Why the record-breaking falls
Today's fall in stock markets across the world puts us on track to set new records for monthly declines in share prices.
So far this month, share prices in the US and Europe have fallen on average by more than a quarter, those in Asia by a bit more.
Unless there's a sudden bounce, the cumulative monthly falls in October for most major markets will be as big as has been by anyone alive.
In the case of the US, the monthly drop is likely to be the biggest for 70 years. For other markets, where serious measurement of stock-market movements is a younger pursuit, the drops are as bad as any seen since records began some 40 years go.
Why the rout?
Well three things are going on.
First, we're seeing the end of the carry trade, the investment of cheap, low-interest loans raised in yen and dollars for investment in higher yielding financial markets, such as those of the emerging economies, Iceland and - to an extent - the UK.
Investors are liquidating assets everywhere from South Korea, to Argentina, to Hungary, and holding the proceeds in the Japanese and US currencies.
And since so much of the carry trade came out of Japan, the yen has surged to an astonishing extent.
Sterling has been punished, in part because when the carry trade was booming, the UK received a disproportionate amount of this hot money, because our interest rates were always a bit higher than the developed economy norm.
A second phenomenon is the one I described in my note of earlier this morning ("Hungary, Goldman and Regulators"), namely that the conversion of Morgan Stanley and Goldman Sachs into banks is sucking the juice out of hedge funds.
That's forcing those hedge funds to dump assets such as shares, corporate bonds and commodities - which in turn is precipitating further asset sales , as the fall in their prices causes lenders to demand that those who've invested on credit (such as hedge funds) put up more collateral.
Finally, the global economic slowdown has prompted a re-evaluation and re-pricing of risk, in the jargon.
Or, to translate, investors have in the course of 14 months gone from the mad conviction that busts had been abolished to the fear that everything's going bust.
Neither view was rational. But reason doesn't hold much sway at market peaks, when the prevailing emotion is greed, and troughs - when it's sauve qui peut.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~26~RS~)
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The most outrageours thing I have seen is that these people in the banks are still to get bonuses this Christmas.
Absolutely scandalous. They really are having a laugh at decent, hardworking taxpayers.
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''Or, to translate, investors have in the course of 14 months gone from the mad conviction that busts had been abolished to the fear that everything's going bust.
Neither view was rational.''
Why is not rational to think everything is going bust?
Everything is or has isnt that why there is line of business in every country going cap in hand to the governments or the IMF?
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Robert this isn't end of either. So again: hold onto your hat.
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Robert,
The liquidation of funds in the present circumstances is I am afraid to say entirely rational, contrary to your view. It is rational in the same way that savers joined the queue at Northern Rock.
Funds and investors need to liquidate assets to repay demands for cash repayments by other funds and this multiplies the effect. This run will continue for a while yet and there is nothing short of draconian steps that can stop it.
It is not the fault of the media (you are not to blame!) It is just an inevitable consequence of the de-leveraging taking place. It will disrupt real markets, nations and trade and there is little that governments can do about it that will have a positive outcome. In fact almost any action by governments will make matters worse overall.
(However a swift erection of exchange barriers and beggar my neighbour protectionism may help individual countries - I expect the USA to do this this week! - Bush does not care any more!)
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Well you're right about Sauve qui Peut (Every man for himself).
I believe the equity markets are about to become something of a sideshow - it's currencies we are on to now.
The slide in the pound will make it impossible for interest rates to be dropped further in the UK. It's not as though we can really benefit from a weak pound since we don't manufacture hardly anything for export.
The next phase in the crunch will probably be protectionism and exchange controls. We really have no choice but to try to prevent a massive flight of capital out of the UK. This will scupper international trade.
The question is - is the UK actually capable of feeding, clothing and housing its population without trade?
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if stock and share prices continue to fall wouldnt it be prudent for some of these companies buy there own shares back aiming at becoming private companies once more and thus may well be able to fend off the downturn better than getting snapped up by greedy investor that will sell to make a quick profit thus prolonging the problem.
some of these companies just last year were recording record levels of profit whats happened to it?
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Re-pricing of risk? - Much worse than '29, we really are in uncharted waters here. In effect all currencies being faith backed are doomed, simply because all faith has gone. The only way forward is a jacking up of rates to 10% to attract the average Joe to put his worthless money back into the banks which will stabilise the economy and give us a floor.
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Isn't it funny that the country where these problems started - the US with sub-prime scams, Lehman Bros going bust, lame-duck President who is in part responsible - is where the money is headed now! It seems that people are still buying into the American dream.
But it all goes to show that markets are fundamentally unstable. This is fine for those buying and selling on an hourly basis because they make a living on second derivatives but for Joe Public and the Pension Funds who have been persuaded that the stock market is a good way to invest, it is a painful lesson. We have been hoodwinked in the past to expect them to carry on going up but that sort of exponential growth is not sustainable.
Apart from gold and supposedly stable economies as safe havens, expect a return of the housing market as soon as the bottom is sensed by canny investors with the cash and by the general public when banks get to lending again.
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Yep, the unwinding of the carry trade is probably the final piece of the crash of '08. All those grannies in Japan prepared to chase 5% yields in money market accounts have been introduced to currency risk,
Lots of lumpy sleeping mats in Tokyo from sleeping on gold bars for the next couple of years.
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"..They really are having a laugh at decent, hardworking taxpayers."
Yeah right, those same fine, upstanding taxpayers were more than happy to take the money banks were throwing at them during the credit glut.
Really, the problem is the same wish-thinking mentality that makes people believe that God will sort out all their problems for them. Sorry I've slipped off topic...
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Reminds me of that famous football commentating phrase, "They think it's all over ....". The difference is that nobody can yet say "... it is now".
Indeed, like I've posted elsewhere ... this 'convergence of catastrophes' has one helluva long way to go yet. Indeed, the current set of inter-related crises will soon connect with the even bigger looming problem of the end of cheap energy.
Now, that's another challenge our glorious political leaders have yet to realise is a disaster waiting to happen.
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If your business is based on a risk portfolio then as that risk increases (or more importantly is perceived to be more risky) it is entirely rationa to limit your exposure and transfer assets to a less risky type in order to maintain your overall level of risk.
But then as everyone else is being rational (!) then the whole thing will just feed on itself and the more risky assets will be sold off.
Seems to me that those people with nerve will make money in the longer term as they choose their moment to enter the market to by up more risky assets at knock down prices ..
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So another nail in Gordon Browns prudence coffin. By allowing interest rates to remain so high, at a time of unremitting debt increases to fool himself that it was actual growth. We now have yet another wave of fiscal problems hitting the UK because of his growth sham creating a market where we took on a "disproportionate" amount of carry trade. Why not make this statement Robert? Maybe a little too critical of Brown for the BBC liking?
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When will it be possible to buy shares in Robert Peston?
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Ref 1
I totally agree with your points.
Pensions are being hammered by the day.
My wife received a yearly pension statement on saturday stating that it has lost in excess of 40% during the past year.
It will result in more people being reliant on means tested benefits in the future despite having saved for old age.
These crooks need to be taken to task - now
We need to see blood on the floor
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America is bust. The US consumer can no longer afford to prop up the spending bubble and the banks are in no mood to continue the lending spree to finance it either. As credit cards get called in either average Joe goes bust or local US banks continue to go bust. The US current account deficit is virtually unpayable. The US Treasury is on its way to Chapter 11.
Soon they will start printing dollars like there's no tomorrow. This will cause a collapse in the dollar which will help to pay off their current account deficit as China and other dollar longs start to dump it.
The greatest carry trade in the world will soon emerge i.e. borrow in the US at close to zero percent and invest it anywhere in the world where rates are above zero.
You really want to live in a country now that is self-sustainable in terms of resources and food e.g. Australia, South Africa, New Zealand etc.
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You state RP that investors are liquidating assets.
You got proof?
Who are these investors then? Thousands of them? Hundreds? Ten? What?
Where are they putting their money and why?
GC
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@ hutonthehill @ 12.44 pm
when they have their IPO i am going to short them. i think he has peaked.
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Another average piece. Where are all the scoops? Where are the nasty vindictive political pieces? Come on Robert what's up?
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A record fall in the FTSE eh... Well I guess Gordon Brown can add that to his record trade deficit, the record household debt levels and record house price inflation...
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The late great J K Galbraith said "The only function of economic forcasting is to make astrology look respectable"
Listening to the 'experts' with views that change with the winds and contradict each other constantly i think it is clear nobody has a clue what is happening or what will happen. We are in the midst of a panic and a crash. Stampeding herds do not stop until the danger or perceived danger has passed.
The danger has not decreased just because Brown promises to spend more money that he does not have and cannot borrow without further damaging our country. Talking boldly about Keynsian ecomomic theory no more prevented the last labour disaster than it will this time.
A deep depression is the only cure it always was and always will be. No one knows when it will finish or how deep it will be. The last one only finished with the second world war.
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#21 - In the context of your last sentence - is the US trying to goad Syria?
GC
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#21
Well that's it then, the end will be WWIII, let's have now instead of dragging it out 'til after the Amerikan selection.
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Well, people on the blogs wanted a crisis!
Anyway, I guess we will see the FTSE touching 2900!
The pound will hit 94 cents.
And house prices will stagnate until 2020.
It would help if the Public sector was given a fair and adequate pay rise to allow for infaltion.
Say at least the four and a half percent gained by private company employees.
But with Inflation at ten percent and rising, even four and a half percent won't be enough.
Just going to check my pension, now wheres my abacus?
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HSBC shares were down 11pc and Santander 7pc at various points this morning. They were the big two I thought were unequivocally safe. If they're in trouble, then we all are (all the preposterous doom-mongering that abounds on this site aside).
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George Lennox Sharman Shackle, an economist of note, once said:
To be a complete economist, a man need only be a mathematician, a philosopher, a psychologist, an anthropologist, a historian, a geographer, and a student of politics; a master of prose exposition; a man of the world with the experience of practical business and finance, an understanding of the problems of administration, and a good knowledge of four or five languages. All this in addition, of course, to familiarity with the economics literature itself.
John Maynard Keynes, another economist of note, said:
By “uncertain” knowledge … I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty … The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention … About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know!
I am minded to observe that no current economist really knows how an economy works, nor how all the constituaent parts interact, nor can predict what is likely to happen, but has the opportunity instead to learn 'real-time' as it unravels how it hitherto worked.
As a mere student, if I were to predict the future, I would tend to favour countries (wanting to be masters of their own destiny rather slaves to Adam Smith's [offshore] self-interested decisions) protecting individual interests rather than persuing the continuance of free markets and globalization.
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The clown politicians we have running our country should not just be ejected from Westminster immediately however given the void of any credible politicians in the country who can we replace them with?
The inept Alistair Darling predicted growth for 2008 (March Budget statement) to be 1.75% to 2.25% a clear example of either lying to the public or complete incompetence either way this man should be removed from office immediately. Given the fact that he himself had just nationalised Northern Rock he should have known the magnitude of the situation.
But it gets worse why did Alistair Darling and Gordon Brown Feel that nationalising Bradford and Bingley's debt and selling the profitable part of Bradford and Bingley to foreign ownership at cut down prices was a good idea this is bizarre we have given maximum risk to the tax payer here if the loans default the taxpayer pays if the new parent company of the depositors (banco Santander) go under then the tax payer has to bail out the depositors.
Can the slow learner group of New Labour get any worse of course it can to stop plummeting share prices of the banks they come up with an idea to buy stakes in these banks, ok if we step back and look at what was happening the banks share price was tumbling not because of short selling (this had already been banned) but shareholder had lost confidence in the banks solvency and were worried about them being nationalised also they were sever question marks over top executives. So rather than go into the secondary market and hoover up cheap shares thus sending a message that the UK government was not prepared to let these banks go under and they were committed to them surviving as independent companies they instead decide to dilute current shareholding by forcing an issue of preference shares where is the incentive for me to stop selling my shares if I know hold stock in a company that is going to have to pay an enormous yield to the government at my expense I may as well take what I can get now.
Then there is the issue of 50bps rate cut given by the bank of England taking the target rate for wholesale lending to 4.5% Now the treasury which fully funds Northern Rock has allowed Northern Rock to maintain their lending at 7.49% almost 3% higher than the target rate of the Bank of England firstly how can this be a target if the governments own bank does not make an attempt to move closer and more importantly what message does this send to the other banks.
