What the Germans did
It gets weirder.
My official sources tell me that the German government is not legislating to formally increase protection for savers.
What Angela Merkel did, they say, was give a "political" commitment that no German savers would lose a penny - which is more-or-less identical to the commitment given by our Chancellor of the Exchequer, Alistair Darling
But the horse has already bolted - in that this morning the Danes have given an unlimited guarantee to their savers and the Swedes have massively increased the level of protection they offer.
Whether the German or British governments like it, there does appear to be a clear trend towards almost total protection for European retail depositors.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~30~RS~)
Comments
Sign in or register to comment.
Time to set up a formal European committee to ensure that any "official"statements on matters to do with banking are effectively vetoed by every state before being made public. Politicians making statements on the run are as big a menace as incompetent bankers.
Complain about this comment
Robert,
Like many I am sure, I am getting a little tired of hearing both Gordon Brown and Alistair Darling tell us that they will do "whatever it takes" to look after our money. But, they do not come out with any clear policies (such as nationalising all the banks).
Although you no doubt were a little too young at the time, this is a little reminiscent of Harold Wilson's famous 1960' statement after devaluaing the pound when he said "the pound in your pocket remains unchanged". A true statment, but totally ignoring the fact that he had just increased the cost of all imported goods by 10% or more.
Complain about this comment
Can this really be called "capitalism" any longer?
Complain about this comment
We are now thoroughly in the Twilight Zone. While the global financial mess remains, in may respects opaque, what is becoming ever clearer, is that we have allowed ourselves to be led by fools and charlatans.
Complain about this comment
Two things.
First why cannot countries wishing to protect deposits at their banks, restrict such protection to accounts held by their own nationals? This would avoid concerns about un-even playing fields and money migrating.
Second, I find it hard to believe the Government could fully underwrite savings. I am concerned that such protection could mean the savings being converted to Government bonds with a long or infinite redemption date - remember War Bonds!
Complain about this comment
Whatever comparisons may be drawn with the Great Depression, one difference is apparent: 24/7 news (aka speculation) means a lot more will probably happen more quickly for the wrong reasons this time around.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Does not the potential for maverick initiatives like those we are seeing underline the lack of competence on the part of the EU when it comes to meeting most major challenges? Apparently it is not within the remit of the European Central Bank to influence the present crisis one way or the other.
Complain about this comment
Alphatyke is spot on - we are witnessing the results of the world's first media-induced recession. They may yet be able to talk us into Depression - both pyschological and real!
Complain about this comment
And lo, another politician opens her mouth and words spew forth, then a few spinners get together and see what semblence of order can be made from the gobbledygook. To paraphrase Eric Morecombe... All the right words but not necessarily in the right order...
What IS going on please chaps, my brain hurts, is the world ending, or is it all an illusion. Does it really matter any more. Too early in the day for a livener I'm sorry to say, but maybe another line or so from Gilmour and Waters, perhaps this is the solution...
"...OK, just a little pinprick,
There'll be no more aaaaahh,
But you may feel a little sick..."
Pip pip to you all, I'm battening down the hatch. Wake me when it's all over please!
Complain about this comment
Getting a slight sinking feeling Robert? I am. All these problems are because of the interventionist strategies now being cobbled together. We have a bidding war for liquidity at the moment and it's looking pretty messy. Just placed a big order for tinned baked beans and dried milk what about you?
Complain about this comment
Politicians hate what is going on as they are powerless and they were quite happy to collect taxes on higher incomes/profits even when they ought to have known that it was a pack of cards waiting to fall down.
How do we start again? I am not sure that anyone knows because why should anyone trust a bank or a government.
Complain about this comment
Is it possible for Governments to agree to suspend all stockmarkets for a fixed period? Having to make policy on the hoof at the behest of panicked markets is not going to lead to good decisions. A temporary suspension of markets pending an international summit to work out a globally agreed financial settlement would give theworld the space it needs to decide on a sensible route out of this mess. Am I crazy? perhaps, but then so is the world at the moment>
Complain about this comment
The Govt tells us that it will do "whatever it takes" to look after our money but they are leaving in place the bank management teams that got us here in the first place.
Until they've gone I don't see how anyone can possibly have any real confidence in the banking system.
Complain about this comment
Robert- am not sure of all your sources but a top politician recently advised me that there could never really be a global or Euro-wide policy of unity. Each member state would have to assess its own capital base and individual circumstance ( Large and small countries have differing needs ....) but the policy of European unity with all member states offering full deposit protection to ensure continued liquidity and a commitment to reducing LIBOR is essential.
Could Alistair Darling do the same without legislation? Furthermore if people move too much money out of UK because of reducing interest rates the government may have to introduce temporary restrictions on capital flows in and out which stifles the market... we really are in a mess.. world-wide.
The icelandic situation is the most baffling. They have an economy built on trust. The Banking sector is 3 X the gross GDP and they purport to support the Banks to the tune of their entire pension fund. Is this not a most dangerous precendent? 300,000 citizens paying for the folly of Wall St and Speculators - surely they should beg the EC to adopt them as members and join the EURO immediately to stabalise their jittery Kroner. THe inflation rate is 15% and interest rates similar! ( Making Iceland a prime investment target)
D
Complain about this comment
And here was I, ready to transfer my thirty quid offshore to the Bejebbers Achtung fund on Craggy Island....
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
#1 Zootmac
I agree. I think it would better if decisions were announced in Brussels after discussing with other EU members. Our economies seem so entwined that any decision will affect all of us.
Complain about this comment
It's pretty clear that we're close to the stage where all European Governments must take substantial stakes in all of their major banks, and or buy large proportions of their assets, hopefully at fire-sale prices so that the taxpayer benefits from any future gain.
In Britain's case, as a taxpayer, I would be happy if HMG bought say 25 per cent of HBOS at £1 per share, and a big chunk of HBOS mortgage assets at say 60p in the pound.
You would then have large bank (Lloyds HBOS) with no liquidity worries, in a good position to go forward. OK so shareholders would have to accept no dividends for a while, but they have done well over the last 20 years.
Complain about this comment
The situation does seem to be growing ever larger, in the sense that at first it was small banks, then middle-tier banks, then some first rank banks and now domains such as Ireland, Iceland and California are in the frame.
Maybe legendary investment manager Anthony Bolton has just have got 'back in' at the wrong time.
Markets could very well go lower still as they did in the early 1970's when they reached the point of discounting everything except WWIII.
Complain about this comment
I’m a bit confused.
Britain has nationalising its banks and is contemplating nationalising private banks’ debts whilst China is privatising their banks and building an even bigger national surplus.
Are we turning Britain, and for that matter are we turning the whole western world, into a socialist state more left than the “Communist” China we’ve been bashing for the past years?
Complain about this comment
Angela Merkel has obviously been to the newly opened Museum of Comedy in Frankfurt (I believe).
One topical joke;
Yachtsman - Help, help, I'm sinking.
German Coastguard - What are you sinking?
Perhaps the joke should read:
German Saver - Help, help my savings!
AM - All savings will be saved!
Complain about this comment
Dear Nick
Europe was all about working together, for economic reasons.Now we see the real extent of the politics that are being played out here.
Politicians are NOT WORKING AS A COLLECTIVE FOR THE GOOD OF THE EU STATES, it is very visible that All states are working independantly, and that policians have no Anwers to the financial crisis taht was created two years ago, when the stockmarket shares index started to go in a continuous downward spiral, and started failing apart with Sub prime Fraud, and eventually Northern Rocks failure.
As Per usaually the policians failed to spot this, and did nothing they are still doing nothing as they are not working together for the Benifit of all the EU.
Briatin and America are blocking all resolutions put forward and its about time we were told why.
Hopefully Blair has sent in his Assassin to get rid of Brown, and Darling, who are creating more problems than they are solving by indecision
Mandelson, is a Blairite, and he will not fail to put the Knife in when the time comes.
Complain about this comment
Yet again Robert, could you please explain where the money is coming from to guarantee 100s of billions worth of savings?
It's an empty promise that could not possibly be honoured isn't it?
Complain about this comment
#8
Appears so, probably because of the reluctance of some nation states, with the UK carrying the banner, to sign-up properly to EU proposals for co-operation and monetary union.
Never mind, I'm sure the anti-EU element are more than happy that we're in bed with their friends in the USA.
Complain about this comment
In some respect the media is complicit in this as they took what she seemed to be saying for granted, despite assurances the previous day seemingly to the contrary, and ran with it.
I was particularly shocked by the BBC article leading with the title "Merkel guarantees German savings" which seemed to make an assumption, but not actually directly quote her, and by the tandem video report which seemed to assume the same thing when the actual translation was clearly an implicit guarantee in the same vein as Darling / Brown / Cooper have been giving this week.
