic wealth must be found elsewhere and that a house purchase and sale must be taxed when gains are made to ensure that wealth is kept in communities.
Shares are taxed when a gain is made. If not, I imagine even more speculation and a loss to the taxman. Now is the time to think about ways to change the perception to housing and to consider it as a place to live and not a place to gamble.
Complain about this comment
Blimey a business story, I was expecting to see some more government-leaked insight from Mr Peston regarding Osborne.
Best I trot off to Nick Robinson's blog where this stuff usually is
Complain about this comment
Hopefully, house prices will drop to more reasonable levels on the back of all of this. Thankfully I didn't listen to my ill-advised (by the media/government) peers and stayed away from the property bubble. I've a little sympathy for the buy-to-let landlords or those who are in negative equity now, even though you were the first people bragging about how much "money" you had made on your house every year, you were shockingly brainwashed into it by Brown & Blair's infinite boom charade. However, if you want to play the markets then you should be prepared to lose as well as win. Unfortunately there's no bail-out for you.
Complain about this comment
Robert
You should already know the answer to this question.
The Bank of England cant do anything different because Gordon Brown has set them the wrong inflation number to target that doesnt take into account house prices and the control of financial institutions was taken from the Bank of England and given to the FSA, again this was done by Gordon Brown.
Has Campbell told you to breif against Mervyn King now? It certainly seems it.
Robert what happen to reporting facts?
Complain about this comment
I think the government and the bank of England went into this with their eyes open. The reason? They both knew that the British economy has been effectively bankrupt since the late 1990s. We have lost our wealth producing capability to globalisation, which was pursued in the interests of a self-styled elite who felt themselves to be flying above the weather. The only remedy for this was a bubble boom to keep Tony and Gordon in power for long enough to enjoy the benefits of that power. Commentators have been talking about the "cappucino economy" since the late 90s and the dotcom boom. It is possible that they never dreamed they would still be in power when the bubble finally burst.
Complain about this comment
We do Mervyn King an injustice.
Two year,s ago he warned the banks about their levels of high risk lending.
They were too busy banking their bonuses to hear what he said
Complain about this comment
Hail the new king - Mervyn King
Complain about this comment
Mr. Peston
I am not sure how the Bank of England could have been expected to have prevented "borrowing binge that both fed and fed off the over-valuation of our housing and property markets".
Their remit is - solely to control inflation (as defined by the RPI) via varying base interest rates. House price inflation has been excluded from this measure, therefore the Bank has no method of control.
It was, and is, the role of the government to control said binge, which they spectacularly failed to do. It was deeply irresponsible, albeit expedient, to exclude house price inflation from the RPI.
Complain about this comment
Is not the fact that the BOE's decisions are based almost entirely on inflation targets set by the government of the day thus limiting their scope for action? I do find it amusing that the Governor has to write to the Chancellor when the target is not met when in many cases the government could have acted to prevent some of the causes for the rise!
Complain about this comment
Mr King made a solid report last night even though it did lead to a run on the pound. That is the price of truth these days!
I don't usually agree with dressing down into black ties but the occassion was certainly better managed than a party in a Corfu taverna. I expect the wine and the gossip flowed less freely as well.
I am alarmed, Robert, by your question as to what the Bank will do next time? NEXT TIME! Dear God, I certainly hope there will not be a next time, certainly not in my lifetime!
I agree whole heartedly that the regulators should have been a lot keener to regulate the boom when it was in full swing. However, is it the job of a civil servant to call time at the banker's party? You can just imagine what would have happened if either the Bank or the FSA had intervened in say, 2004, when it became apparent that the entire boom was running out of control.
No, to call an end to a boom when it is in full swing is a leadership duty and we all know who was in charge of The Treasury, the FSA and The Bank at that time. We all know who had put the regulatory legislation together in 1997 and we all know who was busy rambling on about the longest period of economic growth for two hundred years.
This was a political decision and it was not made. We know whose task this was and they not only refused to do it, they even denied it was happening.
Please do not blame the Bank. The only tool they had was interest rates as the FSA had run off with the sherry bottle with which the Governor once used to entertain over-imaginative bankers.
The blame for all this rests with the person who inhabited the office of No 11 Downing Street from 1997 to 2007. The same person who is now trying to leverage the entire country out of the mess in which he put it. For the sake of the children we must lever him and his party out of office.
Complain about this comment
It seems a lot of Tories comment on this blog.
That figures.
Well, I would like to congratulate Mr Peston on his man-in-the-middle role in ensuring that the probity of a man who hopes to become the next chancellor of the exchequor is examined in detail.
If the Tories think that they can sit an throw mud at the government without being in danger of being splattered themselves then they have become far too complacent.
Thank you once again Robert for your excellent reporting.
Complain about this comment
Am I stating the obvious or should banks start qualifying risk, such that if you wish to lend a bank money you could easily check what levels of risk they are carrying.
Also house prices in the UK had gone to levels whereby it must be impossible to repay the mortgage. Go back to the days of some agreed level of a multiple of salary would be your mortgage limit; otherwise you are feeding house price inflation.
And as one of your bloggers has said, go back to social housing, make it a viable competition to buying.
Complain about this comment
Perhaps CPI with Consumer Prices including median house prices would be the tool they need rather than the lie of inflation fighting that we have now. Perhaps then our financial managers can be required to manage fiscal expansion rather than allowing it to tide itself unrestrained.
CPI from the 80's in the U.K, U.S, Europe and Australia has caused the expansion in house prices with unmatched increases in average wages. The golden rule of housing markets is being returned to in the most painful way possible. The average person on an average wage should be able to afford the average house. CPI allowed this rule to teeter out of balance.
Complain about this comment
If we are meant to be at the beginning of the end of the credit crunch, and if we accept that the Government has bought a handle on the lending market, what is the Government?s vision for the:
Loan to value ratio?
and
Mortgage lending as a multiple of income?
Surly an answer to this question will allow everyone to see if we are going to learn from the mistakes of the past or just to return to a debt based economy?
Complain about this comment
Robert..your post disappoints. You have become part of the establishement I think. You sould be angry.as we the people are.
We pay guys like Brown , King etc serious sums of money to maange our business.
I remeber my 75 yr old Mum telling me years ago that 'house prices are going crazy and its not a good thing..and it can't last'.
IT WAS BLINDINGLY OBVIOUS TO A 3 YR OLD THIS WOULD HAPPEN!! and these guys just stood there and let it !!!!!!!!!!!!!!!
Its pathetic. As for Brown and co. claiming credit for managing this mess..its make me speechless.
P.S. remeber-you are journo first..take these guys to task and don't show any mercy. They deserve the utmost scorn.
Complain about this comment
Surely the lesson is that as long as the politicians are allowed to define what target the bank meets and by what criteria it is judged, then the bank will be powerless to stop any bubble if it suits the politicians to have it so.
Everyone knew that inflation as seen by the man on the street was above the bank target, but by making the bank use a fanciful, low number GB was able to keep pumping up the bubble which has now so spectacularly exploded.
If the bank is given an inflation target which includes factors for such things as house prices then the bank could have acted.
This disaster is the clearest signal possible that the BoE needs to be given targets which are realistic, relevant and not changeable on the whim of the ruling party. For Mervyn to make such a suggestion now would probably be NPC as it would be a tacit recognition that GBs follies got us in the mess in the first place.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Isn't it a question of the Bank of England having the power to order the banks to deposit funds with them if they see things going awry. A little like Mummy or Daddy regulating the kiddie-winks pocket money? Can't be beyond the wit of man, surely?
Complain about this comment
welcomeback Robert! Don't let someone else write your blogs next time you have a day off!
Ole Merv seems to think we are GOING into a recession-we, when did he wake up? Someone tellhim to look at the real world where non-financier people live-we've been in a recession for several months! Just noons had the courage to utter the R word! 2 negative quarters of national growth is the slowest indicator ever-it gives all the politicians and banks 6 months to pretend it isn't happening!
About time all this people re-joined the real world where most of us live-real people, real lives, real problems-not graphs, paper and computer numbers!
Anyone seen those balance sheets and declarations of off book debts? Nope thought not? This issue will not go away!
Complain about this comment
You say 'we're not there yet' in relation to the bottom of the fall in asset prices. No doubt you are right but I would say it is truer to say there is currently little or no real market for many assets.
Some commercial property, for example, is being valued at below basic rebuild costs and at a combination of historically high yields and highly conservative rental projections well under the rents actually being paid. Double hedging, in a sense. Triple if you take into account interest rates that are well above the base rate. Banks have switched from being driven by extremes of greed to being driven by extremes of fear. Both excesses distort the market and both need to be recognized as such.
Since you distort markets just a surely by lending too little as you do by lending too much banks are arguably behaving no more sensibly now than they were in creating the problem.
This leads to an important question... Is the banks' reaction necessary in order to bring us back to balance or is it simply in danger of creating more imbalance and causing deeper problems which could be avoided?
Complain about this comment
I'm amazed. "New tools"? Surely not.
The FSA have the power to regulate the bank employees and IFAs who negotiate loans. Remember last year, where loans at 105% of value and 5 times income were obtainable? The FSA can stop that by setting a maximum of, say, 80% loan to value, 3 times income and monthly repayments must be affordable on a documented budget. The FSA regulations would then stop stupid lending, and also curb price increses in the housing market to match what people could realistically afford to pay.
This isn't rocket science - why haven't the FSA acted already?
Complain about this comment
"Few, I think, would dispute that these are the right remedies..."
Few in Mr. Preston's circle of banker friends and Labour cronies, but not amongst the ordinary taxpayer!
The real reason for the 600billion bail-out of the banks was to help the British economy, not to just save the bankers and ensure their bonuses for years to come.
Since the banks are not lending to businesses, even after the bail-out then the remedy does not seem quite so right after all when you consider the burden placed on the taxpayer and the benefits that the taxpayer actually gets.
Surely a better solution would be to abolish the artificial manipulation of interest rates and let the market determine its own interest rates!? This would automatically increase rates when debt was excessive and capital was short. Thus putting a brake on borrowing sooner, and preventing politicians from using a debt bubble to mask their failure to develop a real economy.
Complain about this comment
I can't say I am impressed with Mervyn King's speech. We know we are heading for difficult times so his comments are only a statement of the obvious.
Robert is right. The issue is the overall governance of our economy. Mr G Brown was praise for handing control of inflation to the BofE but it is a simplistic lever. Other responsibilities were handed to the FSA.
Somewhere there is a big hole which allowed an asset bubble to emerge.
Rather than a knee jerk reaction to current events, ie. no more big bonuses,we need a properly considered approach that reviews how the contol of the economy should be exercised. This a wake up call.
Unfortunately we have a government full of closet Socialists who will jump at the opportunity to socialise the country. Heaven help us in the future!
Complain about this comment
It is still my opinion that Mervyn King is asleep at the tiller! And yet he does not resign - in my opinion only when all of the heads of the tripartate control system are gone can we start to recover.
The names (for reference):-
Mervyn King - BoE
Adair Turner - FSA
Nick Macpherson - Treasury (Permanent Secretary)
They should have prevented the banking crash yet they just reacted to it, and they did so even slower than the general public - they are always playing catch-up. This is not what we pay them for!
The queues outside Northern Rock were preventable, yet they did nothing for days, if not weeks. Further, having seen Northern Rock fail they were still not prepared for further problems.
Complain about this comment
Is it true that Mervyn King doesn't know how to send an email..... that in itself isn't a worry BUT what it might reveal in terms of his understanding (or lack of it) of business culture in 2008 just might be...of concern
Complain about this comment
I wonder if this will lead to a re-assessment of off-book positions and uses of derivatives for purposes other than the direct reduction of risk?
Complain about this comment
The BoE mandate needs to change to the American system of overall watch on the economy - rather than this singular rather pendantic view of keeping inflation in check. It is now obvious to all and sundry that Mr King twiddled the knobs of banking -slapped high interest rates on the citizenship of Britain - only to find that whatever lever he pulled - the opposite reaction followed.
Mr King and his MPC mates need to sit down and think about the situation - forget the inflation target - concentrate on lowering interst rates - they need to come off at least 1 basis point. Better still would be a radical reduction down to 2% - I'm sure that would lift moral and confidence. But Merv and the banking tie wearers who set the agenda just haven't got a clue...
Complain about this comment
38 - i don't want your sympathy thanks and I'm sure many others don't either. My investments are doing OK. I've invested tax-paid money earned in a full-time job into BTL and provide a good service to tennants (having rennovated myself). I'm in it for the long term and happy in the knowledge i've got of my backside and done something.
Complain about this comment
The Torie's idea is a non starter - for Labour at least. It would favour the already wealthy.
Why should people be restricted from buying their home? The whole outrageous housing situation should have been tackled. People need / want housing, don't want to waste money on rent. Oh, by the way, even at the high levels house prices reached, it was still typically cheaper to buy in the long term than rent.
Is the problem partly due to having 'clumsy' tools to work with intricate issues? Is this where the real scandal lies? Have the financial experts shouted loud enough for reform or have politicians ignored them?
Complain about this comment
Good insight on the stalled and diving aeroplane that is the world's economy.
http://www.monbiot.com/archives/2008/10/14/this-is-what-denial-does/
Complain about this comment
@39
Stalinistas
Moderation indeed
Complain about this comment
You should already know the answer to this question.
The Bank of England cant do anything different because Gordon Brown has set them the wrong inflation number to target that doesnt take into account house prices and the control of financial institutions was taken from the Bank of England and given to the FSA, again this was done by Gordon Brown.
Complain about this comment
Has Campbell told you to breif against Mervyn King now? It certainly seems it.
Robert what happen to reporting facts?
Complain about this comment
what can you expect from the bank of englands leadership a pro labour group that have been let off the leash by this government and expects it to back the government on financial issued.
the bbc is only being used as a mouthpiece of this government becouse they allow them selves to report the news based of peoples alliances rather than honest neutral reporting.
sadly all this story tells us is the government waited untill the last second before doing anything then when they did it was more luck than judgement.
if the government had acted sooner and nationalised all the banks this problem would not have occured and the government may have looked even better and more inteligent, but they didnt and they dont.
its the same with water, energy and other industries that are at this moment under the thumb of overseas conglomerates who are raking in the profit at our expence.
Complain about this comment
RP> there can be no growth in the economy while banks contract the credit they provide
And here was I thinking that growth in the economy came from people building things with raw materials and their creativity, or at the very least, from new babies being born and from civilisation advancing.
But no, growth = debt!
Very strange.
RP> to have hiked interest rates to stem the bull-market [...] would have led to the Bank of England undershooting its inflation target
This also does not make sense. The BoE was so keen to avoid low inflation, that it let a credit bubble explode instead?
Utter tripe.
If I wasn't convinced of the total, irrefutable independence of the BoE from the government, I'd think a much more likely explanation is that the BoE did nothing to arrest the credit bubble because it did not want to squeeze the electorate, as we are going into an election.
Complain about this comment
In your blog no mention of depositors and their required safety.
It seems the BBC and politicians ignore people / institutions that are the fundamental building block of successful banking system. Why is that ?
I would argue that the UK gov was dilatory in providing the reassurance necessary to prevent runs on banks. Hence the problems.
In the USA their gov let a bank collapse thus destroying confidence.
Perhaps depositors should take out liens on banks assets when they loan them money!!!
Complain about this comment
Don't agree with the prognosis that part of the cause for this mess is due to 'over valued assets' not in the UK in any case. The value of any asset is largely subjective and in essence determined by the demand for the product and the ability of the prospective purchasers ability to pay. Before the 'crunch' people were generally comfortable paying their mortgages, they had made a decision on what value they put on owning their own property and whether they could afford it under differing economic conditions and decided along with the banks risk assessment that it was viable. The seizing up of the availability of credit came about not becasue of a large increase in the number defaults on loans, to date this is still not the case, but it will obviously get worse during a recession. For the UK banking system the seizing up of the wholesale fund markets came about becasue those previous investors in our mortgage securities deemed the UK similar to the US with their large number of sub prime loans sold fraudulently on terms that were never going to be met. We had and have a much more stable mortgage system in this country, not without faults in the provision of loans to people with a high risk of defaults in a downturn, but these are a much smaller percentage of the overall market and under normal wholesale funding conditions any losses could have been absorbed by the banks with limited effects to profit margins.
I could go on and on but in essence the point I am making is that the credit crisis arose not becasue of people in the UK defaulting on mortgage loans that they couldn't afford, and I would therefore contest that property prices were not over inflated.
