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Citi and manic Monday

Robert Peston | 06:53 UK time, Monday, 24 November 2008

The overnight bailout by the US authorities of Citigroup is big and fairly complicated, but then it had to be: until recently Citi was the biggest bank in the world and even today its assets are not far off the size of Britain's economic output.

Citi group logoCiti has been undermined by its hugeness and global reach, which made it difficult to manage.

And it has near-fatal exposure to the shattered US housing and commercial property markets.

So to reassure those who provide vital credit to Citi, its lenders and depositors, the US Treasury and the Federal Deposit Insurance Corporation have said they will absorb a proportion of future losses on $306bn of dodgy mortgages and mortgage-backed securities.

And the US central bank, the Federal Reserve, is providing a "backstop" borrowing facility, just in case other creditors lose confidence and pull out their funds.

Also the US Treasury will inject $20bn of new capital into the bank in exchange for preferred stock.

In this complicated deal, the US authorities receive a further $7bn of preferred stock by way of a fee and warrants to buy ordinary shares.

The other "quid" for this very substantial taxpayer-funded "quo" includes prohibitions on all but token dividend payments on the ordinary shares and controls on executive compensation.

So this is the end of Citigroup's cherished commercial freedom, its long swaggering history of bestriding the globe as a banking giant.

This proudest of US banks has been humbled: the rescue is about as close to nationalisation as it's possible to get without the state taking 100% ownership.

And the deal is likely to presage a massive shrinking of its international operations, so that it eventually becomes a smaller, simpler operation, more suited to our newly sober age.

Over the weekend, there have been plenty of other manifestations of why so many of our heads are sore after the borrowing binge turned to bust.

Woolworth has been negotiating with its bank creditors and with a buyout firm, in an attempt to avoid being put into administration under UK bankruptcy procedures.

According to those close to the negotiations, even on a best case outcome up to 20,000 jobs could be lost at the iconic and battered retailer and more than 500 stores could be closed and sold.

Then there's the plight of all those overseas businesses that manufacture cars in the UK.

They're being mullered by a massive contraction of available credit and a collapse in sales.

So Jaguar and others want to borrow from taxpayers, since they can't borrow easily from banks or on wholesale markets.

Part of what they've requested is access to the Bank of England's special liquidity scheme which allows banks to swap mortgage-backed securities for Treasury bills (which can be turned into cash).

The motor makers want to exchange bonds or securities backed by car loans for Treasury bills - which would help them provide finance to those who might still want to buy a car, in spite of the inclement economic weather.

If you're shocked by the thought that we as taxpayers may soon be financing car purchases, don't be. You may recall that on 11 November I pointed out that VW said it was trying to exchange securitised car loans for £2.2bn from the European Central Bank (see my note, "The Rising Taxpayer Burden").

And in the US, the Federal Reserve is providing short term loans to all manner of big companies, including motor manufacturers, by buying up their commercial paper.

Governments and central banks all over the world are standing in for dysfunctional financial markets and providing financial support to large but humbled private-sector businesses.

Oh, and then there's the small matter of the UK's national debt, which is rising at a dizzying speed.

With public-sector borrowing in 2010 and 2011 expected to be equivalent to well over 8% of our economic output in each of those years, there's a serious risk that sterling will be shunned by international investors - which could lead to a painful increase in borrowing costs for our government, and perhaps even difficulties in financing the deficit.

So, in a way, the most important bit of today's pre-Budget report won't be the eye-catching tax cuts - which will be implemented more-or-less immediately.

More significant will be what the chancellor says about how he intends to reduce borrowing from 2010 on onwards, how he intends to restore the credit-worthiness of the UK (see Friday's note "Taxes to fall and then rise").

To fill a structural hole in the government's revenue account, Alistair Darling will announce deferred tax increases and public spending cuts.

These rises in tax rates and reductions in public expenditure would need to be both credible and substantial, to minimise the risk of a run on sterling and of a crisis in the public finances.

So what do you have when you put together all the new information to be digested this morning on the ailing patient, the global economy? Just another manic Monday.

Comments

Page 1 of 3

  • Comment number 1.

    Can I be the first of your disgusted readers to complain about this blog. Once again you’re only looking at the negative Robert. Irrespective of the fact that most countries, banks and many citizens have lived beyond their means for ages – why do you need to tell us? We could have gone on like this for years. You’ve completely ruined our party and this whole crisis is completely your fault.

  • Comment number 2.

    Manic Monday! Never! There is a possibility these tax rises might be in place not for one parliament but for at least two. This is not just a change from the last Conservative and the present Labour adminstration we are seeing intervention as great as in the McMillian era. Watchout we are in for a rollercoaster.

    Whatever happens today unless the poor public back the tax give aways, we are all in a mess for a long time to come. There is no magic wand or financial instrument to put all these issues in a box and parcel them off to another party. At the end of the day we as voters can vote for change or more the same in 18 months time. Thoughts anyone?

  • Comment number 3.

    Dear Robert
    Citibank going to the Government Cap In hand, the significance of which was noticed when they sacked 57,0000 people to stay functioning, ??
    Well, there is more to this than meets the eye, at a guess the cost now to the Tax payer bailing out thses Banks is going to be three times the original Estimate, already the Northern Rock is repossessing house like it was going out of Fashion, to keep the cost of further borrowing down, BUT it will not succeed, it will have to be Bailed out again,
    Utilitity companies ripping the public off regards Direct Debit Payments, to the tune of £700,000,000 is yet another Labour scandal,
    that followed the 10p Tax Fiddle, and the rip off over Pensions funds, being taxed by Brown, now he is going cap in hand to the very people he has not taxed the Rich, Middle England and the poor will suffer for this severly, no matter what Darling comes up with in his Budget, "Welcome back Old Labour, and fait tax across the board,"?

  • Comment number 4.

    There is a time to come where, as the dominos keep falling, the west will bankrupt itself with bailouts.

  • Comment number 5.

    It really is turning into a fantastic farce. When will people wake up and realise that before this entire shambles can come to an end, we are going to have to come to term with some harsh home truths.

    The problem is that you simply cannot sustain an economy based on debt. At some point in time, the amounts borrowed have to be paid back, and spending levels go down in response. When people are buying less, economies HAVE no choice but to contract, do deflate. The contraction can be in one of two ways, a slow, controlled contraction, or, as we are finding out all too painfully at the moment, a fast, implosion that deflates all too quickly.