I wonder how the markets would have opened (Iceland aside) had the BBC thought twice about this?
Complain about this comment
Seems that this fall pretty much vindicates the short sellers who (a) argued that their activities weren't the primary reason for the markets falling and (b) put their money where their mouths were by shorting the same stocks which are falling today.
So what's Vince Cable's excuse now?
Complain about this comment
Don't mention the Credit Crunch!
Isn't there something rather Fawlty-ish about the deranged behaviour Europe’s politicians? "We didn't start it", pleads the German Finance minister. "Yes you did, you gave a vague hint of unlimited guarantees", retorts a wounded Alistair Darling.
So, whilst the policians squabble about who said what, we're all the ones getting burnt.
When Andrew Sachs got burnt filming this famous episode of Fawlty Towers he at least got full 100% compensation to the tune of £700 for his injuries!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
BANKS GUARANTEE 100 PERCENT TO DEPOSITORS IN FEAR OF BEING SUED.
Banks are afraid that depositors might sue if they do not guarantee one hundred percent to protect the savings of ordinary retail savers.
Complain about this comment
I think we are all in cloud cuckoo land- any large bank that fails brings the whole system in the UK down as all the other banks have to chip in to cover the guranteed amount- and if they cannot match it, then the government is in real trouble as it has even less money- either way they all come down and even if your money is covered by the time you get it back you may well be long dead. On the other hand if we all put money into government savings and things go down, the Government will also have to wait a long time before it can pay us.
So our only hope is that what is being done can stablise the markets and the banks. Then we have to look at the system and I suspect we need to reverse big bang from 1987 and start getting financial institutions that operate in narrow well controlled areas and when any one institution only carries risk that it can cover from its capital. May slow things down a lot but at the moment we are at risk of the world becoming a dark place but also there is a chance to make it a much faire place to but we need time.
Complain about this comment
Dear Robert,
When all logic has been asymillated and disproved, illogic must prevail, the illogic of this Financial crisis, "Is it a terrorsit act to destablise the western economies, as it has become exceedingky obvious that politicians have no logical solution, other than to act independantly rather than multi- laterally. It is time to kick the policians into touch and bring in the cure, ECONOMISTS MUST ACT MULTI-LATERALLY AND ROOT OUT THE PROBLEM, before its too late.
Complain about this comment
War Bonds!
What an excellent idea No.5!
There's no such thing as a free lunch, or easy living!
You have to work and fight for it!
Are you going to join up as a regular?
Or get the lower terms and conditions of the conscript?
Complain about this comment
Isn't this similar to how the first world war started? european countries not wanting a war, but not really knowing what was going on juping to the wrong conclusions, taking pre-emptive action, not quite trusting any one etc...
But the existiance of the EU now means that everyone talks, so there can be no misunderstandings or national devisiveness..
Yes right...
What an ineffectual waste of space it is proving to be - can't even keep a cap on competition...
Complain about this comment
When is 98% not 98%? When spin is applied to a statement.
98% of accounts may be protected up to 50,000 from tomorrow, but I have as many dormant accounts as active accounts. None of my dormant accounts have more than 100 pounds in them (I am just to lazy to phone the banks to close the account). So, if I had a single account with over 50,000 pounds in it and accounts with three other banks with less than 100 pounds in them, I would loose out should the bank, which I have over 50,000 in it, goes bust. But I would only loose money with one bank as all my dormant accounts (with less than 100 pounds in them) with the other three banks are below the 50,000 limit. So, using current political speak, 75% of my accounts are protected by the 50,000 limit. BUT, 100% of myself has lost out even though 75% of my accounts are safe.
So, do not misinterpret the 98% of accounts are protected by the new 50,000 limit. It DOES NOT mean that 98% of us are protected.
Complain about this comment
What is the difference between a political and an actual commitment? - just the ability to wriggle out of it perhaps?
Complain about this comment
Robert Peston writes that last week there “was indignation across Europe” at the Irish government’s decision to protect depositors. I live in France and did not notice any indignation here. Denmark and Greece have taken similar moves and there has been no indignation in those countries either.
The “indigination” appears to have been confined to UK banking circles so Peston’s remarks are completely over the top. In the course of the current crisis the UK has been the only state to nationalise banks. This caused outflows from banks in Ireland and elsewhere to Northern Rock, for example, but there was no “indignation” anywhere in Europe.
Now we learn from Peston that Angela Merkel’s statement that the Federal Government would assure savers’ deposits did NOT mean that the Federal Government would assure saver’s deposits.
Perhaps a bit of realism or at least the accurate use of language is called for in in Merkel’s statements and Peston’s reporting.
Complain about this comment
Either our banks need recapitalizing or they do not. If they do not, then GB or AD should say so. If they do, then, as suggested, the government should provide it and take preferential shares in the banks so that the taxpayer benefits in the long term.
Waiting for Gordo ...
Complain about this comment
stock market lemmings - all jumping and all dived in when on the up.
where are the analysists/strategists? and these guys are meant to be looking after our pensions!
they should get a few guys from Ladbrokes in there to run the whole thing and show them how bookies balance the books and don't all go for the riky bets
Complain about this comment
Robert,
Is there any remote, remote chance that things get soooo bad the banks collapse to the point where I don't have to pay my mortgage because they, and the governments, that bailed them out are all bankrupt and the debts are written off?
Please say yes. It's keeping me going.
Complain about this comment
It does remind me of Yes (Prime) Minister when Jim Hacker realizes the only way to convince Sir Humphrey to do something was just announce it.
Perhaps the German government was being very clever?
At any rate time will tell, but I feel sure most governments will follow suit.
Watch the EURO bounce back when Germany and France commit to similar ventures. It might take a week or just ten minutes....funny auld times is ahappening!
Complain about this comment
Over many years i have always treat with suspicion statements like we are seeing from Darling and Merkel......they have no substance and are only words....
If they are meant then lets see it put into writing.For a so called economic community we are seeing far too many individual statements being made on the fly,this is causing as many problems as the Bank Chiefs have caused.
We should have had one statement from Europe that covered all the banks to stop any country getting an unfair advantage.
Its pathetic to watch them,this is so important that MP's should have been recalled from their holidays and emergency legislation thrashed out and passed...
This will also serve the anti european lobby well in seeing that europe only works when times are seen as good,when times are hard each country will look after its self...
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Don't the national audit office or someone have a view on this?
If the Government are offering a guarnetee (whether stated, or legislated) then surely it must be accounted for.
Is all this 'nonsense' just because a figure will appear on one page of the accounts rather than another?
If the fact is the same, then the accounts should be the same... surely...
Complain about this comment
25 re 8
Well it seems it is hard to get agreement to common banking regulation, which may be a different point. And something that one Peter Mandelson has deplored
Now then.
Complain about this comment
I wonder if we will see an apology from the BBC for this scare story. BBCs reputation is at risk. When will someone ask if the news media frenzy for a scoop be considered just as responsible for the lack of stability as short selling?
Shame on you
Complain about this comment
Robert, the decision in the UK is that £50,000 of deposits will be guaranteed. Anything that the Chancellor suggests above this is, like, it would apper, Angela Merkels words - subject to clarification.
The Chancellor has made no political commitment to safeguard 100% of the savings. Ask him if he is prepared to commit to this and he will avoid the question using the formula of words "we will do whatever it takes" those words are open to interpretation - why are you putting words in his mouth. You are acting as his spin machine as he would like to give the impression to savers that they are 100% safe, without committing to it.
As a journalist you should not allow him to have it both ways. Report the facts, not the government spin.
Complain about this comment
This whole unfolding story is all about turkeys voting for Xmas! In the short term, we are all hoarding our cash, and hoping that our banks exist when we call on our money!
One thing has emerged from the European after shock from the US financial system problems. Federalism and the Lisbon Treaty. What price now?
Now that the brown stuff is truly hitting the fan, EU sovereign governments have nationally retrenched and looked after their own. Even our Teutonic friends, so quick to criticise others, are now, albeit "politically" according to Frau Merkle, as you reported Rob, "guaranteeing retail savers deposits 100%", then Frau Merkle retracts the statement the next day, by which time other countries have done it. Too late. Crisis management? Yeah, right!
There is no unified consensus, the EU is systemically under pressure, and is not showing resolve to provide a workable and decisive solution and what's more, the Euro and Eurozone is now paying a heavy price which will be felt for years to come with under investment, rising unemployment and rising national debt in all member states, without exception. The old joke (adapted for this event) about "how many finance ministers does it take to make a unified decision? Answer: One and 26 to stand around and discuss and direct", springs to mind.