The New Labour government have not only been inept with the public purse but borderline negligent should we really allow these clowns to make anymore costly mistakes (let's be generous and call it mistakes).
However can anyone of us say the Tories will do a better job I doubt it but we need to make a change somewhere.
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Well at least we now know what happens when the acronym stew of over-leveraged markets unravels. It was a question often asked by those of us who were sceptical of the boom.
Nobody knows how this is going to work out and in the end we will see who called it right and who got it wrong.
I am particularly bothered by all the waffle coming out of Downing Street, the Treasury and the City. Can't they show us some humility and accept they called it wrong for over five years? As for all this nonsense of spening our way out of a recession: the borrowing is just to keep current expenditure afloat never mind neo-Keynsian theory.
We will hit bottom at some point in the next six months and yes, it will be a slump. Then we will need to get our Keynes from off the bookshelf.
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Economists are just politicians in different clothes, liars and fools to a man.
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Call in the IMF, its the only way to get through the Labour lies and find out the truth. Brown and his sidekick cannot be trusted.
When are you updating the "Brown's Britain" biography Robert? Plenty of material to be going on with, major review required.
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#26, very interesting since I have read none of either!
But is this economics at all? I'm an engineer and I'd call it chaos; if I'm right, we now need the Cray supercomputer and a bit of 'chaos theory' to see what's coming next.
Is anyone working on this?
GC
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Ref 15 and 1.
It is nice to know that the bankers are still laughing whilst everyone else will be crawling in the gutter for pennies.
Blood on the floor indeed.
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This is mainly due to irresponsibility of Bank of England; if they have cut rates to 3% we will not be in this mess. Longer BOE waits the more cuts we will need.
Only people laughing are the bankers who are still being paid bonuses while all of us suffer. We haven't tightened the rules on irresponsible behavior of bank yet.
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Robert,
Your posts today have got to some of the core issues with this crisis. For the past decade or more the world economy has been dominated by crazy, unsustainable processes like the carry trade and the excessive leveraging caused by hedge funds and investment banks.
This nonsense is now is unwinding at remarkable speed. Already the imbalances in exchange rates have largely been corrected, with the Pound now competative against other Western currencies. The Stock market bubble has largely deflated, though it may well overshoot. On the other hand house prices in the UK still have a long way to fall, and the bloated finance sector still needs to shrink dramatically.
The Government needs to keep the economy afloat as best it can over the immediate short-term crisis, increasing state borrowing to replace the private sector debt that is constantly evaporating through the deleveraging process. In some ways it doesn't matter if that extra borrowing is spent on tax rebates or public works, though I think the former would have the more immediate effect.
But then what will we be left with? The more difficult medium-term issues, such as
- The need to export far more real goods and services, and import far less
- An uncomfortably large National Debt
- A pensions system in disarray.
These are going to take a lot more thought to sort out.
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Stocks are also falling due to earnings being reliant on people borrowing to spend, now that easy credt has dried up businesses are seeing falls in sales and profits, this is on top of corporate borrowing rates going up and on top of a recession which will depress spending and the fact people have higher bills to pay due to inflation busting increases in bills they pay.
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All those years Christopher Fildes in The Spectator warned about our balance of payments, and what it meant. You can't keep spending more than you earn without someone lending you the money. And one day they'll want it back. That day's come. As Wykehamist says, I wonder if we're capable of fending for ourselves anymore.
Meantime, for some reason the public sector workers seem to think they should have more money while the private sector is laying people off and cutting wages. All the IT contractors at Allianz and Barclays took a 10% cut last week. Now someone wants a bigger slice of what less there is left. Nice.
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Shares have fallen a quater? Go back one year and you can see the real fall.
Oct 07 FT was at 6750
Oct 07 Dow was at 14000
Now
FT at 3750
Dow at 8380
FT and Dow down by around 45 percent. Now thats what I call a fall.
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As the carry trade unwinds and all eyes move to Asia and other merging economies a fresh bout of turmoil is ensuing. Those banks exposed to these markets including those in Austria where bank problems precipitated the great depresion are taking a tumble.
Economic conditions in China are reportedly a lot worse than previously thought and this will only speed up the unwinds.
The question then become can all governments borrow money for bailouts and keynsian investment packages at the same time? Has the IMF enough money to rescue all those governments which will get into trouble? What would it mean to the UK if the budget had to be balanced bearing in mind we spend more money on social welfare than anything else?
I think the answer may be that we should not automatically count on the safety nets being there when we need them.
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So as per my previous predicions sadly depression came, the fuel prices got declined & a war lik situation is on hands regards www.lifeteller.com
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23:
No one could seriously want another world war.
Remembering what the effects of Atomic, biological, and ordinary warfare, would be.
Wouldn't be a very pretty world afterwards.
An awful lot of Nature would be lost, not just people.
(Radiation ends up everywhere, so do biological poisons etc).
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Robert, I have watched your recent reports on the the current crises and have often wondered why you pulled your punches with regard to the governments performance and blame. I thought maybe you were just following the bbc left leaning policy on going soft on the government.
Having only just learnt recently of your own left wing family background (unsurprisingly) my personal suspicions over your impartiality have been proved correct .
Indeed, the way you laid into George Osborne (with glee) along with the bbc you really let the cat out of the bag as to your own political leaning.
Unfortunately for you Robert your reporting career will be plagued by comments like my own unless you step out of the stereotypical left wing position you find yourself in. To be taken seriously you need to report impartially i.e. criticise the govt. when required (often).
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this all falls are coming in the economy because of Saturn position which states a overal time frame of this depression to 7.6 years from Jan 2008 1st their shal be recpite since this face only differs from 2.6yrs each time
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'The Government needs to keep the economy afloat as best it can over the immediate short-term crisis, [by] increasing state borrowing...' (Random Thought, Comment 34)
When I ask, 'who lends to the Government?' the only answer I get, is 'The government issues gilts.'
But what if no one wants to buy the gilts?
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38
""The question then become can all governments borrow money for bailouts and keynsian investment packages at the same time? Has the IMF enough money to rescue all those governments which will get into trouble?""
NO they cant, the IMF is not even on the Radar when it comes to having enough. The ONLY way this spending spree can be paid for is by inflating the money supply.
Food crop futures are going through the roof and eastern banks are having runs on their reserves.
Lower Interest Rates! people cry, but this will result in double digit inflation and therefore double digit rates next year.
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With most of the private sector relying on money purchase pensions how long can the electorate/Government put up with/justify index linked final salary schemes for public sector workers?
It's unsustainable, however politicians and public sector policy makers have a vested interest in keeping the status quo.
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#2 - PetersKitchen
" . . . in every country going cap in hand to the governments or the IMF?"
Absolutely priceless! Greedy, over ambitious foolhardy bankers screw the world economy and, when the victims go to the IMF it is "cap in hand". I suppose the redundant workers in the dole queues will be "social security scroungers" next!
Blind prejudice.
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This whole thing is ridiculous, when will people stand up and finally admit they are wrong.
This article just shows how some people steadfastly stand by their theories even in the face of total failure.
http://news.bbc.co.uk/1/hi/business/7691839.stm
So if I understand this right - some 'economists' - faceless nobodies who haven't predicted the crash coming - have decided that Darling's actions are completely wrong because the Government will be deciding the areas where the investment should go and that may lead to wastage of resources - probably true.
So how about the fact that the 'market' has led us down this road of recession by over-lending for far to little money - creating the boom and therefore the bust, by lending too cheaply in areas that didn't need it - thereby 'wasting resources and investment'.
As a result of this money is now not pouring into the areas that need it (Small businesses) - BECAUSE THE MARKET THEORY IS BASED ON LOGIC - NOT HUMAN SENTIMENT.
The banks are / were afraid to lend simply because that are / were afraid of their liabilities. Note the use of the phrase 'afraid' - because this is a HUMAN emotion, and not a logical one.
When will these 'Economists' learn that you cannot predict human behaviour with a calculator.
The credit crisis may have started this, but this recession (as with all recessions) is now being carried by human sentiment and emotion.
.....and yet they still try to find market solutions for these problems.
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Criticise the gov't? - Surely no one actually believes this is a gov't mess we're in?
It's bigger than that, the gov't are controlled by unseen hands,all gov'ts are controlled by unseen hands, this whole thing has been orchestrated and is most certainly leading to a new war, much much bigger than we've ever seen before. The future really is bleak, the world as we know it is coming to an end, the new world is on the horizon....
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guycroft,
Do not bother reading the books, just consider what the learned men said! Economics is an art, not a science, so the ability to forecast is mere guesswork. We are watching what happens when a card at the base of a house of cards is removed. As an engineer, you know the result. Dominoes come to mind.
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As we all said during the UKIP campaign - and were derided as a party by so many 'a nation should stand on its own two feet'.
Unless the global re-orientation means Britain should now concentrate on growing spuddies, this is now inescapable and unfortunately the Great Prevaricator Gordon Brown is making it harder and harder as the hours pass for us to recover ourselves.
We are an inventive and hard-working nation and we can do that, given the chance. But if the people in charge of Prison Island don't face up to the reality, for as long as they survive 'in charge' they are making things worse and worse.
I am no longer with UKIP but, my goodness, we were right. We said get out of the EU and that would have been the start. The linked-in 'global economy' model, it doesn't work does it. No longer in UKIP but still the owner of a renowned motorsport firm with great export potential.
Anyone got a better idea, start making things again and selling them? Or do you want a 'service sector economy' (led by the City, and 'inward investment (ergo - working for the Chinese for peanuts..)
GC
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38:
As I said in response to Peston's other blog today, the IMF has about 2OO billion in ready cash (that is, they can mobilise it within a year). If the countries start to fall (I think it's the worst idea for any country to go to the IMF, but that's an opinion), then it will run out very quickly, so the FED and ECB will have to work in overtime to print money, because there is no way that the US and the EU would agree on rearranging the quota in the current situation and hence loose their veto power in the IMF.
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41:
No doubt that the government made a number of mistakes, primarily not letting banks fail (that is writing off existing shareholder value and then recapitalising them), but the sad truth is that the UK government has no means to develop or implement economic policies even if it was willing to do so. It is partly historical, partly a consequence of the neoliberal drive since the mid-197Os, of which 18 years was Tory rule.
There is actually a consensus among the three major parties about the current situation. It is a sad or even tragic consensus, but there you are. The political elite more or less agrees on what the government is doing, because doing anything else would require a serious upsetting of the status quo and the elite is not ready to contemplate it (yet?).
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Robert:
I have to say because the balloon of the markets were too big and it is going to release the air slowly....
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What we need now is some of Mr.Balls' most excellent neo-classical endogenous growth theory.
Take some twice a day whilst standing about prudently talking up the economy and all will be well.
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43:
It could happen, you could call it a negative liquidity trap, when the government cannot increase the yield (or it becomes irrelevant) as everybody wants to sell.
One of the big problems with the bank rescue package is that banks were pretty liquid in securities, but illiquid in cash. Now they are liquid in both, so for them there is no need to do anything.
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guycroft-
What are you talking about?
Being a member of the EU means that trade deals between the likes of China and the US are done on European level, Europe being bigger than either China or the US.
How lucky do you feel that the UK would get the same deals with China and the US if we had to work outside of the EU.
If the trade barriers that the EU put in place came down if we left Europe then China and the US wouldn't sign a similar deal with the UK, we wouldn't have any thing to negiociate with meaning that imports would come flooding in destroying millions of jobs.
UKIP are a pointless group , if they can come up with a plan to negiociate the same trade deals with the US and China as the EU currently does then real voters will listen.
But UKIP doesn't offer a solution to this meaning if the UK pulled out of the EU we would be flooded by even more cheap goods as EU protection barriers would come crashing down that the UK couldn't replace.
UKIP threatens to take the UK out of Europe removing all our trade protections that larger countries wouldn't renew with us meaning millions of jobs would be at stake.
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I think that it is time to put a bit of perspective on this situation.
As I see it the situation is this.
1. We are no longer in a Credit Crunch as all of the worlds major banks are or are about to be recapitalised.
2. However despite the fact that the banks have been recapitalised, they have not been strengthened by additional rights issues and are thus no stronger than they were in 2000.
