Paradox of bank bailout
In saying that there's a case for nationalising the entire British banking system, John McFall - the chairman of Commons Treasury select committee - has shone a light on the paradox of the recent global rescue of the world's biggest banks (listen to his interview on Today).
McFall and many others are exasperated that our banks remain deeply reluctant to lend to businesses and to individuals, even after so much taxpayers' money has been pumped into the banking system.
"What are the banks playing at?" many of you ask.
Well, funnily enough, part of the reason our banks are restricting the supply of credit actually stems from the official description of the bailout as "temporary".
Governments and central banks are saying that they want their (our) money back from banks within about five years.
That may seem a long time. But it's no time at all in the context of all the money that we've pumped into the banks.
The capital element of taxpayer support is only a small part of the problem.
Take the UK. Taxpayers are providing £37bn of capital to Royal Bank of Scotland, HBOS and Lloyds TSB.
Redeeming that will be enough of a headache in the coming few years, given the parlous state of capital markets.
But it's the tip of an enormous iceberg.
Special, additional taxpayer loans and guarantees to British banks are a further £600bn in total, or just under half the UK's total annual economic output.
All of that has to be paid back too. And since it can't be refinanced on wholesale markets (which are closed till who-knows-when), paying it back automatically requires our banks to lend less to all of us.
There's nothing the banks or we can do about this - unless we tell them that we don't want our money back. And I'll return to what that would mean in a moment.
Nor is this simply a UK problem.
As I've pointed out in earlier notes (see "The £5000bn bailout"), taxpayer support for banks across the world - from South Korea, to Australia, Germany, the US and so on - is around £5000bn in total.
Which is equivalent to a sixth of the entire output of the global economy.
And, again, the imperative of paying this back is a massive drag on banks' ability to lend and is therefore also a ball-and-chain on economic growth.
This, of course, is just one of the deadening weights on banks' ability and desire to lend.
The other severe constraints are:
1) regulators' very belated stipulation that banks and other financial institutions should hold much more capital and cash in their balance sheets relative to the value of their loans - which in a world where capital and cash is scarce and expensive is a massive disincentive to lend;
2) the devastating effect on credit creation of falling asset prices;
3) the relative dependence of British banks on funding from overseas institutions which are progressively calling in their loans;
4) the considerably increased risks of lending to individuals and companies when the economy shrinks.
Against that backdrop, the question is whether it is remotely sensible to put a deadline - implicitly or explicitly - on the repayment of all that taxpayer funding for banks.
But if we don't demand our money back, we'd be formalising that there's been a semi-permanent nationalisation of the entire banking system.
And that would massively encroach on the ability of our banks to operate as independent commercial entities.
There would be massive political pressure on them to become quasi-social utilities, providing loans at the behest of ministers and officials rather than on the basis of commercial criteria.
So here's what may turn out to be the choice: less lending for years or public ownership of the banks for the foreseeable future. It's not an easy choice, is it?
I'm 
© MMIX~RS~q~RS~~RS~z~RS~00~RS~)
Comments
Sign in or register to comment.
their independence and creativity is what caused this mess! Nationalise the lot!
Complain about this comment
Interesting comments from John McFaul theatening Banks with "the nuclear option" of full nationalisation if they do not lend.
Rather sinister and very marxist especially when it was then answered by saying the Banks have not actually received any of the 37billion yet. Either left hand and very left hand of Government not working together or the real commy plan coming to light
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
They should have been nationalised right away, it was a no brainer.
Complain about this comment
"And that would massively encroach on the ability of our banks to operate as independent commercial entities."
If part or full nationalisation stops them operating as independent commercial entities there maybe some hope that there would only be the single entity of national lender, the lender of only resort, and we would have sensible banking.
Our savings/deposits in effect become Tax paid in advance
Complain about this comment
Very detailed, technical response. I see where you're coming from.
So what are banks for then- if not to lend money?
You suggest all other options for banks to do business are not worthwhile - or have pitfalls, and they cannot make masses of money on the markets- and yet they are scheduled to repay this money are they not? So, in your opinion, what should they do, stuff their billions from the taxpayer under the mattress and wait for economoic spring to come?
Complain about this comment
Yes, I think it is... Nationalise the loans and savings rather than the banks, transfer the loans and savings to the already nationalised Northern Rock (which would need a huge national presence), let all the other banks fail (which they already have, in all but name, if our money is paying WAGES!), get our loans back. Everyone's happy!
Most staff from all other banks transferred to NR (not geographically) and anyone above Senior Manager level never employed in banking again!
But if Robert's talking about the possibility, it means Labour are and he's just softening us up! Do you ever get the feeling you're taking part in the biggest Labour research group ever. We'll find much of what wasn't shouted down on this site in their election manifesto!
Complain about this comment
A small quibble - the guarantees only have to be paid back if they are taken up, and presumably part of the point of giving guarantees rather than loans is that by boosting confidence they don't have to be taken up.
Does that affect the total significantly?
Complain about this comment
tigerjayj
I know we usually sing from the same hymn sheet?
But WE dont want this one.
It would be the END.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~#
Re Blog
I am going to DO IT.
Complain about this comment
Dear Robert
There is no excuse now for not Nationalising ALL THE BANKS, these Bankers are the same ones who created this crisis and should all be sacked.
"Until they are gone nothing will change."
Bankers are social Terrorsists, they are holding the country to ransom, after receiving PUBLIC MONEY to bail them out.
"WHO DO THEY THINK THEY ARE"?> " SACK EM NOW AND NATIONALISE.
Complain about this comment
gordy's fiscal stimulus is a complete waste of time.
it's not going to make one jot of difference when the root cause of the problem i.e. toxic debts are still there and have not been addressed.
if we have a tax credit boost (you couldn't make it up) then government spending has to be reduced as well.
Complain about this comment
Am I stating the obvious - banks operate in a competitive market. They will willingly lend where it is profitable. Is Darling pressuring banks to make unprofitable loans? Madness.
Complain about this comment
I am puzzled now! Surely if the government has invested in the banks then we own a stake of that bank. Why can the government not sell that stake on the open market when times get better. It could be a fantasic investment for the tax payer if we own 40% of an almost bankrupt comapany and sell that stake when the recovery happens.
Complain about this comment
There is absolutely no justification for having entities in the private sector which are "too big to fail", since they can always call on the taxpayer to bail them out once their crackpot business models fail yet again. Market forces can safely be ignored, and have been ignored by the managers of these organisations. The banks and all the utilities should be nationalised (or renationalised) immediately. Then at least the taxpayers will have power as well as responsibility.
Complain about this comment
Perhaps it may just be that the primacy of banking and financial services in UK PLC is now over and in future we will have to get used to this fact. Also perhaps the days of unsound lending and the easy creation of asset bubbles are over as well as whatever new systems emerge from the current chaos will provide for a degree of caution that has until now been absent. Restricted credit will for sure mean that the scrutiny and testing that any credit application will have to go through will certainly sort the wheat from the chaff.
A world of financial responsibility? May not be popular but just might catch on.
Complain about this comment
I had an idea which could address many of the problems, though I appreciate its not perfect..
Why don't the banks use the money they are pumping into banks, to instead address the core problem of potential defaults on mortgage loans?
The govt can do this by writing off the last 5 years of property price growth at the individual borrower level. This would instantly create equity at the homeowner level, and for anyone who bought at an inflated price and is now facing repossession, the equity would be used to pay a portion of the mortgage to bring the outstanding capital amount down.
Hence the banks would not lose out much as they would get compensated for the systemic risk that they had not priced in. It would free up their capital base significantly as it would reduce their long term loan commitments.
Additionally, the housing market would get kick-started, as prices could stabilise at sensible levels, and defaults (along with the domino effects associated with them) could be avoided.
Its a simple approach (though obviously not perfect), though unfortunately I fear that it may be too late to implement already as the contagion of the banking and housing bubble has spread into the wider economy.
Any takers? Or people to pick holes in my argument?
Complain about this comment
They don't need to nationalise all the banks, just one and then run it as a commercial venture but with a social conscience.
Complain about this comment
As the HTML keeps coming up.
########################################################
Fiscal PRUDENCE lavatory paper all round.
John McFall doesnt want any?
Complain about this comment
McFall is wrong... Nationalising the banks would put them under the control of the London Commissariat... We don't want that because they then become an arm of the Govt and banks are not like electricity or water companies.
Certainly in Scotland to replace both HBOS and RBS we should establish a regional mutual bank which can be managed by professional banking types but its strategy should be controlled by trustees representing "the people" and industry.
Complain about this comment
Perhaps we should return to the notion of saving up to buy things, and abandon the notion of buying things on the never-never.
Complain about this comment
The Banks, owned by our Pension Funds, have been shown that asking for help from the Gov't destroys Shareholder value.
And results in Bank closures, mergers and Staff losses.
That same Gov't then expects them to lend freely, when money isn't available to them , without being stomped on by the Gov't.
So of course the Banks are super cautious, the Gov't own attitude has forced them to hold back.
Of course most of the people asking for the Banks to be Nationalised are those with no Pension plan , thanks to Gordon.
And those with anything left are losing it now, thanks to Gordon.
What fun !
If I were an Anarchist I would be dancing with delight!
Not being one, I will sit with a long cold whisky and ponder better times.
Complain about this comment
Nationalise the lot.
Reincarnate Beeching and scorch the earth.
We'll all be so much better off in the long run.
Why stop there. Nationalise every business in the country. then we wont need the Inland revenue as the government will know everything about every penny in the economy and will be able to take what they want accordingly.
Complain about this comment
Alexander
Great news about the blog-can't wait!
I know we don't really want nationalisation-I'm just fed up with all the woffle, and wish something more effective immediately was done by those in a position to do so!
Perhaps with the new Bloggers Party and Bloggers manifesto we could start the Bloggers Bank? No fancy stuff, just straight forward deposits and old fashioned mortgages (sensible ratios).
Gosh we're going to be busy!
Complain about this comment
PS
When are they going to start steam rollering over the Building companies?
They're are in the plans for nationalization to.......
Complain about this comment
As we Citigroup get bailed out next to save it from bankruptcy, this will be the elephant that opens up the zoo.
Nationalisation is now certain here and probably the whole western world.
Now we need to make sure the people we put in charge are competent enough to supervise them.
Any potential candidates?
Complain about this comment
Hi Robert,
I agree we should nationalise the banks. I also have a scheme whereby we can cut taxes and preserve a relative free market in financial services. If you are interested, see http://www.dingoes.org.uk/forum-view.php?thread=19.
Regards
David
Complain about this comment
Robert
No one is is remotely bothered by the rantings of a silly old communist.
Jimmy my binman was kind enough to explain LIBOR to me the other morning. He managed to do a pretty decent job of it and correctly sumised "were xxxxed"
McFell only cares about his own political skin and knows full well the loss of thousands of tartan jobs in banking will hurt him and his
"Workers of the world unite" credentials and all that.
He has some vague deluded idea that by nationalising the banks he can save the jobs that will go.
Complain about this comment
ALL the warning signs for this mess were around in 1999/2000.
Whilst the Senior Bankers have been TOTAL idiots.
We have to look at Gordon Brown,the MPC,the FSA and the Governor of the Bank of England.
They are to BLAME.
The rule book is there.
The regulators did NOT use it.
Nationalisation will FINISH US ALL.
That will be the time to leave the country.
Complain about this comment
It's obvious why the government wants the banks to lend but surely the difficulty is that not everyone SHOULD be able to borrow. Many are excessively in debt and others can't afford to repay. Banks aren't registered charities.
Similarly, if nationalised, then the same rules should apply - we as a nation should not encourage profligate lending. Nor are we registered as charities to give money to people who can't/chose not to repay.
Yes, the world is in a financial mess but just lending more to the wrong people/businesses only stores up trouble for the future - that's how we've got here in the first place. We need to find other ways to stop things getting worse and direct the world economy forward.
Complain about this comment
#16
Yeah its rubbish
Complain about this comment
Interesting as always, but please note that a paragraph can have more than one sentance, and it does usually read better that way!
Complain about this comment
How do I buy shares in Gringotts Bank?
Complain about this comment
"is around £5000bn in total"......
Robert, has anyone worked out just how much bank boards and executives have paid themselves in inflated salaries, bonuses, pension contributions and dividends to shareholders in the last 10 years, my bet is that is comes out at around that £5000bn in total !
The entire banking system around the world has been based on a lie for the last ten years (at least), in which time they have paid themselves lavish remuneration for account books that have been manipulated to show profits which never existed except as figures plucked from the air by those running the banks. Reminds me of guy I used to work with who dressed like a tramp, drove a decrepit old car and lived like a pig. He used to bring his bank book into work to show everyone how much he had in the bank (left to him from the sale of his fathers business) and brag how he had thousands and we had nothing. I told him to give me the bank book and I would add a couple of noughts to the total each month, whilst I took out the money and used the money to spend. I would be happy because I used the cash for goods and services which is what cash is for (funny how some seem to think its worth more just as numbers in a bank book) and he would be happy as he would appear to have even more money in the bank each month. I think now I should have joined the board of a bank instead and I could have done the same thing only on a much larger scale !
Complain about this comment
The reason the banks wont lend is they know they wont get it back.
They know that their actions over the last few years have left the economy totally screwed.
The economy is not collapsing as such, its correcting an accounting error that gave the illusion of growth. When the stock market is down around 3000 here and 7000 or so in the US and is left there for a couple of years then banks may have and idea of what is going to survive in the 'new economy' (the old one before fantasy accounting took over) and may start lending again. Any one who thinks we can 'rebuild' by lending and spending hasn't grasped the fact we there was no economic growth over the last 15 years or so - it was a LIE!!!!
Complain about this comment
One or two nationalsed Mega-banks? Ugh!! Part of the problem with all aspects of banking up til now has been power without accaountability. The equivalent of what Tony Benn called "nationalisation plus Lord Robens" will make it worse not better. Big centralised organisations, public or private, tend to be a nightmare.
We need a different model. Perhaps a competing network of community-based banks where the businesses own a stake in the bank as well as the other way round? Sort of on the building society model? If what Robert said yesterday about the net borrowings of the small business model is true, then perhaps it could work with not too much input from the taxpayer? A bit would be justified by the common good, but basically it would mean people like Alexander and Guy lending to each other, obviously with suitable criteria and safeguards, and the bank being their servant, not their master.
Complain about this comment
I think that, eventually, a whole new approach to organisations and their relationship with customers is coming. The failure of traditional 'top-down' management has been ushered in, and we are going to have to look at new ideas for their operation, ideas that will rely upon 'open-source' style, individualist control of collective institutions. The banks may well be a progenitor for this.
Complain about this comment
A conversation recently with a business manager from one of the bailed out banks made it clear that the objective was 12 months. On this basis, rates will be hiked on loans and overdrafts and anything that is not 100% cast iron loan wise will be refused. It is time that this problem is addressed as it is becoming apparent to me that the bail out on these terms is actually harming the people it was suppose to help. Why can't a sort of payment plan be agreed based over 20 years at 5% per annum plus interest of debt owed?..or similar
Complain about this comment
You point out yet another area where the proposed solution to the credit crisis is contradictory to itself and inconsistent. What's scary is how we are relying upon a number of individuals to fix this problem rather than an integrated team of experts.
Yesterday I highlighted another area of concern (see below); indeed the current situation is riddled with incompetence across all levels. When failure occurs in such a systemic way, those at the highest level must be held accountable.
The Government has stated that it is not shortage of demand for homes at "the right price" but a shortage of mortgages "at the right prices for people to buy"[1]. However, other articles detail how house prices will have recovered by 2013 [2]. If this is the case, the average wage would have to explode to £45K p.a. to pay for the average property costing £200K, based on the following 'prudent' terms.
- £20K deposit (90% LTV),
- £180K borrowed at x4 multiple of income of £45K p.a.,
- 25 year term.
The Government need to state their aspiration for mortgage lending in 12 months time in terms of Loan-To-Value (LTV) ratio, multiples of annual income, and loan duration. If you agree please sign this petition:
http://petitions.number10.gov.uk/LendingReform/
This will provide better understanding of their stance towards future lending, and enable the public to make their own judgment of the likelihood of lending regulation and reform.