    While it may seem that the US Govt. can keep on bailing out and lending money to banks and industrial giants in distress because they find themselves lacking a billion or ten, that money too has to be paid back at some point in time, and if the companies do not recover, and I doubt that ALL of them will, then the taxpayer is left with the bill. The same of course is true in the UK and other countries where the central banks and treasuries are handing over vast amounts of cash.

    Then we have farcical situations where countries such as Ireland have guaranteed all deposits in their banks, yet the amount that would need to be paid out is mind bogglingly large compared to the size of the economy, which means that the guarantee is about as much use as a chocolate teapot!

    Today of course, Darling is supposedly going to drop the VAT rate to 15% and give us an amazing £2.50 for every hundred pounds we spend back in the reduced TAX. Hurrah! Except that retailers are slashing prices by 30-40% and people are keeping wallets firmly closed, so small cut in the VAT rate is not really going to entice people to go on a spending spree.

    What this mess has shown is that far from having the courage to do what is right for the nation, assuming they do know what to do and they are simply not incompetent, they are simply pandering to the lies and threats of the banks and finance industry to keep the status-quo. So, we suffer, the nation suffers, and the bankers and financiers are laughing all the way home.

    If only we had leaders with courage and vision to look at the situation and dare to do the hard things, hard things such as being honest that a debt based economy is never sustainable, that in a true capitalist, free market economy you will always get boom and bust no matter how often you say it won't and that simply throwing taxpayers money at the problem without changing the system is no solution at all.

  • Comment number 6.

    45% tax on anything over £150k...I think Labour is just testing the water. There has to be much more to come in order to balance the current spending that's going on. They need to target the 'spent' bonuses. That is where all the money has gone.

  • Comment number 7.

    #1 If you can see a positive side to the current situation then please let us in on it.

    A nice simple 1:1 exchange rate for the pound with the dollar and Euro so we can do the maths in our heads?

  • Comment number 8.

    Re: no 1.
    For decades we had idiots telling us that everything was rosy and making fat profits out of that lie. There's no place for that sort of spin any more. Shut-up and start facing facts.

    Its another day, the start of another week and another phase of the global economic meltdown...

  • Comment number 9.

    Old Labour policies, old Labour thinking. What these guys don't seem to realise is that people on 150k per year are already paying their dues, 40% of 150k is a whopping £60,000 tax per year. I think that these people are already paying their fair share.
    The real problem is the level of public spending, and the fact that at least 40% of the population have got lazy relying on government jobs and handouts. Raising taxes on those who do want to work, and make money cannot be the answer.

    My Grandmother used to say you have to cut your coat to fit your cloth, that saying is more true today than ever. The crisis has been caused by over borrowing, and the Government doing the same isn't going to fix it. I have been a lifelong Labour voter, but we now need a Thatcher style government more than ever, and I thought I would never say that!

  • Comment number 10.

    I can agree with postings 2-7 though. Some very good points.

    So do we more or less have a consensus now ?

    Politicians (all sides) have let us down badly over the last 30 years and we need a change of Government. Not just swapping Reds for Blues, which would only give us more of the same. We need something completely different.



  • Comment number 11.

    “Citi has been undermined by its hugeness...”

    hmmmmmmmmm...

    You did not make this pertinent point when Lloyds was taking over HBOS or during any of the other conglomerations that took place.

    It was always the arguement for a bank to be stable it would have to be "big and strong". That was key justification behind all those take over operations.

    I just wonder weather we will come to regret the loss of competition that will result from the conglomeration of our banking system.

  • Comment number 12.

    Robert
    This government has run a deficit for the last 8 years plus the hidden cost of PPI. How the hell are we going to start paying back this debt in the future? Geoffrey Robinson slipped in a "quick one" on the Today programme referring to being able to "fund the borrowing" in the future, i.e paying the interest, not paying back the increased borrowing. This government seems to have brought into the Robert Maxwell school of economics.

    Has anyone calculated how much of the growth in the UK economy since 2000 has been down to the increase in both government and personal debt funded from abroad? Strip that out and Gordon's legacy will look very thin.

  • Comment number 13.

    All round Todays looks to be a very Black

    Manic Monday.


    But Messrs BROWN DARLING MANDELSON

    will no doubt claim to have a Magic Wand.


    Once again Mr Brown:Please Resign.

  • Comment number 14.

    I totallly agree with #1. To blame the Government for spending more than even it could tax is ridiculous. This is all Robert's fault.
    What I find genuinely frightening is what if this huge bribe with our own money doesn't work? Where do we go from there? Suppose the recession drags on as per Japan in the 1990s (they've never fully recovered). This is not even in our control and will depend heavily on interntional factors.
    I think the Government is going about this completely the wrong way. We should be cautious not reckless until we know what we are in for. We are risking calamnity.

  • Comment number 15.

    Robert,

    I've criticised you at times for dwelling too much on banks and not saying more about the so-called 'real economy' people and firms being dispossessed during this crisis.

    But after reading the first reply on this blog I want thanks - for giving this lousy goverment a really hard time in such a high profile way.

    Her Majesty's Opposition are being absolutely wet and quite hopeless. They're not putting nearly enough pressure on Brown.

    GC

  • Comment number 16.

    The real story, surely, is all the changes we have seen to the spin around the PBR package from Darling. The latest package (2.5% VAT cut and a super tax which will raise at best a couple of billion) looks like a substantial row-back from the great Keynsian stimulus which was supposedly on the cards last week.


    http://cassiuswrites.blogspot.com/2008/11/real-story-over-pbr.html

    Could it be that the money markets have told the Treasury the home truths which the British Press did not dare?

  • Comment number 17.

    One aspect underlying this is the falacious definition of capital adequancy. From one point of view, the capital of a bank is represented by the rest of the balance sheet, accounting 101: but if the market valuation of the capital shunts as wildly as has recently been the case, then either huge chunks of balance sheet suddenly slide into profit reserves or the model doesn't work. The theory perhaps is the inverse, that if huge chunks of the rest become valueless, then the market valuation should follow to reflect that, but is this truly the case?
    Take housing, as a fer-instance. Bad debts are still in single percentage figures in even the worst cases, price-to-market should only apply to those, so the real loss of value is minimal, maybe 5% of the total housing portfolio. OK, the level of borrowing and other hedging to cover it doesn't float (unless various risk insurances are in place), so the 5% comes straight from owners equity, but that - hopefully - also includes retained profits which take the first hit. Consequently, 60% drops in market value are distorting the true value of these equities in capital adequacy terms, and some better model needs to be found.
    The only grounds for market valuation of capital is if you need to raise some more. That then becomes a circular argument, and even a self-justifying one which disregards the above truths.
    Unless and until the Banks' Boards take proper and transparent control of their businesses, we'll never therefore get to the bottom of this, as we're into a hunting behaviour where the target is unknown.