3. From 2000 to 2006 the banks have effectively pump primed the world economy beyond their capital base.
4. Consequently the words capital base has to shrink to a level that the banks can actively support. As they cannot at the moment provide liquidity to everybody that requires it and thus support the capital base as it currently stands.
5. Savers cannot support the current economy. As they need their funds to finance the infaltion the banks pump priming has caused.
6. Consumers cannot support the current economy as they are starved of liquidity.
7. Investors cannot support the current economy because they are now illiquid as a result of the house market, stock market and commodity market crashes.
8. Pensioners cannot support the current economy as they are about to hit by dividend cuts and substantial interest rate falls.
9. The government would like to support the current economy but they will have to cope with substantial falls in tax revenues over the next few years to do it, which may well be unsustainable.
10. Property owners on fixed rate mortgages or investment linked plans cannot support the economy because interest rates are too high, base asset prices too low anf the current fixedd rate deals will take years to unravel.
So within all of this gloom, where is the hope. In my view it is this.
1. Despite the gyrations on the world markets the Sterling/Euro Floor of 1.20 Euro's has remained in tact and in my view any attacks on this floor will be repelled.
2. Sterling is now severely undervalued and over sold.
3. The worlds stock markets are now severely oversold.
4. However you do need a period of solid liquidity restoration to bring about the recovery and the only people who can bring about this restoration are the over and under leveraged borrowers in our societies on flexible mortgage deals.
5. So once the libor rates have been normalised, interst rates should fall to as close to zero as possible, to allow these people to benefit from lower credit card rates and repay the capital part of their loans down to a level that property market and the banks can safely support without havinf to pump priming the economy.
So only a major encouragement to property holders to substantially reduce their secured and unsecured debt, as a result
of historically low interest rates, can stabilise the situation ans restore liquidity that the world economy badly needs.
SO THE SOONER THIS IS DONE - THE BETTER.
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For all those who are calling for a BoE rate cut.
Once again you are making the same mistakes as the past - even though we haven't dealt with the consequences of those mistakes yet.
Just because you are being stung by the increased payments on your mortgage, or because you were borrowing on the belief that your asset values would never fall.
In our household we are currently more than £200 a month better off due to rate cuts and falling petrol prices.
Those of us who weren't stupid enough to borrow in this manner do not want to suffer 'hyper' or even normal inflation because the foolish politicians and public want their injection of growth now - ignoring the future consequences.
If the BoE cuts the rates again you can forget about the following for the next 20 years
1) Holidays or trips abroad
2) Sterling being a respected and safe currency
3) Interest rates below 8%
This is the future you will create if you keep banging on about interest rate cuts. The situation may not be pretty now - by why are you lurching out of one crisis by creating an alternative one.
The US have cut rates so low - and it's made very little difference. Don't worry about the sterling - dollar rate today. The Dollar will start falling again soon once the Fed cuts rates again out of desparation.
Basically the only way out of this crisis is the hard way - there is no easy way. We need to unwind our credit bubble and it's going to hurt. Simply re-inflating that bubble may assist in the short term but in the long term will be disasterous for this country.
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52.
classic left wing response trying to project the blame beyond new labours 11 years in power (" 18 years were under tory rule").
history shows labour get in,make a mess, tories get in and have to tidy up.
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I have to agree with poster #5 wykhamist
The UK and US economies/governments have no room for manoeuvre and therefore the only course of action open to them will be that of protectionism or buggar-thy-neighbour, as some have put it.
However, the US is big enough to sustain itself as it still has sizable manufacturing and farming industries. However, the UK can't boast the same.
Not sure about how the US will tackle its oil addiction though! But maybe that's what will save the almighty US dollar.
Looks like the Euro for the UK is only another 20 percent of devaluation (on the pound) away!
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Why is the stock market falling so hard, so fast, so far? Simple. Trillions of dollars were loaned away to people who couldn't pay them back. This money was lost. To compound the problem, these loans were considered assets because they were expected to create a return on investment. They were used to justify creation of new investment instruments which amounted to ten, twenty, fifty times as much as the loans themselves. The defective loans were the backing for the new instruments. This is the leveraging effect, using money to create investments many times greater than the assets backing them. It is a multiplier effect magnifying both risk and potential reward. Then this was spread all over the world. When the original loans inevitably failed, so did the house of cards built around them. So instead of a 5 trillion dollar problem we have a fifty five trillion dollar problem. It's more money than the entire world has. With no money left, there is no value to anything because there is no money left to buy it with. There is only one way out and that is to create more money. Not 700 billion at a time but five and ten trillion at a time and not once but multiple times. This will inflate the entire economy making the losses on those loans shrink. When they are paid back with nearly worthless currency by previous standards, the world's economies will resume and those who held those worthless investments will get what they deserve...nothing of value. If banks go broke, so be it. New banks will be created to replace them which don't have those liabilities. Of course this will hurt the friends of those in political power in large economies who own and run those banks but that's their tough luck. There is inevitably a price to be paid for being stupid.
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#56
come off it! The trade with USA and China is a one-way traffic and well you know it!
And please note - I no longer speak for UKIP - resigned years ago but still hold with some of their ideas/ideals.
GC
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Post 33 you have it completely wrong re the Bank of England it is all the fault of one Gordon Brown. Allow me to finish before people get mad.
In late 2004 and early 2005 the bank base rate should have risen probably by about one half of one percent or maybe three quarters. It didn't because Gordon changed the gaolposts re the inflation rate to follow.
Had we have been still folllowing RPI rather than CPI then interest rates would have had to have risen. However a couple of interest rate rises within six months of a general election would have seriously damaged Labours chances of re-election and had they not won then Gordon would never have got to be PM.
By ignoring real word fundamentals CPI allowed the base rate to stay artificially low right up to the Northen Rock crash.
I remain convinced that a rise in interest rates in late 2004 and early 2005 would have taken off the top 10 to 15% of the property market bubble. We would have had a mild slow down and not a massive crash.
The same applies in the USA where it was critically important for Bush to get re elected in November 2004 in what was an incredibly tight race.
We are all paying for Gordon Browns vanity and will be for at least the next decade. Millions of pensioners will be poorer as their pensions which come due over the next few years will be worth much less. So if you have to carry on working or retire on much less in the next five years look no further than number 10 for the blame.
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Re: 1 - Why are bankers going to get bonuses this year?
Well some of them have made huge amounts of money for their respective banks despite the crisis. Why shouldn't they receive bonuses?
Moreover, for the banks that have taken the government coin - any intention they have of retaining more talented staff (and therefore having a better chance of making a profit and repaying the money that the "decent, hardworking taxpayer" has invested) will be severely damaged if competitors are free to give out bonuses.
RBS, Lloyds, and HBOS would start haemorraging staff. On top of the 20+% they are already looking to cut.
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#58
"If the BoE cuts the rates again you can forget about the following for the next 20 years
1) Holidays or trips abroad
2) Sterling being a respected and safe currency
3) Interest rates below 8%"
Excuse me while I die laughing!!!
GC
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64. OKnotOK wrote:
banks and -talented staff-
Pure comedy gold!
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59:
If you think that subsidising the closures of manufacturing to the owners and using the entire North Sea oil revenue and getting resources by reducing health care expenditure, among others, to finance the way out of the problems an economic policy, then fair enough.
I counted the neoliberal drive from the second Wilson government by the way and if you saw, I included the last 11 years.
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All aboard the skylark!
All aboard the skylark!
Next stop hyperinflation city.
Followed by a trip to the IMF by one of the G7 countries that failed to save during the good times so that they had money to spend to kickstart the economy in the bad.
Any guesses which country?
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You can tell its half term.
All the normal Labourite school teachers arent on here spouting their usual lefty tripe
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"26. At 12:24pm on 27 Oct 2008, foolishblogwatcher wrote:
I am minded to observe that no current economist really knows how an economy works, nor how all the constituaent parts interact, nor can predict what is likely to happen, but has the opportunity instead to learn 'real-time' as it unravels how it hitherto worked."
Not true at all.
What you mean is no FASHIONABLE economist really knows how an economy works. Ludwig von Mises predicted it in "The theory of money and Credit", published in 1912.
You might want to reflect on the title of the following paper:
"The Trade Cycle and Credit Expansion: The Economic Consequences of Cheap Money" published in 1946.
Unfortunately, the "get rich quick" boys in the city who *really* run the UK simply wouldn't be able to "get rich quick" under Austrian economic system, so our government doesn't do that.
There are however many current Austrian economists who understand what and why this is all happening. The only question was "when".
I wonder if Terry Pratchett now understands Mises a bit better...
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#63 - It's the economy stupid!
No good blaming Brown, Thatcher or anyone in between. We are working with a system that continuously begs for freedom, whilst continuously proving it cannot stand up on it's own two feet.
For those with chilren - it's like your teenage son or daughter.
I watched this game in the 90's and now I'm watching it again. I seem to have learnt from this, but strangely my 'highly intelligent' counterparts in Government seemed to have missed this elephant in the room.
A lot of this comes down to wages - we pay peanuts to our politicians and they act like monkeys.
£100k may seem like a lot to the average joe, but tell me if you're PM and earning that, but you know your job with JPM (Blair) afterwards will net you more in a year than your entire time in office - where would your priorities be?
The fools don't stand a chance against the 'pig bankers'.
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It does seem curious that this debate about interest rates never seems to mention the saver. The effect of cutting interest rates will be to reduce further the lamentable savings ratio. In other words, it will give another lifeline to the borrower by cutting the wealth of the saver. How exactly is that going to help in the long run?
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Shares aren't oversold if they aren't worth anything !
See Northern Rock and poor old B and B.
The way B and B was handled was wrong and there really should be an inquiry.
Perhaps criminal prosecution of Directors would be appropriate.
Anyway FTSE touching 2900 by Christmas.
Dollar parity about the same time.
Tell me why I'm wrong.
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71
Hmm, if politicians were paid on results, they wouldn't be getting much at all right now.
For people who sit around shouting at each other all day they get very well paid indeed, with a nice pension and high pay rises.
Anyone else has to go to a pub or sporting event and pay for the priviledge, if they wish to sit around shouting at other people !
Either that or they are discreetly removed to a place of safety by the NHS......
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#71
Underpaid!! Ok cut the numbers of politicians by 50% and pay the rest 25% more - better?
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Can we nail the phony argument that individual pensions are long term investments?
Nothing with a deadline can ever be a 'long term investment'.
You need to be out of risky investments (say) two years before any deadline for cashing in.
So if you are retiring at 65 then your pension needs to be out of risky investments by the time you are 63, however that is a new deadline. So you have to be out two years earlier at 61, but this is a new deadline so you need to be out at 59 and so on... deadlines right back to your current age...
It sounds facile but it is true - nothing with a deadline can ever be a 'long term investment'.
Collective pension FUNDS are long term investments for the fund managers because they run for ever - but an individual pension never is...
Anyone who took the governments tax bribe in return for having their retirement savings gambled by 'pension fund managers' has only themselves, the industry and commentators (including the BBC's money box) to blame.
I hope those of us wise enough not to risk everything on the goodwill of every government between commencement and retirement do not get penalised for our good judgement by having to bail out others.
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Robert has clearly described how entirely logical and predictable the collapse in share prices over the last month has been.
Just a pity he dididn't predict it a month ago!
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All of which means we are in for a technical bounce, before,C.P., returning to the normal trend.
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# 47
Finally someone has had the sense to realise that economic markets rely on human beings as either consumers or units of labour. Human behaviour is impossible to predict accurately which is why economics is not a science. The danger has been in the past that it has been treated as a science, and as such people have thought that they could 'control' and 'predict' the market's behaviour. Nobody-not even RP-has any real idea about what has gone on, what is going on or what will happen in the future!
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The most outrageours thing I have seen is that these people in the banks are still to get bonuses this Christmas.
Absolutely scandalous. They really are having a laugh at decent, hardworking taxpayers.
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The same hardworking taxpayers who's belief that they have a right to a large house and two foreign holidays a year so have borrowed on the back of cheap loans way beyond their means and started this all off in the first place you mean ?
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When Gordon says he has spoken to the banks, he had not, he had spoken to the bankers.
There should be more about what was said to the Icelanders and when it was said and by whom.
When Gordon said he was attending to the crisis from the time he woke to when he went to bed how did he find the time to go to Glenrothes for some elctioneering.
