The nationalisation of credit
As I said boringly and monotonously on Monday, before during and after the pre-Budget report, the overhang of excessive debt accumulated in the boom years remains the biggest problem for the UK economy and for the world.
The past, current and future write-offs of trillions of dollars of imprudent loans is - as you know - the main reason why there is so little new credit being made available.
Which doesn't mean to say that Alistair Darling's attempt to stimulate economic activity is irrelevant.
But as Mervyn King said yesterday, in a classic case of creating news by stating the bloomin' obvious, it's the massive retrenchment of lending by banks and other private-sector financial institutions that's doing us the most damage.
In response to this failure of the credit-creation system, what we're seeing - particularly in the US and the UK but also in other parts of the world - is a transfer of the risk of lending on a colossal scale from the private sector to the public sector, from commercial investors to the taxpayer.
That's happening because, after the collapse of Lehman, there's been a massive increase in the perception of the dangers of lending to the private sector and to emerging economies perceived to have borrowed too much.
So pension funds, money managers and sovereign wealth funds are demanding punitive returns for investing in pure private-sector entities. Their preference is to lend to countries like the US perceived as too impossibly large to fail.
And because the US state is still perceived to be a good credit risk, the US authorities can borrow to fill the lending gap created by the disappearance of private-sector funding.
Only hours ago, we saw the US Federal Reserve providing $800bn of credit - in effect from taxpayers - to breathe life into the markets for residential mortgages, credit card finance, small-business loans, car loans and student finance.
That brings to more than $8000bn the aggregate amount of loans, guarantees and investments committed by US taxpayers in the past few months - whether they like it or not - to bailing out failing banks and insurers and also unfreezing credit markets.
It's a mindboggling sum, equivalent to around half of the annual economic output of the US.
Some analysts see this as the start of the money printing-presses being turned on with a vengeance, a deliberate attempt to stoke up inflation to reduce the real value of all those excess debts.
I'm not sure we are there yet - though it's probably only a matter of time.
The biggest chunk of the Federal Reserve's recent financial support has been allocated to the commercial paper market - which in effect means that US taxpayers are providing short term loans to the biggest US companies.
There's no reason to assume that we've seen the end of this process of the nationalisation of credit.
The head of one of our largest banks has told me there'll probably have to be sovereign guarantees provided at some point to the corporate bond market, because big companies are increasingly finding it both expensive and difficult to raise longer-term loans in the form of bonds sold to investors.
Here in the UK, the chancellor has signalled that British taxpayers will be called on to underwrite a revival of lending to small businesses and to home buyers - probably to the tune of well over £100bn.
And remember that taxpayers in Britain have already provided £600bn of loans, guarantees and capital for battered British banks.
To reiterate, the credit-creation process has already been nationalised to a great extent - and this process of taxpayers standing in for commercial lenders isn't over.
How far will it go?
Funnily enough, to a large extent that depends not on what happens to credit markets but on what happens to share prices.
As George Magnus of UBS points out, part of the problem for most banks is that they are not perceived to have enough capital, even after the recent injections they've received from governments all over the world.
With recession taking hold in most of the developed world, and with financial crises gripping many emerging markets, investors fear that we've only seen the tip of an iceberg of losses to be incurred by banks from their ill-advised lending splurge of the previous few years.
The big simple point is that banks can only lend what they can borrow. And when money managers provide funds to banks and financial institutions, and when banks lend to each other, they look at how strong the borrowers are: they assess whether the borrowing banks have sufficient capital to weather the storms ahead.
Right now, providers of funds to banks want them to have far more capital than they could ever possibly erode through the write-offs of the loans provided when the banks were infected by an epidemic of blindness about the risks of lending.
For some reason, the Treasury doesn't seem to understand this simple point. It yesterday issued a statement telling banks that they had more capital than they need for the long term - in the hope that this will provide our banks to lend more and take on greater risks.
However, it's almost irrelevant whether the Treasury thinks our banks have enough capital. It's the private-sector holders of trillions of pounds of potential funding for banks who'll determine whether the banks are appropriately capitalised. And at the moment, they'd like the banks to have more capital.
With stock markets on their knees, there only one source of new capital for most banks: us, taxpayers.
So here's the Catch-22 to end all Catch-22s. If we want our banks to lend more, they're going to have to be able to borrow more. And to do that, they're going to need to raise more capital.
Raising more capital, for many banks, means huge further cash injections from taxpayers.
That's why, as the governor of the Bank of England implied yesterday, we may yet see most of the banking system formally nationalised, so that it can do what it's supposed to do - which is to provide the credit that's absolutely vital if we're to avoid a prolonged and very painful slump.
I'm 
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Let's bring an end to the Fractional Reserve Banking system.
You know it makes sence!
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If you take a thirsty man to water, can you instruct him drink if he believes the water is toxic?
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Slump it is and slump it will be.
Borrow Borrow Borrow will not resolve the situation.
Living within our means will,but that will be terrible.
Its a case of the PILL now or an even bigger PILL later.
I understand the US has already used more cash than they spent in the 2nd World War.
Maybe we need a return to DIG FOR VICTORY?
Will the UK be able to pay for the FOOD we need?
Perhaps what money the Government have?
Should be saved to buy imported FOOD.
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No question all the banks WILL be nationalised, as you and others (e.g. Hugh Hendry on CNBC Friday) say the banks have a different agenda to the social agenda.
Hugh was actually even more downbeat.
Only Germany is still holding out for balanced budgets but it looks like they will be forced into in by this 'we must do something' attitude currently the vogue.
Until assets are realistically valued, houses etc, this is a bigger hole than money can plug.
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AS both the Government The Bank of England and the FSA have been SO inept?
WHY should we listen to what they say anyway.
These problems have been on the WALL for a good ten years.
WHY did these people not see it??
Without sounding SMUG ive predicted this situation for 9 years plus.
ONE CANT RUN AN ECONOMY ON A HOUSING MARKET AND A CREDIT BUBBLE.
ITS STUPID!!
SO DONT DO IT AGAIN.
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Robert,
Are you sugesting only inflation will save us, by reducing the relative size of our debts?
Funny how times change... Bring on Zimbabwe!
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Question to the floor:
Since we taxpayers are funding all this anyway, is the solution to create a state-owned bank too far-fetched?
That way we all bank securely and under our own terms, and we finally run the fat pigs (not cats) out of business.
I've said it again, sack them and ostracise them. Make them pariahs!
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To all those who said Barclays should have taken taxpayer money, this seems to vindicate their decision.
Paying an extra 2% is surely better than being nationalised.
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.'...we may yet see most of the banking system formally nationalised, so that it can do what it's supposed to do - which is to provide the credit that's absolutely vital''
The banking system will be nationalised, but it will not do it NEEDS to (rather than supposed, do you believe they were suposed to lend all that ficticious money, Robert?)
There will be sooooo many uncreditworthy organisations and individuals that the banks, even nationalised ones will only lend at punitive rates at best and not at all on most.
It cant happen, it wont happen.
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Wow! This is great news. So, as a taxpayer I am financing my own loans?
Great. I lend my money to the banks who lend back to me. Then I repay the loan, so the bank can pay me back...after Mr Darling creams off a % to cover the NuLab parties, the jollies abroad and to pay for their John Lewis stuff.
How will I be paid back? Via a tax rebate? An allowance?
This means I could have a mortgage at about the 2% difference between depositing (tax) and borrowing. As I get nothing for contributing the tax, I can have a 2% mortgage.
Ni-i-i-ice!
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If ever an Administration had wanted to lay
down the foundations for potential
extremism they have done it.
The Uk is sleepwalking into civil
unrest,where the likes of the BNP,or a
silly man like hitler can create HAVOC.
This Government must stand down!
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I wake up again totally confused.
1 I cannot see how tha banks can lend with any sort of confidence when it must be very difficult to put a value on what they are lending against.
Are they supposed to lose the money the government has put into them. They must be desperate to lend profitably, if only to pay the gov its interest?
Nationalization will be a way of losing money faster?
2 I do not understand the government growth forcasts. We have lived beyond our means for 8+ years based on hyped up valuations of property. After a year of a smallish decline growth will be resumed.
We are seeing that where we were is, for the forseable future, unsustanable. The best scenario for the moment is surely managing a standstill.
Anythingelse and we are just kidding ourselves - aren't we? or is it that everybody knows this, but is not ready to face the consequences?
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Bert - can you explain how the stockmarket is on its knees
over the last 5 years it has performed ok has it not?
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No 5
I agree. the "joke" in our family is that every month for the last 5 years I have announced that the Catherine Wheel is getting faster, that it will come off,and will end in tears.
I underestimated how far it would fly when it did come off
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This fits in with what both I and the BBC's Business Editor, Robert Peston were told in the few days before the PBR.
Is this true Bob?
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#7
"Since we taxpayers are funding all this anyway, is the solution to create a state-owned bank too far-fetched?
That way we all bank securely and under our own terms, and we finally run the fat pigs (not cats) out of business."
Fine. But do you want the government running the financial systems? I mean, purleeeze!
THEY got us into this. Not the banks. The govt knew what was going on all right and milked the cow for all it was worth. But I would never trust them with my financial data. Would you? You'd find it lost on stolen laptops and USB keys everywhere. You'd find your money donated to all manner of ridiculous schemes.
No. I think that the manipulation of money should be left to those who know how to do it whether we think they're greedy or not. If the government can't regulate the banks; if it can allow credit and house-price bubbles unabated, then it's shown it's incompetence. I don't want them running the world's finance.
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THE ONLY SOLUTION IS TO MAKE THE DEBT LOOK SMALL.
ERGO inflation.
Let's hope it's not HYPER!!
My advice is to buy arms manufacturers and invest in private security companies.
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I have an HSBC credit card (marbles) which had until last week a credit limit of over 11K. Because I haven't used it much in the last eighteen months I have been told that the credit limit has been reduced to £100. This is just one example of how the banking world is treating 'credit' and why people will be reluctant to 'spend' regardless of how many carrots the government throws at us.
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We seriously do not want State run/owned
Banks.
Whilst i am disgusted with the senior board
level Bank Directors,handing control to the
Government would be the END.
The Banks need to rebuild themselves,then
lend under tight regulation.
I.E. Mortgages at 3 X salary/income as a
maximum,credit cards at 1k max,personal
loans at 3K max.
Commercial lending to be tightly controlled.
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Increasingly, people on this blog have been calling for a nationalisation of the functions of the banks, if not the banks themselves.
nationalise everything, move the accounts to NR and BandB, keep the assets and staff required to run a national bank and sack the managers without compensation.
Sell the additional assets.
Everyone's happy... Except the Senior managers of failed banks, but who cares, really?
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As ever - the (wealth consuming) public sector undercutting the (wealth generating) private sector.
If Governments stopped borrowing then the banks would have no option other than to lend to the private sector... Or shut down.
If the state want to manage a 'banking service' for the public, then they should start with a blank sheet, and work out how to best serve their citizens. Not just take on the existing fragile mess - warts and all.
I guess our politicians just aren't bright enough to get anything right.
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Nationalisation of credit? You have NO idea what that will lead to. I do, because I come from a country (Slovakia) that had until 1998 many state run or state controlled (through politically nominated) people. The amount of loans these banks gave to failing and unworthy companies just to prop them up and stop them making people redundant was absolutely huge. The governmet said this company must not fail so they lent money to it although the company never going pay it back.
If you think banks made lots of dodgy loans until now, wait until you see what nationalised banks will do. And after that it will be the end of the world as we knew it.
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The problem is made worse by the high returns being demanded on government capital injections, at least on the pref shares piece. All it's doing is encouraging further reduction of risk assets in order to repay them as soon as possible. Lloyds and RBS both have stated intentions to redeem these shares by end-2009, meaning they either reduce lending, sell/close businesses, or both.
It also just reinforces counterparty concerns on bank strength. Basically it is implausible that banks can earn a 12% return on equity in a post-crisis world, and hence the capital is seen as a drag not a benefit, ie the dividends paid out (and so reducing capital resources) will exceed the profit generated by that capital, so capital base overall will be eroded over time by having these shares in issue and paying such high returns.
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I always get very frustrated with anyone who dares to suggest that the doom and gloom merchants are causing this recession.
The irrefutable fact is that we as a nation borrowed too much in order to spend. That was how the economy was run and is the reason for 15 years without a bust. Nobody in their right mind can suggest/beleive that this could go on forever. WE COULD NOT GO ON BORROWING AND BORROWING MORE EVERY YEAR. It was impossible!!!
What is happening now is that the lenders have finally realised we have borrowed too much. They are now not lending us any more. It had to happen. It had to happen. It had to happen.
As soon as the borrowing stopped which happened in August 2007 a recession and most probably a depression was a stone cold certainty. Why? Because even if we wanted to continue spending we couldn't because we couldn't have the money.
The government seems to think that the way out of this problem is to now borrow money on our behalf. Individuals can't borrow any more. How long before the government can't either.
The only real way out of this is to get to the bottom as quickly as possible. We can then start climbing out. We cant start climbing until we reach the bottom.
The government has just delayed the bottom being reached which will do much more damage. The longer it takes to get to the bottom the worse it will be in the long run.
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So King is openly suggesting we still soon be in a Communist country. Marx must be laughing his head off
The banks can't lend because they are technically broke. The so-called recapitalisation was nothing more than a stop-gap, which prevented them collapsing there and then, but did nothing to address the extent of the problem, i.e. that they have lent out far more than is ever likely to be paid back.
The banks know full well that much of their existing loans are themselves likely to turn toxic in the near future as the value of assets continues to fall, businesses collapse, jobs go, properties get repossessed etc. That being the case they would be mad to try and continue the con-trick and are instead hoping against expectation that most of their existing loans (debts) will be repaid and they become solvent.
The fact is, and no one seems willing to accept this, that the world economy is beyond repair - there is more debt out there than can ever be repaid and it is only a matter of time before the system collapses.
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POST 14.
The Catherine Wheel.
We aint seen NOTHING YET.
Farming/FOOD production is TRASHED
Energy production is TRASHED
INDUSTRY is TRASHED
FINANCIAL SECTOR is TRASHED
Many people choose between eating or
having electric/gas.
THERE WILL BE UNREST
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#8
Paying an extra 2% is surely better than being nationalised.
But how are Barclays going to compete with a state bank that doesn't have to worry about the normal rules of lending. If the state had been the bank since 2001 then they'd still be making insane 125% loans to self-certified part-time window-cleaners. And there is a large section of the population that thinks that's what Brown means by 'forcing the banks to lend more'. Ie their insanely over-valued house will suddenly revert to the insane price they paid for it in 2007 and they'll be 'rich' again.
Because the state doesn't have to worry about bad loans. It can always print up more money.
The problem we have is that the independent banks forgot that they couldn't just print up more money and kept making increasingly insane lending decisions. Now their shareholders and executives have been caned and so hopefully they will have learned their lesson. Unlike this government who have not learned the lessons of the 1970's and seem intent on bankrupting the entire country by continuing to borrow and squander as if nothing could possibly go wrong.
I'm a bit cross with myself to be honest. I knew this was all going wrong five years ago. We sold the house last year and moved out of Scotland and there was a little man on my shoulder giving it 'keep on running' but I settled for just moving back to England.
So now the kids have settled in another school and it all seems such a shame to tear them out again and move somewhere else.
The thing is, I just know it will be even more of a disaster to stay.
The sight of that imbecile Brown leering at the opposition as his henchman detailed the levels of debt he was planning to run up with no thought at all as to how it would all be paid off should be enough for me. But no. I still live in hope that something will come along to make the scales fall from his eyes and reveal what a disaster he has made.
Inertia. It's an amazing thing.
It's why people stay in dead-end jobs for thirty years. Because that's easier than quitting and finding something they'd actually like to do.
It's why people remain in the UK even though it is being systematically destroyed by imbeciles. Because it's the easy thing to do.
This country is finished. We are another Argentina-in-waiting.
I shouldn't waste another second of course. I should simply go. The writing is on the wall. It's on the pavement, it's all over the BBC.
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#13
"Bert - can you explain how the stockmarket is on its knees
over the last 5 years it has performed ok has it not?"
Crikey. What shares have you invested in, then? Please tell me!!!
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The ultimate failure. Banks Nationalised. Back to the past for a country who should have had such a promising future.
It was time for Brown to be exposed for what he is quite some time ago and now it is imperative for the Countries future and that of future generations for him to be thrown out of office and with the disgrace he deserves. He will NOT resign, dictators dont do that, so let us hope some of his silent puppet MP's have the guts to stand up and be counted for once in their ,
miserable political existence.
They have sat and fiddled whilst Britain has been sinking.
All this could have been avoided had Brown not been more concerned with saving his skin than ours.
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This comment was removed because the moderators found it broke the House Rules.
If the banks were nationalised, can you imagine what fun the government would have, giving away our own money to us before an election and taking it back again in taxes after. The taxes would, of course, be to recapitalise the banks that were overstretched in lending on government approvede sub-prime mortgages.
Just another thought, arn't gilts bought by banks? If they were nationalised the government could provide its own loans! These could be used to recapitalise the banks so we never need to pay any more tax!
What a tangled web...
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Robert Peston on his blog on the 20th of November:
"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 transfer to our banks of so much of our cash wasn't designed to kickstart lending by our banks."
Mervyn King before a select committee shown on Newsnight on the 26th of November:
"This was not done merely to protect the banks. This was done in order that the flow of lending to the real economy could continue at normal rates and one way or another that has to be seen to happen."
So where exactly is the misunderstanding Robert?
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Hate to say it Robert but it looks like we're heading down the nationalisation route. Perhaps the government should simply have bitten the bullet some time back and produced a viable state alternative to the major retail banks. Don't like the idea but if the banks won't lend and they're still asking for massive state subsidies to survive then they've effectively failed anyway. The only other solution is for Tesco to take over the lot of them. Mmmmmm maybe not such a bad idea.
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Sorry, Robert, it's not often that your posts are complete nonsense but this one is.
Credit is no different from any other commodity. It's supply and demand are governed by the price mechanism. At the moment, the price (interest rates) is too low given the huge amount of government and private borrowing. As with any other commodity, if prices are too low, supply dries up and there is a shortage. There is money available for lending - but not at the interest rates currently being offered by borrowers.
We need higher interest rates, or more preferably, much less government borrowing. In other words, the government is doing the exact opposite of what it ought to be doing, and the actions of the UK government and other governments are risking turning the current really bad economic situation into a slump.
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16- you really have a strange take on things. For your information, it is in fact the fault of the banks that we are in this situation. The banks, by their reckless lending and idiotic business models, have destroyed both their own businesses and the world economy. I don't trust these clowns with my money any more, and have moved all mine into National Savings and real Building Societies. The Government's failure was to stand by and watch without stepping in earlier- but you would no doubt have been kicking up if the Government had stepped in earlier. Carry on trusting the bankers by all means- why don't you back your judgement by putting all your money in HSBC shares?
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I would not be surprised if this govt remains in power that we can soon have a Govt Entity (lets call it HM Redistribution and Credit) will be doling out loans to organisation and people not based upon their capacity to repay but based upon their "need" for credit. More you need the credit, more you will get it. The credit could be means tested. Lower you earn, higher you can borrow. They are basing it all on being funded by tax revenues but if this goes on, where will those tax revenues come from. We do not "produce" much, we only "consume" mostly imported stuff. And how long can we count on govt borrowing. Locals would not have money to buy GILTS and foreigners would shun debts if the budget goes out of control. Afterall, why cannot banks not borrow today - because their future revenues are not sufficient to match their liabilities. So why can the same not be applied to Govt borrowing?
