Can Darling kickstart lending?
It's clear from comments posted on my blog that there's a widespread misunderstanding about what the massive taxpayer bailout of our banks was designed to achieve or could achieve.
The primary motive of the £400bn of additional taxpayer support provided last month by the Treasury was to prevent the collapse of the banking system (and really it wasn't such a bad thing to prevent a meltdown of most of our banks).
Or to put it more bluntly, the transfer to our banks of so much of our cash wasn't designed to kickstart lending by our banks - although it's unsurprising that many of you think that's what it was all about, because ministers created that impression.
The chancellor stipulated that recipients of the capital element of the bailout funds - of which £37bn has been drawn down so far - should maintain "over the next three years the availability and active marketing of competitively priced lending to homeowners and to small businesses at 2007 levels."
Which sounded very macho. And was politically necessary, because of a public sense of outrage that the banks should be propped up and yet give little back in return.
But what does "the availability and active marketing of competitively priced lending to homeowners and to small businesses at 2007 levels" actually mean?
It certainly doesn't mean lending at the same margin over the Bank of England's policy rate or Bank Rate, because for both mortgages and small-business loans that margin has soared - to reflect the increased risks of lending when the economy is shrinking and when many more businesses and individuals are financially stretched.
Obviously I can bore for hours about how mortgage providers are earning considerably more from providing scarce homeloans than they were only a few months ago.
But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford & Bingley and Northern Rock, and a freeze on new lending by small building societies.
The Treasury can shout all it wants to the recipients of capital from taxpayers that they must provide more loans to homeowners, but these recipients simply don't have the resources to fill the gap.
Which is why the pre-Budget Report on Monday is certain to contain measures designed to increase the flow of funds to our banks for transmission to homebuyers and homeowners in the form of mortgages.
Whether we like it or not, yet more taxpayers' money is bound to be thrown at reviving the mortgage market.
As for what's going on in lending to companies, the Bank of England's summary of business conditions, as prepared by its network of agents, blew the whistle on that yesterday. It said:
"Contacts reported a tightening in their own credit conditions since September. The all-in cost of finance had increased as set-up and management fees were raised and loans were increasingly priced relative to Libor rather than Bank Rate. Some contacts expected future cutbacks in facilities".
Or to put it another way, credit for business has become harder to obtain and more expensive.
Against that backdrop, the chancellor is considering giving increased taxpayer support to small business lending. As this morning's FT says, this is likely to involve an extension of a scheme that currently provides public-sector insurance (in effect) for 75% of the principal on some kinds of small-business loans.
The current scheme is tiny: it represents just 6% of all small-business lending of just under £6bn. So it would have to be massively expanded to yield serious benefits.
But this obsession with supporting small business may be a distraction from where the real weakness lies in corporate UK.
It's plainly important that as many small businesses as possible survive the current downturn, since they represent the future of the British economy.
However, they are not particularly indebted.
Many of them, very sensibly, have accumulated very substantial cash deposits.
On a net aggregated basis, small British businesses have zero debt. They are, to a great extent, well placed to survive our current economic woes.
Which cannot be said, I'm afraid, of all our bigger companies.
Our non-financial companies' gross debt is equivalent to 120% of our annual economic output. And much of that debt is concentrated in big companies in the sectors most damaged by the shrinkage of the economy.
From housebuilders, to national estate-agency chains, to construction groups, to property investors, to retailers, to restaurant and pub chains, indebtedness is at worryingly high levels.
The possibility that Woolworth could sell its entire chain of 800 stores for £1 and the collapse yesterday in the share price of the electrical retailer DSG are symptoms of a wider problem.
To repeat, the credit crisis is most acute for big British companies, not for small ones.
In the US, the Federal Reserve has thrown a $1800bn lifeline to substantial American companies, by agreeing to buy up their commercial paper. In effect, the US central bank is lending to them for up to nine months.
Our economy has huge structural similarities with that of the US. Draw your own conclusions.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~01~RS~)
Comments
Sign in or register to comment.
Any guesses what the basic rate of income tax will be in 3 years, 5 years, 10 years and 50 years to pay for all this government borrowing.
Every penny that this government borrows will eventually have to be repaid.
Complain about this comment
past lending was being financed by the mbs market, which took loans off banks' balance sheets (and therefore were unaffected by bank capitalisation levels). this market is now dead, quite independently of the state of the british banking sector. until it is fixed, you can expect current tight lending conditions to continue. fixing it is beyond our government's control - it is an international problem.
Complain about this comment
And what Mr Peston said came to pass. Not because of any great insight, but because Mr Darling told him so in an early morning phone call.
It's interesting that you so easily dismiss the fact that the Treasury were somewhat economical with the truth that this bailout wasn't in part designed to encourage lending.
They hand over £400 billion and make out that banks will lend more as a result, even though that's not the intention at all, it's just been done to deflect criticism.
Reminds me of a certain "30 minute" claim from about 5 or 6 years ago.
Complain about this comment
Bert
you are missing the whole point here and hence I fear you have never really had a real job or ran a business yourself
the big companies are changing their payment terms and squeezing the smaller ones who when they go to the bank they are being nailed to the mast if they need to increase their borrowings - therefore the smaller comapnies are taking the brunt of the previous mistakes
effectively whatever Darling does this will not change I am afraid to say
get yourself out and about and have a chat with some small businesses instead of bleating behind the big headlines
Complain about this comment
So (on the basis you are right about what will happen on Monday)
- Sterling resumes its slide (more to do with Brown than Osborne, I'd suggest - and it's started today)
- UK industry continues to contract
- import costs rise, + reduced supply
- result: inflation really gets going again next year
What price an early election ...?
Complain about this comment
"From housebuilders, to national estate-agency chains, to construction groups, to property investors, to retailers, to restaurant and pub chains, indebtedness is at worryingly high levels."
That covers 95% of my customers.
So that is why my turnover has dropped 80% since April. So now what?
These businesses are the customers for most of the small firms in the UK. Small firms may not be in debt but who are they going to sell to?
Complain about this comment
In the US, the Federal Reserve has thrown a $1800bn lifeline to substantial American companies. They have not disclosed who these companies are, but we know its not the big 3 automakers. Hmmm draw your own conclusions.
Our government will harp on about supporting SMB's when in fact all they need is business. They will then continue to feed money to undisclosed businesses?? to ensure support and ongoing viability.
So small business need consumers they cant find, big business needs cash and consumers they cant find, the banks need consumers to save and borrow, but all they want to do is save.
As I have already stated, this is now not a prevention of lending causing problems, it is the refusal of people that are not prevented from credit lending anything
Complain about this comment
Again Gov't focusing on the wrong things.
How about a plan to rebuild Britains industry ?
With no plan there is no hope !
The service sector won't produce enough jobs.
The Banks have been forced by the Gov't policy to make thousands of staff unemployed.
They won't get new jobs in a hurry.
So decimated financial services, and no plan to restore manufacturing industry.
Expect the Pound to equal one dollar soon.
Complain about this comment
Oh yes, are they still considering nationalzing the House builders ?
Complain about this comment
Reminds me of the Daleks.....
Nationalize...nationalize... we must exterminate jobs and competition !
So where do their friends in SPain fit in ?
With Santander of the Spanish property crash (underreported)?
Will Spain be the next Iceland ?
Complain about this comment
Good Morning.
The reason why the Banks both wont and cant lend,is that the assets they have lent on are so overvalued.
Asset values have been out of ratio relative to economic activity.GDP has been distorted Brown etc have claimed credit.
Asset values are a Bubble which thank god are now deflating.
Would you lend against a falling market?
Why should the Banks.
Complain about this comment
It can be done through government control banks like Nothernrook. But it should be done sensibly.
If these banks lend at reasonable rate of interest there will be enough money to restart the economy and housing market as other banks will be forced to follow.
It is fair to make people put 10% to 15% deposit but lend them at 0.5% above BOE rate.
Complain about this comment
Sorry, but this latest Treasury Press Release masquerading as impartial BBC reporting cannot go unchallenged.
GB and Ally D both made it very clear that in return for getting capital injections, banks were expected to start lending again. Linking that lending to levels in 2007 was inappropriate, but requiring more lending than was available in August/September clearly made sense, eg in August mortgage lending was 98% lower than a year earlier, clearly a case of overkill on the credit withdrawal front.
If Ally D is now saying ths banks can't or won't increase lending, then we have to ask what is the point of rescuing the banks? Who benefits? The primary purpose of banks is to recirculate cash from those who are "long" of it, to those who are "short" of it. In other words, banks hoover up our spare cash in the form of interest bearing deposit products and lend it to those who need it for various reasons, eg businesses that have regular payments to make (eg salaries) but lumpier receipts from sales, or who have to grant credit terms to their customers. If banks are no longer doing this, then they aren't fulfilling any useful purpose, and the point about "it wasn't such a bad thing to prevent a meltdown of most of our banks" is no longer valid. In fact, if banks aren't fulfilling this basic recycling service, then injecting more capital into them is actually a waste of a scarce resource (capital), no different from the vast amounts of cash invested in dot.com companies in 1999/2000 that simply got burned up for no economic benefit. We'd be better served by government finding more attractive opportunities to deploy this capital.
At the time GB and Ally D announced the bank rescue plan, they both explicitly said that it would free up the sclerotic credit markets. If they are saying the rescue isn't having that effect, they should now reconsider the rescue plan.
If banks aren't lending, but are still taking in deposits, paying interest on them, running branch networks and call centres etc, then their business model is a one way street to bankruptcy. They have costs but no (or much lower) revenue. This fits in with the JPMorgan and UBS research out yesterday on prospects for UK and European bank earnings next year. As well as much lower earnings next year, JPMorgan is forecasting capital shortages will remain a problem.
Complain about this comment
On the Subject of Borrowing.
I have associates who earn circa 70K to 110K
Many have mortgages in excess of 400K
They have two or three cars on lease/hp
They have credit card balances 40k to 70k
This type of borrowing is reflected through the pay scale.
What happens when they have no job?
I wonder.
The Fridges are usually EMPTY.
Complain about this comment
the honest reason so much public money was pumped into banks was,
1, to prop them up and help overseas buyers come in and get a bargain.
2, to keep bankers from loosing there wages and to stop them crying about loss of earnings.
3, as with anything this government does to gain the popular support by playing to the media.
4, neu labour are not labour. the old labour would have nationalised and be damned, this government is confused they pretend to be labour but act like tories when pointed out they react like liberals.
have the public not had enough of namby pamby confused governments that have done nothing but bring about ruin.
Complain about this comment
We seem to have a preoccupation with borrowing, the same poison that got us here in the first place. I feel the world needs to go to Rehab.
Small companies in many respects, are indeed well placed to come out the other end of the depression, but it cant be done by borrowing. Here's why: We are going from a recession to a depression, and that will bring deflation within 6 months or so. If you borrow today, tomorrow your repayments will INCREASE as a percentage of your business due to the effects of depression/deflation.
My opinion is that any small business should slam the door firmly shut in the face of any bank that wants to loan you money. Its poison.
Complain about this comment
How much longer is the government going to get away with blaming the USA for the financial problems in the UK. It is quite clear from your blog that a great deal has been caused by the actions and omissions of the UK Government and regulators.
To quote the G20 summit communique that has been carefully ignored by Gordon Brown:
Root Causes of the Current Crisis
3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.
Complain about this comment
Good point Robert. I guess people found it hard to understand why apparently so many small business say they are being squeezed or refused loans, if they are so well placed.
However so many small shops and small business here locally in northamptonshire, are virtually deserted on a daily basis, I can't help but wonder how they manage thier commitments. I also have a friend who runs a telecomms business. All his customers have ceased ordering, literally overnight because they have been SPOOKED by what the Government have said. So how does he pay his engineers?
Small businesses may have cash, but its the 30-60-90 day payment terms in contracts with customers most small businesses are hit by, leading to cashflow problems and not helped by the banks increasing transaction and overdraft fees.
So why are the banks getting funding from the taxpayer when business does not? Bank shareholders could repay the shedloads of dividends they earnt in good times, back into the business, as so many small business men have to do themselves?
And how are Messrs GB and AD going to manage the homeless and unemployed?
With so many people out of work, who pays their mortgage and if they have to dump their homes, where do they live and who picks up the bill?
Wouldn't it be in everyones best interest if the banks rent these homes (they repossess) as landlords back to their current occupiers?
Saves the taxpayer shedloads of cash?
Finally how are we all supposed to 'stand still' for a whole year and wait for 2010?
People need to eat, which needs money.
Robert, where will that money come from?
Complain about this comment
With the recent investment in RBS and Lloyds TSB the Government has bought into the lending market, and is applying pressure to these institutions to reduce the cost of borrowing. Indeed, the Government has stated that it aspires to return the economy back to 2007 lending levels, and that the UK problem was not shortage of demand for homes at "the right price" but a shortage of mortgages "at the right prices for people to buy"[1].
Considering media articles detailing how house prices will have recovered by 2013 [2], the average wage would have to explode to £45K p.a. to pay for the average property costing £200K, based on the following ‘prudent’ terms.
- £20K deposit (90% LTV),
- £180K borrowed at x4 multiple of income of £45K p.a.,
- 25 year term.
The Government need to state their aspiration for mortgage lending in 12 months time in terms of Loan-To-Value (LTV) ratio, multiples of annual income, and loan duration.
If you agree, please sign this petition:
http://petitions.number10.gov.uk/LendingReform/
This will provide a better understanding of their stance towards future lending, and enable the public to make their own judgment of the likelihood of lending regulation and reform.
The short of it all is that it's a house price crash (not just flat and appartment) or a return to risky lending.
[1] http://news.bbc.co.uk/1/hi/uk_politics/7667284.stm
[2] http://news.bbc.co.uk/1/hi/business/7692814.stm
Complain about this comment
I run my business conservatively, like my life! And I'll get through the recession with both intact.
But the likelihood is I'm now going to find some of my larger competitors being helped out by the state..... and I'm going to spend the rest of my life paying higher taxes to fund the cost of other peoples wreckless lending and feckless borrowing
Thanks Gordon you taught me a great lesson - once this recession is over I'm becoming a chancer!
Complain about this comment
Mr Peston. Thank you. An excellent informative post.
Complain about this comment
13 "In fact, if banks aren't fulfilling this basic recycling service, then injecting more capital into them is actually a waste of a scarce resource"
Rescuing the Banks has a practical point - keeping the cash machines working so that there were no riots outside Tesco's. It was that serious six weeks ago.
Complain about this comment
"Whether we like it or not, yet more taxpayers' money is bound to be thrown at reviving the mortgage market."
Wonderful. It's nice to know that the tax I pay is being used to try to increase the cost of buying my first home.
Increase the lending available to business? Yes, absolutely necessary. Don't use it to bail out BTL investors and second-home owners (the only two beneficiaries of higher house prices, as normal homeowners can only realise the "profit" that they've "earned" by selling up and living in a cardboard box).
Complain about this comment
Don't worry, the great British consumer is heroically still attempting to reverse the tide of the credit crunch. Retail sales figures for October were much much better than expected,so if everyone is skint how can this be?
2 Simple answers - Retailers are discounting like crazy and thanks to the wonderful Mr King it is now pointless saving money and expecting any kind of a return on it so get out there and shop, shop shop people, you have the power to save the entire world financial system!
Complain about this comment
If as you state Robert, most small businesses are very well placed and have low debts compared to the large companies, then surely they would be a much better risk for banks to lend to, so why on earth are they putting punitive levels of interest on loans and overdrafts to them? The simple answer is that they need to pump up their profits on the backs of companies they know CAN pay up. The net effect though is going to drive those viable small businesses into the ground because of punitive rates on loans and overdrafts that even well capitalised small businesses need to keep their cashflows going.
I think it is high time that we inform Gordon and Darling that if the banks continue to put their profits above everything else, given that they would not even be around without the huge levels of taxpayer support, that the Govt. will lend at competitive rates via Northern Rock. It is pathetic how they are sitting there all smug while the economy is going down the toilet, a situation they are largely responsible for.
Complain about this comment
Hello Robert?
As you are so close to the Muppet Show.
Have you any idea when the puppets
will call down the curtain?
Have they seen the Fire BLAZE all around the theatre.
The peasants are close to a revolt.
Complain about this comment
Hi Robert: "although it's unsurprising that many of you think that's what it was all about, because ministers created that impression."
Very euphemistic - "creating an impression" is getting people to believe a lie without, in a legal sense, telling it.
On another point - using DSG and Woolworths as examples was a mistake, because both of these firms were in decline well before the credit crunch started. DSG for example had lost 90% of its share price since the dotcom bubble by early summer.
Complain about this comment
Ive said it many times at what is clearly needed is that these banks with their toxic practices not assets needs to be allowed to fail and the fat cat staff and greedy shareholders put in the place where they belong,indeed there is a very good case for bringing criminal proceedings being brought against some of these people.The goverments then needs to through a complete new organisation set up a completely new structure to start to lend to good and proper run business to get the economy going and off course to protect the savings that people have invested in these toxic companies. Presently what these toxic banks are doing to the ordinary people of this country is nothing short of pure blackmail,it needs to stop and it needs to stop today
Complain about this comment
Robert, I think you should meet more small business owners. I accept that “on a net aggregated basis, small British businesses have zero debt” but that glosses over the many (I would guess the majority) who do have borrowings.
They are worried about their bank borrowings being reduced, business customers “going bust”, falling sales demand, rising costs as well as rising tax bills for the corporate sector and ever increasing red tape.
Offers of help for small businesses by the Government have been little more than lip-service.
Come and meet our business clients and you’ll know what is happening.
P.S. Where may I see the "zero debt" statistics, please?
Complain about this comment
Maslowian psychology predicts severe revulsion of the perceived cause when someone drops down the aspirational heirarchy, ie we start to loath NuLab.
Housing is fairly low down the pyramid of aspiration, and the banks' making that difficult, even in theory, is going to cause ructions.
As I said months back now, if bankers don't want to bank, then get rid of them. HMG has done its bit to prime the pump, but now it's time to clear the gunge which is still blocking the system solid, and that's the people with resource they won't use. It's what's bound to happen, and is happening, because they're being replaced by the Treasury. The end result is what I stated, functional nationalisation, but in the mean time the public's left exposed to their rapacities and simple greed - bonus time is near and the boyos are still hoping.
And as far as corporates are concerned, use the ACT as a clearing house. The ECB is using their International Association in exactly this way, it's the logical next step if the existing system has to be junked.
Complain about this comment
I'm a potential borrower, I do buy to let and very cautiously. No multi million property portfolio, I like to maintain about 50% equity, this means the latest fall in property prices is not too catastrophic.
And I was looking at adding a property, I've got equity equalt o about 25% - 35% of the kind of house I stick to. I've found the ideal house, its a fair price. Now it comes to the mortgage.
With interest rates at about 5.5% I could get a tracker at just over 6%. Interets rates fell to 5%, the trackers were no at 7%, then vanished. Now with rates at 3.5% trackers are just over 6%! And arrangement fees are over 2% of the loan value and solicitors etc fees over £1,000! Say £4,000 simply to make a purchase!
This buyer, one of many who might start to get the property market moving has walked away. I have no interest in paying rates that in any other industry would be investigated by the fraud department.
Also, all arrangement fees are about the same, perhaps a cartel that should be investigated?
Complain about this comment
# 22
Very true. But the solution now might just be to make Tesco the bank in order to keep the machines working. Not sure if they've got it yet, but Tesco have actually applied for a banking licence in the UK.
Complain about this comment
"On a net aggregated basis, small British businesses have zero debt"
RP - pleased to see you are reading your own blog and diversifying slightly from your usual Banking Broadcasting Service position.
But - Where on earth did you pluck that barmy statistic from?
as for this..
"They are, to a great extent, well placed to survive our current economic woes"
Have you completely lost your marbles?
GC
Complain about this comment
The real story is that M&S have diverted their container ships via the Gulf of Aden hoping that the Somalia Outlet for Distressed Stock will take their Christmas pullovers off their hands. Alternatively, you can acquire the same pullovers for 20% less today in store.
Complain about this comment
Post 22. Drew. On the subject of Tesco, I am led to understand they have extended their payment period to 150 days.
Complain about this comment
The reason that we are in recession is very simple, people have far too much debt so they can't take on any more. Based on this FACT, Darling has two problems,
1. Convincing Banks to lend to your average Joe / Business, and
2. Business / the average Joe having the balls to take on more debt.
Its going to go down a long way until after all the repos and bankruptcies free up folks appetite for debt (if they EVER get that appetite back).
Complain about this comment
My DEAR Sasha.
Did i see the WORD of a LIE?
I must go to the corner of the room.
I must repeat the oath.
LABOUR ARE THE MASTERS OF THE UNIVERSE
BROWN IS KING BROWN IS KING
OH HAIL BROWN.
Complain about this comment
The key problem is the absence of credit insurance the market.Te sentiment which drives this fear of major providers (Euler/Coface/Atrdius etc) in providng insurance is self evidently a perfect example of the self fulfilling prophecy.
Most businesses have credit profiles which are largley strong and are well managed but are in sectors in which the sentiment amongst the insurers has irrationally disappeared.
There are major areas of real risk mitigation which are completely ignored by the insurers in assessing risk and there are significant players in this market who can hugely reduce specific risk to well managed clients.
Govy support for the lending thru new mechanisms does not require funding but simply what is in effect sovereign insurance of the credit profile of the key players in the market.Since the debt is secure and the national employment prospects are in effect already underwritten by the Goverment,the sensible course for all is for the wholesale provision of credit insurance to key small and medium/large businesses to reflect the true risks involved (maximally 3% to 5%) rather than rely on the gross loss of sentiment in the market to lose jobs,stock values etc etc.
Lets use the scalpel not the cutlass.The patient will prosper if we use this and the Govt will save the economy without investing in the principal but focussing on the insurance of the margin
The arbitrage between the actual risk and the potential value of the loss of insurance is equity in nature and price as we see from the effect on the retailers stock value collapse when credit insuarnce is withdrawn.That is where smart finance now is targetted.
Complain about this comment
It's called bait and switch.
Next trick please, bored now
Complain about this comment
Supercalmdown
With regards to nationalising house builders, isn't it easier for the Government to get them to build more council (or Housing Association) houses then to nationalising the industry? I heard on the Today programme this morning that there are millions waiting for social housing according to Shelter.
With the Tories now getting anal about public spending buttressed with the general election being potentially not far away I can't now see the Government building these homes and helping the building industry. It seems everyone, except the Tories, now realises that increasing public spending is not only inevitable but immensely desirable! We need to get the Tories back into fold - they didn't oppose the Government during the Iraq war fiasco so why oppose them now!
Complain about this comment
#8 ‘Again Gov't focusing on the wrong things.