  • Comment number 18.

    Why should HMG support another nation's industry? If it's concerned with jobs, take the ownership back as part of the deal...

  • Comment number 19.

    #1...?????
    On Citi, there is a matter of hubris again, by the senior bankers. Yet Pandit is still there and so are is cohorts. Bizarre.
    bw

  • Comment number 20.

    I think you need another song on the same subject to sum up what's likely to be in the PBR:

    And he can see no reason
    Cos there are no reasons
    What reasons do you need to be shown?

    At least from Captain Darling's point of view. And if you want to extend this Boomtown Blackadder analogy further, look at the last verse.

  • Comment number 21.

    Oh dear. I always thought the doubty British spirit would see us through this somehow.

    But judging fron the responses to post 1 on here, it would appear that we have lost the thread to the very fabric of our society. When the Brits lose their sense of irony, there really is no hope.

  • Comment number 22.


    So Darling wants us all to go out MAX OUT


    our Cards,empty our Bank Accounts.


    Spend it on IMPORTED GOODS.


    WHAT A GREAT IDEA.

    JOKERS!!! WHATEVER!

    MORE TOXIC DEBT MORE TOTAL LUNACY.




    We have had a DECADE of LIESs re the


    Economy.


    TODAY IS THE DAY TO GRASP REALITY &


    START LIVING WITHIN OUR MEANS.



    GO ON BROWN RESIGN AND SPEND TIME

    WITH YOUR FAMILY.

  • Comment number 23.

    Oh Dear! Once again governments are throwing money at today's problems in the desperate political game of trying to stave off a depression that is inevitable due to the bubble we have created. When I have a financial problem I am told by these experts to work out what I can afford, and then cut my cloth accordingly.

    The government should say we can afford "x" towards this problem - what is the best way to allocate this money. It will be no where near enough to fix things but we can then at least ensure it is spent effectively rather than on a first come first serve basis.

    The assumption instead is that the US and the UK are good for whatever they throw at it. Like Iceland, Lehmans, Citigroup there suddenly dawns a realisation over little more than a weekend that someone can't afford it, the short sellers,and margins on CDS's take control, and in a matter of hours, bang - its over.

    In the 1930's depression the governments were accused of inaction, but when it bottomed out they had the resources and standing to borrow and invest in an upturn which they could power. This time there will be nothing left in the kitty long before we hit bottom.

  • Comment number 24.

    Just another day in the life of a dysfunctional world economy.

    Another bank on the ropes, more about ailing car manufacturers, talk of tax cuts, borrowing spiralling up.

    Tax cuts = rob Peter to pay Paul. Peter = the future and Paul = today.

    Gordon Brown harps on about not being protectionist, but he has no concept of human nature. What would you do, as a leader of a country not so wealthy (poor) as the UK, would you join in Gordons party, or would you act in the best interest of your own country, even if that meant being protectionist. I would.

    Now is a good time to rebuild a new economic structure, rather than save the old one that is riddled with excesses and corruption.

    The future has already bee written, nobody bothered to read it. http://en.wikipedia.org/wiki/Great_depression

  • Comment number 25.

    its just gets worse and worse. Pity no-one can answer ''what next?''.

  • Comment number 26.

    robert ''borrowig facility''?

    Have you no spellchecker? lol!!

  • Comment number 27.

    #1 and #14

    So you think RP is responsible for this global mess? You really need to get out more.

    The UK is in a global game with other nations. The goal is to say at the table as long as you can. If your nation is perceived as bankrupt by an adjudicator known as "the markets", you have to leave and endure a long period of intense pain.

    Unfortunately, there are no rules. And there are questions about the independence of the adjudicator.

    In addition, some governments are handed nasty surprises by their banks and other financial institutions as the play goes on. They have to make instant decisions.

    No one has ever been in a game like this one before, so there is no experience to draw on.

    It really does not matter about economic theory or political persuasion at the moment - it is all down to how lucky you are making your instant decisions and what decisions are made by the other players.

    Now if RP was clever enough to construct this game all by himself, then I hope he copyrighted it. Personally, I blame the greed culture that was unleashed on both sides of the Atlantic by the likes of Big Bang. At that point, sensible regulation had to take a back seat. Now it's pay back time.

  • Comment number 28.

    When we let financial institutions became bigger than national governments we had trouble coming. It's Darwinian, it was a change in the hierachy. All hierachies can fall, this new one is, and we'll all have to start again from something a lot smaller and poorer.

  • Comment number 29.

    #1 no. 1 jonmonst

    No place for denial or the ignorant today.

    I guess in a disaster movie your the useless one who always says 'i'm waiting here to be resuced' and about half way through the film we see a sticky end.

  • Comment number 30.

    I hate to point it out to all you PESTon brown-nosers, but by 'Breaking' the news about NR, he and Auntie caused a run on NR, which is against the law last time I checked. Why hasn't anyone else noticed this? Why hasn't he been questioned by the authorities? Who were his sources? About time you were brought to task Peston.

  • Comment number 31.

    This is what I like so much about the internet. One can sit in one's lounge with a laptop fired up and crash the world economy with your fingers. Beats a day at the races.
    Des Currie

  • Comment number 32.

    I think somehow the intended irony of post #1 was lost on some contributors.

  • Comment number 33.

    Agree with the comments about debt and sterling

    Two weeks is along time in politics it would seem. When George Osbourn pointed out this inconvenient truth then, his "judgment" was questioned.

    He was spot on then and spot on now. The answer to a debt crisis is not more debt!

  • Comment number 34.

    Oh for a politician with a backbone, that serves the people and not big business/corporations.

  • Comment number 35.

    What is up with all the "cutting cloth" in the comments today?

    At least people aren't banging on about the Clapham Omnibus!