This govt is using tax payer money (read equity) to create a massive hedge fund by leverage applied by borrowing. I hope that this fund does not meet the same fate met by many private sector hedge funds.
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I just can't believe that the response to this mess-up is for the governement (either directly or via nationalised banks) to lend to the people judged by the private sector as being too risky.
The private sector at least have some experience of evaluating loans even though it has been shown to be flawed in places.
It seems that we have a choice to getting further into dept when we will have more prolonged but shallower recession or a shorter but deeper one. The 'drawback' of the second option is that will finish round about when the next election will take place so the party that chose it won't get in.
No doubt the powers that be had this in mind when they made their choices!
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This comment was removed because the moderators found it broke the House Rules.
Robert, what do you think will stop this situation arising again in future?
While many people seem to gleefully see the credit crunch as the demise of capitalism, I in fact see it as being caused by government interference with market forces.
If market forces were allowed to act, then the market would set its own interest rate. Too many borrower and not enough savers would make it a savers' market where they could demand a higher interest rate. This would then put a brake on borrowing and stop a debt bubble from being created.
However, what the government does is artificially force the interest rate down so an excess of borrowing occurs. They do this because it puts money in peoples pockets and makes the economy look rosy in the short term, but they are really just stacking up problems for the future.
The government is still trying to interfere with the markets by forcing the banks to lend when they consider it a bad risk. This will only create more bad debt that will need to be dealt with in the future.
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Back on the Banks senior/board level
management.
There must be an investigation and
prosecutions as appropriate,our Politicians
the FSA and B of E executives must face the
same.
After all if any of US had done this WE would
be on REMAND by NOW.
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Another example of this Govt. naive attitude to debt in this country is the Student Loan debacle. We have encouraged our young people to gain, largely worthless, degrees and some of them have run up bills of £15,000+
Now these young adults are entering the workplace and there are now going to be a scarcity of 20k+ jobs, never mind anything better paid. I know countless numbers who are either not working because they cant find a job (any job) or not working because they dont want to begin to repay the loans.
How can these individuals save for deposits for houses etc. They are likely to be stuck in a cycle of terminal debt for most of their lives, paying off loans that were supposed to give them a better start in their careers.
Unless you have wealthy parents to pay for further education i would suggest it was now irresponsible to go to university on borrowed money.
The time has come to give our kids a reality check. I for one wont be encouraging my daughter to run up huge debts in the pursuit of greater returns. Hard work and financial prudence from an early age shall be my advice.
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The genius King (I am being sarcastic), who seems to have been working against the banking system, confidence and the Government ever since he fell out with them over his delayed reappointment, and others who are now sensationalising the idea of nationalisation ought to explain what they mean.
If NR and BB are a model basically the UK banking system which provides a substantial part of our GDP and tax revenues would be wound down.
Where we have competition and say 4 bank branches would we have one choice - the Government and one branch in the high street.
The job losses would be in the 100000s from branch closures alone.
How would the Government decide who to lend to and at what rate?
Would they allow people to stay indefinitely in their houses without paying the mortgage or when would they reposses - would this vary depending upon whether an election is looming - for that matter would we have lower interest rates before an election?
Would they prop up businesses that are loss-making with little likelihood of recovery?
In effect would taxpayers money be thrown willy-nilly about through a banking system which would be a great political tool to buy votes especially in the year or so before an election.
And what about the global operations - how would they be managed by the Government? Instead of having HSBC, Standard Chartered, Barclays and RBS gaining business we would have UK Labour International Banking. I'm sure that would be a great money-spinner.
The whole thing would be a complex disaster.
Far better for the Government to guarantee UK bank borrowing with appropriate but not rip-off anti-competitive fees, and fully extend the half-hearted approach adopted so far.
Should capital ratios need to be improved the Government could put in preference shares at a low coupon - after all they want to reduce interest rates.
You have not explained in your blog why this approach will not work, not to mention how you a nationalised banking system working.
The Government also needs to guarantee the debt of long term viable sectors such as housebuilding - otherwise few houses will be built and a million or so more will end up unemployed.
Talk like King's and McFall's which further destroy confidence can be self-fulfilling which perhaps is their objective for reasons known only to them. Remember they are sitting comfortably with their lucrative government backed pensions.
The Government should also consider replacing King with someone who has shown better judgement and could better help restore confidence.
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Dear Robert.
If they start printing money to increase inflation in order to burn off the debt does this mean higher inflation followed by interest rate rises?
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An extreme view but:
Does anyone think this entire crisis has been engineered?
Its interesting that almost all of the Western banking system and big business is on its knees and that Govts here and in the US want to take control or use bodies they control/manipulate to influence where we are going?
Who is responsible for housing bubble and credit bubble. The greedy i.e. a lot of the population? Yes.
What about the rating agencies? What have been doing over this period?
But importantly what about Govt. and their regulatory bodies?
Did they not relax the rules which have controlled the markets since the Great Depression?
Where were their regulatory controls?
What about the Bank of England and Treasury?
It seems that so long as the tax revenue was coming in nothing else mattered to Govt.
Global control anyone?
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It seems to me that the current issue of banks not lendiong is a smoke screen by the government to divert attention from its lack of action on the fundemental issue. The Fed announced yesterday that it is spending $500 billion buying up the toxic debt . Meanwhile, Uk government is spinning the issue that UK banks are now not lending enough despite the interbank lending markets being frozen as a result of the uncertainty created by the toxic debts held by banks world wide. why are Uk banks not being forced to reveal the extent of the level of toxic debt they hold as assets under stock exchange rules on disclosure.?the issue of nationalising the banks is a red herring - if the government really wants the banks to reduce overdraft rates and increase business loans it has it already in its power to effect this change simply by intervening in the markets using NR to move in the market to reduce rates and offer lower overdraft rates for businesses if one bank acts the rest will have to follow
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The problem as I see it is like a junkie coming down from drugs. The population has got high for years on easy credit and once its disappeared withdrawal symptons are nasty and prolonged but it has too be done. The course has to be followed to the end. The question is what happens to the dealers, do we let them loose again or hold them in custody(nationilize them)...I have no idea but whatever it is, it ain't gonna be pretty
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Robert
It is not only the Treasury that believes the banks have enough capital but also the B of E Governor who suggested yesterday that minimum capital requirements could be relaxed during the recession. Mr King went further in implying that it was the banks public duty to incur losses to utilise the additional capital buffer the Govt had so ?generously? provided to them, and if they should need more capital they would receive more, no doubt on equally ?generous? terms.
I suspect that the next call should be to the CEO of Tesco to remind him of his public duty to run at a loss during these difficult times and when the Govt has destroyed their share value the Govt will recapitalise them as well.
The real problem here is the incompetence of those ?in charge? of our economy. What we need are cool heads taking practical steps while these matters unwind over time. Instead we have politicians, regulators and commentators looking for immediate results, scaremongering, undermining confidence, and generally being totally counterproductive.
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When we are all gone the grass will still grow the sun will still shine.
The earth is thought to be 4.56 billion years old!
We are so absorbed with the now it is unbelivable.
The whole world needs to change there is enough for everyone.
Lets start living in a sustainable way instead of this stupid must grow and grow and grow.
GREED IS OUR DISEASE
Need more and more and more.
IT IS INSANE!!!!!
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Robert Peston's blog is always insightful and thought-provoking. Which is a lot more than can be said for many of the comments of its readers.
Hyperbolic, apocalyptic hollering now is as useful as the greedy over-optimism of the boom years.
The antidote to the bubble-making bullishness is dispassionate realism.
Even more disappointing is the disrespectful tone with which people attack Mr Peston. The haranguing is almost always a substitute for real content or lucid thinking. That said, it does betray the irrational negative element in the popular psychological reaction to the recession, a factor which needs to be addressed by economists and politicians. But certainly not by business correspondents.
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Well everybody???
Lets close Heathrow for a day or two??
PERHAPS THEY MIGHT RESIGN??
DONT THINK SO!!!
GORDYS GANG would just SHOOT us ALL.
MUGABE i see no MUGABE?
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Lets take a look at what the lending would be for if all was rosy in the tea gardens of capitalism and/or socialism
Business Loans - yep, those businesses need loans right now, to survive not to grow.
Mortgages - Lots of people out there trying to get on that housing ladder, cant wait to borrow money on a depreciating asset. Oh and dont forget those 20% deposits. Waiting in line they are.
Car Loans- - Yep, you get it, another one of those loans that you end up owing more than the asset the day you pick it up.
Consolidation Loans - No end of companies willing to gamble all your spread out debt into one package tied to their balance sheet , is there? Seen all those adverts disapear over night.
Bridging loans, home improvement loans and even student loans, gone
This matter will not stop until asset prices stabilise, jobs are save and business are growing.
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I watched Newsnight last night and it was patently clear that both the labour minister and Alistair Campbell had no idea what was going on or what to do.
The minister's only contribution was to keep repeating the line re it all being the fault of of American sub prime loans and the Jerry Springer audience. Well perhaps she has never seen the adience for Jeremy Kyle or Trisha if she had she would know we have plenty of them ourselves and they all drink and smoke and have Sky Sports whilst living on benefits.
As for Campbell all he could say was what would the tories do and then not allow Lord Lawson to answer the question.
At one stage I thought Paxman was going to explode with annoyance. If you haven't watched the programme catch it on I Player.
The problem is very simple. For far too long the whole of the UK has been on a borrowing spree either inflating property prices to an impossible height or spending on luxuries that they cannot afford because society tells them they should have them.
A society that idolises WAG's and conspicious consumption over investment and actually earning a living. It is fine to borrow on credit cards to get £1,000 handbags and £150 jeans because that is what Posh or Colleen is wearing and forget how you are going to pay for it.
Let us accept that a large number of people in the UK have mortgage debts that they should never have been allowed to get into with no chance of paying back and also have tens of thousands of pounds on credit card debts that they cannot pay back.
Until something is done to break this Gordeon knot the country will slowly strangle itself.
I agree with Alexander Curzon there is going to be major unrest as this all falls apart.
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more nuggets of truth being drop fed to us!
Notice how carefully one noxious fact appears after another-skeletons out of the cupboard a bone at a time!
'Your arm bone's connected to .....
Dem bones, dem bones, dem funky bones!'
(mr moderator - please note this is not a foreign language, just the words from an old song, so please don't bounce me!)
Thing is, we all know what the skeletons are, Robert, just how many of them there are!
This government and our banks are systematically dismantling our country through their desire to be seen as world leaders.
If anything is nationalised by this government it will never function as a proper business. Anyone who wants full nationalisation needs to look at the behaviour of Northern Rock towards it's borrowers. They have the highest rate of repossessions of all banks.
Bring out all the dirty stuff that's left, wait for the housing market to find the correct level and sort out what's left after the dust settles.
We can't continue to give all this money to the banks-make proper tax cuts permanently to ensure employment, overhaul the lending system, get rid if LIBOR-it's effectively redundant.....
We've all said what needs to be done. The tinkering must stop-it's not going to make a jot of difference. We have to hit ground zero, then build stability from the bottom up.
Politics and banks need to get a divorce and all this knee jerking political reaction has to change to considered proactive response.
This government either lacks the courage or the knowledge to do this.
Either way, they aren't doing what they need to do.
THEY HAVE TO GO.
The civil unrest is only just beginning. I'm sure none of us want to see it develop into full blown revolution.
GB and Ally D, wake up and look around you. LISTEN to what your people are saying, or face the consequences of treating us with such arrogance!
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"Credit is no different from any other commodity"
I would say it is based on the fact that most of it is just numbers dreamed up and stored on a computer based on over valued real commodities.
Would you like to buy some of my gold? You don't actualy get any gold but I will let you log into an online gold repository where you can see the value of your gold. :)
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With house prices continuing on a downward spiral, as opposed to continually rising that can only be good news for first time borrowers who now have, for the first time in decades, a realistic chance of saving enough money to put down a decent deposit on their first home.
In that case many frist time borrowers if they have any sense will delay taking out a mortgage for at least the next couple of years and if they do that then house price will fall even further. If one accepts that is going to happen then the housing and property markets will remain in the doldrums for at least that long or until the economy starts to really pick up.That scenario one accepts would be disastrous for the UK house builders and property developers as well as for all those industries associated with those markets or supply goods and services to into them.
On the other hand if average house prices did fall to say four times average earnings then that would help the UK to recover some of it's competitiveness over the longer term. On the basis that if houses did become more affordable that would ease the pressure future wage demands because mortgages are such a big chunk of peoples take home pay. This would give the banks some breathing space to replenish their capital base and enable them to offer a better service to small businesses, particularly those that are export led.
In the short term the government could soften the blow for some of the people employed in the building and construction industry by bringing forward a number of programmes to upgrade our decaying infrastructure. This could include building new affordable housing as well schools and other such projects so badly needed to make our economy more competitive.
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the simple way to sort this matter in future is to make everyone responsible for their actions and debts. No more take lots of cash in as MUMS INVESTMENT LTD lose it to friends and associates fold the company then open the next day in the same office as MUM MARK 11. In other words treat business owners the same as private individuals are treated by the courts on the banks behalf.
Personal assets of owners and directors should be seized this would make share holders control the the management they employ.
I personally have been robbed by large businesses several times and still see one director driving his Bentley to his plush offices and sometimes on television giving his veiws on the economic climate makes me sick
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To me, this article paints a misleading picture of the derivation of the current breakdown, the structure of what's causing the logjam, and the path we should be taking to free ourselves from this logjam and resume sustainable working.
Apart from this, the article contains a lot of good points.
What Mr Peston fails to point out is that the poor-risk lending that is at the centre of the difficulties was an inevitable consequence of the removal of the moral hazard of bank failure. The implicit government underwriting of all financial institutions forced these institutions to upgrade the battle of competition to being the overwhelming threat to their continued existence. It changes the whole psyche of lending if the major worry is not that the borrower might default, but that you might lose the deal to someone else.
It was the direct intention of governments not merely to encourage the banks to be less prudent with their lending decisions, but to force them to be. And I think that governments genuinely believed that there was no downside to this policy. I think they felt that the banks, historically, had been unnecessarily cautious, and that requiring them to be looser with their decisions was actually a step in human understanding that would bring about an upward sea-change in our development.
Mr Peston goes on to suggest that the difficulty banks are having obtaining funding is due to uncertainty about the adequacy of capital to cover further write-downs on existing lending. Sure it is, but it's not the only reason banks are being shunned. I think potential lenders also want some comfort about the banks' intentions for future lending as well. What attitudes are the banks going to have, or be allowed to have, regarding the inclusion of risk in future lending decisions? Do the West's policy-makers regard this breakdown as an indictment of past policy, and a need therefore to change tack? Or more as an extraneous hiccup that requires no reconsideration of basic policy.
It's whether or not the US is put into the jigsaw as being too big to fail that will ultimately determine the picture of how things are to be. And this decision, in turn, depends upon whether there can be an accommodation between American expectations, and those of the rest of the world. There is a level of US expectation above which some will decide that the cost, to them, of pampering the US is greater than the benefit they will gain from the maintained American economy.
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"the big simple point is the banks can only lend what they can borrow"
Either i am being incredibly simplistic or i'm missing something drastic but this is exactly what caused this mess in the first place.
Debt on top of debt on top of debt creates money that doesn't exist.
Why on earth is the Government so hell bent on creating more of the same?
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@43 auntGabrielle.
I think yes.
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Because of the intrinsic weakness of the pound, the UK's monetary system is leaky. As fast as the government and the Bank of England pumps liquidity into the system, people with liquid assets will move them across the exchanges into dollars or euros, seeking greater security for their money.
We in the UK will have to wait until the economies of the US and the Eurozone recover sufficiently for people to start using their dollars and euros to buy up, the by then, cheap, assets in the UK.
In the meantime it will only be possible to try to protect those parts of the economy that might be important in the recovery.
What a pity we did not join the Eurozone when we had the chance to do so.
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We now face a fundamental shift in the balance of relationship between the state and the citizens of the world that is most worrying in that it appears to be accidental and by default. Whilst rescue plans may produce the ulterior desired outcome (this is itself debateable) the real risk could be in the law of unintended consequence. Conspiracy theorists will of course debate if this is indeed accidental or a deliberate attempt to shepperd and herd the population on mass.
What is true ,however, is that due thought to the end game should be given urgently and the neccessary safeguards and checks and balances built into preventing the state holding undue sway over all our lives in the future. This is no longer just a financial crisis it is potentially a sociological one as well.
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This is the 21st century's Great Depression.
Those countries that devalued their currencies fastest in the last great depression, came out and recovered most quickly (albeit over a few years). Those that retained their historical currency's strength did by far the worst.
Bring on inflation, and a slump in Sterling (say to 1 GBP=0.8 EUR and 1 GBP = 1 USD), and we will have very, very high inflation and pain, but we will survive in five years time.
Keep the exchange rate where it is today (1 GBP=1.18 EUR and 1 GBP = 1.5 USD), wilting roses for another year or so, and then cataclysm.
If only the 1929 crash had led to liquidate, liquidate, liquidate (this was threatened, but stopped by President Herbert Hoover from taking place, so it never occurred), the crash then would not have gone on for ten years and led to a world war.
Only problem with the idea is that Europe and the US will also want to devalue their currencies as much.
A smart PM will get in there first.
I never thought I would be rooting for Gordon Brown to make Sterling plummet. But please, PM, do it now, do it well, and do it deeply. It'll hurt like hell, but will save us.
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When will our political and financial leaders realise that the financial systems that got is into this mess now have to be radically changed.
Our leaders seem determined to bankrupt us all to try and fix our existing fatally flawed system.
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The MERE utterance of the word
NATIONALISATION,will ensure we continue
to use the Irish Banking System.
So GORDY DARLING MANDY & KING do
SOMETHING HELPFUL GUARANTEE DEPOSITS
IN FULL on all accounts.
We for one would deposit in the UK if
threats of NATIONALISATION were
DROPPED.
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Robert sometimes you totally miss the point and this is one of them.
The fund managers who supply the funds to the wholesale markets know the banks have not come clean on all their toxic loans and special investment vehicles and rightly can't see any value in trusting them with cheap money.
What is bizarre is that the FSA and Bank of England have been unable to say categorically and specifically that all the dirt is now known about in the public domain and the downside is clear.
Until we get that statement we can forget that trust in the banks will grow.
Why are these people still in their cosy jobs as Regulators when it does not require a degree in rocket science to get to the bottom of this mess.
Thanks heavens the final security we have as taxpayers are the Trustee's to the large investment funds who's expectations are clearly more akin to good busienss practise than we can expect from the FSA, Politicians, Bank of England or the Banks.
Finally why does it still take 5 working days clear a cheque? for 30 days we now need to read 35, 60 should be 65 and 90 is LaLa land!
And we think our banking system is efficient?
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So the real creditors in the system are the "pension funds, money managers and sovereign wealth funds". The debtors are the individuals with excessive mortgages and credit card loans and certain companies with high debt (eg private equity). The banks are just middle-men.
We do indeed need to get rid of the excessive debt accumulated in the system. But this can only be done in two ways: the debtors repay the loans (which we're seeing happen to an extent with the negative net mortgage lending as described yesterday); or the real creditors have to write the debt off.
The worry with the current approach is that the debts to the real creditors don't get written off. As debtors default (and they will) the debt just gets transferred to the Government (and hence to taxpayers). So the taxpayer ends up owing vast sums to the "pension funds, money managers and sovereign wealth funds" without the assets to back it up. That's really what's happening now -- instead of lending directly to the banks, they are lending to the Government which is lending to the banks, which means the Government takes on the risk.