How about a plan to rebuild Britain’s industry?’
You can’t produce an engineer in six months. Not even in two years.
Although it may take many years to achieve, 'The Change' as Mr Obama says, must start as soon as possible!
Complain about this comment
Never has £400bn brought so little...
So the entire 'we need cash to lend again' was spin?
*blink* *blink*
By the way, whats happening with Granite this morning?
Complain about this comment
Robert,
How on earth can you report this?:
"Or to put it more bluntly, the transfer to our banks of so much of our cash WASN'T designed to kickstart lending by our banks - although it's unsurprising that many of you think that's what it was all about, because ministers created that impression.
...And in the very next paragraph report this?:
The chancellor STIPULATED that RECIPIENTS OF THE CAPITAL element of the bailout funds-..-SHOULD MAINTAIN "over the next three years the AVAILABILITY and ACTIVE marketing of competitively priced LENDING to homeowners and to small businesses at 2007 levels."
Am I the only person questioning this blatant and rather condescending contradiction?
Wake up people - this is all becoming a really sick joke.
Complain about this comment
Re Credit Inurance
YEP it can still be had the rates are sky high.
Ive abandoned doing it we are just taking the PILL.
19,953,801 pounds sterling YTD. BAD DEBT.
I must say thankyou to:
Brown
Darling
King
And various Chief Executives
Complain about this comment
Good analytics Rob.
My only problem with your assessement is it does not deal with the inlfationary problems caused by simply printing all this money. The short term outlook for inflation is benign, I agree, but with money supply increasing exponentially and industry contracting (due to repayment of debt) the number of goods is going to contract, chasing an increased money supply, causing hyperinflation. (Not Zimbabwe style, but 10 - 15% within the next 12 - 18 months.) Because the economy will still not have recovered the BofE will not be able to raise rates, so we will face a very difficult time. This will lead to the same kind of situation as happened in Japan in the 90's.
Ultimately sometimes the best course of action to solve a problem is 'just do nothing.' (Or at the very least do just enough to keep key components of industry, in this case companies with sound balance sheets, afloat.)
Unfortunately, politicians and in particular the bunch of incompetents we have at the helm right now don't know the meaning of 'just do nothing' and will continue to mess things up even more.
Complain about this comment
POST 35
150 days??
180 more like.
One retailer we dealt with wanted 365.
Complain about this comment
Trying to kick-start the British economy is like trying to resuscitate a cadaver, it is futile.
Though to a large extent, Brown is right that this is a global crisis- and thus similar action elsewhere is equally pointless, he is disingenuous in trying to extricate himself from the considerable part that he played.
The fact remains, in spite of its numerous defenders, we are seeing the collapse of the capitalist system as we know it. For sure, it has been the best economic system known to mankind, and until the modern age, less susceptible to the foibles of human behaviour than, say, communism. However, globalisation, facilitating, as it has, the mass exploitation of labour, together with the considerable advances in technology necessitating less actual labour, has brought us to this position.
The western world sought to compensate for the reverse correlation between the gradual reduction in salaries and the higher cost of living caused by this process. Credit was the mechanism used to fill the gap, even though it had a limited shelf life. What is most remarkable is how long they managed to keep the illusion going, but like all con tricks the luck had to run out at some stage.
We need new ideas - perhaps even new leaders - though until we accept the nature of the problem, we are likely to struggle on until the inevitable becomes clear.
Complain about this comment
Which is why the pre-Budget Report on Monday is certain to contain measures designed to increase the flow of funds to our banks for transmission to homebuyers and homeowners in the form of mortgages.
OK, the first draw down was to prevent the banks from imploding, stablise balance sheets ang get them lending again.
The second drawdown is designed to transmit my tax pounds due in 2015 to people that want mortgages, to do this at 2007 levels at 2008 rates, deposits and admin charges in an environment of crashing house prices.
Those of you tempted to get a mortgage under these conditions and fortunate enough to have the 20% deposit and the AAA+ credit rating please stand up.
Complain about this comment
#12 AlphaGlen
"It is fair to make people put 10% to 15% deposit but lend them at 0.5% above BOE rate."
It would not be possible. The sterling LIBOR is 5.99% this morning.
The BOE rate is the overnight rate, I think?
I agree with your sentiment.
Complain about this comment
14,
That level of borrowing IS unsustainable in the long term, those guys are toast I'm afraid.
On the bright side, they enjoyed themselves when times were good - Surely thats what life is all about?
A shroud has no pockets!
Complain about this comment
In addition to my previous comment - you are right Robert, it's seems many people don't understand.
The way 'it was' didn't work, it broke!
The was 'it is' (reduced credit, higher interest rates, more cautious lending - perm any 3 from 10) will work.
We've been kidding ourselves for the past 10 years and too many people thought it was the norm.
As a business I can borrow, banks are lending - yes you've got to have a sound business model and it is at a higher rate, but I'm presuming the field is level and I want banks to be risk averse.
And I can get a mortgage at a lower level of interest and with a similar deposit to my first 25yrs ago!
The recession is the transition period, look forward to the 'good old days' guys!
Complain about this comment
The impact of the so called bail-out has been overblown by the politicans and it has been mis-sold to the public, either by design or by lack of information, probably the latter. When the 'positive' impact then fails to occur there is a backlash and a loss of credibilty and that is what is happening now, how deep or how long that process goes on is another matter. It was obvious that a great deal of mortgage and remortgage money was finding its way onto the high street in the last five years. In fact the principle of the 125% mortgage, the most extreme mortgage package made available, was to cover fitting out the property, ie high street spend included. The financial sector is to shrink, the construction sector is to shrink, side effects in other areas. The weakness of any general agreement to boost lending is that loans are made at an individual level, ie case by case. If the risk assessment is poor then it individually does not proceed, either side, borrower or lended abort. The government is not involved in the commercial process, wants to take no risk in it, and has specifically stated that as a position so it cannot complain. Lending is bound to slow in an adverse environment and realistically how many first time buyers are going to be rushing to buy with continued price slump forecast. Much of the recent mortgage lending has to have been remortgaging. Big ticket sales have been pumped up and now collapsed, unlikely to return in a hurry, another sector affected. No wonder Brown did not want to have an election a year ago with this on the horizon. Until the housing market stabises things are in trouble. At this point it is consumer house buying confidence which is the problem and making funds available will have very little impact. It is a deflationary spiral. The problem is you cannot benefit from commerce unless you take a risk and whilst the government likes to try and say it wants to benefit and play in the market it wants to take no risk so its participation is not really there. Incidentally the problem with the opposition policies so far is that they are even more risk adverse. Essentially all the risk taking is left to the borrower who is saying no thanks for the moment, so the slide will continue. The issue is loss of capital not interest rates. It is difficult to have any sympathy with HMG, it created a morbidly obese ecomony which has had an involuntary gastric bypass and now wants the patient to have a doughnut diet again. Panic due to seep into play in the Spring if thing remain moribund. The global activist policy is not going to help, will be seen as another failure to provide uplift. The UK voter is worried about their individual economic position, not that of a voter in another country
Complain about this comment
Of course UK banks should not be lending on the same terms as they were in 2007, but neither should they be allowed to milk customers who're not bad credit risks.
Next month I dare say we'll have UK base rates at 2%, and mortgage rates at c. 4.5%, but it's obviously going to be a while= a few years before the banks have made enough out of that gap to patch up their balance sheets.
In the meantime, the government should take as many steps as necessary to support the economy, without making the mistake of supporting the insupportable, like trying to get house prices back up.
It's a very difficult task to do enough of this stimulation to prevent serious prolonged deflation to take hold, but at the same time not to cause serious inflation.
On sterling, a dollar fifty to the pound is pretty close to fair value, and at a euro twenty it's only about 10 percent below.
Forget about importing inflation, it's those who are trying to export to us who'll have the problem, if we can't afford their finished goods. A year or so of a 'weak' currency would keep some of our exporters in business. It only becomes a problem for the UK if we're still in this mess after commodity and food prices have recovered- this looks a way off at the moment.
I have read several people on RP's blog calling for a reduction in VAT to stimulate consumption. This seems rather odd, as it would simply increase demand for mainly imported luxury goods, and provide little stimulus for the UK economy. Instead, why not partially fund a swingeing cut in basic rate income tax with a commensurate hike in VAT (not including fuel)?
This would have the effect of putting more cash in people's bank accounts to pay their mortgages etc, but discourage them from splurging it on imported luxury goods, like we Brits have tended to do in the past.
Complain about this comment
RE POST 43.
We do question it!!
I tend to go off PISTE.
We all know the BBC feed us what tripe Labour dish up.
Unlike Oliver we dont WANT MORE.
Complain about this comment
As a Commercial Asset Finance broker, I am increasingly worried about the holes that are now vast within my sector. The bank owned funders have either withdrawn facilities to the sector via brokers completely or are now "cherry picking" the deals they want.
The independent funders that would pick up business on an "asset secure" basis are now valuing assets more cautiously and making lending conditions difficult. Prices across the board are up - risk and LIBOR influenced, I can live with increased prices if lending is available but I, like many brokers I am in contact with have armfuls of commercial deals that have no funding home as there is smply nothing available to them.
Customers are aware they need to pay more but can accept this if it means they get the new equipment / machinery / refinance they are after but the price is irrelevant if the lack of availability continues. 12 months ago there was massive overlay in this sector, with many funders fighting over deals, now there are huge gaps. In the long run, the market will settle, funders will become consistent, gaps will be smaller and brokers like myself will be able to apply the skill and expertise we have to deliver service and appropriate solutions to our customers.
This market rationalisation will take some casualties but that, for me, is life, too many have got away with too much for too long but there are good people being affected through no fault of their own.
I have experienced my own bank withdrawing the business overdraft, after trying to double its margin over base. From what i hear, I am not unique in this position but I do believe that everyone has to play a role in "keeping the wheels moving" - bailing the banks out just to shore up their reserves and liquidity ratios is not the singular answer. Whether we like it or not, business need to continue to invest in new equipment, to buy stock etc, this requires funding and the markets need stimulus and encouragement to make this happen. Things like SFLG need to be less bureaucratic and more accessible but any change needs to happen quickly before confidence evaporates completely.
Complain about this comment
#37 Alexander - you're slowly getting there. I looked again at the last lines of "Nineteen Eighty-Four" yesterday, and there are parallels with your painful journey.
"He was back in the Ministry of Love, with everything forgiven, his soul white as snow.
But it was all right, everything was all right, the struggle was finished. He loved Big Brother."
;-)
Complain about this comment
Just Think.
If you had a Pal who earned 18K pa
Would you lend him 80 K to buy a house
Would you lend him 8 k to buy a car
Would you give him a Credit Card with a 5 k limit.
The Banks have done this stuff for years.
It has got to STOP.
Complain about this comment
So deliberately misleading the general public about the purpose of the bank bailout was "politically necessary" because of the "public sense of outrage". Why?
Why did the politicians find it necessary to blame the banks in the first place? What justification was there for swamping the channels of communication with the idea that it was the banks, and the banks alone, who should be held responsible for the financial crisis? Was the "public sense of outrage" constructed from a rational allocation of responsibility or from a massive campaign of disinformation designed only to establish a scapegoat?
"But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford and Bingley and Northern Rock, and a freeze on new lending by small building societies."
What? Are you really trying to create the impression that the problems in the mortgage market aren't directly the result of a correction of the excesses of the past? Might it not be more correctly informative to say that the 50% of lending capacity has been taken out by the mortgage lenders' difficulty in borrowing funds, because wholesale lenders are concerned about the security of the mortgage lenders, because they fear that mortgage lenders have failed to make adequate provision for the risk of falling house prices?
And why have they failed to make provision for the risk of falling house prices? Because government policy over the last 15-20 years had left them with no commercial option except to believe that the state had determined that the house price bubble was too big to burst. If mortgage lenders didn't work with this mantra they would be out of business. Rational reservations were not strong enough to allow survival out of the mainstream. And, of course, the more enthusiastically one discarded outdated thinking, the more profit one gained from modernity, and the deeper in the mire one was when it became obvious that it was a sham.
"Our non-financial companies' gross debt is equivalent to 120% of our annual economic output. And much of that debt is concentrated in big companies in the sectors most damaged by the shrinkage of the economy."
So, was it really a very good idea to flood the market with cheap money, thereby making it commercially impossible for major companies to stand aside from the race to debt-fuelled growth?
Complain about this comment
Good Morning!
Your article gives the impression that smaller UK businesses are free of debt and have cash reserves; it also states that larger businesses are generally in poor financial condition and struggling under excessive gearing. This may be the case but it’s happened despite HMG’s meddling. HMG does not want small businesses in the UK. They may say that small businesses are the engine-room of the economy but, like a lot of things politicians say, it’s untrue.
Successive governments have penalised small businesses and given larger businesses advantages with various financial instruments. Governments do this because small businesses are more expensive to tax that larger ones. HMG collected £432,000,000,000 in taxes last year; 80% of that total came from two hundred companies in the form of Income Tax and National Insurance contributions (collected by employers), excise duties and VAT.
VAT is a tax on turn-over and whilst VAT is proportionally 17.5% whatever the business, bigger businesses make bigger bottom-line contributions. Even if a company is showing a trading loss at year-end it will still have paid VAT on turn-over.
From HMG’s perspective, to have a small number of large compliant un-paid tax-gatherers is more economical than chasing hundreds of thousands of small traders at HMRC’s expense and as we all know, HMG departments do strive to be efficient!
Another privilege that larger businesses have that is denied most small businesses is extended credit. It is not unusual for a supplier of materials to give a large retail chain 90 days credit whilst requiring settlement within 30 days from a small retailer – for the same products.
So, even with cheap credit, massive turn-over and loans from shareholders in the form of rights issues, most large companies manage to make a trading loss.
However, it’s not all bad, you’ll be reassured to know that the board of directors usually retain their pay and benefits!
Complain about this comment
#11 alexandercurzon
"The reason why the Banks both wont and cant lend,is that the assets they have lent on are so overvalued."
Agreed. Every Credit Rating Agency in the world MISSED this fact despite a warning from Warren Buffett FIVE YEARS AGO.
"'Weapons of financial mass destruction', was how the billionaire investor described the newfangled securities. “The range of derivatives contracts is limited only by the imagination of man or sometimes, so it seems, madmen,” Buffett said in his 2003 letter to Berkshire Hathaway Inc shareholders. "
However, the G20 Declaration states:
"We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. "
and:
"Regulators should take steps to ensure that credit rating agencies meet the highest standards of the international organization of securities regulators and that they avoid conflicts of interest, provide greater disclosure to investors and to issuers, and differentiate ratings for complex products. This will help ensure that credit rating agencies have the right incentives and appropriate oversight to enable them to perform their important role in providing unbiased information and assessments to markets.
• The international organization of securities regulators should review credit rating agencies' adoption "
So the CRA's will be held more responsible from now on.
Complain about this comment
If the Chancellor wants to target help to mortgage payers why doesn't he reintroduce MIRAS. The banks keep their margin, the payers get relief. Everybody happy! (Er except the revenue! but afterall 'tax doesn't have to be taxing!')
Complain about this comment
#36 - the reason is simple but it's not the one your cite - per se, though there is no doubt now (with fabulous hindsight) that many borrowed too much and many lent too much. That said it was all fine as long we were told the 'books balanced' which is exactly what we were told by Brown ' robust, stable' blah blah.
The reason Britain itself is in such trouble - and has been for decades heading to this state) is it doesn't export near enough. Because it just imports everything. With one or two marginal exceptions, but the big earners have all gone.
Hardly surprising in Labour's time that things have gotten dramatically worse - Brown actively encouraged the pound to be held at a completely unrealistic value against the USD for so long.
GC
Complain about this comment
Imagine that the interest rate cuts are coconut. We all know that under that tough furry exterior lies a milky suprise. In this case, the rates being passed on to borrowers.
However, the problem is that only the banks themselves have the nutcracker and therefore are the only parties with access to the creamy centre of lower rates, while everyone else scratches at the hard shell, with no nutcracker at hand.
Complain about this comment
GOLY GOSH 55 POSTINGS HERE TODAY NO
DELETIONS YET????????????????????????
Complain about this comment
The point is, however, that in spite of the large accumulated debt of the large corporations, they are more or less self-financing providing that their price does not fall under variable cost.
On the other hand, the bulk of SMEs finance themselves from loans from friends and family (obviously not reported in the banking sector statistics) and from overdraft. Now overdrafts can be cut at any time, unlike coporate bonds and fixed terms credits characteristics of the large company sector.
Thus, if the government wants to support SMEs on the credit/debit side, they need to guarantee overdrafts, which I can't see they would do.
Complain about this comment
Robert -- you state above:
"But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford & Bingley and Northern Rock, and a freeze on new lending by small building societies."
Rather arrogant statement. There are readers out here that understand economics and banking and they don't deserve to be lectured in the manner. It is exactly why Gordon Brown is so unpopular. It is his "I know, you do" attitude that really irritates the majority of the public.
Please keep to informative analysis and commentary -- not PR and spin provided by the Labour government.
Complain about this comment
Complain about this comment
One of the main reasons that so many large and medium sized British companies have huge loan requirements is because they we purchased with borrowed money which was then transferred to their books by the private equity 'investors'. These 'skilled investors' noticed that is was possible to buy a company with its own debt.
Robert Maxwell showed the way and they all followed. The Banks were only too pleased to loan (him and) them the money as the loan was secured on the assets of the company that was been purchased. Of course these private equity investors made a gigantic profit along the way, as did the bankers.
My bet is that the companies that will have to be bailed out by the Government are these very same companies. Again we see privatised profits and socialised losses.
Most of this problems can really be put at the door of the bankers who encourage these silly investment structures. These are the very same people who took vast bonuses for such financial chicanery! We need to find some fair mechanism to recover from these people their ill-gotten gains.
Complain about this comment
I run a small business that has used the Small Firms Guarantee Scheme (a total of 3 times so I know what I'm talking about). It's not easy to apply for and the costs are high - it works best for businesses without tangible assets.
The banks don't really like it as it has a lot of admin involved. The interest rate is 5% over LIBOR plus an insurance premium paid to DTI. You need a friendly and persistent business bank manager to put it through the internal processes.
The shared risk (75% govt., 25% bank) means banks have to approve the lending anyway on a business plan.
I don't think extending the SFLG will work in the short term - if a business is in trouble anyway it will not get SFLG loan funding. Also - the maximum amount available is 250K which is not really that much.
Complain about this comment
Robert -- you state above:
"But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford & Bingley and Northern Rock, and a freeze on new lending by small building societies."
Rather arrogant statement. There are readers out here that understand economics and banking and they don't deserve to be lectured in the manner. It is exactly why Gordon Brown is so unpopular. It is his "I know, you do" attitude that really irritates the majority of the public.
Please keep to informative analysis and commentary -- not PR and spin provided by the Labour government.
Complain about this comment
Very interesting insight - which gives me mixed reactions. Having run small businesses for 20 years I have first hand experience of banks lending to SMEs.
For the first 10 years I never had a problem negotiating good facilities. But in the last 10 years high street banks have pulled out of the SME market.
That's why SMEs are not debt ridden & are healthier than other sectors.
That larger companies are debt ridden confirms the disadvantageous environment for SMEs with a lack of funding.
Going forward government should support SMEs and maybe they will be the engine of business recovery. After recovery we should tighten the screws on large business, ween them off lending and get them fitter again. In so doing there will be a more even playing fields for SMEs.
I suspect these days High St banks don't even have the capability to lend, due to lack of knowledge on the ground (they don't have traditional lending skills any more). Maybe we need a new bank for SMEs - rather like 3i of old except first line lending rather than equity.
Complain about this comment
Supercalmdown
I agree with you that the real solution is the creation/recreation/development of manufacturing. However, the changes in the institutional system in the last 30 odd years means that it could be done only through public ownership and I cannot see much appetite for that in our elite and thanks to the brainwashing (private sector is more efficient than public - there's no systematic evidence for that and also it completely ignores the question of effectiveness...).
Complain about this comment
It seems to me, that this cash injection into the banking system is a lot like an irritant farmer stamping on the gas pedal of his stalled tractor.
On the surface, it seems as if good old farmer Gordon and his flock of ministers are trying to kickstart the financial engine into picking up again, however in reality they are just wasting the precious financial fuel reserves of the nations economy, carrying too much cattle in their financial trailer.
Complain about this comment
It sad but not surprising to see that the Government and its state propaganda enterprise continue to hold the general population in such contempt.
Allow me to offer a brief translation:
"Hello stupid people, some of you have formed the view that everything would be OK - that´s not the case and more (of your) money will be needed. You probably formed this view on the basis that we misled you. The ignorant and the true proles amongst you may conclude that we lied to you - but we are sophisticated would do no such thing, a bit of sophistry and dissembling maybe, but us lie? - never.
Look how stupid we think you are now. Come on cheer us on for acting to prevent a meltdown of most of the banks. The banks won´t lend to anyone, but they still exist so obviously that´s a good thing.
A few people that can´t get access to credit will probably whinge a bit, but their whinging can be drowned out by the cheering of all the people who still have access to their savings.
For our next trick we are going to try out a spot of hyper inflation. We´re not going to tell you this upfront - but we´ll drop a few hints so when it comes to pass we can say that we´ve always been clear.
At the end of the day we will wipe out the value of peoples savings - but the banks will still exist, and that obviously is a good thing. Only the truly ignorant would not understand. If you ask anymore questions we´ll throw you in prison - perhaps you have been over feeding your dog, or failing to sort your rubbish properly - 10 pound notes cannot be put in the same bin as 5 pound notes."
Complain about this comment
Regarding "kick starting the mortgage market":
This will only re-start as a consequence of some movement in the housing market. Currently sellers and buyers expectations are so far apart that nobody is buying, nobody is selling and therefore no mortgage required, thanks.
The sooner sellers start to realise that they can't sell at last year's price, the sooner the market will start moving.
I'm sure that there are many buyers out there who could get a mortgage but simply don't want one as they don't want to pay a (still) inflated price for a house.
They need to come down another 30% on average IMHO before they are valued correctly.
As somebody says above, there are two choices:
1. Today's prices + more irresponsible lending
or....
2. MUCH lower prices that will allow prudent lending.
That's it.
Complain about this comment
I say bail out all the financial institutions in peril and keep bailing until they're safe.Then when they are they'll be in the public debt and we'll be able to live with a highly regulated and hopefully honest by implication financial system monitored by equally chastened and erstwhile complicit governments. The days of fiduciary sailing with the wind have come to an end,and the piracy on those high seas,once at Somalian levels, has abruptly waned. The worry ,of course, is the short term pain of a recession with job losses and home repossessions etc.Most people with a semblance of intellect will have insulated themselves as far as possible from disaster but many obviously haven't,and how much insulation will one need?