  • Comment number 36.

    all this bad debt transfere etc will only prolong the problem, in the short it will look good and banks , companies with thrive but those bad debts will return and then the muck will hit the fan.

    the americans are a two faces lot on the one hand its success or nothing then on the other you fail big the government will bail you out, shows the country called the united states of america needs to grow up fast or risk bankrupcy.

    whats wrong with good ole nationalisation the old labour party used it to great effect during the mid 20th century, this neu labour mob to be honest just dont have a clue and their ways will bankrupt this country as surly as the sun will rise.

    the worlds ecconomy is in distress and needs an ennama the problem is no one is willing to start the process.

    all the americans and our government are doing is putting a plaster on and using faith healing, eeek gadzooks call in a witch doctor quick.

  • Comment number 37.

    The scale of Citibank's problems tells us - if we didn't know already - that even had Brown's control of public spending been impeccable (ha ha) and every private consumer had conducted their affairs responsibly, the nation would have gone bust anyway. Greater restraint by the honest majority would have served merely to feed still larger crimes and excesses by the crooks and the gamblers. The crash would have come later but been bigger leaving ordinary sensible folk like me even worse off. So thanks to Gordon and his army of spendthrifts, you have done something at least to mitigate my plight if only through your blithering incompetence.

  • Comment number 38.

    Also, I think post #1 was joking! Lighten up!

  • Comment number 39.

    One major overhaul that would have significant effect would be the end of final salary pensions for public servants. Reduce that obligation and a huge sum shifts its position. Wont please the unions; so what? Who is bold enough to make the change? Whoever bites that bullet is the likely long term winner.

  • Comment number 40.

    What hope can there be for this country: no manufacturing base, no natural resources, a declining workforce (that was never very productive anyway).

    The mony has been syphoning out of this country for years.

    Somebody please tell me where the money is going to come from to bail this country out.

  • Comment number 41.

    "Old Labour policies, old Labour thinking" - I know the political demographic of these boards is conservative [small c]; but I might say here that the catastrophe of the liberal free market and banking system might suggest we [socialists] were right all along?

    Don't say we didn't tell you so!


    "Exercise, through the Bank of England, much closer direct control over bank lending" - 1983 Labour manifesto. Plus ca change...

  • Comment number 42.

    As thing are its fine to bail out the banks to save the wider economy, but in UK we should have 75% tax on people who earn over £500,000 as this will catch the highly paid bankers who mess us and we can re-cope the money back.

    Also this could be the time to bring wealth tax, there could be a one off tax of say 30% on people with wealth over £10m or 3% tax for the same people.

  • Comment number 43.



    Cutting cloth????????????????

    One wonders when you all last went to a

    tailor?


    Some of the CITY BOYS i know order 10 suits a time at 2000/3000 a suit.

    Then go on to order two dozen made to measure shirts.

    Not to mention the shoes at 300 plus per pair.

    Shame so few have any CLASS.

  • Comment number 44.

    Dear Robert,

    Manic Monday? No, just the slow and ineluctable working out of the crazy mixed up processes of a developing recession, an evident period of sharp credit restriction, cataclysmic debt exposure in the financial sector and UK public sector debt levels that are unsustainable. The problem for the government is that these problems are, yes, interlinked, but the linkages are so complex that any policy prescription needs enormous skill.

    On the evidence to date, the Treasury doesn't have that skill.

    What we are facing is akin to the multiple problems faced by newly emerging economies of the former Soviet Union in the early nineties, or the conditions of the n most severe postwar economic restructuring - not in TYPE necessarily (inflation in both played a large part for some countries, witness 50% unemployment and 10,000% inflation in Ukraine) but in the extent to which institutional, psychological and market factors across financial, capital, intermediate goods and consumer markets were all - variously - affected.

    We need the Treasury to start thinking outside of the box that it loves so well, to abandon the textbook (if it has ever used one) and THINK. It certainly needs to think more creatively than it has to date. What about debt cancellation orders? What about suspense sales of state assets? What about capital clearing auctions? We need creative minds now.

    What we have, sadly, is the leadership of Her Majesty's Treasury...

    And to those who say 'better sober judgement than recklessness', and that the calmness of the Treasury is an asset, I say this: try telling that to addled markets, unemployed workers, negative equity homeowners and bust small firms. Somehow a quiet demeanour may LOOK statesmanlike, but if it is JUST demeanour it is pretty useless.

  • Comment number 45.

    The rescue of Citi must surely nail once and for all the misconception touted here by so many that this is a UK problem, all Brown etc's fault.

    A few days ago only someone called 'black sheep' was on here bleating that Citi's mass redundancies were simply 'restructuring' and that the American giant's position was better than that of UK banks- whose troubles, according to him /her, were caused not by their own profligacy but by Brown etc.

    Please now, free-market gurus, accept that it is the application of your own philosophy to its logical end which has caused this mayhem. Brown, Bush, other political leaders and the central bankers are to blame in the sense that they failed to act sooner to regulate lending big-time. But the underlying problem is that free-market capitalism leads to speculative bubbles, and every so often you get a really big one.

    So, free-market punters, please now can we have a bit more humble pie from you, and a bit less blather about Brown etc.

    Citibank, RBS etc's woes are their own directors' fault, and the fault of the free-market professors at their business schools. Unfortunately, since we humble taxpayers need banks they'll have to be bailed out by us for many years to come in the form of higher taxes.

    Until governments have fixed the immediate problem, it would be better if all you free-market legends sat quietly in the corner.

    Let's hope governments can intervene to clear up the free-market mess quickly enough before this gets really nasty.

  • Comment number 46.

    45% tax on 150k
    Last chance saloon for labour. If labour really meant this why not 45% on 100k but this would loose too many votes for a spring election even though it would have a better fiscal impact. This is a political gimmick, a + + for labour even if in the spring it should loose.
    geoffnn

  • Comment number 47.

    Without wishing to sound like a conspiracy theorist, does anyone think that the current crisis may have been deliberately orchestrated?

    The oil based power of Russia and the Middle East has now been reduced and global food prices have fallen, thus preventing the sorts of mass starvation that was being mooted a few months ago.

    Ultimately the current bailouts are quite cheap in comparison to the alternative military costs of achieving the same goals.

  • Comment number 48.