Full nationalisation of the banks (or maybe at least redefining the part-nationalisation so that it is on a permanent basis) may well be necessary. But to actually get rid of the debt we really need to look at major wealth redistribution via the tax system and perhaps nationalisation of the pensions industry too.
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My first and only foray into protectionism, I don't like it, but you tell me any country that isn't 'looking after its own' right now.... a couple for starters:
Top of the list, as they've just been given lots of our nice tax money - Banks, could you please bring some of your outsourced jobs back from India please, we'd like to see the salaries from it spent in the UK and the taxes from it could help fund a little of what the banks have received
Secondly - anyone have any idea how much of Mr Browns/Darlings loan will end up bolstering Chinas Foreign Currency Reserves? Jan to May this year I think we had a 5 billion pound trading deficit - and growing. I know our retailers make their margin, but there is something galling about the thought that in 2 years when I'm paying for the debt, an awful lot of it may be sat in a Chinese Bank!
On a lighter note - I've just been enjoying a light hearted moment with my daughter. She's looking for a house, they are finally becoming affordable! How we laughed at the irony of our tax money being used to push the prices back up. Mr Darling is not only trying to make her pay more, but he'll charge her for the privilege via increased taxes for year to come.... priceless
Thank you Mr Darling for bringing a Father and Daughter closer together
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A democratically elected government can effectivly do what ever it pleases until removed by due process. Every citizen should be aware if they are not already that everything we own in effect belongs to the government in the country they reside if they decided to use their absolute power, for this reason there is nothing inevitable about a reccesion. It appears to me that the governments around the world have decided to do what ever it takes to reinflate the world economies. The major problem for the banks is falling asset values to underpin their capital however these values are only a snap shot in time and can change very rapidly as any property owner will know, with the combined might of national governments which as I said earlier have absolute power, asset values will recover far faster than the traditional view This is not like any reccesion in history as there never has been such a concerted effort on behalf of governments to re inflate.
The world really has changed and anyone standing in the way from multinational banks down will be blown away.
Time to buy tangible assets based on land.
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OK, now Merv's started reading here too. If so, let's move on to the next bit, which might hit this afternoon.
The Conservatives' Emergency Debate has the status of a Finance Bill debate, and if HMG loses that one, it's a General Election with a rudderless ship, both here and in the US, over Crimble.
Whereas the whole idea is that the system gets its act together internationally, yet our Beloved Leaders show about as much dynamicism as a rice pudding in that direction.
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Just seen my last post has been referred. All it did was dare to question the FSA model of regulation and GB's part in creating it. It was a cut and paste job from Bloomberg, complete with acknowledgement of the source etc, ie no different to other posts I and many others have made recently. Maybe I'm just getting paranoid, but I can't see why it was referred.
Anyway, to read it, go the below link
http://www.bloomberg.com/news/exclusive/
The article is entitled: "Brown's "Churchill" Moment Masks Failure of UK Bank Regulator He Created"
It's an interesting read, and not as entirely negative as the title may suggest.
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"On the other hand if average house prices did fall to say four times average earnings then that would help the UK to recover some of it's competitiveness over the longer term. On the basis that if houses did become more affordable that would ease the pressure future wage demands because mortgages are such a big chunk of peoples take home pay. This would give the banks some breathing space to replenish their capital base and enable them to offer a better service to small businesses, particularly those that are export led.
In the short term the government could soften the blow for some of the people employed in the building and construction industry by bringing forward a number of programmes to upgrade our decaying infrastructure. This could include building new affordable housing as well schools and other such projects so badly needed to make our economy more competitive."
This sounds like the most sense I have read today!
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"the overhang of excessive debt accumulated in the boom years remains the biggest problem for the UK economy and for the world"
So, foregoing the obvious technical/implementation issues, how about considering income tax breaks on interest payments for the consumer in much the same way as corporations financed through debt receive similar allowances?
Surely such a move would undoubtedly be a step in the right direction to encourage those that have over-indulged during recent years to pay back their debts, increase the affordability of their debt repayments, possibly freeing up funds to stimulate the economy and ultimately lead to improved confidence within the finance industry such that they return to more appropriate lending levels.
I am aware it would be naive to think this alone would resolve the current economic crisis, but as well as putting the consumer on a slightly more even standing with business entities (in terms of tax/interest repayments), would this not show that the government is willing to first support the consumer (and indirectly the overall economy) in resolving their well-publicised debt issues in order to achieve a favourable outcome for the economy?
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#26:
Absolutely. This country now produces hardly anything of any value so instead we have an economy built on credit (i.e. debt).
Well, there's no more credit creating debt (most people seem to forget that's what happens when money is lent - debt is created). And that debt (or credit) is therefore no longer creating money. But the debt needs to be re-paid, so we need more money. But if our money comes from credit (which is really debt) and we can?t get any more credit how can we pay it back and keep the wheel spinning!?
But hang on ? here come Gordon to save us!
He?s going to allow us to create even more debt so we can continue creating money. We can get back to ?normal? where we all have large TVs, a new car every few years, exotic holidays. And we can get back to ?normal? in this way because we know our house will be worth 10% more next year and can borrow against that eventuality (because houses always double in value every few years, right?).
We are up the proverbial creek and not even on the raft any more. If we continue down this road (or up this creek), we?ll not even be wearing swimming trunks soon.
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Robert
I have seen very little detailed information in respect of the B of E ?s role at the moment. Please could I ask you to explain why it is a problem for the B of E to be lending as it is ?
For example, I for one, don?t understand why the B of E doesn?t simply offer as much money as the banks want at Base Rate. No premium would be charged (unlike at present) but the condition would be a maximum margin above Base for a particular type of lending (ie consumer v householder etc). This will directly link lending to Base Rate for business and the housing market, which will in turn do far more to stabilise the economy than the recent stimulus package.
As world interest rates fall, holders of cash need to place their cash somewhere and so in time as the risk reduces they will be prepared to lend to banks again, the Central bank can reduce its cash offerings and banks will be able to increase their margins.
Aren?t the simple solutions always the best solutions ?
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Another thread: if HMG was ready to start recovering their advances as soon as everyone breaths the first sigh of relief after a year's VAT holiday, what else don't they believe in their own figures?
The effect as it was proposed was that next Christmas sees an all-time boom before the High Street hits the buffers on 31.12.2009, with VAT jumping from 15 to 18.5, ie nearly 25 per cent. Just what a retail sector coming out of recession - at best - needs.
Alternatively, if you prefer the OECD figures, where does 2010's HMG borrowing come from?
Henceforth I think we add a U to gilt...
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Why are you all expressing surprise that Labour will bankrupt the country? Of course Monday was a just a stop gap to the real crisis which awaits us ONCE THE NEXT ELECTION IS OVER. Darling Brown ideologically cannot take the right decisions because they might lose votes - any company going bust will stall until the very last minute, usually the last day before the wage bill is due which is what they are doing - you ain't seen nothing yet!!
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Robert Peston should actually do some mystery shopping and he will find there is of mortgage money available. Maybe not as cheap or easy as in the past but that is what got us into this mess. The Politicians continue to demonstrate they have no understanding of either the SME or house mortgage market.
With houses there is vastly reduced demand because few people want to incur the additional costs of moving until their future looks more secure and no SME with any sense will do anything other than shed cost in an economic down turn and as usually 60% of fixed cost is people, they should be the first to go. If they need to re-capitalise because of losses, they should re mortgage (if they have the equity) because it will be cheaper and over a longer period. rather than working capital lending from a Bank. They should make their working capital work harder. de-stocking, shorter credit terms, tighter credit control etc.
Any money generated by the demand side fiscal initiatives will either be so small as to be irrelevant or used by the prudent (remember that word!) to pay down their existing high levels of debt.
It also shows how busted their thinking is that the only way to boost the economy is via the housing sector which was the major cause of our problems in the first place
It suits Politicians to blame the supply side because they are more interested in short term political survival than the longer term financial interests of the country. This mess and the solutions being offered just show how structurally out of balance the UK economy is and that in 10 years tine when everyone has forgotten this, it will happen again.
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#48 NO MAD TT AM
Your new here. I guess you must have taken a wrong turn on your way to La La Land.
Hello. We have six billion people on the planet now. If we stop growing and producing more all the time even more will go without.
'Sustainable' you mean i'm good so lets keep things as they are. I don't want to think and acknowledge bad things.
You say "we are all absorbed with now."
No Really. That might be because we are alive now and will be dead later. Its called existance. Great minds have pondered it forever. Perhaps you have heard of Satre and his existentialist ideas. Planning for the future is one thing but we always live in now and it is now that determines the future.
No you got blown away by cosmology for children and the greatness of the universe.
There is no time for silly comments now so if you want to find La La land just head back the way you came to the land of organic eggs.
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44. Neilhead wrote:
"Does anyone think this entire crisis has been engineered?"
If it is engineered, then Cui Bono?
It is hard to see than anyone is benefiting. Unless some very rich people are sat out there just waiting for to buy up everything at rock bottom prices when things have got much worse.
I agree that the root cause is greed though. However, the most greedy that caused the problem do not seem to be held accountable. All efforts seem to be going towards getting these people off the hook.
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GORDON BROWN??
ARE YOU PROUD ARE YOU VERY PROUD??
KNOWING PEOPLE IN THIS COUNTRY
CHOOSE BETWEEN EATING OR HEAT &LIGHT.
YOU STRUT ROUND THE WORLD WITH AN
ARROGANT SWAGGER.
I GUESS YOU ARE PROUD.
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Why dose everyone keep talking about greedy bankers, what about greedy supermarkets.
Sainsbury's sold cabbages at £1.50 yesterday, today they can suddenly sell them for 0.50p and still make a profit.
Even if they sold everything at the same price and quality as Aldi I would still not return, just thinking about the huge profits they made out of me in the past.
People forget it was food prices along with gas and electric rises that brought all this to a head.
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You write ?the overhang of excessive debt accumulated in the boom years remains the biggest problem for the UK economy and for the world.?
I disagree. There is an ever bigger problem, which you (and governments) ignore at your peril. That is, that the years of easy credit distorted our economies, inflating many areas, including of course financial services, but also enlarging many other areas (the american car industry, for one, was bloated on easy consumer credit).
When you realise this, you will see that what has to happen now is a readjustment of the world?s leading economies to a more sustainable shape, based on prudent levels of lending and sensible borrowing. So a step change is needed, cutting down the bloated areas of the economies, and enlarging areas that are genuinely productive.
Unfortunately, being blinded by the problem of excessive debt, means that the remedies being proposed are still trying to pump money into areas of the economy that are unsustainably large. They are only delaying the inevitable, that these bloated industries must shrink. And they are of course creating further debt at a time when it is least needed.
This is a bleak message, the idea that a structural shift is needed is not exactly a vote winner. Which is why our esteemed leaders? approaches would appear to be to prefer to be in denial: they are pretending that pumping funds into these unsustainable industries will solve the problem, because the realisation that they are unsustainable at present levels is even more unpalatable.
Time for some brave and intelligent leaders. Is Obama going to be one?
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This comment was removed because the moderators found it broke the House Rules.
POST 62 balsaltrocky
Sterling Crisis
When the food in Tesco goes through the
roof you wont think thats such as clever
WHEEZE.
Do you know how MUCH FOOD WE
IMPORT??
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Peston will be appearing in one of the Doctor Who Christmas editions as an android who can predict looming financial disasters. I think he's made for the part!
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I have "joined" the blog as it seems the only place I can get sensible comment.
dave_the_squirrel
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This comment was removed because the moderators found it broke the House Rules.
alexandercurzon
#3, #5, Spot On
We need food security, energy security and general self-sufficiency. Trade is fine, but we must have things worth trading that the rest of the world will want.
#19 "We seriously do not want State run/owned Banks.#
Some people will ask why not; the answer is the same as why the people who wrote the US constitution insisted on separation of powers. It would give the government of the day too much power, and put too much pressure on it to make bad decisions. A big employer in the PMs constituency facing bankruptcy? No problem, pressure the PM to make a state bank give it a loan.
In fact, the government has too much power as it is, because the payroll vote system in Parliament subverts an MPs loyalty from his/her constituents to the executive. As soon as an MP becomes as much as a PPS, they are not allowed to think for themselves any more. My MP was quite good until he got onto the bottom rung of the ministerial ladder.
We need a complete rethink. I would favour a directly elected PM whose ministers would be responsible to parliament, but not drawn from it. It might mean we get more competent people as ministers, rather than career politicians. The duty of parliament should be to draft legislation and hold the government to account.
#11 "This Government must stand down!"
The only problem with that at the moment is that we would get more of the same under an administration of a slightly different hue.
Time to start a new political party with a view to organizing for 2010. Start thinking of a name now and draft a manifesto. I'm chronically ill: I can't stand, but I would help with leaflet, website design etc.
How about a "Rebuild Britain" party?
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..so other than that OK?
I do not want to see the state running our banking industry - as the joke goes
'government - if you don't like the problems we create , wait until you see our solutions'
If private debt holders want the banks to hold more capital in terms of thier outstanding loans then ultimately we are going to have to recognise that some debt is 'non-performing' and the tax payer cannot go on picking up the tab for that
- efectively if we do that we remove the risk element on lending which could give us the same problem as we have now when risk was not managed
I fear we are just postponing the day of reckoning ..
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The key element in everything that happens now is TIME.
The Government should be commended for being decisive and doing what has to be done. (This is not a political point, but successive Tory governments never had the courage to do what had to be done..in TIME. Ineffectual tinkering at the margins resulted in unnecessarily long recessions - they presided over a goodly few!)
If we have to nationalise the banks, let's not mess around, let's do it...now! Time is of the essence as never before.
Fortune WILL favour the brave!
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# 64
Do you think the Irish government could stand behind its guarantee if it had to? It represents something like 200% of Ireland's GDP. And rising as a proportion, as GDP is forecast to fall here by up to 4% next year.
The banks are all subject to shotgun marriages right now. Don't know who you're using, but BoI looks likely to merge with Irish Life & Permanent. Allied Irish is "talking to" EBS. Anglo Irish is a basket case, making Northern Rock look like a paragon of prudence.
There is a private equity consortium looking to invest in a merged BoI/ILP combination, and also perhaps take a stake in AIB. They are also, apparently, willing to put money into Anglo Irish. In short, "the Irish banking system" will soon just be "the Irish bank".
The only reason why the Irish government hasn't recapitalised the banks in the same way as UK/US is that it can't afford to. It recently tried to sell Irish gilts on similar terms to RBS (who had a UK goverment guarantee). RBS got their money easily, Ireland struggled. I hope you won't allow political prejudice to stand in the way of keeping your money safe.
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RE TOXIC DEBT ETC
The institutions have many Skeletons.
I.E.
I shorted HBOS shares on 5 trades and made a clear 38 million.
For me to WIN somebody LOST.
So out there somewhere theres a 42 million
plus LOSS.
Contrary to opinion HBOS didnt loose that cash.
THE BANKS ROLLING THE HEDGE FUND DID
BUT I DONT KNOW WHICH BANKS ROLLED
THE FUND.
Similar DEALS are done 24/7 its a GAMBLE
THATS why the banks are BUST.
ADD in the RECKLESS LENDING!!!
NEED I SAY MORE?
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#41,
There is no graduate in this country who is not working so they don't have to pay off their student loans.
It is 9% of everything over 15,000, talk about cutting off your nose to spite your face. Hmmmm, I won't take that 20,000 a year job because the government will take 500 quid off me. I'd rather sit on the dole. Get real.
Do you really think this is how graduates think? My guess is that you don't know countless numbers of graduates in this position.
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@13 crunchedup
The stock market has performed well because everyone thought the institutions were making profits - which pushed their shares up.
It has recently become apparent that this was all a big accounting error. Fractional reserve banking meant that one institution had 10 pounds but 7 or eight others thought (or said) they had it.
This went round and round until we thought we'd generated a huge amount of money.
But like any pyramid scheme it was a lie.
Now there seem to be a lot of people - including the government - who think that money is still there somewhere, or can somehow be re-magiced by pouring taxpayers money down the drain.
Until we accept we've been seriously conned - deliberately or not - we're never going to get back on course.
The titanic has sunk - rearranging the deckchairs on Brighton beach is not going to make any difference - apart from ripping off those poor mugs who are paying to shuffle the deckchairs. Us !
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I'd like to see some analysis of the Government's off balance sheet commitments.
PPP, PFI call it what you like, but if these bills aren't paid NHS services will collapse and military capability will become obsolete to name but two.
Off course there's always the public sector pension pot to maintain.
I imagine that if the total amount of debt (expenditure commitment) was made visible, there would be a massive run on the pound.
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"Private-sector holders of trillions of pounds"!
Who? How?
Where are all those trillions of pounds kept, if not in banks? Or are these trillions of pounds in private banks, off-shore financial institutions or tax heavens ?
Can these trillions of pounds get a much better return than retail customers, do they pay the same percentage of taxes on the interests as we do?
Yours, even more pubzzled ...
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I am SERIOUSLY AT THE POINT OF SERVING
A WINDING UP PETITION ON DOWNING ST.
THERES PLENTY OF FORMS IN OUR OFFICE
IVE USED A LOT THIS YEAR.
MORE THAN THE LAST 28 YEARS.
SHOULD I SAVE ONE FOR THE B OF E??
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"So here's the Catch-22 to end all Catch-22s.
If we want our banks to lend more, they're going to have to be able to borrow more.
And to do that, they're going to need to raise more capital."
A brilliantly simple summing up Robert! Worth joining the blog for.
The financial system is undergoing a healthy review. As with most things we only deal with problems when they arise - it's too politically awkward otherwise.
To resolve the problem we need further consolidation in the financial markets. It may reduce competition, but survival has taken over from profit as the bankers motivator.
Kick-starting this stalled financial engine will take elbow grease, confidence and creative thinking.
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As a supporter of the BNP (and one of the many who voted New Labour), I would simply like to thank Gordon Brown and his chums for this situation.
Every day we receive new members. Disheartened by the state that they find themselves in, they can see a way forwards with us that they cannot see with any other party. Gordon spent years telling us what a genius he was, but now its all gone wrong he blames the American housing market.
People are not fooled though Gordon, so enjoy your delusions whilst you can.
If inflation hits (and I for one am convinced that is the way Gordon will try and "fix" the problem) then I would suggest that as history has shown us the consequences will be a move away from "traditional" parties and towards new solutions to problems.
Thank you again Mr B. The pleasure will be all ours.
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Im not sure which thought is worse. That this country's demise is being deliberatly manufactured, Or that they are actually doing their best to help us.
#78
its ignorrant people like you that are killing society
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POST 91
I know if it all falls the Irish Govt cant hold it.
ITS INTENT THAT COUNTS. . .
Our lot have one intent CLINGING TO
POWER.
REGARDLESS OF COST.
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Agreed that this indeed seems like the sensible thing to do.
Meaning, in effect, we go 100% for the Swedish model of completely recapitalising all UK banks, and that bank shareholders lose out entirely.
A few other advantages that this route will give us:
- implementation of a new monetary control system (run "for the people, by the people" not "for the bankers, by the bankers") will be much easier.
- start the process by taking out the parts of the banks that are the gambling parts (which may have been called 'investment banks' until now but which have no place in anything called a "bank"), and put them into new vehicles not called banks, but 'investment funds' or such like, and subject them to very strict borrowing ratio requirements (say 1:1 maximum, i.e. 50% capital ratio?).