Complain about this comment
#34 "Somalia Outlet for Distressed Stock"
Excellent !! Love it !! Just love it !!
Complain about this comment
Mr. Peston today said:
"Give me a D"
"Give me an A"
"Give me a R"
.... ad nauseam....
Can Darling kickstart lending?
No. Why?
Because asset prices are in the toilet.
Why?
Because someone (Gordon Brown) left the credit taps on and the economy was flooded with it.
We will have to wait for the effects of excessive credit to drain out of asset prices so they find their real value before ANYONE will lend on favourable terms to ANYONE.
You cannot inflate M4 money supply by 10-15% year which Brown did for OVER A DECADE and expect asset prices to be correctly valued.
12m Libor is still 4.25% so we've hit the effective rock bottom of mortgage interest rate cuts.
All further cuts will do is hit cash deposits which is exactly what shouldn't be happening. We already have negative real interest rates.
As for banks making money, GOOD, they are recapitalising which has to happen.
As for small businesses, they are not debt free, that is very misleading. They need to service that debt and what is the one precious commodity they need.
A flow of cash.
Still, it's great to know that the Chancellor pushed through tax hike over tax hike on small, medium and large businesses.
Darling should focus not on lending but stimulating aggregate demand.
Cut VAT, cut corporate tax and cut income tax.
And fund it by cutting out government waste, £65bn a year spent on quangos, £20bn for an assortment of unneeded IT projects, NOT BORROWING £200bn over the next three years.
Finally, can he force the banks to lend?
He should know, you cannot buck the market.
Brown and Darling like to remind Cameron so often, now they will learn it for themselves.
Complain about this comment
Post 34 why would anyone buy and overpriced jumper even at 20% off today at M&S?
Their woollen goods are at least 40 to 50% overpriced. Wait until the Saturday after Christmas and something on sale for GBP 50 to GBP 60 in the sale today will be in the sale for GBP 18 to GBP 25.
Post 30 nice to see Mslow's pyramid of aspiration making an appearance in the blog brings back memories of economic theory lectures at University.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
re post 60
Ive been in Buffet mode since 1998.
Although i've churned property through to 2006 when i thought it was time to quit.
Complain about this comment
46 alexanderc
We had that sort of nonsense in the early nineties, not at that level thankfully. One phone ringing with muppets wanting consultancy, on the other phone an outgoing call to an accounts department at the same outfit(s) which could not say when it, or if, was going to pay, and peddling duff cheques to buy time. Or large businesses folding shell operations to delete debt. Same people, same desk, same building, different company on paper. Effectively the end of the supply chain tries to use the earlier players to fund their survival in a downturn, as they cannot all survive, they pull down the supply chain unless the supply chain is very careful.
Whilst small businesses may be functioning on a zero debt sheet many individuals have to allow the banks to take a personal charge on their assets to gain access to borrowing, including directors of limited companies. The zero debt balance is maintained by cashflow and it is a very naive statement to suggest this sector is safe. Sounds very much like a politically motivated information bite as a precluder to saying effectively no help for small outfits. Incidentally following the early nineties it was argued that invoices should be legally due at the end of a month as is the case on the continent, but guess what, it was sidestepped under big business pressure.
Complain about this comment
Robert, this statement "On a net aggregated basis, small British businesses have zero debt." reminds me ofSchrödinger's cat paradox
According to classical quantum theory the cat is neither alive nor dead (until someone looks in the box.) So no problems then?
Complain about this comment
Sorry Robert to ask such an obvious question, but I'm still wondering..... As the government owns most of several banks anyway, why doesn't it start a "People's Bank", owned by us, the taxpayer, and kick start the economy by doing some serious lending? It couldn't cost much more than the money we're throwing at private banks in handfuls, and at least the taxpayer would benefit from the enormous profits that banks make.
People would queue up to transfer their mortgage etc to a state-owned bank, surely?
Or am I just being naive?
Complain about this comment
I run a small business that provides services to the NHS and Department of Health. We have a substanial amount of unpaid invoices some of which are two months overdue .
Mr Brown says that the Public Sector are to pay invoices from small businesses with 10 days.
That is just nonsense because they don't. If payment was received that promptly small businesses would not need all the funding that is being talked about by the Government.
Complain about this comment
#53 It is far easier said than done. The UK public is now addicted to the spend. spend regime. Give them any money, and they'll spend it rather than save it or reduce their mortgages.
So you will reduce the supply of taxpayers' money without reducing the cause(s) of the problem.
As for foreign imports, until Britain can magically produce cheap necessities of life, there will have to be cheap imports from abroad. Stopping the imports will not magically make the demand go away.
Complain about this comment
Robert,
The banks debt was held by others.
The banks risked failing.
The others would have lost, and Britain's reputation, and ability to import would have taken a sharp dive.
Instead -
The banks debt was taken over by HM's Government
The banks will fail with huge debt.
UK's taxpayers will have huge debt, and taxes to the heaven to repay the debt for the next 20 years.
And as a result, Britain's ability to import will take a sharp dive (same as above).
For the sake of a few month's extra survival, wasn't it a better choice to let the other's take the pain, and leave us British citizens without their debt ?
Complain about this comment
So what you are saying in effect is that Brown and Darling thought it was necessary to lie over lending to businesses at 2007 levels to the public because of a sense of outrage over lending tax payers to the banks. So manipulation of the pubic is ok because it was politically necessary I find that a bit rich.
I wish as an ex bank worker someone would explain exactly how this bail out is supposed to work. When I worked in banks you had to identify toxic debt and know which banks were exposed to toxic debt. This debt would be separated from the good part and dealt with. As I have heard nothing that suggests this has been done that is the first problem.
So how on earth with banks forced to prop up toxic debt, lend out to businesses and morgages, at low rate and because of low interest rates not receive the investment they need ever get out of the cycle of debt, let alone lend out to all these people without a massive injection of cash.
As far as I know you have to let the bad debt fail and recoup what you can to re-balance your books. That means let businesses fall and poor morgages go to the wall.
Complain about this comment
Big business represents about 3% of all business in the UK. They employ some 50% of the working population.
Small business accounts for 47% of all business and combined with government employment this accounts for the rest.
Yes it is corporate UK that will cause the biggest job losses and if the tories have their way government will contribute too.
Complain about this comment
As someone who has worked with small companies for a number of years I find the idea, that increasing the small firms loan guarentee system will be of any use, to be laughable.
It is almost impossible to get a loan for many small business under the current system. There are endless restrictions on who can get access the money.
Even if you do manage the near impossible the banks want personal guarentees from the directors for the whole amount (including the past suposedly covered by the government). What is the incentive hear
This is yet another triumph of talk over action
Complain about this comment
Retail sales robust-only 0.1% decline and still an annual increase
Mortgage numbers approved for October increase by 7% from previous month
Cammell Laird makes profit and recruits more staff
Rolls Royce loosing 2000 jobs - in fact only 160 in UK
Citibank loose 50,000 plus jobs - vast majority through sales of businesses and overseas losses
Against all these headlines have been BBC negative comments with minimum explanation or context.
All BBC headlines are now badged "The Downturn" with a trademark arrow. When will "The Downturn" end - when the BBC says so?
More balanced, independant and informative information please without the constant editorials.
Complain about this comment
#55
I would be interested to know what businesses you have in mind that would be worth financing. I have nearly all my cash in Yen, which has served me well over the last year or so, but it has now nearly doubled and I suspect it is near time to repatriate it.
My other cash is in various banks and building societies on 1 year bonds earning an average of 6.5% and underwritten against failure of the bank/BS by the FSA.
So the question becomes where to safely invest my repatriated funds, what can be offered that represents value and safety to me as an investor?
Complain about this comment
Great story on Bloomberg today entitled:
"Swedish Banks Shun Government Plan, Riling Ministers, Companies"
To quote from Niklas Magnusson's article:
" Nordea AB, Svenska Handelsbanken AB and SEB AB, Sweden's biggest banks, are drawing fire from government officials for shunning the state's plan to bolster the financial system by guaranteeing their debt.
The three banks, which dodged the worst of the global credit crisis, have yet to use the program, announced Oct. 20. Finance Minister Anders Borg, who meets the banks today, has threatened ``harsher'' terms to get them to go along. Financial Markets Minister Mats Odell has called the banks ``free-riders.''
...While banks say the plan may give the state too much clout over their strategy, politicians and business executives contend the program will make banks more willing to lend, thereby helping companies and stimulating economic growth.
``If the banks do not participate voluntarily and cannot show that they can create liquidity in the system themselves, then the government must force the banks to join the system,'' said Anna-Stina Nordmark Nilsson, the chief executive officer of Foeretagarna, which represents 70,000 Swedish entrepreneurs."
So, Robert, who is right here? Your mates GB and Ally D who say support for banks is simply to stop them failing and is not intended to stimulate lending? Or the Swedish government whose State support program is specificly aimed at unfreezing the credit market?
I have no idea who is right, though worth noting that Sweden had a similar localised banking crisis in the early 1990s that they successfully worked through, so at least they have experience of this type of situation. Also note that John McFall (Chair of the Treasury Select Committee) has visited both Sweden and Japan to learn lessons from their banking crises (Sweden "done good", Japan failed miserably: lessons to be learned from both). Maybe RP could suggest Ally D have a chat with JMcF and collaberate on War Communique # 976 (aka RP's next blog).
Complain about this comment
There was never any rational business sense in propping up the banks, the primary driver behind the whole decision making process was political. Crash Gordon does not want to have to stand up in Parliament and annouce that all those nice voters have lost their cash because he didn't understand that an economy based on borrowing has to contract at some point in the future.
The banks are run as a business - to make a profit. Asking them nicely to start lending to people of the basis of a political decision masquerading as a public interest decision was never going to be taken seriously by the banks.
The only thing that will start the process going again is public opinion. Anyone notice how the banks didn't drop their lending rates after Darling had a go, but as soon as the red-top press got stuck in, down they came.
Complain about this comment
As JayPee28bpr says the function of the banks is to "hoover up spare cash" and use it as a basis for lending to those that need to spend. They may still try to do the hoovering but, having burnt their fingers so badly, they are unlikely to resume lending such large multiples of the deposits in the short to medium term. The economy cannot recover fully until someone takes over their role.
That someone has to be the government. It can hoover up the spare cash in the short term by selling bonds. But eventually the real interest rates it has to offer will become prohibitive and it will need to use taxation to get its hands on the spare cash. This will be electoral suicide since the wealthy fund the political parties and own most of the press, and will mount a tremendous campaign to protect their cash.
Mr Cameron has seen his opportunity, and has shifted his ground to take advantage of the government's dilemma. Will the government be brave enough to press on and do what is necessary?
Complain about this comment
#68 This is what is known in the trade, by its American name, as "leveraged buyout" !! It's not very different from borrow-to-buy-to-let !!
They work on the upswing and burn up on reentry !! The American car companies were very good at that and now no one will touch them with a 500 mile barge pole !! I think, if I am not mistaken, the American owners of Man U did that too !!
Complain about this comment
We hear a lot about the UK being in debt but I thought that Germany France Belgium Japan and US all greater debt as a percentage of GDP
Complain about this comment
What meltdown? We've been told that that what would have happened but we dont know. Seem more like a scare tactic to bail out the banks with taxpayers money more than anything else.
Had the governemnt NOT acted then the risky, poorly run banks would have gone bust. No bad thing.
There would not have been the moral hazard and rent seeking that we now have where banks are buying other banks with toxic debt in order to qualify for governemtn handouts.
In other words this is a governemnt run scam, with the taxpayers as the victim.
Complain about this comment
Oh so they lied again did they? Big surprise. Who'd have thunk it?
What's funny is that the government are so deluded they probably still think that the public actually bother to listen to anything they say any more.
If Gordon Brown announced it was going to rain, most people would know to go out in shorts and sunglasses.
Trust in politicians, the most devalued and debased currency of all them all.
Complain about this comment
Very simple! Allow investing in residential properties through a Self Invested Personal Pension. Make a U Turn or a U Turn full 360 degrees. Ctrl Z and a Ctrl Z.
Complain about this comment
Good analysis, Robert, and your post certainly reflects at least one situation I know of - a small business run conservatively with very good cash deposits that will not need to borrow anything if it wants to invest.
But with the very large companies that do carry a huge amount of debt, the government needs to be very careful indeed before starting to, in effect, lend directly to them.
Why?
Well, the people in charge of these heavily borrowed outfits have largely been financial engineers and not proper business directors. They have neglected the actual businesses themselves, in other words not been interested in taking 'business' risks to serve their customers, but concentrated only on taking 'financial' risks with an existing income stream that they have taken for granted.
So they are not the right people at all to lend money to (... speaking as a taxpayer). The best thing that can happen is for them to start breaking up their businesses and selling them on to others who can take risks for their customers rather than against them.
What the government should be doing now, having led the way in putting together a proper banking rescue package, is to seize what politically and economically is an incredible opportunity to make the UK a much fairer and better place for everyone to work, and get rid of some of the tax anomalies in the system.
GB's 'fiscal stimulus' package should a). be a large and rebalancing tax cut (large cuts for low earners and a small increase for high earners) and b). be matched by a huge government programme to cut waste and improve efficiency in government spending.
The a). could start with increasing very significantly the personal tax allowances, at the same time as taking the ceiling off Employers National Insurance contributions of around 12% and the b). if done credibly, could engender huge political support from those of us not working in the public sector, but who are looking at it and thinking..... how is this lot going to do their bit to help us get out of this mess?
Complain about this comment
Fundamentally cash is scarce, right? Theory of demand and supply suggests that if demand is high and product low price can be high. Hence the banks in a healthier profit state.
However, this reminds me of the economic debates of the 80s. This has all been brought about by short termist policy by government and strategy by banks and business. And, it appears that business and the government are using the same technique to try to dig themselves out of this hole.
Perhaps if more long term investment was considered and share performance considered over say 3-5 years rather than 6 month predictions and year end out-turn, markets and in turn our monetary values would be more stable.
With regard to Darling's policies and our tax money lets wait 3 years before we judge success and expect to see dividends. Simply we'll just have to ride this one out.
Complain about this comment
"Whether we like it or not, yet more taxpayers' money is bound to be thrown at reviving the mortgage market."
It's doomed. Let it crash. That's what it needs. Brown is just trying to keep the bubble inflated long enough to scrap through a General Election in the spring.
We only have to look back to August 2005, when Merv was overridden and BoE base rate cut just as house prices were starting to soften, to see where prolonging a bubble gets us. It sends a signal that losses aren't possible; Brown will always step in with a bail out. More irresponsible behaviour results.
Complain about this comment
Well since the government has decided it has become expedient to lie to the public on a regular basis, as a bit of quid pro quo, I suggest that the public start lying to the government on their tax returns, to see if they like them apples.
Complain about this comment
I am not an economist and like every other 'ordinary man and woman' I've met knew that something like this was approaching years ago. Where I live, the average household income must be around £40k yet houses are being sold for £300k. How can they afford this? I've said in the past to my mates that if any government allowed interest rates to get past 8% they'd be lynched and this is what we've got - if they got that high, reposessions would go through the roof.
We have no other option to allow house prices to fall. It's not good for anyone to have PLACES WHERE WE LIVE to be unaffordable.
We're currently pumping towards half of all school leavers into University and they are coming out with horrendous debts and for them, debt is normal. Once they've finished their courses, they have to pay back the debt and then try to find 15-20% for a deposit on a house. Oh, and save for a pension. It's impossible on a graduate wage and this is another financial bubble that's going to hit the market in the next few years I will guess. Renting for young people is what they will do but you cannot raise a family in an area knowing you can be moved out of your house if the landlord deems he wants to sell. It's happened to my wife when she was younger and the landlord gave them three months to move out.
The big risk is that there's a LOT of service sector jobs that could go if people aren't spending. Everyday I walk around at dinnertime in the local shopping arcade and whilst it's busy, people aren't in the shops and not at the tills. If they aren't spending now, when will they? All the LCD TVs were bought with cheap credit and backed on houses and that's drying up rapidly.
If the banks STILL aren't lending, pull the plug on them. That was the entire point in backing them. If they won't, get Northern Rock to do it. We cannot be pumping money into these disgusting organisations without getting anything back.
Like I said, I'm not an economist. I do think though in years to come we will look back at these years and say they marked the end of globalised capitalism certainly as we know it. The financial industry will never be the same - or as large - as it was and neither will the profits. The housing market will take years to recover.
I run my own small business with just me in it but I've decided to call it quits in the new year. I've got some money in it and a reasonable customer base but I rely on big company contracts and they look like they'll dry up. The next few years scare me to death as to what's coming.
Complain about this comment
I'm a small business owner and a homeowner. Both had/have additional borrowing requirements. This process started 3 months ago. Anecdotally, what's happened since was not what we expected to see.
As things currently are, the requirement for the business was low hanging fruit and successful if not relatively expensive.
The home borrowing is a different story altogether.
After 2 months (and a 2% drop in base rates) the application process sees no conclusion. I've been reassured many times by my broker that this is not the hand of deliberate obstruction and delay, but administrative failings. This is a process that should usually take three weeks from start to finish. It's either they want to lend to me, but can't or... don't at all because since the start of the application the 0.64% above BBBE product this application relates to is now far less appetising and they'll find any reason not to.
This could well be an isolated experience - unless someone tells me otherwise. They want to lend
Complain about this comment
Interesting stuff Robert but it doesn't alter the fact that we're all being suckered for government loans that'll be paid for out of future taxation. It also doesn't help when we hear the crusty old neo-liberal hypocrites that have accepted this public money for their beloved banking buddies showing alarm at the thought that (God forbid) we should consider bailing out large manufacturers that create the real wealth in the economy. Look at the crisis in US auto manufacturers and the hair pulling going on at the thought that they should be helped. But, it's good that you point out that we were effectively lied to over the reasons for the initial bail-out of these banks. It raises questions though about what other 'porkies' they've been telling us. I suspect we're in for one hell of a ride over the next three years (only three?). Imagine the scenario: the rest of the eurozone pulling out of recession and good old UK PLC struggling to pay off all that debt. So we were in debt during the good times, in debt during the bad times and we'll be in debt as the good times start to roll again. This time, however, it'll have been created by the government.
Complain about this comment
Mr Preston
The impression I get from your reports is very Biased towards the Government. I dont get an indepent/critical feeling from reading your scripts.
Why dont savers get a mention of the hardship theyre having when the Base Rate keeps dropping ?
Complain about this comment
"... many of you think that's what it was all about, because ministers created that impression." RP
Is this a euphemism for lying to us!? It sure would have been nice if the leading economy journalists had set us straight on this at the time!
Anyway, just where is the money actually supposed to come from?
The banks have no money and needed refinancing. The government has no money because it is running a deficit. The people have no money (in general).
The only place money can come from is overseas investors (such as those that have built up a mountain of cash from our horrendous trade deficit) or we simple print some more.
Foreign investors are unlikely to be attracted by our low interest rates and high risk, and printing more money puts us in the same economic league as Robert Mugabe.
Complain about this comment
When I recently heard that Peter Mandelson was calling in the top "banking heads" with a view to getting them to start lending again I thought "what a waste of time " and I wrote the following and sent it to the BBC.
"As a Banker, let me explain why the £37b bail out for the top banks won't work in the way that the government intended. In return for the Government help they asked for borrowing levels to be returned to the levels of 2007. This is impossible, the banks won't do that.
Why?
Most business borrowing is secured against Guarantees by the directors or partners of the business. In turn the Guarantees are supported by a full legal mortgage over the director's house.
Here's the "crunch" with property values going down, bankers are presently going through their ledgers reducing the levels at which they can lend to their business customers because of this fact. In many cases where a business had full security covering it's borrowings, it probably hasn't at this moment in time, hence the reluctance of the banks to lend in the way the Government intended. After all, the Government can't have it both ways, if it blamed the banks for being reckless in the past then it can't blame them for "prudence" now.
In the event that a business account does not have full supporting security to cover the present borrowings of the business then the local bank manager must make a time consuming full application to its regional office. It is there that the decision is made to continue lending to the customer or not. A great deal will depend on the track record of the business. In the event that the business is allowed to continue then it will attract higher interest costs and a possible arrangement fee of say 1% of the total borrowing figure. If the business enjoyed a secured interest rate of perhaps 2%/ 3% above bank’s base rate in the past then because of it now being classified as "Unsecured" then it is likely to attract an interest rate of perhaps anything up to say 5% above bank’s base rate. These are the problems facing businesses now. The upshot is while house prices are falling, businesses will continue to experience problems with bank lending which is supported by the housing stock".
So, the Government must stop counting on the banks to help out, Leave them alone to get on and sort out their Balance Sheets.
The answer lies with either Northern Rock or the Post Office. The Government must consider using either as a vehicle to grant new mortgages by pumping in new money. They would probably want to leave Norhern Rock alone in case of public criticism so therefore pump cash into the Post Office and start issuing mortgages through them. That way property will hold at it's present level and won't continue to "melt down" as it seems at this moment. But only consider new mortgages and not re-mortgages. In other words we don't want to get back to the old days when customers really wanted re-mortgages for replacing the family car or for the next two holidays abroad. Focus on first time buyers and those wanting to step up the property ladder.
That would be my suggestion on getting things moving again.
Complain about this comment
So, this banking hand-out fiasco as I understand it in layman's terms - We've ALL paid for the sale in the shop, which they (begrudgingly) reducing the rates a little, but now they've shut up shop and won't let is in to buy?
Great.
And one way Brown & Darling are going to gets us out of this mess is the 21st Century's answer to the New Deal. Reduce taxes on people so people can spend (assuming we still have a jobs that is) and build infrastructure (whilst closing down wards in hospitals, schools, post offices etc).
Excellent.
Whilst this goes on the utilises/petrol companies continue to profiteer from us (and the Government get's it taxes derived from the high prices). And yet I'm told all the pirates are off the cost of Yeman or 12 year olds downloading MP3's!
I'm off to the supermarket to drown my sorrows before they up the taxes on cheap beer...
Complain about this comment
Will the banks be allowed to declare profits and pay dividends in the next few years from the taxpayers loans, in the same way that they have borrowed money from the markets to pay for profits in the previous years ?
Complain about this comment
What we are experiencing a de-leveraging process across all asset classes which also include the Housing Market...
What is shocking is that the UK govt. somehow think that they can artificially get lending back to 2007 levels, when it was preicesely that level of reckless lending that has created the housing bubble..
Prices are just a factor of Supply and Demand. The mistake that people have made is to assume that demand came from people.. It didn't, demand, was inflated through excessive credit.