Complain about this comment
The model used by ALL banks is based on lending mutiples of core finance + interest
The ONLY way the banking sector can go is
1. Carry on and INCREASE lending in order to grow
2. Stop lending and wait for the fake money to repaid in interest, reducing the balance sheet to ratio in common with their reserves
Therefore the only result of such
1. Interest rates are lowered to such an extent people and businesses are given free fake money to EXPAND THE FAKE BUBBLE EITHER FURTHER
2. Banks through evolution return to I will lend you whats in my safe at this interest rate over this many months.
Complain about this comment
Interesting to see some of the comments about property values. Truth is, they have been and always will be driven by the most basic tenet of economics: supply and demand. We are a small country and with the demand for an extra God knows how many millions of homes forecast by 2020, does anyone seriously believe that prices will not recommence their inexorable rise? We need to shift away from our expectations of owning a house to the inevitable solution of owning/renting an apartment.
Complain about this comment
Lets all face it -tax has to go up by around 3p in the pound and why not add another 2p at the same time to dig out the mess the health service is in ?
Complain about this comment
Stalinic @ 45
are you sure you are not me in disguise.
Could I also add this.
Even if he had a problem with slowing down the inflation bubble in 2004, which would have had dire consequences then, never mind now, the very very very least he could have done was.
Appreciate that the bubble was having a wonderful effect on his tax receipts. You cannot exaggerate the effect on his tax receipts. It was collossal.
If he had any sense at all about him he would have put aside some of these tax receipts for a rainy day. He should have known they wouldn't last. If he didn't then he had no right being chancellor
But no!!! he didn't put any aside and worse he spent it all and then borrowed even more to spend more on the basis that tax receipts were going to continue increasing.
This bears repeating time and time again.
I want to scream but not enough people would know what I'm talking about.
Tax receipts are now inevitably starting to fall. Less people working, less profits being made especially banks, less houses being sold, I could go on.
It is impossible to exaggerate by how much they are falling and going to fall. Now what!! I am genuinely scared and I know who is responsible.
I AM NOT A TORY APOLOGIST
Complain about this comment
#7
Further to the point about the Governor waking up. He really does come across as a purely reactive chap. There is no bold leadership, no incisive mind looking for the best way forward. Like the MPC he seems to only understand that "yes, the ship has hit an iceberg. And yes, it is sinking. But its not the fault of me and my colleagues"
No sign of how best to swerve out of this trouble. Its hard to see how indeed we can recover with this quality of leadership. What we face is a battle. A battle to recover the essential benfits of the Capitalist System. This is not a time for a general who is miles behind the line and can only see what has happened. Not how to make things happen.
Complain about this comment
Maybe I'm out of step but I do not see where a deep cut in interest rates will do anything other than restoke the bubble of house price inflation. As a country we have shown ourselves to be greedy and spendthrift. We have lived beyond our means, not saved but relied on too much borrowing from abroad. Surely reducing interest rates will curtail that inflow of funds just when we need them as those funds go to states and regions where they can get a higher return. Isn't that what happens in a globalised financial market? Profit doesn't recognise political boundaries?
Complain about this comment
Here we gooooooooo.............
Oct. 22 (Bloomberg) -- Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.
The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.
``We'll see the same problems we've seen in subprime,'' said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. ``Banks will take substantial markdowns.''
Complain about this comment
A significant number of posters on Roberts's articles (and elsewhere) offer their advice on how to get out of this mess and 'back to normal'. This particularly applies to those who want to see the debt-based, fiat, Fractional Reserve Banking system prevail. It cannot, of course, because it is mathematically flawed.
In most cases an attempt is made to describe the above model and its effects in words. However, words have their limitations particularly so if you do not naturally possess the skills and gift of eloquence (I fall into that category). Therefore I would like to draw your attention to a graphical representation of the expansionary and exponential nature of the Fractional Reserve Banking system.
Please take 3m 19s out from your busy day to watch this short video. Please use the pause button at 3m19s to freeze the screen on the graph.
http://uk.youtube.com/watch?v=HMwg0Ug9FIc
This is of significance to those here and elsewhere promoting 'solutions' to get us out of recession and back to good old 'growth'. It sounds even nicer if the 'growth' is preceded by cuddly words such as 'sustainable', 'reasonable', The graph shows only population. However, it does not take a vivid imagination (and indeed the respective statistics support this)to come to the conclusion that all those people need to eat, wear clothes, have a place to live, consume raw materials, consume energy and produce waste.
Of course, in the debt-based Fractional Reserve system they must also (on average) be financially indebted in order to maintain their existence. So the graph also reflects debt and because our money system is debt-based, then by definition, money.
You can replace the Y axis of this graph with just about anything but the shape of the graph remains. It is exponential. (Only by making the Y axis a Log of the x-axis could you hide the exponential nature)
So, the next time you put pen to paper or fingers to keyboard to promote a formula to keep the current system going please recall this graph. Please also keep in mind 'growth' is expressed as a percentage increase which, by definition is compounded on top of last years growth which in turn is on top of the year before's and so on and so on. Compounded growth is exponential. That is a mathematical fact.
Ask yourself two questions:
1. Is this graph mathematically sustainable to the right (increasing value of time)?
2. Even if you answer wrongly to question 1. ask yourself - Do I want to maintain this graph until human beings and their houses cover every square inch of the worlds landmass, use up every (non-renewable) energy source on the planet and process every natural resource from source to landfill?
Be careful of what you wish for lest you get your wish.
Complain about this comment
@68
At least i know now that is criticism of Bob Pesser that is frowned upon
The purpose of a blog is to comment.
If said comment calls the bloggers integrity to task, that is a comment.
It breaks no house rules
I smell campbell
Complain about this comment
this blog is nonsense
easy to blame property but it is only about 1/10th of the problem - do the math the sums of money pimped into the system would sort the poor property assets in a flash
property is valued at what someone is willing to pay for it in an open market and due to the liquidity failings of the banks because of their hidden assets they have turned of the tap and increased their lending criteria
Complain about this comment
Yes the banks may have been on a lending/borrowing binge based upon the overvaluation of assets
But - are the households and businesses who bowwored the money not responsible for spending said funds
Why are we not seeing the blame for the current crisis being shared with the households and businesses who have been spending too much
Complain about this comment
Stateshootr @ 50
Can't agree more
Why can't our grannies run the economy at least they have common sense.
I was saying how bad it was for builders to my mum the other day and how they have had their wages more than double over the last 10 years but wages have now gone back to were they used to be.
Without much thought she said. I'm sure they will have saved quite a bit over the last 10 years.
Do you have to have your common sense gene removed before you run the country.
Complain about this comment
dear Moderators
Post 39 breaks none of the house rules
So why is it not posted.
Is it likely to make Bob cry into his meusli?
If criticisim of poor bobby isnt allowed every post on here should be removed
Complain about this comment
Did anyone else see Merv smirking last night when discussing the recession? Its good to know that he is ok isn?t it.
Complain about this comment
I know it was said at the time, but I've forgotten!
Why were house prices not included in the index used for measuring inflation? Was it to hide the facts from Europe so GB didn't get into trouble?
Complain about this comment
The Bank and the Government have seriously weakened our banks by (a) insisting that they overcapitalise at the cost of existing shareholders and (b) a punitive 12% coupon on the capital. This will make it very hard for UK banks that take part to raise monies in the market. I expect these banks to sell off subsidiaries etc as soon as the market allows to get the Govt off their backs reducing their footprint and the standing of London as a financial centre. No other Govt supposedly following our esteemed leader has sought to damage their financial sector in this way. To do that when finance is such an important part of our economy is ecomomic vandalism and stupidity.
Complain about this comment
Does Mervyn King remind anyone else of Ronny Corbett's character Timothy Lumsden from the TV series "SORRY!"
Complain about this comment
Fascinating article. So glad to see you've gone back to reporting on real news, and doing it well, after yesterday's little aberration.
Complain about this comment
'King's analysis of what went wrong was spot on, as usual.'
Well, give that man a cigar! My cat was sick this morning and the sick could have told me where the banks went wrong!
Complain about this comment
Robert
Great stuff. Yes, the BoE should have the power to vary capital requirement ratios and also to call a halt on excess lending by banks. Surely no bank in particular and certainly not together can increase lending my 10+% year in year out.
Still, the main short-term problem is a lack of credit. HMG needs to realise it has the tools itself - it can use N Rock and B&B to increase lending rather than try and persuade HBOS and RBS.
R
Complain about this comment
Again, this is a distortion of what has happened.
Since New Labour came in in 1997, the Treasury has been doing targeted hits against other forms of investment:
1) straight away taking away tax benefits of paying dividends, making sure that it only makes sense to invest in "growth" stocks and just in time to catch the dot.com bubble.
2) Then give breaks to people who invest in property and people building property.
3) Post dot.com crash, keeping interest rates artificially low. When real inflation starts to go up and there is a danger the BoE will do it's job, Brown changes the inflation target. BoE still targets real inflation for a while and then gets slapped down again and so gets the message and ignores housing in its inflation targets.
4) Just in case there is any danger people might save, Brown goes on a debt-fuelled bender pushing real yields down. He also changes the law to make pension funds measure their solvency against 50 year bonds which means when he issues a load of 50 year bonds, pension funds have to buy them and so lock a significant portion of YOUR pension( assuming you don't have your pension coming out of the gold-plated public sector final salary pot, the one with a 700bn GBP deficit ) in an investment that is GUARANTEED to pay zero in real terms for the next 50 years.
5) Tax people's savings and investments to the hilt. Make it unprofitable for companies to make profits. Keep crazy taxes so that people don't trade shares but trade far more illiquid - and non-centrally cleared - OTC products like CFDs or Total Return Swaps.
6) People have to search for yield, so invest in property - which Brown has given all sorts of tax breaks for - and at the same time pull their money out of deposits FORCING the banks to turn to alternate sources of funding.
7) Spend like crazy, borrow like crazy, lie about your debts, like about your income and prospects. Engage in all sorts of accounting fakery - the exact same kind that Worldcom's CEO is currently doing bird for - and then have the brass balls to criticise other people for doing what Brown has being doing since spending restraints came off.
8) Boast about fake growth, growth that is fuelled solely by debt and public sector spending binge.
And eventually the debt fuelled bender ends. We have Darling wanting to give some hair of the dog to prevent the party-goers sobering up and getting the inevitable hangover.
ALL of the above issues were pointed out. Off the top of my head I can think of 6 IMF warnings about the imbalance in the UK economy, no end of articles and the Lib Dems warning over and over but Brown always knew best. The fact remains if Brown had sat and thought out how to the most targeted ways to bring about the current state of affairs in this country he probably couldn't have done better.
End to boom and bust?
http://uk.finance.yahoo.com/q/bc?s=^FTSE&t=my
I count at least two busts.
Complain about this comment
#48, SoapboxJoe:
House prices should indeed have been factored into the inflation index. Rather than things deliberately chosen because they dramatically drop in price such as digital memory cards - people struggle to pay their rent/mortgage, but who struggles to pay for memory cards!?
This would have shown a more realistic inflation figure, which should have in turn triggered interest rate increases that would have put the brakes on borrowing sooner.
However, the risk is that now house prices are dramatically falling, they will be added to the inflation index to again massage the figures and make inflation look low.
I agree with you with the caveat that house prices are only added to the CPI once they have returned to more realistic levels,
e.g. average house price = 4x average income.
Also, those in charge of the economy seem to have missed or ignored the positive feedback loop caused by lending secured on property. E.g. property prices rise so they lend more money in property backed loans. However, much of this money is spent on property, which in turn causes property prices to rise further and result in more loans. Positive feedback loops generally cause systems to spin out of control until something busts!
Complain about this comment
#58, there is a limit to what the BoE can do when:
a) The government is spending with zero restraint thus CAUSING inflation.
b) It has an inflation figure that explicitly excludes housing costs.
Complain about this comment
Hmmm, no mention of the George Osborne fluff from yesterday. And Nick Robinson is back pedaling so hard he's already over the horizon. How amusing.
Complain about this comment
Here's an idea;
Why doesn't the UK manufacture stuff that foreigners need ?
Then we could buy other stuff with the money they give us instead of selling our land for their loans.
I think I'll call my idea, "Trade".
All these discussions seem to ignore manufacturing.
Complain about this comment
Given our balance of payments black hole surely we have to keep interest rates high to support the Pound. If we drop interest rates foreign investors will flee from Sterling. Which once again brings us back to the question that was ducked a few years ago - joining the Euro ?.
If we need lower interest rates we have to join the Euro. This will also help encourage exporting industries.
The government should have the courage to act regardless of what the tabloid press "think". Indeed the press have printed so much Euro nonsense that a referendum is not winnable (the repeat a lie trick). The average person goes to Benidorm and survives - indeed even has few Euros stored with his/her passport.
Complain about this comment
Bank Slicker is no more! My name has been moderated only after 14 months! It must have hit a nerve with someone.
But behold!.....a miracle!
And so, as it was pre-ordained, the LIBOR began to subside and the world was saved to live another day!
http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=145&a=10796
Complain about this comment
"Therefore, the Banks will be broke, the taxpayers money will be gone and the only solution is
quote: The Tories have talked about giving the Bank of England the power to vary the capital ratios of banks depending on credit conditions, which is a fancy way of saying that the Bank of England would be able to force banks to lend less in a period of economic euphoria.
Unfortunately, the problem will have the same result in economic doom
Banks will have to have a ratio of 1/1 period."
The capital adequacy ratio is the ratio of assets (loans) to equity at book value. This is what the conservatives are suggesting be modified in a counter-cyclical way. (The trouble of course, is to decide when the cycle has turned.) On the other hand, the ability to cover withdrawal requests is the ratio (cash on hand) / liabilities (deposits), which is what you are suggesting should be unity. Yet more evidence that the full-reserve folk know nothing about banking.
Complain about this comment
The tool is RPI. The day that changed the writing was on the wall. Inflation using CPI as a measure has no credibility.
The other fantasy that UK will survive on 'consumption' and the services that spin out from that made us over reliant on spending.
Personally I think the idea of 'tax and spend' and perpetual growth is truly dead. The key word 'sustainable' was lost over the last five years and now we are paying a heavy price.
I like the Tories idea of managing ratio based on market conditions in principle but we'll have to come up with another index.
One way of doing it is allowing the bank to change the weightage on the components in these indices. But again once you a tripartite arrangement of three bodies and nobody quite understands their remit.
I think that needs to be resolved first before you give them the tools.
Complain about this comment
The collapse in the value of the pound is extremely good news.
Now we'll be forced to buy British cars, British TVs and computers, British ships and aircraft...
Oh hang on...
Complain about this comment
@81
Ah the death of free speech on old Auntie Beeb
Thank goodness it will be all over soon.
When does the charter run out?
Complain about this comment
Has anyone else noticed that the mods have blocked a lot more posts since Mandy returned to government?
Conspiracy, what conspiracy?
Complain about this comment
This whole crisis seems to be about confidence, Mervyn King mentions the dreaded R wordand the Pound is hit. or is it?
It is reported as hit by the BBC , but it is largely unaffected against European currency.
Why then is the dollar so strong, when on the face of it the USA has the most severe financial problems?
Maybe it is a matter of reporting if we had less gloomy media would we come out of recession quicker?
Complain about this comment
Recession - what does it mean?
Well, it would be good if the BBC (and other media) started to use calm language rather than always dramatising th situation.
Was it really headline news that Mervyn King admitted a recession was coming - when everyone knows that it is already here - or was it just another opportunity to keep this story bubbling.
Yes people will lose jobs, yes businesses are going to contract, but reporting on the potential recession using references to the first world war or to the great depression simply panics people and feeds the feeling of panic - it doesn't represent the reality of what is happening.
For example, this year my own business is likely to be down 10-15% on 2007/8, but it will still be up at least 5% on 2006/7, and that is fairly typical with our clients and customers.
The next 12 months are unlikely to be record years for most businesses, but it's not the end of the world.
Complain about this comment
Yet again we are seeing more irresponsible journalism, do the people writing these articles not realise that by doom mongering they are making the recession worse and ruining the lives of many people!?! If the journos kept their heads up and thought positively there would be no recession only a market crash.
Complain about this comment
By the way soapbox joe I hope you realise that the only way to keep inflation down is to 'massage' the figures. Inflation only spirals out of control when the public think it is high and start demanding higher wages, so massaging the figures is in fact an actual inflation beating technique, to suggest government should not do it is ridiculous.