- thereby create rather cleaner proper "New Banks", who are the only ones allowed to take retail deposits, to be subject to less draconian capital ratios (although still much higher than at present... i.e. maybe 15%?)
- also take out of these "New Banks" all connections/subsidiaries in rubbish dodgy offshore places which do not come under proper control of UK monetary authorities, which confuse people and serve only to provide one rule for the rich and one for the poor (and we in the UK are one of the very worst offenders in supporting these things, with links to various islands in the Channel, the Caribbean etc etc..... thank goodness Obama in the US appears to have clocked this one and may do something about it, even if our government here has not)
- implement new laws in transparency and disclosure. Basically we need just a huge amount more of this here.
The other concept that needs to be built into a new monetary system is the idea of a firebreak - i.e. if one goes down the damage will only spread so far.
Spreading risk through packaging up financial products and trading them within the global monetary system is a brilliant way of minimising damage from specific individual events, but is useless for protecting against (in fact of course it promotes) systemic events, like the one we have now.
Yes, firebreaks will moderate capital and monetary flows, and may appear to act against economic growth/efficient allocation of resources etc, but maybe you could say we have rather more of this freeflow of capital than we have wanted recently and that such mechanisms will actually prevent "capital" blowing itself up again (which is basically what has just happened in the world) and allow "labour" (small letter L here, please note) to play a more reasonable (and indeed relatively valuable) part in the whole proceedings.
Yep..... I guess we have finally found the limits of the debt based free market capitalist system of the western world.
One further thought..... Sharia Law by all accounts forbids all lending and borrowing as debt, which presumably means that the onus is more on the the provider of funds to ensure that the receiver can pay back. Perhaps if we had used this model we would not have got into such a mess?
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An obvious question? If as Mervyn King suggests, it might well take the nationalisation of our banks (using public funding) before the private sector sugar daddies start lending to them again and thus the banks to us. If so, what would be the difference between the tax payer funding further nationalisation versus letting nature take its course.
It seems to me that a deep prolonged recession might be the outcome if nothing further is done. However, if endless amounts of tax payer money is continued to be thrown at financial institutions then the taxpayer will be paying the consequence for many more years to come.
In other words, it's like comparing a very big slap in the face Versus many smaller slaps but for a much longer period which would you prefer.
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@90
A point of order
Only Presidents can Preside over recessions
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#93 "There is no graduate in this country who is not working so they don't have to pay off their student loans.
It is 9% of everything over 15,000,"
Interesting: when I was at university, we got grants. BUT in those days the basic rate of income tax was about 34% I think.
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I wrote this on the FT board in 2002:
Now, here we are in 2008. are. The lenders didn't lower LTVs from 80%-95%. Instead, they raised them to 90%-125%.
In the mid 90s, in an effort to increase home ownership, the Clinton adminstration put pressure on banks to lower their lending standards and provide mortgages to Americans with low-incomes and poor credit histories. Once the FNMA (Fannie Mae) and FHLMC (Freddie Mac) started doing this, the high yields attracted (almost) all the other banks.
This stoked a housing boom, so the Republicans made no effort to change this once they came to power.
To compete with their American cousins' profits, British banks adopted the same policies - which, in a boom, generated healthy profits for banks, equity extraction for the witless homeowners, and bountiful tax revenues for the unworthy government recipients.
Everyone involved was making more money than before, and no-one wanted to be the first to stop. It's as simple as that.
What now? I suggest the UK government:
a) lowers corporation taxes
b) lowers income taxes
c) drastically cuts spending and benefits
d) allows unemployment to rise naturally
e) takes advantage of our nuclear club status and heavily invests in new nuclear power stations (so we have energy to use and sell)
f) stops charging university fees (so we have competent, trained people to perform technical tasks)
g) accepts that the concept of a service based economy has a very limited lifespan, and aim for a broader mixture of services and technical product offerings
It is only a matter of time before the costs of production in developing countries level out with those in our former "First World" countries, and the coming hyperinflation will make this happen sooner rather than later.
The government should be preparing for this by refocusing our skills in areas where they are most needed, and where we already have (or had) an advantage, and that, I believe, should start with efficient energy production and vastly improved levels of education so we can be ready to adapt to the inevitable shifts in world power and opportunities.
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IMPORTANT: Has anyone noticed what must be an error in the Chancellor's pre-budget speech and the official Treasury documents regarding GDP growth for 2008.
The forecast was stated as 3/4 percent for 2008 in the speech and in all documents. It was also stated that they assume a contraction in the current Q4.
But the year so fsr has seen:
Q1: +0.3%
Q2: nil
Q3: - 0.5%
So the forecast cannot be +0.75% for 2008.
Surely they meant -0.75%?
Can someone raise this point? How could they get this wrong?
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#3,5,11,19,26,40,50,64,80,84,92,97
There's worse - hidden in an annexe to the PBR doucuments there's details of Brown, Darling and Mandy's secret, evil plan to SUPER- TAX EXCESSIVE USE OF UPPER CASE ON MESSAGE BOARDS AT £1 PER LETTER AND £10 PER APOSTROPHE!!!.
EXTRA LINE BREAKS
FOR EMPHASIS
BECAUSE
THESE PEOPLE
SIMPLY
DON'T UNDERSTAND
WHAT'S
GOOD FOR THEM!!!!
are £100 a throw
!!!!!!!!
AC you have made a serious dent in the PSBR this morning alone. Tip of the hat from a grateful pleb sir.
The good news is that in a 'green' initiative you can get it all back through recycling Daily Mail editorials letter by letter.
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If interest rates are so low then how do people like this get away with it?
This is an ACTUAL cut and past from an ad on facebook.
This is the way to destroy peoples lives and create anarchy. Its called a "log book loan". Its a loan secured against your car log book.
Why dont the government do something to stop these type of cruel loan sharks? Problem is they are of course FSA regulated!!!
Loan Amount £1,500
Weekly Repayment £53.60
Loan Term 78 weeks
APR 437.4%
Total Repayable £4,180.80
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post 96 puzzling
Yes theres cash around, uk banks are still
paying 1.5 points over libor.
10 million up is the trigger figure.
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- alexandercurzon
12 posts on ONE page?!
You need to TAKE your
medication and get
OUT more. Peston's obviously
getting TO you...
;-)
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Does anyone else out there share my view that we're now watching a sealed pressure cooker holding a nuclear bomb that has gone off, but the cooker hasn't exploded yet?
The cooker's red hot and rattling and you kind of know there's something going on in there. Indeed, you know the lid could blow off anytime soon, but you're not familiar with the full effects of a nuclear explosion.
The numbers being bandied about now are moving from reality to surreality. Who's kidding who here about where this is all heading? Does anyone seriously believe that we stand a cat in hell's chance of unwinding from this unprecedented, debt-fuelled mess without equally unprecedented economic and, dare I say, social chaos?
And, here I go again about the energy thing. Without guaranteed strong economic growth that cat in hell I mentioned earlier is stone dead; we'll never raise the cash to pay off the mind-boggling debts we already have and are now racking up ever higher to, er, pay off the mind-boggling debts we have etc .... you get the idea?
The end of "infinite" cheap energy (now with us, believe me) means the end of endless, reliable economic growth. Very shortly deleveraging is going to collide with the end-of-cheap-energy - and the nuclear explosion will find its way out of the pressure cooker.
I hope you're ready to join that cat on its journey to hell in a handcart?
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RE MY POST 97.
ON the BASIS of UNFIT to TRADE &
INSOLVENCY.
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When Mervyn King hints at full bank nationalisation then you can assume things look pretty bleak. This is the treasury in full panic mode because things look even worse than they forecast. There are some inconsistencies in what is being claimed though. Business groups claim that despite billions of pounds of help from taxpayers, banks are still withholding credit from some firms and demanding punitive terms from others. Yet we know that British Banking Association said last week that lending to small businesses grew by £1billion in the third quarter of 2008. Why is the Media and I include Robert not investigating these discrepancies.
We know of course which bank is actually withdrawing lots of loans and that is the UK government bank northern rock. So it is abit of the pot calling the kettle black. This does not really explain why anecdotal evidence would appear to be so different from bank lending figures. Here I think a combination of things are going on. Firstly banks are now realistically pricing in that commercial and residental propeties are likely to fall in value some 40 ? 50 percent in the UK, something that business and the treasury are not seeing as they look at the world through rose tinted spectacles. The other problem is that what the treasury really wants is for banks to step up and increase lending to those markets which were traditionally covered by some foreign banks. Many car loans were arranged through GE Money or GMAC operating out of Ireland and owned by US firms. Lets be honest UK banks were somewhat squeezed out of the UK market by US investment banks using an unsustainable busienss model.
Looking at how badly the government runs everything else then full nationalisation has to be the very last resort. Hopefully when Mervyn says he will be monitoring the actual situation he means that and not the just looking at the anecdotal rantings of a few politicians. If it was more than a remote threat of course this would start a run on UK bank shares, which would pretty much destory everyones pensions along with a lot of the rest of the financial institutions in the UK. Full Nationalisation for all UK banks would probably cause more economic damage through unexpected consequences than it would solve.
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Sashaclarkson
Thankyou.
I am sorry to learn youre not well.
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Alexandercurzon
Respectfully, you don't need to double space all your comments. If you just keep typing, the text will wrap just fine. It's not like a typewriter!
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@94 MadTom1999 (and @1 incidentally)
What alternative do you propose to fractional reserve banking, precisely?
If you agree to lend me GBP 100 on the condition that I pay you back with interest, what business is it of yours if I then lend it on to someone else or spend it all on whisky and cigarettes?
If I lend it on to someone else, then that is the equivalent of fractional reserve banking with a 0% reserve ratio. If I keep GBP 5 and lend GBP 95 to my sister, then that is the equivalent of fractional reserve banking with a 5% reserve ratio.
Take a look at this calculator. If you "ban" Fractional Reserve Banking by applying a 100% reserve ratio, you essentially prevent any loans from being made at any point - which rather defeats the object of banks:
http://www.novapoly.com/articles/finance/fractional-reserve-banking-model/
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For those on here advocating that inflation is set to rise significantly (to reduce the actual value of our debts). Can someone please explain how this will feed through to an average Joe?
I.e do you expect wage inflation to rise at the same level?
I'm presuming that if the banks are nationalised, they will achieve the inflation by start lending using willy wonka sterling?
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GORDY?
Woolworths on the PRECIPICE.
20000 store jobs will go.
ANY ANSWERS???????????
BLAME THE YANKS?
"THE FUNDAMENTALS OF OUR ECONOMY
ARE SOUND"
############################
WHATEVER GORDY!
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As usual many interesting comments and diverse perspectives.
However a few points jump out.
I feel that the term Nationalisation of Credit is the wrong term. Should it not be the Nationalisation of Debt as ultimately this is what we're talking about. Credit is easy it's the re-paying it bit that is serious.
Banks LEND with the goal of making profits, a perfectly rational business ideal but we have lost our way in the mechanisms by which banks disguise this and ultimately lie to us, as do governments.
The really interesting thing about debt is the fact that debt is a mechanism of enslavement. The debtors are enslaved to the creditors, period.
This leads to more rather unsettling problems raised here also about food security and energy security. We have neither!
As far as I can tell, most if not all of our utility companies are foreign owned. By stable European democracies perhaps but nonetheless NOT British. There's now no family silver left to sell (Less gold too since Gordon Brown sold it off at the bottom of the gold market!)
We can and I believe ultimately will be held to ransom. Forced to join the Euro or submit to a federal Europe? Perhaps these things are already in motion behind closed doors. Maybe, that's a debate for another time and place BUT our debt will be the cause of it...
Perhaps I'm just too old fashioned.
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Mr. Peston: Once again, your ability to summarize, clarify, and communicate the situation to the laity like myself shine forth.
And, you keep your sense of humor.
Mine has begun to wear thin, I confess.
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#99
This is exactly why we need radical new political and economic thought now.
Most of the population dont read blogs like this, and probably dont understand any of the reasons behind the financial hardship that is about to blow across our shores.
All they will do is look for someone easy to blame, maybe someone local whose culture or beliefs they dont truly understand.........and thats where the BNP, and the send'em home brigade fill the gap.
What we need is intelligent, articulate and fair minded people to come together under a new ideology, maybe one not so obviously driven by greed.
Im all for a Rebuild Britain Party, sign me up.
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post 108 thulefule
I
just
do it
to
make
the
rubbish i spout easy to READ.
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Why don't we give the money to the building societies or the Co op. at least then we know it will be used sensibly and greedy bankers won't take a huge cut in bonuses?
I have said this before we need to move back to a sustainable banking system where people saved for a deposit before buying a house and borrowed a sensible amount of money.
I imagine this link will get blocked but my local building society has a preferential rate on its mortgages for long term , i.e. 5 year or more members. They are currently offering a mortgage to first time buyers who have been saving with them for more than five yearsthe following. A mortgage with a 10% deposit; no application fee: no booking fee; a free valuation; no early repayment charges and daily interest calculation.
http://www.coventrybuildingsociety.co.uk/mortgages/AccountSummary.aspx?Socseqno=1&PCode=MUTM3
If they can do it why can't others?
For savers earlier this month they offered a one year bond paying 6.25% with a 0.25% bonus in addition going to the Royal British Legion. Its called responsible and community led banking.
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The problem has always been Greed.
It is a trait seen in all people, and applies to personal, business, government and any other level where humans are involved.
We all want much more than is available, and than we can afford.
Greed is NOT good.
Whichever way you look at it, and from whatever starting point you take, it extrapolates out to the same result.
"I want more than I've got now" - where "I" is one person, or any sized organisation.
In the end, we all lose.
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I think the most important aspect of your piece, Robert, is that no one knows what will happen next as the bases on which markets operated in the past have been swept away.
If the past is a guide to the future we know that Governments will adopt policies about shoring up existing systems since they have no scope to introduce radical change. In any case they do not know what such change might be.
Equally true is that new ways of doing things will emerge since there is a massive demand for cash to support business growth and to support personal asset acquisition. The traditional Banks will not be the main drivers of change here. New intermediaries will emerge. What is important is that Governments do not prevent these new intermediaries from emerging by initiating policies that strangle innovation in the markets.
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The UK deliberately destroyed its manufacturing base. This destruction was justified on the premise that it would be "good for us" since it would enable a move up the economic value chain to the value added services economy.
Whether people agreed with this reasoning or not - the core premise was readily understandable.
We are now witnessing the accidental destruction of the main cornerstone of the services economy.
This destruction was a consequence of the fundamental instability and unsustainability of the financial system. This is broadly understood by most people who do not expect a return to the situation of a couple of years ago (i.e. ever rising asset prices and ever rising levels of debt).
The general malaise affecting the economy will not lift until someone clearly expounds a credible view as to to where we go from here. With no manufacturing base, and a services economy in the process of collapse this will not be an easy task.
Current politicians and "opinion formers" are basically system managers and hence they can be expected to do nothing more than try to fix the system (unlike say Thatcher who deliberately set out to transform the system). Such efforts are likely to fail and as they are seen to fail their credibility will be further eroded.
Localised solutions are unlikely as the centralising tendancies of this and previous administrations have essentially eradicated meaningful participative democracy.
Thus the ground is prepared for the rise of a demogogue offering ready solutions to all problems. If history is a guide then this is likely to be of an extreme right wing flavour, and before too long the BNP may find itself to the left of centre.
Irrespective of short term cost, now may well be the time to exit the good ship UK. As the old saying goes "Always sell your horse before it dies"
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112 - moraymint.
Thanks for the first two paragraphs, they made me chuckle aloud.
Yesterday someone stated that they were tired if being angry, and were now going to treat the economic crisis as a situational comedy. I think they might have a good point.
At least laughing is free (or does Labour intend to tax that as well after the election)?
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Can someone direct me towards a succinct definition of exactly what these "wholesale money markets" are please?
Thanks.
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#78
Just trying to make a point about greed. I know I am in la la land if I think anything is going to change soon.
By sustainable I mean concentraiting our efforts into things that actualy help us.
I know my comment wasn't exactly a well constructed argument. It's just how I feel.
But surely we can have sustainable growth based on the real rather than confidence based monetary markets that crush us all as soon as the wheels come of?
I wasn't suggesting that we shouldn't have growth rather that those who profitear from creating a unsustainable boom should take a long hard look in the mirror.
"Of course you can have a 250k mortgage you told me you ear 50k a year so it must be true." Now that is la la land!!!!
I don't understand econimics but I do know that the so called experts don't seem to have got it right.
Finally is it so worng that I give a stuff about future generations? I really didn't mean I have it good now so lets cary on. I meant lets try and make things better. Sorry for caring.
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I notice i have been censored for
suggesting the Government would shoot at
protestors.
Also for that assosiation with MUGABE'S
likely behaviour.
PITY the truth hurts so?
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alexandercurzon
It was almost preferable when you spent all your time complaining about censorship on this BB. At least then we didn't have to suffer pages of CAPITALS and
double
spacing
and ranting and raving.
re your post #92: if you were responsible for the shorting of HBOS shares to the tune of 38million, then you were responsible for creating the loss of 42 million to another party and the taxpayer has now picked up that bill. Can we have our money back, or should we issue you with a winding up order?
By the way "NEED I SAY MORE?" indicates a rhetorical question to which the answer is always "no" - sorry "NO". So please just say no more and shut up.
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Why are banking shares not tanking today? The threat of nationalisation surely renders the shares worthless?
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I would be more impressed with the argument for nationalisation of banks if NR was being used more effectively. It is hardly a good example.
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#115 "I am sorry to learn youre not well."
Thanks alexander :-) Things could be much worse! I've suffered from ulcerative colitis for over 20 years. I can manage it because of the NHS, welfare state, and a bit of money I inherited. Frankly, I'm better off than I deserve. I live a rich and, I hope, useful life giving back what I can. But I know my limits. Being involved in politics again would be, literally in my case, a pain in the you know what.
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GB took a gamble in the name of prudence and it didn't pay off.
Not wishing to get into party politics lets just look at the individual. Why would anyone trust him in light of the current crisis?
The 'Brown Bounce' is beyond my level of understanding.
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Is one of the key problems here not the lack of transparency in the financial system.
Have credit ratings agencies and auditors failed (on a monumental scale) to spot risk and predict credit ratings accurately?
Can our banking system return to normal until there is some neutral, respected observer assessing the balance sheets of the banks and passing judgement on risk?
Over to you Robert...
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Gordy is focussing on the wrong thing. Sadly, it is too late to re-establish the banking system and he should leave that mortally wounded animal to expire in peace.
What he should focus on is the sustainability
of food and energy supplies, the occupation of the time of the unemployed, and the maintenance of law and order.
He further needs to concentrate on attempting to avoid the destruction of the monetary system itself.
Greener fields? Believe me there are none. We are all in this foundering boat together.
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#122 There could be another strategy too - we create a "Rebuild Britain Alliance" based on a declaration of principles. We then write to our local press demanding that Parliamentary candidates sign up to them. If no-one does we put up someone against them. This would be cheaper and might be more effective? I'll think over the next few weeks and put up a web-page for discussion.
How about the following for the first principle?
The era of "making money not things is dead". It has brought Britain and the rest of the world to the brink of disaster.
(For some this would be like saying God is Dead!)
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#1 BankslickerminustheR (+others)
# 94 Madtom1999
I don't know how you think that Fractional Reserve Banking could be abolished, if you take 30 years over it that might just be practical.
If FRB has created 80% of the money loaned out then if you abolish it 80% of the money will disappear.