That is to say the demand had been higher than it should have been through cheap credit, now that the credit has disappeared, demand has dropped, albeit at an excessive level, but in short the demand will never be as high as it was before, therefore one should assume that prices will drop.
In fact house prices will have to drop back historical earnings/ave. house price ratios of 2.5x/3x. Which means a housing bottom in 2011/2012.
http://www.smartcrisis.com
Complain about this comment
88 Susan Croft
How is the bail-out to work.
It was never supposed to. It was just a fire break to stop collapse. Thats it. Leave the fire to burn itself out in time. Still smouldering and going in places in all probability. The rest is just HMG and media fantasy and wishful thinking. Tell somebody who is desperate to hear something in particular anything and they will twist it to suit. Its their perception. That is implicit in the whole bail-out package. Something had to be done. The fear had to be peddled to nulify public opposition to intervention. When initally the fear was not enough it had to be ramped up to get closure. The politicans wanted to position themselves as a saviour, which means they had to pretend they were saving when they were not. That is the whole problem with the handling of the situation here and in the US. Poor foundations. Big mistake, no show on 'delivery' highly likely. This stage is public relucant realisation and resentment, still to be harvested by HMG. Browns big problem is if he can't deliver a prompt solution, which would appear highly likely his credibility will plumet. You don't ditch your leader in a war, but when peace breaks out if they don't fit they are yesterdays man and thrown out with the bad memories.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
62,
I totally agree with your statement, indeed I mentioned to several close friends circa 2000 about the dangers of allowing the erosion of our manufacturing base.
An utter disaster and NuUseless allowed this to happen.
For me our current dilema is worse because we can only choose between more NuLab or David Cameron (I'm sorry but this guy is devoid of any idea's on what to do)
We are sunk! For me moving to mainland Europe is now something being actively discussed in my family.
Complain about this comment
I think it's time to stop this all and actually pay for the past mistakes. Does no-one esle get a feeling of deja vu regards trying to buck the market with government money?
We're heading for a recession and no amount of cash injection is going to stop it. Let the companies fail, change the legislation to once again require banks to have conservative levels of capital reserves and limit risky speculative investment vehicles.
With this in mind, I want my government to stop throwing money at the commercial sector in a bid to prop up an overvalued and overinflated housing market.
Complain about this comment
The reasons why most large companies got as big as they did was that they were able to borrow large amounts of money to grow - and the growth they got enabled them to pay the increase in loan costs.
The same thing happened in Japan in the 80s. However eventually the economy stopped growing, the large companies could not continue to grow to service their debts and so defaulted - and several Japanese banks failed and the economy stalled.
As repeatedly mentioned you can't borrow money to boost the economy in a recession. The simple reason being is that even if there is an increase in money supply at the time - the extra money added has to be repaid - with interest! - meaning that once it has been repaid there is LESS liguid money in the economy. The only way to increase money supply sustainably is to trade with countries abroad who DO have money and who buy your goods and services.
Is this happening in this country? Well with the balance of trade in goods currently a deficit of £87 billion (7 times it was in 1997 by the way) I do not think so. That £87 billion has left the country.
Incidentally the older person may remember the BBC reporting during the 80s on each month's trade statistics, stating whether they were in the black or in the red (taking into account invisibles - insurance/ finance). They stopped doing it - for the simple reason that any half-way analysis of the figures would have demolished any credibility that the Chancellor of the Exchequer at the time had. (Did Mendelson suggest it? I bet so).
And so to the current situation. On Radio 5 many people were reporting that they could find bargains in the high street. This is deflation - what is happening is that the value of MONEY is going up as it can buy more goods and services. It means that for those who have money their purchasing power is increasing whilst for those who owe money, the actual value of their loan is also increasing (They have a debt equivalent to e.g. 50 video games before - now they have a debt equivalent to 70 video games).
My advice: dion't take out loans and repay your loans as quickly as possible - this applies equally to people owing £1000 and organisations owing £1,500,000,000,000!
GDP as measured in pecuniary terms will collapse, but that money left will be worth a lot more.
Complain about this comment
Robert
I think there is a major understanding about the bank bail out amongst Goverment Ministers too.
Including Harriet Harman MP ...
She said on - Wednesday 15th October 2008...
"One of the main reasons why we have been stabilising the banking system and buying shares in the banks is to ensure that they start lending again to small businesses at reasonable rates. We will do whatever it takes to back up our small business sector."
This is an extract from here... 3rd paragraph.
http://www.commonsleader.gov.uk/textonly/page2573.asp
Complain about this comment
The fact that the banks HAD to be lent so much of the tax payers money, shows that the financial sector has more power than the government. Or to put is another way, the government has lost control. Have you seen the new Bond Film???
Complain about this comment
Ref 101. Well said Sir - Big business has been run by Accountants for too long. They only understand risks that are shown as numbers. Real businessmen see risk as opportunity, they make judgements based on experience and apply inspired leadership by looking after their people first, their customers second and their shareholders third. I regret that the only course for Government is to let the whole structure level itself in its own unpredictable way and attend directly to the extreme consequences when they appear.
In the meantime perhaps they can consider some sensible savings - a good start would be Trident.
Complain about this comment
I am lucky at the moment, to be one of the businesses that does not need to borrow, this is probably why my bank keeps asking me if I would like to increase my overdraft, which I have not drawn on in 4 years.
Has anyone told GM & co that we are going to be banned from driving even quicker now, so will not need our cars. Thats a good boost to the economy.
Well done Darling Gordon you are doing a great job, for as long as you have it.
Complain about this comment
If we (taxpayers) are bailing out banks then the government should force them to lend at a rate compatible with the BOE base rate. If the likes of Barclays can't compete then tough. They chose to shun public funding so have to live with it.
Rather than Masters of the Universe, the men in shiny suits have been shown up as stupid, greedy incompetents. Government let them get away with it for too long.
It's time common sense prevailed.
Complain about this comment
BBA figures show for the main high street banks term lending for the 12 months up to june grew by 11% to small businesses. Annual growth of lending to companys up to august was up 26% acording to BBA figures. It is true that small businesses are facing liquidity problems with large suppliers delaying payment and the costs of insuring deliveries to big business rising, so perhaps they do deserve a little sympathy. Most big businesses would appear to be over leveraged over borrowed and probably insolvent. This suggests to me that some parties are being economical with the truth, whether it is business ,the banks or the government. My guess is that banks are lending to business, but are assesing risk on a sector and size basis. This hints at a structural flaw in banks which has developed over time, namely that banks don't have enough staff to properly assess individual risks. As for government I can't help thinking they treat us likes mushrooms (kept in the dark and fed etc).
The UK government could go into the business of buying commercial paper if it can afford it which I have doubts about considering the German Treasury auction failures recently. The trouble is that the government will then probably be lending to companies which underneath are basically insolvent. We don't off course want bankruptcy (UK laws being a seperate issue), firesales and signifcant job losses, but their may be more cost effective ways of securing jobs. We don't want the government wading in becoming the only buyer of CP and damaging the existing finance structure further as in the US either. The other problem is that we run the risk of being protectionist and risk suffering the backlash from other countries.
Bank Lending to individuals does not appear to have been as robust as to business although some would appear to be living off credit cards. I guess this will be another shoe to drop in the next year as card issuers reign in lending, as we know their losses are beginning to mount. Today though we here the government through Northern rock is to allow Granite the securitisation trust which northern rock uses to securitise mortgages to get into difficulties. This could lead to a downgrade by the ratings agencies and damage to the british mortgage market securitisation business. To us this could mean less mortgages available and at a higher cost and hints at a rather cavalier attitude by the government to the plight of householders.
I expect any measures the government takes to be targeted at getting money through the economy as quickly as possible, with little thought to the moral hazard of those actions. In other words it will go to the least prudent and it is that moral hazard which will anger people and will most likely be severely misjudged.
Complain about this comment
#116 JavaMan1984
"totally agree with your statement, indeed I mentioned to several close friends circa 2000 about the dangers of allowing the erosion of our manufacturing base.
An utter disaster and NuUseless allowed this to happen."
Where were you during the 20-30 years before that where the majority of the manufacturing base was eroded.
This was allowed by the increase in the finance sector as it found novel ways to spin money that didn't include allowing physical things to be made and sold at a small profit when a larger "profit" could be made by "flash bang now you see it now you dont find the lady only a fiver" financial products and the associated FBNYSINYDFTLOAF market in insurance derivatives.
Complain about this comment
Robert,
The news at Granite Master Issue PLC looks worrying.
What is the score?
Will the government need to spend more cash propping up either Granite or Northern Rock?
Is there a risk to the tax payer at Northern Rock?
Sounds scary. If the Government were forced to prop Granite Master up - would the size of the problem put the skids under the government's 'fiscal stimulus' plan?
http://ftalphaville.ft.com/blog/2008/11/20/18468/stony-broke-fresh-rumblings-from-northern-rock/
Complain about this comment
Re Financial Engineers? New one to me?
I would say SPIV.
Regarding a return to MAKING THINGS???
Yes great.
Few people are prepared to work & get dirty.
Limited skills.
Banks generally will not support.
RDA's are a waste SPACE
Infrastructure ie Power will not cope.
Who SAID "The FUNDAMENTALS OF THE ECONOMY ARE SOUND"
Believe me i have two mothballed factories which could employ 1500 plus
Complain about this comment
Robert - good comment here. Agree.
My only criticism is if you suspected at the time that when the Government said 'maintain lending at 2007 levels' without actually being able to deliver it - ie cynically lied to create a positive impression divorced from the underlying reality re what was achievable (I don't think 'meetings' are going to get them anywhere - simply a smokescreen to make it look like they're doing something when the reality is the banks don't have the money even if they wanted to comply) - don't you think you should have been highlighting this far more?
A persistent complaint of mine is the way reporters simply regurgitate the 'narrative' given to them by whichever side without sufficient challenge. This applies to both parties, but given Labour are actually running the country, whatever they say or do is vastly more important.
Even as recently as this week, Brown has been talking tough re forcing the banks to lend. The press report this as if talking tough is some sort of magic wand, and that something will happen. See FT today.
Yet, in reality, he has no power, no actual means to deliver what he's been saying. It is high time he was called to account by the press on this sort of stuff. It simply isn't good enough that our PM consistently gets away with repeating misleading rubbish which is reported as gospel yet has no chance of being delivered.
Privately, I am sure the Treasury and PM (and Tories) all know that the reason the banks aren't lending is because they can't. Yes - they have new capital which will alleviate to a degree the problem: but the real point is that even on this basis, lending criteria and costs have become a lot tougher. Which by the way, I am sure that in private all the parties also recognise as a good thing, given that the previous situation was unsustainable.
Complain about this comment
I am amazed at the amount of posts effectively calling for more lending. Have you all still not got it, if you can't afford it from cash don't buy, live within your means, get used to a living standard you can afford, probably similar to that enjoyed by Mexico.
Jeez, some people.
Complain about this comment
I’ve been reading some of the comments from the host of armchair economist who have crawled out of the woodwork to solve the world’s economic problems. Half of them are probably too young to have been through a recession before. This is shown by the drivel most of them write, blaming a worldwide recession on Gordon Brown, predicting the collapse of The UK. etc etc. I am retired and old enough to have been through two or three, recessions, the worst being with John Major’s Tory Government in power, with a total lack of help for anybody from that caring, compassionate party. What I learned from these unpleasant experiences was that the golden rule of economics is: -
The good times never last and the bad times never last. The pendulum will always swing back. All the horrors that the doom mongers predicted will be solved.
Things will get back to normal and all these “experts” may at least have learned something basic about economics… but I doubt it.
Complain about this comment
The Banks make profit from lending, and therefore will lend when they feel it prudent, and also when they have sufficient liquid capital to do so, after meeting regulatory requirements.
You tell us that large business in the UK has borrowing of 120% of UK economic output, but you do not specify the type of debt not it’s repayment profile, i.e. is it medium to long term business purchase finance, project development finance, very short term (e.g.90day) stocking finance, short term HP or leasing for smaller assets, import finance, export finance, etc ` Without the breakdown of borrowing type the relevance to economic output is a relatively meaningless statistic.
For example new car, white goods or commercial vehicle stocking finance is at low interest rate, but will roll over to higher interest rate if not repaid from the sale of the asset within the term, usually less than 3 months, and will acquire a steep repayment profile that is very demanding in cash terms on a business, especially when that business is not generating cash through sales. The suspicion is that large UK business will have mainly short term ‘cashflow’ related debt, and is therefore very vulnerable to sales downturn. This short term stocking finance may come from overseas manufacturers finance houses, or from UK based finance houses, owned by the Banks mainly.
Trading premises will probably be leased by large business, and in a downturn not only will servicing the short term trading debt burden become more onerous, but so will rentals on the trading premises.
Long term debt for building acquisition has a lower repayment profile and could be converted to interest only for a time if necessary. It is likely that medium to large size UK business has this type of debt as it’s main liability, e.g. hotels, care homes, etc., but also those property owning businesses that lease the trading premises to the traders, such as Woolworths, DSG, etc.
The Chancellor, or government, has two main avenues to provide assistance to restart lending, and may need to undertake both to help business and the economy in general through the next FEW (5 to 7 ?) years:-
1, to support the Banks by further and probably continuing equity injections to enable them to meet regulatory capital requirements, which in turn allows the professionalism of Bankers to determine when a business or consumer is one they will lend to, and the return they wish to see for that lending. Consensual policies by the Banks operating in the UK should be coordinated through the FSA AND the Bank of England to avoid future overgearing by Banks. The FSA has the regulators job, hands on, whilst BoE should have the overview, including international central Bank liason.
The Banks will also have to manage existing debt from customers that is in the ‘care’ category with a very high degree of expertise if it is not to turn bad, and therefore become LOST capital. This may mean hanging on in there with a business suffering short term pain from economic conditions, to allow that business a chance to trade through to better conditions. It takes a great deal of experience and understanding, as well as top class and well informed economic analysis and judgement to know which businesses (and particularly business managers) are deserving of this support, especially under conditions where capital is likely to remain as tight as it is now, for the foreseeable future. In many cases, there will not be any value in supporting bad business managers in these times, and the ‘bullet will need to be bitten’.
When lending becomes ‘doubtful’, it loses it’s asset value to the Bank, has no value for credit rating purposes, and under new capitalisation regulations has an immediate effect on the capital ratio of that Bank, requiring full capital cover.
So, the higher the ‘poor’ debt, the greater the capital need of the Bank, hence the likely need to return to investors ( for which read government) for cash calls. This may not be immediate, but will unfold through the recession. Toxic debt from collaterised lending should by now have been identified at least , and provided for, so we are talking here about ongoing lending to UK business and consumers.
From the point of view of UK Plc, a high level of government shareholding in UK Banks is not a risky investment, and will ‘do the trick’ providing the government does not interfere unduly in the daily commercial decisions and operations, beyond a stiffening of the FSA monitoring regime to learn the lessons from internationally traded unrated debt tranches.
However, the higher the interest rate or guaranteed return required by the government, the more difficult it is for the Banks to use that capital to maintain lending to customers at reasonable rates. In other words, the government is going to determine the rates that are charged to Bank customers through it’s investment policy. This could be a critical issue, especially with short term trading debt to vulnerable companies.
Remember that the Bank capital issues will ease as asset values improve, which in turn will happen when credit becomes available to enable markets to determine asset values through competition. Those increased asset values will reflect in the credit ratings that are now being used to determine how much and what type of capital is required by Banks and will work in favour of the Bank Balance Sheets as conditions improve in the same way that they are working against the Banks ability to trade at present.
Presumably the FSA (and hopefully the Bank of England also, in conjunction with FSA) will continue to monitor all Bank businesses in the UK, and the government through this regulatory body will be much closer to daily operations than normal shareholders are.
Think of the profit made by all the large Banks over the last few years, and consider therefore their potential future capability to redeem Government preference shares on a mid term schedule, even allowing for reduced profitability Furthermore, once the global Banking system is stabilised, and Banks are meeting the latest capitalisation regime, the market value of Bank shares will improve and will show a healthy return to investors, especially those Banks that have sound capital bases. This can only bode well for UK Plc as a whole.
With regard to the pricing of debt, the normality of the market place will determine this when the Bank ‘market’ settles back to it’s stride, but in the meantime has to remain at viable levels from the lenders viewpoint. If any government choses to direct the price of debt to business or to consumers, it could offer short term interest subsidies to specific key industries, e.g. homebuyers, thereby fulfilling both a social and an economic objective in one.
The second avenue may be to take on much higher levels of lending to business directly through a government body, which in the past has always been a notoriously slow, pedantic, bureaucratic, and generally inept process. Small support loans have largely been token ‘government’ or EU lending to encourage business to depressed areas.
It has given the Bank’s some small crumb of comfort when considering larger exposure to those businesses that a new business project which may be lightly undercapitalised is worthy of support merely because of the additional support framework built in with the token ‘government’ money.
NB this small lending is distinct from grants which have been made available frequently from EU sources to attract business to regions for strategic economic purposes, and which have been very much larger and extremely useful tranches of capital.
The old ‘Small Firms Loan Guarantee Scheme’ referred to in your column, has to date been of very little practical help to the economy or to individual small businesses. It has been cumbersome, and difficult to administer. If it is to be of more use, for the same amount of administration effort and cost, the sums available will need to be available in £m’s, not £000,s.
Complain about this comment
#116 - right on the money there and it's the same in my house.
The minute I can rebuild my balance sheet after the chaos of the last 4 years we're out of this country for good and I shall take my otherwise profitable race engine firm and other business assets with us. We shall go to a country where either brains and talent are WANTED or to where we can just quietly get on with life with a decent view and turn our backs on the ghastly backdrop of lousy British politics. I stood at the last election so I've tried, but Britain is so over.
My wife is Russian born. She assures me even Russia is better than this place. The taxation and flimsy headline grabbing politics and the sheer dumbing-down nanny-state stupidity of everything British under Brown - plus - I have to say - lately the awfulness of the baby P thing really did it for her I think.
The great travesty is the complete failure of any other party to stand up to Brown and say - enough is enough. I have been praying that one of them would go to war on disposession of firms and individuals, but now, it's just full steam ahead with the same old guff about who's-cutting-this-tax-or-that-tax. I'm fed up to the back teeth with it all - and I'm not getting any younger! I don't want to spend the rest of my life being told how great things are here when everyone knows the country is becoming a rat's nest. My guess - sadly - is Conservative will beat Lab at the next election and - never mind the gloss - we'll be back under the thumb of the same old Major/Clarke/Hesletine dugout mob and we'll be working harder-still for less and less.
GC
Complain about this comment
New Line everybody.
Just done an order for 32 million rolls of :
FISCAL PRUDENCE LAVATORY PAPER.
To be delivered to every UK household.
Can Sir Alan's lot do the delivery on the Next BBC Apprentice thingy?
Complain about this comment
97:
No, they are not, just different calculations. None of the state accounting would pass a decent auditor with all their extra-budgetary funds and classifying expenditure as investment or vice versa.
Complain about this comment
Further to previous comment about balance of trade. From the ONS:
1997 237478 233019 4459
1998 233284 240094 -6810
1999 242691 256180 -13489
2000 269819 287793 -17974
2001 276866 300878 -24012
2002 280536 308609 -28073
2003 290677 316672 -25995
2004 303392 336146 -32754
2005 331028 373742 -42714
2006 376384 419588 -43204
2007 368337 415817 -47480
If you add up the figures then the UK has spent £282 billion since Labour came to power in buying foreign goods and services. How nice it would be if that money was available today. (Does NOT include the £37.209 billion in 2008 so far)
Complain about this comment
#122, joeplumber wrote:
"I am lucky at the moment, to be one of the businesses that does not need to borrow, this is probably why my bank keeps asking me if I would like to increase my overdraft, which I have not drawn on in 4 years."
Was it "luck" or was it running your business sensibly!?
Basically, bankers are the sort of people that want to lend you an umbrella when it is sunny, but then take it away when it starts raining! ;-)
Complain about this comment
Small firm loan guarantee scheme?????
You must be kidding this has never worked,last time i checked the premium was 8% over the banks 4% over base.
The bank concerned didnt want to be involved.
I QUOTE: "GUARANTEED FAILURE"
Complain about this comment
129
Most businesses have to finance their permanent increase in variable cost from loans, at least for a while.
This is the experience of the last 170 years. The internal development of resources in proportion of investment has actually decreased during the same period.
Complain about this comment
#130 - retired but not too old to write a bunch of complete cobblers though!
You don't like your so-called armchair economists but then proceed to underpin your philosophies with a whole series of unsubstantiable generalisations:
"Half of them are probably too young to have been through a recession before"
"the drivel"
"most of them.."
"the worst being with John Majors"
"The pendulum will always swing back"
"All the horrors that the doom mongers predicted will be solved"
"Things will get back to normal"
Don't complain here - just vote Labour again!
Good grief!
GC
Complain about this comment
This will probably sounds stupid, but what exactly was the "recapitalising" cash used for, if not to be recycled into funds for borrowers?
If it was used to cover operating costs (i.e. the banks were incapable of continuing without the money), then have we not essentially saved a company that has no worth for no reason whatsoever? I cannot believe all of those billions went on meeting the banks own loan obligations, salaries, building maintenance, etc... Surely the clear implication was that they were sound companies that didn't need this money to survive, but simply to grease the wheels of the lending business?
It's like rescuing a car manufacturer that refuses to build cars anymore... And pays it's bosses huge bonuses!
Northern Rock staff got 5pc bonuses when it made >500m and 10pc when it loses >500m... The bosses got 10pc bonuses when it made >500m and 30pc when it loses >500m... Are we mugs or what -
Complain about this comment
#40 dceilar
Kickstarting the Registered Social Landlord (RSL) housing development / building schemes would definitely benefit the economy.
BUT they are the top of the newly cautious banks' list of risks, so even the huge RSLs can't get credit to invest in LAND and PROPERTY -
As I understand it Home and Places For People each made HUNDREDS Of MILLIONS of pounds last year, but as registered charities and "not for profit" are still forced to borrow to fund further housing schemes. Schemes that it is generally agreed the country desperately needs!
If a company that made >GBP200m "profit" last year can't get cheap credit to buy LAND, what chance have small businesses with less solid business models than property?
Cutting off credit to RSLs reduces new affordable homes and really hits the poorest in society. I am ashamed of our banks for engineering this "double whammy"!
Especially in light of the fact we're only in this mess because of their behaviour and more and more of us will actually need social housing soon!
I guess "safe as houses" isn't a phrase any banks have heard!
If SHELTER know of any money, let's get it sloshing round the system, as most of the RSLs are reducing (or stopping) all development!