Perhaps, in our darkest hour, and I am by no means a "get the UK out of Eurorpe" person, there is a real opportunity to realign the UK's position in Europe and the world. Why don't we do what the canny Norweigans and Swiss have done years ago - enjoy all the benefits of trading with EU member states, but without EU membership. As the fifth largest economy in the world.........at the moment, we are strong enough to withstand this crisis. Moreover, this would help strengthen the UK's pre-eminance as the No.1 World Financial Centre, in London.
When global liquidity starts to flow again, as it must, in whatever economic model format the world evolves into, then London must be the hub, with its unrivalled position and knowledge and experience - yes, don't shoot the messenger, there are good people in the City who do understand the risks they take - they are not all ignorant of risk management.
Complain about this comment
Reply to Rayspurgon:
"First why cannot countries wishing to protect deposits at their banks, restrict such protection to accounts held by their own nationals? "
Oh, so there are no resident foreigners running credible and above board businesses in the UK? No foreign nationals paying full rates of UK income tax?
If they were to leave the UK, just watch your whole economy go down the plughole.
Complain about this comment
There is a lot of talk about a crisis as if nobody could see it coming.
Here's how to spread the blame between politicians, bankers, speculators, mortgage providers and the media.
Stage 1.
There's a banking and financial crisis caused by decisions taken over a number of years to increase the credit supplied into the economy and thus allow consumers to spend more (increasing GDP) and end up owing more than many of them can afford to service and repay. The decisions were taken by banking managements and allowed to happen by regulators and politicians - keen to encourage the feelgood factor.
Stage 2.
There's now a lack of activity in the economy caused by the banks' unwillingness to lend to each other in case they get caught out by the inability of their debtors to repay but more particularly this fear is a consequence of the ability of "investors" to speculate against financial institutions and hence hasten their downfall and make quick profit at the expense of long term stability in the financial system.
Stage 3.
There's the inability of consumers to get a mortgage because the banks don't have sufficient funds to cover increased lending and would rather not take any more chances. This has more of an effect than it should because under the new economic lifestyle mortgages have to be renegotiated every few years (to get a new "best rate") instead of steadily reducing over 20 or 25 years.
Stage 4.
There's a consumer crisis caused by reports of economic doom and gloom in all the media worldwide.
Stage 5.
Businesses respond to the real and anticipated downturn by planning (for survival) to reduce their own economic activity and cutting the workforce - thus completing part of the cycle by creating defaulting borrowers.
Complain about this comment
so the way to solve this is have the govt (taxpayers) guarantee the deposits of all accounts held by bank cusomers (taxpayers)
In other words we're going to have taxpayers guarantee their own deposits
and that supposed to give them confidence?
Dear sir
As you wil have seen on the news your bank has now collapsed and the other banks cant cover its deposits.
But dont worry we had a cunning plan where you 100% guarantee your own money.
To save you the cost of a stamp and unneccessary paperwork, please pay the 70,000 guarantee that we wrote on your behalf for your 70,000 deposit to yourself
Dont forget to issue yourself a receipt
yours
AD
Complain about this comment
Could some one explain this to me ?
If the government was called on to underwrite everybody's savings, and everybody withdrew their savings, where would the government get the wealth from ?
Perhaps the wealth was never there in the first place.
Complain about this comment
Robert, you're the business editor, right? Try getting out of the City once in a while.
Try editing THIS bit of business news:
This affair is having an immediate and catastrophic effect on UK business.
Yes, savers, banking etc, all jolly important, but if top level argument and discussion doesn't lead to some action pretty quick it on business prospects and consumer confidence won't matter whether we have either.
Parliament only just back from their summer recess, Mandelson sending the whole weekend talking about himself, Darling, like the hologram in Red Dwarf droning on about 'whatever it takes'.. How long before someone he takes some constructive action to protect UK business?
The more this pointless discussion goes on the more the retail end, which I'm in - is going to suffer. And like Humpty Dumpty - all the Kings Horses and all the King's Men nad all the King's dwindling tax revenues won't be able to fix it.
GC
Complain about this comment
Oh to have been a fly on the wall in the Elysee Palace last night when Merkel announces this.
Complain about this comment
All things considered, you would have to be pretty dim to put your money into an Irish Bank.
Complain about this comment
With all this safety you would think that the markets would be functioning effectively. Which raises the question with depressed precious metals prices why is it difficult to impossible to locate and purchase physical silver and gold in the US at this time. Supply demand does not seem to be working.
Complain about this comment
robert, i am a bit confused. all the announcements and discussion seem to be about retail deposits. but frankly i don't think retail reposits should be a big issue. they are already well covered by existing schemes in most countries, so i don't think merkel's and others' statements amount to much at all.
for me the question is what happens with wholesale deposits, which provide a much more worrying potential avenue for competing government guarantees. for example, half my pension fund is invested in wholesale bank deposits - would it be any more politically acceptable for me to lose my pension that it would be to lose my savings account? and yet wholesale deposits do not enjoy any formal guarantees at present, and professional money market managers are much more likely than retail depositors to switch funds around internationally if they perceive a real risk in a particular country's banking sector.
some clarification on this from you would be very helpful..
Complain about this comment
"Where will all the money come from" people ask.
Inflation, that's where. Repudiation of debt at the expense of savers and those on fixed incomes.
Weimartime . . . .
Complain about this comment
#37
You are spot on in your assessment of Peston. He is a journalist enamoured of his new found fame garnered in the centre of a media constructed economic whirlwind.
The media and I include most serious news programmes and the broadsheet and tabloid papers ought to be ashamed of themselves, constructing evermore apocolyptic headlines stoking peoples genuinely felt feelings of dread and dispair.
To hell with the facts and the figures, not a penny has been lost by a saver anywhere in continental europe or the USA on the back of this financial crisis, lets talk up bank collapses and get more primetime slots on newsnight or frontpage coverage in the papers, unusual for economic correspondants who normally languish, correctly, in mid-paper obscurity.
This farscial over the top coverage came to a head for me last week when a BBC correspondant went to peterborough and on the basis of some job losses in the furniture sector span out a piece of financial and economic cataclysm mentioning the terms end of the world and depression.
It is complete lunacy and unsupported by events, yes a few banks overexposed to the silly US expansion of a thatcherite house ownership for all policy are in significant trouble. Yes, this trouble has been exaggarated due to a lack of oversight on frankly crazy securitisation of these dodgy loans, but the end of the capitalist system, hardly.
Lets get a grip people and see this for what it is a well overdue correction in the balance of financial power across the capitalist system. We are in danger of talking overselves into a serious recession/depression and if such comes to past Mr Peston will be one of the chief culprits although perhaps given his public sector job not one of the victims.
Complain about this comment
Quite right No 52 - where actually is the money?
I have quite a few friends who work in the city and I have a great time by asking them the same question. They always answer with some long winded and complicated diatribe about gearings and multiples and so on, but I keep asking the same question - where is the pile of money that proves that company is worth what you say it is? Eventually even the most hardened will admit that it isn't there.
Welcome to the wonderful world of Capitalism...
Complain about this comment
This 100% guarantee malarkey does reveal the conceit of those in government. They have become confused between the government and the people it governs. They have basically conflated those things, to the point where they think government IS the country! They are belatedly realising that if enough people wish to withdraw their money, there's nothing much the government can do.
And to think; we spurned communism and choose _this_ system to run our finances! What on earth got into us?
Complain about this comment
This is pathetic. Why aren't we letting this all collapse? That's the true market solution (admittedly my experiences recently put me on the sharp end of this).
If we are going to bail out the "finance system", why aren't we punishing the perpetrators of the collapse? A full list of FSA registrees, and non-dom hedge fund managers should be available.
They must have some cash floating around (the 3% of deposits the govt doesn't guarantee). Oh, of course, they can "help us fix this" (for a fee: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3399742.ece
Wake up: party funding comes from these grandees, so realistcally the little guy will get shorted so the "major stakeholders" will get protection.
Might sound a bit of a socialist complaint, but see my first point: let it fall! That's the market system!
Complain about this comment
What a world catastrophe the Bush-Cheney Adminstration in the US has been - unwinnable wars and now financial meltdown.To cap it all now the idiot electorate in the US may well do it again with the awful McCain/Palin ticket.
Complain about this comment
Frankly, I think that the lack of foreign languages of British journos has (once again) let them down. Anybody who could read the original German statement could see it for what it was: empty waffle.
Complain about this comment
Money can move freely within the EU so we need equality of treatment for depositors and borrowers, unless we are to have an entirely disorderly market with huge cash flows gyrating around the system. This is the reality.
It seems almost impossible to believe that the 'authorities' are being so slow witted and dumb in dealing with the issue. The markets react in seconds as do savers (with runs on banks) yet the Treasury, the FSA and the Bank of England take days and even months to react. How can they be so dumb?
This week's reaction of a reduction in interest rates will be the wrong reaction and will be a substitute for reasoned action.