Personally, I think we’re looking at a crash in house prices (not just flats and apartments) or a return to irresponsible and risky lending.
[1] http://news.bbc.co.uk/1/hi/uk_politics/7667284.stm
[2] http://news.bbc.co.uk/1/hi/business/7692814.stm
Complain about this comment
Perhaps I should start my own blog, Robert?
I think I was the first to suggest it here way on back - the principal advantage being that unless the black economy goes to cash-only, then it's forced to go legit, and the resulting boost to official GNP gets us out of the hole. Plus the taxman gets to see what's what, and terrorist financing becomes impossible.
Watch the bankers dash for the exit. Of course, that's also good news, because they've not been earning us anything for the lst couple of years, real-world.
Complain about this comment
Rather than nationalisation, would it not be a better idea for HMG to guarantee the banks (prudent) lending? That way, the banks retain their independence, lending should be easier and the cost to the Treasury remains as only a possiblity rather than the certainty that nationalisation would entail. Were the banks to be taken over, HMG would still have to back its own lending anyway.
Complain about this comment
BBC BREAKING NEWS!
SOMALI PIRATES LEADER FROM CROYDON!
Also in the news:
Sheffield mum has triplets
Sainsburys cut cost of carrots
Repossessions up 12%
GC
Complain about this comment
I'm not sure that we needed reminding that none of those currently elected to run the economy have experience in the real business world and are unable to grasp the simple principles of profit and loss.
Perhaps a mandatory reading of David Copperfield, as we were treated to yesterday, followed by a short examination:
I propose:
If you have expenditure greater than income what is the result?
A) misery
B) happiness
C) it all depends on the prevailing fiscal environment of the time and in principle is not a bad thing provided economic growth over the cycle increases the income more than the level of debt implied and the interst payments can be maintained?
D) Can I come over and talk about what you plan to do with the shilling?
Complain about this comment
Robert, you seem to have glossed over the fact that this report contradicts what you said yesterday.
McFall said one of the conditions of the bailout was that banks start lending again, something you said yesterday wasn't the case.
So are you lying? Or is Mr McFall?
Or are both of you?
Complain about this comment
we shouldn't nationalise the banks.
i'm not paying for all that garbage on their books.
they are insolvent.
they must go to the wall.
it will be hell but we have to start afresh.
Complain about this comment
Oi you lot, hands off my bank. Co-op was conservative and ethical, I dont want you frenzied bloggers breaking down their doors, nicking all my savings and then planting red flags outside. Co-op is NOT a euphamism for communist even in this jargonised world we live in.
Complain about this comment
Robert, when the decision was made to bail-out the banks this was effectively a tacit acceptance that banks provide a social good. That they are more or less essential for the overall well-being of 'society'. Given this, there is a case for nationalisation. Otherwise Banks will always remain in a curious position with regard to the 'market' and other sectors within the 'market'. As it is increasingly becoming clear, given the problems with the US auto manufacturers, the regulation of the 'market' has to remain 'uniform' for it to operate effectively. By this I mean simply that calls for state support or 'subsidy' based on 'well you did it for the banks' arguments will ultimately undermine the regulation of the 'free market' which relies on an 'equality of response' from regulators to calls for state support.
Complain about this comment
Another brilliant article, thank you Mr Peston.
Only one thing that isn't clear. There's detailed arguments against the status quo, but balanced against them, I can only see one argument against full semi-nationalisation - that we don't want the whims of ministers to come before good commercial sense in negotiating loans and other deals.
Fair point, but there's two fairly obvious-looking questions to this non-expert:-
1) This is a danger if the policy was implemented badly, not an inherent problem with the idea. It'd be possible to design the system so that ministers couldn't influence decisions (or at least, couldn't do more than a little)
2) There isn't much good commercial sense at the moment anyway, so there's really not that much to lose
Sound banking decisions being distorted by political whim is clearly a bad thing, but surely, so long as care is taken when designing and monitoring the system, it's no worse than sound banking decisions being devastated by short-term lunges for bonus-friendly figures?
As for banks becoming more social in their operations and being less independent, like most other people who have commented here I can't quite understand why this is a bad thing.
Surely, in practical terms, being more social and less independent means banks being more hands-on in their dealings, having more formalised responsibilities, and being more accountable? Surely these are all good things (for everyone except corrupt executives)?
Complain about this comment
These loans should be converted into shares at the price as it was at,say, 1st August the government should then be obliged to sell as and when the market price is at, say, 2.5 times the purchase price. This would remove the deadline RP refers to and encourage management to start doing their jobs.
Complain about this comment
Doesn't this just show the economic illiteracy of the government?
They lent/provided guarantees to banks, and postured that they would 'force' them to resume lending. This was always patent rubbish, as I suspect they knew. The banks can't get back to significant lending until:
a) their balance sheets are sufficiently in order to meet the new capital requirements
b) LIBOR comes down to pretty near the base rate (and the Bank of England keep lowering that - doh!)
c) every bank fully understands the toxicity of their existing loans (which they still don't)
d) house prices stop falling so that the loans aren't secured against a falling asset (they're still falling)
Any bank which resumes lending now is asking to go bust. Until they are sufficiently financially stable to do so, they have an obligation not to lend.
Brown and Darling continue to posture and bluster and "call in" banks to lecture to them, but this will have no effect at all.
Meanwhile, they are effectively ordering the Bank of England to cut rates. Wasn't the B of E supposed to be independent? Wasn't that a central plank of Brown's chancellorship? Or are they independent until a politician feels like interfering? In which case, why should the markets ascribe any credibility to the fight against inflation in the future?
Complain about this comment
MadTom1999.
Hole in ONE.
ALL LIES.
########################################################
Maybe it is time to apply for a banking license?
Whoops i am not a Labour Party donor.
Unless Gordy gets my body parts.
Complain about this comment
BBC News Headline: Government lending crowding out private enterprise shocker.
The BBA are on the news now saying small business lending is up 9% year on year compared to Sept. 2008.
Maybe, it has something to do with tax hikes on small businesses destroying profits in these challenging times.
McFall on R4 this morning really didn't cut much ice.
Nationalise the banks?
Oh yeah, the taxpayers really going to vote for that one.
Complain about this comment
Why is it that Labour are demanding the banks lend more, when at the same time they are congratulating themselves for their cleverness at how quickly the Northern Rock loan is being paid back?
The Rock can only pay back its loan by lending less (or not at all) and getting customers to switch banks - i.e paying back Northern Rock and hence reducing its lending.
They can't be responsible for reduced lending at Northern Rock (and presumably B&B too), and then shout and scream that banks aren't lending.
Then again, hypocrisy probably isn't a word they understand.
Complain about this comment
I have a plan that would have got around all this.
The bank bailout is estimated at GBP 37 billion in capital. This represents GBP 1,500 per household in the UK.
Rather than give the money to the banks give it to the people on certain stipulations as follows. The household must use the money in one of three ways.
Firstly get a GBP 150 per month subsidy on their mortgage payments for one year. This would help all those struggling to pay increased mortgage costs and help cut repossessions. Some of the money saved by the household would either be spent or used to help repay other debst such as credit card debts or to help keep a roof over their head.
If the money is spent them this will help boost the retail economy and the money spent will have a bigger impact due to the multiplier effect.
Secondly get a GBP 1,500 payment to use as either a part redemption of a mortgage or to use as part of a deposit for first time buyers or to use as a lump sum to pay off credit card debts.
Both these options would assist the financial businesses such as banks and credit card companies. It would help people in debt by either reducing their debt or allowing them to pay off debts at the highest interest rates making them better off allowing them to spend money elsewhere.
The third option is a pre paid credit card charged with GBP 1,500 with a six month expiry date. This could be used to help purchase goods, pay winter fuel bills and generally boost the economy.
All three would either allow relief to borrowers or allow those with no debts to boost consumption.
Complain about this comment
Gordy and Economic Literacy?
His display at PMQ's with his threats of fists & clunking.
More the style of a thug in a suit/bouncer.
Complain about this comment
Surely one of the big questions which nobody seems to have addressed is why do we want banks to lend?
It is the acceptance of lending and borrowing which has got us into this mess and the only way out is to accept that borrowing money is a very exceptional thing, to be done only is the most desperate circumstances. Then it doesn't matter that loans are hard to come by; they should be.
Complain about this comment
Excellent analysis.
- should we therefore nationalise the banks? what would the consequences be for government debt, us, etc?
- presumably, the banks aren't lending at previous levels because this turned out to be massively unprofitable, leading to the bailouts etc. Surely therefore forcing them to lend for political reasons risks simply creating new, larger losses which we'd have to bail out yet again? what do the Gov't say to this?
- isn't the reality that there is no easy way out of this? we got into the mess because of unsustainable levels of debt and lending, permitted via lack of regulation. don't we simply have to recognise that we need to bring debt/lending levels back to a sustainable level? however this is done is going to be/is very painful. not much we can do other than grin and bear it, and repay unsustainable debt. what do the gov't say to this?
Thanks again for a great post.
Complain about this comment
The anger expressed above is extraordinary but it must not be forgotten that we are here because governments allowed the private sector to do as it pleases.
Brown and Blair were not just naive about the nature of modern capitalism they worshiped its ethos and practices.
Is there still anyone now who does not understand that free enterprise is not about free markets as described in Robert's father's text books but about power, control, manipulation and individual gain at the expense of society and the majority of the population.
Unfortunately in spite of the approach of economic armageddon not much sign of a learning processby the government
Complain about this comment
As they lie every day like most liars they
forget the LIES they have told.
Complain about this comment
We simply couldn't afford the vast amounts of cash needed to nationalise ALL the banks. It's arguable if we can afford the money that's already been thrown at them.
Complain about this comment
What absolute rubbish from McFall, the reason we have the credit crunch is because banks were exposed with respect to the balance of assets and liabilities. This idiot know wants to break the accounting rules of banks to lend and so weaken the very balance sheets we were supposed to be protecting. Better to take and manage all bad debt from UK banks and place a minimal corporate rate tax of say 1-2% which is used to pay back the debt over the long term this % is added to standard rates of corporation tax - its manageable, transparant and stops all this insanity from politicians how should know better - Nationalisation will crucify an economy that like it or not is fixed to the fate of international financial services - we all depend on it forour balance of payments and wealth generation
Complain about this comment
I'm assuming by the backlog in 'awaiting moderation that the thought nazis are on Friday lunch, or Curzon is up to his old tricks again can't wait for #54 - go on Alexander!
As for #29 - 'Banks are not registered charities' - they don't have to be. They're tax benificiaries now.
I do agree that lending to the wrong people has of course caused this problem, in part. But why would 'lending' to those bankers that caused this, in part, not worry us also?
Complain about this comment
There's a Mancunian habit relating to Terrace houses with no inside lavatory.
To be P.C.
"using the same pot"
Complain about this comment
Govt. threatens to nationalise all banks.
Hey ho!
The Govt. create this pickle. As others have pointed out Gordon Clown loosened the regulation. The regulators are spineless. People generally are greedy and corrupt.
Result? The current mess.
Govt. desired solution - complete control.
We have a police state in all but name only.
Anyone for communism folks?
Complain about this comment
I want to complain about 'Tigerjays' comment because he said what I wanted to say and he said it first!
To underline the point: it was 'commercial criteria' which got us into this mess in the first place. Banks need a substantial even a total public holding and a clear remit on their functions. This should not include speculating in foreign economies and the whole question of borrowing foreign money to lend in the UK needs looking at.
The Swedish banking experience needs much greater publicity which may stop some lunatics screaming 'commy plot' whenever public ownership is discussed. For the genuine commy plot please visit Highgate Cemetary.
Complain about this comment
This is the best RP blog for ages. I think it helps explain the conflicting objectives surrounding the bank rescue attempts.
Basically, government needs to prioritise what it wants. If freeing up credit is now the #1 need, then they need to take another look at the various interventions and reposition them where they aren't facilitating what is now required. For instance, consider the capital injection program, and consider reducing the returns required on it, eg scrap investment in pref shares at 10-14% return, and invest everything in ordinary shares with lower dividends and restraints on how they can be made, eg let banks pay divis as it encourages income investors, but require these to be 100% in scrip form, so no cash actually leaks from capital base in the form of divis (people who want the cash just sell their scrip divi shares on the secondary market).
Secondly, if government does not want to be in the business of funding banks long term, that's fine, but they need to reduce the impact of any institution failing in the short to medium term. In the short term, they guarantee deposits (retail or not), as is already happening. They then turn BoE into a central counterparty for all interbank funding, so when bank A lends to bank B, in legal terms it actually lends to BoE and bank B borrows from BoE. This is the way all exchange traded derivatives already settle, for instance. The result is that if bank B fails, bank A still gets its cash back, because its debt is with BoE.
To protect BoE against failures, increase capital requirements in the short term (as has already happened), but not in a form that requires or assumes repayment in any pre-determined time frame. If that means the government has to underwrite more ordinary share issuance right now, fine, do it. But the government should get the money back in the future through placings into the secondary market when market conditions are attractive. There would thus be no risk of a withdrawal of capital from the banks, simply a switch of ownership at some indeterminate time in the future. Hence no requirement for banks not to lend because of the likely reduction in capital in 3-5 years.
Further protection to BoE can be provided by sticking a very low return on equity restriction on banks. This is a very simple but effective way of preventing excessive gearing. Monitoting cost income ratios, and headcount to total cost ratios guards against inefficiency and/or gaming of the RoE target.
Over time, the BoE central counterparty role could probably be changed to one provided by a consortium of banks (the model in the exchange traded derivatives market, as well as Euroclear etc). This is another potential source of cash back for the Treasury: provide the service now and sell it to market participants in a few years when confidence has returned (and MBS have all matured and been consigned to history!).
There's no reason to think banks don't want to lend. Not lending equals not earning, whether for shareholders or employees, so the banks' objectives and government's aren't that far apart. It's just that the steps taken to stabilise the banking system a few weeks ago are now actually acting as a drag on a return to sensble lending. Government (or Treasury Select Committee) diktat's won't change this. The banks know that JMcF's comments are political posturing aimed at the masses and nationalisation is the last thing the government wants. It's already been tried once (NR), and the result has been placing repayment of Treasury loans above all else. That's resulted in higher interest rates being paid by its borrowers to encourage them to move to other lenders, as well as earlier repossession of houses, again to get loans cleared more quickly.
Complain about this comment
Just leaving to go see a bank to do a CHAPs
Transfer.
Its a fair sum so as its friday lets see what
excuse is made to delay paying out till
monday.
I know it needs 4 signatures in the bank.
OH I SEEM TO HAVE GOT THE ANSWER:
MONDAY.
Complain about this comment
Robert, my thoughts:
" "
Thank you for your time
Complain about this comment
"The Banks aren't lending enough" is just some political mantra, repeated over and over by the media like they are trying to brainwash us into believing it. Fiddlesticks!
Take overdrafts. They routinely get paid down then used again, over and over again. Sometimes several times in a month. Every re-use of that money is new lending. Are the banks cancelling those overdraft facilities for businesses they believe to be viable? Or individuals still in work? No way on earth.
Has mortgage lending stopped? No, not even for self certified mortgages. 5% and 10% deposit mortgages still exist - they just have massive arrangement fees attached to them which make them an unattractive proposition for the borrower.
People should stop whingeing about "lack of lending" and get on with saving their 20% or 25% deposit, so they can get a mortgage at a decent rate. Their "bonus" is that by the time they are buying, house prices will have dropped another 20%.
As to those who have already invested in bricks and mortar and now believe, egged on by the "ever willing to trumpet on about anything with a whiff of disaster" media, that they have negative equity, get over it. The purpose of a house is to provide good shelter now, not to fund your retirement plans later. Presumably you thought your house was good value for money and adequate for purpose when you bought it? Well guess what, nothing has changed on that front. You need somewhere to live. Enjoy your houses. Sooner or later, possibly 20 years on from now, they will be worth what you paid for them when you bought them.
Complain about this comment
All these people asking for banks to be nationalised - can't you remember how badly nationalised industries are/ were run. Without exception. Think of Russians queuing up to buy bread or Muagabe printing extra zeroes on banknotes.