Complain about this comment
The bailouts as they stand aren't going to boost lending in the way that the government want. You are correct to say that with the securitisation (read "Wholesale") markets closed, the likes of B&B and Northern Rock will not write any business - roughly 50% or more of 2007 lending.
Not only that but the bailout package is effectively encouraging LESS lending. With such punitive rates on the preference shares and restrictions on dividend payments, the banks are incentivised to pay back the government loans as soon as possible. How will they do that - selling assets and shrinking their balance sheets I.E. LESS LENDING.
The amusing thing is that this is exactly what Northern Rock is doing, as encouraged and trumpeted by the government (when they go on about how much of the £27bn loan the Rock has repaid)! They're paying back that loan by stopping lending and by putting mortgage rates up so high that they're effectively forcing borrowers to switch lenders (i.e. reducing the amount of lending / shrinking the Rock's balance sheet)
Of course Brown relies on people not understanding this irony when he tries to claim superhero status by simultaneously demanding reduced lending (The Rock paying it's loan back) and demanding increased lending (all other banks).
What a clown!
Complain about this comment
Re appollo mcqueen.
A social landlord i know in Manchester has 200 empty properties. . .
Complain about this comment
130 luckycarlin
Things get back to normal swings etc.
I don't think so. Sectors that collapse in UK recessions do not recover. Manufacturing for one, this time the financial sector.
Complain about this comment
Re: 140
They borrowed short to lend long and need a new supplier of money to continue to finance their existing lending as their previous sources have evaporated. It is being recycled into shoring up their existing lending rather than provide new.
Complain about this comment
It's time to get a grip here i think !
Just because retail figures dip slightly doesn't mean the end of the world. if i remember correctly, the bigger retailers had a better the average time of it last year so expecting even more this year is a bit silly. Its all about proportion - providing you cover your costs & pay the bills that should be sufficient in this climate.
Also, if the government expect the banks to pass on all of that lovely cash they have just handed out then nievity rules the world !
Yes the financial world has tripped itself up big style with its insatiable greed - unfortunatly we have to pick up the pieces again ! If the government are serious about halting the rot then they need to give people in the financial sector some breathing space - how about freezing the stock market, let things settle for a month or two and then see what needs to be done. Also our manufacturing sector, or whats left of it needs additional support, how about help for people to set up or re-start manufacturing plants then maybe we could stop some of the stupid imports we have and maybe create a few jobs as well ?
And the press ? well how about talking things up instead of down for a change ?
What we need is "Churchill Spirit" a can do attitude - whatever happened to the Great British Sense of Chin Up, Nose to the grindstone and lets get on with it ! ?
Complain about this comment
140:
Because of the chosen method (instead of declaring the banks insolvent and then recapitalising them), the banks use the government funds as income.
Complain about this comment
I find curious the statements in comments suggesting 'the banks' should have been allowed to fail over their lending policies.
How would our salaries have been paid to us, how would my limited micro-company have recieved invoice settlements from clients, how would garages have accepted payment for fuel, what would they have done with any payments it took, how would public transport pay for fuel?
Like it or not, this was about the BASIC fabric of ALL our lives. I feel that a reiteration of where we were is overdue - we were facing the collapse of our currency and its mechanisms (in its broadest sense: how we pay for or recieve payments for ANYTHING).
So thank you for your blog. I've found that my ability to be 'happy' (even through really tough times) is directly related to how much I want what I've got rather than how much I get what I want. In otherwords, gratitude.
It seems entirely appropriate to pause in our cinicism and gloom to give thanks for avoidance of the worst. Not for the banks' sake, not for the Government's, but for our own emotional and spiritual capacity to face the current challenges.
Complain about this comment
Peston. Good God. This is like having a conversation with my Parents in law who have worked for the public sector all of their life. Anyone would think you had been writing about it rather than doing it for the past 25 years.
I run a small business with zero debt, in the sense that I have no direct bank loans.
The issue is that larger companies can always cut jobs / bottom line costs to crawl through recessions. Small businesses - even with zero debt - already run at close to base costs.
When my customers credit terms start to expand to 30-60-90 and my own terms shrink from 90-60-30, who do I sack - myself? What warehousing site do I shut down - the only one we have?
The buffer for these dips in custom was the bank - which is why if they stop lending to us, we're screwed first.
Your sweeping statements on small business are extremely offensive, as well as appallingly thought out.
Complain about this comment
@14. The type of person you describe is a 'nillionaire'. Looks rich but actually has nothing.
It's a bit like a bowl of Rice Crispies, looks substantial but on closer inspection it's just air and dust.
Complain about this comment
132, All the best
133, now I laughed out LOUD at that :-)
Complain about this comment
So how much of this debt that is owed by our large companies is actually due to them being bought up using borrowed money by Private Equity?
Here's a (somewhat extreme) suggestion. What if the Government passes a law saying that all companies bought by Private Equity firms over last (say) three years must immediately be refloated on the market.
The re-floated companies would then be back where they were before, potentially profitable and no longer saddled by the unecessary debt. No tax-payer bail-out needed.
Of course, many of the Private Equity companies would go bankrupt, but I can't bring myself to shed tears over that.
On a similar note, how many of the other companies that are deeply in debt are ones that have come from nowhere in recent years on the back of enormous bank loans, severly damaging the profits of existing companies in their sector who might have developed through organic growth over many years? The loss of such "intruders" might not be a bad thing.
Complain about this comment
# 22 - I agree, but as well as keeping the ATM's working, rescuing the banks was also about making sure that the lines of credit for businesses remained opened. That is not just about making sure businesses don't go bust making people redundant but also making sure that the supermarkets have credit facilities to purchase food to keep the shelves full? Otherwise, the Govt. would have had to step into to provide direct lines of credit to the supermarkets to make sure that there was food to buy. One of the downsides to the "just in time" supply used by supermarkets is that it does mean that we are only a few days away from anarchy at any time.
Complain about this comment
Post 35 - If what you say about Tesco payment terms is true, then unless Tesco have started giving its customers credit terms (and last time I shopped there, I had to pay for my milk and carrots before I left the shop) this is shocking.
Complain about this comment
Comment 88 : Susan-Croft
"I wish as an ex bank worker someone would explain exactly how this bail out is supposed to work. When I worked in banks you had to identify toxic debt and know which banks were exposed to toxic debt. This debt would be separated from the good part and dealt with. As I have heard nothing that suggests this has been done that is the first problem."
I think this concept is too rational for today's world. The general public, through their elected politicians, have imposed on the whole of society an environment that considers strict rationality to be too conservative. This is based, I think, on the very egalitarian thought that the most effective driver of human progress is emotion, not intellect. What we have been forced to accept over the last 20 years or so is that there is a level of irrational over-optimism, an under-recognition of future risk, that is a much more appropriate ambience for humanity to flourish.
Hiccups to this serene progress, through outbreaks of rational scepticism, have been dealt with by flooding the atmospheric mood with feelgood irrationalism - saying to the sceptics, and the potential sceptics, that reason will never again be allowed to hold back human development in the way that it did before the New Enlightenment.
So, what has egalitarianism got to offer us to get us out of this current mess? Or is it time that anti-intellectualism got put back in the kennel?
Complain about this comment
But I thought those academic geniuses (or is it genii?) at the BoE wanted to curtail massively lending last year- I suppose they thought businesses would grow on thin air using British ingenuity and creativeness, and that capital intensive industries were a bit dirty anyway.
The Government needs to guarantee loans made to businesses in a big way to stop the economy nose-diving, to preserve jobs and to help the banks have confidence in lending, which could be done at a lower rate with a government guarantee scheme.
Housebuilding is a prime example. Unfortunately if the Government does not help the likes of Taylor Wimpey to refinance e.g by offering to guarantee some of its debt, there is a real chance the private equity parasites and/or foreign investors will move in and sit on the land bank for a few years, bulding very little, public or private, until the housing market improves, when they will demand very high returns again stoking inflation.
Complain about this comment
146,
lol, get your head out of the sand - This country is donald ducked!
Complain about this comment
How about some more calls for lowering interest rates ?
Or have people finally figured this one out ?
Complain about this comment
Re 141
I think you will find that unless homes and places for people sold all of their assets this profit will only be a paper profit on the mark to market value of their property assets, I doubt very much if it were cash in the bank. So that means they would need to use the equity (profit) from last year as collateral against any borrowing. Now the problem is that with the downturn in the property market this profit will now have disappeared and been converted into a loss so there is no collateral for the banks to lend against. What you are asking for is the banks to take the risk that the property market will recover and they will be able to recover their money, which is fine and you may say it’s the kind of business they should be doing, the problem with that is that it is over lending to a buoyant property market that has caused this problem in the first place, and it seems many who put their money in banks savings accounts are not willing to let them take this risk as they want their savings guaranteed.
If it were cash they would have no requirement to borrow.
Safe as Houses -- well that depends if you bought at the top or the bottom and which direction the property market is moving in
Complain about this comment
Why give to the banks when you can give to us?
By the Government's own stats there are 31m tax payers includings those of state pension age. If we were each given £12,750 then the total bill would be under £400bn, less than the banks were given.
With this money we could start spending in the shops, build our extensions or even put the money in the bank - that way the banks would receive their capital injection and through supply and demand only those who offered the right services would receive our cash.
Sure there's plenty of scope for abuse here in terms of money being siphoned off and sent overseas etc. but with a little bit of thought we could overcome that.
In any case, it's not as if the banks are living up to their practice of lending more with their cash is it? And I know Robert has argued this wasn't the point but that was certainly the spin they put on it.
So don't throw good money after bad GB and AD - the banks have already absorbed their $400bn - now give it to those who know how to treat it right.
Complain about this comment
Interesting Cassius piece about Bailout II and the reasoning behind Brown's political actions:
http://cassiuswrites.blogspot.com/2008/11/is-peston-admitting-gordon-got-it-wrong.html
If Gordon Brown had not been acting for his own motives, the taxpayer would already be many billions better off.
Complain about this comment
148:
Essentially Friedman raised your point and Kaldor answered it:
Imagine that there are no bank or ATM open during pre-Christmas shopping, people cannot get to their money. The circulation would create the money, first in the form of IOUs (until they have access to banknotes), and if nothing changes, then these would take over the functions of money. The banknotes are IOUs in fact.
Also, letting the banks go bankrupt would have been an overnight business, writing off the drop in asset values from equity, nullifying shareholder value, recapitalising them with government funding and voila, opening them following morning as if nothing has happened.
But the panic was simply too big and the governments are far too close to the financial sector.
Complain about this comment
Just a coincidence that that the HBOS vote on the merger and funding takes place on 12th December, the solar anniversary (remember the leap year) of the signing of the Treaty of Lisbon last year.
All part of the new global order.
see -
http://newspaceman.blogspot.com/2008/11/all-paths-lead-to-rome.html
for a full explanation of the real truth.
cheers
Complain about this comment
#146 - I agree to an extent
There was an infamous government poster during WW2 that read:
'your courage, your cheerfulness, your resolution - will bring us Victory!'
and it was widely unpopular and withdrawn rather sharpish, with people wondering who 'us' meant. The people or the bosses?
I often think of that when I hear Brown (and others) talking about 'our way of life' in so many contexts. Whose way of life is he talking about? His? Mine?
Involking the Churchill spirit as-such is one thing but I wouldn't be interested in propping up Brown's mob or anything else remotely like it. Look how the Churchill spirit was received by poorer people in the East End at the start of the Blitz, he was jeered.
For the country as a whole, yes, but who is going to stand for the country as a whole. The recession is certainly bringing out the worst among the 'haves' against the 'have nots'.
It was not for nothing that the Churchill, who was an 'old guard' Tory to the bones, was thrashed by Labour's Attlee in 1945. Folk hoped Labour would bring a more equal country with opportunities for all.
GC
Complain about this comment
As so many contributors to this blog have pointed out the main problem is a credit bubble which in turn led to an asset price bubble. These bubbles are now deflating and the economy will contract - no Government or other entity can prevent this contraction.
The bubbles were large and hence the contraction will be large.
An aggravating side effect of rapid contractions is a general loss of confidence, as such a loss acts to accentuate the contraction.
People tend to lose confidence much faster if they form the view that they are being misled or otherwise lied to. If you read the comments on this blog it is fairly clear that in aggregate people have formed the impression that they are being misled and lied to. It is not hard to identify the liars and misleaders.
Reaching a broad understanding of the position does not require any specialist knowledge or information. It therefore follows that those who are seeking to mislead are fully aware of the consequences of their actions.
This, of course, begs the question as to why they choose to engage in actions that they know will result in further economic contraction and dislocation.
The UK will likely be required to go through an extremely testing time - it is not clear that this test will be readily negotiated. It seems difficult to believe that continued dissembling by the state and its agents is the best way to prepare the country for what lies ahead.
Complain about this comment
Robert,
It sounds to me that you are saying that the government made a very misleading (or at least ambiguous statement) and we are all idiots for taking the interpretation of it which we were meant to.
The conclusion I draw is that we shouldn't believe anything we are told
Complain about this comment
Hold on a minute, these big companies are run by some of the best (paid) managers in the country.
I cannot believe that such people could have let their companies get into this position.
Complain about this comment
You seem to be indicating that the government will be using OUR money to prop up these companies.
Since we can't stiop this happening I would like the conditions attached to be a return to more Britiain centred approach to business - less outsourcing abroad, less rapacious foreign deals and fewer migrant workers on sub-minimum wages
Complain about this comment
Whilst it may sound perverse to talk about increasing taxes at the moment, is this not the time to look at the major strategic benefits that can accrue from removing businesses' dependency on debt by removing any tax advantages attached to it. If the Government removed all tax relief on interest payments on debt and transferred the tax saved to a major reduction in the level of business taxes say down to 5% there would be a major boost to start up companies and existing companies wishing to grow.
Look at the removal of tax relief on mortgage interest payments in the 1980's. It would be completely unthinkable to reintroduce such a relief now yet the taxpayer continues to subsidise to the tune of billions of pounds a year the cost of business financing from banks, thereby hiding the truly exorbitant cost of these funds.
At the same time the Government should remove all constraints on both EIS/CIS investment limits and the nature of investments to encourage large scale equity investment across all economic activities.
These combined measures would remove the tax disincentive to providing start up and equity investment and would yield several benefits;
Companies who carry a low debt burden will no longer fund through an excessively high tax rate those businesses that are over geared. There would be a disincentive to use debt to fund growth and this would encourage the issue of risk captial that whilst being more expensive would provide the start up activity that we desperately need at present
A low business tax rate would incentivise companies to invest in new businesses as it would lower the threshold at which those investments begin to pay back a net return
Start up companies could benefit significantly as start up capital could then come from a wider pool of providers which would include the current financial institutions as well as the current start up sector and be made on the basis of business risk rather than financing risk
After resolving the short tem liquidity problem of the banks, the headlines will die down and the banks will simply carry on as before. There can be no change to the basic problem of a chronic shortage of investment funds for new businesses until there is a tax incentive to address it.
The Governemnt should have the courage to really attack this structural problem through the tax system and from it a truly entrepreneurial low tax economy might emerge from the current discredited model.
Complain about this comment
They could also use some of OUR money to stop Guy Croft being thrown out of his house
Complain about this comment
Is this such a bad idea (please savage if it's way off track)?
We already have a perfectly (and efficiently) managed financial institution - National Savings & Investments. Rather than pump cash into commercial banks that have displayed little responsibility while motivated by excessive greed, why not put a large chunk of the rescue monies into new dedicated funds? These could then be used by small businesses needing short-term borrowing at reasonable rates, and mortgage borrowers who don't want to be fleeced all over again by providers desperate to secure their profit margins.
That way public money stays in the public domain and can be managed with much greater scrutiny (and control). Remember petrol price reductions that never reached the forecourts? The same may very well happen here if the profit-minded banks get their way...
Complain about this comment
#156
"Unfortunately if the Government does not help the likes of Taylor Wimpey"
I do not think Brown (beyond the rhetoric of 'we will do whatever it takes') has the least intention of helping anyone. Cue: Rover Group. He has nothing to lose because he knows so many people dislike him intensely so he's not going to take any, er, 'popular measures'.
No, he will adopt typical socialist measures (giveaways) to win the vote from his home turf and try to clinch the election that way. To be hones I think he's got a real 'chip on his shoulder' about being disliked and would like nothing better than to see all his critics flounder.
GC
Complain about this comment
#91
Re: The Downturn will end when the BBC say.
NuLabor will inform the BBC when it is ending which will coincide with an Election plan so that Brown will then be pictured as the super hero getting us through it all and will inform us all via the "briefing to the BBC" mechanisms. The reality will be that it will all be a sham but the propaganda will be temporary enough to fool some of the people some of the time to get their votes. It's all about Mandy and Campbell planning the timing and just lining up their ducks (duck eggs?) as early possible through media manipulation.
Complain about this comment
Seeing as we are quoting literature today.
"My other piece of advice", Copperfield. Said Mr Micawber, "you know. Annual income twenty pounds, annual expenditure nineteen pounds, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene and in short, you are forever floored. As I am."
Nothing at present is going to make the prudent spend more, certainly not to save this pathetic government or a bunch of greedy speculators . Those who have no savings but no debts will cut spending to create savings in case they lose their job. those living within their means and with savings will carry on as usual. Those few who are tenents and have 20% deposits will not buy because renting is much cheaper and house prices are crashing at 2% per month with no end in sight. The rates of interest for those with less than 20% deposits will not drop even at 0% base rate - (see Japan) because to do so is simply a way of losing money. Those independent banks left are not owned by Brown & Darling and know that if they can survive the coming depression they stand to inherit a fair share of the Brave New World that will emerge.
If you are someone with lots of debt and no access to an emergency fund to tide you over a period of unemployment or a highly leveraged property speculator or just one of those "my house is my pension" mob that lied about your income on a self certified mortgage, you are in grave danger. You will not be saved. You will become a stat. If your business cannot make profits it is going to fail and you will lose your source of income. The fact that the government might waste a few billion more to buy time by lending directly on what amounts to unemployment benefit for political expediency is irrelevent. Those who can spend simply will not. It is not in their interest.
Might be best to close the failing business now if possible and get a job or cash in on the house before its worth even less. Blaming everyone else is simply a form of denial. The reality for many small business people is that they do not really have a business with any real value what they have is a service they offer on a self employed basis. There is no capital and there are no assets. When times are good then they earn well because they do not have to share the gross profit with an employer who keeps the Lions share. When times are bad the capacity they offer is surplus and so redundent. Time to give yourself a P45. Sorry but thats how it is.
The government cannot stop this anymore than anymore than Robert Peston can predict the future.
Politicians are liars whats new - and most of this country have been carried away in a terrible mania that is now over. Many who ignored Charles Dickens' cautionary tale are about to become one.
The world will not end but millions will be lost at least financially. Many more should do rather well.
Complain about this comment
The bailout was all about liquidity, interbank lending, and BoE help. That should have helped business lending but it didn't as the banks trousered the money.
All it did was give us a breathing space, and we are back now where we were before, look at the state of the markets.
Darling couldn't kickstart a skateboard. The only way to get things moving again is to get rid of the rubbish in charge who caused all the mess.
Complain about this comment
Surely the governments bail-out using taxpayers money of these Banks had conditions impose to ensure that the taxpayers money was used for the intended purposes.
Surely non compliance with the conditions of the loan by the Banks can be enforced by the government to protect the taxpayer.
Surely any claim for a loan by the Banks would be audited and verified by the government as a legitimate claim before approval.
Surely Banks will not be able to continue borrowing, this time from the taxpayers, to fund dividends and profits in the near future.
In simple terms a business needs money,
it applys for a loan, it's Banker approves, the government advances the loan, a contract is made and the business carrys on, what is difficult about that ? The Bank is operating as an Agent of the governments lending.
I find it confusing that these business fundamentals are still being argued by bloggers with more experience of financial issues than myself. There really must be a serious problem with the Banks if the professionals are criticising the process.
As a non Banker I am undecided whether the taxpaying public. like myself, have an accurate understanding of the present status of the governments lending relationship with the Banks and it's business customers or is mischief being made by the government that has disabled the rescue lending process.
Complain about this comment
OK Robert, you have spent months filling us with dread and accurately so.
To be able to claim the crown of "Economist Supreme" you need to be the one who actually spots the first Green Shoot of recovery and puts in firmly under your microscope.
We, the panicking flock of flying starlings need to able to relax,and confidently come to the ground en masse and restart feeding.
Complain about this comment
#130...and so in your vast experience things always "get back to normal." Surely you must remember that the UK once had a substantial coal mining industry. Please let us all in on the news, how did that get "back to normal"?
The following was written by someone sensible - I think he´s trying to make a point about the near extinction of the British motorcycle industry.
"Black shadow of the Vincent
Falls on a Triumph line
I got my motorcycle jacket
But I'm walking all the time"
Complain about this comment
CaptainSlackbladder
Do you mean granite or:
NORTHERN ROCK PLC
GRANITE NON-ASSET TRIGGER EVENT
Northern Rock plc (the "Company") confirms the occurrence of a Non-Asset Trigger Event, within the structure of its Granite securitisation programme, due to the Current Seller Share being less than the Minimum Seller Share on two successive Distribution Dates.
Complain about this comment
I do wish everyone would stop blaming the government for this problem. They were only doing ther best. According to their "experts" we were all going to die of bird flu a few years ago. So they thought they'd just let us have our last few years on a high. We shouldn't be here to be witnessing this! So everyone just be grateful they survived.
Complain about this comment
Meanwhile the bosses at BP an other oil companies are happy that our attention is focussed elsewhere so they can continue to fleece us at the pumps.
http://news.bbc.co.uk/1/hi/business/7739352.stm
Complain about this comment
Alexandercurzon
All RSls have a proportion of empty (or voided) properties at any one time, as tenants skip out, properties are "between lettings" or councils shamefully slow housing policy keeps people in ehpensive hotels (all at taxpayer expense). These are rentals, anyway... Not potential sales!
What I meant was the ambitious schemes to build new, multi-purpose sites for people on all rungs on the social ladder, not just the historical welfare dependants.
This would help the building indistry and all those others effected by the lack of funding, etc!
Complain about this comment
Marks and Sparks have been very clever with their 20% off day today.
What little money people have in the run up to Xmas......Marks have made sure that they have had it spent in their stores first!
Complain about this comment
#84
Kick starting the economy in the way you suggest would be akin to giving a large pile of heroin to a heroin addict in the hope they will get clean. The most likely outcome of your solution would be a fatal overdose.
A Peoples Bank would be a nice idea provided it was very limited in scope to balance the risk and reward - sure it should be safe to protect those unwilling or able to take the risk but the return would essentially be zero.