The Chancellor MUST make it plain that UK savers will be a well protected as German savers - he must do it today! If he fails to do this money will leave the country for safe havens - not many transaction but they will be big transactions (from 50,001 to 3,000,000 or so) as these are the individuals with money at risk that can move it overseas for safety. (This will also happen if UK savers rates are reduced - BoE please note.)
Complain about this comment
The banking crisis - It gets worse in Japan
I've just read that uncertainty has now hit the Japanese banking sector:
In the last 7 days Origami Bank has folded.
Sumo Bank has gone belly up. Bonsai Bank announced plans to cut some of its branches.
Yesterday, it was announced that Karaoke Bank is up for sale and will likely go for a song, while today shares in Kamikaze Bank were suspended after they nose-dived. Samurai Bank is soldiering on following sharp cutbacks. Ninja Bank is reported to have taken a hit, but they remain in the black.
Furthermore, 500 staff at Karate Bank got the chop and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal! BUT there is some good news amid the gloom, a spokesman for Ichifani Bank Corp confirmed- ''we are up to scratch''
Complain about this comment
#58 - correct!
The only way these absurd guarantees could possibly be honoured is by making the currency worthless.
Complain about this comment
The German government has done exactly what it (and any government) is supposed to do: Look after the weaker members of society, i.e. "Jo Bloggs the ordinary saver." It seems to me that it is the only country in Europe that has learnt the "lessons" from the great depression of the late 20s, check out Germany's fiscal policies over the years since 1948 (founding year of the FRG).
Re end of capitalism: it looks rather like it, doesn't it. first the fall of communism at the end of the 80s, now capitalism seems to become unstuck.
Drastic rules and regulations for financial institutions (as Germany used to have under its social market system, but was forced by the EU to water down "in the interest of free market competition") need to be in place immediately. The "free market" is nothing better than a charter for rip-off merchants.
Complain about this comment
It probably is inevitagle that the German and the British governments are going to go out on a limb to protect depositors,because no one in or out of their right senses wants to kill the goose that lays the golden eggs but inevitably,the sooner depositor confidence is re-established the better,as i said on [Unsuitable/Broken URL removed by Moderator] ,this is all much ado about nothing,like an ill wind that is eventually going to blow over.
Complain about this comment
What we are seeing is the death throes of the banking and finance industry which has in effect scuttled itself through its own stupidity and greed.
With all of the government intervention in the Banking Industry and effective Nationalisation which appears set to grow to all banks are we now going to see one bank per country now?
Even worse would be a European Bank run by a committee of member states politicians.
If governments are bailing banks out for making sytupid decisions why shouldn't they bail individuals and businesses out who are failing because of the banks?
It would make better sense to let the banks die and bail their customers out and start again.
Complain about this comment
I'm not a financial expert but I think people need to remember that this situation was caused by the very financial institutions, that are now "blaming" the government for not acting appropriately. The government is not the culprit here.
1. The financial institutions need to disclose all hidden "toxic debt". Currently, we get a new announcement each week, so all governments can do is react. Then the government can state coverage once and for all.
2. We just need to accept that things are going to get worse before they get better. We are "amputating" financial "gangrene" !!!!
3. If we recapitalise with no regulation, that sends the message that the banks can continue as before i.e. reward the irresponsible banks for failure and no accountability.
Complain about this comment
Do try to show a little bit of understanding for the poor coalition government here in Germany: they did have an awful lot to do at the weekend. First there were a lot of awkard domestic policy decisions which couldn't be put off any longer at all, such as a big hike in state health insurance premiums. And they had to hurriedly patch up a broken 50bn EUR rescue plan for a major DAX-listed bank that the man on the local equivalent of the Clapham omnibus hasn't even heard of. It's impressive that they also found time to announce/hint at a guarantee on deposits. No one on the German news last night knew what they meant by it either.
Complain about this comment
On the subject of savers, how wise is it to slash interest rates as it seems they want to?
The government desperately needs people to save, the banks desperately need peoples savings, won't cutting interest rates just discourage both? It may even have the effect of accelerating the process of people moving their savings out of UK banks to banks paying higher interest.
Complain about this comment
Really whats the point of the Bak of England and the European Central Bank pumping these Billions into the market it only is causing the real problem to be delayed a little bit longer,why dont the Goverment bite the bullet nationalise the banks get rid of the deadwood running these banks together with a reclaim on the last five year bonuses earned give help to the small business that really needs it to survive let the big plcs go to the wall as they as the banks are totaly responsible for the worldwide crisis,by only having one hing on their minds the next city update and what they stand to make from an increase in their share price by posting false trading statements,this is what is fundamentaly wrong with the whole syastem logic has gone out the window,remember a few years ago when Warren Buffett DID NOT invest in the dot com bubble he was widely critiscised by all the city dumbos are whole wealth is now based upon nerds making up false financial statements in order to have short term gains in othyer words GREED by a few
Complain about this comment
As long as individual countries have sovereignty they will behave in whatever way is considered appropriate to defend against national threat whether financial or war. The huddling together in policy is only coincidental.
The key question whether the huddling can develop into a true common working practise is whether or not there is commonality in the public perception in those countries together with the political estate in those countries together with the economic weaknesses in those countries. There is apparently some commonality within the EU but also apparently some profound differences. A genuine common action is unlikely at present, muddle and huddle is the likeliest outcome.
The problem of Iceland with high inflation and therefore high interest rates and the follow-on of fiscal overload is extreme but it is by no means out of the question that similar problems present themselves here.
If it can be argued that house inflation should have been included in the BoE inflation model which would have pushed up interest rates and helped dampen the UK housing boom, an argument which has some merit, then it is equally pertinent to consider including current housing deflation into the BoE model which would presumably lower current interest rates.
However, the problem coming, if it is not already here already, is that rising inflation is highly likely as a byproduct of the UK economy slowing and the supply chain faltering and higher costs resulting. The UK has at least a good chance of entering a period of higher inflation and higher interest rates. If all other EU countries have similar problems then the situation has some semblance of balance. However if the UK is in a weaker position than others the UK interest rate has a proportionally greater chance of being higher than other countries. It is the differentials between countries which atracts the sharks.
The shouts of - the deposits are safe - are meaningless, there is not the money to cover the bill if all funds are withdrawn. it is similar to the puff at the 19 century gaming tables trying to draw the crowd. It is only when somebody puts money at risk that it means something, shouting means nothing which is why it is so popular with politicans.
It is what is done by the BoE with truely massive sums of taxpayer money and liability which is important, and the further this government is kept away from the action the better in view of their economic performance to date.
There is a total difference between intellectually knowing what is involved in a dangerous situation and the successful psychological state of mind needed for the management of that dangerous situation.
Complain about this comment
Robert please can you pass on some sense of urgency to GB and AD... if they keep dithering they will have missed the financial crisis.
and Peter Mandleson's initials are PM. How cool is that?
PM. PM and AD. Two PMs and attention deficit.
Complain about this comment
The 3 key factors of the crisis… and a solution
SENTIMENT, CONFIDENCE and TRUST in the inter-bank market is the central problem that must be addressed to restore the life blood of the global financial system.
If some form of order in the inter-bank market is not restored asap then good banks with good balance sheets as well as the bad will go down and Governments will not be big enough to prevent it. Governments must desist from applying valuable resourses to individual events and making false promises that only undermine sentiment further.
Transparency and decisive action are the most powerful tools in the restoration of Sentiment. Whilst a Global problem requires a Global solution, in the interest of pragmatism, the immediate priority for us must be a pan-European co-ordinated intervention. This should involve:
1. European Governments should make a ONCE AND FOR ALL offer to all licensed deposit takers under their jurisdiction to declare the entirety of their toxic and potentially toxic assets (including provisioning for CDS liabilities).
2. In return each government agrees to make an offer to acquire such assets in exchange for equity in each financial institution. Those licensed deposit takers that do not take up the offer fully or who are deemed to have not provided complete transparency can not rely upon future government support.
3. Acquired assets may be placed in a “Bad Bank” or other such institution and managed over time (to recover tax payer money).
4. The governments continue to provide liquidity to the inter-bank market on a co-ordinated basis. However, the assertive action of 1 through 3 should inspire greater trust and confidence regarding the true balance sheet quality of lending institutions. This, in turn, should boost sentiment and so rejuvenate the critically important capital flows within the inter-bank market.
5. Finally, such action should additionally place full accountability upon every financial institution as well as their governing boards. Those that do not “play ball” will do so in the full knowledge they face the consequences of the markets, regulators, shareholders and other stakeholders.