As I understand it this will be a massive deflation and prices of everything will have to fall to be in line with the reduced money supply.
There is a 100% reserve banking model which seems to work, someone on a previous post pointed it out - I will find a link.
To take your Titanic analogy, the ship has sunk and we are in a seriously overloaded inflatable* liferaft with a leak. The taxpayers are operating the pump which is keeping the raft afloat, probably best not to rock too hard.
* metaphorical licence
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132 bluepig BLACK cats.
Dont read my stuff then if it troubles you.
Regarding HBOS shorting,i was showing
how flawed the system is.
Do you keep pigs,.if you do youre lucky as
you wont starve when the shelves are
empty.
Incidently the "Shorting" will keep our staff
paid and cover the bad debts this year &
next.
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Prior to the crunch, my mortgage provider scrupulously mirrored changes in the bank base rate whether up or down, by as little as 0.25%. But now we have the 'crunch', and the base rate is at 3%, they are very quiet indeed and my mortgage interest rate hasn't been changed. They have been given a loan from me as a taxpayer on favourable terms and they are doing what banks always do - ripping off customers. They can't help it I suppose. As Joel Bakan points out in his book The Corporation, they are psychotic organizations - perhaps more so than any other type of business. It's what happens when the only focus in life is making money. Alistair Darling should cut the platitudes and force banks to realign their interest rates so I am not punished for bailing out the banking system!
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Post 134 re Northern Rock nice to see that as a Government owned business they are doing their bit to increase lending and improve the situation.
If this is what government ownership does perhaps it should be privatised!
http://news.bbc.co.uk/1/hi/business/7750200.stm
Before anyone asks yes I am being ironic.
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#140
the link I was looking for is
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/11/citi_and_manic_monday.html#comment218
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I have decided my life has come to a new low ebb in that I sit at a PC reading all the comments, and wondering who is actually doing any work out there? or are you all unemployed like me?
Some interesting comments re building societies and how safe - or are they? More years ago than I care to remember I worked for one of the major lenders, turning away people who didn't have deposits, wanted more than 2.5x +1 or simply applied on a Thursday when our weekly allocation of funds ran out on the Wednesday. Many tears from prospective applicants, and even tirades of verbal abuse. However there was always light on the horizon for all those wanting 3x or more...... we used to send them down the street to the Northern Rock Building Society who gladly took on the business. Maybe this isn't all a sudden phenomena, is it payback for 25 years ago behaviour that started a whole new way of borrowing ?
Moving on, can you imagine my surprise several years later when I start working for a third party processor with credit card arrears collection as one of my responsibilities. I found myself in a meeting with a client bemoaning the level of non payment, and a who was a little shocked when I suggested there might be a link to the cards being offered automatically alongside 100% mortgages and guaranteed personal loans effectively giving people 115% mortgages - now what was the name of that bank?
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139
Count me in.
Where is the website?
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Another thing not mentioned with high levels of debt is the high levels of stress they cause, it is more crippling than the debt and will paralyse you.
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This government recklessly encouraged people to spend their money collected the tax proceeds in the process and when the bubble burst are now in turn recklessly spending the taxes collected from the same peoples who earlier spend in order to help bring stability to the economy. If the Government spending does not prove sufficient to balance the books then eventually they will additionally confiscate in taxes more of peoples money. This is nothing short than reckless profligacy. The talk about leading by example as in this case will go down in history as one of the biggest financial irregularities carried out by any Government.
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It looks like interest rates need to go up.
Better interest means more savings means more deposits from which banks can lend, this means better liquidity for business, means more work leading to even more savings. Isn't this usually how it should work?
Since Joe Public is picking up the tab either as a saver or as a taxpayer, why does the government need to get involved?
We seem to be talking about a command economy in which the state manages credit to businesses and individuals. There is only one way that will palm out in the end and that will be the same group of people lending to each other and telling the rest of us they are rich because they are wise.
This is how we got here in the first place.
Time to stop digging and get some radical politics, methinks.
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#146 "Where is the website?"
It isn't yet, but I own a couple of domain names which are hosted by a friend and former student of mine. At the moment much of the content is out of date anyway, but I promise I will create a webpage before Christmas - sooner if possible - and post details here!
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#139 Sashaclarkson
Good Idea
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131. alexandercurzon wrote:
"I notice i have been censored for ..."
You deserve censoring!
I am all for freedom of speech, but the emphasis should be on speech, i.e. using sentences and paragraphs to actually say something. Random statements with an overuse of capital letters which are then padded out with a huge number of blank lines simply do not count for meaningful speech.
To be honest, your posts just seem to be attention seeking behaviour like a child with ADHD being disruptive. Take some Ritalin and get over it!
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Poor poor Johnnyboy911, You are the one living in cloud cuckoo land I'm afraid.
This is a wake up call for the whole World and we cannot keep producing more and more goods, we quite honestly don't need. Total trivia is transported half way round the World for what? We can live without half the stuff we purchase.
I have just read on the BBC that the average spend on clothes is DOWN to £22.00 per week, not sure where they get that one from but if its true how wasteful is that. No-one can possible need all the clothes they buy. All that productivity could go into feeding the starving or producing sustainable energy.
I guess you must be really old and hoping not to make it to 2030, when we are told we need two planets to sustain our current lifestyle.
Where is another planet going to come from, we cannot import one or raise a loan to buy one?
We do need a sustainable lifestyle and that does mean a sea change of ideas.
The problem is, time is running out and it would appear from reading the vast majority of blogs here no-one actually cares.
There is so much to be done but it needs vision and not people blinkered and handicapped with worrying about shares, profits, cheaper and cheaper goods, etc
If you have ever read 'Small is beautiful' and I quote
'The most striking thing about modern industry is that it requires so much and accomplishes so little. Modern industry seems to be inefficient to a degree that surpasses one's ordinary powers of imagination. Its inefficiency therefore remains unnoticed.
We need to think smaller, local, quality not quanitity, sustainability, in everything we do and buy.
As I have said before we only rent the space we inhabit on this earth for the time we are alive. We actually don't own anything, we cannot take it with us (If you believe in the afterlife) but we do have a huge responsibility to leave it as we found it or better for the next generations but our children and grandchildren will find that this generation have been very, very negligent.
We have a 'whats in it for me culture' with no respect for anyone or anything as long as we are OK .
Sadly capitalism breeds greed, arrogance, oneupmanship, NIMBY's etc etc.
People here on this blg are now calling for regulation and why did the Government not do something before? They would have been accused of being a Nannystate but unfortunately people do need rails to run on because they cannot be trusted to be honest, as we have seen with the Banking sector.
No-one should have been offered 125% mortgages or 5x salary, self certification etc but the greed got the better of those lending the money because the more business they generated the bigger their bonus'
They knew it was unsustainable but whilst it lasted they kept on doing it because they were lining their own pockets.
I know I won't convince you personally because you would rather put your head in the sand but the clock is ticking and its only 'man' who can stop it.
Cameron might talk about a tax bombshell but this one will destroy us all. Africa is not a million miles away take a look, that could well be our future too if we don't stop and think now!!
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#139 SashaClarkson
Great idea. We need a simplistic more balanced economy which in turn should lead to a fairer society.
Our current boom was built on an economy that had little or no foundations, and now the pillars have crumbled. A megabucks financial industry can create rapid wealth for some (including Govt.) but cannot sustain a healthy economy for some 60 million people.
We now need to build new foundations by encourgaging more growth in the primary and agricultural sector and also manufacturing and research. There are also many excellent service companies (non-financial or banking) who can be a mainstay of our economy with proper investment. We may not achieve year on year massive growth, but slower more sustainable growth should be achievable by investing in these areas.
The main problem is for the last 15, maybe 20 years, no one has wanted to invest as much in these sectors, as the returns have not been deemed to be as great as in the Finance sector, or more specifically the debt market.
A lot of people might not want to hear it but the Era of 'the city' is over, and a Rebuild Britain Alliance is what is required
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Ho hum!
I suspect labour don't want to get in next time, preferring instead to operate a 'scorched earth' policy for whoever follows-cuurent actions are politically based. Bit like an irresponsible dog owner leaving it's pet's mess deliberately in the pathway of the person walking behind!
Sasha Clarkson-I suggested the honorable visionary Alex C start the Bloggers party-we've already got a manifesto. Also suggested he starts his own blog and bank! Everything we need is on these pages. I'd join this party in an instant! (ps also sorry to hear you're in a bad spell - my dearest friend has the same condition-hope the pain is not too severe).
Esteemed Alex C-I can't recall when the last time was that so many of your posts got seamlessly through moderation! Congratulations! Must be the new layout-as you say, easy to read for those requiring simplicity (you know who I mean...the secret police!)
Also agree-use a spare statutory demand and winding up petition-but then, have they ever seen one? Maybe they will all still be pushing it around the office when the bailifs come!
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"Little new credit"
Robert , if you need help I have just received a letter from BlackHorse Financial Services offering me a guaranteed £5000 loan, or more if I want to give then a call.
Not bad given they do not know my circumstances, level of existing debt, income.....
Now how did we get in this mess? Hmmm
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Post 152 simon
See you are so sad you need to snipe at other blggers.
Isnt that what New Labour do when any body questions them?
Nobody need read what i post.
Go take a JUMP.
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The fundamental issues are not new.
Friedrich Hayek (Monetary Nationalism and International Stability, 1939) shows the rational choice for banking arrangements to be either (i) unconstrained banking across national frontiers, with all commercial banks having a right to issue notes, supported by their own private reserves or (ii) a monolithic international central bank. The compromise choice of national central banks, with no direct power over the domestic circulation, but holding the ultimate international reserve of a small quantity of gold, is ?one of the most unstable arrangements imaginable? (Hayek, 1939, p. 77).
The arrangements are unstable because the central bank accepts responsibility without having control. Its responsibility is to provide cash whenever it is required by a commercial bank to meet its depositors? demands for encashment. Yet, until that need arises, the central bank has no powers to control the expansion of bank credit money that causes the shortfall in cash reserves.
Within a credit hierarchy, the general rule is that an increase in the demand for a more liquid type of money leads to a decrease in the supply of a less liquid kind, and vice versa. Thus, if a commercial bank is required to convert deposits (less liquid) into cash (more liquid), it must reduce total deposits (less liquid) by a multiple amount, unless it is able to obtain more cash from the central bank.
So the case for banking reform may be much stronger than the case for currency reform, for it is in the nature of the credit structure that changes in the preference for different kinds of money have the potential to be the greater source of monetary disturbance than changes in the preference for holding money in general.
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# 129
Wholesale money markets can best be described as the market for cash and near-cash instruments puchased by financial intermediaries (eg banks, insurers, money market mutual funds etc). The instruments concerned range from term deposits (no different to a, say, 90 day deposit account you might have), through to certificates of deposit (basically a securitised deposit that is tradeable), asset backed securities backed by a bank (eg credit card receivables, student loan receivables etc).
Retail deposits are typically those from individuals and non-financial businesses. There's a kind of grey area, eg corporates that run a Treasury function that works like a bank's own Treasury.
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#152 "You deserve censoring!
I am all for freedom of speech, but the emphasis should be on speech, i.e. using sentences and paragraphs to actually say something"
Oh dear, It's all right to say WHAT we like but be subject to the style police is it?
alexandercurzon has an idiosyncratic style, but very often says what needs saying eg post #3. Perfectly comprehensible to me. Also, whether you agree or not, he clearly thinks for himself. I wish even one tenth of our MPs did. He's certainly not mealy mouthed - WYSIWYG.
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153
I am old enough to remember we had all this in the 1970's and all that came of it was a programme called 'The Good Life', we sat back and satisified oursleves watching them do it.
I do however agree with you, I agreed then and it still applies now, but it just will not happen.
We will go back to being the poor relation of Europe again.
The last PM screwd other peoples countries this one is screwing ours.
Oh well back to chugging through France with my old car wathcing the big German cars flashing past.
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Post 139 count me in too.
I could also fund my own deposit to stand for parliament.
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Both wars have drained American finances completely that created shortage of monies for the general public and hence defaults on discharging their debts. That we call credit crunch! America being the largest importer its market has dried up.
Normal people would take remedial action to reverse the effect of their action they have mistakenly taken. Not for some!! It would be inconceivable! Particularly when one is able to enrich himself and his cronies no matter whatever is the cost for others. This is called GWB?s Capitalism.
I am aware I would be accused of being to naïve and simplistic but in my personal affairs I would precisely do what our politicians find it hard to do. Stay away from commitments that I cannot afford, stay away from so called self serving friends who are only interested to satisfy their ego and cut my losses and back away from lost causes. Invasion of Afghanistan and Iraq was a mistake we should get out and get out now without talking about logistics and all other talks. They are simply excuses which people have stopped to recognise.
At home front few simple things we ought to do as a starter. They are not in any order:
1. Strict control on MPs and MEPs and Royal's expense bills.
2. Reduce the number of MPs to no more than 300.
3. No double job salaries to our politicians.
4. Sell off BBC.
5. Start with exemption of licence fee for all state pensioners.
6. Suspend Human rights Legislation and get rid of legal aid.
7. Take all social housing and payments of housing benefits in state ownership.
8. Triple taxes on tobacco and alcohol
9. Scrap stamp duty on house sales up to £200,000 for good
10. Scrap stamp duty on house sales for owner occupation to £500,000 for the next 5 years.
11. All benefit payments should be no more than the people?s ability y to earn as it used to be before the total need concept was introduced in 1968.
12. All benefits (including health provisions) should be related to people?s record of work/employment in the country. It would be easier and simpler to administer with the introduction of ID cards.
13. I could add few more to this list but this would be a start.
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I remember a graphic on TV about Mrs T's vision of what trickle down would do for us all!! She said those at the top should be rewarded the most because they would generate the nations wealth!
For those who don't remember, it showed a pyramid of stacked glasses with a bottle of champagne being poured over the top. Of course those at the top were continually being replenished and were never empty, always overfollowing, whilst those at the bottom hardly saw a drop!!
That was her vision and that is what we all got! Of course trickle down was a complete conn because throughout history the wealthy have always kept the bulk of anything for themselves, whilst those at the bottom scrapped around for the bits the wealthy didn't want.
The trouble this time round is that money has gone to fewer and fewer people, so the economy has been winding itself tighter and tighter till as we have now and it cannot turn anymore.
If the money had been in more hands it would have been recycled more often, more locally, keeping more people employed.
The Wealthy have stashed the cash away abroad, bought homes abroad, lavished themselves with foreign imports. So much money has gone out of the economy needlessly.
Does anyone still believe the way forward is to reward those at the top, so we can all hold out our glases and hope to catch the dribbles?
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post 160 sasha clarkson
Thankyou for the defence.I try not to waste words. HA HA
Just say it as i see it.
As you know we could all write mega essays
then nobody would stop to read them.
Seems ive HIT home wherever HOME is?
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Only by building our exports of industies and service will we come out from the credit crunch.
We have to limit our imports to reduce debt and develop in country business based on value for money and quality.
By doing this it will build the confidence in the banking system that is laking at the moment. It is just like learing to walk taking small steps.
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We should nationalize the banks now. Stop wasting the countries time, and expecting the city to change the way its done business for years. The banks dont know how to look after a third party.
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# 124
Ian,
The example you've shown is for a mortgage charged at 5.25%, and the favourable deposit rate you quote is 6.25% (6.50% including the kicker to the RBL). So, if they fund the mortgage with these deposits they're losing 1.25% over one year, and 1.00% thereafter. How sustainable do you think this is? If, like me, you realise it's a one-way street to bankruptcy, then it should raise a few questions about what it's all about.
5.25% is still some 2.25% above BoE Bank Rate. I'll bet pre-crisis they had deals at under 1% above Bank Rate, so they've had to up their margin considerably. The rate paid on instant access savings is now 4.27%, ie 1.27% above Bank Rate. They are making under 1% margin even when charging over 2% more than Bank Rate. Normally, we'd expect to see savings rates below Bank Rate.
Overall this gives the impression of an institution having some funding challenges. No different from any other bank/BS right now, but no particular sign of great leadership. The borrowing rate is only 0.1% better than their variable rate, but they do advance up to 90% LTV, versus only 75% for non-preference customers. That's an obvious benefit, but a result of having more customer knowledge (and use of their cheap funds for at least 5 years prior to the crunch).
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I think we are all feeling as if we are watching a Gilbert and Sullivan farce at the moment.
Problem is it is not at all funny.
Government took shares in the bank to keep them capitalised and solvent.
This is not the same surely as giving them money to lend
And yet we have government ministers telling us the banks should lend us the money we the taxpayer bought the shares with.
Surely someone should give them all a lesson in simple economics.
Robert is trying his best but why hit your head against a brick wall when this is political not practical.
Which it is why it is all just farcical nonsense.
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@164
Sorry but you're wrong.
You're analogy does not work.
Browns deregulation saw a pyramid debt selling scheme that needed to grow exponetially to infinity. The stop comes way below that level though when you run out of people to lend to
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#88 sashaclarkson
It exists already its called
THE MONEY REFORM PARTY
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Dear Joeplumber
I know but why don't people want to take notice. I find it unbelievable that people are prepared to let their children and grandchildren suffer, just so they can have what they WANT now not what they actually need?
Animals look after their young better than that!!
Why people can get so het up about money, finance etc and yet when its about life and death its almost as if 'Oh thats some one else not me I am indestructable and immuned from all that nonsense'.
At this point in time, its not about giving up everything its about being aware of the impact we all have on this planet and its dwindling resources. Its like they think the planet is like refuelling an aircarft midflight. Along come the refeulling plane attaches a hose and off we go again but sadly there is no hose, no refeulling once its gone its gone.
What we do as individuals might seem futile but replicate that nationally & globally and its quite obscene and much of what we produce is totally useless and pointless.
However if we carry on the way we are at the moment it won't be about giving up somethings it will be about subsistence but maybe most people think they are not going to live another 22 years so not their problem!!
Won't even be able to post a comment here 'told you so'!!
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160. sashaclarkson:
Style police? Is normal English too much to ask for?
These blogs have about 100+ individual contributors. Imagine if they all posted 15+ comments each where every sentence was separated by a blank line. You would have 1500+ comments and an enormously long blog saying next to nothing.
On a practical note: if people want to make a point then a well constructed argument helps get the point across. Most other people posting comments seem to manage this, and I note that I am not the only one getting annoyed with a certain other poster here.
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The contradiction, absurdity, and general hilarity (if it wasn't all so serious) increases by the day.
As in war, more and more resources need to be diverted to 'the front'. As the crisis continues banks require ever more cash to keep going. The politicians (WW1 generals)bang on about 'the big push' and 'imminent victory', as the real situation goes from bad to worse.
Nationalize banks and you have effectively done the same to the whole economy, and ALL the banks, as competition goes out of the window - EVERYTHING then needs to be managed by government - a 'war economy' in al but name.
Politicians decide who gets loans and who doesn't - no repossessions are allowed for reasons of politically expediency. Huge 70s style incompetent state companies employ thousands and thousands. You can go on, in fact the more you think about the worse (or better, I suppose, for Marxists) it gets.
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# 128 total_injustice
Thanks; glad you enjoyed it. I posted partly in jest, of course. However, I'm rapidly losing patience with our political class and our so-called democratic process.
The Labour Party has had a free run at running the country for 10 years in the total absence of any political opposition: bit like a dictatorship really. Now we're about to feel the full effects of a decade under the Brown Terror which has been, to all intents and purposes, a dictatorship. Like Gordon Brown, dictators usually have appalling economic and social leadership skills and, sooner or later, people suss them out and, moreover, move to rise against them. I think the sleeping British people could now be waking up at last.