Whilst
Complain about this comment
#159 sadbloke
Cheers for taking the time to answer my post, but I believe both Home and PFP do have some reserves and besides 100k properties between them. Surely, even at severely reduced equity, there is enough equity there to get banks lending at reasonable rates.
The chances of either of these huge companies folding (I'm not talking about redundancies, but administration) is small. The assets outweigh the liabilities (unlike banks, they also produce something and build something "real")!
These are exactly the types of business banks should be lending to -
From what a few posts have said, they needn't worry about banks anyway, as the government is giving money direct to RSLs.
Not before time!
Complain about this comment
# 161
Interesting, yes, but flawed I'm afraid.
TARP in the US has not "sorted the LIBOR crisis". LIBOR rates remain well above policy target rates for anything other than overnight funds.
And as for TARP itself, what exactly is it these days? One thing we know it isn't doing is buying up distressed mortgaged back securities, ie the reason it was set up. Paulson sated quite explictly last week that TARP would not now be purcahsing such assets.
For an alternative take on TARP to the one you've highlighted, check this one out on Bloomberg:
(I've had to copy/paste because the BBC blog can't cope with the web link.
It Isn’t a TARP Without Troubled Assets to Cover: Caroline Baum
Commentary by Caroline Baum
Nov. 19 (Bloomberg) -- Every time Treasury Secretary Hank Paulson updates us on the government’s efforts to stabilize the financial system and announces the latest twist in the Troubled Asset Relief Program, I get a sinking feeling in my stomach.
I know he will introduce a host of new acronyms for new lending facilities to rescue new asset classes from new and anticipated distress.
And I know that, no matter how hard I focus on what he says or how many times I read the press release and accompanying stories, I won’t be able to get my arms around the details.
And then it hits me. There are no details. Only a set of loosely linked concepts -- something between a trial balloon and a hot-air dirigible -- that flows out in a stream-of- consciousness format, with the details to be filled in later.
There were no details when Paulson delivered a three-page draft of a bailout proposal to Congress in September, authorizing him to spend $700 billion buying “troubled assets” from banks, with no questions asked and no provision for oversight.
There were no details when Paulson announced in October that he was shifting gears and using the congressionally authorized funds to recapitalize the banks, a provision of the Emergency Economic Stabilization Act of 2008 and an option Paulson had dismissed weeks earlier in favor of buying troubled assets through some kind of reverse auction.
Now there’s a detail you can hang your hat on! Too bad it was a non-starter.
Comparative Disadvantage
“Treasury has no expertise in this ridiculous new venture,” wrote Vernon Smith, Nobel Laureate in Economics, in an Oct. 9 Wall Street Journal op-ed.
Treasury is really good at auctioning securities of a single description and maturity to multiple competing buyers. With a reverse auction, the sellers submit competitive offers at which they want “to sell Treasury a heterogeneous mix of good, some sour, apples and oranges whose content is better known to sellers than the Treasury,” Smith wrote.
Last week, Paulson announced that TARP, the program for buying troubled assets, was dead. (How can you have a TARP without the “T” and the “A?”) In its reincarnated form, the program will be reoriented toward helping the consumer.
There were no details.
“We’re in the process of working with the Fed to design it,” Paulson said at a Nov. 12 press briefing.
As a practical matter, what is he going to do?
Movin’ On
That’s unclear. He spoke about distress in the “asset- backed securitization market,” where credit-card, auto and student loans are packaged and resold. He said he was “exploring the development of a potential liquidity facility for highly rated AAA asset-backed securities” and using TARP “to encourage investors to come back to this troubled market, by providing them access to federal financing while protecting the availability for consumers.”
Got it? By the time you figure out what he’s exploring, encouraging, providing and protecting, TARP will have moved on to bigger and better things.
In the process, “Paulson managed to blow up several markets in one press conference,” said Jim Bianco, president of Bianco Research in Chicago.
Mortgage bonds were clobbered as Paulson called off the stillborn purchase of troubled mortgage-related assets. “The asset-backed market for credit cards and auto loans is in chaos, with folks watching TV and waiting for the announcement of how the government is going to accomplish these things,” Bianco said.
Flipping and Flopping
Instead of apologizing for his flip-flop on one after another ill-conceived initiative, Paulson prided himself on his flexibility.
“I will never apologize for changing a strategy or an approach if the facts change,” he said, paraphrasing the late economist John Maynard Keynes.
The facts haven’t changed, Mr. Secretary. Your appreciation of and approach to them have.
“I’m afraid Paulson is applying Don Rumsfeld’s approach to the financial world,” said Josh Rosner, managing director at Graham Fisher & Co. in New York. “Rumsfeld’s core tenet was that sometimes you can’t predict outcomes, so just put the ball in motion. That approach is irresponsible.”
To the extent that confidence -- in the financial system, in counterparties to transactions, in government officials setting policy -- is important, Paulson instills little.
“What are the rules?” Bianco said. “He’ll get back to you on that.”
Off the Dole
From the nuanced decision to rescue Bear Stearns Cos. and let Lehman Brothers Holdings Inc. fail, to the constantly changing vision for TARP, to the failure to enunciate the rules of the game, to the opaque selection of winners and losers for loans and rescues, Paulson has failed to elicit the market’s -- or public’s -- trust.
“The general concern that many of us have voiced on both sides is the federal government picking winners and losers in this process,” Congressman Tom Price, Republican of Georgia, said at yesterday’s House Financial Services Committee hearing.
Price said there’s a “general angst” in Congress and across the nation about the federal government’s ability “to get this right.”
No one is talking about how to get things right when it comes to the status quo ante.
“How will we ever get back to a world where the government is not expected to backstop short-term debt?” Rosner said, referring to the Fed’s Commercial Paper Funding Facility. “Allowing corporations to fund themselves with short-term debt is like funding housing with short-term adjustable-rate mortgages.”
We all know how well that worked out."
Complain about this comment
The government's plan to has reached stage 3. Stage one was to save the banks (and all our money in the banks) by offering loans/capital. Stage two was to relax monetary policy, which has been done by a dramatic reduction in interest rates with more to come if necessary. We are now at stage three which involves fiscal stimulas. We will see what precise measures are proposed next week, but so far, the Government seem to have acted responsibly and effectively.
As the economy improves, government borrowing will reduce, as welfare benefit costs reduce and tax receipts increase through higher economic activity. Running the government finances is not the same as running a household or a small business finances.
Long term issues about personal and corporate debt and ensuring the banks don't make the same mistakes again will need to be dealt with, and the recession will effect many, but the problems are complex, as are the solutions. The government and the BoE have done well responding to the credit crunch; there are legitimate questions about how we got into the mess in the first place, but sorting it out should be priority.
Complain about this comment
kNOCK kNOCK, HELLO
The economy will not be kick start by some short term tax breaks, it will need to stay in thegarage until it has undergone a full service and Mot, Then only then will anything be done to start the engine.
Affordability is the key to this and affordability will unlock it also.
This economy has been biult on house prices and the spend levels have been based on the equity within those houses.
As we have no other means other than to use our houses as piggy banks and those piggy banks are now empty, the only way this country can get out of this is repay its debts, increase salaries and therefore disposable income or have another housing bubble. As the latter should not happen anymore and salaries will actually fall the only way is to pay of debt. And that takes time.
Complain about this comment
To summarise Pesto's post:
Aided and abetted by Himself, HM Government drove down the value of the banks. MPs then lied to us about the point of the bailout, substantially moved the regulatory goalposts to force banks into dire straits, spent billions of taxpayer's money that they have already seen diminish and still haven't fixed the problems.
Thanks Bob! Thanks Alistair! Thanks Gordon!
I won't forget this.
Had to laugh at the opening paragraph.
"It's clear from comments posted on my blog that there's a widespread misunderstanding about what the massive taxpayer bailout of our banks was designed to achieve or could achieve."
Between MPs, the media and the public, two of the three are responsible for this. And it isn't the public. Why didn't anyone in the media even try to get the truth from Darling and Gordon at the time? What are you not telling us? You lot are as complicit in the downfall of the economy as the Government is.
Complain about this comment
I've just went back to October to check the posts (I'm sure I'm not imagining) where Robert basically said that recapitalising would lead to increased lending and there's nothing past mid month -
Did Robert really take two weeks off as recently as that? Or have the offending posts been removed?
What did I do with my time if he really was away? Ha Ha
Complain about this comment
I had understood that the recapitalisation of our Banks was supposed to work on the principle of trickle down, i.e. that we (the tax payers) would eventually see the benefits. However, the govt forgot that these are banking institutions and it really is like trying to squeeze blood out of a stone.
I understand that Obamah wants to use a trickle-up approach and this is to give tax breaks (i.e cheques in the post of around $1000)to lower and middleclasses. The theory being that it will be used and not sat on like in the banks. The idea is that the Banks will still get some of it and the people will hopefully initiate a consumer boom. It happened in the UK when the building societies demutualised and their members were given shares. We had a conumer boom in the UK, whilst the rest of Europe suffered.
I understand that the option that the govt may seem to favour is to give every British Citizen a sort of time limited voucher worth around £500 (I don't really know how much) and we will have to use it within 6 months. This voucher may have limited uses such as DIY, house buying, but probably will exclude things like foreign travel.
Complain about this comment
Im very new to all this Financial stuff and have been trying to educate myself the last few months as the crisis has taken hold. Could someone explain the following to me:
1) why cant the government suspend all repossessions and force the lenders to arrange new payment terms for the mortgage holders e.g. lengthening mortgage term thus reducing monthly bill. Therefore, the mortgage co earns interest, doesnt have the cost of repossession and risk losing a lot when property is auctioned at lower value The borrower has the stability that they have a home and can focus on generating income rather than worrying about losing a roof over their head.
2) Surely the government needs to take immediate and massive action towards building our manufacturing base. The service sector will no longer be able to employ enough of the working population.
Allowing our industries to fail is a disgrace.
3) Why dont we see the support for industry that for example Germany offer to their population. As an example dont German people get tax reductions for buying german made cars? I didnt see that kind of help for Rover. Just yet again flogging off our industry to foreigners.
We've got a great history for innovation and industry, its never too late to improve the situation if the govt support the country.
Your thoughts appreciated. Im a novice with all this
Complain about this comment
Nov. 20 (Bloomberg) -- The U.S. will need to inject at least $1 trillion of common equity into banks, brokerages and other companies to stabilize the financial system....the Treasury's preferred equity investments through its Troubled Asset Relief Program are not ``real capital'' and won't necessarily ensure those institutions won't fail.
And theres us thinking they saved the world, oh well back to the drawing board....lets look at again after Mon after wasting billions more first.
Complain about this comment
Don't you just wish the BBC would write something like this about the UK governement and its eqivalent of the US Treasury Secretary?
Goldman, GE, GM Invite Us to Play a Rigged Game: Jonathan Weil
Commentary by Jonathan Weil
Nov. 20 (Bloomberg) -- The fleecing knows no end.
Take a look at GM's 8.375 percent bond due in July 2033, and feast your eyes on the new world of American capitalism. Yesterday's price, at about 15 cents on the dollar, tells you the market believes GM will last long enough to make a little less than two years' worth of interest payments.
Were it not for the chance of a government bailout, in lieu of an imminent Chapter 11 bankruptcy filing, the bonds would trade for much less. And there lies the truth about what America's capital markets have become: a rigged game.
You can see it all over. Nobody who knows anything about General Electric Co. actually believes it's a AAA credit. And yet the raters at Moody's Investors Service and Standard & Poor's continue to give GE their highest mark. Meanwhile, the company just landed government insurance for as much as USD139 billion of debt for its lending arm, GE Capital Corp., which also is rated AAA. If GE were really that strong, it wouldn't need the help.
At American International Group Inc., the USD150 billion ward of the Treasury Department, management had the audacity to claim in the company's latest quarterly report that it ``believes it will have adequate liquidity to finance and operate AIG's businesses.'' In other words, AIG's executives are counting on a blank check from the government, should the money run out again.
If you had considered betting against Fannie Mae and Freddie Mac this summer -- that is, when the Securities and Exchange Commission wasn't banning short sales of their stocks -- the biggest risk wasn't that they would surprise investors by turning in a good quarter. It was that Treasury Secretary Hank Paulson or Federal Reserve Chairman Ben Bernanke would show up before Congress to talk up their stocks and squeeze the shorts.
Paulson's Sting
Your worry is the same if you're thinking of shorting Morgan Stanley, Goldman Sachs Group Inc. or Citigroup Inc. All Paulson might have to do to separate you from your money is call a press conference. And if you bought toxic mortgage bonds, just before Paulson canceled Treasury's purchases of troubled mortgage-related assets, you've felt his sting already.
When the government let Lehman Brothers Holdings Inc. die, there at least was the sense, for a day or so, that somebody very large wasn't too big to fail. Today we understand better: The government is picking winners and losers. Instead of just a couple giant government-sponsored enterprises, now we have dozens.
With so many beggars in Zegna suits lobbying for handouts, it's easy to see why lots of Americans are aghast at what our country has become.
Many of the companies receiving bailout treasure will get washed out to sea in the end. When we look back on the money showered upon them, whether to fund banker bonuses or preserve Michigan's share of the Electoral College, we will wish we had saved it, if for no other reason than to preserve the Treasury's own AAA-credit rating.
Market Understanding
Think back to the price of that GM bond. It doesn't imply that a government bailout would be enough to let the automaker continue as a going concern until its bonds mature. What the market understands is that GM will collapse long before then, no matter how much taxpayer money it gets now.
In Congress, lawmakers may be fancying a USD25 billion bailout for the auto industry. Yet even if they earmarked all that money just for GM, which has USD59 billion more liabilities than assets, it wouldn't make the company solvent.
Advance Knowledge
So, for the time being, the clearest path to making money in the public markets is to know in advance what the government plans to do next with which companies, and when -- and then trade on it. Let there be no doubt: Plenty of people with access to such inside information are enriching themselves this way now. My guess is none of them is named Mark Cuban, and that the Securities and Exchange Commission will never sue any of them.
It's long been cliche to say the securities markets are a giant casino. This notion hasn't been explored enough. Aside from the free drinks, the only reason a rational person would play a slot machine in Las Vegas, aware that the house controls the outcome, is because of the mindless entertainment it promises. For ordinary folks with money to burn, this might be the last, best reason to invest in the U.S. capital markets, too.
Good luck.
Complain about this comment
#160
The problem with the Government giving everyone £12,000 or whatever to spend - is that they have borrowed the money and eventually everyone would have to pay back the £12,000 AND INTEREST ON THE £12,000 - shall we say 5% for 4 years = £2,586 so the consumer in 4 years time has £2586 LESS to spend then!
(Yes I know the amount is less if the Government recover the extra money by higher taxes earlier BUT they show no sign of admitting that they will do this)
Complain about this comment
A lot of people have made comments about the freedom of credit and level of debt in the economy at large. There's been a systematic failure in regulation (and common sense) that's allowed that to happen but like it or not it's a structural issue that isn't going to be quickly addressed.
The key fix that's needed is for liquidity at affordable levels back in the market place. It's not acceptable for the banks to make inflated margins and point at a falling security base as the reason. LTV ratios target that issue, not high margin. Short term borrowing needs to be affordable again, quickly.
Incidentally, given that competition appears to be sorely lacking in the lending space, isn't it time HBOS and Lloyds was re-thought? The merger made sense pre-Government scheme but is looking badly thought through now.
Complain about this comment
180
I agree!
However much we all hate Governments, whatever their colour or persuasion, this crisis is self induced, self inflicted misery by the private sector, based purely on greed and greed alone.
The biggest flaw in free markets, market forces etc is the self serving, self interest mentality that prevails.
It is just not possible to be part of that culture and have any morality because you would just be swept aside by competitors who just don't care about anyone or anything, other than themselves.
Sadly its a very base and primitive instinct and not one that should belong in the 21stC.
We kid ourselves that we are far superior than those who have gone before us, technology may have moved on but man has not evolved at all. His base animal instincts are very much alive and kicking and just now we are reaping the rewards.
In fact in many respects man has regressed. There are far more superior, socially aware cultures in the animal kingdom, than currently prevails in the human world.
All this might be bad for human kind but absolutely great for the planet!!
Just imagine no more gas guzzling American cars, imports becoming so expensive, we have to start producing all our own food, clothes, essential items etc. etc. We would have to look at becoming self sufficient. Small local businesses would re-emerge. The High Street would become an interesting place to go again, instead of the monotony of chain stores, all selling pretty much the same imported rubbish.
We could look at converting the empty floors above shops, into much needed accommodation. (no need for any new build)
The rent on the shop would become much more affordable for the independant to survive, as the landlord would be collecting rent from all three floors instead of the one floor, as at present. People would be living in our towns and cities again and would become eyes and ears for the police against crime.
Maybe we would even get back to sensible shopping hours and not a 24/7 culture (all that energy we would be saving). Families would once again see each other and not be ships passing. Maybe even Christmas would last more than one day and the shops would all be shut!!!
All sounds fine to me. Can't wait!
This is the wake up call the whole World needed and which no-one wanted to accept. Maybe we just have to thank the greedy for the mess they have got each and everyone of us in.
Every cloud has a silver lining so maybe this dark cloud has just that (or maybe not).
Firstly the world has to accept the utter stupidity of market forces, globalisation, deregulation, privatisation, etc.where profits are far more important than mankind and the planet itself. The planet cannot sustain such greed. We as humans don't even need it.
Complain about this comment
Only a few short weeks ago we had near meltdown in the banking system.
As you say had the government not stepped in we would no longer have a banking system and absolute chaos would have ensued.
Since then trying to separate the political spin from reality is causing much confusion among the general public especially those who don't understand what is really happening.
The government have now completely lost their heads and are reacting minute by minute to hell with the cost.
Trying to stimulate Christmas sales by borrowing to give away money to everyone is counterproductive.
The inevitable loss of jobs in retail will still happen from January next year.
When will they be honest and warn everyone that a recession or worse is just not for Christmas but could last for years if they continue on this course.
I see we are now borrowing to lend to Iceland banks so they can pay back the savers.
Now how crazy is that?
Complain about this comment
BBC
BREAKING NEWS!
Somali Pirate named!
oops, phones ringing. That'll be Reuters with another exclusive. Must dash.
GC
Complain about this comment
Just to say that our bank (Lloyds) renewed our business overdraft yesterday for another 12 months via a 2 minute phone call. Good working partnership between us that goes back a few years.
In amongst all the anger and blame, I thought it right to give a little bit of balance.
Complain about this comment
# 187
Steven,
I guess you are one of the following:
A civil servant in the Treasury
A civil servant in BoE
A political assistant to GB or Ally D
I don't know anyone, whether working in financial services or in the real world, who thinks the government and BoE have done well responding to the credit crisis. The notion that the government has been effective is laughable to most, and downright offensive, I suggest, to several posters on here whose businesses are now threatened as a result of the collateral damage caused by banks' withdrawal from what is supposed to be their main function, namely the provision of credit on a prudent basis.
Actually, you're choice of words says it all: "responding to the credit crisis". Government and BoE have been consistently behind the curve, responding in a piecemeal and inconsistent patchwork way. Keep in mind that as late as September BoE was still signalling the next move in interest rates would be UP.
The "bank rescue" isn't working, as Ally D via RP has admitted this morning. Nor is it working in the US, where nobody actually knows what TARP is for, except it isn't for what it was set up for to begin with, and will probably be a welfare fund for underemployed car workers post-inauguration day next January. In Sweden the banks are simply refusing to get involved with government plans like the one in the UK to "rescue" the banks.
Complain about this comment
Susan Croft:
"So they lied to the public because it was politically expedient?"
Ha Ha... Welcome to Planet Brown. Enjoy your stay!!
Complain about this comment
#83
Sasha,
The Government's Schrodinger's Cat approach to identifying debt.
Brilliant - both incisive and humourous.
Its a pity we don't have poster recommendations on this blog.
cheers, it made me smile.
Complain about this comment
I am now officially bored of this 'Global financial crisis'.
I realise the BBC have planned their next 5 years programming around this, but in reality there is no crisis.
Money has simply re-valued itself. Back to where it should have been.
We will have a round of unemployment, which then prompts the workers to accept lower wages than before (because it's better to be working than not) and the capitalists will regain their profit margin as a result.
The only way we will have a real crisis is if this time around the employed say NO.
If they refuse lower wages and show they do not fear unemployment then the capitalist will have to rethink his strategy.
This could be the driver that ensures capitalists reduce their running costs and improve their margins with technology rather than further exploitation of the worker - which is the traditional way out of this situation.
I find it amazing that the BBC can still be getting stories out of this when it was all explained back in 1877 - clearly and concisely.
Maybe if journalists had studied at university rather than taking Journalism as their 'fallback option' they might actually be able to provide some useful insight into this crisis rather than the pointless repetitive rhetoric we currently get about specifics and no look at the big picture of why this keeps happening.
This is not a dig at RP either - this is a dig at Auntie and her deperation to try and compete with the other 'cry wolf' networks.
When is someone at the BBC going to pose the question to Gordon Brown, AD and George Osbourne.
"The capitalist system is not reliable, the obsession with growth only serves to create periods of negative growth. Surely it would be better to grow at a reasonable rate and keep it steady than the the current boom and bust. Otherwise have you learnt nothing from the tale of the Hare and the Tortoise - or did you miss that class?"
There are 2 types of people in this economic world - the Hares and the Tortoises. Now the Tortoise is making a return after years of the Hare lauding it up and showing off to the crowd - but the tortoise is coming through stong now.
Maybe if the BBC simply replaced breakfast TV with a reading from Aesops fables it might actually provide a service with a point to it!
Complain about this comment
146. At 1:08pm, pauldunnington wrote:
"What we need is "Churchill Spirit" a can do attitude - whatever happened to the Great British Sense of Chin Up, Nose to the grindstone and lets get on with it ! ?"
Here`s a taste of what the "Churchill spirit" was really all about:
"Germany`s unforgivable crime before the second world war was her attempt to extricate her economic power from the worlds trading system and to create her own exchange mechanism which would deny world finance it`s opportunity to profit"
Letter to Lord Robert Boothby,as quoted in Sydney Rogerson`s "propaganda in the next war" 2001.
The man was a charlatan.
Complain about this comment
I run a small business. My customers are holding back on payments and are not making so many orders. Even so my business is in credit and doesn't have any loans or an overdraft and I won't be laying anyone off.
I see this as a time to re-structure and innovate to create new product. Large established firms have been complacently run and many should fail. It's the way of evolution.
I don't agree with bailing out the large banks. They were lending 100s of 1,000s to people with out proof of income. They don't deserve to survive. The same goes for the pension fund managers who were too vain to see reality and the large retailers who adapted "just in time" to their financial systems and are now bankrupt too.