Complain about this comment
Various people talk about controls and regulations. It appears to me that whether we talk about shares or property the major problem is the practise of gambling indirectly with other people's assets in order to make a quick buck. If people investing in shares had to keep them for 12 months, for example, then investors would be people showing the are willing to underpin the success of the business they are investing in. Perhaps it should be 24 months. Similar rules could be devised for property. Sooner or later we have to get back to making, changing or growing things as opposed to adding theoretical value to, or scraping a slice off, cash somebody else has already created.
Complain about this comment
From an ignorant person : when is the Credit Default Swap bubble going to burst on us, and what sort of mess is it going to make?
Complain about this comment
Ahhhhhh, he's back!!
Well done Bob, economics is best
Complain about this comment
A disturbing comment - "Back to boring banking".
So, the select few were bored before and decided to take on huge risk based on unsecured assets! We are effectively ruled by a select few of greed driven prospectors. It's no different to the old colonial days when private companies stripped away the assets of vulnerable countries with the consent of the government (as long as they got their share). Instead today, the British public is being raped. We pay for their mistakes and lose our jobs to the plague of immigrants allowed into our country.
Complain about this comment
Re the tumbling pound.
As a holiday operator specialising in inbound tourism, I have been trading in adverse conditions caused by a strong pound for a number of years (whilst everyone else has been making hay).
This year our performance in the German and Benelux market was greatly improved thanks to the pound's fall against the euro.
My main market is North America, so the pound's continued fall against the dollar is music to my ears (and good news to other companies who bring money into UK from overseas).
The point I am making is that it's not all doom and gloom for everyone and 'what goes around comes around'
Complain about this comment
Robert,
You forget that the FSA supervises banks not the BofE.
Mervyn King has already been lambasted for blaming the FSA, and it would not be collegiate to go down that road again!
What the FSA did not attempt to do, ignoring warnings from others such as the Bank of International Settlements and the IMF, was to prevent the banks recklessness (lack of prudence) including shadow banking (conduits, SIVs etc.) that is banking without capital or liquidity reserves, granting NINJA loans and 100% securitisations (the "greater fool" school of banking) of these, creating CDOs of these, dumping the the riskier tranches into conduits and buying other banks "Super Senior" tranche CDOs of NINJA assets as treasury reserves, to list just a few of their stupidities.
What to do now?
The need now is to stop the recession becoming vicious spiral into a depression.
First, dis-intermediate the banks: to ensure companies have access to working funds the BofE needs to lend medium term to non-financial UK companies with Commercial Paper Programmes( subject to the release of the respective bank's revolving credit underpins); it needs to replace for FT-SE 350 UK companies' (and private sector equivalent) revolving credit facilities with BofE medium term loans ( fixed or flating at a small margin over either medium term gilt yields or Base Rate, the company to chose (The Treasury indemnifying any losses)subject to the release of the respective bank's revolving credit facility. As a side effect these actions will free up bank liquidity.
Second, improve liquidity.
The Government has pledged to pay small company suppliers within ten days. This needs to be built on. Supermarkets are well known for forcing suppliers, in effect to provide interest free loans of nearly twice stock levels, by not paying bills for up to 180 days. The BofE should make an interest free loan to all major supermarkets of amount equivalent to their outstanding trade creditors, subject to the supermarkets paying all suppliers within ten says.
Thirdly cut interest rates, to 3% immediately, and due to the delays in attempting to stop the depression expect 1.5% by next July (2009).
Fourthly, and embarrassingly, restructure the government recapitalistion of the banks to stop the banks shrinking their loan book. Cut the interest rate to 6% on the preference shares, allow them to be repaid, when the bank is ready, in stages, but take warrants to buy ordinary shres at a price currently slightly out of the money, allow dividends on ordinary shares before the preference shares are repaid. Remember the banks will need £2 of capital to repay the each £1 of prefence share, £1 to the government and £1 for their capital ratio, if lending is to be maintained. This can only come from profits or other investors, neither is likely with the current approach.
Complain about this comment
Bankers who took high risks need punishing financially, there has to be some accoutnability.
Also isnt it obvious that if you have a huge boom a bust is coming and there is going to be consequences ?
Isnt it also true that the bigger the boom the bigger the likely bust ?
I would suggest some supposedly very smart people paid very large salaries and bonuses shoudl have seen this coming.....sadly i think it is likely that they have seen it coming and are perfectly well off thanks very much.
Complain about this comment
Robert
This is back what we want to read: factual reporting and informed comment. Thank you.
Complain about this comment
Message 76 forfuturessake
I am you as I am all the other simple folk in this nation who know enough and have the sense to be fearful at the pass this pathetic government has reduced our beautiful country.
Honest people have no need for disguises. The only people who need disguises are the disingenuous supporters of New Labour who seek to cancel sensible discussion with the accusation that all their critics are Tories.
As a libertarian of the left, a collectivist with a distrust for the state, the nature and substance of this government disgusts me. It has betrayed every value for which it has ever stood. It is a disgrace!
Going forward the solution is not more of the same. The answer lies with the taxpayers who are now acting as the guarantors for the financial system. We have reached the point at which the people must appropriate their own economic power. We now own everything: all we have to do is to empower ourselves with that knowledge.
Complain about this comment
As a result of this mess - can we do things like we used to and ship all Estate Agents to Australia?
Complain about this comment
Popst 80 hits the nail on the head, I'd like to add
'NOTHING last for ever' and I mean NOTHING! not even the universe.
Complain about this comment
yip
apparent if you mention bob, rant and /or rubbish it is barred!
Complain about this comment
I am stupid but would it not be easier to include house prices in the inflation rates. Then when the propertry boom gets uinder way intreast rates will have to rise damping the boom and dragging in money into our banks as thier rates are higher. therfore no liquidity crisis and mor sensible property market.
Housing is a major cost we have been deluding ourselves that the last ten years were low inflation they weren't
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
What sort of society has grown into the notion that a safe, warm place to live should only be affordable to those who can afford it. This is as true of renting as it is buying.
Surely every human beings right should be able to have somewhere to live? How did it end up this way?
Complain about this comment
Yes jacquescartier #11,
I have an ominous feeling that the 'solution' may have been too quick and not nearly painful enough for things to really change.
Complain about this comment
At 11:54am on 22 Oct 2008, tuairimiocht wrote:
The capital adequacy ratio is the ratio of assets (loans) to equity at book value. This is what the conservatives are suggesting be modified in a counter-cyclical way. (The trouble of course, is to decide when the cycle has turned.) On the other hand, the ability to cover withdrawal requests is the ratio (cash on hand) / liabilities (deposits), which is what you are suggesting should be unity. Yet more evidence that the full-reserve folk know nothing about banking.
Most people on here dont claim to Bankers, thats why we trust the people to do the Banking job without fraud.
Math is a pure science and the fractional reserve banking system is an exponential model - now mr know it all banker- lets do the math - the future 'growth' of banks must be continually built upon (debt) to survive
You do your banking, il'l do the math - the curve is collapsing in on itself and bringing everything down with it, but carry on arguing against if you wish.
Complain about this comment
Ah, those targets and tools. Has no-one(Robert) noticed that The BofE is operating markedly less independently that it did before being burdened with independence in 1997.
The Great God "Inflation Targets" and the other Great God "The Housing Market" have been fighting it out in the NuLab Pantheon.
Lesser political Gods like 'Pension funding' and 'Sustainable Growth' barely get a look-in.
Robert's NuLab have led this from the front. Yes BofE, Banks and consumers have followed avidly, but mainly for fear of being left high and dry. Gordon led UK into the mire (a well known creek), we've paid for him to build a raft, but he's still got to paddle us out.
Complain about this comment
Yes Robert,
Ignore the sleaze behind the curtain, like the Tory munchkins on here want you to. I mean, it's not like Osbourne is going to be in charge of the economy until 2010 at the earliest, and I'm sure he'll find plenty more rugs to trip over in the interim (he is a politician after all).
Merv's insights into what went wrong are fascinating, although hindsight is a particularly useful tool in such instances. More worrying was his inability to spot this crisis developing, or if he did, his inability to do anything about it.
Anyone else think the King has no clothes!
Complain about this comment
Is it not possible to create a separate interest rate for housing?
This way property could be made to be seen as a somewhere to live rather than an investment.
The bank could change this interest rate without affecting the wider economy. It could make land/house prices cheap and keep them that way making life easier for everyone and keep the market extremely stable.
Also FOI should be seen as prime importance. The onus should be put on banks to make clear to their investors and the regulators their dealings and associated risks.
Finally the government needs to set up a decent system for pensions. The economy is a chaotic system and pension funds are a dangerous driver.
Thanks Rob the man!
p.s. I don't think arrogant public school kids should be allowed to do anything important, they're idiots.
Complain about this comment
I am no economist, but it seems to me we need to separate lending for house purchase from lending to business to generate economic growth. That way the Bank of England would have two interest rates to manipulate instead of just one and it could therefore reduce overheating of the housing market without jeopardising economic growth in the 'real' economy.
Once upon a time we had different institutions collecting and lending funds for these different purposes; mutual building societies on the one hand, banks on the other. Two separate steams of finance with interest rates which could in theory be managed differently....just what we need
Now I usually distrust nostrums that imply some golden age and no doubt someone out there will tell me why this is a simplistic suggestion.
Complain about this comment
The root cause of the failure is of course, the regulatory structure set up by Brown in 1998, taking effect in 99/2000.
King cannot say this in plain terms, though he hints at it.
Tory proposals make sense. Northern Wreck would have been forced to have far higher capital ratios because it was lending 125% of value. Those lending no more than 90% would be allowed lower ratios. Sound policy.
The other key thing has to be to end the very concept of "off-balance sheet". Any asset held by a company should be properly valued, even a shareholding in another venture. Any liability should be properly provided for. This will depress balance sheets, but they are depressed now because nobody knows what the assets are worth and the markets are guessing.
Get the S%!^ out in the open, then stability will return.
Complain about this comment
At 12:32pm on 22 Oct 2008, Barking_Madness wrote:
What sort of society has grown into the notion that a safe, warm place to live should only be affordable to those who can afford it. This is as true of renting as it is buying.
Surely every human beings right should be able to have somewhere to live? How did it end up this way?
Society is not the correct word as it has been abandoned in this and every other capitalist bear pit. This all consuming system is devoid of social responsibility
Its a top down system where akin to pyramid selling the rich are made richer, the middle classes pay for it and the lower classes are kept under thumb by paying them enough benifits to just live on and therefore on side.
They have to create false wealth by using housing because they have consumed and sold off everything else that normally creates actual wealth.
Thankfully the time has come with the imminent collapse of the western worlds financial system, there is a chance of great politaical cahnge as well - might be too late for us but at least our kids may have a chance - thats of course, if the people that control us do not artificailly start a major war- thats what has happenned throoughout history.
Complain about this comment
guys, guys and gals
get it into your grey matter - property is not the problem with everything that has gone on
Complain about this comment
U11711256 #99,
Has anyone done an estimate of how much 'money' would cease to exist if the FRACTIONAL RESERVE BANKING SYSTEM went?
Complain about this comment
Your third paragraph neatly sums up the problem as far too much money lent against over-valued assets, mainly residential houses and commercial property. I agree. It is mad that mortgages of about nine times salary were ever contemplated.
One simple tax change that might help would be a reduction of Stamp Duty to, say, about 1.5% (or preferably less still); that would free up mobility, regenerate the actual trade in houses, thus enabling true market forces to set realistic house prices - and free up people to move to where there is work. Perhaps house prices have been artificially high because of lack of supply, because people will not move if they have to hand over a substantial five-figure sum to the Government for doing so. When house prices no longer went up, they could not afford to lose that amount of money; so, instead, they stayed and built extensions.
It would be regrettable for the Government to pass up this opportunity on the grounds that Stamp Duty is a nice little tax revenue. It is not, because no one is moving.
Complain about this comment
If we accept that the economy has been sustained by too easy credit for over valued assets for too long, are we not agreeing that as soon as that stopped, the economy was going to stop too?
If so, aren't we now acknowledging the simple truth that we have been delusional for a long time about the underlying strength of the economy?
Complain about this comment
#102 yes the amount of manufacturing in Britain is currently low, so we don't have much to take advantage of the weak pound right now.
BUT over the next few years - especially as the current recession ends - we will begin to build it back up again.
Perhaps 20 years from now, British manuafacturing will be double what it is now.
This shouldn't just be wishful thinking either - once the recession is over, oil prices will increase again and transporting goods from China will become uneconomic (as it should be!). The brief period of outsourcing from 2000-2010 will fade into memory, and we will return to the "long term" position of much more made closer to home.
Complain about this comment
Why could not Mr King have kept quiet, we all know that the recession is with us but with incredible pomp and self importance King stated the obvoius and sent our currency into freefall.
My small company has made a series of offshore payments this morning and this has cost us dear.
How many companies are in a similar position. We need stability not central bank posturing.
Complain about this comment
Nice to see you back to economics again. Did you burn your fingers yesterday? The BBC's readers and viewers can now with delight and reassurance look forward to much more helpful criticism from a member of the Labour family.
Yesterday was one of thiose wonderfully revealing moments like the time Naughtie referred to "our government".
Complain about this comment
What is in this blog that I don't know.
I think Robert Peston like Evan Davis before making a life out of stating the obvious.
I think time to move to Hello or News of the world. You might do better in sensational journalism like the one you indulged yesterday.
Complain about this comment
There is a lot of common sense in this article. However there is one vital ingredient to the boom in property prices that I hear no-one mentioning.
The supply of property in the UK is highly restricted by the planning system. As such supply and demand would have been out of kilter anyway, however, a huge net increase in immigration has stimulated demand to a huge extent.
There is indeed nothing that the Bank of England can do about the supply of housing, however, there is a lot that the Government should have been doing. Unfortunately, they just didn't get it. They wittered on about the need to build affordable housing (a.k.a. Slums), when if they had de-regulated housing, more houses could have been built, supply and demand would have balanced and good quality housing would have become more affordable.
Complain about this comment
I have always found that where there is not a single owner with overall responsibility you end up with a ball being dropped (in this case a ball the size of a planet).
Regarding the financial mess - I am starting to get very frustrated by how this problem is a bit like being made to eat a 12 course meal one breadcrumb at a time (no comments please on a 12 course bread based meal).
It's time to step back and get some intelligent people to identify causes/effects/solutions - the brief is 'what needs to happen for the good of the people of the UK and what strategic changes are required to protect the national interest.
I have lost faith in Parliament and the leading political parties - I would almost think it worth voting Lib dem but only if I could be sure to get many like minded people to take over the party to use it as a vehical for real change.
On a separate point I listened to File on 4 today about the energy prices in the UK .... another failure of an imperfect market - we are being badly used by thse private companies and our government, there is no national interest built into the market mechanism.
I was also reading yesterday that 1 million manufacturing jobs have gone since the late 90's, don't we need a grown up debate on what globalisation is doing to this sort of job in the UK? With Service/Financial companies likely to suffer over the coming years where is the UK going to build the economy from - do we have to work for the same pay as the Chinese to get manufacturing jobs back into the UK ... is that where globalisation is heading?
Complain about this comment
The last and greatest house price boom occured between August 2005 and mid 2007, with increases in the London area for example of some 25% in less than year after August 2005.
This was a direct result of the MPC reducing interest rates in early August 2005, after about six months of stable if not slightly declining house prices, with further interest rate cuts signalled, and asking price rises occuring within days of the interest rate cut.
This last boom led also to a general credit boom as people felt wealthier as house price rises were reignited.
The BoE can be firmly blamed for the credit boom over the last few years, and could have contolled it via the judicious use of interest rates.
Unfortunately its judgement, as with the treatment of the credit crisis from NR onwards, has been extremely poor, and has resulted in job losses and pension values plumetting (except of course Government backed public sector schemes such as Mr King's).
For those who still have faith in Mr King, he has to be admired as he has been very adept at shifting blame!
Complain about this comment
Recession and all its ghastly consequences for ordinary people!
Listen!
It doesn't have to be like the 90s! It doesn't have to be that way.
A government can do whatever it likes!
Government has the POWER to stop DEAD the foreclosures, court actions, repossessions, bailiffs, seizures, bankrupcy proceedings. They have the power and it's the time NOW to start using their AUTHORITY and running the country for the people. They may deny they have the power but they do and actions on any lesser scale would be the most shameful and unforgiveable denial of democracy.
Government is first and last 'of the people' and 'for the people'.
Get on with it Brown!
This is a WAR. We shall see in the days to come if Gordon Brown really is the officer in charge - or is just wearing the uniform.