How is a Government guarantee of lending to small businesses supposed to work. Does it mean banks can lend as recklessly as they like and the taxpayer forks out for any losses.
Crazy.
Complain about this comment
Its simple all capital values around the world, shares, commercial and government bonds,commodites, commercial and leisure property, residential property, land, cars boats and aeroplanes, art, furniture, etc...etc...have fallen by up to 75%.
All commercial balance sheets have shrunk not just the banking balance sheets. We have stopped them selling CDO's and similar products that helped increase the world money growth and liquidity.
Thus even with a few hundred tax payers billions given world wide to the banks to replace the trillions lost in the unwinding of the toxic debt etc there is still a massively reduced capital base for the banks to lend prudently, yes prudently.
Why would Nationalising the Banks create more money to lend unless the governments borrow yet more moneey to give to the banks to lend.
Look McFall's comments are political to make the banks lend the maximum they can into the small business sector but lets not make the banks lend inprudently at basket lending ratios.
His stupid quip comments about Nationalisation are exactly why we should not Nationlise as the Banks would then be run by proffesional politicians most of whom have little reality business and economic experience and acumen who have run the economy into the ground through the likes of PFI and poor mangement of public expenditure projects and so on.
So where would McFall get all the extra money to lend out?
Tax spend tax spend is what got the uk into this mess in the first place. What is needed is business restructuring and cost cutting to get an established economic base for the lower growth economy and to start rebuilding on a long term basis not just thinking of next years general election by issuing a national happy hour equivalent.
Complain about this comment
As always some good comments on this blog.
My view on it (I work for a bank in the IT Department) the whole situation came about like a massive pack of cards, everyone is in part to blame. The Banks for their gung-ho gambling attitude which was fuelled by shareholders desire to get bigger and bigegr dividends, which was fuelled by Govt facilitated fiscal policies of "cheap debt is good", which in term was fuelled by us as consumers getting stupidly high mortgages on LTV's that should never have been allowed and people spending like crazy on a merry-go-round of an ever inflating bubble.
All of us, banks/consumers/Govt have got to get back to reality and live to our means.
Have banks messed up big - Yes - just look at my share plans which have been decimated :o(
Is nationalising all the banks the solution - Heck no - having worked both in the public and now private sector, making a Leviation of a Nationalised Bank would be a huge mistake. No matter how bad it may seem bank's can run a commercial business MUCH better than any quango ever could, they just need to be as Merv King said "more boring"
GW
Complain about this comment
#11 mightypavlovsdog
"gordy's fiscal stimulus is a complete waste of time.
it's not going to make one jot of difference when the root cause of the problem i.e. toxic debts are still there and have not been addressed."
You are absolutely spot on.
No mention of debt in Peston's piece. The powers that be seem to want to re-inflate a burst balloon. More and more money pumped in, and to no effect. And most of the press just want to talk about anything else except the one issue that matters - toxic debt. It is all VERY frustrating.
They need to let the whole lot collapse. Spending money on it trying to re-inflate this thing is a waste of time. The banks won't lend (who wants or needs another loan anyway in a falling market) and any extra cash consumers get will probably go toward paying off debt (or buying foreign imports).
And all this talk about banks being indispensable - let them collapse too (and run everything through NR and NS&I). As someone wrote above, they're not charities - well nor are we the taxpayer!!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
GREAT POST ROBERT!
....and the greatest concensus of opinion I've seen on this blog ever!
We're certainly beginning to look matthe problem with more focus now!
Complain about this comment
Does no one in power ever think anything through?
Labour wanted to be friends with the city (to get PFI funding?) so they deregulate the banking system. The banks exploit the new loopholes, what the hell did everyone think they would do?
Brown as chancellor wanted a society built on debt to promote spending. So the banks lend money and now it is the banks fault that a basically flawed system went bust. The only way to keep increasing a debt based economy is to borrow more and more (a principle the government is sticking to to fund tax cuts).
The banks need money so the government offer a bail out. Did no one in government suspect the banks would simply hold onto the money? If not they are idiots, if they did then any legislation to force loans should have come before the bailout.
Nationalisation is a joke, government financial planning has got us into this situation and we should trust them with the banks now? How long before 'How did you vote in the last election' is added to mortgage applications.
If the banks need money they should call in the PFI debts they hold. Then Gordon can come on and explain how this money wasn't real borrowing.
This may be a global problem now but it was one created by the Bush and Blair/Brown governments (the IMF certainly think so) they just look stupid trying to deny this all the time. They have encouraged the banks to behave this way for 10 years and now it is going wrong want to change sides, hindsight is 20/20.
Complain about this comment
Actually, its not a difficult choice.
We need both don't we ?
Less lending - that's good as we were all borrowing too much anyway.
Nationalisation of the Banks - that's also good as what lending continues might then be done responsibly...
Complain about this comment
Chancellor Alistair Darling could force banks to lend to small firms hit by the credit crunch, press reports say.
Mr Darling is said to be considering a cap on interest rates on small business loans as part of a package of measures aimed at kick starting the economy.
What a fool. By capping interest rates any sensible bank is going to look at the creditworthyness of the business and take Zammo's advice to "just say no"
Complain about this comment
The banks destroyed their balance sheets and then the Bank of England and the FSA insisted that they reinforce their tier one capital which further diminished their ability to lend, and now HMG wants its money back fairly soon!
You can hardly blame them for not taking on more doubtful debtors as the last thing they need is more bad debts.
We will have to come to terms with the slump and long depression. The governments of the globe can at best try to ameliorate the worst effects, such as starvation, however over-borrowed households will simply have to sell up for what they can get and downsize or to default and suffer repossession. That is financial reality and as soon as the Government and the banks admit it the sooner the World's economies will be able to start to recover.
There is no point in railing against the Government as they can do nothing, no matter how much they protest and prance around and pretend otherwise. Rome is aflame, but doesn't Nero's fiddling sound nice!
If you have less than 50 percent equity in your house the best advice is to default and be prepared to suffer repossession.
If you thought property investment in 'buy-toilets' would provide your pension (retiring within 15 years) - face the facts and forget it you should go bankrupt now and start saving again.
If your business is financed with bank loans and you need more money - go bust now and start again.
These bad-debts need to be taken on the chin by the banks and written-off and the sooner they are the sooner the World can start to recover. If we let it drag on so will the slump and depression.
Complain about this comment
Where did #69 go?
Oi, Labour cronies - get off this forum and get back to clearing up your sh!t
Complain about this comment
Just seen this in the FT. If right, borrowing to be worse than even the '70's.
Runaway borrowing to trigger tax rises
By Chris Giles and George Parker
Published: November 20 2008 23:45 | Last updated: November 20 2008 23:45
Annual public borrowing is set to rocket towards £120bn over the next two years – far higher than City forecasts – forcing Alistair Darling to announce plans for deferred tax rises and public spending curbs when he presents his pre-Budget report next week.
Treasury officials say the “mammoth shock” to the economy will cause tax revenues to fall far below previous government forecasts, even before the chancellor announces what is promised to be a “decisive” temporary fiscal stimulus.
EDITOR’S CHOICE
Video: Osborne’s new economic strategy - Nov-20Samuel Brittan: Why the Brown critics are wrong - Nov-20Public sector deficit piles pressure on Darling - Nov-20In depth: Pre-Budget report - Nov-19The consensus forecast is for borrowing to hit 6 per cent of national income, or £90bn, next financial year, but the Treasury expects the rate of deterioration to continue apace, suggesting the budget deficit will hit 8-9 per cent of gross domestic product over the next two years, close to £120bn – three times the European Union’s deficit limit.
Such high levels of borrowing, unseen even in the 1970s, will automatically push public sector debt as a share of national income well on its way to 60 per cent, a figure that dwarfs the current limit of 40 per cent.
Official figures on Thursday showed revenues declining at a faster rate as this financial year progressed, with non-North Sea corporation tax revenues down a quarter in October on the same month a year ago.
With the economy only now entering recession and with tax revenues set to fall further, public borrowing and debt figures will rise much faster than most economists had expected.
Mr Darling has insisted he is not simply interested in a fiscal stimulus but also in medium-term sustainability for the public finances. Treasury officials say this will mean ensuring that once the economy recovers fully, public borrowing must no longer fund government spending on day-to-day items.
This target is unlikely to be met until well into the next parliament. To meet this condition, the Treasury will have to announce credible plans to cut public borrowing from 8 per cent of GDP to about 2 per cent.
Spending restraint alone seems unlikely to meet that target, leaving Mr Darling with little choice but to announce deferred tax rises – which would kick in when the economy recovers.
That might reassure the markets but would reinforce claims by George Osborne, shadow chancellor, in a Financial Times interview on Friday that Mr Darling is about to unleash a “tax bombshell” primed to detonate after the next general election.
Mr Darling is thought to oppose the Conservative idea of an outside body to help verify medium-term budget plans.
If public expenditure was frozen in real terms every year, matching the spending restraint of the mid-1990s, public borrowing would only fall by about 1 percentage point of GDP each year.
Complain about this comment
When I went to university, the toilet paper dispenser used to say Arts degree. It now says economics degree. How can so many of them not understand that it is not about mathematics but human behaviour. The people who call for more regulation and Government intervention have miss the point that this mess was created by the federal reserve creating a factitious market for money through monetary policy. So far five trillion in intervention has not worked. When are our leaders realise they are just moving the pain from the risk takers to the rest of the community. It is a bit like a gambler going back to win back losses at the betting shop. The best that could of happened would be for the bankruptcies to occur so that our young people would not have to spend money trying live in excessively expensive houses. The houses would still be there.The thrifty would of done well, now no one will do well. Remember, there is always a silver lining in every cloud. The great depression did not last forever.
Complain about this comment
Post 54. Alexander I don't know whether to applaud or curse you!
Gordon Brown as a bouncer in a suit seems so true.
I now have this image stuck in my head of Gordon Brown and Alistair Darling as the "Two Rons" from Hale and Pace.
Complain about this comment
#50 Alexander: "Whoops i am not a Labour Party donor."
Unless Gordy gets my body parts."
I thought of a number of responses to this; unfortunately they could all have been construed as obscene, defamatory, necrophobic etc.
#53 Ian_the_chopper Good one - incidentally this is a type of Douglas Social Credit solution.
#58 I predict this one gets nuked, but Yes, the truth is THE one thing they have not been profligate with, quite the reverse. The question: what, if anything, do they really believe?
Complain about this comment
The bigger picture here is pretty scary.
The world must now change unrecognisably in terms of people's expectations of future prosperity in developed and emerging economies (not to mention the Third World).
Taxpayers are now shoring up one-sixth of global output through underwriting the banking system. That is one huge level of taxpayer risk that bankers and politicians will have to manage in the context of potential economic and social collapse on a country-by-country basis, if they cock it up. The potential ripple effect and unintended consequences are frightening (I'm talking conflict here as the world's power structures and relationships shift and slide).
Meantime, we're already seeing the effects in the real economy of pouring in capital-with-tough-conditions to banks: a credit famine. Excessive debt stemming from the underpricing and hence oversupply of loosely regulated money has already resulted in a spectacular global boom and bust (of which Gordon Brown was the architect of the UK's involvement, despite his tedious and disingenuous pleading of innocence).
From here on, we must learn to live with massively lower levels of debt than hitherto; no bad thing, albeit there is nothing inherently wrong with debt in itself provided it relates directly to the ability for it to be repaid.
The problem is that the ongoing "deleveraging" has much, much further to run for companies and individuals. It's this issue that most people seem to be failing to grasp - and to which the world's politicians are struggling to respond. They know we're watching them - not least as they try to decide whether to pump $billions into, er, car makers. Are we really saying that American, gas-guzzling cars are fundamental to global economic survival? Who next?
If our own politicians told us half the truth about just how bad this situation is (and is going to become) and moreover how incapable they are of treating the symptoms, let alone curing the disease - with your money and mine - there'd be civil unrest; and that's what scares them (and me!), of course.
Complain about this comment
so what exactly is wrong with nationalising them Robert? You didnt explain. It seems that the only losers would be their shareholders and the most senior execs that are on the gravy train there? Is there any reason why the british public (savers, people with mortgages and small businesses) would not be winners in such a situation?
Complain about this comment
The banks have no room to refuse the governments loans. In other words to survive they need they need the bail out money they have been and are going to be supplied with. Therefore, the government should give these banks a mandate as a term of their loans to supply more loans or else risk being wound up. for example during a serious war the goverment could ask car makers to make weapons. doesn't the same prinicple apply here. After all, beggars can't be choosers.
Complain about this comment
John McFaul is an idiotic dinosaur who obviously has such a short memory that he has forgotten the total mess that government has made of running nationalised industries!
Also, to state that the government has pumped billions into RBS and other banks is as yet untrue, because little or no money has been invested. The share issue by RBS will only see the government picking up shares which are unsold to current shareholders, who may or may not take up their offer!
Complain about this comment
A (too) long career in the Civil Service has taught me that if there is one thing the Civil Service does even worse than provide services it is manage at arms length those contracted from the private sector to do so.
So the banks should either not be nationalised or if this is unavoidable, should be denationalised when circumstances permit. Rolls Royce is an example of successful nationalisation in a crisis, and subsequent privatisation.
Strong regulation, and an outright prohibition of trade in complex derivatives that the bankers themselves don't understand, is the least bad option. But the audit profession should be wholly public sector. Businesses should not be permitted to choose their auditors, and the public sector auditors should work on the basis that they are dealing with people who are essentially crooked, and who need to be treated with the utmost suspicion. A few thousand personal bankruptcies and long prison sentences for culpable negligence by directors would create a cultural transformation. This is most urgently required.
Complain about this comment
#82 Ian - Max & Paddy surely?
Complain about this comment
At 11:19am on 21 Nov 2008, dudeHangingon wrote:
""it is becoming apparent to me that the bail out on these terms is actually harming the people it was suppose to help. Why can't a sort of payment plan be agreed based over 20 years at 5% per annum plus interest of debt owed?..or similar""
Interesting concept,although I believe it already exists..its called a Mortgage
Mr McFall may be acting out of his own self-interest (although most people would agree that some easing of the current credit blockage would be a good thing) but if you REALLY want to see naked self-interest in action check out the Good Ol' Boys who represent the southern states in Congress literally willing GM and Ford to go down the pan because they don't have any plants in Kentucky, Alabama, South Carolina et al.
The word 'unedifying' just doesn't do justice to the incredible myopic selfishness of their approach, but the electorate gets what they pay for (literally in the US)
Complain about this comment
Remember this Goverment put the FSA in place to govern Banks. It has failed in it's duties and so the Government is effectively having to bail things out because they are not able to manage the FSA. Not complicated really.
Nationalisation is not the route.
Complain about this comment
The banks are well taking the mickey. They think that they have the taxpayer and the government over a barrel. McFaul making veiled half-threats is risible. He's just the little kid in the big playground pretending to be tough and wondering why the big boys are lauging their socks off.
There is only one thing that is gong to bring the banks to heel and that's giving them a fear biggerthan all their other fears put together.
Tell the banks - in public - that noone is irreplceable and no business is to big to be allowed to fail and pull the plug on them until they come begging, then only help them if they obey.
Other trhan that, forget it. The banks won't play and that's that.
Complain about this comment
If between 3-5% of mortgages are in default, then that should be a relatively small figure (ie 95%+ are still being repaid fully). This suggests that the cash crisis at the banks is actually related more to imprudent overseas lending. Would anyone be able to put any figures on this please?
Again, if its just a UK mortgage problem it would be much cheaper for the Govt to pay the repayments of all defaulters for say 3 years when the house prices are expected to recover.
Maybe the crisis is really foreign (primarily US) CDO's and CDS's but Broon doesn't think that bailing out banks for that reason plays so well with voters.
Complain about this comment
Not anything to do directly with today's posting but you all seem to know what you are talking about. So tell me: What is the point of the BoE's base rate? Who borrows (from whom) at that rate? If somebody is borrowing at that rate why can't the rest of us? I'm sure there's a good explanation .... ?