The outcome will be that banks etc will once again be in a position to finance their funding gap. Confidence and positive sentiment will be underpinned by meaningful and coordinated government action, balance sheets of a materially improved quality and bankers that are held to account. The costs associated with these benefits will be immediate and born by Governments (and ultimately the taxpayer) as well as shareholders. However, the money will be well spent in generating a solution that addresses the inefficiencies of the market and is therefore sustainable. Shareholders will be diluted (opposed to potentially loosing everything) and the taxpayer is left with equity in institutions that allow recovery, in part or in whole, of the material up front cost of taking such action.
The alternative is to continue to pour government resources and money into the ongoing events that have and will continue to take place. Whilst such investment may have stemmed the tide in the recent past it no longer has influence upon confidence or an end solution. If anything, comments such as “we will do everything in our power” only serve to undermine confidence further and the market knows that there are only so many institutions that governments have the will and resource to bail out.
Uncertainty is the most corrosive substance known to SENTIMENT. It is uncertainty in the inter-bank market that is fuelling a total retrenchment of any surplus term liquidity and so creating the crisis and prospective melt down that we face.
The Governments (esp. in Europe) must immediately identify with the CORE ISSUE. They must cease in throwing money and promises at the symptoms as they present and instead focus upon addressing the core illness / cancer that must be treated.
Complain about this comment
I'm with #36: what exactly is a "political" commitment? Either German politicians are several orders of magnitude more trustworthy than British politicians, or Merkel's guarantee isn't worth the paper it's printed on.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Perhaps the Zimbabwean government could help us out now - after all they have printed billions of dollars.
Is this the way forward?
Complain about this comment
As I see it the present crisis has been caused by 2 things in addition to the house price bubble the rise in commodity prices, especially oil and the fear amongst banks that individuals and comapnies will go bust or become unemployed and so default on loans in other words, fear reasonable fear about the so called "real economy" and it is this that I believe governments should do something about launching and subsidising massive international clean energy and transport projects, so that peoples employment prospects maybe assured and commodities may be used more efficiently.
Complain about this comment
Can we have a new banking system please? The current one is rubbish.
You know, a system where banks actually look after your money, instead of gambling it away in rich boy casinos, or lending it out tens of times over to people who can't pay it back.
Maybe one that works on common sense and not legalized fraud.
I don't think it's too much to ask.
Complain about this comment
Ref Iceland: does anyone have a take on how Icelandic interests in UK with lesser public profile could be affected, eg Bakkavor: big in food processing/preparation for major retailers and significant employer with many sites throughout UK?
Complain about this comment
There is a delicious irony here, with formerly capitalist countries and formerly communist countries swapping over.
In Friday's bail-out debate in the House, the speaker remarked (only partly tongue-in-cheek) that she would "watch out for further socialist legislation coming from President Bush". Intervention is increasing across Europe.
Meanwhile, Russia is becoming an oil-rich capitalist country and China, whilst remaining politically communist, has an agrressively capitalist economy.
Marvellous!
Complain about this comment
I agree with a number of posts here that the media reporting is now becoming a major accelerator in this ongoing crisis.
We only have to watch the stock market movement to know that most of the dealers are mindless lemmings playing a game that is a blend of Chicken and Simon Says.
The reporting is now giving incomplete and inaccurate information fuelling a feeling and speculation within the general population at all odds to the real problems.
To review the BBC website replete with headlines and story headings - plummeting, collapsing, Armageddon, timebomb etc. all serves to instil greater fear and concern than I believe is justified. If these were on the website of a red-top tabloid so what - anyone who uses these for financial advice deserves all they get. But the BBC is used as a reliable, unbiased and balanced source for facts - please do not fall to the hyped up headline plague which is in danger of becoming a self fulfilling prophesy.
Complain about this comment
The current politicians make Marie Antionette look caring, astute and efficient.
Complain about this comment
Guaranteeing deposits or savings (liquid ones) should be done. In effect the government is guaranteeing what their liability, namely their currency. Its not as if they were guaranteeing all assets, howver, ridiculous, of the financial community. However, this alone will not restore liquidity to the money markets. To do this the central banks should intervene as lenders of last resort and essentially act as a central clearing house. Of course there will be cries of moral hazard but 1) at present moral hazard is being replaced by morale meltdown and the absence of credit in the "real economy" and 2) becoming lender of last resort should require that those institutions that avail themselves of the facility will either have to pay for it now with higher rates or relinquish future profits/equity or both. In fact the last point alone will serve as a check on future behaviour.
Lastley one should be aware that it was amongst many things the the ridiculously easy credit policy (especially of the Fed) and the relaxing of controls (permitted use of SIVs, jigging around with Glass Seagal, undbridled growth of OTC market derivatives and a totally non sensical CDS market (you cannot diversify away risk as its always there) that got us into this mess. In other words the authorities in the US, UK and Europe were simply asleep at the wheel and allowed this to go on.
Finally we need to have a system that will allow banks to be be registered as EU entities, regulated by an EU authority. Sure the banks can remain locally supervised if they wish but then we would have a situation that depositors could decide where they want to place their money and where it will be "supervised". The present balkans approach is dangerous and should not be allowed to persist.
Complain about this comment
Can the BBC and other news organisations make a commitment not to report such stories or interpretations of events in this manner? How much of todays and this weekends uncertaintly has stemed from the misrepresation of Chancellor Merkel's statement, something already clearly put forward by both the Alistair Darling and Gordon Brown concerning the UK.
Much talk throughout this crisis has put forward the idea that SPIVs or speculators are partly to blame for the fall out in banking stocks. Should the media not learn from what they have reported concering these people and only deal in fact and not rumor. It was clear from the outset that Germany were not going to fully protect savers with an announcement in this manner.
I propound that a story was needed to continue the spate of dramatic headlines. Why doesnt the media take a step back and let business leaders and the government work to resolve the crisis. We dont need more headlines, we need stability and certainty.
Complain about this comment
Governments need to reassure their individual savers to avoid them removing their deposits. If a large number of savers take their savings out and either place them in another country's bank which they consider offers more protection for their savings, or even keep the cash and hide it away, it would make the economic situation worse. Even if there is no danger savers would lose their money, they still need may need Government reassurance to pursuade them to leave their savings where they are.
Complain about this comment
The government have been consistently behind (the market, and for that matter this blog) in guessing what the market will do and how it will react. If I were in their position I'd get together with Sarkozy (and for that matter some of the other Europeans) and establish a joint fund for UK and French (and any other) banks, rather than maintain a unilateral position. It's inevitable they're going to have to do it for the UK, and why not use the opportunity to knock a wedge in the Franco-German axis in the EU at the same time.
Side point - this may seem a weird question, but does this make UK membership of the Euro more or less likely? Iceland is desperately trying to fast track into the EU and the Euro to try and cushion the impact of currency speculation - any risk of a run on sterling leaving us in the same position?
Complain about this comment
If a bank needs capital, why not have a rights issue with the government Ie the taxpayer as underwriter?
Simple.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
My wife just yelled in from the TV room "Wow Iceland's in trouble too" and the first thing I thought (honestly) was:
Hasn't that poor Kerry Katona suffered enough?
Complain about this comment
The idea of a government guaranteeing all deposits (which would exceed its entire assets) strikes me as being completely mad, and we are now being stampeded into it by certain countries. Panic is now on the level of governments and banks, not depositors. Sebastian Hayes
Complain about this comment
"58. At 12:27pm on 06 Oct 2008, AZLewes wrote:
"Where will all the money come from" people ask."
VERY good question....
Where exactly do you think money comes from now?
Hmm?
Answers on a postcard please. The first right answer gets a lollipop.
Complain about this comment
It can't be a global crisis if it doesn't affect Russia and the Middle East. Are they affected or are their economies based on real goods, such as oil and gas exports.
Doesn't Islamic law forbid lending money for interest and hence the whole idea of this web of debt-selling which has entangled our economies.
Perhaps the Archbishop of Canterbury wasn't so far off in suggesting we could learn from Sharia law after all.
Complain about this comment
As a business owner, my gamblers (sorry bank) have changed the rules. I paid off one bank and now have a second bank being over zealous in risk reduction. Our business is 30 years old nothing has really changed, except as mentioned the bank have 'changed the rules'.
The upshot is, banks are no longer business friends, there problems are being passed to business's to deal with, this, in a total way, the bank credit teams are not fit for purpose. I am fortunate and have paid off the bank, however, the alternative is 55 unemployed and many small creditors being sent out of business - the man in the street needs to understand the banks are hitting them twice.
Why is the help offered to the banks not being passed on to business, please lets understand that even if banks get 'help' they should be forced to pass it on, this responsability lies at the Governments door!!!!!
Complain about this comment
Maybe it's time for a world currency. We have a world bank (I'm not sure what they or the International Monetary Fund IMF do?) but no world currency.