GC
Complain about this comment
It is not only interesting to think about what the Bank of England might do to avert future crises, but also about its inherent limits. One of the primary causes of the asset price bubble was the banks' systematic failure properly to price risk. (Warning signs of this have been about for years. Just look at the graphs of average house prices versus earnings, and the savings ratio, to see that trouble could have been foreseen some years ago). It is certainly easy to blame credit default swaps for this: lay off the risk to someone else and breathe a sigh of relief. Except that everyone was doing the same thing, so everyone was picking up someone else's risk. So, maybe it is the FSA which ought to have been policing the way the banks price risk in their loans to various categories of customer, asset, size and proportion. And therefore the FSA's successor which ought to have the primary role in making sure it doesn't happen again.
There is an argument to say that the Northern Rock incident should have flushed all of that out a year ago. Had the Government then allowed Northern Rock to fail, the Bank of England immediately moved to provide liquidity to other banks, and the FSA sent in the regulators to verify proper risk pricing and management, the consequences would have been quite bad - but nowhere near as bad as they have since become.
Complain about this comment
Instead restoring confidence in financial markets and the wider economy , Mr. King's gloomy words had the opposite effect.
Both the stock market and the pound are falling heavily today, both very likely at least partly due to the speect of Mr. King.
The speech was a disaster from the psychological point of view, instead of restoring confidence, it eroded it.
Complain about this comment
...Mervyn King still moves markets...
so news does move markets RP?
Complain about this comment
Note 118 is on the right track, but can I suggest instead the Moon? After all, now that Shane Warne has retired we can be friends with the Aussies.
Complain about this comment
Mervyn could tell the cabinet to get its R sorted out it could be contagious
Complain about this comment
#112, it is very easy to blame immigrants isn't it. Perhaps you might have noticed that without immigrants, parts of the economy would simply have ceased to function correctly, including the NHS.
Still, you will be comforted to know that some 300,000 eastern europeans have left the UK and gone back to their countries which suddenly seem much more affluent compared to the broke UK.
Instead of complaining about immigration, why not look at the real symptom, which is that we no longer manufacture anything, we are a service economy where we do nothing but sell each other coffee and booze.
If you want the UK to have a strong economy, get the Govt. to invest in manufacturing and high technology research and development. We make next to nothing these days, even British names can't afford to manufacture in the UK because wage rates are so high. How come the wages are so high? Blame the economic system which has pushed for high growth rates and been debt based.
Complain about this comment
Comment 72 : NeedaFilip
"Before the 'crunch' people were generally comfortable paying their mortgages, they had made a decision on what value they put on owning their own property and whether they could afford it under differing economic conditions and decided along with the banks risk assessment that it was viable."
So there was no input to these decisions from the idea that property was a blue-chip investment for individuals?
The concept that there would NEVER be the conditions to precipitate a collapse of general house-price levels was a mainstream thought until August last year (and beyond). Did this play no part in the decisions of people buying property at the above-trend prices of 2005 - 2007?
For the buy-to-letters, was not at least part of their business plans the expectation that the properties would, ultimately, provide a capital gain that they wouldn't have to pay for?
Maybe you should consider how may 2005-2007 buyers would have been put off if they had been more aware of the falsity of the assumption of ratcheted house-price levels. Or is the "value they put on owning their own property" something that is determined completely independently of this?
Complain about this comment
How can the member of the MPC that voted for a rate rise a couple of months ago keep his job?
Complain about this comment
To my mind the fundamental issues are of governance of banks. In the UK anyone who has seen the way in which non-status mortgages were being underwritten up to (and beyond?) autumn 2007, with mortgage brokers often entering into the application form the income level which the applicant needed to assert he or she had, which was then accepted unchecked by the lender, will think that there was a sort of conspiracy between some lenders and brokers to inflate the purchasing power of house-buyers. This did not happen 30 years ago, when an applicant had to prove their income, and has never happened in France. Was this behaviour based on a robust business decision over risk and reward on the part of the lenders? Evidently not as things turned out. The task facing regulators is thus how to generate an improvement in the standards of internal management of banks and their balancing of risks and rewards over different timescales.
Complain about this comment
Robert,
It was amazing that Mervyn didn't say the certain words!
Complain about this comment
I mentioned this a few weeks ago and I'm still awaiting a response from a letter to both Gordon and Alister. Why don't the government just pay off everybody's mortgage and also give people in rented accommodation the equivalent of the local regional average mortgage. This way the Banks /Building Societies get their money back and everyone has money freed up to spend within the economy and therefore stave off the recession. It is the (sub prime) mortgage market that caused the problem so just remove that problem. Mr Brown would walk the next election and we would be some way towards a Marxist utopia - don't suppose big business would like that though, would they?
Complain about this comment
'And the reluctance of banks to lend until they're confident they can see the bottom of the fall in asset prices - and we are not there yet.'
People on the whole borrow money to buy property. If the banks do not provide money to buy property there is effectively no market, just distress sales. The banks damage themselves if they go that route. The government has a real crisis if they go that route.
It is not correct to say money is not available it is. It is the overseas money that appears to have dried up. Banks have to pump debt to make money so they will be at it asap. I am not convince you can say the turning off of overseas funds was due to a realisation the UK may have similar problems to the US. It looks as though the US money markets were in a growing bind and the money was not there to pipe to the UK.
It is pathetic for parties involved in regulating the ecomony to propose they did not have the tools and just sit and watch the situation develop and then talk of developing tools afterwards. It is negligent. You can regulate mortgage sales on the high street, that is where the sale is made, it is a consumer purchase. Why are you not asking Brown who set up the framework of the BoE and the FSA why no effective action was taken either by those bodies or by Brown. It was a 5 year jolly.
As for the UK banks nearly toppling over, that was always going to be the case, intervention was never going to occur until that point was it, it is shunned commmercially and politically.
Complain about this comment
I believe the comments section of this blog may have served Mr Peston well, in demonstrating the speed with which an attentive audience noticed when he departed from his expected narrative.
His astute observations on matters financial may have had a little of the shine taken off them by yesterday's non sequitur.
It was as though a juggler left his spinning plates to perform a comedy sketch.
I imagine this all happened because Mr Peston, as he reported, had met Mr Rothschild at some time and was therefore considered authoritative in his comments.
A journalist offering insight about someone he knew of and concerning an imortant development, would scarcely be remarked upon were it not that so many people are currently and urgently listening to his narrative on the financial crises.
Complain about this comment
I've been a freelance press and commercial photographer for 35 years and have always made a decent living at it. But my recession started last year - October is always the quiet time between summer and Christmas, but things have never picked up since 2007.
I'm only working at around 40% of what I was eighteen months ago. The only hope is that when things do pick up the media will be the first to benefit, as companies gain confidence and start to advertise and promote their goods again.
Complain about this comment
Comment 93 : laughingblacksheep
"The fact remains if Brown had sat and thought out ... the most targeted ways to bring about the current state of affairs in this country he probably couldn't have done better."
Mmmm. Who's to say that this isn't exactly what he HAS done?
Complain about this comment
Ah! Now I see the strategy, (Messrs King and Brown) talk down the UK's economy (yes we know it is a mess!) so the pound weakens substantially. Then it becomes much cheaper for foreign investors (sovereign wealth funds) to purchase UK Treasury bonds to bail out the government...or am I missing something?
Oh, yes, then the UK economy and exchange rate miraculously recover..... allowing the investors make large currency gains on sale of the bonds.
Or have I missed something else...perhaps dithering and complete incompetence?
Complain about this comment
Finally Brown admits it... Love the new buzzwords - "global recession", "This crisis which started in the US...". I wonder if he genuinely believes it has nothing to do with him? Maybe we can get some anti-psychotics for him?
PS Japan, Europe and US aren't in recession....
Complain about this comment
#128, there is a separate rate for mortgages. It's called your mortgage rate.
Complain about this comment
Mr Peston,
Thank yo ufor an excellent piece.
The tools that were wanted to constrain effects of the rise in asset prices were, indeed, not in the hands of the Bank of England or of the ECB.
In the UK. the the Finacial Services Authority had, and did not use, powers to insist that banks setting up off-ballance-sheet entities allocated sufficient capital to them, to insist that banks make provision for general osses on mortgage loans when and if prices reverted to historic levels, and to insist that banks paid attention to the underlying quality of loans. In the euro zone, these powerse with the national central banks, not the ECB. Only one national central bank - in Spain - seems to have used them in a timely manner. They worked when used.
In addition, under Basel II the FSA and the national central banks had a power to notify commercial banks that classes of assets needed to be treated as more risky collateral than they appeared from ratings and recent commercial history because they posed systematic risk. That powere was not used anywhere.
Complain about this comment
"70. At 11:16am on 22 Oct 2008, lsi-92 wrote:
RP> there can be no growth in the economy while banks contract the credit they provide
But no, growth = debt!
Very strange."
Nevertheless. The truth. At it's core, "the economy" equals "credit supply".
And the core of the problem we are facing today. If the banks don't lend, the supply of money contracts.
If the supply of money contracts, everything falls in value. It has to, there is less money around. Our booms and busts are caused DIRECTLY by the amount of credit that banks lend out. When they restrict lending, as they are doing, we have a recession. When they are loose with the money, we have a credit bubble.
It's really VERY simple, and how I managed to get my pension out to cash right at the peak of the bubble. The banks say they are implementing tighter borrowing requirements. What do you know, recession 6 months later... Shocked, surprised... Not... Go read some of the Austrian economics. Rothbard, Mises etc are good.
You'll notice that when the banks shouted "Jump". Gordon did, to the tune of 500 billion pounds. Just think of that number. Who exactly do you think runs the country? The government, or the people with the money?
Complain about this comment
Well done Mervyn, at last you've realised the country is going into recesssion. Most people realised this a year or more ago, which is when you should have been cutting interest rates. Using interest rates to try to control inflation is a nonsense. Inflation is predicted to be zero or even negative in a few months time and this has nothing to do with the BoE keeping interest rates high. Interest rates should be increased when borrowing is high and saving is low and vice versa. So Interest rates should have been increased several years ago. This would have discouraged people from getting into debt and prevented the current credit crunch.
Complain about this comment
#127, King did spot it and did try to act back in 2003 and then Brown changed the target on him and when he ignored it forced him to follow it.
He repeatedly mentioned easy credit and about not targeting asset prices before being slapped down by our then Chancellor.
It is a complete and utter lie that "fraud" or "lying" or "deceit" got us into this mess. It is the incompetence of Brown that did it. End of Story.
Complain about this comment
Two points:-
1. The expertise and regulatory experience of the BoE should be used to help the FSA regulate the UK banks;
2. The BoE's brief is to ensure inflation remains within its target range. In addition to the MPC setting interest rates I would like to see the BoE setting minimum equity content (MEC) for house purchases. By varying the MEC the BoE could control house price inflation so that it did not exceed the growth in average earnings.
Perversively the cost of housing is not a constituent of the CPI yet to a great extent it determines the cost of so many goods and services that are.
Complain about this comment
The baaanking system prospered on the basis of advancing %120 loans to the proxymorons [negative equity home owe nerrs]they employed to [now seemingly] bid up housing market prices to the appearance of debt solvency
There is no reason why the bank of England cannot take over this noble quest and inflate housing to infinity and beyond using rolled interest payments and repayment holidays ,there is no turning back now .
He who daaares wins,fortune favours the braaave ,death before dishonour,no surrender ,in the long run ...,once more unto the breaaach dear rigourmortgagees
Complain about this comment
#98, "if"? "will"? Try already have. Look at the GBP against any headline currency.
So we will have the magic combination of inflation and recession. Even Old Lab managed to get some fake growth. Brown truly is a genius.
Complain about this comment
"The Tories have talked about giving the Bank of England the power to vary the capital ratios of banks depending on credit conditions, which is a fancy way of saying that the Bank of England would be able to force banks to lend less in a period of economic euphoria.
Many will say that's by no means bonkers - although there are immense practical difficulties in devising a credible framework for the Bank of England to exercise such new powers."
'Many would say' = you. It's a pretty naff tactic for journalists to employ. Nick Bobinson does it quite a bit too.
An economic euphoria funded by debt is hardly an economic euphoria. It is a mirage of success. One that Chancellor Brown has been keen to encourage for a decade.
Credit is a useful tool for businesses. It is not so useful for individuals as it is very easy for it to get away from you. Whatever happened to people living within their means and spending what they earn AFTER they've earned it?
Giving the BoE the power to set capital ratios is a tool to stop banks from over stretching themselves, which is surely better than a bank failing or the taxpayer having to bail them out. A prudent bank wouldn't need such oversight and the tool would be as a last resort to ensure banks no longer play chicken with the money markets.
Complain about this comment
Somebody somewhere needs to have a holistic view of the British economy and its relationship to other economies.
In retrospect it was ridiculous for the B of E just to have inflation as its only concern and not an overview of the whole economy. All the variables cannot be separated out as has been demonstrated by the failure of the "experiment" which has been in progress ever since New Labour took over hte economy and the remit of the B of E was changed.
The trouble is that there are too many vested interests for anyone to have a completely impartial view. Politicians are the worst people to be in charge of the economy as they are looking only as far as the next election and their own incomes and pensions. Probably the B of E is the most impartial observer we have. The Treasury are obviously under the thumb of the government so cannot be impartial.
The best solution if we want politicians in charge is that we stop paying them!! Then they wouldn't need to be so frightened of losing their seats and could start looking at what is in the best interests of the country as a whole.
Contraversial?
Complain about this comment
Maybe we should stop the BoE and Brown dictating to private banks.
Complain about this comment
"And the reluctance of banks to lend will continue until they're confident they can see the bottom of the fall in asset prices - and we're not there yet"
Problem is, the reluctance of banks to lend is part of the reason for the fall in asset prices.
As you pointed out, Robert, interest rates have been too low because the Bank was chasing Gordon Brown's phoney inflation measure that completely excludes house prices. That caused a massive expansion in the money supply and roaring inflation - but in assets rather than consumption. Presumably now the money supply is contracting fast due to the credit crunch - leading to price falls (in houses, which are excluded from the inflation figure).
The Bank should be given a Money Supply target not a phoney inflation target to meet. If the money supply is controlled, everything else will take care of itself.
Complain about this comment
Perhaps a key part of fixing the financial system is to return to what we had before the City's "Big Bang". Force all the banks to split up into separate Mortgage Banks, Commercial Banks and Investment Banks. Then if one sector goes pear-shaped it doesn't cripple the others.
If we still had that system, and we had a property bubble that burst, then the Mortgage Banks might have to cut back lending, but the Commercial Banks would not be affected, and could still lend to industry and to consumers, avoiding the recession it looks like we're now having.
Of course you would have to prevent sector cross-contamination by banning these wretched CDOs, CDSs and so on.
Looked at from this angle the HBOS/Lloyds merger seems to be going in the wrong direction.
Complain about this comment
#151, because he[the one who voted for a rate hike] is right? Trying to spend your way out a debt-fuelled hole makes about as much sense as trying to stay drunk to avoid a hangover.
Complain about this comment
What Mervyn didn't say, and what Peston shouldn't:
'In a nutshell our banks and other financial institutions lent too much against the security of over-valued assets, largely residential housing and commercial property.'
Are you trying to suggest that the route of the banks problems is not in fact their reckless lending, but the 'frighteningly pumped-up' values of real estate?
I would like to raise a few points on this;
Firstly, a fundamental point to remember when determining the 'value' of property- residential or commercial is that the deals made are price makers not price takers. That is to say that when a bank agrees to secure funding for a property, this information then feeds back into the market and sustains these 'high levels.'
Secondly; it is up to the discretion of the banks to determine the loan to value ratio - the high prices of property should not automatically mean that they become highly leveraged.
Finally; regardless of whether the price of an asset has been over or under valued, it is still the job of the banks the price risk - and they have seemingly forgotten how to do this.
Complain about this comment
I would like to see a similar mortgage system to the one used in Australia, where capital adequacy laws for banks mean, if the customer has a deposit less than 20%, they have to pay mortgage insurance. This is not their mortgage insurance, i.e. not to cover them in case they default, but the bank's insurance, so that, if the person paying the mortage defaults, the banks can recover their losses from their insurance company. Typically this kind of mortgage insurance runs to several thousand dollars per $100K borrowed - and so it should.
As to a recession, the amount of available credit currently in the system is still there - we all still have the same credit cards, overdrafts and personal loans as before. This recession will be caused by people buying less and paying down their debts. About time, and not a moment too soon. It's about time the poor over charged British consumer kept their hands in their pockets and stopped paying businesses over inflated prices for goods and services. When a good wage in Britain is seen as £300 a week after tax, why on earth should people keep paying inflated prices for things so that small and medium business owners can pay themselves £1000 a week?
My advice is keep your money in your pocket and use it to pay off your debt.