Complain about this comment
Robert,
I'm amazed you are being so naive here. The whole point of this 'bail out' instead of nationalisation is so the government can try to shift the entire mess of the UK economy onto the banks. As you say, the banks are not in a position to lend money but that provides excellent cover for GB, AD and Labour MPs to pound the banks at every turn and thereby refuse to accept any responsibility for this shambles on their part.
Complain about this comment
Yup I am sure the government would do a brill job of running a bank. God help us. They couldnt or wouldnt regulate the banks in the last 5 years. Can you imagine what a great job they would do regulating them if they ran them. Has he got his brain on timeshare and it is an off day.
As for apparently endless shouts from the wings that it is a good thing that lending is stopped and those who seem to want a dark ages with strictly cash trading. This ignores the fact that credit has been in operation for several thousand years in response to societys needs. And in todays UK economy debt is already in place. There are not many people who can buy property for cash, particularly when they are young. What planet or what medication are you on.
Complain about this comment
The directors of a forestry company are in a spot of bother. Their shareholders are unhappy with the company's rate of capital growth, and the only way this can be improved is to utilise the areas left unplanted as firebreaks. "We can't do that" say the directors, "what if there's a fire. there'd be no way of preventing a total loss". The shareholders tell them to ignore this. They, themselves are under huge pressure to maximise the immediate value of the funds they control. They've been threatened with the sack if they don't squeeze the maximum immediate return out of the fund's investments. So they insist that the forestry directors jobs are on the line if they don't improve their results.
The firebreaks are planted over. Six months later, there's a fire and the entire forest is burned to the ground.
Who is responsible for this having happened?
(a) the directors of the forestry company?
(b) the fund managers at the institutions who owned the shares?
(c) the investors in the funds who insisted their fund managers were geared to maximising short-term return?
(d) government, who didn't recognise that human behaviour over-discounts the future, unless it is forced not to?
(e) the general public who elect governments on the understanding that they will be thrown out if they do anything to disrupt the party that's going on?
(f) ???? who failed to understand that a functioning society requires a controlling number of it's adults to be sufficiently knowledgeable to appreciate that parties are no more than light relief in the serious business of living sustainably.
For forests, think banks.
Complain about this comment
It is a statement of political belief to keep calling the funds shoring up the banks "tax payers money". It is not any body's money, if anything it is a facility. Tax payers' money will be the profit made in interest etc on the facility and the cash generated from sales of shares in banks "bought" by these facilities, if and when these sales are made and in the mean-time dividends from profits. Handled well, this current situation could be a nice little earner for the tax payer. The middle eastern chaps are not shoring up Barclays for charity are they ?
If the government was a bank, its shareholders (us) would be looking forward to the profits, saying what a great deal this is, and the media would be a lot more up-beat.
Look on the bright side dear - there is one you know.
Complain about this comment
26. At 11:08am on 21 Nov 2008, mustrumdavid wrote:
Hi Robert,
I agree we should nationalise the banks. I also have a scheme whereby we can cut taxes and preserve a relative free market in financial services. If you are interested, see http://www.dingoes.org.uk/forum-view.php?thread=19.
A very intresting and informative soloution.
However this does not address the fatal flaw in the system. (unless i missed something) that is the eqation is not ballanced.
debt + INTREST = money available
how is the intrest to be payed back ? so again we have a model that requires perpetual growth.
We should be looking for a sustained economy.
Perhaps i might sugest that the national bank creates additional money equal to the interest of the debt that is passed to the government to spend into the economy. Thus reducing taxation further.
Otherwise your system looks sound to me.
Complain about this comment
John McFall really isn't smart enough to be talking about banks. Part of the bailout package is contingent on the banks REBUILDING their T1 ratio.
This morning on R4 he said they should loan out their capital buffer to small businesses. Does he understand what that capital buffer is actually there for from a practical and regulatory point of view?
John, perhaps you should read your own governments output before speaking in future?
Complain about this comment
#87 What mess has the Government made of running nationalised industries?
Let´s take a look at the electricity and gas transmission businesses, both of which used to be nationalised. How exactly did these businesses fail when they were in state ownership? and what improvements should I be looking for now they are privately owned?
Water supply used to be nationalised (and still is in Scotland). Surely you can point to some benefits that come out of English taps but don´t come out of Scottish taps.
Look how nuclear power thrived in the private sector, firstly it ran out of operating cash and had to be rescued by the state and then realised that it was incapable of building any more nuclear power plants and had to be de facto nationalised by the French state. Presumably there is something qualitatively superior about the French.
Then we come to the raging successes of the private sector - say Enron for example, you don´ty like Enron lets try Railtrack.
Complain about this comment
I say, dont nationalise/seminationalise any more banks. Let the rest go under, it will create more room, for the rest of them.
Bad practices should not be rewarded.
With the government controlling those they have already invested in, then we perhaps we will be able to get a more competitive rate and willingness from the banks to lend.
8)
Complain about this comment
So where is the money coming from and going to? The Government are having to borrow the money to bail out the banks, so presumably some banks (central) somewhere is/are lending to the Governments who are lending to the banks, so that money has to be repaid by the government at interest to teh CB's . But the banks also have to pay the government back with interest. Where is that money coming from?
It seems to me that the banking sector and the Government are going to be shaking trillions of dollars backwards and forwards between themselves, creating trillions more dept in interest in the process, whilst we, the poor suffering public, get stuffed with the tab in our tax bills and increased bank charges and diminishing interest on savings!!!!
Why not take the billions and give it to the people in hand-outs and then they will spend and/or invest it as they wish. Either way, it will be flowing back through the banks like a raging tzunami! it would be cheaper and everyone would benefit.
Complain about this comment
#7 Appolo McQueen,
I said it months ago, what you are witnessing here is socialism by stealth ;-)
Complain about this comment
#94
BOE Base rate is the rate of interest which it charges to lend money to banks and other financial institutions.
It also controls the amount which it available to lend at this rate to try to control money supply and inflation. (too much inlfation/money - raise the rate/restrict supply and vice versa).
Retail loans have to be a higher rate than this so that a profit can be generated to cover the costs. Risk of a loan is assessed by bansk which is why different businesses and conditions.
It always used to be the implicit assumption that BOE lent to your bank long term at base and in turn the bank lent your mortgage at a reasonable level over this rate hence trackers etc. Profitable yes but extremely dull and safe and wouldn't finance multi million bonuses.
However it has long been an assumption and is why the systems is now broken.
Complain about this comment
Well I suppose this is one way of stirring up a hornets nest of ill feeling, but I would advise everyone to just stop and think about what the consequences are. To nationalise the banks means the UK government then becomes responsible for the banks debt(tax rises), it means the government has to borrow even more money (tax rises). You may well get a bank lending on government orders, but it will be loosing money(tax rises) and investors are likely to take a very dim view of the pound (inflation). What is the use of being able to borrow money if a loaf of bread costs ten pounds. Do we really want to order banks to lend on the whim of the government, what happens if they make up a rule that credit will only be available to business and not to individuals. Will we vote for those who will ensure we can have the maximum credit. Even the current politicians can see the future risks and are taking a hands off approach. On a slightly different tack nationalisation would probably break european economic rules and been seen as protectionist so that other countries would be forced to retaliate with taxes on UK exports.
On a different note it is quite clear that very few have taken an active interest in what their banks have been doing financially. UK bank Interim statements are quite clear about their levels of lending and it looks to me like lending as increased. This does not make the perception that banks are not lending untrue, it means some foreign controlled banks are cutting lending along with Northern Rock and Bradford and Bingley. Ultimately it is in the interests of banks to lend because that is where they make their money. I am not a fan of bank renumeration and think most bank boards ought to be fired, but the situation is a lot more complex than some realise.
Complain about this comment
We'll all have to have an account at the Bank Of Gordon!
Complain about this comment
So... after all this time and all those James Bond films it turns out that China and the USSR had it right all along!
Complain about this comment
Let them go to the wall and we can all then begin to build a much better society.The day that these banks decided that the only thing which was important was their own futures and to look good in the beauty parade of the stockmarket was the day the rot began.What did these fools do they brought in nerds who could produce 290 pages of absolute clap trap to support lending to people who hadnt a clue what the clap trap meant and indeed in most cases the guys in the credit committes didnt either,the day must return when a local bank manger takes the decisions he or she knows who they are lending to and if the lending will be repaid.I will give you an example i knwo of one such institution who is part of one of the largest uk banks back in 2006 lent a developer 12m to purchase 15 acres of land and also lent him 3m on the back of another asset which was non income producing and had only going up in value,now this land was to build 275 houses in a small village 45 miles from the nearest big town, with no industry,this village has had a population for the last 3 centuries of about 30 houses and suddenly it was going to grow the population by 1000% in two years well off course the nerds got it to add up on paper and their blackberries but most of them didnt have a clue where the place even was now the land is with about 500k and the additional 3m borrowed the asset has also reduced by 50% the borrower has no other means of paying this back and the land will never be worth more than 2m in a generations time . So does anyone really think that the nerds who run these institutions should be given a bailout for these types of errors i think not they should be hung out to dry today
Complain about this comment
BBC Breaking News!
Repossessions up 12% and no-one cared.
GC
Complain about this comment
Dear Santa,
I'm good at sums and I'd love a Bank from The Bank Sanctuary for Christmas, my mum was going to get me one but she says they've gone out of fashion now and I'd look silly in a suit.
I have £12.75 to put towards it, so I don't expect one of the really big ones.
I promise to look after it.
Thank you
Thomas aged 47 and three quarters
Complain about this comment
Re Moderation?
Seems Mr Ross can do as he pleases.
BBC blogers just get DELETED.
Like the Banks you guys need to Learn who Pays your salaries.
THE PUNTERS STUPID.
Complain about this comment
So another SG tries to intimidate to banks to take up the offer of 37billion pounds.
If the banks can get away with doing business normally without that mill stone around their necks and survive the turmoil that the other SG created, then that has to be good for the country.
In the same breath it means we cannot have loans without a reasonable interest being placed on that loan (as it should have been in the first place).
It should be pointed out, if the 37b is based on 5 years payback time then if taken up or forced to to be taken up, loans to those outside sources must also be only 5 years as well. Nice one RP
Complain about this comment
Nationalisation of the banks is not as dumb as it seems.
The provision of current accounts is a structural neccessity and in our computerised age there is no reason why it can't be a govt service provided by the BoE. After all banks don't print their own notes anymore and current accounts are merely the new banknotes for most of us.
I have never been happy with my bank using my current account credit as collateral for their own lending.
Lending and saving should be in the hands of private business and properly regulated. Putting my cash at risk should be my decision not forced on me as it is by the current arrangements.
This is quite a good idea.
Complain about this comment
About to give up trying to make heads and tails of what’s going on.
To use a black adder quote this situation twists and turns like a twisty tervy thing
Only thing I can gather from all of this Gordon's cunning plan has sort of backfired.
the banks are not doing what he wanted them to do and the economy is not recovering as a result.
I look at the news see job cuts
i look at the pretty little graphs on bbc site - money ft index - they resemble a fading cardialgram of a terminal patiant.
I am an artist I know nothing about business; I know nothing about banks, im not a self-styled financial guru like some ppl on here seam to be.
But I know failure when I see it and its brown coloured
Some financial genius huh.....
Complain about this comment
# 90
Unlike the Senators from Michigan, Indiana etc who are motivated by the purest of motives to support GM, Ford, and Chrysler? The large campaign donations from the Union of Auto Workers never once entered their heads as they suggested that Congress write an unconditional cheque for USD 25 billion to those three corporate bastions of all that's best in American management.
I would suggest that if times are not yet so hard for the Big Three that they have to sell off the corporate jets, then they're in no need of help from the US taxpayer.
Or if you prefer some colder, harder facts. GM alone has net liabilities of USD 60 billion, so even if all the Congressional money being discussed went to GM, they'd still be insolvent and the money would be wasted, probably on more fuel for the Lear Jet to go back to Washington to beg for another handout.
Looks like Obama is favouring bankruptcy if reports on Bloomberg this morning are accurate.
Complain about this comment
I can't help coming back to something sjpepper noted earlier.
Yesterday the money wasn't ever meant to promote increased lending and we were all roundly chastised by RP for so assuming. Though he generously noted that we'd got the wrong end of the stick because his script writers in the treasury had worded it thus.
Now, someone from the treasury select committee, albeit waving a red flag, puts down his snifter long enough to say that the blasted banks haven't used the public funds to increase lending, so lets nationalise the lot.
As sjpepper notes, whose lying? RP? HM Govt? All/ neither?
Strikes me that no-one knew or knows what's happening, what the money was for, when we might know if using it has worked and what the imlications are in any circumstance.
With that in mind, does it matter? This lot, Camerons lot? Nationalised, privatised? Fred the Shred, Varley - they're all just wall-paper. We're on the down turn, one day we won't be. Some will suffer, those that caused certainly won't. It was ever thus
Complain about this comment
I cannot believe that so many people want to see the banks nationalised. The Govt cannot run a party in a brewery. Imagine the banks run along the lines of British Rail. I'm leaving the country - and yes someone will have to turn out the lights after me!
Complain about this comment
"So here's what may turn out to be the choice: less lending for years or public ownership of the banks for the foreseeable future. It's not an easy choice, is it?" - Robert Peston
On the contrary, it's very easy, unless you've swallowed the "free-market" dogma that has got the world into this mess. To his credit, John McFall seems to be on the verge of noticing that the "free market" Emperor is stark naked.
Complain about this comment
I'm new to this blog but have been reading it for the last couple of weeks, since losing my job and starting to work from home as a consultant. I now charge my former employer twice as much but spend half my time on the internet. We all need to try to be positive during the economic downturn. Think Monty Python and the bright side.
I get the impression that this blog is gaining more participants every day and that today's conversation is one of the best informed so far. As more and more clever people lose their jobs over the coming year the blogging can only get better. If your house is repossessed just go to the nearest internet cafe to stay in touch.
I definitely agree with #95 that there is a lot of naievity around. And #97 your forestry analogy is cool.
Let's remember that what any government says and what they think are two completely different things. The British govt must have known all along that the banks wouldn't want to lend and I suspect that Brown secretly wants them to be prudent. Look at the policy at NR and B&B for the proof of gov't policy.
Also, if the banks lend widely at the moment they are risking their own destruction - there will be waves of bankruptcies and defaults in 2009. But in the meantime the banks are a very useful scapegoat for govt. So far it seems to be working well for Brown and Darling as a political tactic. But the fact is that nobody knows what to do about the current problems or what is going to happen next. Brown and Greenspan are perhaps the two people on the planet who should carry the greatest blame for the bloody aftermath of reckless deregulation, so the current situation is scoring 11 out of 10 for irony!
Well done clever Brown with your recapitalisation plans ha ha. Seems like it has achieved absolutely nothing so far. Neither is the TARP in the USA. But when Paulson said last week that they weren't going to bother purchasing trouble assets but would follow the Brown recapitalisation approach instead, it started the latest sharp declines in markets and fears of defaults etc. Look at Citibank! They could be gone by Monday. Remember what happened to Lehmans and Merrill Lynch one recent weekend folks.
Complain about this comment
#81 "the toilet paper dispenser .... now says economics degree. How can so many of them not understand that it is not about mathematics but human behaviour."
Actually, it's got to be about both - and thinking for yourself. There are mathematical models which just don't fit the facts, but "experts" often carry on using them, and even teaching them as true, despite knowing that they don't work.
Eg the " efficient market hypothesis " in economics. Effectively junked by Mandelbrot's analysis.
Sadly, there are even examples in physical science too.
Complain about this comment
More made homeless as announced by CML.
Margeret Beckett says they have done everything they can.
160,000 accounts over 3 months in arrears.
Anybody know how many arrears cases outside CML lenders?
5000 houses a week being put up for sale by people who cant cope.
These are the result of a Negligent Regulator ie the FSA etc.
THIS IS WHY BANKS WONT LEND AS THEY DID.
Complain about this comment
Absoutely marvellous.
We have bailed the banks out - and now they're quibbling about the terms.
Maybe they need to look at their own reasonableness when it comes to default or reposession.
I suggest the Government send them a letter demanding full and final payment - or start leagl proceedings to recover the assets of the bank.