I just hope the Tory Party is listening (and reading these damned blogs) and come up with some credible political, economic and social policies very soon. The dictatorial alternatives don't bear thinking about.
If nothing else, during the past decade we have witnessed the Labour-led disintegration of the British political system, after generations of careful, evolutionary development, and with the full (ie benign) cooperation of the Conservative Party. Between them, the two parties have let down the British people and now we're going to pay for it (oh, and their John Lewis List, of course ....).
Let's hope some person or some political party rises like a phoenix from the ashes to start putting our political system back together again.
Personally, I'll never forgive the Blair/Brown Project and all its slimy hangers-on and supporters for the hardship that I and others are now going to endure for the (un)foreseeable future. We deserve much better from our politicians.
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Anyone seen the front page of the new Private Eye? Beneath a headline saying "Gordon's Christmas Gift" there is a photo of GB and AD (with a tenner in his hand).
GB: "Buy yourself something nice Darling"
AD "How about some votes?"
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Pot_Kettle
I was not giving you an analogy. I was reminding you where all this started.
Like her or loathe her Mrs T changed this country forever and for me trickle down was the biggest conn of all times because it simply doesn't work and maybe it wasn't ever meant to work?
The rich in this country over the past 25 years have just got more and more obscenely rich for doing less and less and now without apparently any responsibility to anybody or anything or face repercussions for their incompetence.
I would really like to think that now we are all paying the price for their stupidity, greed and incompetence we all stand up and be counted and demand a fairer world for each and everyone of us.
If that means some have to have less then great. I know my glass never even got half full!!
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Robert Peston wrote re US latest bailout package
"It's a mindboggling sum, equivalent to around half of the annual economic output of the US.
Some analysts see this as the start of the money printing-presses being turned on with a vengeance, a deliberate attempt to stoke up inflation to reduce the real value of all those excess debts".
I agree with this analysis. The bank bailouts are not being funded by the Govt borrowing money but by making credit available. And this ultimately involves Govts the world over turning on their money printing presses with a vengence to stoke up inflation in order to erode the real value of those debts. This makes perfect sense.
After all, a doubling of prices halves the real cost of any debt. It really is a no brainer to conclude that Govts the world over will be stoking inflation as soon as possible to diminish the burden of debts they have created and cannot fund.
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If we do nationalise the banks would the economy become a command control economy?
Yes the notion of Capitalism has taken a battering, but we still need the dynamic of private enterprise for the economy to work. How do we guarantee that the nationalised banks will allow this dynamic to flourish - both for businesses and individuals? And for the banks themselves to be run as if they are businesses?
Ideally I would prefer if the nationalised banks were kept at arms length and run for their own sake with the taxpayer picking up a chunk of the profits. Of course in times of crisis the banks can act socially, but still within limits.
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Can someone explain why the govenrment does not simply give a tax-relief for anybody buying a new car? does my money really have to go-round like this? is it so everybody can take a slice? (Government, banks, car companies etc?)
thanks
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A REAL SELLER'S STORY...
I'm certainly a convert to the idea that house prices need to fall quite a way further. Only problem is, I'm a homeowner myself!
I purchased a property in a very desirable area of SW London in mid 2006 for £285k with a £45k deposit. At the time, the area was booming and buyer competition was fierce. Estate agents were playing their usual games and prices were inflating rapidly.
The same property was bought by the previous vendor for £193k in late 2001. It was valued at £350k at the height of the boom in July 2007.
We've had the property on the market since September at £290k and have had over 40 viewings without a single offer. If we dropped the price we'd maybe get a sale.
The question is, should we really be trying to sell at all? My feeling is that we are in for further unprecedented price falls and, as such, should look to get out if we can, even if it meant selling at a price where we lost nearly all out initial £45k equity.
My feeling is that the property will be worth under £200k once we reach the bottom and would see us in negative equity to the tune of £45k. With the outlook bleak, prices will likely take years to return and we'd be stuck for the best part of the next decade. That is not really an option for us and, with prices destined to fall that far, surely selling now and then sitting tight renting before buying again at the bottom would make sense?
Do the phrases "batten down the hatches" and "ride out the storm" apply any longer? Things are changing so drastically that getting out of the property market (and thus getting rid of our debt) before the oncoming recession/depression really begins to bite seems like the only solution.
Thoughts????
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Still on the bright side the more the Labour party nationalise now the more there will be for the Tories to sell at a profit when they get in
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#173 simon "Style police? Is normal English too much to ask for?"
Personally, I love the English language with a passion. But I tend to get "inebriated with the exuberance of my own verbosity", as Disraeli said of Gladstone. Others certainly find it irritating.
I don't care for it myself, but a tabloidish manner of presentation certainly gets a point across.
Live and let live eh?
:-)
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First post (having read blog for some time). I'm an ordinary individual trying to raise a family who believe in the importance of a strong work ethic, honesty and sensible financial management. Not particularly political (although I do vote) as current party politics all seem a little all or nothing to me. I don't think I'm all that different from many other residents of UK (is that naive?) - and, at present, I feel very disenchanted and frustrated but I don't feel that I have any way of voicing this in a manner that would make any difference. I may be wrong but I believe there are a lot of people out there like me who think that a common sense approach would serve us better at this stage than any party political one. My point - perhaps your Rebuild Britain Alliance could give them a voice (assuming common sense for the common good would be one of your goals).
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For me the real problem is that even if credit markets are freed-up most consumers cannot afford to take on any more debt than they already are. Credit doesn't matter if you can't afford to even pay the interest charges and I know a lot of people who are already at or beyond that point.
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So now Brown is going to force the banks to lend, how he intends to achieve this is anybody's guess unless he intends to nationalise all the banks and building societies. Why would any sensible lender now take on more bad or risky debt in the middle of Brown's recession ? The banks are in business like every other business to make money, not to throw money at negative or potentially negative equity mortgages or businesses that are already so far out of their depth before the recession gets into it's stride. Not good risks, if Brown wants to make his semi nationalised banks risk their all , thats his prerogative, but I suspect the banks and building societies that don't need his handouts might just tell him where to stick his head.
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@177
Unfortunately for all of us the bigger con was the increased deregulation perpetuated by Brown which directly led to this country being the worst placed to escape the financial storm.
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@178
Inflate your way out of debt only works if wages inflate as well.
We are much more likely to end up in the Zimbabwe situation where the price of a loaf of bread is more than a monthly salary
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Does Mervyn King have any remaining credibility? I really think that he believes that when the MPC adjusted interest rates once a month during the NICE decade, they actually were controlling inflation. Of course, it was an illusion; they no more controlled inflation than a child with a toy steering wheel in the back seat of a car is driving. CPI inflation was low because of production cost savings in new Chinese factories, with food prices kept low because of globalization. Anyway, with house prices growing at 11percent p.a for ten years, inflation was hardly dead.
Gordon Brown is not stupid, and certainly not credulous in the way that Tony Bliar is. Clearly, his immediate priority is to bribe enough people to allow him to get reelected next year. But I suspect that he thinks the crisis will be solved by a bout of 1970s hyperinflation to destroy the value of debts. The fact that it will also destroy the savings of independent, Tory voting pensioners, and turn them into welfare dependents, he surely regards as a bonus.
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By the look of things the World Economy may need the stimulus of a Big War. It's showing all the signs.
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EVERYBODY, NOW I'M REALLY CONFUSED!!!
Left hand, right hand !
http://news.bbc.co.uk/1/hi/business/7750200.stm
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You say that now with hindsight Pot-Kettle but the Government would have been accused of being a Nanny state by the banking sector.
I am not saying they are right or wrong I just know they and any Government are dammed if they do and dammed if they don't.
As I write I am doing my family tree too and have just got back to 1674 where my ancestor had to pay 8/- (shillings) for hearth tax because he had 4 hearths in his house. I guess 2/- per hearth would have been a substantial amount of money then?
Nothing changes, nothing will and while we have a two party system we just lurch from one extreme to the other and once they are in or out as the case may be they are only interested in the next election and saving themselves.
Mind you doing your family tree puts all this in context I suppose and the futility of it all!!! All those people with all their hopes and aspirations all gone and all forgotten!!!!
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Post 168. The 6.25% bond which is now closed by the way was no doubt providing funds for the 2 year 6.99% fixed rate mortgage deal that was in place prior to the last rate reduction.
The point I was trying to make was that financial organisations can and do provide a non profit or low profit based community service. The Co-op declared another dividend this week I see.
Northern Rock have increased their fixed rate deals to day and you need a 25% deposit and be prepared to pay a GBP 995 fee to get their best deals.
People seem obsessed with organisations such as the Plc banks who have a long and illustrious history of getting involved in supposedly financialoly secure deals that will give them high profits and yet always seem to fail.
Remember Midland Bank's foray into the States and owning Thomas Cook that led them having to be rescued by HSBC.
Or how about investment in Argentinian or Russian bonds that collapse? Every time the UK taxpayer either via increased charges or borrowing like we have now picks up the bill for their greed and arrogance.
I will ask you one simple question. How could so many banks across the world declare huge and record profits with huge dividend payments and bonuses to key staff less than a year ago yet now be effectively bankrupt?
There is only one answer. They massaged the profits and either lied to or defrauded people.
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#173
I like to think Mr Curzon is using an extremely subtle sense of irony to demonstrate in the very way he is constructing his posts the way we over consume our resources to produce very little.
Its either that or his young son has hacked his BBC password and is repeating his dads comments in a childlike format.
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Have the banks actually RECEIVED the promised bail out money, or is it still the usual smoke and mirrors from Downing Street?
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Given the cost of the reduction of the VAT rate (to all concerned) would it not be of more benefit (to all concerned) to:
waive all interest payments on mortgages for three months, paid for by the tax payer (and to the tax payer in the case of mortgages held by certain banks!!)
double dole money for those out of work for the next 6 months
halve electric and/or gas bills for the expensive winter quarter for everyone(even the first £50 would be great, winter fuel allowance for everyone and double for pensioners - hoorah)
ANY of the above would be cheaper, would be easier and more likely to gain support and create a 'feel good' factor with the UK citizens than cutting VAT to allow an extra 20quid off a Chinese produced TV - it would also (heaven forbid) put the money where its needed, in the pockets of the least well off.
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A REAL SELLER'S STORY...
"Do the phrases "batten down the hatches" and "ride out the storm" apply any longer? Things are changing so drastically that getting out of the property market (and thus getting rid of our debt) before the oncoming recession/depression really begins to bite seems like the only solution.
Thoughts????"
If you liked the area, why not just stay until things start to get better? I'm guessing the market will clear (bottom out if you like) later in 2010 and return to current prices (like, today's) around 2112. It's only 3 - 4 years. Then you'll be able to move more comfortably, hopefully without needing new money.
People were badly conned by the media and Gordon Clown that the value of their homes is crucial to their financial standing. It isn't. It's a home, hopefully in an area you like, providing the comforts you want. Asset values are illusory at the best of times. A real worry would be if planning permission were given for something down the road that would really blight the price.
The only people really hurt by the property downturn are HM Treasury, lawyers, estate agents, those unable to keep up mortgage repayments and people having to move for environmental reasons - bad neighbours and the like.
Some consolation: you are far from alone. I've seen a couple of these downturns and we do eventually come out of them. Like it or not, it's always a Labour government that gets us into these messes.
Best of luck.
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I could have sworn I heard the first carol singers of the year just now...
Jingle Bells
Gordon sells
Britain down the drain
Oh what fun, to watch him try
To get Back in again.
Dashing to the sales,
While it all comes off the rails,
Vote them out
it's best we do,
Or we all end up in Poo.
... or perhaps I was dreaming.
Oh dear, it must be that time again, think I'd better make it a trebble this time please Henry, just to ease the pain a bit, and maybe I can pretend that Gordon, Darling and their nodding dogs have slunk away.
BTW, I look forward to alexandercurzon's posts.
Pip pip everybody, and you've all done verrrrry well!
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189 is getting close to the issue here.
The MPC has spent 10 years manging CPI inflation and tinkering with Base Rate, when all the time real inflation (ie inlcuding asset prices like houses) has been roaring away, unfettered.
If the MPC had the remit to control real inflation rather than the synthetic, nonsense, version of it that CPI is they would have eased up Base Rate much earlier, and averted the worst of the credit bubble that has now burst so spectacularly.
Eddie George used to send out useful warnings on this but few listened and G Brown - the architect of the whole mess - was the main one with his fingers in his ears.
Hope this helps.
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#196
"ANY of the above would be cheaper, would be easier and more likely to gain support and create a 'feel good' factor with the UK citizens than cutting VAT to allow an extra 20quid off a Chinese produced TV - it would also (heaven forbid) put the money where its needed, in the pockets of the least well off."
Because that would be an actual tax cut not a tax rise dressed up as a cut that they produced.
Many retailers won't pass on the tiny cut anyway!
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#181
You are in danger of falling for the 'prior investment fallacy'. In other words trying to take into account that you put in £45K of your own money. Forget that money.
Look at it dispationately as if you had no money in it at all.
You can sell for £280K now or (probably) £232K in a year time.
Selling now means you will probably be better off by £48K
And who knows you may find an even nicer property in a few months as prices continue to fall.
This is the advantage of deflation to those who HAVE money.
(Advice given above is friendly and not professional no liability is accepted for any loss made on acting on the above advice)
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Robert you got that in one:
"Some analysts see this as the start of the money printing-presses being turned on with a vengeance, a deliberate attempt to stoke up inflation to reduce the real value of all those excess debts."
Sell loads of gilts at low interest, open the printing presses then in 5 years the government is back to a manageable debt. That generally is the last chapter of a Labour Government. Having trashed the economy, they go on to trash the currency.
Lets phone Uncle Bob.
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# 193
I pretty much agree with you. Listed banks have been under enormous pressure to deliver better and better shareholder returns. Essentially they've tried to be growth stocks, yet their core business, ie recycling surplus savings, is pretty much a commodity, even a utility. I find it surprising that it's only just dawned on regulators that banks' declaring 15-25% return on equity was incompatible with nominal GDP growth of 4-5%. They could only be growing at this rate by leveraging ever higher. They didn't lie or defraud. They've been very honest about it. Just not properly controlled either internally or via regulation.
Building Societies do have certain advantages (ie from members/depositors' perspective). The obvious one is that they're not driven by the need to meet Stock Exchange expectations or see the P/E multiple on which they trade get slashed. They don't need to chase (or follow others) into the latest innovative product which they don't really understand. They also have constraints, in terms of the amount of wholesale funding they can accept (no more than 50% versus, say, Northern Rock that was over 70%).
The only point I was really trying to make, without being too blunt, was that they're suffering too. Given the nature of their business, BS will be seen as at risk of large loan losses in 2009-2010 as house prices fall but repossessions and non-performing loans rise. That will put pressure on their wholesale funding lines, just as it does for banks, they will have to pay handsomely for their retail deposits. And the lurking landmine is that they're paying a lot more in levies for the deposit protection scheme. I know one small BS (not the one you quote) that expects to pay 20% of its net profit next year in levies to that scheme (up significantly to pay for the government bail out of Bradford and Bingley). In fact, that cost is the main reason why they've widened their net margins as interest rates have fallen.
And hindsight definitely shows that not converting was the right decision. All the mortgage banks have now either failed or been consumed by larger, more broadly-based institutions.
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For the last few days I've tried to draw attention to the following petition:
http://petitions.number10.gov.uk/LendingReform/
Having read today's blog, it's complementary to the requests for lending transparency, and a return to truely prudent lending.
May I ask you all to consider signing it, and advertise the link as you feel appropriate.
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93 & 105. The multi national corporation I work for has been recruiting graduates from eastern europe to fill it's junior divisions. It dioes this thriough a recruitment agency based in eastern europe and doesn't even advertise in the UK anymore. It's paying a far lower wage and intends to slowly but surely move them up the ladder replacing UK managerial graduates with cheaper 'imports'.
This - as a worker - I find hilarious. For a decade we the workers have had our wages held down by outside workers being broght in, presided over by 'on-side' management.
Now it's their turn to be stuffed by the corporations and one thing I can safely say is we the workers are going to stick up for you by precisely the same amount you stuck up for us.
Or to paraphrase - hahahahahahaha
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.'...we may yet see most of the banking system formally nationalised, so that it can do what it's supposed to do - which is to provide the credit that's absolutely vital''
Robert, do you read the BBC news ??
Rock increases new mortgage rates - BBC news headline
They are raising the rates to *STOP* new mortgages, not to lend more !! And this is a *nationalised* bank !!
How many more "economies with the truth" are we going to hear from the government and their running dogs like McFall ??
What do you think will happen when *most* but not *all* of the banking system is nationalised ??
Item - The government is bust !! It cannot borrow more *real* money without paying punitive interest rates to the lenders. Therefore, the nationalised banks will *not* be able to run a commercially viable business by lending at low interest rates while borrowing at high interest rates from the government !! They will also not be able to offer savers/depositors high interest rates because that is curtailed and constrained by their lending rates !!
Item - Those surviving non-nationalised banks will have access to funds from abroad and to *real* money !! They will be able to pay high interest rates to their savers/depositors because their lending rates will be realistic !!
Item - With all this doom and gloom going on, the savers will want their money in a secure bank, knowing that the bank's business model will *NOT* lead to yet another bankruptcy !! Who do you think they will save with ??
Item - Without enough savings, how will the nationalised banks carry on lending at unrealistic rates, let alone survive ?? Will the taxpayer be forever funding these basket-case banks ??
Item - With such a ridiculous policy, will any foreigner trust this government in the slightest ?? And if not, will they want to buy or keep Sterling ?? Without foreign support of the Sterling, how long before we challenge Zimbabwe as to who has the most worthless currency in the world ??
Item - Is the government throwing out these large numbers hoping to blind us with science and prevent us from seeing that all these futile attempts are *NOT* addressing the *real* problems ??
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From where is the UK government borrowing the money mentioned in the past few months ?
It is quite a puzzle if everyone in the World has a common debt problem.
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#201
Thanks for your advice, it is essentially what i was thinking.
Although I like the area I live in, i'm living in a small 1 bed flat and soon wish to start a family with my wife. I'd like to move out of London to do that and into a bigger property. If I'm trapped in my current property by negative equity, it affects my future plans and that is something I don't want.
I see a possible chance to sell up now and buy again in 1/2 years time. Prices of property at the next level up the ladder would then be within reach. If I sit tight now and wait for the price of my current property to return, I'll be in the same situation again in the future; i won't be able to afford the next step up the ladder.
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Dear Robert
Like most I'm new to all this banking malarkey and although some makes sense there are bits I wonder about.
Can anyone tell me if the Banks have liabilities in the global market that could be influenced by the fall in the Pound (as I'm guessing any international transactions would be in US Dollars and as they seem to have been pretty stupid all the way through this episode it is possible they'd commit at a high dollar-pound exchange rate)
If so has the problem just got an awful lot more serious with the fall in value of the Pound?
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Q:What muppet would go shopping 2 days before a VAT drop of 2.5%
A: The chancellor
A colleague just told me he heard Darling on the Radio this morning saying that he had been busy and hadnt been able to get to the shops recently so he was planning to go this Saturday.
And this guy is in charge!
So either he is foolishly wasting his own money or worse still he is buying stuff from the John Lewis list that he is planning to claim back from us Taxpayers
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Far out at sea,the second wave has been sighted.
It's not just about profit and loss(0-12 months), but the decimation of company asset(12 months +)values.