Complain about this comment
"The slightly odd thing about Mervyn King's speech last night is that it didn't address the issue of what the central bank, the Bank of England, could do better next time.
Robert, maybe the reason that Mervyn King's speech didn't address the issue of 'next time' because quite simply there should not BE a next time. It's very good sense not to address the 'next time' because we're working on the premise that it won't happen again once we've sorted the current mess out..!! Glass half full! (whether it also amounts to head-in-sand syndrome remains to be seen).
Complain about this comment
No mention of derivatives or the fact that Banks used them as insurance against debt,thus loosening their dilligence when lending money,I don`t accept that the Banks should have been rescued as they were, it was all too easy for them.
As a small businessman I can only rely on myself, why should I risk mt Tax on Banks who clearly were reckless and greedy and who will no doubt seek to re-build their businesses on the back of overcharging the likes of me.
Next time the Taxman wants his money should I refer him to Mervyn King, after all he has taxpayers money coming out of his ears!!!
Complain about this comment
No. 168: "So we will have the magic combination of inflation and recession."
I don't think this is what is going to happen - not in this case. If even a small percentage of consumers do as I expect, and am doing - reduce personal consumption dramatically and pay down their debts, we will have deflation rather than inflation. Business owners will have to either reduce their prices to survive or sell less and take a loss. About time! They've been too greedy for too long.
Complain about this comment
Will someone please tell me who is lending our Government (and many others) these huge amounts of money. Someone is clearly going to make a packet. Let's name and shame them.
Complain about this comment
Sorry Mr Peston, but this time you have merely resorted to the blame game that attaches to every single market crash - bricks and mortar. Always property? Why? Because banks don't lend against anything else - ever tried raising a loan against your stocks and shares - it doesn't happen.
Overvalued property? Value is a product of time - by any standards there is barely a single asset today that does not look overvalued by yesterdays standards. Right now, I submit you might be better off with the rent from bricks and mortar than the forecast earnings of a good deal of quoted companies.
And what about all the (so called) unsecured lending on credit cards, etc. - are you sure it is not really secured against property (if the borrower defaults, it is his/her property that ultimatelay has to go)?
Complain about this comment
"they both said - in essence - that they don't have the tools, that raising interest rates to put a brake on house-price rises or on the growth of credit would have had unfortunate consequences for the wider economy."
BUT
"At a time when some have questioned whether central banks have lost their power, Mervyn King still moves markets."
THEREFORE
Mervyn King should have given would be speculators the warning on their
IRRATIONAL EXUBERANCE that house prices will keep on rising!!!
Complain about this comment
We have to use house prices as part of our Inflation indicators. As soon as we didn't, banks and others used it as a way of laundering their hyper inflated new dosh from their newly created monetary system CDOs/CDSs into the real economy and created a huge housing bubble.
Because their new money was "OFF BALANCE SHEET", they needed something to invest it in that was also unregulated.
There must have been collusion in government for something as obvious as this to happen.
Complain about this comment
I enjoyed this piece. It sums up why any attempt by the Government to force lending to be at 2007 levels any time soon is bound to fail and actually says we are not going to see such levels for a very long time, nor should we wish to see them at all unless we want a reprise of the current mess.
I am not sure your point on the Tories idea of counter cyclical capital requirements being difficult to achieve practically is correct. I believe the Bank of Spain has had this sort of system since the Spanish banking crash of 25 years ago and it seems, so far, to have worked. It remains to be seen whether the spanish banks will have their own crash in about two years time once their housing bubble has fully deflated, we will then see if the variable capital idea works. Worth following perhaps?
Complain about this comment
I seem to remember that an oft-repeated phrase from Gordon Brown just a few months back that Britain was well-placed to withstand the international economic turmoil that was ahead (or words to that effect). Is this still the case?
Complain about this comment
did the market not realise before last night that we were in the big R !!
the market is therefore of no useful purpose
Complain about this comment
The casual measured tones of the Guvnor and Gordon Brown and their chummy assertions of how bad it's going to be for us,set me in mind of the song from 'Oh What a Lovely War'..
"the bells of hell will ring-a-ring-a-ring - for you but not for me"
The British people are truly 'Lions led by donkeys' and a high casualty rate is coming. With all due deference to good NCO's - Gifted Gordon - you can find him on google - is no more than a second rate corporal with no 'grip' at all - wearing sergeant's stripes.
GC
Complain about this comment
"... based too much on an over-inflated property market"
We seemed very proud of our "Services-based Sector" economy not long ago... we were kidding ourselves after giving away all our manufacturing... what can one bexpect?
The only "services sector" we have left now is in finance and that hasn't been so well looked after either.
Europe will come back (if it is in as 'deep' in the first place) showing it's usual steadiness and moderation while the UK will as ever will be whinging along it's wibbly-wobbly-way. The DAX and CAC will modulate the FTSE as they usually do and show their normal dynamic but indeterminable trends. The US market trend will not inspire confidence for a long while.
Complain about this comment
As it was the Bank of England that created the last credit and asset bubble it seems that the solution would be for the B of E to change its policy of easy credit.
However, as that policy is dicated by politicians who are persuing their own political objectives rather than sound economic ones, there is little the B of E can do.
Only a zero-inflation target, based not on consumer prices but on the money supply, will avoid another round of inflation followed by recession.
http://liberalpolemic.blogspot.com/2008/10/how-labour-caused-economic-crisis.html
Complain about this comment
Stage 3 of how to keep wealth (the richest 300's hanbook)!
In order to prevent a peoples revolt after a great economic crisis it is imcumbent upon the rulers of the world to ensure the mob swap the guillotine for arms and mount a strategic alliance to rebuild shattered economies out of tanks and guns .
Stage one
Grow grow grow, until collapse
Stage two
Use as many of the assets of the people, until their taxes are spent
Stage 3
Oh dear, Oh dear
Complain about this comment
"But there can be no growth in the economy while banks contract the credit they provide to companies and households."
I'm not sure this is true. I expect to grow in the credit crunch because businesses will be more focused on improving the quality of what they do. They'll have to do so to be competitive.
During the 'boom' years, the economy was distorted. People behaved stupidly and took little care.
Things don't work out how you expect. When doctors went on strike in Israel, the mortality rate fell.
The boom was terrible for those wanting to get on the property ladder, the bust will be great for those with imagination, skills and drive.
Complain about this comment
If this is a global crisis centred on the US and the UK government has been the most decisive and everyone else is just following their lead, why is has the pound lost over 18% of its value against the dollar and over 12% of its value against the euro in the last year?
Complain about this comment
Just a general comment;
Mr Peston, are you somehow invested in making sure our economy goes under?
Certainly seems that way!
Complain about this comment
What about the prudent poor pensioners whose hard earned savings rates are to be slashed to fund those whose greed has got us into this mess in the first place.
It is a double whammy as I see it where our hard earned taxes are being used to fund the bank bail out, raise interbank lending and money supply which will in turn further reduce interest rates and penalise those who were sensible enough not to get themselves up to the hilt in debt.
Complain about this comment
What Mervyn Didn't say
But why not post "What Pesto didn't say"
1. Why was Deripaska banned from entry into the United States, and has been banned since 2006?
2. Why was Mandelson on the yatch of the chief exec of Microsoft when they had been fined millions by the EU
3. Why did Mandelson's team accept money from the Rothschild's in 2002?
Why haven't you posted any of these stories??
Complain about this comment
Yeah, yeah, BOE, Govt.
Enough observations about us being in recession.
WHAT PRECISELY ARE YOU GOING TO DO ABOUT IT?
Are you just going to let it run its course?
GC
Complain about this comment
#143 wrote:
"A government can do whatever it likes!
Government has the POWER to stop DEAD the foreclosures, court actions, repossessions, bailiffs, seizures, bankrupcy proceedings."
So 1) take billions of tax payers money 2) put them down as security against bank loan defaults 3) make it extraordinarily difficult for the bank to collect its money 4) watch the billions flow from those who have saved (the old fashioned way), to those who have borrowed too much.
Tell me sir, are you by any chance a net creditor or a net debtor? Isn't this also privatising gains but socialising losses?
Complain about this comment
Great, so Melvyn King is Governor of the Bank of England for being able to grasp the bleedin' obvious. The current crisis has been obvious to me for at least 5 years (yes, I am a Property Lawyer - for the time being!)
What did the Bank do to rectify the likely problems? Do not blame the USA, GB is at least 50% to blame for the current banking crisis.
This Country is on its knees, with no sign of getting up any time soon!
At least I don't have to take my impending doom personally!
Complain about this comment
You may have overlooked something Mr Peston in your opening sentence to the blog.
Following El Gordo's decsion to make the BofE independent, it's remit was to control inflation, pure and simple.
The only lever it was given was interest rates, and the only tool is the MPC.
So what do you think it could have been doing better?
And how?
Don't pose questions just to look clever, have a sens of knowing what the answer ought to be, to see if you get fobbed off.
Complain about this comment
#79, Bloomberg is normally more accurate. Here's what actually happened:
1) ISDA put up a protocol.
2) Liabilities were announced - you can read them on the ISDA site
3) An auction was held. SOME bonds came in at just over 10 cents on the dollar.
4) Settlement occured yesterday. The total payments are less than 6 bn USD.
No one has failed, no one didn't pay up. CDS market performed EXACTLY as it should have.
Oh and it is CDS not CDO, completely different products.
Complain about this comment
180 - You are.
You watch spending on the welfare state (NHS, Education, Social Security) slow in real terms over the next few years whilst at the same time taxation will increase.
Tell you what, I'd lay money on Bruiser Brown to raise petrol duty as petrol starts to come down so that you don't even notice.
Complain about this comment
Can I correct a perspective which is constantly repeated, namely that the housing market has been overinflated / overpriced. This is not true. A house is worth what it sells for. House prices are governed by supply and demand and the availability of finance. For decades there has been a slight shortage of housing leading to upward pressure on prices through competition. Prices are able to go up because financial institutions make funds available. So, whatever price houses are selling for, that is their market value. There is no other benchmark against which we can say prices are too high or too low.
It is true however that if lending policies were stricter then the inflationary effects of supply and demand would be dampened and prices would be lower. So Banks have compounded inflation by funding it.
It is also true that a greater supply of houses would be deflationary. It is not in the interests of house builders to bring down prices, therefore Government must build more houses. Stricter lending criteria would also be deflationary. Greater supply and stricter lending are the issues which need to be addressed. Simple solutions, but will anything ever be done?
Complain about this comment
Poor Robert, all those Conservative bloggers are still very very cross with you reporting a news story, which of course they don't want to be a story, which it is now. Fact. Terrible. I mean what does one expect from a journalist? What has the world come to? Blue blood fall out about proper form when having guest's round for dinner on one's boat. Fantastic.
Don't worry Robert. Things are going to be okay. Really.Honestly, they will. Nasty people. They will have to turn their attention to poor old Nick, or anybody else who they want to throw their rattle at as this story goes on and on. It's all about trust you see and the bursting of the nice little (green) balloon David and the boys from Slough Grammer have been blowing up. Pitty you burst it. Never mind. Next week they will be back to turning their attentions to the letters pages of the Daily Mail. Or Pravda..
Complain about this comment
September 22, 2002
Rothschild bankrolls Mandelson think tank
Jonathon Carr-Brown
HE IS a man with generous friends. Peter Mandelson, the former secretary of state for Northern Ireland, has found a new backer for his political ambitions in the shape of Sir Evelyn de Rothschild, the multi-millionaire banker.
De Rothschild may be 21 years Mandelson?s senior but the two have become firm friends, lunching and sharing an interest in Albanian affairs. When the banker married his third wife two years ago, Mandelson was a guest.
So it is perhaps no surprise that de Rothschild has emerged as the mystery funder of Policy Network, a ?super think tank? that boasts some of No 10?s senior policy advisers on its board and is chaired by none other than Mandelson.
The sum donated to date is said to be £250,000. The name of the donor is missing from the think tank?s accounts, but its directors have been privately concerned that they will look secretive if they continue to hide his identity. One tipped off The Sunday Times last week: ?It hasn?t been publicised, but de Rothschild?s involvement is well known to the board.?
Last night critics said the donation is yet another example of a businessman with vast commercial interests in government policies giving ?cash for access? via a Labour think tank. De Rothschild and Policy Network have declined to comment on the matter.
De Rothschild, 71, heads the British arm of the Rothschild banking dynasty and chairs N M Rothschild & Sons, its merchant bank. His personal fortune is estimated in The Sunday Times Rich List as £500m.
Mandelson?s attraction to rich men has already led to him resigning from the government twice. The revelation that Geoffrey Robinson, the multimillionaire businessman and Labour MP, had loaned him £330,000 to buy a home prompted his first resignation from the Department of Trade and Industry. Then his friendship with the billionaire Hinduja brothers led to his downfall as Northern Ireland secretary when he was accused of helping them obtain British passports.
De Rothschild was not previously known to have political leanings but the donation is attributed to Mandelson?s influence and to the banker?s wife Lynn Forester, a friend of Bill Clinton and part of New York?s Democratic party elite.
The couple?s friendship with Mandelson blossomed when he was flown to Albania, where de Rothschild and Lord Sainsbury are trying to preserve the city of Butrint, a world heritage site.
In June this year the de Rothschilds were among the organisers of a ?progressive? leaders? conference run by Policy Network at Brocket Hall in Hertfordshire, which attracted Clinton and the prime minister. In the evening, the gathering moved to Ascott House, de Rothschild?s home in Buckinghamshire, for a seated banquet for 100.
The board of Policy Network ? set up by a group of young Blairites in 2000 ? reads like a Who?s Who of Labour?s inner circle. It includes Andrew Adonis, head of Downing Street?s policy unit, Roger Liddle, a senior member of the No 10 policy unit, Lord Levy, Blair?s chief fundraiser, and Adair Turner, the former CBI director who is now part of Blair?s ?blue sky? thinking unit.
When Mandelson resigned as Northern Ireland secretary, both Policy Network and No 10 steered the MP for Hartlepool in its direction. A source close to the think tank claimed it was all part of attempts by Downing Street and friends to ?feather bed? his second fall from grace.
According to Policy Network directors, the de Rothschilds gave the money to a charity, the Policy Network Foundation, before Mandelson came on board.
A Downing Street spokesman denied that there was any conflict of interest between Adonis?s and Liddle?s presence on the board. He said: ?These are unpaid positions from which no financial gain is sought or received.?
Complain about this comment
#173, of course we could try fixing the system by fabricating the past.
Big Bang didn't end the "separation" between investment banks and other banks because there was no separation.
It ended fixed commissions, ended the closed shop and distinction between market makers and agency brokers and made the stock market phone based rather than floor based.
Complain about this comment
Robert - excuse my ignorance, but over the last few months we are told that billions of pounds of value has exited the stock market. 30% or more of its value in the UK alone. So presumably this has not been reinvested in equities. Some has found its way into gold but the vast majority of must be lying around in bank accounts. Surely this must mean that the banks are awash with cash? Someone please enlighten me.
Complain about this comment
Tony Ben has some words to say about the crisis. Well worth a read.
http://www.ukwatch.net/article/what_went_wrong_in_the_capitalist_casino
Complain about this comment
Do you think Matt Prior should get a test recall?
Complain about this comment
#184 - Spain does indeed have the system that you describe, and also as you describe Spanish banks have held up remarkably well (when compared to their anglo saxon counterparts) so far.
What your post does not point out is that the Spanish are being required to dismantle their system as it is "not in accordance with international financial accounting standards."
...and what are these standards? Well apart from the foregoing they also allow profits to be booked on a mark to market basis of all kinds of long dated exotic or illiquid commodiities or assets - both real and synthetic (i.e. not real).
It´s all very boring and tedious except it enables some people to essentially determine their own bonus levels. It also employs an entire army of people who argue the point at the most nugatory levels whilst closing their eyes to the systemic consequences of their tedium.
Complain about this comment
I've stopped reading this blog other than the headline.
The comments it generates are more intelligent and insightful than the blog itself.
Complain about this comment
#197
I had to read your post twice. At first galnce on reading about 'taxpayers money' I thought you were talking about the financial institutions.
As your question, what I am? I am a person campaigning for democratic principles to be applied right now to protect tens of thousands who stand to lose everything because of the panoply of recovery measures that will be unrolled swiftly and ruthlessly in the days to come by the very institutions who received unstinting and immediate advice and money from the Govt. and those have no voice of their own, no-one to speak for them.
That is who, not 'what' I am.
Guy Croft
Complain about this comment
Why didnt Mervyn King notice what was going wrong 3 years ago?