That's exactly how banks got to where they are today - so why is it one rule for one....
We can hold elections, or a lottery to find the new public board of the bank. I think my local greengrocer is a lot more financially astute than your average bank CEO. I know he wouldn't have been fooled by a CDO or a SIV.
Complain about this comment
"The great depression did not last forever." - Mizzmiltonfriedman
No, but it did cause many deaths, immense suffering, and world War 2. As this remark makes clear, the "free market" crew would gladly put us through the same again in pursuit of their ludicrous ideological fantasies.
Complain about this comment
Re my post no 3.
I guess its going to be deleted.
I do not support NATIONALISATION.
I want the Government to call an election.
Oh i forgot i MUST agree with McFall & Gordy.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Complain about this comment
Spendid piece of explanation Robert, showing that the Government can't have things both ways - either stable banks and lower lending or higher lending and a repeat of the last 18 months in a couple of years time.
BUT NOT BOTH!
#100 you got it spot on.
Complain about this comment
I have not seen anywhere the idea that having capitalised the banks with tax payers money, those same banks should be compelled to offer to capitalise (on the same/similar terms) their loans to small businesses. This would improve the balance sheets of those companies and thus reduce the cost of borrowing, and therefore the ability to survive this recession.
The disconnection between the banks profiteering, whilst throttling businesses, would at a stroke be remedied!
If the loans they have made are any good, this would also improve the banks balance sheets!
Complain about this comment
The bank bailout has become like a coconut, on the inside is the sweet financial coconut milk of recapitalisation, but this is surrounded by a tough financial coconut shell exterior.
It seems that only the banks have the financial coconut hammer required to penetrate this tastless hairy exterior and access the financial solvency milk within, whereas the poor small businesses of our beleaguered nation are unable to get at the coconut milk at all.
Complain about this comment
101: Nationalized industries keep going because the are heavily subsidized by the tax-payer. They are also a dream come true for the unions.
British coal and British rail were both badly run and only survived so long due to massive funding from successive governments. Electricity and gas suppliers? Well there were power cuts and brown outs in the 70's i don't remember many since privatization. Many of the problems, Railtrack, the water companies etc are because these companies are left with an infrastructure that was allowed to run down under nationalization.
Nationalized companies don't fail they just soak up more and more money. Generally private companies put money into the system nationalized ones take it out. If anyone thinks nationalizing the banks will end the hand outs they are sadly mistaken.
As to this government I have seen nothing that they have run that gives me any confidence they could guide the banking industry. If their handling of the foot and mouth epidemic is anything to go by they will probably cull the banking staff, ruin the industry and spend billions more than was necessary to do it.
Also say the name Enron quietly it is te same accounting system that Gordon is using for PFI. It worked so well first time I don't see how it can go wrong again.
Complain about this comment
Personally I think it's a VERY easy choice. We should take the lower lending. McFall's got a nerve! Part of the reason why the banks are reluctant to lend is that the GOVERNMENT has forced them to have higher liquidity. It was a condition of the bank bailout. McFall's socialist nonsense is a great example of why Barclays decided to get their new funding privately instead.
Government ownership of the banks has been a Socialist dream for many years. It would mean complete State control of the entire economy, and effective government control over where all investment took place. Welcome to the USSR.
Complain about this comment
The crisis is deepening and we've hardly begun..
How wrong to try and convince the public that this is just another normal decline.
Even worse and even more cruel that government can pretend they can do something about it rather than sit it out and see where it is going to end.
How can you action a recovery when the end of the decline is nowhere to be seen.
There will be many people who just cannot face up to the truth.
Those that do will be better equipped to face up to the future hardship that is well on its way.
Never was there a recession where the banks were literally bankrupt apart from the 20's and 30's.
Is the policy to kid everyone as long as possible until the crisis is so bad a government can then take the unpopular measures it should take now but is running scared of before an election?
Complain about this comment
#114
The network is already there - it's called the Post Office but they have to use an Irish Bank to provide banking services.........
Complain about this comment
I presume those in charge know more than me and are doing the right thing, best I just drink coffeee and eat choccy biscuits instead of making a comment on a macro financial problem which is way over my head.
Complain about this comment
RP - some more good bank stories here if you haven't written your next blog yet.
Repossessions up by 12% and nobody came.
GC
Hon Sec Standards Committee
Banking Broadcasting Commission (BBC)
Complain about this comment
First ever blog on the BBC from me, been reading here for months now but only now felt the need to post an opinion!
The private banking industry has not served this nation well in my opinion. Beyond supplying basic services such as current accounts, savings accounts, business and personal loans and mortgages, the banks are 100% self serving entitities which exploit their enviable position to be able to create money due to FRB.
Greed has been key in them becoming so vital to the functioning of the British economy that the thought of letting them go to the wall is terrifying.
NO PRIVATE COMMERCIAL ENTITY should be indispensable, and allowing one to become so is a glorious failing of government policy and regulation.
With regards to a nationalized bank, I can see many positives that would come out of this.
A fully re-branded national bank born from the ashes of Northern Rock, Bradford and Bingley and any other bank on the wall at present based on mustrumdavid's idea has notable merit.
On the issue of job losses: a UK wide national bank with high street branches in every town and city can employ those non executives of failed banks that lose their jobs as these insolvent banks go to the wall. A national bank still needs cashiers, legal departments, IT s=departments, etc etc...
Whilst not completely eliminating job losses, it would go a long way to reduce the impact on unemployment.
A major downside would be the impact on index linked pension funds, but this is a pain that is necessary and no investment is supposed to be completely risk free. Pensions are privately managed portfolios that come with an inherent risk element!
By the way I am also in favor of a nationalized energy company supplying electricity and gas to the public.
Complain about this comment
Update on my CHAPS transfer just had the
call.
No one senior enough to sign it off .
You've guessed MONDAY.
The bank is skint.
Complain about this comment
Mr Peston, try this for a paradox in the bank bailout.
Banks have little real money.
They create money from debt.
Every loan allows them to create money.
They charge interest on money they created.
They charge arrangement fees.
The only control the government have over money supply is taxation.
No the banks get the tax as well.
Good Lord, I take my hat off to the bankers, far from being idiots they are frillicking brilliant,
They want it all and now they have got it.
THATS THE REAL PARADOX.
Complain about this comment
#114
but how much would you be prepared to pay monthly/per transaction for this Peoples Bank service?
Free current accounts are 'new' within living memory and the nominal reasoning is that the balance in your account is 'lent' to make back enough money to cover the cost of running the account. It doesn't but it's the theory.
It's being slowly coming that new 'current' accounts with a few worthless benefits but monthly fee charging £10-12 currently are being introduced - check HSBC adverts for Plus and look for the white small print.
This trend is likely to continue to a point where the free current account will depend on other investments, minimum balances or other factors - the unprofitable majority will simply have to pay for it.
If banks are not to make huge profits on silly lending have no doubts it will have to come from somewhere.
Complain about this comment
I think the High Street Banks are best suited to a traditional cash-handling role.
Maybe they could also do unsecured personal loans, which are usually for comparatively trivial amounts and repaid over a short period.
But because Mortgages are major investments spread over 25 years or more and if anything goes wrong people end up homeless ALL mortgages (and secured loans) would be best managed by a national bank.
We'd all be mortgaged to the state
My thinking is that in this situation, there might be a better set of options for the National Bank to avoid reposessions.
They might for example, be able to put a legal charge on the house which is realised when it is sold or as and when the householder dies.
That'll certainly overcome the horrible situation we've seen now when people suddenly and unexpectedly find themselves unemployed and before they know it they're homeless too.
Complain about this comment
Gordon Brown is back to blaming american bankers.
Wake up Gordy smell the coffee.
Fault lies in Downing Street,the FSA & B of E.
Complain about this comment
John McFall appears as innumerate as most BBC correspondents! :-)
In all seriousness we are into deleveraging.
There will be huge losses to come in the banks.
And our present problems are caused by too much consumer debt..
and overleveraging.
About 5 years to sort it out.
Of course there is an easy solution: inflation . As in 1974 to 1978.
And see where it got us.
Grin and bear it.. not much else to do...
Complain about this comment
Robert,
As I received an e mail from Virgin bank yesterday offering credit card balance transfer for 16 months interest free with a 2.9% arrangement fee it seems to me that the banks are still only looking for punters gullible enough to pay 13% Apr. They are hiking up rates to businesses as a result of the uncertainty of being repaid - this seems perfectly reasonable to me . The government if it is unhappy with the current position could I presume ask NR to offer highly competitive low interest business overdrafts and loans and I'm sure the recalcitrant banks will have to follow.
However, all of this seems like a red herring to me as the fundemental problem to which banks globally are exposed is the toxic debt. This problem has still not been addressed and inter bank lending will not recover until this problem is resolved.
What I fail to understand is why the brains at the BBC have still not asked the question of Ministers and regulators as to why the banks exposure to toxic debt is unknown and why accounting and stock exchange rules in US and UK on disclosure are still not being enforced? Whilst sorry by the great and good may satisfy the BBC it cuts no ice with those that have seen their pension funds destroyed
Complain about this comment
So Socialism means fiscal debt, private debt, and even the Labour party are in debt.
So that's the grand plan then, debt, more debt and even more debt.
Mr Brown, we are indebted to you, or is that we are in debt to you.
This is going to take decades for the poor old Tories to clear up.
Complain about this comment
#128 JewsNunkie
I think you are missing the point here, a coconut is in fact a seed, and so your metaphor should surely be related to the grape!
Complain about this comment
#2 "Rather sinister and very marxist especially when it was then answered by saying the Banks have not actually received any of the 37billion yet."
I agree that it is very sinister but Marxist ?? I think it is more Stalinist than Marxist !!
Marx would be the last person to support nationalisation since it is merely the exchange of one bad master for another and the workers kicked in the crown jewels yet again through no fault of their own !!
And John McFall should issue specific reasons why he thinks that it is commercially viable for the banks to lend now and not throw out political weasel words like a scattergun !! Especially in light of the reasons outlined in the article above and a few yet to be mentioned !!
Complain about this comment
Does anyone remember the 'New World Order' convo we had the other week?
Who would have thought that it was going to turn out to be Marxism?
Crazy days my friends...
Complain about this comment
#84 - Rarely have I read such an accurate analysis of the situation.
As you say those with their hands on the levers of power are terrified of the truth because they fear the consequences.
The problem is that this truth is so big that it cannot be hidden for ever. No-one likes bad news, but then neither do they appreciate being lied to. In this case the policy of refusing to admit the truth is analagous to fighting fire with petrol.
You can see early attempts to get the collective blame theory up and running (#97 is an erudite example). In the end this won´t wash as for at least the last 30 years there has been an ongoing effective disenfranchisement which has removed the influence of most people from most aspects of the political economy.
I foresee blood on the streets.
Complain about this comment
# 114
# 132
And have you seen how well the Irish banks are doing? Including the one that runs the Post Office's bank?
The Irish banks are likely to be forced into mergers (no bad thing, there are far too many of them), and then sold off to private equity firms.
Complain about this comment
Guy Croft - do you get the feeling that no-one on this blog is at risk of repossession?
I like your new title. Does that mean you're getting license payer moolah now, you old dog!
Complain about this comment
re: 116
If I was American I would not be happy to see an elected government representative revelling in the prospect of a major American company being wiped out because it reduces the competition for the German/Japanese/ South Korean businesses who employ workers in his state. Shelby says he is trying to protect 114,000 jobs in Alabama, obviously the best way to do that is to make 2 milion Americans unemployed in other states when Ford and GM go down..its just pathetic
Complain about this comment
@43
I disagree, This is to look at the sunset and ignore the dawn.
@94
Yes, only more so
@63
Twice
@71
Absolutely not! Such a proposition is unreasonable for our humble nation.
Complain about this comment
There seems little difference between the status of Britain and that of Iceland. Both have bank debts etc. at several times GDP (GB three times, Iceland seven times) and both have a large trade deficit.
If our bank assets are in sterling and our bank debts in dollars then we should be able to identify how much further the pound needs to fall for us to become equal to Iceland.
Extra borrowing will cause the pound to fall.
There is one advantage that we have over Iceland: our Prime Minister is more honest than theirs.
Complain about this comment
"Government ownership of the banks has been a Socialist dream for many years. It would mean complete State control of the entire economy, and effective government control over where all investment took place. Welcome to the USSR." - Adam_C_UK
I think you made a few typos there Adam. I'm sure what you meant to say is:
"Government ownership of the banks has been a Socialist dream for many years. It would mean complete democratic control of the entire economy, and effective democratic control over where all investment took place. Welcome to economic democracy."
Complain about this comment
Someone seems to have forgotten that the money that banks lend is our money, not the government"s.
Complain about this comment
TO nationalise the entire British banking system would not work. Imagine that the British banking system is the Kellogs range of cereals. It would be like making Snap Crackle and Pop the mascots of every cereal. What about Tony the Tiger? Or Coco the monkey for example, who has already been replaced by Snap Crackle and Pop as the face of Coco Pops in the USA.
It causes panic and unfamiliarity, just like people can't face to eat their favourite cereals now due to the chaos of a mascot change, people would have a run on the banks if they were nationalised.
Complain about this comment
At last, the mists are clearing from the crystal ball. All will soon be revealed !!
- The cold shoulder to HSBC, hardly mentioned in the last couple of weeks
- The vitriol aimed at Barclays for daring to be successful in raising capital from the Arabs
- The "economy with the truth" about how much was "injected" into the banking system and when and the subsequent rabble rousing about the banks not lending
- The clearing of decks at NR (a nationalised bank) in total and utter contrast to what the government wants the other banks to do
- The Mea Culpas from the boss of RBS, rather reminiscent of the self-criticism sessions organised by the Red Guards in the '60s !!
So, cross my palm with lots of silver (inflation you know, old boy) and more will be revealed !!
Complain about this comment
#127
you won't have seen this idea because it isn't a very good one.
Lending the money at the same interest it is being charged at automatically loses money which is just bad business. The banks lose the admin cost plus the inevitable % of loans which go bad.
The interest rate on some of these loans (not yet made as noted in the piece linked to the blog) is reported at being around 12% which is just adding insult to the injury already incurred.
Now if the loans were being split and a part made available at a artificially low rate i.e. base rate on the strict understanding that these were to be used (with appropriate safeguards) to support otherwise sound (suitable defined) businesses that were at risk through the fallout. Then perhaps what you propose would be workable.
These banks are experts at setting up separate funding entities (though prefferably these would not be in Jersey or some other tax haven).
Complain about this comment
@136 Alexander Curzon
My sympathies for your troubles, but the story of your attempt to make a transfer out of your bank today has had me in stitches. And so, to misquote Abba, thank you for the laughter.
They are indeed, all skint/insolvent/bankrupt or, about to be nationalised...
Complain about this comment
John McFall doesn't look very happy in that picture :-(
The burden of provoking our stubborn banks into lending to each other again must be preying on his mind.
Complain about this comment
#16 Brilliant idea - *IF* you are willing to pay 80% income tax for the next 10 years to refill the hole in the government's balance sheet caused generosity !!
All economy will collapse and Britain will become the biggest home-owning bankrupt state in the world !!
Complain about this comment
From this iste:
"Darling 'to force banks to lend' "
Businessman: Hello Bank. Can I have my overdraft raised please?
Bank: What have you got coming in?
Businessman: Nothing at the moment
Bank: Sorry, we're unable to help you.
"We'll do whatever it takes to help small business" rings pretty hollow.
GC
Complain about this comment
A particularly good reason for setting up a new green-field bank doing current accounts / deposit accounts and (sensible)mortgages /loans is that it would not come with the current salary / perks / bonuses baggage. The banks borrow money from the markets, but the rates at which they borrow will be little different between banks. Thus if one bank offers a much better deal than another on a particular product, its likely one of them has got something wrong. Our major banks have highly paid executives and senior staff who clearly do not merit that money. Its time to develop the Post Office as a bank offering mortgages and loans as well as current accounts. With relatively low costs and limited product range it should be able to force the main banks to reduce their cost base and improve their products.
Complain about this comment
Whatever the question is, this Government always come up with the same solution i.e.