    Desperate times, desperate measures required. Channelling additional liquidity through the commercial banks isn't working because of the pressures on them to rebuild balance sheets, the need to service the advances, and the requirement to repay them in the not so very longer term. One possible solution - let the BoE return to its roots as a retail bank (all right, we're talking three centuries back), replace the Northern Rock and Bradford and Bingley signs in the High Street with 'Bank of England', and start channelling money directly to where it's needed. There's something in here as well about pushing funding for mortgages at the surviving mutuals rather than the banks.

  • Comment number 49.

    #26 "Borrowig facility"

    If even the corporate lawyers are living on credit now, the end of the world is REALLY nigh!

  • Comment number 50.

    Robert, why not call a spade a spade. It's nationalisation. If Citi is any indication, we're going to end up with pretty much wholesale nationalisation of the industry.

    Let's face another fact. For now that's a good thing, and the right thing. There just isn't any conceivable alternative.

    The question is, how and when, if ever, can the state denationalise. It reminds me of Iraq. Everyone agrees the intervention should not belong there, but just how practical is that under the circumstances, given the scale of the 'investment', and the dependencies of the population.

  • Comment number 51.

    Do Citi and banks which have received government handouts, treat their cutomers and savers as they have been treated?

    Why don't we, the little individuals, get handouts, job and renumeration security and backstop for our mortages and debts?

  • Comment number 52.

    #1 - sorry - if you were joking!

    It's Monday, humour is a bit thin on the ground at 8.30 am

    GC

  • Comment number 53.





    Cutting CLOTH??


    HEY THERE ANYBODY KNOW WHERE BROWN


    GETS HIS SUITS??

    Never mind the width feel the QUALITY my

    life.


    MANDY'S have a style all on their own.

  • Comment number 54.

    it seems to me that we have to go by the rules we teach our children. If you are in debt mum and dad throwing money at you is not the answer. It doesn't teach our children to live within their means

    We should look at what we actually need and start by encouraging the manufacturing back in the uk. If we increase the duty on imports to make them uneconomical then we can start to manufacture in the uk and create meaningful jobs.

    Encourage our farmers to grow the food we require and sell locally.

    It all seems obvious to me. Go back to basics

  • Comment number 55.

    "It's not preferable, but all major U.S. financial companies will eventually be under government control because the alternative is so much worse", Hugh Hendry, chief investment officer at hedge fund Eclectica Asset Management, said Friday.

    "All financials will be owned by the U.S. government in a year," Hendry said. "I bet you."

    Nationalizations take dramatic losses from the private sector and places them on the larger balance sheet of the public sector, he said.

    "It's not good," but society is vulnerable and society is going to have to intervene, Hendry said.

    Shareholders Should Get Nothing

    Because the taxpayers are forced to foot the bill for bailout out the banks, shareholders shouldn't be compensated, Hendry added.

    (Watch the CNBC video for Hendry's full comments...)

    "Actually the shareholders of Citigroup have looked the other way for more than a decade" while management took excessive risk, he said.

    Shareholders should take nothing away if it is nationalized, because the taxpayer will be "paying this for a long, long time," he added.

  • Comment number 56.

    I want to nominate post #20 by rahere for the:

    Post of the year award


    Truly an outstanding post !
    Thanks

  • Comment number 57.

    Posters #7, #8, #19, #27, #29 might benefit from reading
    http://www.merriam-webster.com/dictionary/irony
    and, while you're at it:
    http://www.merriam-webster.com/dictionary/sarcasm

  • Comment number 58.

    Good effort, Robert, in including some song lyrics in your report. We look forward to further installments.

    And yes, Citi - it's a big package.

    But it's going to get a lot bigger still.

    Once all these governments have any stake at all in their banks, they simply have to keep on going when worse news comes in, up to full nationalisation. While for the initial deal they have to have asked the banks to come clean about their position, one imagines that a few, err, um, might not have done so (or perhaps more likely, they don't know themselves?!)

    Makes one think its going to get worse for the large bank/small countries.... e.g. Switzerland. How is UBS doing at the mo?


  • Comment number 59.

    re #9 and several comments I've heard on the radio.

    Just wanted to correct a factual error about the tax regime in the UK - tax is calculated on a marginal basis, i.e. the first £5k or so is not taxed, the next £34k or so is taxed at 20% and any income above this is taxed at 40%. Someone earning £150k today will therefore pay in total around £50,000 in tax (not the full 40% of £150k, i.e. £60,000).

    In terms of today's predicted announcement I'm assuming that this marginal process will still work so that it would only be any earnings above £150k that would be taxed at the new rate. Thus anyone actually earning £150k today would in fact pay exactly the same amount of tax as they currently do.

    Someone earning £200k would pay the 45% rate on £50,000 (i.e. £200k-£150k) - an increase in their tax of £2,500 a year or a little over £200 a month.

    I, for one, think they can afford that.

  • Comment number 60.

    SACK THEM ALL!

    How can it be that when they were lining their deep pockets with cash all these fat cats were for uncontrolled capitalism, but now all of a sudden they have their hand out begging and have been praying for a socialist state?

    Did you see what happened with UBS shareholders?

    SACK THEM ALL, take back the bonuses of the last 10 years. Lehman went down for $8bn losses, exactly as much as it paid out in bonuses last year.

    SACK THEM ALL AND OSTRACISE THEM

  • Comment number 61.

    Why oh why is another greedy institution bailed out,if this money had been channelled directly to the small business and individuals that really needs it the worse of the crisis would be over,but to give it to a bank that will just repair its balance sheet is crazy,a new breed of bank needs to be started and let these old fashioned greedy bumpkins compete with it they wouldnt last a year why? because their toxic practices of lending willy nilly in good times and when storm clouds gather they want to take their ball home like spoilt brats is exactly why these failed institutions are in the mess they are,they must be let die or else they will spread diesase right througout the world just like the black plague

  • Comment number 62.

    DayTrader post 29.

    READ HIS POST AGAIN (POST NO 1).

    You might get it next time.

  • Comment number 63.

    So as a taxpayer I am expected to add a motor business or two to my conscripted shareholding of financial institutions?

    This gets more like a Seventies revival every day.

    I can't wait until we get round to May 1979 again.

  • Comment number 64.