When will somebody explain that the Dow Jones Industrial has to be the worst index against which a market should be judged. Only thirty stocks and no weighting, ridiculous.
If you go back to 1929 you cannot compare stock market falls, there was no index, so how do we know how far the market fell in October 1929.
Action was taken in 1928 to protect the stock market falls in that year by pumping money into the economy. The same as today only the effect will be much worse. Just wait until next year.
The price of wheat is collapsing, the farmers won't have enough money to buy the seeds to plant next year, unless the banks change their policy, there is a disaster looming.
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Re 59. How short memories can be when you are an ardent supporter of one party or the other!!
We have had abolition of retail price maintenance from Edward Heath, which started this slide into chaos. I would much rather know the real price of what something costs than trail round to find it cheaper elsewhere because at the end of the day you win some, loose some. I would much prefer to have reliable, honest customer service and quality goods that last.
I would like a train fare that I can rely on not have to go on the internet, spend hours searching for the cheapest price and have to travel when it suits the train company not me.
Now we have a situation where all the famous British manufacturers no longer operate in this country, in order to sell us cheaper and cheaper goods, they have all relocated abroad. Instead of us being a self sustaining country we are at the behest of flucturing currencies, political turmoil and adding to the carbon footprint by having goods brought to us from half way round the World. Compounding the situation, we have lost skills that generations had handed down. GONE!!
Then it was Mrs Thatcher's poll tax, great concept, shame they got the detail wrong. Of course every working person should contibute to local taxes, based on the ability to pay.
Then nationalisation of trains, gas, electricity, water etc etc. so we could all become shareholders!!!! Another Tory concept, another total disaster. Now we have to pay shareholders on what are the most basic essentials in life and most are in foreign ownership, most profits go abroad and again we are hostage to world politics. What bright spark thought that was a good idea?
and yet more Tory ideas. Student loans, now we have a generation of young people who have been encouraged to get in to debt, live with debt, its OK.
In order for the housing market to flourish we not only need affordable houses, we also need young people to get on the first rung of the ladder, which they now cannot do. Housing market stagnates.
Selling Council houses,yet another great Tory idea but the money they produced should have been used to build more affordable housing, that more people could buy in to.
I don't recall any of Shadow Cabinet arguing against free markets, capitalism etc. I am sure they have all done very well thank you over the past 11 years!!.
The one sad thing in all this is that history repeats its self over and over again and we never ever learn from history because the next generation always thinks they know best. The World around us might have changed but basic man has not evolved at all, greed getting the better of him everytime and of course this time it has all been exacerbated by the very thing I am using now-- computers. Computers are now working far to fast for mere mortals who have been left holding their heads, whilst computers have led us all down this blackhole!!
Finally. Now that the press & media have succeeded in pulling us down in to a recession and they have been great contributors to the doom and gloom. I am sure they have rattled nerves, which they seemed hell bent on doing, for some bizzarre reason, best known to themselves, do you think we could now how a concerted effort by each and everyone of them to haul us back out of this mess by instilling a sense of pride in ourselves and our country.
Despite everything, and nowhere in the World is there eutopia, we do have a lot to be proud of and which many people take totally for granted.eg. we have a health service most of the World would be proud to have. For those who have never lived abroad they have no idea as to the costs most people have to acommodate, just to visit their GP let alone anything else. My daughter recently had her 2nd child abroad, cost £10,000 of which their medical insurance picked up 90% but they stll paid £1000. (she was in hospital overnight).How many in the UK would even consider this as a reasonable cost???
or in another EUcountry £10.00 each time you visit your GP, more for a consultant and this isa country that boasts free health cover!!
We have fantastic scenery all across the UK amazing historical buildings, art, literature, sport all of which should be celebrated. Other Countries are proud of who they are, why are we so self deprecating all the time on every front?
We might complain about the weather but we don't have hurricanes, monsoons, devastating earthquakes, drought, famine, starvation, rampant inflation, dreadful infant mortality, war and all the horrors that brings etc etc.
All that has happened over the past few months has been self inflicted misery brought on by greed by each and everyone of us for cheaper and cheaper goods, more and more profits personal and corporate. We need to get back to commonsense, a word that appears to have been erased from the dictionary because the World cannot sustain continual growth as we have seen over the past few years. When a greater proportion of the World is starving and suffering and likely to suffer even more so as a direct conseqence of our own greed, party politics of any persuasion and name blaming seems a very churlish thing to be even raising at this point in time.
We need to be pulling together as Obama says we are all in this together whatever!!
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69:
Last week was half term in many schools... Another failed theory...
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In cases of serious trouble, it is a good idea to shoot the wolf closest to the sledge. In the present circumstances, the wolf in question (in terms of consequences) is the likely collapse of the pound. Before the Brown-Darling axis moves on to stimulation of demand as a solution for all our ills, by printing money to fund a vast public works programme, it needs to stabilise the currency – whatever that takes in terms of short-term pain and high interest rates, or even exchange controls. This blog and the comments say a lot about why the pound has become so vulnerable. Interesting, but irrelevant. It's time for those in charge to recognise that we have an emergency on our hands and to do something about it. For a start, a National Government and Vince Cable in No 11.
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I watched this game in the 90's and now I'm watching it again. I seem to have learnt from this, but strangely my 'highly intelligent' counterparts in Government seemed to have missed this elephant in the room.
A lot of this comes down to wages - we pay peanuts to our politicians and they act like monkeys.
?100k may seem like a lot to the average joe, but tell me if you're PM and earning that, but you know your job with JPM (Blair) afterwards will net you more in a year than your entire time in office - where would your priorities be?
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It's an even bigger problem than that. Politicians are elected to represent the people of a constituency, for that they need a certain set of skills.
Unfortunately those who run the country are selected from this very limitd bunch of people who were elected as represetnative, not economists.
The country is run by a bunch of unqualified people in effect, through little fault of their own.
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post 76 you are partly correct re the need to move into safe investments.
Anyone less than three years away from retirement with all or nearly all their pension pot in volatile investments such as shares or property quite frankly needs their head examining. Either they are very stupid or very greedyor have been very badly advices.
People need to look at a pension as a 40 year investment that is likely to have to keep them for 15 years, maybe more afterwards.
As such there needs to be a degree of risk during the early years but this risk should be "closed down" within the last five years of their payments to get into either cash or very safe bonds.
If you have more than ten years to go to retirement then the years 2009 to 2015 may well be the time to get into UK shares and property and also probably US shares as well. Expect a bounce maybe not next year but into 2010 to 2012.
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Much of Robert's blog and the comments are over my head, although I've been reading with interest for a few weeks now.
I recently inherited a spread of equities and OEICs - at the time their total worth was a little over £100000 - and my intention was to sell and, via an IFA, reinvest for income .
Advice always seems to be 'hang on and the prices will rise again eventually' - my question is: is that still good advice when, as I read in someone's comment, 'we are in uncharted waters now'?
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#81 - yeah,
"The price of wheat is collapsing, the farmers won't have enough money to buy the seeds to plant next year, unless the banks change their policy, there is a disaster looming"
they'll have to tuck into their brown envelopes, those poor grain barons, and nary a subsidy in sight..
GC
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#80
Ah, I wondered when Mr Drapers' Tory Propaganda Rebuttal Unit would be logging in.
Look. If you can take your head out of the sand for long enough, cant you realise that its not only the idiots who bought above and beyond their means who are affected by the economy, but also the prudent, silent lot out there who didnt?
After all, the general public had nothing to do with CDS's and the other complex financial instruments that made a small amount of people hideously rich off the back of fresh air
The general public have no control over failed regulatory bodies such as the FSA, who through their own incompetance failed to deliver to thier mandate.
The only thing the general public can shoulder any collective blame for is electing this bunch of self serving power crazed idiots in the first place and not chucking them out three years ago when they had the chance.
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Re. Bankers' Bonuses
It is possible that some bankers will still get bonuses, though that's likely to be in March / April rather than Christmas time. But those who do get bonuses will have earned it more than ever. The size of the pot that gets split up for central functions will undoubtedly be smaller as will the number of people it gets split between.
Aside from that there will be a lot of people who are incentivised through targets. If they meet these targets then they are entitled to their bonus. I am sure payouts will still be greatly reduced but there will be some. Those who haven't done so well, wherever they may work will be working in the fear of becoming part of a cost cutting exercise.
It's a stressful environment at the best of times but rest assured, those in the industry are under more pressure now than ever before, prospects are worrying if you do lose your job and wrong as it may be, many will have budgeted on these bonuses to go towards mortgage costs (and I am not just talking about those with six or seven firgure salaries).
As previous posters have already pointed out, it's very easy to just jump on the media bandwagon and point the finger at "greedy bankers" but it really isn't that simple. When the banks were making a lot of money, they were paying a lot of taxes to the government, they were lending a lot of money to businesses (which were able to grow as a result), they were providing a lot of employment and, of course, those well remunerated employees were paying their own taxes and spending their disposable income in the "real economy".
So we've definitely had a lot of benefits (our pension funds included) from the rise of the banks but now we're feeling the pain, all of us, not just bankers. It's about time that people took a step back and stopped seeking a scapegoat for all their woes. Yes banks will undoubtedly have acted with a profit motive, as most businesses do, but we as investors, we as borrowers, we as savers, we as voters have all contributed to the yo-yo style economy we live in today. It would be great if we could focus on improving the future rather than finding someone to blame for the past. I don't want to sound "commie" but let's as a country pull together and as a nation, show some positive intentions and pride rather than snide comments, resentment and embodying all the worst elements of a blame culture.
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#82, where do people like you get off?!
Speak for yourself when you say these kind of things, I can't believe how you set out to make a point and start with an unsupportable generalisation like this.
"All that has happened over the past few months has been self inflicted misery brought on by greed by each and everyone of us for cheaper and cheaper goods, more and more profits personal and corporate"
It's NOT true and it's insulting.
GC
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*56 Andrewknight,
"If the trade barriers that the EU put in place came down if we left Europe then China and the US wouldn't sign a similar deal with the UK, we wouldn't have any thing to negiociate with meaning that imports would come flooding in destroying millions of jobs."
Talk about shooting your own argument in the foot!
If we were not part of the soviet socialist republic of Eurasia,then there would be no "imports flooding in destroying millions of jobs".
That is the current situation as it now stands(!),where we cannot pursue our own nation`s economic self-interest.
Like the failed USSR,the E.U ruling class will make itself hated by the citizens.Some would argue that the process has already started with the ignored referendum results,and the despised Lisbon treaty.
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well said #92!
a '3 year old' standing at any container port in Europe could figure it out.
'Daddy, why do all those containers come from China?'
or
'Daddy, what is China doing with all the money it makes from flooding the world with second-rate junk?'
"they're building up their strategic capability armed forces with the money, son"
Very bright my (notional) 3 year old.
GC
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Slightly off topic - but I was listening to the Beeb (Radio 4) last night, and they were discussing the various "blogs" that different presenters provided.
Fact is, there seems to be a difference in concept of what a "blog" orignially WAS and a "forum" is NOW - this (and other reproter's 'blogs' are more of amalgam between "blog" and "forum" - albeit a "moderated" blog (no, the "blog" is not moderated - it is the users comments, i.e. the forum part, that is moderated)
I TRY to keep up with not only this (RP's "blog") along with many others from the BBC, which, indeed I find, in general, most enlightening. But (don't start a sentence with and, but, there, also, etc... sorry) it is virtually impossible to absorb the lot, unless you are either unemployed, or in a job that "really" doesn't take up too much of your time!!!! (???? no further comment on that)
Point I'm getting to - is - lots of folks posting on the "blog/forum" seem to expect that the "blog" originator is going to read these comments - I DON'T THINK SO - not because they wouldn't want to - there are NOT ENOUGH HOURS IN THE DAY and our comments probably do little or nothing to flavour the future thoughts or comments of the reporters - this is not a criticism - but - come on to the "blog" late afternoon - a couple hundred comments later, you're engrossed in the train of 'consciousness' and - suddenly - missed dinner and it's time for bed !!! Do you really believe that Robert, or the other reporters, actually have the time to read these posts?
This is NOT a criticism, I just don't believe it possible!
Keep up the good "blogs" (one-way statements with no response from the blog originator), and the "forums" / "fora" with the thought train of many!