I was always against us joining the euro in Britain if it meant doing away with our own currency. I saw it as similar to me and all the people in my street pooling our resources and so I would lose control of my own money. The same with individual countries. If we all keep our own currency but can dip in and out of a common currency as needed for our own purposes then that is a different matter entirely.
As has been pointed out several times in this blog, all the cash is now in the developing or (previously) communist nations ie China, Russia, India etc and they are busy privatising their systems while all the debt is in the western economies who are busy nationalising their banks by the back door!
It would make more sense for the whole world to pool resources and then pay in and out of the common/world bank. They get to keep their own currency, save or spend as they want, set their own interest rates etc. The individual currencies would find their own levels (exchange rates)
The bank of the world would be run by all the countries who have a part in the whole. We'd have to co-operate then instead of spending our time squabbling and fighting over all the spoils of the earth as we have been since capitalism was invented. This would mean a complete change of mindset ie to work for the common good instead of for individual interests.
Maybe it's time to co-operate instead of compete. Does anyone else agree?
Complain about this comment
#66
Very funny!! lol
I loved the last one too!! Going to use that down the pub this week... ;-)
Complain about this comment
please robert, ask why the oil fat cats, now oil has fallen 40 per cent, why is petrol so high ,,,This is relevant to the financial crisis because many other prices eg food should fall improving confidece and feel good factor......
Complain about this comment
----
There is a delicious irony here, with formerly capitalist countries and formerly communist countries swapping over.
-----
Marx would not be surprised in the bit at this irony. If I remember my A level Sociology correctly (probably not) True Marxism is supposed to happen after, not before, Capitalism.
We'll see.... interesting times.
Complain about this comment
Lord Geldof is becoming prophetic:
Tell me why?
I don't like Mondays.
Tell me why?
I don't like Mondays.
Tell me why?
I don't like Mondays.
etc etc
Complain about this comment
Who said "100% protection for German savers"? The press! The press heard and wrote what it wanted from a very slightly open statement from poor old Angela. She was simply saying "We'll look after to you" which is precisely what they have done.
Slippery slope? Only if the media greases the wheels.
Complain about this comment
At post 13 - suspending the stock markets "until the crisis is over" would be really bad. The problem you have at the moment is being caused in illiquid bonds (like CDOs) that aren't traded on exchanges. Each time another bank has a fire sale of these, the new low price is fixed in, and every other bank has to mark down there positions with "Mark to Market". This can lead to margin calls for some people requiring them to generate cash, which they may sell shares to get that cash. If they aren't allowed to sell shares, the other option is quite often going bust, making the crisis worse.
Complain about this comment
The point of the govenment guarantees is to discourage people from taking their deposits out of the bank.
So long as most people are re-assured by the government "doing whatever it takes" to guarantee balances up 50,000 there will be no need for the guarantee to be called in.
Complain about this comment
Robert, sorry for being so frank but it looks as if you haven't got all the facts right here if there is any truth in what the German media report. Merkels comments may have been wooly, but her finance secretary's office has in fact confirmed a new program to insure an additional 563b Euros in saving accounts plus other private deposits, including current accounts. The measures announced so far amount to c.1000b Euros. They will not cover banks themselves or any commercial assets.
Complain about this comment
Surely there is some silver lining to the current financial turmoil? The latest 'disaster' is that the price of oil is plummeting. Great news, I can now at least fill up my car for less cash. A visit to my local petrol station soon disappointed me. You are right it really does 'get weirder'!
Complain about this comment
Good points raised by markalexwatson at 2.13pm.
But instead of asking whether this is the time to join the Euro, why not consider these unilateral statements as signs of the coalition cracking? While you can tie everyones shoelaces together on currencies and interest rates, the different nations were already pulling in different directions on fiscal policy. And in the case of those serial breachers of borrowing guidelines (you know who you are) blind eyes were turned consistently. It takes a global event like this to shake the foundations of the strongest alliances and faultlines are already appearing.
Oh, and with the current levels of on- and off-balance sheet debt, I don't think UK Plc is going to be invited into the Euro club anytime soon anyway.
Complain about this comment
To what extent has this crisis been a product of the gloomy prognostications of Arch-doom-monger Peston and other media gurus? Is this a case of a self-fulfilling prophesy?
Complain about this comment
Mods, my apologies, I admit it was a bit rich misquoting FDR.
I trust I was not modded because I mentioned THE BILDERBERG GROUP.
http://en.wikipedia.org/wiki/Bilderberg_Group
Complain about this comment
# 96
Please see the following quotes from Bloomberg in response to your question on how the crisis is affecting Russia and the Middle East. I've incuded quotes covering LatAm, China and India as well, just to show it is a global phenomenon.
"Emerging market stocks headed for the biggest drop in at least two decades and exchanges in Russia and Brazil were forced to halt trading as the global banking crisis escalated"
"Brazil's Bovespa index tumbled 10 percent, while Russia's Micex Index plunged 18 percent before trading was halted for a second time today. Indonesia and Saudi Arabia lost the most in at least six years."
"Brazil's two largest companies, Cia. Vale do Rio Doce and Petroleo Brasileiro SA, declined more than 10 percent on concern demand for metals and fuel will weaken."
"Russian authorities grappling with the worst financial turmoil since the government's debt default in 1998 have pledged more than $150 billion for banks and companies through loans and tax benefits."
"Investors pulled almost $60 billion out of Russia in the seven weeks after Aug. 8, according to BNP Paribas, as the war in Georgia, falling oil prices and the seizure in international capital markets drove down equities. The Finance Ministry pledged $44 billion for OAO Sberbank, VTB Group and OAO Gazprombank, Russia's three biggest banks, on Sept. 17 on the understanding that the funds would be used to end a seizure in money markets after rates soared to a record 11.1 percent. Sberbank, Russia's biggest bank, dropped as much as 22 percent, and OAO Gazprom, the country's biggest company and its gas export monopoly, fell 19 percent today."
"Saudi Arabia's Tadawul All Share Index, which was closed since Sept. 28, fell the most in at least 14 years, losing 9.8 percent. Indonesia's Jakarta Composite Index dropped 10 percent to 1,648.74, the biggest loss since the 2002 terrorist attack, on the first day of trading after a four-day holiday. China's benchmark CSI 300 Index slid 5.1 percent, its biggest one-day decline since August, after resuming trading today after a week-long holiday. The index has lost 60 percent this year, the world's second-worst performer, on concern the global credit crisis and the Chinese government's measures to tame inflation will slow economic growth. The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 5.8 percent to 11,801.70, its lowest since September 2006."
Just as bad (worse?) as we're experiencing in European developed markets, I'm afraid.
Complain about this comment
The lunchtime news reports regarding Merkel's undertaking seem to have missed one vital point. Hypo Real Estate is down around 50 billion. The bulk of this money is the deposits of the major German High Street banks, e.g Deutsche Bank, Sparkasse, Postbank (see also the share price of the Commerzbank which is in free-fall). What Merkel was proposing was to guaratee Hypo debts to protect the millions of small depositors in the High Street banks. This doesn't guarantee deposits for all or any. It was also a personal speculation - nobody here on the ground seems to believe she can do it. This is mostly because she has be assuring the people for some weeks that Germany doesn't have a problem! until Yesterday! Leadership struggles in the SPD and CSU parties have totally distracted the media from the international ciris ...... were they engineered?
Complain about this comment
As on previous RB blogs, a lot of posts have contended that the reporting of this crisis, particularly on the BBC, has been alarmist. I certainly think a better balance is needed.
These events are serious, with the banking system under significant threat. The crisis in the 'financial' economy IS starting to spill over into the 'real' economy. House price deterioration is far worse than the published numbers suggest (because those numbers increasingly reflect a small and unrepresentative number of transactions). Housing declines will affect consumer confidence and spending, with implications for industry and business, for unemployment and for government finances. So these matters are serious, and affect ordinary people, not just the City and the business reporters.
But, amidst this sense of crisis, we need to remember that some countries are still doing quite well, so too are a surprising number of big companies (notably oil companies, pharmas, food retailers, utilities and even, surprisingly, some banks). Savings up to 35000 are guaranteed in fact, and savings beyond that are guaranteed in all but name. There are even opportunities out there.
So it's bad, undoubtedly, but it's not the end of the world. Why the crisis reporting? Partly it's the sheer excitement of these events for professional commentators.
But also, the worse the global outlook appears, the better it is for the government in a political sense.
If the world economy was doing fine, Brits would realise quite how weak their own economy had become. This way, domestic weaknesses can be swept under the carpet and the whole mess blamed on 'global events outside our control'. Convenient, huh?
Complain about this comment
What happened to the ratings on debt? I thought the bond ratings were supposed to reflect the riskiness of debt securities? Have these ratings been catastrophically inaccurate for years? Or were they relative ratings rather than absolute? So a bond might not look so bad vis-a-vis another bad one, perhaps just slightly less bad, and therefore comparatively good. But from an absolute perspective they might have been as good as worthless.