    I have said in the past the media have exacerbated the whole crisis from initially talking the housing market down to speculating on when a recession might start, to how long and how deep it will be. ( the housing maret had slowed but along came the media and killed it off)
    If you talk long and hard enough, people begin to believe anything you tell them.
    I wonder what the situation would really have been like now if there had been a news/media blackout??
    The media thrives on doom & gloom in this Country. The worse they can make something out to be, the more they like it. They show no sense of responsibility at all, they actually don't care, as long as they get their story out there, first.
    They and opposition policticians (whoever they are) always seem to be able to criticise but never seem to have any really credible solutions or alternatives just knee jerk reactions or populist comments.
    Any fool can criticise, be rude or offensive but so much harder to be positive and think beyond ones own back yard.
    No-one predicted the enormity of the situation early enough to stop it in its tracks or at least stem the tide, so why should anyone now be able to predict the future?
    Everyone is speculating, those for Labour are convinced it will work and those for the Conservatives and other oppostion groups are hoping against hope it will fail purely for political gain.
    We all have to accept life is not going to be the same again-thank goodness. The greed of the past few decades, which started with Mrs T and has been continued by the present Government is totally unsustainable. The planet just doesn't have enough resources to sustain that greed. We all live on the same planet, we cannot import resources from elsewhere, this is it! We all need to act responsibly and that includes the media, big business etc.

    'Small is beautiful' by E.F Schumacher
    He held that one's workplace should be dignified and meaningful first, efficient second, and that nature (and the world's natural resources) is priceless.
    A book first published in 1973 and still holds good today.
    A small statement maybe but one only a greedy fool, with no consideration for anyone or anything would disagree with. We haven't progressed at all in fact we have regressed and its our children and grandchildren who will reap the rewards of this generations greed.
    I would love to see the Government, any Government use the opportunity we have now to be so radical, not just try and get back to what was before because by 2030 we need two planets to sustain the current lifestyle and no-one is going to be able to produce that by waving a magic wand.

    The Government of the day, any day knows we will all sit down and take whatever they throw at us but maybe we need People Power to take hold and say enough is enough. We can all talk the talk maybe we now need real action if we are going to all be around in 2030 with food on the table, water in the taps, clothes on our backs, homes to live in. Africa is showing us where all this is leading and don't think it won't happen here!! They are not on another planet the are 'down the road' so to speak.

  • Comment number 65.

    The only way forward is a rethink of the economic model which has been in force for the last 30 years. Sadly though the Conservatives believe in freeer markets, which basically means more people ending up homeless and an increase in business failures as this confirms the capitalist model as being valid. Therefore for all the collapses etc we are simlpy seeing that the model works!

    Makes me think, do we really want or need this model?

  • Comment number 66.

    Good idea to tax those on over £150k p.a. How about another couple of percent for those earning over £300k, £400k or £500k p.a?

    Its no wonder we all want our houses to increase in value - they represent the only pension we are likely to see and at least we can enjoy them in the meantime. How about cutting or abolishing stamp duty for a while to speed the property market up a bit? Or abolishing stupid HIPs for ever? If your house isn't selling at the moment, you can't take it off the market for a while without incurring the hassle and cost of commissioning another HIP if you go back on the market again in, say, 6 months time.

    Banks should slowly cut back the percentage they lend on salaries over a few years instead of pulling the brakes over night. Mind you they should have done that a few years ago and they didn't ........

  • Comment number 67.

    Never mind the credit crunch I watched Dragon Duncan Bannatyne talking about his life last night and now I'm really depressed.

    GC

  • Comment number 68.

    #57 tam-fb

    Point noted. Your right. No. 1 is being sarcastic/ironic.

    I did not read his entry to the end as i had already got bored at line 3.

    Not really high end satire though.

  • Comment number 69.

    Reading all the blogs over the past couple of months has been inspirational and uplifting to see how many people care for what is left of this country.

    However, the mess that we are in is of a magnitude that could not have been envisaged a couple of years ago.

    Teenagers of the sixties never realised the implications of the words we won't get fooled again, but oh have we been fooled.

    The teenagers of the sixties grew up and, in the main, became a truely prudent section of society, paying for their offsprings education, having holidays that they could afford and living in houses that were within their means. Many of these prudent people now face an uncertain future as their assets are being stripped away by this government. People who have made an honest living and paid into private pensions will face the prospect of means tested benefits and of course get nothing as their prudence will perhaps just lift them above benefit level.

    The whole episode has become depressing with the likely need to continue working well past 65 in porly paid part-time work, if you can find it

    Wont get fooled again, Oh yes we have been.

  • Comment number 70.

    biggest laugh i heard on tv this weekend was bbc news saying vat reduction of 2.5% would stimulate economy and quoted a plasma tv would reduce from 800.00 to 782.97 and a handbag would reduce from 50.00 to 48.93.
    Yep I thought this is the way out of this mess.
    I bet dixons & handbag shops will be recruiting ex bankers.

    If this is the best our financial leaders can come up with then the show really is over.

    A total re think of all fiscal policies/ structures rules and regs are required- cos system is broke.

  • Comment number 71.

    To me there are just too many interesting stories but one of the most significant is that Lloyd's wants to offload BoSIF- the part of HBOS that went in for sexy buy side deals. It gives the game away- these banks were just like rogue governments and need a 'good kicking'. Sadly they are an essential part of international trade but only help others do it- they do not create wealth and so should be solid and boring.

    For today, I suspect GB and AD will produce a package that might just generate enough confidence to help us reduce the impact of job losses somewhat next year. I think they are also right in using VAT and higher rate taxes. When times are better and there is a risk of deflation- putting the rate back up will be sensible and those with jobs earning high salaries should pick up a higher share of the tab especially as those of us who have done well out of Labour this last 11 years really need to pay some of it back as many of us- even those of us who have always loathed the banks and the excesses of the City- have been at fault in the creation of this debacle- we stood by watching Rome burn and counted the cash going into our pockets. The Chancellor must also signal that our future is in wealth creation- we need to start making things again and using our talents and skills to create wealth not deals. He needs to announce that R&D tax credits should be greatly extended and should include training in manufacturing companies.

    What I cannot understand is why GDP =spending- should it not be adjusted for net borrowing so that we reflect the fact that we are spending money we do not have and using future wealth up before we have created it.

    Final point is that the media needs to be hammered just as much as the banks- you talk about a 2% fall as if it was the end of the world and as if nobody should have a good Xmas. We are all a bit more cautious but as far as I know if there were 28 million people in work last year there will be 27 and a half million people in a job this year- hardly a meltdown. When the footsie is at 2000 and £1 = 50 cents- that is a meltdown. And we will recover even from that.