Thousands of ordinary people did...they've seen it all before.
Complain about this comment
#161
Sorry I didn't make myself clear, #129 explained it better.
Currently mortgate rates are set by banks according to the BoE interest rate. Is it not possible to create a new BoE interest rate specifically for mortgates?
This would give the BoE subtainially better control over the housing market and help them keep house prices low and stable.
Basically most people do not benefit from high prices. I'm sure its nice to own a £500'000 house but few people are able to cash it in. House prices are relative so theres no benefit when you want to climb the housing ladder.
First time buyers have been totally screwed by the current system and its shameful discrimination against the the young and poor. They were forced to risk getting massive loans just to buy somewhere to have a family. This was the whole start of this mess...
The only people that really benefit are the mainly bankers but also lawyers and taxman.
Governments should tweak the market to encourage investors into investing into science and technology (things that create value and actually benefit humanity).
Projects like CERN help create the Internet (est cost 8 billion i.e. one bank bailout) while bankers only benefit local Ferrari dealer.
I'm sure theres some great minds in the financial services industry that could be put to better use than creating new money products to trick the regulator and other bankers...
Complain about this comment
This post should be entitled:
"What Peston didn't say"
that is not the by now totally obvious point that we had both a liquidity crisis and a solvency crisis in the banking system...but the more relevant question: where do we go now these twin problems have been nationalised?
These are enormous questions for the UK economy that simply are not being asked of the current prime minister and chancellor.
How can it ne prudent to naitonalise a banking system that failed because of off balance sheet wholesale funding...and put the nationalised entities off balance sheet within the national finances?
You are repeating the error with public instead of private money.
This is an enormous problem.
National debt is 633 billion including Northern Rock.
It rises by another 500bn with the bailout of the banking sector.
Ad another 100 billion for PFi
Another 20 billion for Network Rail
30 bilion for Bradford an Bingley
and a whopping 1,100 billion for unfuinded public sector pensions.
Gordon Brown's solution to all our problems has been to put out fire with gasoline and he's still doing it.
So the real national debt to GDp figure is more like 127 percent rather than the oft quoted 37 percent
When are the BBC going to get down and grill the prime minister about these serious matters that will affect our children'slives for decades to come?
The Argentinian market has just collpsed 15 percent because the government has seized the assets of the pension funds and declared that all pensions will henceforth be unfunded....is this seriously the way that the UK goernment is taking us?
Third world levels of debt, no savings, unfunded pensions...all for a bit off ideological dogma about doctors, nurses and teachers pay.
We urgently need an election. Call it.
Complain about this comment
@ no. 64
"Why should people be restricted from buying their home?"
because they can't afford it?
"People need / want housing, don't want to waste money on rent"
The money 'wasted' on rent is a lot less than a 50% drop in the value of a house, that you will still be paying a mortgage for and will have paid a deposit on.
Complain about this comment
crunched up, do you have even the slightest clue as to what the secured lending amount is in this country?
Complain about this comment
#197
I might add that the sight of those on this blog and on this site as a whole condemning those less fortunate than themselves and sneering at them is distinctly 'un-British' and 'un-Christian'.
As if the country was not in enough of a mess without the 'haves' starting a civil war against the 'have nots'.
Have a care for your fellow man, do not crow about your good fortune. Proverbs 16:18 "Pride goeth before destruction and a haughty spirit before a fall"
GC
Complain about this comment
What Mervyn didn't say,
1 sorry folks we got it wrong.
2 we are money grabbing and want you all to give us your money.
3 gordon made us do it.
4 we were expecting to win the lottery this week.
5 does any one know how to add up please becouse its beyond our reach.
6 the plan to convert to euro's is on course.
7 my mother told me not to become a banker but to run for government.
8 next week i shall surprise you all and the bank of england will give away money.
9 i resign.
10 i was never any good at monopoly.
Complain about this comment
Come on Robert.
PLEASE DO YOUR JOB!
What exactly were the over inflated property prices?
What about OVER INFLATED LOANS?
Please give us some facts and figures some comparisons.
Affordability in the property market is and was there.
OR NOT
Otherwise you are as incompetent as the Bankers and as Naieve.
Complain about this comment
In post #189, 'LiberalPolemic' wrote a good deal of sense.
Of course that is the right way to go about things, but how many politicians and economists out there follow such a 'classic liberal' line? Obviously no Labour-supporting ones, and precious few Conservative ones. If this country had a proper Liberal party, perhaps there might be some in that which would see sense, but as such a party no longer exists, it's just the 'Mises Institute' and a few of us on here that keep pointing out that the Emperor hasn't got any clothes on.
Complain about this comment
"Math is a pure science and the fractional reserve banking system is an exponential model - now mr know it all banker- lets do the math - the future 'growth' of banks must be continually built upon (debt) to survive"
Yes, indeed, banks do grow the money supply, in proportion to productive growth in the economy. This is their purpose. The other side of the (gold?) coin is that, as the economy contracts, lending contracts, debts are paid off, and savings rates increase. Sometimes, savings rates increase too much, and you get the Keynesian "paradox of thrift". All this is obvious. What is also obvious is that on average, not only does the money supply grow exponentially, but so too does GDP, so that bank liabilities and assets are always, approximately, in balance. I don't see what is the problem here. And I am not a banker.
Complain about this comment
Absolutely amazing that the government knew all this information before anyone else and were still in denial about a recession until today.
Well they are in the thick of one now.
Right up to their necks in it.
From what I've seen and heard they haven't come up with a decent idea yet on what to do.
They're still drawing straws out of the hat which economist to listen to.
Gordon Brown even asked the Tories for their policies They aren't even in government.
It is going to be a very steep learning curve for them especially if they make the wrong decisions.
Who would want Gordon Brown's job from now on?
Complain about this comment
Peston you are high on innuendo and intrigue.
BUT low on balanced facts and figures.
Tittle-tattle appears to be your speciality.
Well you are only a Journalist so why would any of us be surprised.
GOTCHA again.
Complain about this comment
All those mortgage rate adjustment letters will be dropping through letter-boxes throughout the land about now.
As about 60% of mortgages are BBR trackers, then this means that less money will have to be spent on mortgages now.
Or will it?
I suspect many people might think it prudent to use that surplus money to make capital repayments.
Complain about this comment
Mr Peston
"Perhaps the important point is that the ultimate strength of any economic recovery will depend in part on all of us regaining confidence not only in the robustness of our banks but also that our central banks have regained the ability to deliver a stable economic environment of low inflation and steady growth - and the important word here is "stable"."
I think the most important word in the above is Growth.
It is no longer sustainable. The panet is full.
I know the system depends on growth to work but we are going to have to think of something else.
Complain about this comment
Robert,
The Fantastic Iceland Model, which was Spun on a Money Making Dream, made a lot of Money from Nothing. That is a Skill which should Surely be Invested in and XPlored to Generate Currency Flow too, with Wealth Distribution rather than Asset Collection.
"and handing out squillions to anyone able to utter those fateful words, "can I have a loan please?""
Can amfM have a loan please? A lot less than squillions will Do [IT] Nicely, Thank You, and Wwwe Promise not to Lose Any of it. That means Something from Nothing and the CrAIc for Free. A NIRobotIQs thing from Holywood Palace Barracks ..... LoughSide Titanic Quarters for Colossal dDevelopments .......a Perfect Stormont Assembly TestBed for Mutual Intelligence Applications. Special Assisted ProgramMIng for an Advanced Civil Society Model/Module.
Or maybe Nat would like a Flutter on ControlLed Programs, with a Creditted Definitive Offer .... a Relative Crumb and Loose Change Sum Proportionate to his Expectations would Define the Extent of Future Acumen ..... HyperVision. ..... "As co-chairman of a hedge fund called Atticus, Nat Rothschild has accumulated a fortune of several hundred million pounds." .... http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/rothschild_wont_back_down.html
To spend it on IT is much better than to Lose it to IT, surely? :-)
Complain about this comment
its like this folks,
When the tax payers that bail the banks out lose their jobs and then cannot service their mortgages, they lose their house. Why can?t the taxpayer who effectively own all the banks then call in their 500bln loans in order that they can pay their mortgage?
They can?t and this is when you realise you are a slave!
Complain about this comment
Come on Robert address the issues that all this crap throws up.Money creation theory is important it isn't rocket science .The private banks present themselves as middlemen, only lending other peoples money. As it is the international banks aim is to create a cashless interest based money society with no hope of seigniorage payments to augment public borrowing.
Teach the people about their money IT ONLY EXISTS WHEN THEY BORROW IT .
Please please BBC make a programme about on fractional reserve banking , show them how the UK cash reserve has decreased year on year in 1968 it was 20.5% in1978 15.9% 1988 5.0%
1998 3.0% what is it in 2008 ?
I challenge the BBC to show the Money as Debt DVD go on what harm would it do ?
Complain about this comment
We have a picture of Brown smiling on the BBC Business page saying that a recession is probable. The stock market falls by 4.46% on the back of injudicious comments by the governor of the BofE also prompting a fall in thne GBP against the US dollar. This will mean higher petrol and fuel prices despite the fall in the wholesale prices.
Additionally the Royal bank of Scotland share price fell today by 15%, 10 days after brown unveiled his bank bailout plan that saved the world. If the RBS price falls again this week, will we be told that this was Darling's plan all along and that Brown did not have anything to do with it?
You would think that with all the spin gurus available in Downing Street that the authorities could be one message about the situation, instead of disparate comments littering the landscape.
Complain about this comment
#133 My estimate - if fractional reserve banking was removed we would be in debit of billions as the economy needs to expand to keep the dam thing going, hence credit crunch.
Basicly the music has stopped and there is only enough chairs for half of us to sit down.
The other half is out of the game.
It was working quite well until they started lending higher multiples of salary.
I guess were stuck with fractional reserve as the elite wont let it go.
So the best that can be done to solve this crisis would be an injection of cash to householders that would reduce there mortgage to a 3X multiplier of there income.
Let the printing press roll.
This would not necessarly be inflationary as the created money (remember it isnt real its just numbers) would be destroyed shortly after creation as the debt is destroyed.
This would help the householder, strengthen the banks and restructor the financial system.
This then just leaves the trillion dollar derivative death star that is about to go suppernova.
Remember this isnt real either, so this just requires the world to agree that was just a bunch of silly bets during a drunken party and now were sober all bets are now off.
So why is there no reasonable solutions coming from broon or the US, well because this has all been structured and planned by the elite.
Now lets all debate something that is likely to happen.
What shall we call the new global currency..
Complain about this comment
When are the credit default swaps kicking in? or were they last week's hype?
Complain about this comment
My goodness an economic story about Crash Gordon and his recession rather than political tittle tattle
Careful!
Complain about this comment
What Mervyn didn't say is the banking system will never recover until it gives up its failures. In every sector, transparent winding down of failures is the sacrifice the market demands in exchange for continued trust.
The market might be sending a message right now: the euro is falling against every important cross, but since yesterday the pound is falling harder. Rising against the pound conspicuously since last night is the Norwegian krone. With that exception it is weak. So someone is selling pounds and buying krone. Norway SWF capital fleeing UK shores? Who knows. Without a reason to trust the feted Anglo-Saxon financial system, no-one has any reason not to liquidate.
Complain about this comment
I give you two thoughts:
Pushing interest rates down artificaially does more harm than good. It didnt help the Unite4d States, if anything the reverse. Also at the hight of the Japanese economic boom the base rate was 10%. When it was down to zero the Japanese economy feail to recover.
Secondly, the British economy is to small to act independently. It must either sink or swim with the United States or work very hard to join the Euro. The choice is yours.
Complain about this comment
#228 Spot On, I see your challenge and double it. NO Triple it.
I challenge the BBC to show a Triple bill.
Money as Debt ,Zietgiest and Zietgiest Addendum.
Come on Bob, do a piece on fractional reserve banking.
Your followers are begging you for it..
You know you want to.
Complain about this comment
#202:
It isn't true that there's no benchmark for comparing a house's price against some sort of underlying value. A house is an asset. Assets like houses are valuable for the stream of services they provide: a car is valuable because it provides journeys, a house because it provides somewhere to live. Every year a house produces a year's worth of 'housing services' - the benefit of being able to live in it for a year. There's a market in these, it's called the rental market. (It's not an exact comparison because living in a house you own may be worth more, but it gives an indication).
If interest rates were pinned at, say, 5%, it wouldn't make sense to pay much more for a house than about 20 times what you (or someone else) would be prepared to pay to rent it. There's one proviso, though: you might be prepared to pay more if you expect interest rates to fall or rents to rise.
Notice that rental yields have been falling roughly throughout this boom. Rents have steadfastly failed to rise with house prices (and, I'd bet, will not be falling with house prices now, either). Net rental yields were down to around 3.25% at the end of 2006. If houses were not overvalued, as you're arguing, this can only be because landlords expected their mortgage/savings rates to fall below 3.25% or because they expected huge rises in rent (50-100%, say).
This just doesn't seem credible to me. If there's a genuine shortage then rents will be sure to rise...but the levels implied are just too large a proportion of incomes, AFAICS.
Complain about this comment
When the Banks become unstable again because of the cost of CDS write downs, does each government bail out each institution with our money in them with our money again?
Or is there higher lender of last resort that will bail out the governments?
To crack a nut with a nut is conkers, isn't it?
Complain about this comment
You missed this one, Robert:
Photo on BBC Business Page:
"Prime Minister caught emerging from secret love nest with mystery red-headed beauty"
Complain about this comment
221. At 4:43pm on 22 Oct 2008, tuairimiocht wrote:
What is also obvious is that on average, not only does the money supply grow exponentially, but so too does GDP, so that bank liabilities and assets are always, approximately, in balance. I don't see what is the problem here
Quite simply, the liabilities of the very people that used thrift to get themselves through a recession or even depression are non existent so bank liabilities and assets are not, have not been and probably never will be in balance. Without people saving, when people pay (default) on their debts the banks liabilities and assets are not able to balance.
What happens then?
Complain about this comment
WE WANT A PIECE ON FRB
WE WANT A PIECE ON FRB
WE WANT A PIECE ON FRB
WE WANT A PIECE ON FRB
WE WANT A PIECE ON FRB
WE WANT A PIECE ON FRB
WHEN DO WE WANT IT?
WE WANT IT NOW!
Complain about this comment
correction (spelling mistake)
239. At 6:33pm on 22 Oct 2008, PetersKitchen wrote:
221. At 4:43pm on 22 Oct 2008, tuairimiocht wrote:
What is also obvious is that on average, not only does the money supply grow exponentially, but so too does GDP, so that bank liabilities and assets are always, approximately, in balance. I don't see what is the problem here
Quite simply, the abilities of the very people that used thrift to get themselves through a recession or even depression are non existent so bank liabilities and assets are not, have not been and probably never will be in balance. Without people saving, when people pay (default) on their debts the banks liabilities and assets are not able to balance.
What happens then?
Complain about this comment
re Strateshootr (50) You say "we pay Brown, King etc serious sums of money". What we pay as an annual salary to the man we expect to run our country is what John Terry earns in 10 days. Perhaps the PM's salary is performance related?
PS Sorry that this has little to do with Mervyn King but I see the Board of Lloyds TSB still hasnt resigned although I note from the CEO that while granny and orphan shareholders are likely to miss out on their dividends some of the staff are going to get their bonuses.
Complain about this comment
Mr Peston
I suugest that you fully look into what happened from 1997. You may want to blame your and the BBC friend Brown but I do. In the brief given to the MPC when it was set up did not include many things as Brown the novice and a Labour Party Apparatchick to the core (except a brief period as a lecturer in sociology in Glasgow, he never held a proper job), know well that inclusion of these including aspects of mortgage would have shown a higher inflation and banks would have maintained a higher interest rate. He could not boast then he brought down the interest rate, Brown the wizard of economics and not a Scottish Labour Party researcher which he really was. This made the inflation look health and interest rates were held slow,, creating the credit boom which provided a feel good factor and delivered 3 victories for Labour. Now chickens are coming home to roost. About your argument that BOE did not monitor banks well , it had inadequate power.
For once, Mr Peston you acknowledge, for getting your allegiance to Labour that BROWN MESSED THIS COUNTRY's ECONOMY>
Complain about this comment
"221. At 4:43pm on 22 Oct 2008, tuairimiocht wrote:
"Math is a pure science and the fractional reserve banking system is an exponential model - now mr know it all banker- lets do the math - the future 'growth' of banks must be continually built upon (debt) to survive"
Yes, indeed, banks do grow the money supply, in proportion to productive growth in the economy."
LOL. Um... Nope... Sorry, that is just sooo sweet.