Debt has been issued backed by nothing more than assets largely made up of debt owned for far too long. The trouble is that the debt owned was not properly valued, the price did not reflect the riskiness.
And the governments printing money and pumping billions onto balance sheets will only cause inflation to sky-rocket.
Complain about this comment
#62, maybe you simply don't understand your "many friends" in the city. The price of a financial asset be it a bond or share or something else is the discounted expected payoff.
Very simple example, company A has 100 GBP in the bank will earn 110 GBP in one year and zero thereafter. Interest rates are 10%. The value of that share is 100 + 110/1.1 = 200. Does that mean there is "200 GBP in the bank", no it is simply the price at which you cannot make free money by buying or shorting it. If you sell for 100 GBP then your counterparty has made a free 110 GBP in a year or 100 GBP now. If you think this is wrong then please feel free to leave some contact details, I wish to urgently trade with you.
Complain about this comment
Many old people are getting worred by this talking up of problems. give the system a chance to work, before anyone starts shouting
Complain about this comment
107:
Petrol prices have in fact come down quite a bit - diesel prices less so - but less than one might have expected. However, we need to note three things here:
1. About three-quarters of what you pay for fuel is tax. If the oil price fell to zero, you'd still be paying over 70p for petrol.
2. Oil is priced in dollars. Whilst oil prices have been falling, so has Sterling, from $2.10 to $1.74. Oil is priced in dollars, so this is a very significant offsetting factor.
3. World demand for diesel has grown so much that the industry is hard pressed to produce enough of it. That affects prices.
Complain about this comment
#100, maybe you should be asking Treasury fat cats after all most of the price at the pump is tax.
Complain about this comment
Alistair Darling has just annouced Lloyds TSB are having difficulties.
Complain about this comment
They need to cut rates quick and fast other than that there is no other medicine; due to delay they might have to do what Japan did and have interest rates very low. If it goes like this, than the only way of protecting savers is to print money and give which will high rocket inflation.
Complain about this comment
“What Angela Merkel did, they say, was give a "political" commitment that no German savers would lose a penny - which is more-or-less identical to the commitment given by our Chancellor of the Exchequer, Alistair Darling.”
No it isn’t. Merkel is guaranteeing the lot, Darling is guaranteeing £50,000 each.
Let’s say I’ve (foolishly) £100,000 in the bank and it goes belly up. How much will Merkel pay, and how much Darling?
I understand Merkel’s “you won’t lose a penny” gets it all back. Peston bets that, despite the fact he’s only committed to return £50,000, Darling’s gonna give me twice what he has too?
Don’t be silly. And anyway, if our government is actually committed to full compensation, why the need for the £50,000 announcement? which came with the rider that this covered 80% of accounts anyway – why would they categorically describe the remaining 20% as being outside the scheme if they were actually going to pay it anyway?
I could understand this as government spin in the light of increasing pressure for the government to do what their competitors (sorry, allies) are doing, but as reasoned reporting … well, It ain’t.
Complain about this comment
Weird is'nt it.
The safest bank NR, wont let me open an account.
The worst banks are advertising like mad for deposits.
Did they ever make " Carry On Banking" If not, now is the time.
Who could play the major roles???
Suggestions to GB on a £20 note.
Complain about this comment
Dont fool yourselves that these bankers have any moral fibre
A 1980s study suggested stories of widespread suicides of bankers in 1929 was myth
Suicides in New York in month following crash lower than normal
Only eight people jumped off buildings in the city between the crash and the end of 1929
Just two were on Wall Street
So much for the remorse of bankers then.
Complain about this comment
Friendlycard (#84): 'There is a delicious irony here, with formerly capitalist countries and formerly communist countries swapping over. In Friday's bail-out debate in the House, the speaker remarked ... that she would "watch out for further socialist legislation coming from President Bush". Intervention is increasing across Europe. Meanwhile, Russia is becoming an oil-rich capitalist country and China, whilst remaining politically communist, has an aggressively capitalist economy. Marvellous!'
Roger Walsh (#101): 'Marx would not be surprised in the bit at this irony. If I remember my A level Sociology correctly (probably not) True Marxism is supposed to happen after, not before, Capitalism.'
I'm not normally one to pour cold water on another man's irony but there are other ironies to be noted, most of which don't feel so marvellous to me:
1. China has been getting less capitalistic since the repression at the end of the 1980s, according to a book published last month by Yasheng Huang: Capitalism with Chinese Characteristics: Entrepreneurship and the State. Here's one reviewer:
"Sure to generate a lively debate, Professor Huang's study provides a provocative and well-researched challenge to much current thinking on China's economic development. The widely shared gains of the 1980s have not been matched in more recent years. Danger signs include the stagnation in household incomes, growing inequality and illiteracy, and heightened governance problems. Huang argues that China will not be able to continue to grow unless the benefits of growth are widely shared through fundamental political and legal reforms." - Susan Rose-Ackerman, Yale Law School
You only have to look more widely at China's role in human rights disasters in places as diverse as Darfur, Zimbabwe and Burma not to feel so marvellous about all aspects of the new approach there.
2. The sub-prime problem was caused by socialistic mortgage lending policies initiated by the Carter and Clinton administrations, which the so-called right-wing Bush administration did nothing to reverse - at least partly because Democrats were so wedded to the apparently benign concept. Ever more socialism doesn't seem such great answer to this viewer.
3. "Unlike most leftists today, Marx studied economics." One has to hand that to Marx, as brilliant black ex-Marxist economist Thomas Sowell does at the start of a witty opinion piece late September, taking apart the analysis of the crunch by modern-day leftists, easily found via Google.
Complain about this comment
Yesterday I gambled on the Prix de L`Arc de Triumphe......sadly my speculative wager failed,might I expect to have the government offer to give me back my money?
Obviously,on previous occasions that I have had a bet,I have won,but as this time I have lost I think it only right and proper that I be treated like any other punter/banker!
Complain about this comment
I'm tired of hearing comments referring to the death of capitalism.
Noone has ever believed that markets were not flawed, their faults have always been known and hence the reason why markets are regulated.
The issue here has been the failure to regulate properly through short-term greed, not the failure of capitalism itself.
The creeping nationalisation of the banking systems of the West is hardly government-led, and will be reversed as soon as possible (and the lessons of poor regulation will be learned until ... well at least the next time).
The Western economies are in a position where they have borrowed too much to fund a) overspending on non-essential luxuries made overseas and b) speculation against asset value bubbles that have now burst. The burden of that loss has to fall somewhere, and it is inevitably onto the taxpayers of those nations.
Govt compensation schemes are only about how the loss is spread, and there is clearly more justice in allocating bank failures across all taxpayers rather than forcing deposit holders to play Russian roulette.
What will make the inevitable and due depression in Western economies more bearable over the next few years is concerted and positive action from the political parties. To judge by the behavour of the Irish and the Germans over the past few days, that seems unlikely.
Complain about this comment
97
"Why is the help offered to the banks not being passed on to business, please lets understand that even if banks get 'help' they should be forced to pass it on, this responsability lies at the Governments door!!!!!"
I agree - the current measures by governments are merely designed to shore up the banks' balance sheets: to try and generate 'confidence'.
Unfortunately, this is a completely lost cause as we all know the banking system is going to fail whatever they do - as soon CDSs and CDOs kick in - and no amount of government intervention is going to restore confidence as we all now know the entire system is rancid.
The system is going to go down and, to be honest, I would prefer it to be sooner rather than later and that governments didn't waste billions of taxpayers money trying to prolong its agony and create greater debt for the future.
Complain about this comment
Can Robert Peston, or anyone else, explain to me how Euro zone countries, like Ireland, Greece, Germany, etc. can guarantee savers' deposits when they don't have a central bank with the ability to generate the money required? Surely they can't unilaterally commit the European Central Bank to pay these sums for them, so where is the money coming from?
Obviously for Britain, with its own currency, it's different. The British Government can give anyone as much money as it likes. That will maybe devalue the pound, if people don't think Britain has the resources to back the payments up, but the guarantee is simply to give the depositors the number of pounds they had in the bank.
If I were a citizen of a Euro country I'd be very annoyed at Ireland, Greece, (and maybe Germany) making promises with my money without consulting me.
Complain about this comment
Over the last few years people have been lulled into believing that their houses are worth substantially more than they really are – and spent ‘equity’ that doesn’t exist in the real world. This is a substantial contribution to the failure of the whole financial system, for lenders of every persuasion mainstream and dubious - remained convinced that even if mortgagees defaulted, the value of the property would rise relentlessly.