  • Comment number 72.

    Slightly off topic but still linked to the UK problems even though Brown always prefaces any comment on the UK's economic issues by blaming the US sub prime market! Funny how he claimed it was his and BLiar's policies that were driving the booming economy in the first place.

    Anyway there's a very interesting article in the FT saying what we already knew but with ONS stats backing it up.

    "Two out of three jobs created since 1998 have been in parts of the conomy dominated by public services .... The dominance of the public sector has been so pronounced that in some areas the number employed in the private sector fell between 1998 and 2006 in spite of the strength of the economy over that period." There's more at ft.com

    The public sector is too big and while pay used to be low with good pensions to make up for it that is no longer the case, so we have too many highly paid people with superb pensions being paid for by people who have reducing pensions (my meagre pot is down at least 40% from this time last year) and lower salaries.

    Gordon - its time you went back to Scotland with your smug smile and left others to clear up your mess as you clearly can't do it. A reduction of 2.5% in VAT will make no difference whatsoever. 45% higher rate tax will have mimimal impact. If I received a tax reduction I might go off and buy something I had put off buying but only if I could get a low enough interest rate as well. That might help China more than the UK

  • Comment number 73.

    i have a gut feeling that the dollar is about to capitulate.

    btw, morgan stanley is next on the nationalisation agenda..

  • Comment number 74.

    Pardon my ignorance in high powered finance.

    By spending trillions globally on handouts and backstops, are taxpayers and governments just indirectly guarantee and safe guard the loans made to financial institutions by the wholesale credit market. Do those who provide the money in those markets even pay the same level of taxes, if any, as we do?

  • Comment number 75.

    Post 68 DayTrader

    THE CENSORS censor the high end stuff.

    Exterminate Exterminate I am A DARLEK.

  • Comment number 76.

    47.

    Yes Berner I have thought , and still think, that there is a strong possibility that the current global financial crisis has been engineered by the true masters of our universe. But who are they?
    That is the question. Any ideas?

  • Comment number 77.

    if a government can't manage their country's economy properly (like using all it's savings-gold-to pay it's debts, then borrowing more) then do we really want anything nationalised?

    Currently it feels like living with a spouse addicted to gambling!

    There will surely come a point when Gordy won't be able to pay his debts, nor borrow more.

    Effectively this budget proposal looks like one spouse racking up debt before leaving the marriage for the 'bit on the side' (banking) and leaving the fall out to the other half!

    Vindictive. Borrow today, the responsibility of paying back for someone else tomorrow.

    How can the government and banks dare to tell the people of this country to curb their spending behaviour when they set exactly the opposite example?

    Knee jerk politics of the worst kind

    Do they really think the electorate are that stupid?

    The government have no idea what's going on, and the banks won't tell them.

    Since all this started, many people, including us on the blogs have been demanding full declaration of balance sheets and off book debts for banks AND the government.

    As usual, the most important people in this country (the electorate) are being treated like fools.

    Many people have no sense of responsibility and do as they please-including those we expect to know better.

    Who will be brave enough or incensed enough to call Vote of No Confidence in the House today?

    Calling all politicians-listen to your electorate-get Gordon out now, and do what you're supposed to do-protect your people! Prosecute the banks, get all the dirty linen out in the fresh air.

    Only then can we start again.

  • Comment number 78.

    Robert,

    I'm totally confused...unrestrained, unreasonable borrowing apparently got us into this mess, so what's the government going to do to get out out of the mess?

    Unrestrained, unreasonable borrowing !

  • Comment number 79.

    #47 Berner

    I prefer the conspiracy theory that Labour are pushing the Lloyds / HBOS takeover so strongly so that they can "pump and dump" scottish currency (effectively devalued by huge increase in printing) and once it's served it's purpose then give Alex Salmond his independance.

  • Comment number 80.

    Why can't the government make the energy companies pass on the savings they are currently making on wholesale energy prices? That will save cash straight away for hard pressed people across the country. It would be an immediate way of refuelling the economy without the long term burden that tax cutswill bring. How can the government possibly think that we can afford these tax cuts now?

  • Comment number 81.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 82.

    I was sick to the teeth of listening to Phoney Blurr during his time at no 10 but this man GB is in a different class, he never says anything but blah, blah, blah, rhetoric that I doubt even he understands.

    The worst government in living memory.

  • Comment number 83.

    Alexander C

    Any news on your blog site yet?

    How about your banking licence?

    Did your CHAPS payment go yet? Or did it leave your bank Friday to arrive today?!

    Send the Fraud squad to all the banks and the treasury. What we are seeing surely amounts to financial terrorism!

    The statement made by RBS to guarantee loan interest rates etc, does nothing to help the companies they pulled the plug on-be interesting to see what the total human cost of that has been!

  • Comment number 84.

    The Government and local authorities have literally billions of pounds available to them - all they have to do is follow the private sector and shut down the golden final salary pension schemes. A report a couple of years ago gave a figure of about 30% of each public sector salary being paid to fund these pensions (and that by now will no longer be adequate, given the rise in mortality and the recent fall in equity prices).

    The problem for the politicians is the unions and the inevitable strike action that would follow such a move. However, such a move has to come; the public sector now earn a greater average salary than the private sector and get 30% deferred pay p.a. so that they can retire in luxury. I don't want to pay more in tax to pay for their pensions than I can afford to save for my own and that is the situation that we are very close to.

  • Comment number 85.

    77.

    Yes, what we need now is George ''collapse'' and his bunch of Bullingdon boys running the show, financed by Hedge-fund whizzkids and bankers.

    Great.

  • Comment number 86.

    Gordon, we are still sinking ! Well GO drill another hole in the bottom and let some more water out my Darling !

    Hi Hi Captain



  • Comment number 87.

    Well, Robert... you are always just about spot on with your analyses and observations. However, I'd like to extrapolate further on recent events. About five or six years ago, I suddendly found myself getting a gut, and slightly anxious feeling. The next recession is going to make the last one in the early nineties, and previous, look like a picnic. I always think these insights are part science, part art form. I must have said it many times. When Northern Rock went down, my heart sank. We are at least 12-15 months in on this now and it just gets worse. Citi Bank, once the world's largest, arrived in Accident and Emergency over the weekend. I was right five years ago, and I'm right now. We are heading for a complete financial breakdown. I do hope I'm wrong. Governments around the world will eventually run out of money. Remember, the Great Depression, as my San Diego professor used to chant, never really ended until the USA entered WW2.