I want the chance to compete with these clowns and the government is stopping me by bailing them out. I'd be happy to take over any banking business, it wouldn't make losses with me in charge.
And by the way overstating income on a mortgage application is a fraud. Failing to report suspicious financial activity to NCIS and instead facilitating the initial fraud is fraud. Selling 6x self-cert income mortgages as AAA rated securtities is a fraud.
We live in a country where people go to prison for possessing £10 of cannabis or shoplifting goods valued under £10. So why are none of the mortgage and securtity frauds being investigated and prosecuited.
This government have abandoned the rule of law.
Complain about this comment
Firstly, I totally agree with the contributor who calls Preston's predictions for next week as "Treasury Press releases masquerading as impartial BBC reporting". Is this HIS ideas or is he being a mouthpiece and telling us what he has been told to rell us? This is very important as we all know that Labour manipulate the media, especially the weak-kneed BBC.
If the basic idea is to "kickstart" anything then I do not agree. There needs to be a good deal of de-leveraging. Providing more finance eg. at 1997 levels and with the same risk assessment is just dart. The Government are trying to be all things to all men; they say the bank bailouts are at arms length but then "tell" the banks to immediately pass on all the recent bank rate drop. Behind the scenes they are trying to arm-twist the index trackers into taking up bank rights issues, saying the Government holding is part of the free float, so that the state's holding isn't embarrassingly high. Meanwhile in the Sun Mandelson is spinning that the Government is sitting on top of the banks and their lending practices and policies. WHICH IS IT?
A similar shambles has happened whereby Northern Rock managers are being incentivised by bonuses for ditching existing loans while other banks are being told to lend more.
The Government stepping into the banks and the way they did it (by leaking stories of a £15BN bailout/nationalisation so that the share prices plummeted 27% in a week) was disgraceful, and will forever be a disaster. An imminent election and the keenness of labour to spin this and take maximum political benefit from the "Labour Party Bailout" by increased unfunded borrowing is NOT going to be good for the country and Pound. Expect them to suddenly find they can produce by magic massive "economies" all of a sudden. TOO LATE and not the party which can or really wants to control massively bloated despite what they tell us.expenditure.
Complain about this comment
#168 "fewer migrant workers on sub-minimum wages"
Easily done !! Just leave the EU !! Since a significant portion of these migrant workers are from EU countries, they cannot be stopped from coming or being employed without a big hassle with the EU Commissioners !!
Complain about this comment
re 204
Unfortunately capitalism is the only game in town because it is driven by the purest fundamental of human nature, the desire to obtain an ever increasing standard of living for yourself and your family. 'standard of living' can be defined in different ways but for most people it implies the acquisition of more and higher quality material possessions.
Now that society considers you a failure if you rent a home, drive a modest car which is more than 3 years old or don't upgrade your mobile phone every year there is immense pressure on people to obtain the means to acquire property and other big ticket items..thus the massive debt crisis we have now.
Most people who live in western democracies see any reduction in their purchasing power as something to be ashamed of, rather than a necessary adjustment in times of economic turmoil, this aso explains why retails sales in Britain haven't quite fallen off a cliff yet as people squeeze the last possible use out of their credit cards and overdraft facilities.
Complain about this comment
#197 - are you sure you read 180 quite right?
I thought he was being satirical: give us a few good years before we all die of bird flu..
Of course it's all the government's fault, they're in charge, goes with the territory. No politician would agree. But then they wouldn't - would they?!
Perhaps #180 - superschnorb - will clarify..
GC
Complain about this comment
Robert, once upon a time your opinions were genuinely independent now you appear to be nothing more than a Labour party puppet.
What a shame the BBC aren't monitoring real independence any more.
Such appears to be the Stalinist hold on news generated by the Labour Party.
Brown stays in denial working on the old adage say it enough and they will all believe it!!
But the sheer madness that is Labour has out spun itself to the point where no one at ground level believes a word they say because we know its is merely for the moment and anything but for the infamous long term, unless long term to Labour means 2 days!!
Darling seems a pleasant enough guy but is undermioned at every turn by Brown who can't admit he is ever wrong, and continues to defend what is becoming a shoddier and more incompetent tenure as Chancellor daily through ever more real detail about the true state of the economy, not what is according to Prudence Brown.
Labour should fear of their endless endeavours to continue being economic with the truth don't just wipe them out but dessimate them for generations.
Let them enjoy the rally in the polls, it will kick start the opposition into gear having wallowed in too much glory with no supportive evidence.
Now its going to be a real fight to the finish and Brown will show his true colours again, that of the true communist who only knows how to tax and redistribute against the opposition stance of meritoicracy and genuine business and welfare development .
I'll say it early before everyone does, Goodbye Brown it really was ghastly knowing you please go away never to return and let this country be run properly for the first time in 11 years.
Complain about this comment
The toxic debt is the big problem across the globe ,most or probably all of the financial institutions have so much on their balance sheets that they either do not know about or unwilling to unravel therefor they will no longer lend to each other let alone main st.
An anology of a rotten apple , the world will have to rebuild from the core with a principled business plan which has not happened in the banking sector since the big bang
Complain about this comment
The only tax cut that will make any difference is a reduction in the rate of VAT. Targeting small businesses and / or reducing individual taxation will be a total waste of time.
We have very low interest rates - and they're going down further - low oil prices again, which will lead to reduced energy bills, and food prices on the way down too.
The one thing we don't have is confidence...the one thing that will bring things 'alive' again and restore some confidence is an immediate and tangable tax reduction...it's VAT or nothing! 15% rate of VAT on Monday please!
Complain about this comment
Mr G Croft, May I please make a personal recommendation. I am recent ex-pat and have a best friend (ex-boss) with a russian wife.
I live in the Czech rep (no news there) but do feel a little isolated, the second language here is Russian.
My x-boss visited Moscow with his wife and felt totally alienated. Totally.
If you can both agree, then a middle intermediate country would be better. Poland, believe it or not has good language skills in English and Russian and has a large enough and dynamic enough population base to provide the level of 'sophistication' (only word I can use within the short mssaging of a blog) to provide your family with what it needs. Its a cultural halfway house really.
I could say and recommend much more, but I live in a central european country and am already isolated by language - the further East, the more the alienation.
However, the sheer beauty, lack of population pressure, social culture etc all make up for living in London. :)
Complain about this comment
200 spareacopper
It will all be down to your rating on the computer - ie reliability, does what you predict come to pass, and do you have a history of repaying credit. Its not worth a tuppenny whatsit if you display the slightest problem or your money gets subject to ID fraud, suddenly the computer will say no. Dont swallow the story. At present the banks are keen to lend to high rating customers. They do not make significant money without peddling debt. It is all down to the computer, dont for a minute imagine that a human is involved in the actual authorisation, they all work for the machine, it is much worse than Orwell could have imagined.
Complain about this comment
does not the image of larry curly and moe spring to mind whenever this commical government are mentioned.
the pm has decided to borrow billions to help the ecconomy and to use fivers to light his cigars.
mr darling is happy that the borrowing will mean he can cut taxes and make the thick populus happy.
other members of this regime are just happy to already have there two homes etc before the crisis.
bringing back spitting image may well help people today understand this current crop of westminsterites.
Complain about this comment
No.148 Drogvucy, I think that what people here are calling for is not the tear down of the complete banking system but just the major players who have grown so big and cumbersome that they outstrip their initial philosophies and core business values.
This is in fact a normal event in the business cycle.
Salaries and invoices and ratings would go on, albeit actioned by the other (currently more minor) players in the banking field.
Life would not grind to a stop if the larger players who have used their clout to diversify into sectors other than pure 'retail' banking, were allowed to go to the wall.
This is the general theme of the arguments here.
Size, clout, influence, greed, usury.. all 'SYMPTOMS' of the malaise of empire..
Complain about this comment
I recommend comment 149 oweintcliff.
Complain about this comment
Some interesting comments. But funny to see the same old diatribes against private equity. As a private equity investor involved in financing a variety of management buy outs, development capital for company growth, acquisitions etc, I get fed up with the story that we always borrow all our money from a bank to invest in a company. That is just plain wrong.
We invest equity, alongside bank debt - the greatest amount of bank debt or leverage in a deal I have been involved with is 3 times maintainable earnings, with the average level of bank debt being between 2 and 3 times. Alongside an equivalent or greater level of equity form ourselves - which is not bank debt but equity funds raised from our investors.
The problem comes with the banks like HBOS - with their Integrated Finance product. Instead of having a private equity investor funding half the investment, HBOS funded it entirely, so when the company underperforms, there is no equity investor who gets squeezed and has to invest more equity. This is magnified when HBOS paid well over the odds for businesses - in many instances outbidding trade buyers which is a major no no for private equity.
HBOS and RBS to a similar degree have got their just deserts - they thought they could buck the market, got very greedy and priced equity risk as bank risk.
The good banks, and I include LTSB, HSBC, Yorkshire, CO-Op, and a couple of others, never overlent in the sub £50m deal size, and as such don't have the problems faced by the Scottish banks. LTSB is only getting Govt help due to the taking on board of HBOS.
Complain about this comment
"The primary motive of the £400bn of additional taxpayer support provided last month by the Treasury was to prevent the collapse of the banking system"
With respect Robert, all we have is your claim that this was the case.
My conclusion is sowing confusion about the goal of the bailout was to the benefit of the government in getting the measures through, but it did it too well and now has to distance itself from its own spin because the public has got it into their heads that there were commitments the government could be held to. Mind you, the promises were nonsensical anyway so no great loss. The last thing we need is more credit.
I think it is more clear from the comments posted on your blog that the Conservatives are going to find their new stance will resonate with a lot of people who do not want to see their taxes reward failure by banks, retailers, or anyone else. The misunderstanding is all Labour's if they think jam today and beans forever after is going to win votes once people have had a taste of beans.
Complain about this comment
185 apollo
No problem its only my guesswork, but hopefully it is an educated guess. I would also think that much of the reserves built up by these RSL’s are to cover their running costs not for capital outlay again that’s only my guesswork.
Unfortunately having gone through a time of prosperity the banks have grown lax with their risk assessment (aided by rating agencies), which has bitten them where it hurts, we will now all have to go through a period where the banks will take a very conservative approach to any risk no matter how safe it seems.
As for companies folding, these days financial authorities insist on assets being Marked to Market, previously many bank owned assets were accrual accounted which allowed any losses or change in valuations (positive and negative) to be spread over the remaining period of the transaction, these days with Mark to Market if the value of a 50 year asset changes it has to all be taken up front, many of the so called toxic loans have not yet defaulted it’s just that the threat of default has made the assets unsalable and therefore have been marked to zero (or close to) on banks’ balance sheets. I have no doubt when the markets settle down their will be a thriving market in the so called JUNK assets, if you can buy an asset that once was worth 100 for 10 the risk/reward suddenly starts to look good. My point is companies do not need to actually fold for the banks to have to take a large hit on their balance sheet.
Complain about this comment
Robert
the banks have to see that their normal operating conditions should not apply. They have been bailed out effectively by the public, now its their turn to reciprocate the favour to their customers. The fact that they by not lending can turn a healthy business into one fighting for survival beggars belief.
Otherwise maybe we should have let them fail, perhaps we have one too many bank
Complain about this comment
86. sorry only just got back.
Re VAT hikes to pay for income tax cuts, this would surely have the effect of reducing the UK consumer's spending (on mainly imports) addiction. If not, at least the Govt would be getting extra revenue.
I personally would cut basic rate income tax by 10p or abolish National Insurance, and hike VAT to 25%, but make heating fuel and electricity zero rated.
I would also like to see all public sector salaries over 50K per year cut by say 20%, and those over 100K cut by 30%.
Bit unlikely tho..
Complain about this comment
PLEASE, PLEASE, PLEASE!....Why all the panic?
As a last resort......we can always fall back on our GOLD RESERVES ;-)
Complain about this comment
Dear Rob,
You've been working too hard for the Gov't for the past 12 months.......PLEASE take some holiday!
Complain about this comment
219 propsup
The question is how many put capital at risk. Most do not, in fact most do not want to even evaluate risk and want to deny it exists. You do not put capital at risk unless you understand the game involved and you expect a reward to balance the risk and liabilities. The problem is a culture which wants all the benefits of risk but none of the actual risk, it subverts the risktakers who assess the situation accurately, ie at a higher cost, and then inevitably goes bust, even if it survives for a short while and deludes itself as to its capability. Sound familiar. Includes governments however indirectly linked, who characteristically want the benefits, sell it on as success and corporate expertise, but cannot pay the bill if things go wrong.
Complain about this comment
187. At 2:46pm on 20 Nov 2008, stevenpalmer wrote:
"Running the government finances is not the same as running a household or a small business finances."
LOL!
Complain about this comment
209 : citygambler
"Unfortunately capitalism is the only game in town because it is driven by the purest fundamental of human nature, the desire to obtain an ever increasing standard of living for yourself and your family."
I dispute this. I'd suggest that basic human nature could value an adequate long-term standard of living much higher than the switchback of alternating ups and downs. Furthermore, I think that trust in humanity's capabilities would lead to an expectation that standards of living, generally, would advance with time, as we become better and better at what we do.
I don't think that this requires capitalism to be "the only game in town", because, as I have said, basic human desires can be satisfied through a social rather than a selfish approach. But, of course, if society is nurtured to believe, without question, that life is a competition for the bragging-rights of personal prosperity, it does rather rule out as a goal personal ambition as a spin-off of collective achievement.
Of course, I may be wrong. It may be true that benefitting from the prosperity of the whole is too nebulous a concept to be an effective motivation for the natures of most people. I remain to be convinced of this, however. Apart from anything else, what value to the quality of life must there be in living in a world where it's not necessary to be duplicitous in order to be successful?
Complain about this comment
The phrase.....'The lunatics are running the asylum' has never, ever been more apt.
RP's blog today really proves they (GB/AD) are just making it up as they go along!
The situation is now getting so bad that I honestly believe there will be social meltdown and riots.
We are about to pass the tipping point.
Complain about this comment
I wish that Robert Preston would mention the PSBR for October.
It's usually a debt repayment but for the 1st time in 16 years it is a deficit.
Yet no mention on the BBC Anywhere.
Why not?
Complain about this comment
Thats another $Billion gone!
Complain about this comment
Further to my 97 can anyone tell me how indebted the major countries are ?
Complain about this comment
#204 "I am now officially bored of this 'Global financial crisis'.
I realise the BBC have planned their next 5 years programming around this"
Can it be any worse than "Property Ladder", "Relocation Relocation Relocation", "Sell Off Your Shed as a Des-Res" etc?
Complain about this comment
#158
"How about some more calls for lowering interest rates ?
Or have people finally figured this one out ?"
- It seems there are hints there will be lower rates.
Complain about this comment
The problem with banks is their remuneration structure, as an ex banker I have seen it at first hand.
The bankers get incentivised by money out the door - any monkey can lend or invest in a business, and get a whopping bonus up front - the real job is getting the loan or invetsment back with a return.
The difference between private equity remuneration and bank remuneration is private equity get the huge majority of their remuneration when they get their money back with a capital gain. There are investments I made 4 years ago, which are doing well now, but I have not been bonused on - we haven't had our capital gain yet. Yet the bankers that lent the money to the company had their bonuses 4 years ago. That is wrong.
It is even worse on the trading floors of banks. The interest rate swap trader will be bonused on his mark to market P&L at year end, yet those swap exposures could still be active for another 10 or 15 years. Next year he makes a massive loss, but the bonus was paid the previous year.
The banks will continually have problems until their incentivisation schemes are brought in to line with the risks they carry.
As for comments that this is the end of capitalism, then what is the alternative ? Communism?? That replaces money with power, the smart and entrepreneurial people work to increase their power base not their bank balance. Everyone is then worse off. What happened to the USSR??
Complain about this comment
Let’s take a look over the parapet.
Peak oil = Peak growth in an oil based economy.
We are approaching, at or passed peek oil.
What happens next is a recovery means oil prices rises rapidly inducing another recession and this happens on a recurring basis, but recoveries become smaller and shorter.
The energy gap produces an energy crunch.
O.K. There will be a drive for more efficient use of oil, and there will be a switch to other fossil based fuels, bio-fuels, alternative energy and nuclear, but there is no way in the near future that these with fill the energy gap.
The West’s economy is based on oil, so we may find it difficult to transform our economies to other sources of fuel; developing economies may find it easier to develop these fuel sources leaving the west behind.
So all these efforts to kick-start the economy, to try to get back to where we were may all be in vain. Over the next few months we will see the first steps in the West to dismantle the oil based economy with the loss of the big American car companies.
It not the end of world – there will be areas of outstanding growth, but overall growth will diminish and I not sure that our share in the wealth will increase – it may be the time of the East to prosper!
Let hope the people at CERN finally crack fusion as a source of power!
Complain about this comment
Our world has reached a crossroad.
We consume more than our planet can handle.
We consume more than our bank balances can handle.
Not in a long time has the worlds governments been handed such an opportunity to make the world a better place for a bit of short term suffering.
Some will take a positive direction, Some will take a negative direction, GB wants to dig a new rd off at 45 degrees to lead us down. Only problem is this new road is heading toward a diss-used mineshaft.
By the time we have recovered from the credit crunch in good old blighty we will be entering an energy crunch. And that will be blamed on the rest of the world too.
Politics is one big fraud, i am sick of being lied to by un-accountable white collar crooks who [in an incredibly patronising manor] think they know whats best for us.
"Well, what we are proposing" and "What we think is important" is all these highly educated buffoons seem to respond to any questions asked of them. ANSWER THE CHUFFIN QUESTION.
My blood pressure starting to rise so ill finish with this, Me and my family are immigrating next year and i could compare it to the peasants that were trapped below on the titanic while the captain thought he would see how fast his boat would go.
Complain about this comment
This latest update from RP explaining that the BOE now believes that many large UK businesses, because of their high levels of debt, are not properly equipped to withstand the future effects of the credit crunch, implies that many of the captains of commerce and industry heading up our largest businesses are still wet behind the ears when it comes to understanding what it really take to make a business grow and prosper over the long term.
It now seems that our leading businessmen are little more than clones who have all been to the same business school as our leading bankers. Most of these people can boast of having gained a masters degree from one or other of the leading business schools and are experts at talking about accounting and how creative accounting procedures can boost profits. When the economy was booming many of them (or their predecessors) were aware (with the help of the banks and their equally inept business advisors) that it is much easier to grow a business through aquisition and many of them paid well over the odds when doing so.
One is tempted to say that the credit crunch has taught us that some of our leading business schools and business advisors are simply producing too many business school clones who are only capable of managing businesses over the short term and are not astute or capable enough to manage and grow business over the long term
Complain about this comment
192.
1) why cant the government suspend all repossessions ......
It wouldn't help the borrower in short.
The bulk of payments made on mortgages are interest so lengthening the term makes a minor difference to actual monthly payments on short increase in term of 5 years - if the borrower can't afford their current payment to the point of repossession then they are unlikely to be able to afford the new one.
If a property has got to repossession then it is unlikely that the reason is short term and the borrower is advised to talk to the lender as soon as any change in their circumstances which could lead to arrears (these build up really fast with extra charges - so some limit on these might be worthwhile new legislation)
Banks rarely lose much money on repossessions as all costs are loaded onto the loan amount anyway - once the property sells the borrower still owes the lender any difference between the amount realised and banks seek to recover this unsecured debt i.e. your car,furniture and other possessions until you are made bankrupt by the whole process.
Recent lending is likely to be in this distressed state but even if a 100% loan was made as little as 2/3 years ago the lender would likely cover costs by repossession.
So pnly if the Government effectively underwrote the deal would the banks do this - better to nationalise it to a housing association or council, leave the tenant in place and charge rent
2) Surely the government needs to take immediate and massive action towards building our manufacturing base. The service sector will no longer be able to employ enough of the working population.
Allowing our industries to fail is a disgrace.
Not a short term strategy and needs a dramatic reduction in costs of doing business in the UK (and that means wages, regulations and costs (i.e. energy)). What we need is a situation where our balance of payments is more in balance so we spend what we earn - previously the last several governments had basically decided that the city was going to be the motor that did this... ooops.
The problem is there are too many structurally cheaper places to manufacture than here. Industries based on recycling our own waste are a good bet to reverse some of the decline - e.g. 3 new papermills (the first in 20 years) are already on the cards for example.
3) Why dont we see the support for industry that for example Germany offer to their population. As an example dont German people get tax reductions for buying german made cars? I didnt see that kind of help for Rover. Just yet again flogging off our industry to foreigners.
Most support of this type is illegal under EU rules, Germans as a rule just wouldn't dream of buying a car not built by a German company - reliability and high quality have a price - contrast that to what our UK owned companies once produced and the quality standards. One statistic recently published was roughly all Honda cars were rated very highly for reliability excepting the Civic (which is the only model manufactured in Swindon rather than imported). We need quality and pride in our products to reverse the decline - ask a foreigner.
Subsidies just get you Alitalis - basket cases.
Complain about this comment
The americans know hoe to kick start dont they? Hand over billions to the people that produce cars and trucks. Thats going to help a lot isnt it?
The non elected leader of this country is putting us up for sale on monday and we are all complicit in his scheme. Days after honouring the people that saved us from that regime during wwii, were are going to be taken over lock stock and no barrels by China and the arabs in a very conservative war.
Is there no one that will take up the sword and slay this suicidal pact of neo-liberalism to destroy the world rather than destroy their destinies ?
Complain about this comment
@ #228 ExcellenceFirst
Your post has my vote as the best of the blog!
Our way of financial/economic life rests on the assumption that wanting an ever-increasing quantity of material goods (or symbols of them) is a fundamental human "instinct."
I don't believe it. Our instincts are two: survive and reproduce, like all other amimal species. And for most of pre-history, that's all we did.
Then, at some point, it somehow became very important to amass a larger pile of beads, or gold cuff links, or . . . (fill in the blank), things which have nothing to do with preserving our kind.
Our present way of life is based on ideas, acquired through social conditioning as children; it's not based on instinct. This same marvelous and creative human brain that's produced technology and our vast accumulation of material "wealth", has produced the seed of its own destruction: a belief that we can indefinitely satisfy material wants that exceed our needs.
The re-assessment we must make is far deeper than the mechanisms of finance (our "instinct for banking"?). The reassessment must go to the heart of what, individually, we do and why we do it.
If you've bothered to read this far you're probably in some sympathy with these thoughts already. I profess no religion, but it's essentially a religious concern: how to bring our lives into balance with our place in the world. Thanks for giving it your time.
Complain about this comment
#200 ishkandar
Actually I would be in favour of leaving the EU and becoming far more self reliant.
It would mean massive changes but I think it would be worth it.
I am more opposed to the payment of slave wages than the employment of foreign workers as a rule, they have helped to depress wages amongst the working class.