For the UK:
Money supply growth: 14% per year
Economic Growth: 2.5%
Compounded every year... For decades, or at least 15th August 1971.
Just a *teeny* *tiny* discrepancy there.
Banks make money by lending. The more they lend the more they make, the more debt we all take on. When it all crashes as it inevitably does, they own everything the debt was secured on, *and* they persuade the government to hand over an additional 500 billion on top.
They must think we are a right bunch of mugs.
The numbers are here if you want to look for yourself:
http://www.bankofengland.co.uk/statistics/m4/current/
Complain about this comment
Robert writes:
A word about comments
The main thing which makes blogs different from a newspaper column or even TV or radio broadcast is that it is a conversation between the author and the audience. So the success of this blog will depend on you letting me know what you think about the news, and indeed about what I've written myself.
We are aiming to publish as many comments as possible in this weblog, though unfortunately we can't guarantee to publish every message you send, and they will only be published after we have had chance to read them first.
Try to keep your comments short and relevant to the blog entry you are commenting on. As you might expect, we won't publish e-mails which are abusive or offensive.
You should also be aware of our privacy policy, which, for technical reasons, is a bit different from our usual.
So Mr Peston, when are you actually going to engage with your audience? Just because Ringo does not sign fan mail any more does not mean you can ignore the debate you encourage. Otherwise please remove the underlined part of your Blog which is obviously not true.
Complain about this comment
"And, in the case of the UK, to have hiked interest rates to stem the bull-market in houses and property would have led to the Bank of England undershooting its inflation target in a way that would have been deemed a failure under the mandate it's been given by the Treasury."
If the price of property was included in the inflation figures, as it surely has to be, none of this would have been so bad!
Complain about this comment
"133. At 12:52pm on 22 Oct 2008, questidium wrote:
U11711256 #99,
Has anyone done an estimate of how much 'money' would cease to exist if the FRACTIONAL RESERVE BANKING SYSTEM went?"
At the moment, 97% of our money is "imaginary" and would vanish.
The B.O.E. publish the number, it's called the M1 money supply figure. Consists purely of notes and coins.
http://www.bankofengland.co.uk/statistics/fnc/current/
You understand now why they keep telling us it is so important that we all must "have confidence"? When only 3% of our money is real?
Of course if we used Full Reserve Banking, all the banks would always have all of the cash and it would be almost impossible for them to collapse. It would also prevent inflation and deflation.
We would simply have to print large denomination notes for the banks to hold as reserves and increase the bank reserve ratios gradually to 100%.
Complain about this comment
From FT Alphaville:
UK plans £3bn loan for Iceland. The UK and Iceland are hoping to agree a loan this week to cover up to 300,000 British depositors in Icesave, the online banking unit of Landsbanki, the collapsed Icelandic bank. A delegation from the Treasury and the Bank of England will visit Reykjavik to try and ?wrap up? the terms of the loan, according to officials. The precise size of the loan remains unknown, but it is expected to be up to £3bn, or about 30 per cent of Iceland?s GDP. The loan would mean the Icelandic government would be able to meet its share of compensation payments to depositers, with the remainder covered by the UK.
Complain about this comment
Mr Peston, It strikes me that in the 14th century, the 2 dominant financial institutions were the church and the governing royalty. The moneylenders, greedy grubby seedy individuals, had no real power or influence.
I now move forward in though 700 years... and apart from the fact that through the fallacy & miasma of 'democracy' whereby us poor fools are deluded into giving away 20 years worth of labour to those same seedy moneylenders. Nothing, really, has changed.
The recession or depression will happen, moneylenders and peons will weep and moan - but the traditional powerbases will remain unaffected.
So, its not quite the end of civilisation as we know it...... Yet another economic cycle.
Complain about this comment
read this
http://www.marketoracle.co.uk/Article401.html
Complain about this comment
I feel sorry for the kids named Noah, Angel, Brooklyn and daffodil who will have to grow up in a socialist world full of Daves, Margarets, Alans and Tonys.
and the adult politicians called Mandy whos yacht came in a couple of years too late to revive the 3rd way
Complain about this comment
"The capital adequacy ratio is the ratio of assets (loans) to equity at book value. "
No,no,no,no.no.
It "is the percentage of a bank's capital to its risk-weighted assets". So a risk assessment is used to determine the value of its assets. Now, in an environment of completely profligate lending what exactly qualifies as a risk? Hence the assessment allows you to lend with almost no capital.
"Yet more evidence that the full-reserve folk know nothing about banking."
Really? People in glass houses....
"What is also obvious is that on average, not only does the money supply grow exponentially, but so too does GDP, so that bank liabilities and assets are always, approximately, in balance. I don't see what is the problem here."
You mean you can't see the problem with this graph? :
http://uk.youtube.com/watch?v=HMwg0Ug9FIc
Hmmmm. What exactly does the word "Exponential" mean to you then?
Complain about this comment
The last housing bubble took eight years to sort itself out . . . 1988 thru 1996 . . . So what's the betting . . . I reckon ten years . . . 15% a year for three years . . . down 45% . . . then rolling along for 3 to 4 years, nice and flat . . . RNR
Complain about this comment
Yeah, would be good to formulate what could have been done to prevent it from happening, so we actually do it once this thing has "bottomed out". I guess a lot of it is down to politicians. They set the scene for the banks and the credit junkies to create this mess. Education and high-skill oversea recruitment in order to build a competitive real economy will be a further key element. So preventing another mega bubble is certainly nothing Mr King's house could do on its own. For the time being, the learnings from this bubble will prevent international investors from throwing their money at British homeowners again. So, there will be enough time for making a plan.
By the way, slashing interest rates may be popular with the debt junkies, although it wont really help them. It is not an intelligent move. It will bully away the capital that the banks need for a fresh start.
Complain about this comment
#244 true-liberal,
"They must think we are a right bunch of mugs."
Unfortunately they'd be right. Whilst this blog sees a concentrated sample of enlightened people the ratio is not reflected across the general populous.
If someone tomorrow came up with the perfect plan not only to solve the current crisis but to put in place a financial framework which stops the exponential growth paradigm how would the man in the street recognise him? The media of course would do their damnest to ignore him. He'd get no airplay and therefore his message would be stifled to the point of suffocation.
Alternatively, what would happen is that the media propaganda machine would swing into full battle dress with a plethora of disinformation and subterfuge.
Whilst I do my fair share of ranting on this blog and others I'm under no illusion that I'm not going to change a thing. But it does not stop me trying thoughn, not whilst there's even the tiniest glimmer of hope.
Complain about this comment
The DOW closes 7.5% down. Never mind, the bail out is woking.
LIBOR at its lowest rate for months, the banks are lending amongst themselves (helps when the major shareholder in most of them is controlled by governments who in turn are controlled by the bankers.
Oh but wait, they can lower their lending rate as much as they want to, but there is nobody left to lend to
Business wont borrow unless they are on the ropes - whoops banks wont lend to them
Consumer wont borrow because they are all on the hook for thousands and cant re mortgage their (asset) anymore as it is now a liability
The 6th floor in Canary wharf tomorrow will have a dilemma
The market knows that the Banana being sold might have big white plump (artificial) flesh underneath, but the discarded skin is going to there for someone to take a great slip on
Complain about this comment
249. At 8:08pm on 22 Oct 2008, traducer wrote:
Mr Peston, It strikes me that in the 14th century, the 2 dominant financial institutions were the church and the governing royalty. The moneylenders, greedy grubby seedy individuals, had no real power or influence.
I now move forward in though 700 years... and apart from the fact that through the fallacy & miasma of 'democracy' whereby us poor fools are deluded into giving away 20 years worth of labour to those same seedy moneylenders. Nothing, really, has changed.
No, something crucial changed. The moneylenders got into bed with the government. They teamed up with the politicians... Now doesn't that make for a perfect union? Politicians and moneylenders working hand in hand.
The Bank of England was born in 1694 to loan money to the government, and was a completely private institution till 1946. It also acts as a lender of last resort. For Banks. That is if you can't get anyone else to lend you money, they will. But only if you are a bank. A moneylender. Talk about special relationships.
Complain about this comment
I'm mystified by all this: if the banks don't have money to lend - and aren't even lending to each other - and the government is having to borrow money to refinance the banks, then where is the government getting this from - just printing more bonds and selling them to the investors that have pulled out of the stock markets? When you tot it all up, it doesn't balance.
I live in the Netherlands, where we had a housing market crash in the 80s and it was around 8 years before they fully recovered. So the gov. is now borrowing money against an eventual recovery in the property values which could be years away and by which time inflation will require that the prices need to go much higher. Seems like a vicious circle to me. I think I'll go back to bartering........
Complain about this comment
So glad you have returned to a subject with a modicum of Business interest!
However, speculating on the significance of suggested absence of particular references in the Governor of the BoE's speech does seem to be generating the news, not reporting upon it.
What is the next step? Suggesting that you could run the BoE with 20/20 hindsight? As a journo you are blessed with so many skills.
Complain about this comment
When will the government renegotiate the 12% charge over 5 ye\ars on the bank preference shares. How can our banks complete this this ridiculous rate when the government is asking the same institutions to provide lower rates to small businesses and with the prospect of rates in general going down to something like 3%.
Complain about this comment
I thought the saying was when America sneeze"s the rest of us catch a cold. well by the looks of things America as got the flu. so what does that mean the rest of us get ?
Complain about this comment
"252. At 8:43pm on 22 Oct 2008, NorrieC wrote:
You mean you can't see the problem with this graph? :
http://uk.youtube.com/watch?v=HMwg0Ug9FIc
Hmmmm. What exactly does the word "Exponential" mean to you then?"
The really scary thing is the other side of that graph... The downward slope. Because if that follows the the coming decline in oil, the Mayans will have been spot on.
And if you want to be really creeped out. Read up on exactly who is behind the "Svalbard seed bank".
Complain about this comment
Is it possible that the masterful GB engineered this situation in order that the British people would ask / sorry beg for socialism?
I'm getting way too cynical here :)
Complain about this comment
Here's a story for you Robert.
As I understand things with Lehman, they had debts of some 613 billion dollars of debt. This debt was "auctioned" off at about 8 to 9 cents on the dollar. That leaves about 91% of the debt outstanding.
Today it has firstly been reported that the settling of Credit Default Swaps for Lehman came to a sum total of 8 billion dollars. Then later this settlement was withdrawn.
Now I have a BIG question.
Either someone has lost about 550 billions dollars of money via Lehman - which was theoretically credit insured.
Or there is a whole lot more settling to do on the CDS's.
Either way someone is going to lose a lot of money - so who is it ? Seems as though there is a lot of "no news" on this subject of 550 billion dollars vanishing into nothing.
Any chance of clearing up the pit ?
Complain about this comment
262
And if you want to be really creeped out. Read up on exactly who is behind the "Svalbard seed bank".
Go on put me out my misery, who is behind it?
Complain about this comment
With friends like Merv King who needs enemies?
Sterling crashes 4% against the dollar in 24 hours and thousands of people in the UK will hit the dole queues sooner this winter and be 100s of pounds poorer thanks to Kings big mouth.
The fact that what he said about the UK ecomony is true in no way mitigated the fact that he shoudn't have said it. Sterling and the economy faced a quick enough decline without this cretin putting the boot into a very sick patient.
This rarified academic should be sacked before he does any more needless damage to the lives of people struggling to make a living in the real world.
Complain about this comment
To all the advocates of the full cover lending.
While financialisation has the quite obvious and unpleasant consequences, it is neither new nor unusual. There was an unbelievable run on Manchester bill of exchanges because of the American Civil War, which amounted to fractional reserve lending, although from a banking point of view, there was a full reserve lending.
Full reserve lending either caused a significantly deeper recession than would have been required (if you want capitalism, you want recession, because it is the way of periodic devaluation of assets) or it was suspended throughout the 19th century and was abolished when the first real trial came in the early 1930s.
In addition, there has never been a full reserve lending in the UK as the Peel Act explicitly excluded government debt from the gold cover.
Fractional reserve lending is an inherent function of money in capitalism. If you ban the banks multiplying money, the circulation will do it (through refinancing inter-company debts).
The whole debate was fully discussed between Tooke and Fullarton in the 19th century (both got it wrong).
Complain about this comment
#176
Years ago, I used to be a bank manager dealing with mortgages-any mortgage over 80% required the mortgagee to pay a guarantee premium on the difference from 75%. Thus an 85% mortgage attracted a guarantee premium for 10% of the loan. I believe this is essentially the same system you are suggesting? And aren't these insurances what the CDS's are? I may be wrong as I'm out of touch these days!
In those times even a 90% mortgage was virtually unheard of and 100% never! But then the mortgage rate was 15% and savings totals had limits!
We obviously have become a limitless society!
Complain about this comment
*255 NorrieC
"Whilst I do my fair share of ranting on this blog and others I'm under no illusion that I'm not going to change a thing. But it does not stop me trying thoughn, not whilst there's even the tiniest glimmer of hope"
I (and I suspect many others) thank the Lord that there are such erudite commentators such as yourself willing to keep plugging away at the giant with clay feet otherwise known as debt-slavery.
I`m reminded of the admittedly fictional film "The shawshank redemption" where the main character sends off two letters a week to the state authorities to get some books for the prison library.I think it took 5 or 6 years,but the dam eventually burst and he was rewarded with a bounty beyond his wildest hopes.
I also thought this comment from a system-supporter was instructive:
"Yet more evidence that the full-reserve folk know nothing about banking."
We`re now being labelled "Full-reservists" instead of "Fractional reserve wallahs"
I regard that as a concession.
Complain about this comment
*267 Redjsteel,
"The whole debate was fully discussed between Tooke and Fullarton in the 19th century (both got it wrong)"
I`m sure it was debated with the same intellectual honesty and political impartiality as the gentlemanly conversations Messrs Brown and king had when deciding how to pauperize the British people for their Globalist overlords.
Complain about this comment
Redjsteel (#267)
I agree that in considering the current, much too fragile system of fractional reserve banking we should look back at the 19th century. Indeed, I found it striking right away that Mervyn King made the statement on Tuesday night that "the British banking system was closer to collapse earlier this month than at any time since the start of World War I."
The Hungarian economist Antal Fekete has in the last few years been advocating a return to a limited, much more benign form of fractional reserve banking based on silver/gold and the "Real Bills Doctrine" of Adam Smith. Market-generated "bills of exchange" between producers and distributors alone can expand credit, temporarily, according to the needs of business and trade. Crucially, there are no special legal privileges for banks. This is what he says promoted the extraordinary growth in world trace of the 19th century:
http://www.silverbearcafe.com/private/priceofgold.html
It was none other than the Bank of England that presided over such an excellent and productive system up to 1914. That's what makes the current governor's summary so interesting. Was he not intimating that a very different system came into place in 1914, well before the gold standard was officially abandoned? In this reading of history it was the breakdown of Adam Smith's Real Bills Doctrine, one of the many disastrous consequences of the First World War, that was the key move. A little short of a century later we should I think have the good sense to go back.
Complain about this comment
267. At 00:03am on 23 Oct 2008, redjsteel
"To all the advocates of the full cover lending."
I have steadfastly stayed away from suggesting alternatives to the current system for this precise reason. It always descends into various arguments on how to maintain the growth model. This simply detracts from the true problem.
No matter which flavour of system you advocate you must ask yourself the same question:
Does the system I promote cause the following effect to occur:
http://uk.youtube.com/watch?v=HMwg0Ug9FIc
If it does then the system you advocate has failed and is doomed. That is not an opinion. It is an undeniable, mathematical fact. You cannot maintain an expansionary growth of anything, indefinitely. If you don't stop it voluntarily the world will stop it for you.
The press over the last two days has been full of doom and gloom about the Recession. The word recession is the opposite of Growth. Recession, or at least zero growth is good. It is good for the population and it is good for the planet. Of course it crucifies the current debt-based, fiat, Fractional Reserve Banking system because without its daily infusion of new debt the money pot dries up. The money pot drying up is a contraction of the money supply or deflation with all its currently observed effects.
Therefore, the answer to this conundrum is to stop the growth curve now and make the curve plateau so that it is flat going forward. That statement of course will strike horror in the minds of the FRB junkies whose system is predicated on growth.
Ask yourself, with the world's population at its current elevated level, with its attendant consumption of raw materials and energy, production of waste and destruction of the biosphere, why would you want to make that even worse by pursuing a policy of continuous exponential expansion? That is a suicidal policy.
The FRB junkies always point out that without FRB we wouldn't be here today. That is true. But is that reason enough to continue with the system from here forward?