Yeah, keep it rolling, TY Beeb ( I rarely sleep and just about manage to keep up with four of my favourite reporters' "blogs" / "fora")
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#85 hackerjack
Absolutely! It's very disconcerting when you hear George Osborne say at the start of any interview "Well, I'm not an economist, but...". Fine, enough said - Get out of the job and find me an economist to run my country's economy!
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Just refereshed page - reached #92 -
yep, well said
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80.hackerjack
The same hardworking taxpayers who's belief that they have a right to a large house and two foreign holidays a year so have borrowed on the back of cheap loans way beyond their means and started this all off in the first place you mean ?
Not this again please. Can I say as someone who has never taken a loan, mortgage, or ever owned a credit card, that I am sick of bankers, and financiers attempting to divert attention away from the mess that they created and blame the public for the current crisis.
Most people who did borrow, did so on the belief that the banks 1. had the money to lend and 2. knew what the hell they were doing. After all, surely that's what they got the big wages for.
Many others fell for the government's and the city's propaganda machine, still churning out the nonsense right up to the crash itself that house prices were going to rise for the next 20 years or so. That boom and bust had been eradicated forever (ridiculous of course, but no-one is the press bothered to question it. They were too busy making programmes about buy to lets).
Most people are naive, most of them still (even now) trust their government and so-called betters.
That's what the banks preyed on, that's why they sent out billions of unsolicited letters offering loans to anyone and everyone. That's why they never asked where the money was going, or what it was going to be spent on or whether the person they lent it to would ever be able to pay it back.
It didn't matter, as long as the profits were looking good that year, they were on to a winner.
Like I said, I was lucky enough to recognise a con when I see one. Many were not.
Don't forget where the blame lies, not on the sheep who will be crippled by debt for years, unemployment or turned out of their homes in droves, but the wolves who lent out money they knew could never be repaid, took their million pound bonuses and ran.
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ooh, I don't know, #94..
but the rest of the English speaking world might..
But I figure Declan Curry might read the comments on his, wouldn't take him long.
GC
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Now that all these shares are being converted into masses of CASH, the banks must be AWASH with the stuff.
But what to do with it all?
But wait! Instead of a miserable annual bonus of just ONE country estate each, they can now have 2 or 3 each.
No doubt the bankers have already worked this out.
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Imagine trying to construct a fishbone diagram from the following subjects in order to determine where it all went wrong and why we currently have a run on the GBP!
Credit crunch (or debt crunch?)
Thatcher
deconstruction of UK manufacturing, steel and mining industries
The City
free market liberalisation
Big Bang
Blair (lawyer)
wars
lies
light touch regulation
cash for honours
cronyism
Bernie Ecclestone
JPMorgan
Brown
economical with the truth
PFI's (off balance sheet)
Lisbon Treaty
tripartite financial regulation system
BoE independence
an end to -boom and bust-
CPI (not RPI)
doctored figures
pensions raid
Gold reserves sell off
debt bubble fuelled prosperity
housing boom
end to cheap energy
$147 per barrel
Darling
Trotskyist lawyer (Entryism?)
BoE
Mervyn King
moral hazard
interest rates
inflation target
Fictional Reserve Banking
EU expansion
SFA (a sleep at the wheel)
Hesctor Sants (new boy)
Adair Turner (friend of the Rothschilds)
Bankers
greed
inflated bonuses
leveraging
CDO's
CDS's
SIV's
off balance sheet
sub prime
property crash
lending freeze
LIBOR
fake profits
Sir Fredwin Goodie
masters of the univiverse
Lloyds TSB / HBOS
Nationalisation
Bradford and Bingley
Northern Rock
self cert mortgages
125% LTV
lost share value
Barclays, HSBC, RBS
old fashioned bank run
queues around the corner
silent run
Robert Peston (only joking)
Brown associate
Bank re-capitalisation
privatise the profits, socialise the losses
US Banks
Clinton
sub-prime
liar loans
Bush
wars
Wall Street, The City
Money pushers
fictional money
Main street, the real economy, real money
real jobs, real profit
real industry
Wall Street
Bear Stearns
Lehman Bros
Failure
AIG
bailouts
Merril Lynch
take-overs
Goldman Sacks
JPMorgan
investment bank commercialisations
TARP II
US bank bailout
$700bn
Federal Reserve
Greenspan
Bernanke
US Treasury
Paulson (on bended knee)
begging
hedge funds
short selling
deleveraging
silent run on the banks
Mandy (the last straw)
cronyism
liar loans
Osborne
Nat Rothschild
Corfu
super-yachts
Russian billionaire oligarchs
Brown
cronyism
hard working families
This global crisis that originated from America
FTSE collapse
Dow Jones collapse
dead cat bounce
hyper inflation
protectionism
begger-thy-neighbour
run on the pound
devaluation
IMF (sovereign country bailouts)
business defaults
job losses
house reposessions
...there's probably a few more to add.
Anyone care to add to the list?
I suspect at the end of the day......it would all just boil down to a general absence of integrity, morality and honesty from our so called leaders and political elite!
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LOL #98
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@ #100 - you missed Cherie.....
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#100
'queues around the corner'
you missed the Royal Marines, they'll always join a queue, might be something nice...
GC
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Actually....we'd be better off with Basil Brush running the economy!
BOOM, BOOM!
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92. "If we were not part of the soviet socialist republic of Eurasia,then there would be no "imports flooding in destroying millions of jobs". "
If it's the EU fault how come USA has a similar problem or how come the UK manufacturing started to shrink before it joined the EEC?
A three year old could come up with a better theory (well not guycroft's three year old, he's not bright enough to see his father is wrong :) )
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Think some of you need to get some fresh air. You know that intervention inevitably occurs and that it happens at the last minute. Things have to teeter on the edge before the politicans intervene, so they can say what a good job they are doing, even though they were part of the problem. You knew that massive sums went into a black hole and that further systematic collapses were inevitable. That is all you are seeing. The stock market is volatile, the movements dont mean that much, FTSE down to 3300 in 2002, 6 or so months later back up significantly. Life goes on, at least in the developed West it will. Companies will shed staff and adjust their activity. The world may become a more dangerous place. Bush and Blairs War on Terror, really should be a War of Error, they have done a better job than any fanatic could have. Almost put the fun back into fundamentalism. As trade and finance is all interrelated the impact has to spread throughout the system, almost everyone throughout the globe will be affected, it will take a while to settle. China will be worse off because exports will drop, collapse in some sectors. It is if you are very badly affected as an individual you have to worry, or if the banditos get hold of the political central ground we all have to worry. Climate change, high energy costs, and a backlash against cheap consumer goods are likely and will help some UK companies. Some of the signs are already there.
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#82
Totally agree with your excellent and perceptive comments.
#91
People like me 'get off' on trying to argue that we are all to blame for what is happening, and that the sooner we take responsibilty for our actions the sooner the system will crash to a halt, and something fairer-and before you say it I am not a 'raving communist'-will take it's place.
By the way have any of you ever read 'Toffler's book-'Future Shock'?
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I used to be a director of a merchant bank and can tell you that
1. there are loads of hangers on who get bonuses irrespective of their merit
2. we only really got paid so well because of the reputation of the bank we worked for meant that clients walked through the door
3. the fees we charged were ironically based on the Lehman scale and were effectively fixed for all clients
4. Loads of people wanted to leave but couldn't find anything in the real world which paid them a living wage (by their standards).
My sympathy level is absolutely zero for the bonus boys.
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#17. The problem is not that they are putting their money anywhere, the problem is that the dropping value of shares is reducing the value of the assets they have used as collateral to bankroll their debts. If we for sake of argument have a loan of $1billion, with 10% down, so that is $100million, then if that was made up of shares which have dropped 25% in value, then they need to add another $25million of new assets to keep within the terms of the loan. Sadly, the problem is, they sell other assets to raise cash in the form of treasury bonds to put down as collateral which drops the values of stocks even more, meaning they sell more. There is no "money" that is being moved into other markets, the money simply ceases to exist as the value of the underlying assets goes down.
That also explains why the value of the dollar is currently going up, when all economic factors say it should be going down. That is, assets are being liquidated and held in cash or US Govt. Bonds. This has generated a huge demand for dollars. However, once the cash has been used to settle outstanding accounts and pay off the losses on derivative (traded in US $), the demand will suddenly drop, causing the value of the dollar to drop like a pebble in a pond, including sending out ripples which will not help the other economies of the world.
Can you imagine the effect on the US $ if for example Iran and Venezuela go ahead and only settle oil trades in Euros?
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105. Ticape wrote:
92. "If we were not part of the soviet socialist republic of Eurasia,then there would be no "imports flooding in destroying millions of jobs". "
If it's the EU fault how come USA has a similar problem or how come the UK manufacturing started to shrink before it joined the EEC?
A three year old could come up with a better theory (well not guycroft's three year old, he's not bright enough to see his father is wrong :) )
The answer is in your question.The USA has a massive balance of payments deficit because it`s government cares more about corporate/banking profits than about it`s own productive capabilities(just like the E.U).
They are also weighed down with the same fraudulent debt-slavery economic system(fractional reserve banking) as the E.U,which compels them to chase short-term gains and to sacrifice long-term sustainability.
Why did the manufacturing industry shrink before membership of the EEC?
I`m not certain,but I`m pretty sure it has shrunk considerably more since joining the EEC trading partnership(chuckle, chuckle!),but even if there was shrinkage before,it`s a good bet that it had something to do with being bankrupted and heavily in debt after ww2(another pointless and wasteful war for Britain-we must be gluttons for punishment,no?)
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Something is going wrong and it is much worse than statistics show. But I have started to check real figures instead of the bogus and outdated national account figures. Here is an example:
One of the big wine merchants offer a bottle of Don Perignan worth 100 quid if one spends 400 on its wines. The last time I saw luxury goods discounted to this degree was in 1991.
On Saturday I'm going to the local supermarket and see how much people buy and how much they spend. Hopefully won't be arrested.
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This is starting to shape up as an economic world war even though it wasn't intended that way. On one side the US and strangely Japan. On the other, the rest of the world. And for the US and Japan, it seems victory may soon be at hand as money floods in from all over the world, especially to the US. The weapons of mass destruction were defective investment instruments. The targets were the world's wealth. The vector or delivery system, the greed, incompetence, stupidity, laziness, hubris of the world's financial "experts." The cure in the US, printing money to give to its own people to pay off their debts. It's acting like a money magnet but the crisis is far from over, much carnage is yet ahead. Today another fake out rally on the NYSE and NASDAQ. One step up followed by three or four steps down. By my reckoning we are in the third fake out rally. In the great depression starting with the stock market crash there were at least 6 before the market bottomed, then a large one, another higher bottom all before a real upturn in the markets. It took years. Who will be out in front and on top of the world when the dust finally settles? For the moment, it looks like the USA. And what about the IMF? Life support charity, humanitarian aid to the most pathetic victims. How nice it will be to see the oil producing countries, especially Iran and Venezuela, sucked down the drain. Europe will have to learn to live within its means. As for China, now there is something to really worry about. Should China's economy crash, it could spell social upheaval there.
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# 110
To be a pedant: balance of payments cannot be in deficit, they are in balance by definition. Current accounts and capital accounts can, but their aggregate, called balance of payments cannot. The US has current account deficit, but you cannot look at it without the budget deficit. It is a situation that started in the late 1960s and eventually brought down the Bretton Woods system.
But you are unlucky Thehoaxofalltime, because when the US had current account surplus, investment into manufacturing was already declining. It's more to do with the rate of profit than some government policy.
And British industrial decline started 130 years ago...
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110 Thehoaxofalltime
re - UK manufacturing contraction
Some of the reasons UK manufatcuring has declined.
EU grants and subsidies to develope 'me - too' manufacturing units in competition with existing UK facilites. Not a level playing field.
A government(s) which has no comprehension of the strategic value of a manufacturing base as an income generator.
A lack of government support for technology directly or indirectly.
A mistaken belief that importing foreign multinational plants would provide employment when the knowhow is kept at the foreign HQ. Further when a downturn is met the facility is mothballed or shut.
You are then left with a cheap labour market which fails because by definition labour is cheaper in countries where taxation is low because social care is not provided, and where Health and Safety is not the law.
Its not rocket science.