Tax the lower and middle income earners either now or in the future, to fund whatever crazy hastily considered proposal some NewLab 'spokesperson' can come up with.
rule 1 - Rob 'em blind, hard and often, from Income Tax to Bin Tax to Congestion Tax to HIPs to Small Business Taxes to Raiding Pensions
Just rip 'em off and then do it again.
Hey Brown, Get Real.
Nobody has any money left over after your progessively escalating and wealth reducing Wacky Tax initiatives.
And neither will you have any call on any money soon seeing as how you taxed and splurged like there is no tomorrow until it became fixed as an obsessive habit.
Get yourself along to the Economic Rehab Centre - pronto double quick.
Complain about this comment
Your the only person I know who listens to this Marxist J. McFall every time he speaks he gets his facts wrong.
What you say today is totally at odds with what you have said before. Your told us that this bail out of banks was to stop the collapse of the banking system not for the provision of banks lending to business etc.Now today you seem to be telling us something different, which is it.
All McFall is worried about is Scottish jobs and how he is perceived in Scotland everybody knows that.
Complain about this comment
I may have misunderstood, but surely all the government did was the minimum to stop banks from collapsing? If so, giving that the populace tends not to save, and pre-crisis loans were funded by deposits from abroad that have now been withdrawn, how can lending be maintained? How can interest rates to lenders fall if the cost of borrowing is sky high, unless they were previously usurious and thus profits were excessive?
Can politicians not understand that if economic activity was fuelled by debt (i.e., that which has not been earned or, in the case of governments, raised through taxation), and something unnerves the debtors, they will spend only on necessities and seek to reduce their liabilities. Ergo, economic activity will fall until people can afford to spend.
Can businessmen not perceive this logic? Can they not comprehend that the non-inflationary, consistently expansionary (NICE) economic ear is over, and whereas their ventures were once deemed risk-worthy, they are not now so?
It seems that the ‘man on the Clapham omnibus’ has more economic nous that bankers, businessmen, and politicians (who fear for the seats) combined! It is not a paradox, nor an enigma, simply commonsense!
Complain about this comment
Capitalism is not dead, unlike what some claimed last month, but one thing is certain in my mind after all this: the smartest guys in the room were (and are) anything but.
They screwed up royally, lent silly money to everyone under the sun, and all they are doing now is making everything worse by stopping almost all lending altogether.
Correct me if I'm wrong, but if they are unwilling to lend (and hence make money on the interest payments) how the h*ll are banks supposed to turn a profit in the first place?
That's right bankers: go cut off your nose to spite your face.
Complain about this comment
#142
The reason for non-disclosure of toxic debt is that the figures will be humungous and they'd like to bury the bad news somewhere (anywhere). Gordoom is probably particularly keen not to have this info released before an election. The reason for no persistant (or any) questioning by BBC types is that the treasury have not included that on Robert's script ... nor are they likely to. The BBC is also keen not to rock the boat when licence fee questions keep being raised,
The toxic debt figures MUST be known to the great (maybe not the good though). Its just that they are so bad they wont tell us!
Complain about this comment
Credit crunch causes
Unregulated banks
Government mis- management
Capitalist, greedy society
Media
self fullfilling prophecy? i just dont get it. If the banks dont lend then the whole economy collapses and house prices and repossessions tumble. The banks say they don't want to lend until prices stop dropping but they wont stop dropping until they start to lend!
The market is dead and the only properties that are selling are repossessions and forced sales. These prices are 40% lower than the height of 2006! not a true reflection really?
How can we be here in 2008, regulated and governed so strictly when the financial services market and its executives could do this to us all. How can this of happened? who was regulating the top?? Is a disgrace. bin laden couldn't of done a better job of seizing up the west if he tried!!!
and then you have a media that quote headlines that are just not necessary. The BBC quoted houses have dropped £30,000 as a headline! No they haven't, it's another stupid statistical average figure. The house price indexs they they feed off dont represent everywhere. every single day good positive news is in small print and doom and gloom is massive headlines! '100 jobs to go'......and ' people thrown out of home as repossessions rise'...... why thrown?......i dont remember too many headlines in the past saying '100 people employed'......
Complain about this comment
Seems like a great idea to spread risks over one bank instead of X banks in a period of severe volatility, imo.
Complain about this comment
# 150
2 million car workers in America won't be unemployed because Senators from southern states with big car plants don't support using their constituents' tax dollars to undermine their own position by subsidising the UAW.
Those 2 million of them, or the much lower number who will actually lose their jobs, will do so because nobody anywhere in the world wants to buy the products currently being produced by the auto manufacturers in Detroit. Consumers are deciding the fate of Detroit's auto industry, nobody else.
If you dig a little deeper, you'll find there isn't a whole lot of appetite on either side of the Senate floor from anywhere outside the northern Mid West to support Detroit.
Far from being pathetic, the southern Senators' attitude is rather refreshing for politicians in these times: it's honest and unequivocal.
Complain about this comment
We may have to face up to the fact that the misallocation of capital of the last decade requires the inevitable destruction of many businesses.
For a politician this of course unwelcome but I find it disappointing that someone in Mcfall's position is naive enough not to understand what is happening and why the banks cannot bail out business.
The government should do this if it wishes it to happens but as we all know it's hands are tied by the fiscal deficit and a pound that has little structural support.
Maybe the BBC could rerun some mid 70s programs as it looks like the government wants to take us there again.
Complain about this comment
#130 "Welcome to the USSR."
Sir, I take exception to that sentence !! We are in the Union of Soviet Socialist *Britain* (USSB) !!
Complain about this comment
How can the government force banks to lend when it behaves like this with its very own nationalised bank - Northern Rock?
It's refused to finance the Granite book of NR mortgages.
And the Government has had to stump up another £3bn to pay its liabilities for not servicing the loans.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3491836/Another-3bn-at-risk-in-Northern-Rock.html
This probably means that the taxpayer will not get its money back from NR until at least 2015.
It also means that if anyone falls behind repaying one of these mortgages... they will be very eager to foreclose.
Well done HMG, another fantastic piece of economic management.
Still, it's only £3bn.
Complain about this comment
#129 "Also say the name Enron quietly it is te same accounting system that Gordon is using for PFI. It worked so well first time I don't see how it can go wrong again."
Ah but Britain is not covered by the Sarbine-Oxley Act which was to plug the hole in the law left by Enron in the US !! So it's quite alright to do so here !!
Complain about this comment
Lending money to small company's is not going to kick start the economy.
Getting the consumer to spent is the problem. Why is the consumer not spending is because he has too much debt. The faster debt is repaid via low interest rates and higher wages (through controlled inflation), the faster the economy can be kick started.
What's a small company going to produce or sell, when no body is buying. The same applies to any tax reductions. Does not mean the public has more to spent, as any savings again will be used to repay debt.
Higher wages will mean higher cost of goods, but it will also mean that people's debts will fall faster. Yes the value of money will fall too, but does not the G20 want this done on a global scale.
Complain about this comment
Banking ,where we pay monkeys and get peanuts .
We must be nuts, weve squirreled away worthless assets and the winter of our discontent has arrived
The credit bubble was the magicians ladder pulled out of a hat ,a quantam world where wealth could both exist and be consumed at the same time, that is until both disapeared and all that was left was Mugabenomics
Complain about this comment
#127 I believe the recapitalisation of the banks were made with the specific condition that they *DO NOT* capitalise any more toxic assets !!
Capitalising those toxic loans will just be going once more round the mulberry bush !!
Complain about this comment
Not sure if anyone has mentioned it before...
I almost lost the will to live after reading the first 50 or so posts but I know a bank that is more that happy to lend money to just about any Tom, Dick or Harry...
I say we all make our way down to Threadneedle Street and open a current account with the Bank Of England...
Sorted
Complain about this comment
#167
"The toxic debt figures MUST be known to the great (maybe not the good though). Its just that they are so bad they wont tell us!"
2 possibilitites:
1. You're right and we're all cream-crackered
2. They really don't know as noone is sure what's toxic and what's not
Only time will tell
#168
"bin laden couldn't of done a better job of seizing up the west if he tried!!! "
Maybe he has...........
Complain about this comment
I'm shocked and amazed at the number of people who think nationalisation is a sensible solution for the banks. There are 2 things to address. Firstly, what the government is asking banks to do on lending is truly ridiculous (and in many ways shows why the government can't be trusted to run the banks). We are in the current situation largely because the banks lent too much in the first place, if after the wiping out of large amounts of money we expect banks to carry on lending at the levels that got us in trouble in the first place then we are heading for a collapse the likes of which the world has never seen. Look at the reasons the banks lent too much. Firstly, governments in the US forced fannie and freddie to lend to people who couldn't afford houses - that started the problem. Secondly, interest rates have been kept artificially low across the west by ignoring house price increases in inflation figures. If the cost of money is low, lending will be cheap and everyone will take loans.
The second thing is that the lack of competition would be bad for consumers. Whilst ever there is competition, the banks have good reasons to keep the cost of lending as low as they can. This is why in recent years people have shopped for mortgages, current accounts, savings accounts, etc. If you have a nationalised lender everyone will be equally badly treated, unless they are able to get banking services from overseas, which will largely only be rich people. Privatising banks would therefore hurt most people, and benefit only the rich.
Complain about this comment
Anyone know why Robert Peston says 'you know' so much? Double figures at least on Five Live last night. Is he sponsored per 'you know' for Children in Need?
Complain about this comment
re 168
I sympathise with your frustration that positive items are glossed over or ignored in the mainstream news outlets. Even the trumpeted 'repossessions rise 12 percent' represents a miniscule fraction of the mortgage market (sorry GuyCroft but there are 14 million mortgages in this country and 'only' about 8,000 repossessions/forced sales per month at the moment)
Having lived through the 'Oil Shock' recession of the 1970's, The Black Monday and Housing Bubble Bursting recession of the 1980's/90s and the Dot.Com Failures recession of the early 2000's I am waiting to see what exactly is different about the Credit Crunch recession..In each and every case the economy has recovered within a few years and grown substantially thereafter, whats different this time?
Complain about this comment
#168 "The banks say they don't want to lend until prices stop dropping but they wont stop dropping until they start to lend!"
The banks *DID NOT* say they will not lend !! It was the government who said that (see Robert Peston's previous blog) to cause more FUD (Fear, Uncertainty, Doubt) !!
As far as I know, banks are still lending if the conditions are right. However, all 125% and self-assessed mortgages have disappeared off the shelf faster than 1p cans of baked beans at Tesco !!
Lending requirements are also more stringent and a greater proportion of the property price must be paid up/deposited.
"i dont remember too many headlines in the past saying '100 people employed'......"
This is simple. Dog bites man is not news; man bites dog *IS* news !!
Complain about this comment
Ie might be nice if Brown could stop posturing in telling the News Channels that he has sorted all the World's economic problems out - in one fell swoop.
It makes his boasts appear so hollow when someone like McFall pops up and tells us that Gordon's grand plan is merely dust in the wind as it isn't working to plan
'Here is another problem you forgot about Gordon'
'OK have some more borrowings, the Taxpayer can pay it back eventually'
'Here is another problem your grand plan missed Gordon'
'Ok more Taxpayer funds should sort that one out as well'
ad infinitum untill a Cod and Chips costs oh about £3 million quid
( or £1.80 in old money before Brownonomics discovered how much borrowing makes a lot)
Complain about this comment
robert why dont you just tell all these nice people in plane english that there is no money and what money there is they would nt lend if we where the last people on earth........ why?
well where upto 1.7 % shrinkage and rising.
and just lets say that it wont get any bigger.
0.6 % shrinkage is to do with those dodgy mortage from the usa. the other 1.1% is the dodgy mortgage still to come here in the uk.
hope you all understand thanks
Complain about this comment
"A consumer watchdog has called on the Post Office to reduce lengthy queues and says too many businesses assume customers are happy to queue. "
In preperation for the National Bank roll out?
Complain about this comment
CITIGROUP 3.8401 dollars (-18.47%) Day
Another too big to fail bank? More cash to the incompetents
Complain about this comment
"There would be massive political pressure on them to become quasi-social utilities, providing loans at the behest of ministers and officials rather than on the basis of commercial criteria."
If the banks had provided loans and evaluated their business position on the basis of commercial criteria instead of for their own and their boards' self aggrandizement their currrent state (and ours) might not be quite so parlous
Complain about this comment
#170 "Far from being pathetic, the southern Senators' attitude is rather refreshing for politicians in these times: it's honest and unequivocal."
If you dig even deeper, you'll find that a great many Far Eastern businesses have set up shop and factories in the Southern states; starting with the Japanese car makers, going on to the Chinese computer makers and carrying on from there. California and the West Coast states will be highly oriented (pun intended) to the East because of their large Asian-American voting population and Asian investments !!
There is no greater incentive in the world than self-interest !! The War between the States will be waged once more; only now, it will be on the Congress floor !!
Complain about this comment
#140 - I have noticed that all the news channels and media outlets have fallen into line behind this lie peddling.
Lets make this clear for everyone.
IT'S NO GOOD BLAMING THE AMERICANS FOR THIS MESS.
We (that's the west) are all guilty here. Even if you accept the yanks produced the SIV's and CDO's with a criminal intent. You cannot justify the fact that millions were bought by bankers and traders in this country - because they were greedy and it looked like high yield for little risk.
Despite actually thinking GB is handling this mess quite well considering - I cannot stomach this blatant lying to cover up responsibility.
This is political spin and I wish the opposition would pick up on it - but they're about as welcome as a fart in a space suit.
Peston, do something useful, get an interview with AD or GB and ask them specifically - "If this credit crisis was caused by the US, can you please explain exactly HOW?"
No one has challenged this in the media since this whole thing started. WHY NOT?
Are we simply covering up the truth?
Here are some of the REAL REASONS.
1 - The lack of lending regulation (UK and US)
2 - The drive by banks to increase profits by lending huge amounts with all security based on rising asset prices
3 - The Tri-partite system, when the problem was discovered, no-one knew who was responsible
4 - The FSA for allowing Northern Rock and others to lend 125% mortgages and 6x lending
5 - Over exhuberant borrowing by the public.
6 - Materialism
7 - A country filled with financial imbociles and a pack of wolves ready to exploit them.
However Gordon thinks the cause of the financial crisis was
1 - The Americans
2 - The fairies
3 - The leprechauns
4 - Gremlins
5 - American Gremlins
6 - A great white bird
7 - The financial weather (i.e. storm)
8 - Anyone but Gordon
Now we need to see the BBC start a campaign for the TRUTH. Stop peddling anti-americanism and start getting the facts right.
Otherwise you will simply be seen as a Government mouthpiece.
Complain about this comment
I always understaood the following to be true, and referred to it as the first law of everything.
The harder you force something against it's will into an un-natural condition or shape, it is more likely to:
a) suffer complete structural failure and break down (or die).
b) Snap back in a completely unexpected way or direction, potentially damaging or injuring the persons or organisations controlling the procedure.
I cannot help but think that the current political pressure on the banks to start lending in a fashion that is completely contradictory to everything that free market economics teaches can only lead to one of the two outcomes predicted above.
The banks are freemarket animals designed to create profit for their shareholders. The shareholders now technically include all of us as taxpayers, but the government turned down the chance to impose board level direction on the banks by way of seats on the board, so cannot realistically expect the banks to take much notice of veiled threats from Whitehall.
There are two pertinent questions here:
Does the Government have the 'cojones' to carry out threats of complete nationalisation?
Can the Government risk a single penny of a taxpayer's savings by letting a bank go under?
The answer to the first question is immaterial as long as the answer to the second question is 'no'. We have already seen their willingness to bend and break the rules to prevent a single British citizen losing their savings. Monopolies and Mergers concerns? Don't worry old boy, we'll wave it through. A foreign government having financial troubles? Oh, an anti-terrorist law should do the trick.
The responses are getting more and more desperate as the problems get worse - trying to force the market to go in one direction means that bits of it are breaking and exploding in other unforeseen directions - The First Law of Everything in motion.
The next problam will be that the banks and the government are engaged in a giant face-off. The banks say they are taking prudent measures to ensure that they stay in business, the government trying to force them to take less prudent measures to ensure that everyone else stays in business, potentially at the bank's expense.