Why is it such a hard sell to advocate keeping the world just as it is today without any more growth - just maintain the status quo?
Any other arguments about which particular system should be used to maintain growth is a useless argument.
Lets have some honesty here. Do you really think this is sustainable in the long term? :
http://uk.youtube.com/watch?v=HMwg0Ug9FIc
Complain about this comment
"269. At 01:13am on 23 Oct 2008, Thehoaxofalltime wrote:"
Sir, thank you for your kind words.
We must be prepared to plant the seeds in order to reap the harvest.
Complain about this comment
#214, that because GB is LYING about the debt that the UK has. He has simply declared recently that the debt is 37% not 43% - PFI are off-balance sheet and the public sector pension deficit is a liability not formal debt.
Complain about this comment
What Mervyn didn't say was sorry for failing to take any action to curb the excesses of a runaway consumer boom.
Interest rates are not the only weapon at his disposal.
He was very much aware of the problem of excess liquidity fuelling spending especially asset prices, as it developed. He remarked that he wouldn't buy a house at these prices, and that house prices are a matter of opinion, but debt is real.
The one thing King should have done - and this goes to the heart of the current banking crisis - was to require banks to increase their reserves to match their excessive lending.
This would have curbed banks ability to lend excessively and imprudently, and reduced liquidity to the consumer.
By running down their asset bases so much banks have jeopardised their solvency, requiring massive injection of taxpayers money to prop them up.
The BoE/FSA demarcation dispute about whose job it was to curb banking excesses is irrelevant, and inaccurate. The Bank of England has a deputy governor in charge of banking stability.
The post is currently being advertised at a salary of £240,000. I recommend Robert Peston for the job.
Complain about this comment
I'm sure I remember from when I did my A level economics, in the early 1970s, that then the Bank of England had 2 liquidity restrictions on banks: I am not absolutely sure of the figures but I am sure that banks could not lend more than, say, 12% of their assets & their lending could not be more than, say, 8% of their cash deposits. Those requirements had been in place for a long time. I believe they were abolished by the Thatcher Government?
Complain about this comment
All of this talk about price fixing is amazing. Why don't we just set the price of gold to $1? This is no different than manipulating the interest rates with the same consequence.
The problem is the system is based on fraud, graft and theft. And all of the solutions I hear are simply more fraud, graft and theft.
Can the market set prices correctly? Based on all of these conversations there is a sense that the market through supply and demand is unable to set the correct price. And that if we just manipulate the money supply we can fix everything.
Let me say it another way. The system isn't broken and there isn't anything to fix. It is working correctly by the very design of a fiat fractional reserve system. This is what it does. There is no fixing something when it is working correctly based on the design. If we want to make wealth through the expansion of credit we also face the reality of the loss of wealth when peak credit is achieved and it must contract.
Simply allow precious metals to be used and legal tender. What is the fear? If fiat systems are far superior there should be no fear that precious metals would cause any harm. In a competitive open free market let us see which system is stronger.
The sooner we start backing our wealth with something of intrensic value the sooner this crisis can come to an end. It is one thing to lend printed paper, it is something else to lend something of intrensic value that may not be returned to you.
The moral hazard is obvious and this problem will continue by design with the fiat system. There is no fixing the credit crisis because it isn't broke. This is just how this system works.
Complain about this comment
#272 NorrieC
All this nonsense about fractional reserve banking depending on endless expansion of the money/ debt supply is nonsense. You say it is "not an opinion, it is an undeniable mathematical fact". Give me a break. It's your opinion, and it happens to be wrong.
If the liquidity ratio of banks is set to 10%, say, then £1 of "real" money injected into the system will create £9 of debt resulting in an overall expansion in the supply of £10.
It's explained quite well here http://en.wikipedia.org/wiki/Money_creation.
By the way, the "real" money that starts the process is also actually debt owed by the currency issuer, in England the Bank of England.
Complain about this comment
The underlying problem is twofold. One is that property offers huge tax breaks for the rich, and attracted bubble-money especially after the change to pension dividends (that's hugely damaging, as it sucks investment out of the productive economy). But fundamentally, the BoE was given a bogus inflation measure (as happened in the 1980s, too). So interest rates fell ever lower while real inflation - the money supply - let rip. Result - when reality returned, interest rates needed to spring *suddenly* back. Only they couldn't charge 15% on mortgages, let alone overshoot short-term. So they went bust ...
Complain about this comment
Well I beg to differ, giving tax payer money to private enterprise is plain wrong.
Still, only a few more weeks until it all comes crashing down...
Complain about this comment
NorrieC (#272): "Why is it such a hard sell to advocate keeping the world just as it is today without any more growth - just maintain the status quo?"
Well, here's one reason: because that would leave one billion of the world's precious inhabitants without any hope of escaping grinding, soul-destroying poverty.
Another way to answer would be to ask how the middle four billion or two thirds of the world's peoples would be faring today if there hadn't been such phenomenal growth since 1980. I asked Professor Paul Collier about this in an interview about his book The Bottom Billion for Sublime Magazine earlier this year:
Not all kinds of growth are good, obviously. But the advocate for no-growth has to explain why none of the above has been worth having. I'd have a hard job, personally.
Complain about this comment
I run a small business with credit facilities with one of the main highstreet banks, I am in a lucky position that I do not have to draw (yet) on these funds.
My Bank is now asking me for a non utilisation fee, Secondly it wants to charge high interest rates because LiBOR is still high, why when the Government is guaranteeing Interbank lending is Libor and Base rate not the same?
How is this helping small businesses?
Complain about this comment
"267. At 00:03am on 23 Oct 2008, redjsteel wrote:
which amounted to fractional reserve lending, although from a banking point of view, there was a full reserve lending."
Fractional reserve money lending has been around since biblical times. What this means is that at no point in our history has our economy not been subject to credit inflation and deflation caused by the money lenders.
Central banking legitimized and formalized the practice during the 18th century. Previously, banks would fail individually and on a smaller scale. Now, the whole country goes down at the same time.
In fact, with new "Financial Innovation", the whole world can enter one big business cycle. We can all get on the boom and crunch roller coaster together. Woohoo!
Complain about this comment
Pity the Fabian Society can't finance a decent economist? Perhaps they could....
Complain about this comment
278. At 09:29am on 23 Oct 2008, Adam_C_UK wrote:
#272 NorrieC
All this nonsense about fractional reserve banking depending on endless expansion of the money/ debt supply is nonsense. You say it is "not an opinion, it is an undeniable mathematical fact". Give me a break. It's your opinion, and it happens to be wrong."
No, it is a fact, and you are only looking at the expansion phase.
Once you have expanded the money supply to 10 times it's original size, you now have 10 units of money and 10 units of debt.
The difference between the money and the debt is that the debt pays N% interest per unit time, regardless of whether there is enough money to pay it or not.
So a year later. You still have 10 units of money, and but now there are *11* units of debt. The debt just keeps growing.
In order to prevent collapse of the system, it MUST grow. So you start lending to "subprime" borrowers, you start packaging up and selling the debt on in Collateral Debt Obligations order to allow you to use a smaller and smaller reserve ratio etc.
Then you have 11 units of money and ... wait for it... *12* units of debt...
Well. No exponential function can continue indefinitely in the real world. There are limits. Limits to borrowers, limits to oil supplies etc.
We are in the middle of the inevitable collapse of the fractional reserve credit expansion caused by it hitting one of those limits. It ran out of borrowers in America who were able to pay, and the whole Ponzi pyramid is right now crashing down around the banks as a result.
Complain about this comment
Banks expected to lend more? They increasingly look for more and more security, higher charges and interest rates, all because, yes, you've got it, they want to make as much money as possible with as little risk as possible. If you over your limit cos of their spurious charges, you get a black mark on their credit scoring.
Small businesses aren't going to get the help they need when they need it. How can a banking system which has computers saying no be more flexible? Local business managers can, in reality, do very little. The whole credit scoring system needs a shake up.
Complain about this comment
"281. At 10:49am on 23 Oct 2008, rdrake98 wrote:
Not all kinds of growth are good, obviously. But the advocate for no-growth has to explain why none of the above has been worth having. I'd have a hard job, personally."
No... It is simple. The world is finite. ALL growth hits limits.
Are humans smarter than yeast?
http://www.youtube.com/watch?v=hM1x4RljmnE
http://www.youtube.com/watch?v=F-QA2rkpBSY
There are two terms you need to look up and understand with respect to unending exponential growth (which fractional reserve lending requires).
1: Carrying capacity.
2: Overshoot.
Clearly... We are not smarter than yeast.
Complain about this comment
281. At 10:49am on 23 Oct 2008, rdrake98
"Well, here's one reason: because that would leave one billion of the world's precious inhabitants without any hope of escaping grinding, soul-destroying poverty."
In 1980 there were approximately 4.5B inhabitants of the earth. Today there are 6.5B. So we have a 2B increase over 28 years. You contend that we have currently 1B in abject poverty and that the growth paradigm has improved that situation from what it was before. Has that number reduced from what it was in 1980?
Lets give you the benefit of the doubt, lets say it has. That provides justification for the extent to which growth has reached today. Now answer my original question truthfully. Do you think that continuous exponential growth is achievable indefinitely? Until you face the reality of the answer to that question the argument is fruitless.
278. At 09:29am on 23 Oct 2008, Adam_C_UK
"All this nonsense about fractional reserve banking depending on endless expansion of the money/ debt supply is nonsense. You say it is "not an opinion, it is an undeniable mathematical fact". Give me a break. It's your opinion, and it happens to be wrong."
Really? Well lets just see then.
Thank you very much for the link to Wikipedia ( which was broken, btw). However, I searched for Money Creation on Wikipedia and found the correct page. It cites a link to the page where FRB is explained so I followed the link. Now if you go down to the bottom of the page there are some nice graphs of the money supply from 1960 to 2005. And what does it show? Well blow me down, its exponential. So what was your point again? Isn't that my argument?
So, again, please state for the record whether you believe if indefinite, exponential growth is mathematically possible. That way we can understand if we are on the same page.
Complain about this comment
287. At 11:27am on 23 Oct 2008, true-liberal
Wow, those youtube links were brilliant. I hadn't realised there was so much on exponential expansion. Thanks.
Complain about this comment
#285:
Thanks but you're not right. The interest is paid by people who borrowed the money. They get the money to pay the interest from either further loans or from "real" (central bank) money. It is just that money in the economy therefore moves from the borrower to the lender. After the interest is added, you still have 10 units of money and 10 units of debt - but the ownership of the money has moved. As you would expect, the fact that interest is charged makes a profit for the lender, and costs the borrower, over the lifetime of the loan.
Complain about this comment
i'm probably missing something obvious, but why cant the b of e have the ability - when needed - to raise interest rates on one sector of the market (mortgages to deflate the property boom) and to lower them on another (loans to industry to create jobs).
after all, VAT is applied at different levels.
why not interest rates?
Complain about this comment
NorrieC (#288): "In 1980 there were approximately 4.5B inhabitants of the earth. Today there are 6.5B. So we have a 2B increase over 28 years. You contend that we have currently 1B in abject poverty and that the growth paradigm has improved that situation from what it was before. Has that number reduced from what it was in 1980?"
I appreciate the question. The answer is a resounding 'yes'. The number of people in abject poverty in the world has reduced enormously - something we don't hear anything like enough about. (Perhaps because the left is meant to care but can't admit such a fantastic success for free market capitalism, whereas the right isn't meant to care and doesn't. But this surely points towards the right way in a more idealistic age for Cameron and co.)
That much I do know. But the thesis of The Bottom Billion is not mine, it's the work of Oxford professor and all-round nice guy (well, I thought so) Paul Collier. You can google his name to get more answers. Or you can read the book. I've already recommended it on Peston and other BBC blogs. I don't see how anybody can think straight about world economics without taking in this highly readable, painfully honest and sometimes very funny book from someone who started as an "Oxford revolutionary socialist student".
As for whether economic growth is limitless, I would think the second law of thermodynamics puts paid to that, barring divine intervention that would be of considerable interest to the world's physicists!
That doesn't stop all possibility of growth now, especially given likely improvements in technology of many kinds, something you don't ever seem to mention. And the impact of that growth on the world's poor is the key humanitarian issue of our time. Whatever his faults I believe that our prime minister gets that.
I notice that neither you nor true-liberal have offered any opinion on the work of Antal Fekete. I'm not by any means a dogmatist on it - I'm too new for that - but I would hope you'd agree with what he says about gold being the friend of the little guy. It's also highly relevant to what's happening to various countries right now:
Thanks for reading, if anyone still is!
Complain about this comment
#282, because you are a "wholesale" depositor not a retail and businesses don't vote and as an owner of a small business maybe Brown doesn't care about you as much as incompetent councils....
Complain about this comment
hello there,
To all the experts in economics. This is my question:
I want to buy a flat in NY, should i need to start buying US $??
best,
Complain about this comment
#264, it is perfectly reasonable:
Whilst the INSURANCE may have sold for cents on the dollar, the actual recovery rate is higher. A basic CDS works this way. in the event of a default event, then one counterparty pays to the other what the underlying bond should have paid. The other counterparty pays out what the underlying DOES pay.
Also most of these CDS's are netted off. So I am on one side with counterparty A and the other with counterparty B. That means a net payment of zero. That's why all of the nonsense about face value of CDS's is just that, nonsense.
Finally, the current turbulence in the market is probably people selling to raise cash for settlement.
The fact is that CDS's to date have worked perfectly despite having to deal with major credit events.
Complain about this comment
"290. At 1:36pm on 23 Oct 2008, Adam_C_UK wrote:
#285:
Thanks but you're not right. The interest is paid by people who borrowed the money. They get the money to pay the interest from either further loans or...."
Um... Stop right there. Have you read what you wrote? They get the money to pay the interest from "further loans".
You just made my point. In order for the system to function, newer larger loans have to be taken out to pay the interest. And those newer larger loans are ... actually exponentially larger than the previous loans. Largely because any percentage per unit time IS an exponential function...
Hence Fractional Reserve Banking requires constant, unending, exponential growth to function. If it doesn't get that constant, unending exponential growth, it collapses... Like now...
It's a Ponzi scheme of truly *epic* proportions.
Complain about this comment
"292. At 2:23pm on 23 Oct 2008, rdrake98 wrote:
I notice that neither you nor true-liberal have offered any opinion on the work of Antal Fekete. I'm not by any means a dogmatist on it - I'm too new for that - but I would hope you'd agree with what he says about gold being the friend of the little guy."
Well. Fundamentally, I view inflation as theft. A form of theft which hits the poorest the hardest. Inflation takes from the poor and gives to the rich.
That is my big problem with credit expansion and I find it highly ironic that it has been Labour in particular who have presided over a decade of unprecedented credit expansion.
My opinion on gold over fiat currency is not really formed. It is possible for fiat currency to be highly controlled, with little or no devaluation. It simply seems to be extraordinarily difficult for politicians to keep their hands off of the printing presses. Gold has it's own problems, but the one thing it does intrinsically have is natural scarcity.
If you like gold, you can invest in it already, pass the paper on to someone else. There are Exchange Traded Funds which do so. There are digital gold currencies which also do so.
Perhaps the storage of value and means of exchange features of money should be separated, as Silvio Gesel's monetary reforms suggested.
Complain about this comment
Thanks for the response, true-liberal. I of course agree with you about inflation being theft, hitting the poorest more than anyone.
Professor Fekete claims that a gold standard combined with Adam Smith's Real Bills Doctrine is both non-inflationary and allows for benign economic growth. Here's a Fekete supporter quoting Murray Rothbard, then pointing out the positive effect of a increased supply of money when commerce demands it:
This is not mere theory - the period 1815-1914 is a great example of where such a system worked extremely well across the globe.
I agree of course about using technology as effectively as possible in such a deep transformation of our system now.
Complain about this comment
I would be interested to hear what the role of the media should be in the creation of a "stable growth economy" or indeed, what exactly is meant by "stable growth" and whether it is even a realistic target.
Complain about this comment
Hindsight is a wonderful thing but I can't help wondering whether we are better off trying to regulate an economy in such a way that growth is stable or whether we should accept that growth will most likely never be stable given increasing complexity and globalisation and try instead to focus on remedies for seeing the economy through the dips at a macro level. For example, what if the BBA were to evelove into something akin to ATOL, what if all banks had contributed funds in the good times and the BBA had been able to provide additional guarantees to depositors over and above government guarantees. Not a wel thought out argument I grant but I think it would make for interesting debate (please note I am not saying that further guaranteeing deposits would have prevented the crisis, I was just using it as an example).
Complain about this comment
View these comments in RSS