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111 redjsteel
Oh dear. A collapse in champagne sales. How can we cope. They used to throw it away as bad wine until somebody thought they could sell it to people with more money than sense. ROFL.
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#112 - Just looking at the exchange rate levels is meaningless. You have to look at the underlying reasons for the changes. The simple situation is that due to the dollar being used as the currency that the majority of trades are done in, that investors who need to settle them need to have funds in dollars to hand. The high dollar cannot be sustained, as on the one hand the US is printing billions of new dollars to fund the bank bailout, which once the trades sort themselves out, will cause a hell of a run on the dollar, perhaps as soon as within the next 4-6 weeks.
The US is in a terrible position to face the future, Govt. borrowing at an all time high, manufacturing dropping like a stone, property dropping like a stone, individual and govt debt is huge. Unless 3rd parties are going to go out and buy US debt, there is no choice but hyper inflation. There is already a marked reduction in the appetite for investors, private and govt. to buy more US debt.
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Ive read 114 comments and pretty much 114 different opinions. There is a lot of sound common sense in most of them. Meanwhile, there are 54 million people out there who havent got a clue what you are all talking about. They are the lucky ones, the 95% who still have a job, dont have any shares and just want to listen to those daft two morons who are in trouble at the BBC for arrogance and verbal pornography. It will all work out, but we wont know about it until those companies with cash (and there are some out there) start snapping up great companies at bargain basement prices. Take M&S. In 2001 they dropped to £1.50 and every analyst was talking dirty about them. They were going to the wall. Six years later they were at £7. Now they are back at £2.30. We introduced a casino into our lives, and put all our futures like pensions into the casino.
Incidentally, I still cannot understand why the Board of prudent and well managed LLoyds TSB (their words) has not resigned for spending our (shareholder) money on the dead duck that is HBOS. It shows the power of Mr Brown.... At least the market has got that one right.
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115 glanafon
Of course it was tongue in cheek.
But I found it quite fascinating that actually British chocolate consumption quite closely follows the economic cycle. Of course, it could be a mere coincidence, but who knows, maybe chocolate remained a luxury item.
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..so I'm just musing about the similarities between the credit crunch and a pump-and-dump stock scam.
From wiki, all I did is replace "stock" with "ASSETS" and remove the words "microcap" and "the":
"Pump and dump" is a form of [...] fraud that involves artificially inflating the price of ASSETS through false and misleading positive statements, in order to sell [...] cheaply purchased ASSETS a higher price. Once the operators of the scheme "dump" their overvalued ASSETS, the price falls and investors lose their money."
http://en.wikipedia.org/wiki/Pump_and_dump
Those massive bonuses are lookin' a lot like the loot to me - they are the proceeds of the scam, siphoned off in a thousand cuts by an entire profession of thieves.
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Are shares going to fall further and by how much ?
Take a look at these graphs and you decide, you'll get an idea by looking at the fall from 2000-2003 and the fall 2008 - 2008.10
http://ftalphaville.ft.com/blog/2008/10/27/17460/two-views-of-the-footsie-twin-peaks-or-cliff-dive/
I'd say way to go yet !?
Is this like the 1930's crash ? well here's another graph to have a look at, fear it baby !
http://ftalphaville.ft.com/blog/2008/10/27/17469/we-just-dont-know/
Well I'm scared and quite frankly unsure of what is the right thing to do.
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#116
You've got the facts right, it's just that IMO your projections don't go far out enough. Will the dollar collapse in hyperinflation? I certainly hope so. My investment strategy is based on that assumption. I'm surprised it hasn't happened already. I didn't know about the CDSs and how highly levereged the overseas banks were, even much higher than American banks. But I think you are right, the US dollar will collapse. That will end export of all non essentail goods and services to the United States. Americans will reserve all of their money for the basic necessities. Certainly this will collapse China which depends heavily on exports to the US. But it will also affect Europe. Much of Europe depends on repatriation of profits from foreign investments such as by companies which manufacture in places like China. Europe cannot sustain its welfare state on its domestic economies alone. They are not profitable due to high taxes and enormous restrictions and regulations. But curtailing those cradle to grave giveaways and guarantees is political suicide. You saw what happened when deVillepin tried just a modest change to create jobs in France, the whole country went on strike against him. As the crisis deepens over the coming months, the European and Asia economies and markets will continue to drop faster than America's because they in large part depend directly and/or indirectly on exports to America. There won't be any money left around anywhere to be had unless it is printed. Perhaps Europe will beging printing Euros to inflate its economy but there is a natural tendency to avoid that due to the experience of Germany prior to WWII.
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Hi,
this is a link to an excellent explanation of what is happening...
www.counterpunch.org/hudson10272008.html
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113. redjsteel wrote:
# 110
To be a pedant: balance of payments cannot be in deficit, they are in balance by definition. Current accounts and capital accounts can, but their aggregate, called balance of payments cannot. The US has current account deficit, but you cannot look at it without the budget deficit. It is a situation that started in the late 1960s and eventually brought down the Bretton Woods system.
But you are unlucky Thehoaxofalltime, because when the US had current account surplus, investment into manufacturing was already declining. It's more to do with the rate of profit than some government policy.
And British industrial decline started 130 years ago...
Thank you for the clarification.Exactitude is important in this debate."Trade imbalance" would have been better.
I am well aware of the start of the decline of British manufacturing happening in the mid to late 19th century because of the increasing competition of the Germans,Americans et al.
My point is, that the British political class are so E.U-centric,that Britain`s interests will always be playing second-fiddle to the "project".
I am also of the opinion that the run-down of this country`s industries was carried out by the Westminster politicians deliberately.
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81:
Sorry for such a long time to comment on this, but I just noticed it. You say that there was no index in 1929. Well, Dow Jones Industrial started in 1896 and has 30 firms in it since 1928. You may criticise it (I would say that S&P500 is better), but it did exist.
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#120 - Well expect the Dow to go well under 5,000, maybe even under 4,000 with the FTSE down to the around 2,600 before we know we have struck bottom.
Its going to get a LOT worse yet, and you are right, it is scary and nobody knows where to go or what to do.
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118 redjsteel
No I enjoyed it. The original alchopop. keep it up.
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If anyone working for a bank thinks they deserve a bonus in 2008, then they should get one - in the form of an option to buy shares in their own bank at the level they were at this time last year. No cash alternative - take it or leave it. Let their bonuses be every bit as ephemeral as the "wealth" created by their investment skills.
What our law-enforcers should really be doing soon is tracking down individuals that were paid massive bonuses over the last umpteen years. Bonuses based on the result of massive laundering of debt (which is all these over-complicated derivatives products accomplish, let's be honest). This was nothing short of fraud and should be treated as such.
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108 financehero
Errm, doesnt look that different to a lot of supposed blue chip outfits other than the bonuses look bigger.
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Aren't the markets too important to depend on the panicy, blinkerd wide boys? The world's economic stability is in the hands of a few thousand people who are playing poker with our lives, our future and our money.
When it comes to it, you can be Philip Green running a billion pound empire or someone who keeps our streets clean, but there is nothing you can do if you are not one of these 'traders'
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Mr Peston, how about a detailed examination of the links between Mandleson and Oleg Deripaska? Surely this is a topic of direct relevance to the BBC's business editor?
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123:
I can agree with much of it Thehoaxofalltime. I'm not sure if it is deliberate - perhaps simply the City is stronger.
And I don't think that without upsetting the current status quo any government can introduce an economic policy in the UK and I don't see hunger for such a change. Even if a government had the willingness of developing a coherent economic policy it would have no means, institutions to implement it.
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#121 - Well, if the dollar does drop, and there is no reason I can see for this not to happen, then it might well be that the Euro ends up as the new reserve currency, the only reason being that it will be the single biggest currency that is freely traded that will retain any value. The pound is too small, the chinese one if not freely traded, and the Yen is also not large enough. Saying which, if the Dollar drops, it will need the rest of the world to be on it's toes to stop the US pulling a fast one and lumbering us with their debt!
Personally, if I could afford it, I would buy into Silver at the moment, but I have no money, so its a moot point.
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Are you sitting quietly children ?
I'll tell you a story of how the crash of 2008 all begain.
From Bloomberg: Evil Wall Street Exports Boomed With `Fools' Born to Buy Debt
Unfortunately I can't get the link to post, go to Bloomberg and look at the exclusives link list.
http://www.bloomberg.com
...
"Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on which they could search for those fools -- and they found them everywhere.''
Eager Adopters
European banks, in particular, were eager adopters. Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.
Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country's financial system into a hedge fund. All three banks have been nationalized by the government, leading Prime Minister Geir Haarde to advise citizens to switch from finance to fishing.
In Germany, one bank, Landesbank Sachsen Girozentrale, bought $26 billion worth of subprime-backed investments, putting the state of Saxony on the hook for $4.1 billion.
In Japan, Mizuho Financial Group Inc., the nation's third- largest bank, acquired an entire structured-finance team, which proceeded to lose $6 billion issuing mortgage-backed securities.
...
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Why the stockmarket fall? The answer is obvious. The entire world financial system is built on debt, and more debt to pay off debt. And where does the money come from? Governments issue gilts, which is a promise that future generations will pay back the borrowings. Guess how your children and grandchildren will pay back Browns borrowing? Why by borrowing from their future, thats how. Markets today realise that it is not possible for massively indebted Governments to pay off debt with more debt and so are predicting bankruptcy for this country and many others.
The only way to solve this problem is to pay off debt and then encourage saving. How can that be done? By cutting taxes, cutting government overhead (yes the entire government machine which has become a spender, rather than creator, of wealth) and Government overspending and trust the people to spend their own money wisely. They will save, put money in their pensions, spend some on the high street, pay off their mortgages, invest in their childrens education and their health. Politicians do not, and never will, know how to spend your money better than you. The reason is a simple one YOU earned it, THEY did not.
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World banks stuffed.
America in recession.
Oil prices more volatile than an America voter.
That only leaves war ... and I wouldn't want to predict against that right now. The US continues to "expand" it's remit in Iraq.
Cash isn't safe.
The Gordon Brown rabbit is now caught with it's eyes in the headlights.
And still there are those looking for value stocks ... Warren Buffett can afford to loose big ... he's not always been a winner.
Whilst everything Robert says is abolutely true with regard to fear and greed, the simple caveat has to be there's a good chance that more's to come.
I feel bearish.
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Dear bloggers,
As some of you know I have left my import co. In Istanbul and am on my way to Blighty on a lorry.
We have stopped for the night outside Sofia, bunking down for an early start tomorrow.
The locals are amazing.
I showed them some of your comments on the present crisis and they laugh.
'They are also weighed down with the same fraudulent debt-slavery economic system(fractional reserve banking) as the E.U,which compels them to chase short-term gains and to sacrifice long.'
No doubt in their minds this refers to short selling on the fast moving potato market here. Even at night the horse drawn HGV's are full of borrowed spuds going around and round hoping the price drops.
Then in the blink of an eye they are returned at a great profit to the field.
The EU then chases them in the hope of sacrificing them to the aubergine mafia.
Basel has fallen asleep so I have borrowed a fag, leaving him an IOU that I, as with all western smokers ,have no intention of paying back, nominally described as fraudulent debt- slavery.
More tomorrow
SWALK
Alan
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123 Thehoaxofalltime
- Govnmt deliberately ran down UK industry -.
Not sure about that, was the effect though.
Think it is all to do with an easy buck from housing. 1970's housing x2 ave income = ave house price, 2000+ x4.5 regarded as stabel, peak at x6.5. Diverted all investor attention to housing. a lot of money made somewhere. Funny how difficult it is to get planning, just a coincidence that it helps keep housing prices high. Housing price rises, the opium of the masses.
Thatchers government had an high number of property developers in it or close to it. Easier to make money manipulating the housing market than the long difficult haul in technology. Thatcher shut down the research facility that identified micro-particulates from diesel exhausts were a major health hazard. Stopped all work on the subject dead. Didnt fit with the push for diesel at the time. Could have been coincidence of course.
Brown no better. Appalling. Legend in his own mind. Don't understand all the Labourite support for him, he's done more damage to Labour than any opposition.
It was clear decades ago that technology, and the marketing of technology as a product edge was essential. Otherwise it is just the cheapest product that sells. The Germans twigged that early on, eg Audi attention to areodynamics and 4 wheel drive. They had a perceived technology strategy, not only did there have to be technology, it had to be perceived by the customer and marketed. Germans also bright enough to drive manufacturing standards - DIN standards became BS standards, gives a commercial edge if you write the specification around your own product. They played the game better. The Apple IPod is another good example, although you can argue it is just an updated Sony Walkman.