Well it hasn’t happened, the whistle has been blown and the credit cards called in, and now we are all paying the consequences. Now, not to put too finer point on it - the house building sector is also stuffed. Big firms can’t raise the money, so in the short to medium term where’s the next round of finance for house building going to come from? It’s time to let people invest in housing; tens of thousands would build their own homes with their own money given the opportunity that would ensue from adopting more humane and realistic planning policies. It’s the laws of supply and demand which have kept property artificially high and allowed the mortgage barons to trade on the backs of homeowners. It’s easily within the government’s ability to redress this situation.
Complain about this comment
95 "VERY good question....
Where exactly do you think money comes from now?
Answers on a postcard please. The first right answer gets a lollipop."
My tentative answer to the question, admittedly very simple, is this:
Money only has a real value when there is some fixed agreement between issuer and user based on trust.
For example, this was the case when President Lincoln issued dollars for use during the American Civil War. The "greenbacks" he printed worked because they were used to pay for food and supplies for the army. As the money circulated, trust in the value of the currency grew and economic stability resulted. The USA began to prosper until the untimely assassination of Lincoln.
Today the trust banks inspire in users is all smoke and mirrors, hence this crisis. Money comes from a magician's hat. As do lollipops.
Complain about this comment
# 128
Euro member countries do still have their own central banks, though they have a common currency and the ECB is responsible for monetary policy (and stability) across the Euro zone. Each member of the Euro zone still has control of their own treasury, and hence can issue government debt. They just denominate it in EUR rather then DEM, FFR, IEP etc as they would have done pre-Euro.
Now, how the ECB would react to Germany having to issue EUR 500 billion, or whatever the amount is if all the banks failed, is a good question. To prevent this kind of fiscal indiscipline in normal times, the Euro zone has what's known at the "Growth and Stability Pact". Amongst other things, this limits the amount of government debt a Euro zone member may have relative to its GDP. The limit is 3%. Clearly, if Germany did have to issue debt to protect depositors they would breach the Pact.
Interestingly, one of the decisions at last Saturday's meeting of the EU's "big 4" was to suspend the Pact. Whether this was in the expectation of a Euro zone member having to issue a lot of debt to protect depsitors, we'll have to wait and see.
For what it's worth, I think the decision was more likely to be in order to allow member states to use fiscal policy (increased public spending or tax cuts) to reduce the impact of recession. Monetary policy isn't working right now, and forcing member states to cut public expenditure or increase tax as we slip into recession would simply repeat the errors of 1929.
Complain about this comment
My comment #124 has been 'referred to the moderators'. Do I ever get to hear why? I realise that the moderators must be extremely busy but it's hard to know what was objectionable to one other person here, for future reference.
Perhaps it was saying that the Bush administration was 'so-called right-wing'. One reason is that, unlike Thatcher, who paid back the UK national debt to a substantial degree, which I would consider consistent with the small government ideals of the right, Bush has presided over the ballooning of the largest US national debt in history - and that's prior to the trillions being deployed in the merry hope of staunching the credit debacle. But I do see the problem. Invading other countries like Iraq is considered right-wing to some. But not to Ron Paul. So it's a troublesome phrase. I'm deeply sorry. If that was the problem ;)
Complain about this comment
Robert - anyone - can someone answer for us what I consider to be the most important question going forward about all these guarantees and bailout plans?
Q:
Where is all the money going to come from to fund these commitments from our governments?? Lets face it they mostly had fairly precarious finances before the "credit crunch" hit home. And $700 Bn is a lot of money to find on its own if teh econmy was growing. Then add in the extra bailout then whatever additions could be required in future (no-one really thinks this is the last commitment do they?).
Then look at the UK and Europe and we are getting towards some pretty open ended commitments as well and economies are teetering.
So when they have to make good on these underwriting commitments - we dont have much gold any more - so where is the money coming from?
Economists, - please?
SDS
Complain about this comment
@ Sickson_Dread
they will try to borrow it from people who will or won't create it out of thin air. it will uncrease the debt of the country but will not diminish the wealth of the lender because they will aply interest but, hey, who cares coz it came out of thin air anyway. the biggest losers would be, as always, the obedient people who will pay through inflation and taxes, aren't we a good bunch?
Complain about this comment
My own view in having worked at the bank of england many years ago when lord Richardson was the Governor was that when a financial crises cropped up he and the directors could intervene and curtail it in private such was there expertize and professionalism. They were regarded by all of the central bankers in the world as being the very best. Even today Mervyn king although not up to lord Richardson's standards can still command respect in most quarter's and i do so hope he will be able to get along side the other governors in the central banks to make some head way in to the turmoil we are all facing today. As for the politician's where none of them are qualified in this crises so are all out of there depth they should keep quite and let the bank of england do what they do best and get a solid workable fix on these issue's unimpeded by the politicians
Complain about this comment
The Sunday Times
April 15, 2007
'.... Bank of England officials had serious misgivings over the chancellor’s [then Gordon Brown] determination to sell 400 tons of bullion in a series of auctions between 1999 and 2002, when the price was at a 20-year low...
Any thoughts?
Complain about this comment
Let's take our elected representatives at their word when they say they will do whatever it takes.
But what does it take?
As usual the residential property and equity markets have probably overdone the initial bull-market optimism and the subsequent panic.
Rothschild's idea of selling to the greedy and buying from the frightened should encourage opportunistic buyers to rescue these markets in due course.
Tax policy could help.
Maybe "what it takes" is to temporarily relax the ban on UK pension schemes buying uk residential properties. This would help to underpin the ailing housing market and probably start the upturn sooner.
Complain about this comment
#111, You are wrong about China.
Chinese share prices have been down, which is a natural correction of the over heated stock market, similar to the bursting of the Hi Tech bubbles in 2000 in this country.
Chinese banks are stable and doing rather well: the country's largest bank ICBC had just reported a 57% increase in annual profit not long ago and, touch wood; they are not yet experiencing the lack of confidence that is driving the western banks into the ground at the moment.
Having said all that, the credit crunch in the west does cause problems for China. The biggest one is the reduction of potential exports to the western world (when people feel the pinch in their pocket, they're less likely to splash out on a new DVD or jacket made in China). But this is a problem Chinese economists have foreseen 7 years ago and all policy since have encouraged the development of an internal market particularly the middle class. And haven't they grown! China will have to rely on the vastly growing appetite of those middle class to replace the consumptions previous in the west.
Good luck, China!
Complain about this comment
#114, I am afraid this seems to be a common misunderstanding. Credit Rating agencies rate the CREDIT risk, ie the risk that the issuer is unable to meet his obligations. That is just one risk.
An example, if you buy a bond from me that promises to pay zero percent interest and not to return your principal then it has zero credit risk because I will always be able to meet my obligations. It is a triple A rated bond and of course you'd have to be an idiot to buy it. It also technically has no interest rate risk or market risk. What it has is opportunity risk which is where you could have earnt more with you money elsewhere.
The sole reason these securitised mortgages exist is regulation. By offloading their mortgages in CDOs the mortgage originators swap credit risk for interest rate risk. One means they have to set capital aside, one doesn't. The actual loss incurred would be the same just it has a different name and a different regulatory treatment. Ditto with alot of the people buying the CDOs, people like pension funds are normally not allowed to buy non-investment grade bonds but by converting the credit risk to interest risk by packaging those mortgages up into a structured note, those pensions funds can buy investment grade bonds with a spread of 250bips over gilts - and the pension fund manager is a "genius".
Moral of the story - contrary to all the arguments that these banks didn't have enough regulation, it is idiotic out of date regulation that is the SOLE reason for these markets to exist.
Complain about this comment
#138, gosh a dictatorial country claiming it is doing well. You'll be telling me next that Stalinist USSR wasn't a workers paradise!
The "middle classes" of China are tiny. It's internal market is not going to keep growth at anything even approaching the current rates.
Most of the chinese banks have loaned to dodgy government connected entities and to cover the crazy real-estate boom in some parts of china. You honestly believe this real estate market is fully supported by fundamentals? That there has been no corruption?
They are not "experiencing" the lack of confidence because it is not a free market.
Complain about this comment
Sorry but one thing I dont understand is, why banks are allowed to set interest rates themselves ie LIBOR.
In the current climate, and particularly given the amount that governments have given the banks, surely now is the time for governments to set ALL interest rates
Complain about this comment
The US needs to stop printing dollars that have no real value. Countries and financial systems need to send out a strong signal and stop trading in this fools gold.
The problem is not due to a liquidity crisis its because of insolvency. Injecting money into the banking system is not going to restore the confidence.
By nationalizing institutions like fannie etc. the US is sending the wrong signals to external debtors that they are not going to get real assets for all the dollars they have stacked up.
Printing more junk money is not going to keep the global economy afloat. Nobody wants junk money or instruments that promise more of junk money.
Complain about this comment
View these comments in RSS