The question is:
Will accountants/auditors start justly qualifying these company accounts ??
What's, or how long, is the ''foreseeable future'' again ??
Banks,politicians,businesses,Chancellors,B.O.E. etc are working on different timescales,hence much of the confusions in the ''message(s)''.
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BBC Breaking News!
Thai leader rejects election call
Also in the programme:
Sheffield mum has triplets
Britain's most expensive idiot
Bequeathed skull stars in Hamlet
Football bursts in charity match
Repossessions up by 12%
GC
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Post 203 I agree with you that 2009 will be a time of challenge for the Building Societies along with any other financial services company come to that.
I also think it is criminal that that the Government used a sleight of hand to nationalise Bradford & Bingley and that Building Societies and possibly even insurance companies and insurance brokers will end up paying for this via the levy.
Some Building Societies have already effectively gone to the wall by being taken over by the Nationwide and Skipton because of over exposures to either buy to let or putting money with Icelandic banks. I expect others to need rescuing in 2009 and probably 2010.
Let no one doubt this is going to be a long haul with many High Street names going out of business and some banks or loan companies equally going to the wall.
It seems Woolworths has gone today and MFI may well be next possibly within a week. I'm not sure if people realise but one of the organisations that has effectively called in Woolworths today is GMAC (General Motors Auto Credit) which was set up to provide car loans for buyers of GM cars. It begs the question what were they doing lending possibly up to GBP 200 million to someone who bought up Woolworths?
There is a huge amount of high leverage loans to buy outs sitting waiting to topple over like it looks MFI will and Woolworths have. Someone somewhere has lent all this money on assets that may well prove to be worthless. Expect a lot more red ink before it gets better.
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The printing money theory is the most frightening.
If Cameron is right that Brown is leading us into bankruptsy then it is always the last resort.
Although Zimbabwe is an extreme example of hyper inflation this is what happens.
Fixed incomes like pensions and other benefits become virtually worthless as inflation takes off and everything we need to buy becomes less affordable.
The same with savings and other investments.
Unless wage increases keep up then salaries decline in value.
Forget about everthing else this is your worst nightmare.
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Can someone explain.
Say for examples sake I have 20k saved up for a deposit (i wish I did!) and am just waiting for the right time to buy.
If they fire up the money printing presses. will this devalue the savings as I am sure the bank will be slow enough to pass on the inflation rate to my savings.
I guess what I am asking are is cash a good thing to have at the moment?
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#184 "perhaps your Rebuild Britain Alliance could give them a voice (assuming common sense for the common good would be one of your goals)."
Thanks for the response;-) BUT - not my goals - OUR goals - I certainly couldn't lead for health reasons. This is a time for thinking, discussion and watching. After Christmas say, we must ALL start trying to influence prospective candidates. Just a word of warning - what appears to be common sense, may not be true of a complex system. For example, I think we need a public inquiry into the function and purpose of money and the banking system so as to cast light on many issues raised on RPs blog. And we shouldn't just take the bankers' word for it.
There will be an election. Let ALL politicians beware!
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#213
"It seems Woolworths has gone today and MFI may well be next possibly within a week."
Woolies and MFI were (like the US carmakers!) basket cases long before the finance crisis kicked-in. The lack of credit has only hastedned their demise
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The Smoking Gun of Predatory Lending
What really amazes me about this Worldwide Financial Catastrophe is how no one seems to really know exactly what caused it and what the solution actually is.
The cause seems blindingly obvious to me, as does the solution. But then I do have the huge advantage of not having studied economics or ever being employed in any capacity within any part of the dubious financial industry.
The cause of the Global Financial Crash is simply this.
Because banks create most of the money in existence by means of the ?Fractional Reserve Banking? system, it is completely essential banks act honestly, with probity and faultless morality as well as very great care about how they lend.
This would mean borrowers were treated honestly, fairly and with great consideration as they are the sole means of the banks being able to increase real economic prosperity by creating almost unlimited new money using Fractional Reserve Banking. Confidence is absolutely everything with money, so being very careful about how you treat borrowers is completely essential to safe, reliable and stable banking and prosperous economies.
But the banks didn?t act morally at all. They seemed to have no comprehension of morality, honesty, probity and certainly not fairness or care. Why ? Simply because they became increasingly greedy - and they got away with it for years as banking disintegrated into a farcical comedy of ostentatious wide boys and spivs who elbowed their way into the banking world to displace genuinely decent bankers.
Confidence eroded as morality, honesty, probity and fairness utterly disappeared - along with any concept of treating borrowers fairly. Deviousness in banking became so widespread banks even became frightened to lend to each other for fear of being fleeced by rival banks with unreliable, dodgy bits of paper pretending to be valuable financial instruments.
Lending became increasingly predatory and unfair in all sorts of ways - perhaps the most despicable being subprime mortgages, whereby banks realised they could get away with fleecing homeowners in a manner which is profoundly dishonest. To my mind it is clear the subprime lenders have a case to answer for the illegal ?Conversion? of homeowners equity.
For the uninitiiated ?Conversion? is a legal term describing a ?tort? or civil wrong whereby property is ?converted? away from the rightful owner to another person by means of undue influence, trickery and misrepresentation . It describes a kind of theft really, which is not quite criminal theft, but is just, only just, on the other side of the dividing line between criminality and non-criminal activity. It is illegal however - just not imprisonable - at least not until the culprit refuses to give back the property in question.
If the banks had remained doing business with the levels of morality that existed a few decades ago and taken the same care in recent times as they did then, we would not be in the middle of Global Financial Meltdown and a Depression screaming into being with astonishing speed.
So, the solution is to exert very tight control on the banks and all their activities to force them to abide by the obvious rules of morality. It is really that simple.
The banks have caused Worldwide financial disaster by very suddenly reducing lending to borrowers of any kind to a mere fraction of what it should be. This is the direct and the only cause of the Global financial meltdown and gathering recession.
The banks are simply destroying virtually the entire supply of money instead of doing their usual job of creating it. This prevents trading, which then causes job losses, which in turn causes even less money to exist, which in the downward spiral the banks have irresponsibly and wantonly manufactured utterly wrecks prosperity for us all across the Globe.
In a moral banking environment things like subprime mortgages wouldn?t exist. I mean, what on earth can be the justification for taking monstrous advantage of the of the poorer and least able members of society struggling at the bottom of the heap. Why should they be conned out of what little money they have and effectively have their very homes stolen from them by rapacious, dishonest banks; deliberately milking them with quite extortionate mortgage terms which are unreasonable, unfair and known by the bankers to be almost impossible to comply with without borrowers losing vast sums of money and even becoming homeless as they are evicted from their homes at the drop of a hat by ruthless, merciless mortgage lenders.
How could this possibly have been allowed to happen. Can anyone tell me ?
The whole of the really interesting research paper by authors Harold L. Bunce, Debbie Gruenstein, Christopher E. Herbert, and Randall M. Scheessele can be seen on the USA Policy Development and Research Information Service website here:
Subprime Foreclosures: The Smoking Gun of Predatory Lending
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@117
"What alternative do you propose to fractional reserve banking, precisely?
If you agree to lend me GBP 100 on the condition that I pay you back with interest, what business is it of yours if I then lend it on to someone else or spend it all on whisky and cigarettes?"
I dont mind what you spend it on but if you lend it to 7 or 8 other people in a pyramid scheme I KNOW I wont get it back - thats not lending - thats theft.
An alternative? How about stable sensible economics . How about not trying to grow the economy faster than it can handle. I may mean the death of finance as we know it but thats not a problem as far as I can see. The dream was only a dream and its over.
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# 213
Ian,
Woolies and MFI have been "on the edge" for a while, so their demise is not just down to the credit crunch. Valid point about GMAC etc. I don't think anyone knows what some of these outfits have been up to. Goes back to my point about the pressure to drive up return on equity, and how there are only so many ways this can be done. I don't doubt for a minute that, over the next year or so, we'll hear all kinds of strange stories about what various finance companies have invested in.
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Student loans are a micro example of the macro problem. I graduated just before the wholesale ramping up of the loans system, and came out with 'just' four grand or so plus a small OD, paid off no worries ages back now.
BUT, nowadays, right from the age of 18, the state is saying you gotta take on shed loads of debt and that's just normality. So your average student thinks, well, I might as well max out and have a *really* good time as there's not a whole lot of difference between 15k and 20k debt at the end of the day - either way it's a hell of a lot and feels the same.
So come working life, the borrowing culture is embedded and continues apace, getting bigger and bigger. The fact is (I am sad to say) it's our own fault. OK it was all on a plate but we gotta get back to some notion of spending the money we actually have, rather than the money we'd like to have.
We can blame the banks, the gov't until we're blue in the face and yes they're at major fault, but hey, we spent it. Now we have to deal with our own mess.
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add all this to the ticking time bomb of fat cat public pension liabilities ....
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Rahere was actually asked to stick his hand up a muppet's posterior when boozing in the Railway Signal in Brum in the mid-70s, Pot_Kettle!
The answer to your question 210 is therefore (from probably the most qualified here) one whose supply of Brown trousers has just run out.
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Re: 213
It was GMACCF - General Motors Acceptance Corporation Commercial Finance (note no auto or credit in the name) who lent Woolies the money. Retail financing is ones of their specialities and has been for a long time (decades). Another branch of GMAC was originating residential mortgages in the US and UK and sold a large number of buy to let mortgages in the UK to the now deceased Bradford and Bingley. It is about to become a fully fledged bank in the US.
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Funny, innit, lost little people we all are - or are to a degree..
All asking questions to perfectly reasonable things and no information available anywhere from MP or government.
The dynamic duo of Gifted Gordon and Alistair, darling, tell us so often 'we understand peoples' concerns', but they don't do they? These blogs are certainly proof of that. If I was PM I'd be VERY worried.
What's with all the secrecy? I figure that MPs on all sides have been told to keep 'stumm' about what's really going on/coming. Kindof: 'Mutter, Vater, mach mich stumm, sonst ich denn in Dachau komm..' or something like that.
GC
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# 215
The answer is: "It depends".
It depends on two things: the timeframe over which you intend to hold the asset, ie your cash. It also depends on your view on inflation.
If you're holding cash short term (say over one year), and you believe that we may experience deflation, albeit for only a short period (ie the general price level falls), then cash is a good investment. In a deflationary environment it will buy more in 12 months than it will now.
On the other hand, if you're time frame is longer (say 3-5 years), and if you tend to feel that GB and Ally D will fire up the money printing presses to help deflate the debt burden we all have, then cash is a dreadful asset to hold. Interest rates may well be negative in real terms, ie lower than inflation, in which case I can absolutely totally 100% guarantee that cash will decline in value in real terms over the period. In fact, increasing money supply would be aimed precisely at reducing the real value of cash because, in so doing, the real value of debt reduces too (debt is just negative cash).
So, if you had this mythical GBP 20,000, and its purpose was to help buy a house, and your horizon for staying in anything you bought was, say, 5 years, you probably won't lose money on it by buying now, though its value would probably fall initially, ie prices may still be falling in more than 6 months' time. If you hold off for a further 6 months, you'll probably get an even better deal. After that, I'll be surprised if prices are still falling and sitting on cash will not be attractive.
My own view is that GB and Ally D will get us partly out of the debt hole by allowing a bit more inflation than we've had in recent years. So I certainly won't be holding cash as an asset class for over 12 months. I'm actually fully invested in equities. Do I expect shares to be higher in 12 months than now? No idea. But if I don't see good gains over 5 years from this point, I think we can assume the world has ended.
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Who is lending to the UK and US governement? Is it countries such as Dubai and China looking to hold some big economic cards in the future, or is it just private investors?
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@219 - you seem to have missed the point of the question in #117.
It starts with:
If you agree to lend me GBP 100 ...
For a lender to agree to lend money to a borrower, they must have a certain level of confidence that they will get their money back. The more confident they are, the lower the interest rate they will charge. Thus, lenders tend to charge high rates when lending to profligate spenders who live on credit cards, as there is a higher chance that that borrower will fail to pay when compared, say, to a borrower with a 50% deposit borrowing 2 times their income to buy their home.
A lender is not obliged to agree to lend. Lenders perform their own risk analysis before deciding whether to lend or not. The interest rate charged is, on average, enough to cover the bad loan percentage and make the lender an overall profit.
Incidentally: this, at least, is what private lenders do. The government does no such thing, as they are not lending their own money; they are lending taxpayers' money - both existing collected taxes and future collected taxes. Letting the government lend money to whom they see fit can and will only mean higher percentages of bad debts. But that's another story.
So, assuming a private lender lends money on the basis that they perform suitable risk assesment before any lending decision, my question still holds: What alternative do you propose?
Your response to this in #219 does not qualify as an answer. Vague references to some hitherto undefined "stable sensible economics" or "not trying to grow the economy faster than it can handle" provide no insight whatsoever, unfortunately. I think we are all aware that the government should not have encouraged lending to high risk borrowers, and that the banks should have known better, but an inherent flaw in the concept of fractional reserve banking is not to blame for the same old greedy chasing of profits.
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Why not just face up to the fact that the banks are already nationalised.
The govt prefers to fudge it and control them at a distance because its politically convenient to be able to give conflicting directions and pretend to be on the taxpayers side against the big bad banks rather than make decisions and take responsibility.
The problem with this is that it is hugely inefficient 4 different names, 4 different sets of offices, 4 different CEO's etc. This is a tax on the rest of the economy and it would be cheaper just to merge all the failed banks together and lay off the excess bankers. I suggest they call the merged bank BBOS - Big Bank of ****.
Competition does not come from having four failed banks controlled by the government all trying to reduce their balance sheet. Competition will come from new players entering the market with clean balance sheets and different business models.
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Great title, sums up the danger.
Terrible article, hints at the point but draws the wrong conclusion.
Robert Peston fails to look past the fact that taxpayers lending to banks via the government in order to receive credit in return, achieves nothing but a transfer of money from one hand to the other with sundry expenses deducted to pay the salaries of bank and government employees. I can transfer a tenner from one hand to the other right here right now without anyone taking a cut, thank you very much. So how is this supposed to save the economy?
Here is the problem at the heart of this: credit supply is available, but at higher interest rates than is affordable. Credit demand exists, but is only affordable at interest rates near or below zero. In the space between, defaults as borrowers reach the limit of what payments they can afford. It is looking more and more like a credit reset event every day.
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@155. Tigerjayj
Yes, I gathered something might be in the wind from Alex and have been selectively reading this blog to ascertain the URL it might start from.
It seems to me that there are enough SENSIBLE people commenting on these blogs who are willing to start or join a new party or party of protest. I too would join up given that the basic principles align with my thinking... It would need to encompass the thinking outlined in a Green New Deal at neweconomics.org.
A party that is initially internet based could easily be very well supported (look at the phenomenal rise of social networking sites)
Keep up the thinking and the SHOUTING :)
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Never mind, eh. Just think of all the lovely money they'll make privatising it all again ready for the next time.
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181
Don't worry. Inflation running at 10% for a few years will sort out your negative equity problem quite quickly. However, if you can fix your mortgage at a sensible rate for the duration of the loan I would do so before we hit double digit interest rates.
I know inflation and high interest rates aren't concerning people now but believe me this will all change in the next couple of years. As night follows day we will have a sterling crisis and we will have to prop it with sky high rates.
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218#
You said"I mean, what on earth can be the justification for taking monstrous advantage of the of the poorer and least able members of society struggling at the bottom of the heap"
Morally as suggested by the rhetorical nature of the question the answer has to be no - and I believe in due course the US authorities will deal with those who deliberately did this that they can find and prove willfully did this by deception.
Unfortunately it was Bill Clinton (not even barmy Bush) who open the flood gates and the justification (whether you believe it valid or not) was that why should the poorest be denied the same opportunity to own their own homes that the rich enjoy. So the restraints which prevented sub-prime were removed and human nature did the rest.
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What I cannot get over is how people on this board argue as if it will make some sort of difference.
Spend the same amount of time writing a letter to you're M.P. instead, then another and another ....
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@235
you've obviously never written to an MP
At least you get posted here if not listened to!
Here we have a voice. I don't have enough 'money' to have an ear in this 'democracy'.
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Hello
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armagediontimes at 233 in taxes to rise then fall,
thankyou
I probably am paying my readership as are all off us in the "real economy" trying to reach public sector employees (and that includes MP's, Ministers without votes, civil servants etc.) As you've read the current approach is not as inflationary as it should be to shrink the bad debts down retrospectively speaking. We need to keep these people (see 161) in there own houses whilst at the same time showing them a phased transition back to the rental market is a possibility. How many public sector workers are in danger of losing their houses? There will be a few, and rather than give them sympathy lets include them in this grandiose scheme. Given the chance many of those helped will start spending again and find the wherewithal to get back into the real (its tough out there) economy. Some will even buy back the slice of their property then owned by the National Home Loans 2008 Corp. This buying of the bad debt by a governmental arm in a piecemeal fashion is far cheaper than buying up the whole debt.
Incidentally, all final salary pension schemes (Contributing and Frozen) should be converted to money purchase by statute ...now. This is the opportunity ..of a lifetime.. to shrink the burden of public sector pensions.
Who wants be the greatest prime minister of the 21st century?
Its perfectly okay if paid economists fill in the details so long as they don't alter the look and feel of the policy.
We need radical policies in radical times.
We dont want more houses for sale
Key is to get the housing market moving, all else will fall into place- what we need is.. jobs, jobs and jobs equals taxes, taxes and taxes.
Ack to #284 #286 #292 #293 #337
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Does anyone know how PFI 's have been written? Will they also shrink during
Hi per year inflation or is there a cunning clause linking inflation to payments?
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Is nationalising the banks the only feasible option?
Isn't low interest rates; the reluctance of banks to lend; record bad debts and old credit in the system; the prospect of negative equity in the housing market; government loans to banks and diminishing capital valuations a recipe for nationalisation?
I can't see how the banks have any room to manoeuvre, particularly as most of the present liquidity in the system has come from taxpayers who, for reasons of personal debt and insecure employment, are not in a position to do anything other than try and consolidate their position. Nobody is going spend on the basis of a 2.5% reduction in VAT and with a downturn in global demand for goods and services in the offing; they'd be mad to do so.
The government is facing diminishing tax receipts; increased spending on state benefits; continuing spending on Iraq and Afghanistan; increased borrowing and a slump in all the productive areas of the economy (e.g. financial services, manufacturing etc.).
This is less a recession and more a depression.
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Sad to see certain Bloggers slag me off for presentation and content.
I wont let the BLOGGERS Grind me DOWN.
Thankyou Lady Sasha TigerjayJ and other kind folk for your support.
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1. At 09:44am on 26 Nov 2008, BankSlickerminustheR wrote:
Let's bring an end to the Fractional Reserve Banking system.
You know it makes sence!
Robert, why does no one take seriously the conclusion that the fractional reserve banking system is the problem.
We do not like our governments to print money willy nilly even though they are our elected representatives. Why then do we allow mindless merchant bankers to do so in almost unlimited amounts?
This is a serious issue. Bankers like to obfuscate how it all works for their benefit. Surely there is a better way.
We allow the cleverest and least responsible to create money (that is what credit creation via fractional reserve banking creates remember). There must be a better way.
At the moment the banking system encourages the expansion of credit on a worldwide scale until it becomes unsustainable. There is then a collapse.
This is not new and it is not rocket science.
Some serious articles on how banking works and the alternatives are desperately needed.