Complain about this comment
The posts regarding Tesco extending its payment terms make me seeth.
Tesco is far too large and powerful for the good of the country - when my super regulator is established (see historic posts) they will be the first to be broken up.
Complain about this comment
What I meant to say was we should all boycott any company which doesn't behave ethically (define ethically for yourself)
Complain about this comment
Comment 238 : godfreybrown
I think your assessment's wrong. I'm not disputing that there has been a great deal of cloning going on, and that those at the head of the commercial and financial establishments have increasingly spoken as one voice - a voice clearly demonstrated now to have been wrong.
But I don't think there was any alternative. For the best part of 20 years it's been commercial suicide not to maximise the short-term, because devoting resources outside the short-term leads to an inferior share price, and the risk of losing ones job. Top management has been judged on how well it boosts the now, because the future has been discounted to such an extent as to not really matter very much. It's an incredibly childish way of looking at things, but it's how things are; it's how management is expected to run their businesses; and it's not difficult to extrapolate from this that those who have graduated to top management are those whose personalities and outlooks are most closely attuned to these thought processes.
We have to get out of the the mindset that the best will triumphantly optimise the world whatever the environment in which they have to operate. It's false. The best can only operate as well as they are allowed to, and the basic responsibility of adult humanity is to work tirelessly to create and maintain an environment in which it is most likely that the movers and shakers will do the RIGHT things.
The last 20 years have seen us moving further and further away from such an environment.
Complain about this comment
Why is it that whilst many many people are losing their jobs the Guardian still has page upon page of Public Sector non-jobs advertised.
It seems to me that an enormous amount of money could be saved by trimming this bloated sector, if only someone had the guts to address it.
One of my neighbours has just retired from his Public Sector job, which he had been in for 30 years. His position was axed in 2005 and he has spent the last three years virtually at home until his retirement. To cap it and he was given a mind boggling rise in April of this year as a way of saying thank you and to increase his Public Sector pension!!. You could!nt make it up.
One of the main reasons that consumer spending is supposedly down is because lots and lots of people took money out of their house every year to fund new cars, holidays, luxury items etc., and of course this type of lending has stopped. Withdraw this form of lending from the market and you will have a massive shortfall in spending.
Where my son works a guy on the shop floor, earning £12-00p. an hour was given a £60K loan in 2006 against his house, without any questions being asked. He went out and bought a Porsche Cayenne!!!!.
And I wonder why we have reached this position. It seems that lenders and borrowers lost their marbles somewhere along the way.
The next small problem that the GB will have to face is when several billion pounds is withdrawn from Premium Bonds when the next interest cut is announced.
Complain about this comment
apollo mcqueen
The houses flats i was on about are the spec stuff they cant unload,not the voids.
Complain about this comment
#245: Excellencefirst
"The best can only operate as well as they are allowed to, and the basic responsibility of adult humanity is to work tirelessly to create and maintain an environment in which it is most likely that the movers and shakers will do the RIGHT things."
Well said
Complain about this comment
"Can Darling kickstart lending?"
Why should he? You still have not made the case, Robert. You still make throw-away statements as though the reasoning is obvious. It isn't.
Complain about this comment
RP "Or to put it more bluntly, the transfer to our banks of so much of our cash wasn't designed to kickstart lending by our banks - although it's unsurprising that many of you think that's what it was all about, because ministers created that impression."
Yes it is surprising. If a society is already indebted like hell, how can they ask for even more personal loans? To get back to normal, borrowing has to stop. House prices need to come down substantially and people need to learn how to save, not just spend.
Complain about this comment
One thing to learn from all this is it pays to work for the government.Either through a public sector job an mp or just simply pick up benefits because these are the only ones not in reccesion and if you make a total pigs ear of things you still get a fat bonus and a pension.Goodbye private sector hello civil service.
Complain about this comment
I have run a small company for 8 years, I have no debt, have taken a minimal wage and have not had a holiday in four years, our company saving account has now dropped to 1.2% it used to be about 4%. We owe no one, yet big companies , continually push the time it takes to pay, they are only interested in profit and share, no longer in giving a good product or service. The city is dead it needs to be eradicated and small to medium business should receive help to take over where the big companies have failed. The take the most out of the system , but put the least in. The Bank mergers are a joke, someone is making or will make huge money out of this. I laughed when I read the US will not decide on wether to put money into the US car business yet they pump money into the Banking sector where they then pay out to their directors and other hangers on.
This is all designed to let the fat cats get their money , to lessen the amount owed to foreign investors, and to dampen wage rises for the working classes. It is obscene the amount that is paid out in the financial sector, they should be made to give it back and see how everyone else is feeling. Time and time again the market crashes and they get their money regardless.
Back to manufacturing again, we will never survive as the call centre/financial centre/dont get your hands dirty country.
Many people saw this coming , and in ten 15 years it will happen again
Complain about this comment
Now it all comes out --
Yes -- many millions beleived that the respective USA and UK bank bailouts were designed to help ease up the strangled credit markets.
I doubt -- if it had been made clear -- whether the public at large would have wished the bank's to be bailed out if they had truly realised that the bank's would put the cash in their pockets or buy other financial institutions with money. The question that is now being screamed from every headline.
The government should have guaranteed customer deposits and let the bank's go to the wall -- just as the bank's are happy to do every day with business customers who become insolvent.
Now we have lent them our money that will probably never be repaid -- whatever they say.
Healthy bank's -- like HSBC -- who have dipped into our pockets would reign -- rightly so -- and other banks who have been prudent as we expect of them would take over.
Clearly Lloyds TSB, RBS, HBOS -- and Barclays who simply shaft their shareholders another way -- should have been allowed to go to the wall.
Let free market forces prevail -- and watch this space when they let GM Motors and others go in the US. I'm afraid its the only way.
Complain about this comment
As mentioned above, Gordon Brown has been responsible for inflating the money supply by 10-15% per year for over a decade. He also forced interest rates to be set against CPI, thereby removing housing costs from consideration and letting housing prices rip. No-one should be surprised we have an inflated asset bubble which needs deflating.
Prices need to fall to get back to a more fundamental level of supply/demand balance. It will be painful, but the quicker the better. Meanwhile the government and the Keynesian economists are intending to try all they can to stop this happening. A government that attempts to stop prices that want to fall from falling is a government itching to lose a fight. A war on prices is a war on human choice and is likely to result in billions wasted.
Probably the best long-term solution for all of our mess would be to abolish the Bank of England. Without the ability to expand the money supply at will, governments of all colours would be forced to fall back on spending only what they are able to raise through taxation. The public sector would need to be scaled back, money would retain its value over time and there would be far less opportunity for overseas adventures such as Iraq and Afghanistan. Politicians will continue to think of their own short-term self-interest but without a central bank to print money on their behalf, we wouldn’t have to worry about cyclical bubbles, crazy business cycles, hyperinflation, billion-dollar bailouts, etc. As we move towards a future of lower availability of oil and other natural resources, we will benefit from having a more stable financial structure.
Complain about this comment
#242 "I am more opposed to the payment of slave wages than the employment of foreign workers as a rule, they have helped to depress wages amongst the working class."
Did they depress wages or were they accepting more realistic wages ?? One could argue either way depending on the case.
I know a great many "migrant workers" in the catering industry in London and they are happy to perform a service at a lesser wage than an equivalent British person. However, that said, the wages were *not* "slave wages" as many seem to think.
But tempus fugit and quite a few have returned to their homeland when the situation is no longer employment friendly and they can get the same or higher wages at home !! "Higher" because they have learnt fairly fluent English whilst here and can, therefore, deal more easily with tourists to their country !! Saleable skills are always useful !!
Complain about this comment
JayPee 28, Nice informative posts. But it is sad to know that the US Gov is as deep in the mire with no direction signs for the economy also.
Complain about this comment
#254 "abolish the Bank of England.....without a central bank to print money...."
Oh dear. Does that mean that we'll all have to use Scottish bank notes ?? They still have the right to print notes, you know !!
Complain about this comment
#241 What you have just described sounds very much like Keynesian economics which postulated a never-ending pool of wealth that the people can draw from, not because they "need to", but because they "want to".
And to think, Karl Marx lies not too far from where I am right now !!
Complain about this comment
May I respectfully remind everybody that BBC impartiality went out the window during the Thatcher government years, successive witch hunts and threatened legal actions and purges removed all semblence of integrity.
This process continued under the current government.
The BBC is now and forever will be what it was created for, a government propaganda tool.
This bias was only lost during the (oft condemned) 1960's.
BBC reporters must work within very defined and difficult limits, at least here we get an idea of government thinking (such as it is) and direction (deeper into the quagmire) BUT at least we can dissemble.
I am sure if we met Mr Peston, he would be a nice intelligent chap with similar jaundiced views that S.Clarkson, G.Croft and A.Curzon et al would enjoy a few bottles of english sparkly wine with over dinner.
The BBC was only ever NOT a government tool for about 15-20 years.
Complain about this comment
Again Ladies and Gentlemen, may I offer an opinion into what I believe is the TRUE future of commerce in the UK.
Britain has always been run by gentlemens clubs. The nod and wink.
Why is this not corruption? because no money actually changes hands. It is trust based honour amongst top-notch thieves.
You scratch my... etc.
We are entering a period of intense commercial and manufacturing retraction, contracts for work will be few and far between.
So how to award those contracts and to who?
I need 1 million left armed sweaters. 5 companies bid. The second highest bid is from my mate at school, I dated his sister once. The lowest bid comes from a reputale factory I have dealt with before.
My wife has coffee with my mates wife.
Who gets the contract?
nod nod, wink wink (deep sigh).
Complain about this comment
#256
Thanks. Actually, I think it is more worrying that the US appears directionless right now rather than anything that's happening in the UK. With hindsight, I was probably overharsh on GB and Ally D on this topic yesterday. Difficult to avoid that, though, when they effectively admit they were economical with the truth originally, and make this announcement through their Chief Press Officer at the BBC.
A key reason why the UK bank rescue plan does not appear to be working is probably because of the confusion over what the US Treasury is doing (or not doing to be more accurate). UK banks' creditworthiness is probably linked in part to that of other international banks all of which, directly or indirectly, are impacted by the confusion in US policy. Paulson suddenly deciding not to buy distressed MBS is the direct reason for the collapse in Citi's share price. Citi's creditworthiness impacts that of UK banks where those UK banks have credit lines with Citi (I'm using Citi as an example. I'm sure there are plenty of other US banks with the same issues). It doesn't matter which way the credit line is either. If UK banks are lending to Citi, then there is an increased fear of Citi's insolvency and its impact on UK banks, and hence others will not provide credit line to UK banks. If Citi is lending to UK banks, the fear is that these lines will be cut as Citi needs the funding for its own purposes. That raises questions about UK banks' ability to fund their operations, and causes them to contract their own lending in case they lose the funding from Citi. Like I say, you can probably substitute a whole load of other names for Citi, I'm just illustrating why GB and Ally D's previously stated objective for investing government money in UK banks isn't working. They need to apply whatever pressure they can onto the US (Obama not Bush) as, unless confidence can be restored into the large US banks, wholesale funding of any other banks globally is going to be very difficult to obtain.
Incidentally, just to illustrate numerically the impact of all this, the day after Paulson announced that TARP wasn't going to buy up distressed MBS, 3 month USD LIBOR rose. It was the first time for 25 days this had happened. It's indicative that banks think the risks of doing business with each other has risen again.
Complain about this comment
Interesting comments from John McFaul theatening Banks with "the nuclear option" of full nationalisation if they do not lend.
Rather sinister and very marxist especially when it was then answered by saying the Banks have not actually received any of the 37billion yet. Either left hand and very left hand of Government not working together or the real commy plan coming to light?
Complain about this comment
The Barclays deal with the gulf funds says Barclays and the gulf funds think the following in respect of the period of the warrants and loans:
-UK inflation to average 10% pa
-Barclays share price to remain low.
Executive greed was the easy answer beloved of talking heads but not the correct one.
Complain about this comment
#255 You postulate that it is arguable as to whether immigrant workers depressed wages (presumably to levels below what you consider to be realistic) or merely accepted more realistic wages.
Instead of making generalised statements based on your personal experiences why don´t you take a look at real wage levels as a percentage of GDP since 1979 and explain why there is an uninterrupted decline in real wages. Perhaps you consider the pre 1979 ratio to be too high - in which case what is the correct ratio?
Isn´t it obvious that when you increae the supply of something (in this case labour) then the price for that labour will fall. If you operate a policy (as the UK has done) that sees no limit to the increase in imported labour then the logical corollary is that you also see no limit as to how low wage rates should fall?
Certainly it is considered that the minimum wage should not represent a floor as, as you point out plenty of migrants will work for less. This is no secret and is well known by those who formulate and implement policy.
What, for example, would you consider a "realistic" wage should your job to be to collect cockles in Morcambe Bay?
If you are operating a policy that is deliberately designed to set no floor on wage rates then any conclusion that wages will not fall to "slave rates" is a conclusion in conflict with the facts.
Complain about this comment
228 - I completely agree with your sentiments.
The desire to amass more and more property and wealth does not improve the life of the individual.
Capitalism is the only game in town at the moment because a small number of powerful people do well out of it, and the rest simply think they're doing well out of it.
I view it as follows:
If we aas a group wished to create / build or produce something, what is the best method for achieving it?
A) Split off individually, set up a competition and use the powers of greed to motivate - offering more to those who do well, and penalising those who don't.
b) Gathering all the people together, with a common goal and use the social interation of the people to motivate them to achieve the production.
It seems that whilst method A would produce an intial 'thrust' of production as everyone slogged their hearts out to get to the top. Quite quickly, those who didn't do well would become de-motivated once they realise they cannot catch up. This is not efficient production and waste will occur.
However with method b, the intial production would be much slower, but with little de-motivation created by the motivation of others to ensure the goal is achieved, would mean a much more efficient production in the long term.
This is how I see the difference between Capitalism and Communism. This is why we have boom and bust and why we have an army of unemployed and demotivated people in this country.
We have sacrificed long term steadiness for short term racing.
Hare and the Tortoise all over again.
Complain about this comment
Darling couldn't kick start a tractor
no.
Complain about this comment
I think that Alistair Darling should take a Moist approach in dealing with the crisis of confidence in the economy.
The impartial and caring nature of a truly Moist society could be just the solution to all our problems. Moists beleive in a more organised and just society where everyone is treated equally. If greedy CEOs were more Moist then we wouldnt be in this predicament now.
____________________________
To counter a common misconception, the name of the constructionist Moist religious idealogy is pronounced Mo-ist, and not 'moist' as some people have interpreted the pronunciation of the name of this much misunderstood societal group. But who's laughing now!?
Complain about this comment
#214 Traducer - thanks for your nice note there.
But - Poland - sandwiched between Russia and Germany at a time of grave international economic crisis, no thanks. With my knowledge of comtemporary history I don't think I'd sleep at night...
G
Complain about this comment
Re: Post 245 excellentfirst
Although I appreciate many of the sentiments that you have expressed might be true I canot agree with what you have to say about the reasons why so many of our leading bsuinessmen behaved as clones of one another.
Simply because as you said towards the end of your first paragraph quote "the people heading up most of our major commercial establishments have increasingly spoken as one voice - a voice that is now demonstrated to be clearly wrong" unquote.
Before I reached retiring age I was fortunate to have spent more than 25 years as a works manager working for a variety of businesses (listed and unlisted) and so I am fully aware of the pressures on managers to forgo long term business objectives in favour of more short term business objectives. For example some managers in order to boost profits in the short term would prefer not to reinvest in long term capital investment. That of course is foolish because reinvestment is the seed corn for the future and without it companies will wither and die.
The root cause of the credit crunch can be traced back to the time when the banks and banking culture came to dominate the UK and USA economies over the past twenty years or more. During that period the banks were allowed to actively and aggressively force their business policies on all sectors of our economy. The end result was that too many of our leading businessmen acted evermore like banking clones and less like entreprenerial businessmen. We now of course know that the business model the bankers were using to determine their policies was to say the least, flawed. That so many of our leading financial and industrial guru's collectively applied this thinkiing so rigidly, for so long and without question is to their eternal shame.
Complain about this comment
The similarities between the UK and US economy are frightening indeed. Thank You for pointing them out, Robert!
What do they have in common? Let me count the ways:
1. continuous growth of National Debt
2. continuous growth of the money supply
3. continuous growth of Credit supplied by banks
4. continuous decrease of Cash in the money supply - aka M0 or not-interest bearing (NIB) share of the money supply - created by the State
5. continuous increase in the power of banks and financial institutions
6. continuous decrease of the power of politicians and political parties
7. excesses in wealth
8. excessive overindebtedness, repossessions and bankruptcies
9. increasing growth of the gap between having too much and having too little
10. virtually complete ignorance about the privilege and monopoly of the creation of a national currency, i.e. money
11. widespread lack of understanding and willingness to redress the imbalance between the power of the City (Wall Street) and the power of Wesminster (Main Street)
12. the lack of a political avenue to redress these imbalances.
What can we do? Our human rights lawyer advised us to "go for parliamentary scrutiny via the Treasury Select Committee" which can be seen on http://tinyurl.com/666rwd.
With SUPER pleasure as I'm reading "Who runs Britain?",
Sabine
Organiser, Forum for Stable Currencies
http://forumnews.wordpress.com
Complain about this comment
I see RP STILL has a problem with tenses. NONE of the "bailout" money has reached any of the banks. Future tense, mate. Learn it, use it.
Complain about this comment
Very disappointed with you , Robert. You like your fellow journo's failed to quiz the Chancellor on what he has not done to kick-start the housing market. A stamp duty threshold of say £400K ..exempt would hve done the trick. All tha money he is spending from borrowing will go down the plug hole. Meantime, vey disappointed with, especially , you.
Complain about this comment
I agree with Robert Peston that most people do not fully understand what's happening. I also believe that by concentrating on the banks and the house prices the media have helped the Government in this by hiding all that is wrong with our economy and why its hurting us more than some of the others.
Labour has continued to ignore actual facts, such as the record trade deficit, and will change the fiscal rules to suit their political need rather than the economic need; and then forget all about having made the change.
Fixing the banks will not solve our problems, we no longer have a manufacturing industry that can pay for our raw materials. Over the last 25 years G7 have lorded over the movement of manufacturing to China with the ridiculous belief that the west would still be able to buy the gear. But look what has happened in Britain; the majority of investment, both Government and Private, has gone into the South East corner while areas like my own, the North East has become set aside land with the odd bit of European funds to make it look prettier and build silly statues such as the angel of the north.
This problem will last for at least three years before any thought of growth will come true. Now the Government are borrowing at least one Trillion based on their flawed and usually wrong forecasts, so borrowing is more likely to be one and a half trillion.
How much of this will be used to reduce our dependency on the financial and service sectors?
What the people of this country needs is for our Government to take a note of the Chinese way of working.
Everybody complains about the lazy unemployed when there are 500,000 jobs available, but what if the problem is more that the employers want experienced workers and won't pay to train; and what if the rest of the unemployed do not have the academic ability to do these higher value jobs.
We need a massive investment in the infrastructure, a change to methods by using new age tech such as magnetic levitation that was invented in this country, as anyone who watched Tomorrows World will remember, and use the old rail lines for local travel and freight long distance.
instead of maintaining the London airport triangle build up those in the north east where there is loads of space and the 2nd biggest port and use the new maglev trains to "fly" passengers direct to Kings Cross in much the same time it would take from Heathrow.
We need the Government to use human labour as it used to be with gangs of workers rather than one man and his JCB. By creating work throughout the whole of the country they will reduce the environmental pressure on the South and create more jobs where people will be paying tax.
If they stick with the current plan then this recession will turn into a depression.
Complain about this comment
Now why whould we want to save Woolies? So we all love it, do we? Do we shop there? No. The credit bubble has created as much overcapacity in retailing as it has in banking and just as Northern Rock had to go for getting it wrong, so does Woolworths. It's old parent, F W Woolworth, the dime store in the US smelt the coffee and reinvented itself as Foot Locker and is to be found up and down the high street in the UK. Woolworths in the UK got it wrong. Take out the capacity and let better and more focused retail groups survive and thrive.
Complain about this comment
This is all a complicated mess and there is no easy solution.
If it feels like chaos then possibly chaos theory at work. For those who need a quick insight into chaos theory , do a quick internet search on the "chaos wheel" experiment which shows if you push a rotating system too hard it is able to quite unexpectably go into reverse. It rather seems like this is what has happened over the last couple of years.
The solution is to stabilise the flow and at the same time give the system a hefty 'wack' back in the right direction.
During a period of chaos, the 'bully boys' tend to come out so I sympathise with the smaller firms out there.
In terms of who to bail out I think it is more
about recalibrating the flow of money and at the same time maintaining good business principles - if it was a bad business previously it will be a bad business tomorrow. If it was good previously then probably worth lending a helping hand.
I agree that Banks to some extend recently have behavioured more like salesmen earning commission and passing on the risk rather than prudent bankers.
The paradox of thrift is also now upon us. For years we have been asking people to borrow less and save more and now it has happened in a big way - as we are all worried about the future. It is quite possible short term that for every pound saved by a consumer the government may feel it needs a borrow a pound to plug this 'gap'.
In time debt has to be washed away somehow - which may mean a cycle of higher inflation to come.
Complain about this comment
We are in a very dangerous cycle of negative comment all around us. We need some optimism brought back into the fold so we can fight what is happening. Our first target is to change the way the BBC news has branded this crisis - we won't some positive outlook please
http://www.activeparity.co.uk/blog/2008/11/economic-agitprop-why-not-brand-us-whilst-we-re-down/
...... everyday its such a depressing sight......
Complain about this comment
Life is not for wimps, dear activeparity! See my Yoga blog on http://tinyurl.com/5fpd7e where I nurture my optimism despite oodles of reasons for being depressed...
However, as a first step, especially since Robert Peston invites us to draw our own conclusions about the US / UK parallels, you may want to look at Alan Greenspan's admission that the Fed is above the law! See http://tinyurl.com/6pdb2m
In my current state of understanding, we, the people, who care about this country and maybe even the Commonwealth and the rest of the world, can feel better by 'doing something' online, such as signing a petition. See http://tinyurl.com/666rwd.
As a constitutional Sovereign, the Queen has passed it to the Prime Minister and I'm about to thank her for that.
Maybe there is hope after all, if enough people understand without getting too depressed? Disillusionment is part of 'waking up'. In my experience it gets me depressed first, but then my fighting spirit kicks in.
With 'globally warm' regards,
Sabine
Organiser, Forum for Stable Currencies
[Unsuitable/Broken URL removed by Moderator]
Complain about this comment
View these comments in RSS