I am fed up of hearing how terribly complicated it is to regulate the City. What a load of bull. If the problem is financial stooges going out and selling debt like candy on the high street to Joe Public that is where you regulate it, at the point of sale. A bank manager I know said he used to have people coming in because his rates where a notch shorter than the spivs, but when he asked for an application form and documentation the used to say - why should I bother, all I have to do is tick a box which says I can afford the repayments and sign down the road - and walk out, down the road. That was at the end of the cycle, but that in essence is why there is no manufacturing, it is easier to twist a profit, at least in the short term. In the long term if all you have is a monoculture economy, you are, whatever Brown would like us to think, very vulnerable. It is a one legged stool, no use to anybody.
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Re: Bonuses paid on the laundering of debt.
If these repackaged debt bundles were knowingly mis-sold, then clearly those who sold them are criminals and should be prosecuted.
Unfortunately, that is quite a tricky one. Did all the packagers / sellers know that interest rates would get jacked up and kill the goose? The buyers didn't, that's for sure.
Part of the blame has to be asigned tothe buyers on the basis that a mortgage-backed bond paying say 5% at a time of 1% Fed Funds had to be riskier than AAA [Moody's and S &P please note].
A parallel case is the British public and voluntary sector investing in Icelandic savings products which paid over the odds. Yes, the Icelandic bankers were running an unsustainable business model, perhaps to the point of criminality, but the question that must be asked is why did the highly-paid, bonused-up in many cases, FDs of these UK organisations not smell a rat, even after the credit crunch had been around for a year? Don't they read Robert Peston, for goodness' sakes?
The answer is that we all, bonused or otherwise, like to believe in free cash- for ourselves.
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133 Jackmax
Try Pinnochio when hes being sold nonsense by Honest John, you know, where they all get turned into donkeys, its much older and just as appropriate. Just as good, obviously out of fashion, or the fools around now thought it was just a story. E Haw shucks. Nuthin is new.
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GOOD NEWS AT LAST.
'House prices will not get back to the levels they peaked at in 2007 until 2013, the Centre for Economics and Business Research (CEBR) has predicted.'
I wish I was given a sack of spuds for every prediction I made
eg
Hereford United will not win the FA Cup until 2036.
Hawaii may not retain the ICC presidency ever
England cricket team just will not.
These useless organisations make the peasants blood boil thus helping cook the spuds.
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"120. At 8:18pm on 27 Oct 2008, JackMaxDaniels wrote:
Is this like the 1930's crash ? well here's another graph to have a look at, fear it baby !
http://ftalphaville.ft.com/blog/2008/10/27/17469/we-just-dont-know/
Well I'm scared and quite frankly unsure of what is the right thing to do."
The world's currencies were decoupled from gold on 15th of August 1971. This is what has allowed the massive increase in credit and debt since that point.
However this also means that there is nothing but debt backing the money. There is no gold there to pull the currency back down to earth. There is no fixed ratio of a scarce material to money. There is no pound of silver to be demanded.
In the short term there is credit destruction. However, the central banks are already attempting to inflate. They will succeed... spectacularly.
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ElectronicTurkey
The updates are just fabolous. Thanks.
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140
You've turned my world upside down. A friend of mine from army days played football for Hereford United in the 60s. When I last saw him at a reunion he bet me specifically that Hereford United would win the FA Cup in 2035. Better get the Maris Piper ready - Ps I'll only be 98 and Sir Alex will still be running Manchester United (with Ronaldo as his Deputy).
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137:
Glanafon, I agree with a lot of things you mentioned, but perhaps a bit of qualification of the statements would help.
Different countries seem to specialise in different type of technologies. The Germans are really good in developing technologies with which they can lock in their customers or suppliers and utilise their knowledge too. If you tried it in Britain, you would be done in no time.
The UK is pretty good in technologies that can be sold quickly and in which property rights can be asserted. Thus these technologies are utilised abroad and create jobs there. This happens to a large degree because of VC finance and to some extent business angels' approach.
To have a type of technological development that the Germans or the Japanese have, you need to reform the labour market (get rid of the deregulated labour markets), the financial system and the government.
To have the type of technological development that the US has, you better take that country over.
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#122 steve982 wrote:
this is a link to an excellent explanation of what is happening...
www.counterpunch.org/hudson10272008.html
Thanks very much for this link! I'll have to read it a second time to try and fully grasp it, but it's very informative.
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Finishing the investment banking reign, the role of individual shareholders will be vital and a salvation for many listed companies, along with many lazy governments as well.
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141:
Only the dollar was tied to gold, none of the other currencies. And even that only for central banks.
Moreover, as soon as De Gaulle wanted to use it (change France's dollar to gold), the US immediately put to the end.
But in any case, it was based on the economic hegemony of the US and the dollar issuance was never really tied to the gold (the US suspended the support of gold price in the free markets in 1967), but to the need of the rest of the world of US goods. As soon as that hegemony ended (really from 1957 onwards), and especially with increase in the military expenditure there was too much dollar in the world economy and this is what became the basis of hot money (short-term speculative capital). The dollar was so overvalued (1 dollar for 4 marks) that was impossible to maintain in the changed real economic circumstances.
The gold tied currency has never worked at the international level, it's a textbook fiction. Whenever it came under pressure, it was suspended and finally put to rest in 1935.
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Just a bit of clarification to my previous post.
Pre-1935 gold standard: fixed gold parities, flexible exchange rates. Resulted in large swings in economic cycles and huge speculations in short-term commercial credits.
Post 1944 gold standard: fixed gold parity for US dollar, no gold parity for any other currency, fixed exchange rates. Resulted in major turmoil in international finance once the economic basis of it, the US hegemony had gone.
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Just let the markets find their place,it's not comlicated,central banks are futile at this stage.
It's just 10 years of deflation trying to find it's place thats all,let the market adjust please.
I heard an owl calling last night!!
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The closest Gorden buzt lightyear[ to infinity and beyond] got to the truth about" boom and bust" was when he said there would be no return to" [toy s]tory 11 boom and bust ",which explains why he didnt hold an election last year ,one that would have allowed the bust to come under a tory government.
Clearly hes a man of his word and prescient.
As for telling us the markets would stabilize "in a few days"after his baaank intervention a week ago ,it now seems the tide is up arround his naaavel and his sedaaand caaastles have gone
Or did he mean stabilize as did the titaaanic at the bottom of the aaatlaaantic
Why can he [the great leveller] not just wear a jesterrs motley and tell us that weve been framed for a laugh by that citadel of post Norman Wisdom ,par lammentable dimoracy [the baaarmy aaarmy]that seems to be more interested in the sex education[bairnewaaashing] of the five year olds
Better the" Rock or its twin tower of B&B'LEY" fall on them again ,than they harm one of these little ones
The egonomic delusions of granderr is symp[son]tomatic of a deeper spiritual crisis that swapped[cds]God with the toothfairy that sold us ,the tooth the whole tooth and nothing but the tooth ,telling us that they were eternaly solvent without gold fillings
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aaas for the caaarry traaade ,it turned out to be no more than a temporary caaarry on up the khyberr p'aaa's that stuffed the goose that laid the golden eggs
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144 redjsteel.
re technologies
Thanks, interesting.
I would suggest that the UK is good at technologies which can be turned around quickly because that is all that there is left to do, most other avenues have been shutdown. It is difficult to continually innovate without a technology environment which is long term and a certain size. A critical mass is needed. Most technology development is actually 'technology or concept' transfer, or spin-off, rather than primary technology. The UK therefore will continually have difficulty in building on individual success. Rather than an entire set of Shakespeare plays you will only ever get a set of Act 1's, with the rare exception.
I cannot ever see the UK matching the US, and multinational deals in Europe to try and build a big enough 'domestic' market do not seem to be that effective.
I have sold tech patents and usually found the companies who wish to exploit them fail to understand the difficulty of market development, and in particular that in high tech credibility in the eye of the consumer is critical.
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It seems to me that greed continues to be the prevailing motive. But if this panic continues & continues to damage the "real economy", I predict calls for great Government control over these markets. At the moment it just looks like rich gamblers cutting their losses at the expense of the rest of the country.
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We don't have slavery any more; we have debt.
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Human action is totally predictable... by satirists
Which is why saaatirical sophists from the milton keynes school of egonomics are always right, except when they are not joking
We are now witnessing the greatest satirical production in human history with an unlimmitted budget greater than any CecilB demillE had, to reach the required standard of perfection .
If you do not split your sides laughing it can only be for the following spurious reasons
1 youv lost your job[as an estate agent ,mortgage broker,banker etc ]
2 your mortgage hasnt gone down
3 your buy toilet has gone down the pan
4your hoped for pension fund has done a runner in your pot
5your shares that havnt gone up in ten years have gone down [in the long run]
6you can only afford to buy an suv providing you keep it off the road
7your lickquidity is in cold storage in iceland and beyond the reach of you the sucker
8 You no longer believe things can only get better, for which you now regret not training as a satirist
9The loco council is going to charge you extra local tax for that overpriced extension the poles put up for cash in hand ,to look after their families which wish to settle here
10 You realise that you are not ready for the second coming and cant afford a home information pack [of jokerrs]]plus vat either
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Could our current economic predicament be prevented in future if we passed the following law ?:
NO INDIVIDUAL MAY BORROW MORE THAN X4 THEIR ANNUAL INCOME.
===================================
This would help to maintain house prices at a consistent level, preventing booming house prices and borrowing binges.
But would this mean the less well off won't be able to buy houses? Perhaps, but they won't be buying houses they (and the rest of us thanks to inflation) cannot afford.
Basically we should not live beyond our means.
Note; A different solution I see touted is that banks should not be able to lend more than their deposits (aka ‘leverage ratio’). The current problems after all were as a result of our banks relying too much on cheap money from the money markets (most of this money came from the emerging markets such as China). An obvious loophole here is that banks could get around this solution by allowing foreign investors to make deposits with them directly, and lend this out to us allowing for another borrowing binge (and boom-bust) cycle.
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Robert, you continue to perpetrate a macho myth about exchange rates.
High exchange rates are only of interest when investing in another economy. Once the investment has been made, low exchange rates are of much greater interest, as they augment both the value of the investment and of its returns. As we are not presumably interested in investing in a market whose bottom is as yet unassessable, then we should be positively seeking as low an exchange rate as possible.
The concept that "higher" is preferable is an unthinking carry-over from the Stock Market, and given the generally weak UK balance of payments posiition, we should welcome what's happening as it absolves us from much of the pain.
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Hy guys,
On the road again
#143
I was the supporter in the 60's keeping warm in the Meadow End - still not taken as far as I know.
Flippancy apart, there have been some dramatic events overnight.
Basil called in his loan and I have been scrambling around looking for ways to cash in my potato derivatives.
In the end I swapped a steel rolling mill for some fags.
LUTON OR BUST
Picked these two nice guys on their way from Afghanistan to Bust. I explained that they had plenty of choices.
The UK is Bust but if they were after the real McCoy they should plump for Iceland.
Belgrade soon - are they Bust??
PS Luton was an English town but they were deducted points for going Bust.
Talking about football I could use my new found poppy wealth to sponsor shirts.
Slogan time:
'The chips are down'
' Sack and awe'
' IMF eat spuds'
At border with Hungary, piling into the back.
'
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#104
nah, Jonathan Ross, he knows how to handle large sums of money
GC
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#133 JackMaxDaniels
Here's the link.....
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a0jln3.CSS6c
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I heard on the news a welsh building company has just gone into administration.
Well, this seems to be a foreshadowing of things to come elsewhere.
Sad to say no one will come out of this recession unscathed.
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Bloomin Spaniards
Need some help.
Is Bucharest the same as Budapest?
Came to light when changing our Afghani into Forints, which in Romania are called Leu.
'LeBron James came to be worth $270m '
after sponsorship from potato magnate.
Am I a magnate or a tycoon??
Passing the time on way to Bucharest teaching new shareholders to say
' She sells sea shells..............
'More polite than teaching them pheasant plucking which they will need in Iceland
See you soon
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Interesting 147:
Actually, Gold and Silver were used in both America and Britain in the 19th and early 20th century.