As a businessman I am shocked by the criminal intent of the senior bankers. A sound business deal enriches both customer and supplier. The unfortunate result is we distrust all those in business, honest or not; and all those we elect as our representatives we also distrust. This is extremely destructive.
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Re: 181
Having been in the same predicament in the past I can understand the predicament you are now facing.
For what it is worth my advice to you and anyone else in a similar situation is to say that unless you are a property speculator, buying a house is a long term investment. Providing you can continue to make your repayments and are happy where you live then don't worry about the current negative equity situation. In the longert term or by the time you are about to retire you will eventually own your home and living there will then be a lot cheaper than renting. If you are able to predict with some certainty when the market is likely to bottom out and by how much house prices will fall then it might be advantageous for you to sell now and buy again later. If not then you might jump out of the frying pan and into the fire because these situations can sometimes right themselves very quickly.
Re: 203
I echo some of your sentiments about businesses sticking to their core strengths and what they know and are good at.
History shows that time and time again too many of our leading banks and businesses have unsuccessfully involved themselves in other businesses and markets whose dynamics they didn't fully understand.
I believe this is because too many of our leading bankers and business men are being trained to act like clones and to concentrate on short term business objectives using creative mathmatical accounting techniquesare. Many of their business decisons are influenced by movements in the stock market and as everyone knows the stock markets are little more than a giant casinos.
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Indeed. All the Government's hysteria over deflation when all we are likely to get is a year or so of price stability as a result of oil and fuel price rises reversing or dropping out of the index, looks like an excuse to speed up the printing presses. Why not legislate to reduce the outstanding principal on all debts, use the fresh paper money to invest more 'capital' in banks to cover their writeoffs, carry out an accounting correction to reduce reported GDP over the past ten years by a cumukative 10% and we will be able to begin 'growing' the economy again immediately! Of course, GB's record would look pretty miserable, but hey.
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Sane people will not borrow to buy overpriced goods.
The fact that borrowing is shrinking is good not a reason to hound banks to loan more or indeed threaten nationalisation if they don't loan more!
Too much credit got us into this mess what we need is responsible reduction in credit to help us out of the recession.
The PBR £ 20Bn stimulus is insane - Surely we as the general public have borrowed enough and have enough to payback as it is without the Government compounding the error. Especially taking in to account the unrealistic payback options as well - it's worse than a self certified mortgage on a grand scale!
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One tiny detail :-
I am no economist and really don't understand much of this mess but...
Several posts have suggested that interest rates should rise and that we should/will print more money devalue the pount and therefore make our debt less significant.
Sounds great but....
What happens when most of our debt is owed in other currencies? If those curriencies don't devalue as well our debt is just as big is it not?
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@246
Our debit isn't owed in other currencies, generally.
To borrow money, the government issues bonds, which are denominated in GBP. Bonds are merely promises to pay back the face value of the bond, along with some interest over a fixed period.
Bonds which are purchased by UK buyers are paid for in already-held GBP, so this has no direct effect on exchange rates. Bonds which are purchased by a German bank, for example, are also paid for in GBP. To get hold of GBP to buy these bonds, the German bank will have to swap some other currency (e.g. Euros) into GBP. In other words, they sell Euros, and buy GBP. This process pushes the value of GBP up relative to the Euro (since if more people want to buy something, you can charge more for it; if more want to sell something, you can offer less for it).
This makes items priced in Euros (e.g. French wine) a bit cheaper for people holding GBP. Though, as GBP gets spent buying Euro-denominated items, the same pressure on exchange rates occurs in reverse.
The problem is that as the government issues more and more bonds, potential buyers are less and less convinced that the government will be able to pay it back. As the government debts grow, potential buyers get increasingly nervous about the stability of their investments in that country, and start to get rid of them. They sell their GBP-denominated bonds (or other assets) for whatever they can get, and swap back to another currency like the Euro. This drives GBP back down. This causes other overseas investors to see the value of their UK investments drop, so they do the same, resulting in an avalanche effect of a very weak pound.
"Printing" money will indeed reduce the value of the pound and thus the size of our government's debt in "real terms". This process is however terrible for the man in the street. If the pounds drops by 90% compared to the Euro, for example, then our debt is 10% of the size it was in Euro terms. If we could somehow earn Euros and buy GBP we could pay it off in no time. In reality, however, people will continue to earn GBP, but all imports will cost 10 times as much as before - imagine asda plonk at GBP 40 a bottle, or pasta at GBP 6 a packet. One way or another, the loan has to be paid for, no matter what it is denominated in. The pain of repayment doesn't just go away.
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Thanks for the explanation tam_fb. That cleared things up for me :)
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Look to those of you who think you can save your standard of living by printing more money on the excuse of inflation remember OPEC and what it does to energy costs and what they play in the inflation calculation.
The Russians and the crackpot Iranians and Venezuelans have all indicated that they are now very likely to turn down the taps to match a reduced world GDP and get the price of oil back up to pump prime their own economies. There is sweet FA that we can do to stop them.
What do you think will then happen if Gordon and Alistair see that their pathetic headline VAT gamble is being ignored by Joe Public, which it will be, and the true extent of the PFI off balnce sheet debt pulls down the government bond ratings?
Well surprise surprise they try the rank outsider that has no real form but of course these are extrodinary times and lets do what America is now doing as the sun shines out of BA's ass and the honeymoon is good for us all- hey lets just print more money as we then don't increase the national debt.
Then oh dear oil goes up and inflation takes off again and we are then absolutely f..... because of the extra new money issued and flooding into from the nationalised banks.
Look the new labour politicians have to accept that they are well and truly shot and the reality that the economic world has deflated and we must all cut our cloth accordingly and take the pain and get to bottom of the mess as quickly as we can so that we can start the rebuilding process on sound prudent rules, of course not those of Boom and Bust Gordon.
Print more money is a desperate stupid suggestion and Merv when Boom and Bust picks up the phone to bully you on this one just mention The Duke of Cumberland and the battle of Culledon Moor.
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Look to those of you who think you can save your standard of living by printing more money on the excuse of deflation remember OPEC and what it does to energy costs and what they play in the inflation calculation.
The Russians and the crackpot Iranians and Venezuelans have all indicated that they are now very likely to turn down the taps to match a reduced world GDP and get the price of oil back up to pump prime their own economies. There is sweet FA that we can do to stop them.
What do you think will then happen if Gordon and Alistair see that their pathetic headline VAT gamble is being ignored by Joe Public, which it will be, and the true extent of the PFI off balnce sheet debt pulls down the government bond ratings?
Well surprise surprise they try the rank outsider that has no real form but of course these are extrodinary times and lets do what America is now doing as the sun shines out of BA's ass and the honeymoon is good for us all- hey lets just print more money as we then don't increase the national debt.
Then oh dear oil goes up and inflation takes off again and we are then absolutely f..... because of the extra new money issued and flooding into from the nationalised banks.
Look the new labour politicians have to accept that they are well and truly shot and the reality that the economic world has deflated and we must all cut our cloth accordingly and take the pain and get to bottom of the mess as quickly as we can so that we can start the rebuilding process on sound prudent rules, of course not those of Boom and Bust Gordon.
Print more money is a desperate stupid suggestion and Merv when Boom and Bust picks up the phone to bully you on this one just mention The Duke of Cumberland and the battle of Culledon Moor.
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#247.
I think you have missed out a stage or two- if the pound lost value on anything like this scale (though I appreciate you are taking an extreme case, for clarity of the example), people would seek massive pay rises to compensate. If the printing presses were in full flow, most employees would accommodate these claims, though the rash of strikes etc would result in significant unemployment. Those relying on savings, or any form of fixed income, would be ruined but debtors, in general, would be v happy. Of couse, if this process goes on unchecked, we would end in the same state as Zimbabwe. More likely is an outburst of forced exuberance next year, followed by a v nasty post election hangover
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Just want to point out I don't want the country to start printing money just wanted to understand what would happen if they do.
I am a saver and it sounds that printing money would be a dissater for my savings small as they are!
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FRACTIONAL RESERVE BANKING
If we want to abolish it how are we going to get from here to there ?
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If I was lucky enough for the Government to wipe off ALL my unsecured debt, I would happily spend my newly acquired disposable income back into the economy.
Why are all lessons learnt the hard way?
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'The past, current and future write-offs of trillions of dollars of imprudent loans'
Not an accountant, but there is a major difference between a 'write off' and a 'write-down'.
Write-off meaning asset has zero value, write-down meaning asset has a reduced value according to mark-to-market rules. Given the current climate it is no surprise that these asset values on a mark to market basis (mortgage securities, loans, etc) are being significantly written-down but we are a long way from the value of these assets being zero. That would mean the underlying collateral were of zero value i.e. houses.
My point is we need to get some objective perspective on what the realistic amount of losses will be.
For example the total amount of mortgage debt in the UK is £1200 Billion. Lets say that 10% of those mortgages go bad (a wildly pessimistic view), that?s £120 Billion, then lets say that only 70% of the value of these loans can be recovered from repossession and resale, that means an actual loss of £36 Billion. Now I don?t have the figures for the US but for simplicity let?s assume that their losses are equivalent to the UK?s per capita, that equates to £180 Billion. £216 Billion pounds of losses due to house price deflation is significant but no where near the figures being banded about, and this is a wildly pessimistic view, last week Mr Peston reported that 2% of Northern Rock mortgage customers were in arrears, so to get to the 10% figure calculated above those arrears would need to turn into repossessions plus an additional 8% of mortgages and this would need to replicated across the industry, and house prices would need to fall another 20% at least.
The problem with all this ?anti-hubris? is that the over-reaction in monetary policies across the world may lead to massive inflation a couple of years down the line. If the actual losses do not reach the levels being wildly exaggerated, and in actual fact money is just being horded up waiting to find the next winner, when the traps are opened the massive expansion in the global money supply will lead to even more significant bubbles, is that what we really want?
You need to be more responsible Mr Peston, regrettably you are not just a spectator in all this, the current major problem in this crisis is confidence, what you write does play a part. We need truth and balance particularly from the state sponsored media channel.
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#253
Join Money Reform Party
Read Michael Rowbotham books and
Ignore vested interest groups that pour scorn on the intelligent questioning of FRB, some of us wouldn't be seen dead in a tin foil hat , any way even the ability to invent money from debt by having increasingly smaller fractions and collect more and more interest the investment banks decided that fractions that they were obliged to keep was too high and it cramped their style, so they invented the Capital Adequacy rule but they inadequately assessed the risk of having no reserve to back their ballooning money supply. At last count 60% of the money supply was from mortgages
A slight aside, Hard money in, (coins and paper money) represent only 3% of the money supply which is interest free!
This idea that the government is printing more and more money is just not true if it were ie, in proportion to the money being destroyed by private banks I say Hallelujah, but it ain't gonna happen like that can you imagine private banks having to pay seiniorage on all their real money little wonder they push for the electronic stuff we don't want public created money do we !
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253. iwanttoscream
If you skip to the conclusions at the end of money masters to about 3 hours 10 minutes, a possible suggestion on how to cross over from Fractional Reserve Banking to Full Reserve Banking is forwarded.
http://video.google.com/videoplay?docid=-515319560256183936
It might also be worth checking out The Mises Institute website to see if they have any theories on how this can accomplished and I?m pretty sure that Murray Rothbard covered it in one of his books but for the life of me I can?t remember which one.
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I have avoided credit all my life, just worked hard- saved, and then purchased what I could afford. For years I have been penalised for paying cash- now I am being penalised for saving. It seems the thing I am missing is a civil servants pension where my money will end up.
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#256 /#257
Thanks, I've just caught up with these posts and followed your link.
OK I'm a convert
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Re my post #140
#1 BankslickerminustheR (+others)
# 94 Madtom1999
Seems I was wrong about that the difficulty of ending FRB.
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RP: "...which is to provide the credit that's absolutely vital if we're to avoid a prolonged and very painful slump".
I find this whole idea absolutely ridiculous. How can anyone even think of avoiding a prolonged slump, given the facts. The facts are that the UK population has deliberately and knowingly lived on debt of mind-blowing proportions for many years. It was clear that there would be a time to pay for all that debt. That time has come. Yet, and this almost isn't bearable to think of, UK politicians and top bankers talk of even more borrowing in a bid to avoid the unavoidable. You know what that will mean. Even more pain in the future. The future starts now. We should act responsibly for once, really.
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@257/259
All that the "Money Masters" video proposes is:
1) a gradual raising of reserve requirements until the banks no longer perform the function of being lenders, but instead are merely places for individuals to save their cash.
2) the creation of a fixed money supply.
What, exactly, does this solve?
Let's look at point 1.
The banks can no longer lend money to people who need to borrow it (for a mortgage, say).
Imagine person A has GBP 100, and B, C and D have nothing.
B wants to borrow 100 to buy Item1 from C. So he has to ask A, who has GBP 100 stored in the bank. A agrees to lend B the money, so the bank transfers the GBP from A's account to B's new account. B then buys Item1 from C and the bank transfers the GBP from B to C's account.
As far as the bank is concerned, there is GBP 100 in the bank. It is sitting in C's account. Why, or for how long, is of no business to the bank. A's account is empty. B's account is empty. C's account contains GBP 100.
If A wants his money back, he has to ask B. B has no money, as he only has Item1. He has to sell Item1 to gain the money. If Item1 is worth only GBP80 at the point, A and B have a problem.
The only difference here is that borrowing is now more difficult as you have to know someone who is prepared to lend you money, and they have to rely entirely on you to pay back. In our existing banking system, our deposits are pooled together so we share the risk of bad loans as much as possible. If one borrower defaults, we all lose a tiny bit of money, rather than one individual A being wiped out.
Now, point 2
The central banks original plans were to increase and decrease the money supply in line with the size of the economy.
If there are three people in a society, each doing work that the others value equally, they may decide to create a monetary representation of their work of, say, 1 moneyunit per day.
They agree to create 1 monetary unit each. If one person A does 1 day's work for another person B, then B gives A his monetaryunit. B cannot afford any more of A's work as B has no more monetary units. A has two (his own original one and the one B gave him). B now has to do some work for A or C to get a monetary unit.
This is fine.
B and C get married and have 2 children, D and E. We now have 5 people in the economy and only 3 monetary units. If A happens to have most of them, we have a problem, as B cannot do anything for D as D cannot pay. D would have to use a black market payment for B's work, in effect creating new, unofficial monetary units.
The central banks thought it would be reasonable to create new monetaryunits in this case. Similarly, if B creates a machine which performs 10 times as much work as B, the monetary units would quickly be insufficient for a smooth functioning of their economy. Again, the monetary supply would have been expanded by a central bank.
Imagine B, C and D die, leaving A and E. B's machine is inoperable as B died taking its secrets with him. The monetary supply is now way too big for A and E's output. They would start charging each other greater and greater amounts since both had enough money to pay (inflation). The central bank thus decreases the monetary supply.
All this increasing and decreasing is aimed at stabilising the value of monetary units so that you can be confident that if you lend or borrow a certain amount, when you come to pay it back or get repaid you don't get any nasty suprises.
Our present day problems do not come from FRB. The "solution" in the video proposes nothing to solve the problems. It drones on about how you can protect yourself by buying other currencies (which are also issued through FRB) or gold, but doesn't give a coherent explanation of why dismantling FRB will benefit anyone.
I believe our present day problems come from the fact that the central banks no longer increase or decrease the monetary supply in line with the size of the economy. Instead, when the economy shrinks, they increase the monetary supply to try and stimulate growth. This is risky as if it doesn't stimulate growth, you end up with horrific inflation. They are tinkering while wearing a blindfold and if they get it right it will be through luck, not insight, and will not be repeatable despite their claims. None of this, however, has anything to do with inherent flaws in FRB. FRB is just a mechanism for implementing part of the increase/decrease of the monetary supply, not the motivator behind it.
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#262 tam_fb
I respect your perspicacious style :
So do you think money created by a public agency Debt Free is ill advised compared
to Private Bank debt based credit.
Banks seen under money reform ideas would have to operate as building societies and credit unions do now .
They would be a lot less profitable and not be able to pay seven figure bonuses and the aim of all this would be to create a stable money system
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@263
An interesting question, and one I am not qualified to answer - but I'll have a go anyway :)
In principle, I think that money creation should be a public function.
In practice, however, if a less than scrupulous government were in charge, there woud be nothing to stop them simply increasing the money supply to pay their way out of whatever debt they owe, thus causing inflation and delaying the eventual pain so that it emerges on someone else's watch.
By handing this responsibility to a reasonably independent body like the Bank of England, such inflationary temptations are at least made a little harder to effect.
Let's imagine a world where no interest is payable on a loan. Lender A has money to lend, and B and C both want to borrow it. B is a 40 year old father of 2, with his own house and a job. C is an 22 year old unemployed man who wants new wheels for his Vauxhall Astra. Normally, the lender might decide to lend to either, or both, at different interest rates to reflect the risk associated with each borrower. With no interest rates, however, do you think C will get the loan? Will B?
For A to lend to B or C, A must gain something. This is currently interest. Whether it is interest, or a fee, or a part of any profits generated by B and C, something must be given to A for him to risk his capital, and C will inevitably have to pay more than B.
So (as I see it) a world without interest rates isn't going to work.
Let's say the the government can create money and lend it to itself interest-free, while we as individuals all have to pay to borrow money. There would be immediate pressure for loans to end up being filtered through a government entity in some way. Why would businesses borrow and pay interest when they could appeal to the government for a loan at no cost? Some businesses would succeed, and some would fail, depending on who they know within government. Hardly democratic.
Let's assume the government takes its interest-free money and decides to lend it to businesses at some interest rate - say 5%. Apart from the negative monopolistic and preferential issues of being the sole issuer of loans, this seems like a good thing for society, as interest from loans to private enterprise is paid back into the public purse.
But now business A borrows 10M from the government and spends it on items from business B, who deposits the 10M into a savings bank. How can the bank pay interest to B if they cannot re-invest it into a new loan? They can't. So B is sitting on a pile of cash that is doing nothing.
So B might decide to lend it directly to A at 4%, undercutting the government loan so they can make some interest on their money. A spends it buying items from C. C lends the money to D, and so on ad infinitum.
At this point, B thinks they have 10M (loaned to A), C thinks they have 10M (loaned to D), and so on. Interest is being paid on all these amounts. Money has been created, privately, without the involvement of central or private banks. Again, a "black market" of banking has emerged.
One way or another, a private, non-monopolistic, banking system that splits risk for individuals seems to be the best way to protect investors. The banks need to be paid for their efforts, and the investors need to be paid for their loans to borrowers. If people or companies with money don't want to lend their money to anyone, they can keep it in a safe and earn nothing - but who wants to do that?
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#264
In answer to your first point
Yes a Public Banking Agency would have
the power to increase the money supply and
thereby causing inflation but the figures would be transparent, in contrast to the opacity that went on up till now.
By being transparent we would know exactly who was responsible.The criticism of too much power in the hands of a public agency fades into insignificance compared to the corruption that that went on until recently.What ever system is operating the enormous loss of seigniorage to the public purse looks mad,only 3%(£1500million) is at present created interest free in the UK in 1945 it was 46% of the money supply.
A central point to money reform is that money needs to be defined ,measured and controlled and limited.
The commercial banks as i posted before would be required to operate as building societies and credit unions do now.
I haven't addressed all your points but needless to say greed corruption and gambling in any financial system can't be eliminated but what can be created must be for the public good surely?
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People work hard for their money and are struggling to pay mortgages and debts.
Credit Card and loan companies are covered by insurance and levy exorbitant charges for late payment penalties on top of high interest rates.
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