Make no mistake, the government is being backed into a corner and may have to carry out the threats in order to try and stay in control, but in carrying out the threat of nationalisation, it may unleash forces that it cannot control.
I wonder if Gordon and Alistair have their passports ready?
Complain about this comment
The generous government lent the money to the banks at 15 % intrest. For the banks to pay back they will have to lend to the
companies at 15 % + to have any hope of paying back the loan to the government.
If the government wants them to lend at a lower rate the have no grasp of primary arithmetic.
Complain about this comment
...or to put it another way
McFall's outburst tells us all that Gordon's Grand Plan isn't working and is therefore discredited.
Let's have more quotes from these NewLab spokespersons because every time they come up with their latest views, it tells us that the Brown strategy is a failure in providing the expected results.
And if it isn't providing the results, by definition, the strategy of Mr G Brown is therefore useless.
Complain about this comment
#175 "Yes the value of money will fall too, but does not the G20 want this done on a global scale."
But only in the G8 countries so that the BRIC countries can take on a greater share of the participation in the IMF and World Bank !! For example Russia is desperately shoring its currency. When everything calms down, these countries can use their strong currencies to gobble up assets in the G8 countries just as they once did in the BRIC countries. Turnabout is fair play !!
Complain about this comment
#178 "I say we all make our way down to Threadneedle Street and open a current account with the Bank Of England..."
Sorry but you have to be titled or of the landed gentry to open an account at Coutts !!
On the other hand, Duke Gordon of Northern Rock....
Complain about this comment
Government does not understand, but the bankers do, that the system is broken beyond repair. There is no cure, either socialist or conservative.
A meltdown was not avoided, it has happened. Past tense.
Anybody for a return to the gold standard?
Complain about this comment
#187 Peters Kitchen
CITIGROUP 3.8401 dollars (-18.47%) Day
Another too big to fail bank? More cash to the incompetents
-------------------
The difference here is that Citi has a lots of cash deposits and savings rather than just stocks and shares. The US government would engineer a sale or part nationalisation rather than letting them go under. Lehman were expendable because the typical man in the street does not have a Lehman's savings account and it served as a warning to all the others.
Complain about this comment
#166 "Correct me if I'm wrong, but if they are unwilling to lend (and hence make money on the interest payments) how the h*ll are banks supposed to turn a profit in the first place?"
Well, there is this little thing called "currently existing loans" that still pay them interest until they are paid off !!
Of course some banks like NR are desperately try to brush off some of their "currently existing loans" like leeches because they are underperforming and may become non-performing but that's another story altogether !!
Complain about this comment
#186 "In preperation for the National Bank roll out?"
No, it's in preparation of a Stalinist USSB, where everyone queues for hours for a loaf of bread !! Hey, they did so in the USSR, didn't they ??
Complain about this comment
"The provision of current accounts is a structural neccessity and in our computerised age there is no reason why it can't be a govt service provided by the BoE. After all banks don't print their own notes anymore and current accounts are merely the new banknotes for most of us."
Nonsense. You might as well turn the whole country over to a marxist state. No thanks. i) a current account is not a necessity of life;
ii) would YOU trust the government with all your financial data - knowing what you're spending your money on and where? Your details available to the few million people with official access? Of course not.
iii) would you trust the government's IT to deliver 24/7 with a phone and internet service? A phone that's answered after just a few moments by someone who knows what they're talking about? Of course not.
I need only look at the NHS or the Tax Credit system to know how little I want politicians and govt departments running the country's financial systems.
Complain about this comment
#175
Won't work out. Hyperinflating your way out of debt is not sensible - I would suggest a between the war history of Germany to see the final solution they came up with.
What will help more is if the government gets off its' behind and stamps hard on the oil and energy companies now the oil price is back towards $50 but they are still pricing their products as if it was $150.
Complain about this comment
dave_h@180,
You miss the biggest contributor of all to the problem: complex, non-transparent financial instruments such as securitised debt obligations (SDOs) and credit default swaps (CDSs - currently totalling around $55tn IIRC). These latter are essentially bets on various financial events, made between banks. In the USA they were deregulated under the 2000 Commodity Futures Modernisation Act; and banks in Europe and Asia gleefully joined in the fun. You're right about the contribution of artificially low interest rates - kept that way in the USA to fund Bush's wars while giving his rich friends tax cuts - but the amount of bad loans to Fannie and Freddie is minuscule in comparison. SDOs and CDSs mean no-one knows which banks are solvent - most banks don't even know if they themselves are solvent. The "deregulate, privatise, militarise" dogma of the Thatcher-Reagan era has led us to the edge of the economic cliff. Time to turn round and run, because it's already crumbling beneath our feet.
Complain about this comment
#153 "I think you made a few typos there Adam. I'm sure what you meant to say is:
"Government ownership of the banks has been a Socialist dream for many years. It would mean complete democratic control of the entire economy, and effective democratic control over where all investment took place. Welcome to economic democracy."
Exactly so !! Welcome to the Democratic People's Republic of Korea !! Please meet the ambassador from the Democratic Republic of Congo !!
Complain about this comment
Surely these banks must be lending, or how can Northern Rock be paying back it's 27bn so quickly? These mortgagees must be going to one of the other banks?
If NR's best customers have already left (or are just waiting for their Fixed Rate to expire), then which banks are taking the (perceived) bad risk loans that are leaving now? NR is paying it's loan back very quickly, so some must be bad debt?
Or if they can't get deals elsewhere and NR won't offer them a new product (so they move to VR), is the government's bank effectively taxing the highest risk customers to unacceptable levels, forcing default?
Or does Lloyds have an obligation to take them, as part of the HBOS deal?
Complain about this comment
2 points:
The £600 billion is mostly underwriting and not the direct provision of capital, therefore this does not have to be paid back.
You completely ignore the effects that interest rate cuts will have. Cheap money will go a long way to increase both the appetite and availability of loans.
Complain about this comment
#197 "Lehman were expendable because the typical man in the street *does not* have a Lehman's savings account and it served as a warning to all the others."
Not "don't"; "can't" !! Lehman is *NOT* set up and licensed as a deposit-taking bank !! It was an investment bank in the same manner that Goldman and Merrill were. The later two have since re-registered themselves as deposit-taking banks and subject to far more stringent rules !!
Complain about this comment
"So here's what may turn out to be the choice: less lending for years or public ownership of the banks for the foreseeable future. It's not an easy choice, is it?"
It is easy: I choose less lending for years and my vote will go to whichever party promises it. Monetary policy is the ONLY issue on which I will be voting.
Complain about this comment
#166 - Jack Tavern
No, you're right, capitalism is not dead.......in the same way my cassette player is not dead.
However the efforts I have to go through to make the thing work properly have got silly and the resulting quality of sound makes it more hassle than it's worth.
Capitalism has simply become obsolete and does not fit properly in this world anymore.
The only problem is that the alternatives are either unpopular, theoretical or haven't been discovered yet.
If our sucessive Governments hadn't farted around trying to make this penguin fly properly, then maybe they could have prodduced an alterrnative.
Despite the word 'change' being used heavily in every election, governments seem very reluctant to do it once they're elected.
Complain about this comment
#179 said
"#167
"The toxic debt figures MUST be known to the great (maybe not the good though). Its just that they are so bad they wont tell us!"
2 possibilitites:
1. You're right and we're all cream-crackered
2. They really don't know as noone is sure what's toxic and what's not
Only time will tell"
To know what the toxic debt is you need to know what the default rate is likely to be. To know the default rate you have to know what the unemployment rate is going to be over the next few years and what average income is going to be.
Or to simplify further you have to know what effects the current downward spiral of the world economy is going to have, when it is going to end and at what level.
Until we get there noone knows exactly where the economy is heading - and I include all the experts in that even those that have been broadly right so far. We can all guess but I expect our guesses would be so wildly differing from each other to make any estimate based on them to be worthless.
So a bank's assets are worth something between more than their book value and almost nothing.
Pick a number in the range. Your guess is as good as that of any banker, economist, politician or bean counter, however experienced or qualified they maybe.
Complain about this comment
Ive stopped watching the TV, these joek bloggs beat any sitcom ,and provide enough material for a staged musical satire or hollywood blockbuster .
The banking system has effectivly financed the personalised luntic asylums housing market ,which will have to be reposessed and sold at ever reducing price to the next generation of the delusional inksane who intern will derive their inkome from the unwinding of the insanity that bankers derived their bonai from
The colapse of the banking system despite faescal stimulaaas will have wide ranging scatological mplickations for westearn buttocracy having more to do with canibalism than wealth creation
The western finacial/political system is like a sausage dog driven crazy with viagra trying to eat itself despite being well into its sell bi date
Complain about this comment
I wish Peston would stop talking abour the banks having being 'nationalised' ... that has only applied to Northern Rock and Bradford & Bingley, and obviously even McFall knows that, though, being an ex-teacher, he obviously hasn't a clue about the realities of business.
Of course the State is now a major shareholder in the banks, and it stands to gain from any future gains as well as losses.
The banks are not 'refusung to lend' ... they are simply being more selective about who they lend to.
Is that not what we really want?
The banks have admittedly made big mistakes, but is only they who can get us out of this mess, not HMG.
Complain about this comment
ishkandar@203,
Last time I looked, we in the UK got to elect our government. That's the key difference between us and North Korea. Do you see now? (The government of the Congo, of course, doesn't own the banks. Rather, foreign banks and other businesses own the government of the Congo.)
Complain about this comment
Words such "socialism", "communist", "Marxist", "anarchism", and even "democratic" are used in a totally meaningless way on this blog.
Firstly, because many who use the words clearly don't really know what they mean or what their origins are. Secondly, because, like "Christianity" they can have so many meanings. Thirdly, because they are emotionally charged words used as an insult or as praise, rather than as verbal shorthand for a commonly understood definition.
A common dishonest trick in argument is to come up with a pejorative definition or label and then try to coerce (bully) a reasoned debate into a shouting match with the hope that you can shut a perceived opponent up.
We all need to let off steam, but this crisis will only be solved if people concerned in influencing decisions listen as well as speak, and try to enhance their own and others' understanding.
Think: why do some people seem to think so differently from the way you do? It may not always because they are either evil or stupid
Complain about this comment
#182 In due course you will find that there is quite a lot different this time.
Take a look at how much employment was generated in banks and by banks (e.g. estate agents, DIY stores, solicitors, and everyone else selling something to equity release people).
That´s all gone, or in the process of going. What are people going to do?
Complain about this comment
This is interesting.
Previously Bank is required to hold 5% of equity. So £100 loan will need £5 equity. Now goverment require bank to hold 10% equity, so bank have to find another £5 to remain a viable business.
There is a few ways to get there
Bank find £5 to make the junior equity to 10%. It seems very costly at this market.
Goverment invest £5 in bank, like they do with Lloyds, RBS, HBOS. But bank just have £10 to reach goverment requirement. They still got no money to lend.
Or Bank will take back £25 loan and get back £2.5 equity, (in the ideal world only, they hardly get back anything if they sell their loan), then they will meet the goverment capital requirement. This is called deleveraging.
I can not see the reason for bank to hold upto 10% equity at this market, this is forcing bank to lend less to the economy. Instead, if the goverment can allow the bank run at 5-6% equity, so they can lend the money to the economy.
I am a shareholder of Lloyds, and I am happy for the bank not to pay divident in the near term. because money lend out today will generate more profit tomorrow in this market and bank need the market to be strong. If the goverment can setup regulation that only allow bank to pay divident to common shareholder after the junior equity reach 10% of their total asset, this will force bank to keep a potion of their earnings to the balance sheet and build a strong banking industry in the future.
Complain about this comment
213. At 5:33pm on 21 Nov 2008, sashaclarkson wrote:
Words such "socialism", "communist", "Marxist", "anarchism", and even "democratic" are used in a totally meaningless way on this blog.
I agree, and have stayed way from using such terms.
I would really like to know what New Labour stands for though. Each of their party individually use and submit to the above words.
They will probably use Christianity word next week when they start preaching that they are TOO BIG TO NAIL
Complain about this comment
#103. purpleDogzzz
"So where is the money coming from and going to? "
Money gone? There was NO MONEY!
#104 JavaMan1984
"I said it months ago, what you are witnessing here is socialism by stealth ;-)"
What is Stealthy about any of this?
#107 BankSlickerminustheR
"We'll all have to have an account at the Bank Of Gordon!"
- Thought we all now had one!
#124 Nick-Gotts
"The great depression did not last forever." - Mizzmiltonfriedman
No, but it did cause many deaths, immense suffering, and world War 2. "
I thought to tight terms in the Treat of Versailles and a certain Corporal Hitler did that?
#125 alexandercurzon
"I want the Government to call an election."
There has never been a time when a Vote of No Confidence has been more apt.
-But you could wait until Monday PM or Tuesday or ..........
#129 tightgit
Yep, we have tried nationalisation but we are better now.
#133 Lord Byron
"I presume those in charge know more than me and are doing the right thing, best I just drink coffeee and eat choccy biscuits instead of making a
comment on a macro financial problem which is way over my head."
There are three types of people in this world.
1 Those that watch what happens.
2 Those that make it happen
3 Those that wonder what happened.
I believe you are type 3, my lord.
#136 alexandercurzon
"No one senior enough to sign it off .
You've guessed MONDAY."
- Could it be thay just want to lend your caSh out overnight (over weekend) to Far East for extra interest ( for themsleves of course)?
#140 alexandercurzon
"Fault lies in Downing Street,the FSA & B of E."
You forgot the Auditors and the Credit Reference Agencies again!
#142 tao-das and #167
"However, all of this seems like a red herring to me as the fundamental problem to which banks globally are exposed is the toxic debt. This problem
has still not been addressed and inter bank lending will not recover until this problem is resolved."
Yes, this is the problem. The Toxic Debt (SIV's, CDO's) cannot be evaluated. It is all notional and possibly BOTTOMLESS. We all know it is
BIG.
#152 svrsig
"There is one advantage that we have over Iceland: our Prime Minister is more honest than theirs."
More honest= Less Dishonest?
So that is OK then?
#153 Nick-Gotts
"Welcome to economic democracy."
Democracy - Elected representatives carry out your wishes? That is not what happens here. They get elected and dragoon you into things you are not
even asked about, wars, expansion of EU, Treaty of Lisbon. I will not go on.
#179 scouseflyer
"2 possibilitites:
1. You're right and we're all cream-crackered
2. They really don't know as noone is sure what's toxic and what's not"
Case 2 is the situation. We do not know. We cannot tell.
#190 TheresOnly1Soupey
"3 - The Tri-partite system, when the problem was discovered, no-one knew who was responsible"
They were ALL responsible, Jointly and Severally.
#192 gloriousillogical
"If the government wants them to lend at a lower rate the have no grasp of primary arithmetic."
Correct. it was never a qualification for the job. GB and AD clearly cannot do hard sums, it must make their brains hurt.
#196 KenHarvey
"Anybody for a return to the gold standard?"
Worth a thought. Wait, did not someone sell all our gold cheaply when it was forecast to hit USD 1000/ounce?
There is probably not enough gold on the planet to cover the numbers we are hearing.
Complain about this comment
Does McFall know what he's talking about - I think not.
If the banks were nationalised how would decisions to lend be made?
If on a commercial basis surely the banks do that now.
If not, does everybody get what they want, particularly when a general election approaches. Who will decide what interest to charge?
Would a nationalised bank repossess homes and close down failing businesses?
Would it behave like Northern Rock and Bradford and Bingley i.e. wind itself down or be broken up and sold off to foreign banks.
Will a nationalised bank make a profit and how will it compete internationally?
Would the Government return the nationalised banks to the private sector in due course - if so presumably they would then be run differently without the support of the Government.
What idiots would then ever dream of investing in its equity, given the uncertainty of its continuing profits outside of public ownership and given that current shareholders (our pension funds) would have had their shares made worthless by the nationalisation, and if mass nationalisation happened once it can happen again.