In the Uk we had the Silver Sixpence, the Gold Sovereign , Half Sovereign (still minted by the way), which all were legal tender with a face value.
America had its Silver Dollar, etc. Which for many years were the currency of preference even in the East, where Banks and Banknotes were more trusted.
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Actually Gold and Silver coins were very common in the 19th and early 20th century.
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In Britain the Silver sixpence.
The Gold Sovereign and half SOvereign etc.
In the US, the Silver Dollar, preferred by most people to the early Banknotes.
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Trying to remember what the Americans called their Gold Coins, Eagles was it?
Gold Dust was also popular especially in the west of America.
Various Spanish and European coins were also made use of.
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The trouble with using coins made out of precious metals is that Inflation is part of the Western economic model.
Remove Inflation and it makes maintaining a welfare state more difficult.
Remove Inflation and the Gov't has to balance its books.
Philosophical Economists will understand what I mean when I say that it is necessary to fudge the edges in modern economics, ie find Billions when Billions in Gold or Silver just do not exist.
So although romantic and quite interesting, a Gold or Silver based economic model would not work very well!
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> Why is not rational to think everything is going bust?
Because that would be the end of the world, and we have to wait for climate change/nuclear annihilation to archive that.
I don't think this Big Dipper ride is over yet. I'm afraid we'll have to make do with a severe downturn, a panic attack and finally a gradual climb back up to the top before the next go.
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Duplicated my posts as I thought 163 my first post had been bounced !
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"Why the record-breaking falls"
Perhaps the Bank of England's outlook forecast was leaked?
I mean to double the cost of the downturn in six months does not provide the certainty that the markets like does it?
Six months ago 1.4 trillion US Now 2.8 trillion US six months time 5.6 trillion - what next!
3 million UK homes in negative equity - 1 in 9 homes.
Banks need to rebuild their capital base from savers as the interbank toxic waste system of funny money has vanished - how on earth will that work unless banks start offering very much higher interest rates.
The is 'doom' in their report!
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Blood on the floor?
Ross and Bland will do for today
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#161, I think you are right.
Everything I have read and seen tells me that Brown, quite possibly with the tacit support of all the Lib Dems and Conservatives, has taken a fundamental decision (assuming he has all the facts at his fingertips) to save the banking and economic system as a status quo at any price. That price is already self-evidently the collapse of as many livelihoods as 'it takes'. To use his oft-repeated phrase.
Far from anyone stepping forward to do the decent thing there will be no quarter given on insolvency, seizure, foreclosure, court order etc etc. I have repeated these things often. Beyond intellectual discussions in the House of Lords, and there have been many, I do not expect any substantive or qualitative interest to be shown by any politician at any time in the recent future or long term.
As a consequence of Brown's choice of usury over decency, now what is coming is a great levelling (razing) for the whole of the of 'free-standing' people in the Uk and globally. I am convinced that we are now on our own.
This PM, son of of a clergyman and self-professed champion of the rights of the individual, has written and said, more times than any other politician in British history, the words:
' What angers me and inspires me to act is when people are treated unfairly' that he has chosen that route.
Deep down I believe the man is an empty shell and a coward.
I say this because, in trying to shore up a what has proved - and is proving to be - a corrupt and ruthless financial system - condemned for years by the most forward thinking and outspoken churchmen - he is in denial of his own philosophies because he himself is so much part of that system and cannot admit its failure.
I despair that Brown is being lauded in other countries.
I despair even more that there are no representatives in either House with sufficient moral fibre to set aside vested interest and bring the social/economic truth of his shameful policy to world's attention.
I am of a mind to form my own political party to do this if nothing else.
GC
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I am really sorry if i offended 91 but guess he is not a home owner who has enjoyed obscene increases in property values, which now makes it impossible for young people, like my own children get on to the property ladder.
Nor does he shop at high street stores or out of town shopping centres where the vast majority of goods are produced in sweat shops around the World. Good for him if he has all his clothes made locally by a bespoke tailor. or maybe he makes them himself?
Guess he also buys all his food fom local producers, none of this stuff flown half way round the World.
No TV, no car, no motor bike, no bike, no computer??
My point, which I think was missed is that at one time we were pretty well self sufficient in the UK and what we didn't produce was probably not life threatening but now we have no industry, skills handed down by generations have all but gone. We are totally dependant on the whims of speculators, currency fluctuations, politics.
This has been done soley to drive costs down for cheaper and cheaper goods for higher and higher profits and has all come home to roost at once and like it or not we are all to blame for our insatiable appetite for more!!
I remember that lovely image of a pyramid of glasses where champagne was flowing freely at the top and the Tories talked about 'trickle down' and how we would all benefit. Tell you what my glass hardly got touched, like many others I guess, whilst the few at the top filled many times over.
and for some in the developing countries, well they never even got handed a glass!!
Like it or not, offended or not we have all contributed in some small way to the crisis we all find ourselves embroiled in and will have to learn to take less, not more and an elgalitarian society like Sweden where they take pride in their Country, where the differentials between wages/ salaries is not so great, where people are respected for doing their job to the best of their ability what ever their role is in society. Where the family is key in what ever guise that takes, maybe a very good role model for all of us.
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Best example of unreality of stock markets:
At the same time when VW announces to go into longer christmas holidays and may eventually fire several thousand workers because the car demand dumps, their rate rises 175 % yesterday and another 90 % today.
Ar the highest point today, VW stocks had a worth of 153 billion Euros.
That is more, than all european and american car makers together.
What had happend?
Porsche had announced several months ago, that they want to buy a mojority of VW in the coming year or so. Result was a rally for VW in the last months.
Last week an economy newspaper had a big story about the end of the VW stocks boom.
End of last week VW declinewd about 40%.
Hedgefunds took their chance to go short. Lending about 15 % of the VW stocks.
On sunday Porsche announced, that they already have bought about 40% of the VW stocks and have control of another 30% in options.
That means: Porsche already controls 74% of VW and it is a known fact, that the federal state of Lower-Saxony owns 20% of VW as well.
So only 6 % of VW stocks are freely available.
Hence, shortsellers opted 15 % of VW stocks.
Result: Hedgefunds have to buy VW at any cost to fulfill their promise, have to sell them immediately, to let the next hedgefund buy them at a higher rate, and that 2,5 times, until they have bought their 15 % with only 6 % availabe.
Hedgefunds lost 15 billion Euros yesterday alone on this operation, while Porsche theoretically is able, to buy out the whole european and american industry.
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This comment was removed because the moderators found it broke the House Rules.
Everything in moderation my Mum told me.
Why I retort??? #162
Stopped for breakfast and petrol,and a leak.
Nice place, TV babbling on about totally incomprehensible economic gibberish.
Great menu
American breakfast- Wall St. mash
Continental - 27 inedible varieties
The Great British - Humble pie
Did you know that the whole mess was caused by people with more potatoes than they could reasonably afford.
The sub- potato market.
On the road again, next stop Europe, if it still exists.
'LeBron James came to be worth $270m'
Nuf said
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#162 moderated by you know who
Bloomin Spaniards
Need some help.
Is Bucharest the same as Budapest?
Came to light when changing our Afghani into Forints, which in Romania are called Leu.
'LeBron James came to be worth $270m '
after sponsorship from potato magnate.
Am I a magnate or a tycoon??
Passing the time on way to Bucharest teaching new shareholders to say
' She sells sea shells..............
See you soon
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Good news from the markets at last.
Some people blamed RP for the demise of the pound so now hot off the press is the news that,
Iceland's central bank raises its key interest rate for potatoes to 18%.
'Put your potatoes where your mouth is'
Given the very capricious nature of the market I for one will not fall for this one.
Can they guarantee a return backed by the Icelandic tax payer?
Regarding coins, Iceland makes them from ice, hence meltdown.
In a layby contemplating why we must suffer. The cod war was much more fun
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163:
Little clarification. Silver was not at face value in the UK (it's complicated: the original pound sterling was based on silver and not on gold, later it bacame gold and the silver lost its relationship with the face value as no real bi-metallism can work as the weaker metal would crowd out the stronger - Gresham's Law).
The point is that Peel's Act of 1844 declared that banknotes issuance had to be tied to gold reserves. However, the government debt related to the Napoleonic wars was taken out of it, thus a significant proportion of banknotes has never been covered by gold. Now, whenever gold went out of the country, there was a serious shortage of notes in the UK and this was covered by short-term commercial credits (bill of exchange) that were constantly refinanced (thus was subject to strong speculation). That is, exactly the same happened as under fractional reserve banking, hence the whole argument about solving the problems by abolishing fractional reserve banking is only illusion, expression of a longing for a golden era that has never existed.
It had not really come under pressure until the four major economic powers' cycle got in the same phase at the same time and then the whole thing was abolished. The UK was the last to come off from it and this move cost the British people unbelievable losses.
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ElectronicTurkey
You are wrong with the Icelandic money. As you may end up in Budapest instead of Bukarest, you may want to know that the Hungarian word (well, one of them) for the fish scale is fish money (try to avoid accepting it as an exchange). So the Icelandic insurers will pay the British depositors in that.
Or maybe in the leaves of the money plant (that grows in the warm baths of Iceland).
Oh Hungary is replacing its 2OO forint notes with 2OO forint coins. Citizens were allowed to vote for its minting of 6 versions. For some reason, though there were birds among the options, magpie was not one of them.
I really feel sorry for them. Not enough that they do not have owls on their island, they have to go through this as well.
But whoever reads this, should know the old saying: "The tale is about you" (just later).
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OK then.
What goes down must come up (if that is the right quote).
I have just bought £10k of shares so my money is on (literally) a slow recovery.
I'm going to regret this, but I call 1931 (at 15:00 today) as the bottom for the FTSE-AS index.
In the 1929 crash, the bottom was called several times before it arrived so this is just a start.
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181. you are brave and, so far, shrewd!
For all our sakes, I hope you're correct.
We are still a way off the levels in the stock markets where we might see a wave of forced sellers and a real crash, but in the absence of any known tipping point, who knows, another 25% could do it, and cause some of the kind of carnage described in posts above.
The silver lining in all of this is that diverse national and international blocs might now see that the world economy is truly so interlinked that going it alone is no option.
International pressure must be used to keep the prices of essentials as low as possible, and here oil is the key, for the next year at least. This will allow low interest rates, and a limited recession- which is probably needed.
It's no good OPEC keeping oil prices up and mullering the rest of the world.
We need a new spirit of global cooperation.
Hopefully, the election of Obama will be a start.
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I have noted that there are often comments about the bankers laughing, receiving big bonuses, while other struggle with the credit crunch. I work for one of these financial institutions and we are defiantely not laughing
We are working as hard as possible to ensure our customers receive the best service we can give, we are all worried about the effect the credit crunch will have on our jobs, and we are definitely not expecting any bonuses - which I must add do not come at Christmas. they are based on performance of the bank over the past tax year - obviously not so good in the current climate - even though us employees have been working to the best of our abilty over the last year.
Please don't tar us all with the same brush. We equally have families and mortgages to maintain. If the banks go under which is what a lot of people on these blogs want then there will be an awful lot of people unemployed - and you think that is a good thing??!!
Then "fat cats" are in the minority - the innocent bank employees the majority!
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So Robert,
Why is it that you get incredibly excited (not to say happy) when stockmarkets fall, yet have not a word to say when they go up? Where are the headlines like "Billions wiped ON to share values" and "Pension funds boosted by equity gains" etc etc.
I am not naive enough to think that all is now well with financial markets. However, the BBC in general and you in particular, should be ashamed of the way you have been reporting the current crisis, spreading doom and gloom and unsettling people. At least now we are definitely in recession, you can stop praying for it to happen.
Its about time financial journalists realised they have a responsibility to report events in a calm and unbiased manner. Instead of trying to become the story with your performances every night on the news, you should stick to balanced reporting, without the sensationalism.
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If interest rates reach zero, then I wonder what will happen to Premium Bonds?
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Do we never learn!
I am currently reading Adam Smith’s Wealth of Nations and have just come across this in book 2, chapter 2 about regulating banks; he wrote this in 1766:-
“To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law, not to infringe, but to support. Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed”
Wasn’t some form of regulation proposed and enacted after the Wall St crash?
What happened?
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