  • Comment number 88.

    A question for the economics lecturers:

    It seems that the script is from the great depression in most respects and that currently governments are trying to jump from roughly 1930 to 1935 without the very nasty bit in the middle.

    Will the solutions of 1934/5 applied to 1930 conditions work? or did they only work because conditions were as they were when originally applied?

    Or will they just facilitate a faster progress towards Septemeber 1939?

  • Comment number 89.

    #54
    Spot on, just about what I said a couple of days ago with the additional factor of abolishing VAT and replacing it with import duty.
    We must make more stuff and grow more food.
    Must admit a vested interest, we have a small handmade furniture business, REAL furniture made from REAL wood.
    Prior to that designed farm machinery.

  • Comment number 90.

    Robert! "mullered" ?

    Really, what does this mean. Is this a BBC blog? Please!

  • Comment number 91.

    In the first great depression (1873-96) we all scambled for Africa - any ideas of anywhere else to have a go at today?????

    Greenland, N.Pole, Moon................. or back to Africa...........

  • Comment number 92.

    Post 20 re the Boomtown Rats song.

    We could stay with other Prince penned songs to sum up today equally well.

    For the PBR we could have "let's go crazy" or maybe "sign o the times".

    Perhaps Alistair & Gordon want us to party like its 1999 though even with a 2.5% VAT none of us can afford a "little red corvette".

  • Comment number 93.

    Re 84

    Sorry but absolute rubbish!!
    My husband has worked in Local Government for over 20 years as an architect but could have earnt twice as much in the private sector. He has been designing and building schools, care home, libraries, fire stations etc.
    His pension would then also have been twice what he will get!!!
    They don't get bonus' or handouts and have to declare any and all gifts including the odd diary or calendar received at this time of the year, just in case its a potential bribe!!
    Why is the grass always greener on the otherside.
    Why we cannot work as a nation and see that everyone is just trying to do their best and most ordinary people really do work hard at what they do.
    Its funny isn't it how we let off sports personalities, so called celebs, who add nothing at all to the Country and who get paid stupid money for doing so,
    Guess we are the stupid ones for supporting this ridiculous culture, not the ones reaping the rewards.
    The World would carry on without any of them but would be a sorry place without essential services like Police, refuse collectors, teachers, doctors, nurses, social workers, care workers etc.
    Jobs many of us wouldn't and couldn't do

  • Comment number 94.

    I don't know about anyone else on this blog, albeit that many of us expect things to get worse, but to be honest I actually want Brown's govt to 'crash and burn' as they say, just get it over and done with and an end to this saga. It's the nail-biting day-to-day flip-flop anxieties that are really 'doing my head in'.

    If a great levelling came after, well, not before time. All I can remember in my lifetime is being 'sat on', taxed to death, legislated ad nauseam, bureaucrated by Westminster and Brussels, paperworked, overworked, rendered, interpreted, expected, forecasted, lectured, hectored blah blah. And working harder every day and having to make more with less, getting more and more depressed year on year, the shear humdrum existence of getting nowhere in your own country and all the while every town in Britain turned into an amorphous samey wild-west mess, cameras watching you everywhere, big companies ripping you off and squealling about their huge profits, cheap junk on sale everywhere, no choice, no quality anymore.

    When it all falls down, which it will, good riddance to all of it.


    GC

  • Comment number 95.

    This govement is playing a game of bluff, it dosnt have the money to pull this off, our whole system is based on confidence and it has gone. People are losing jobs left right and centre in this area and I think this crises is snowballing.

  • Comment number 96.

    #84

    "The Government and local authorities have literally billions of pounds available to them - all they have to do is follow the private sector and shut down the golden final salary pension schemes. A report a couple of years ago gave a figure of about 30% of each public sector salary being paid to fund these pensions (and that by now will no longer be adequate, given the rise in mortality and the recent fall in equity prices). "


    I think that would be an extraordinarly bad idea - millions and millions of pubic sector staff are paid this as part of the package - the pay is poor, the promotion possibilities low but you get betters holidays and a pension scheme that costs less to the member than if they worked in the private sector. The pension was revised this year increase the staff contributions and reduce pay out - the PS wouldn't stand for another erosion of their deal.

    If the government closed these schemes there's no way the million of so workers who retired each year could support themselves leading to a much higher wellfare bill

  • Comment number 97.

    Re: 77
    "Do they really think the electorate are that stupid?"

    er.... yes, they do, and, unfortunately, yes, a large proportion of the electorate is stupid.

    Look at the number of people who thought they could borrow money on their credit cards and get away with paying the minimum amount forever.

  • Comment number 98.

    Agree totally with 89

    My son is a qualified furniture maker having spent two years at fulltime college at his own expense.( and mine)
    He has been working full time as a landscape gardener while he sets up his business but sadly last Friday was laid off.
    He can now either sign on and not do anything or struggle to try and get work in with no support. There is no half way house. Why can the Government not give people a five year programme and support them financially on a reducing basis.
    These are people with real skills working in a sustainable industry here in the UK. There are so few of them left.
    We are told we need skilled people in the Uk and yet no-one supports them.
    He and his fiancee are hoping thinking of going to Ireland where skilled crafts people get superb support and are really appreciated.
    We have a 'something for nothing' culture in the UK which has encourage big business to source cheaper and cheaper goods abroad for larger and larger profits.
    No-one wants to buy anything which will last, so big business builds in obsolesence.
    We now have an enormous shortage of skilled workers just when we need them most.
    This Country was built up by being highly skilled, ahead of the game, now we cannot even play catch up!!!

  • Comment number 99.

    Post 84 a good idea and it has surely got to happen some day soon.

    However until the 646 council workers in the Houses of Parliament agree to do the same with their even more generous final salary scheme I can't see it happening

  • Comment number 100.

    re my 20

    There were some others I considered,

    Mamas & Papas' "Monday, Monday" with the lyrics
    "But whenever Monday comes, but whenever Monday comes
    You can find me cryin' all of the time"

    or Cabaret "Monday makes the world go round"
    and even Abba "Monday, Money, Money"

    but they spoil the synergy...

 

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