And what about the £37b the Government is now investing in RBS and Lloyds equity - will that be deemed worthless on the banks' nationalisation as the other shareholders will presumably have their shares confiscated for very little if anything i.e. the Government would have transparently lost £37b.
And how much money would be lost after full nationalisation, when throwing money at people presumably at low interest rates seems to be what is being proposed by McFall et al?
Odd the Government is charging 12% interest to the banks but wants mortgage rates much lower than that.
Also odd it has largely closed down two banks which were lending over 20% of all UK mortgages at competitive rates, after nationalising them.
The simplest way out of this mess largely created by Labour and the BoE, who have so effectively destroyed confidence after encouraging the banks to lend too much in the first place, is to guarantee business loans in particular, where the Government would take on the risk that the banks feel unable to given their requirements for higher capital ratios etc, but which the Government thinks are worthwhile risks to keep the economy moving.
The Government needs also to stimulate demand through tax cuts etc which will have to paid for later when confidence returns - there is no point lending to a business if there is nobody to buy its products or services - it's just throwing good money after bad.
The Government could start by guaranteeing the debt of the large housebuilders, which not only directly employ thousands of people but also employ hundreds of thousands of sub-contracted staff and buy billions of building materials.
If they go bust or are bought by private equity, which would simply incubate the land banks for years, look forward to 3m+ unemployed very quickly.
McFall if he is suggesting nationalisation should tell us how nationalised banks would operate, particularly their criteria for lending money. Would it be a policy of buying votes for Labour.
And perhaps he could tell us how nationalised banks would stand internationally given that such a large part of our economy depends upon financial services and the major banks are global?
Taxpayers would not welcome their money being lent/given willy-nilly to anybody who asked for it, at least until after the next general election.
Perhaps we could have a chairman of the Treasury select committee who knows a little more about banking and can offer something concrete to help resolve the problems we face, and not somebody who destroys confidence further by ill-judged comments.
His very lucrative pension of course is guaranteed by the Government and his salary is secure until at least the next election (and he is probably in a safe Labour seat!), unlike millions of ordinary people who have seen their pension pots and investemnts evaporate.
Complain about this comment
Not a single penny of the £37bn has been used to re-capitalise a bank yet as the deals have not yet been done.
The HBOS/ Lloyds TSB bail out will occur on the 19th January 2009 but only if the takeover is approved by shareholders and goes ahead.
RBOS has yet to receive any of the funds as they only voted on it this week.
The media ie especially newspapers make out that these banks are sitting on all this money and not using it. This is not the case.
Complain about this comment
All debt is toxic otherwise AAA's holes wouldnt have been invented ,however, the financial system is constipaaaaaaated by a tight aaanti inflationary corset that makes a puny chest look like an Aaalaaadins caaave of potential treasure from the outside .
Providing it does not open its mouth or part with its cheeques when mperrors desperately seeking transparency say "open wide sesaaame", then there is no reason for it to AFFECT the faaannie maaaney in circulation and the thinking that things can only get better .....and the taxipayerrs can eat its "caaake" with jaaam tomorrow
Complain about this comment
Latest bank scam: selling CNY, spot over-the-counter purchase 11.5, sale 6.5, spread 50000 basis points, or half the exchange rate.
In a market like that, what IS the real rate? Even the Chinese never pulled that one with their forced rates...
Complain about this comment
@155
I'm afraid I must completely disagree with your comments. To nationalise the banking system is not at all like imposing Snap, Crackle and Pop on every cereal brand. It is more like cracking open a coconut and allowing the coconut milk of financial security to be poured onto EVERYONE's cereals, not just those of the fat-moose bankers and company CEOs.
A nationalised bank would ensure proper regulation of the financial markets and provide long term stability without the ridiculous aggressive high-risk trading strategies bankers have been playing with other peoples money!
Complain about this comment
#215, a 5% Tier 1 ratio is too low. Do not assume recent convention is the same as sound financial practice; it is not and that is why we are in this mess. Leverage of 20:1 gets you into trouble and there are many banks and building societies which are geared even higher. Reducing it to 10:1 results in a bank that survives instead of collapsing; this is true whether or not you like the economic effects. The cost of a functioning monetary system is a sharp reduction in availability of credit, so you might as well adjust your expectations now.
Complain about this comment
#216 "I would really like to know what New Labour stands for though."
They stand for nothing. Back in the '80s, "Trotskyite" entrists were seen as a problem and then heroically defeated by Neil Kinnock.
But people who in their youth espoused all the fashionable "isms" going did indeed enter and capture the Labour party. They used it as a vehicle to achieve the rewards of high office, while throwing a few crumbs to their duped supporters. Most of these supporters never favoured the "isms" anyway. They just wanted what they hoped would be a fairer society and a chance to succeed. I was the first in my line to go to university (and a top one at that); my father would have loved to have had my opportunities. New Labour have ensured that, despite the apparent expansion in higher education, it is much more difficult and expensive for people from modest backgrounds to achieve their potential. Having got to the top themselves, they have pulled the ladder up aafter them and ensured that the next British government is likely to be dominated by old Etonians!
PS If I sound bitter, it's because I am.
PPS I have nothing against any individual old Etonian, but their likely dominance indicates a suppression of talent in the rest of society.
Complain about this comment
Post 3 DELETED
Was it because i said lunatics at the wheel?
Or was it Lets do the Banks?
I.E. Nationalise them.
Complain about this comment
Does anybody know if Mr McFall was a
bouncer in a PREVIOUS life.
Or is it just a Gordy thing.
Complain about this comment
#226 alexandercurzon
"Bouncer?"
Probably an 'Admission Consultant'
Complain about this comment
What about when the Government sell the shares they purchase in the banks. People need to remember that RBS was worth £60billion only 1 year ago, HBOS £30billion.
Yes, the country and world is in serious financial difficulty but the Government are playing an absolute blinder - in a couple of years time they will be making billions when they sell off the shares back into the market.
If they do buy all the RBS shares at 65p, when the share price recovers to £4.00 (like it was a year ago), the government will make £77billion profit! just from the purchase of RBS shares alone.
So - we definitely could do with tax cuts now and the profit from the share investment will pay for them later.
Complain about this comment
224
Well done, your education could only of come from a top university. Im still trying to understand some of your words.
However, I have experience of a little of what we are just about to go through and an ability to orate and debate in your most excellent manner will only succeed in getting you a seat in parliament.
I commend you to the house!
Complain about this comment
181. At 3:37pm on 21 Nov 2008, jonbjonb wrote:
Anyone know why Robert Peston says 'you know' so much?
I do not know, but I have noticed that inarticulate people punctuate their sentences with 'yer know'. That's not to say that Robert's inarticulate, far from it, but his speech sometimes suggests that he does get quite excited.
Complain about this comment
#228 MrScottyBloggy
"65p going to £4"
So we should all rush and buy some at 65p?
Complain about this comment
#229 - I realise you're just being ironic, but I wouldn't waste my time. Or rather, any more of my time. I spent 20-odd years in the Labour Party before I resigned in 2001. I was an activist for a number of years. I'd have been better off just going down the pub! :-(
I didn't resign because I hankered after "Old Labour" - far from it, but I did think and hope that the Labour Party could be a vehicle for reasonable people who wanted a better country and a better world. I was an entryist of a sort too you see.
But things like the F1 fiasco and "elections" in Wales and London finally disillusioned me beyond hope. After Rhodri Morgan was shafted by the block vote in the Wales Labour Party election I did write a letter to Mr Blair stating "As a mathematician I believe that 60% is greater than 40%. I received no reply, so it was time to get my life back. :-)
Complain about this comment
232, well all I can say is out of this can only come a certain polarisation in UK politics again.
Lets hope there are people that can regain the agenda within the backbenches and if not, within the party.
The middle ground dismisses the sea and and makes the mountains insurmountable.
Complain about this comment
The problem is that the Government made a great song and dance about the recapitalisation (not a penny of which has yet reached the banks so why would they lend against it?) but were too mean and shortsighted to live up to the spirit of theor own words or think through the effects of what they did. The obvious solution is to convert the Preference shares to Ordinary ones and hold them until the share prices recover. If the economy doesn't come round, I suspect the money sunk in the banks will be the least of our worries
Complain about this comment
Re: 224 I'm not sure I follow your logic.
I agree that the Labour Party stands for nothing - unless expediency is something.
What then does the Conservative Party stand for? I would postulate that the answer is the same - Nothing. (There are no real substantive policy differences, both wanted to attack Iraq, both want to continue attacking Afghanistan, both want to "bail" out the banks, the list goes on).
Therefore if the 2 main political parties both stand for nothing, and one is dominated by Old Etonians, what does it matter?
How can there be a suppression of talent if the only purpose that talent can be put to is the representation of nothing?
Talent will not be suppressed, it just needs to find a way to express itself - but that won't be through existing party political structures.
Complain about this comment
#228: We might have to wait 30 years for that gamble to pay off, that is how long it took the markets to recover after the Great Depression. Many of those shares will be worthless soon anyway, face facts, not every bank is going to make it just like not every company is going to make it.
Complain about this comment
#235 "What then does the Conservative Party stand for? I would postulate that the answer is the same - Nothing."
I agree, but I didn't waste years of my life on the Conservative Party hoping for something better.
"Talent will not be suppressed, it just needs to find a way to express itself" Yes, but targeted state sponsorship of the best talent could benefit us all.
My godson has always been a hard worker, but is drifting from job to job because, despite getting maths and science A levels, he was frightened off university by debt. I'm trying to persuade him to go down the OU route now. But if he'd been my generation he'd in all probability have a science degree already and be doing something useful with it, also paying more taxes into the bargain. I feel that this government has diminished real opportunity.
Complain about this comment
223 Appreciated you comment.
I fully agree 20:1 ratio is too high and need to come down, but it should only come down slowly. By regulation government forcing the leverage ration to 10:1 will create false sense of security of stronger bank because bank's strength is governed by their lending standard. By doing so in the UK will force all bank around the world to do the same hence need more capital in their balance sheet, and they refrained lending to everyone to achieve this, because there is no money around.
10% equity will means bank can withstand a 10% loss in asset value which will need more than 10% of loan loss to wipe out the equity, 1929 loan loss is only about 5% therefore we have the 5% rule. Our banking crisis not because of 5% equity to low, it is because bank created SIV, derivatives and the likes to avoid the 5% rule and some of them even leverage to the sky, albeit 100:1 hence today's mass.
I have suggested to pass legislation to restrain bank paying dividend only if their common equity exceed 10% of asset value (not preferred share because they are actually a liability). This will means most of the bank can not pay any dividend for many years to come and then create a stronger bank in the process but not in a hurry. We are now in a world of great deleveraging and this will hurt everyone, especially the bank, part of the deleveraging is caused by us, unfortunately.
I like to own bank not paying dividend, restrain paying executives and running conservatively. Only one bank in the UK fits the bill, and it is Lloyds TSB. The idea of superbank is not good but great for shareholders if they hold on. And most importantly, the price is very cheap for a AAA rated bank. Therefore I brought some at 130 and hope to hold it for 10 years. It may drop further and maybe nationalised by government, but the risk is small.
Complain about this comment
#237 Thanks for the response, I sympathise and empathise with your points. I have the same issues with regard my own children.
It´s true that targeted state sponsorship would benefit us all but you´re wasting your time if you think the state has any interest in anything that would "benefit us all"
Of course the government has diminished real opportunity - but they´ve done that across the board, and they´ve done it on purpose.
Think about it. Try and think of one single government policy that provides the ordinary masses with any kind of opportunity.
There was a time when governments were largely benign and tried to do the things that you yearn for, but those days have gone, and they are not coming back. You have all the necessary foundations in place for a proto fascist state - it´s only going to get worse.
Complain about this comment
Continue from 238:
To give bank a lifeline government need to recapitalise them to 10% but not restrain their capital ratio to 10%. If bank can run the business at 5% of tier 1 ratio they can lend much more to the needed economy and the world will have less pain. But no one is trusting bank now so government has to help. Government can guarantee the interbank lending and provide liquidity, as they have already did. They should also guarantee wholesale lending (money market) to banks, because the loss created to money market after leman brother's collapse de facto bankrupt the wholesale banking sector and caused the great run on money market (the biggest bank in the world), unfortunately, wholesale market is the blood line of current banking system and government need to reduce the dependence in the long run, but not in a hurry.
We will emerge stronger after the crisis, but now we have to endure the pain.
Complain about this comment
Problems with the solution
(1) If you have a mortgage and massive debt you should not borrow more as that is the cause of the situation.
(2) Banks exploit the public, and the public will indirectly pay back the loans on behalf of the banks
(3) Unemployment and failed businesses will mean that the well runs dry unless all liabilities are covered by national insurance schemes.
(4) Escalating interest by credit cards and loan companies means debts balloon and run away to become unaffordable and uncontrollable like forest fires
(5) The current financial and debt industries have a laissez faire approach where millions are stretching themselves too far to yield profits and live extravagantly
Complain about this comment
why have people stopped blogging / publishing comments.. (I hope I didn't blow their mind)
Re: 241 western business commerce (capitalism) also relies on the bad practices of over spending, borrowing, exploitation, manipulation, greed and poverty that have caused the problems.
Complain about this comment
They were singing bye-bye, Miss American Pie
Drove my chevy to the levee
But the levee was dry
Them good old boys were drinking whiskey and rye
Singin' this'll be the day that I die
Complain about this comment
"around £5000bn in total ... Which is equivalent to a sixth of the entire output of the global economy." Is that the daily output? The weekly output? The monthly output? The yearly output? I guess you mean the yearly output, but it would be much better if I didn't have to guess.
Complain about this comment
Comments 237 (sashaclarkson) and 239 (armagediontimes)
Do either of you see a part of our problem with government as deriving from a public perception that overvalues resolution at the expense of adaptability? Do we thus end up with leaders with personalities geared to viewing life as an elaborate structure of meanings all of which must be consistent with a foundation of irrevocable certainties?
As opposed, perhaps, to personalities whose foundations of belief, although held firmly at any point in time, are not written in tablets of stone, and are open to question if events point to different explanations being more likely?
I feel that the more I learn, the less attractive I find the fixed-foundation structure of meaning. It's just too inflexible, and I fear that I would spend most of my time seeking ever-more disingenuous ways of defending the indefensible. Because, in this scheme of things, being consistent is more highly valued than being right.
It's very much easier to gain personal confidence if one starts from a position that there are a number of beliefs that cannot possibly be wrong. But are personalities structured on this basis the most likely to lead us onto the best route to human progress?
Complain about this comment
#245, I had not thought of it so elegantly, but I agree absolutist thinking is poisoning our political philosophy. Our leaders are too vain to be seen to change their minds, u-turn is a dirty word, they act as though an admission of fault would irreparably damage confidence in the system. They need to be reminded that politics is not a priesthood and the only crisis of faith is one of their own making.
Labour's beloved Keynes famously said "When the facts change, I change my mind. What do you do, sir?"
Our politicians turn that simple act into an arduous process like steering a VLCC, never acknowledging the change in course before everyone has forgotten the original and accepted the new as obvious. Because democracy would be threatened if they admitted they do not know and we would turn like sheep to someone who would claim they do? How patronising of them.
Complain about this comment
Blessed are the meek: for they shall inherit the earth
Complain about this comment
Unfortunately the bankers have already inherited the earth.
Fractional reserve banking is a bit of a myth. The global economy is so big that banks are allowed to lend the money they dont have against assets. mortgages.
the must by law charge a fee for this.
Then they charge interest.
And now the government gives them billions of tax money.
And they end up owning the land in xx years time.
Nice huh?
Now try this, in the USA people can walk away from mortgages and loans. Within 1 year they can restart their lives, get another mortgage etc.
But those smart old bankers in the USA decided to sell all these rather bad mortgages,
90% of which are in run down areas that no one would want to live.
And then they sold them. To us.
Lehmans got caught because they couldnt tell when the merry go round was stopping.
We got caught because 30 something hooray henries in the city did not really understand anything about the cultural differences between our countries. So saw all the derivatives as assets.. real genuine good land backed by mortgages.
I absolutely take my hat off to top banks and bankers.
They make money from nothing.
Charge us for doing it.
Charge us interest on the amount
Foreclose and then own the land.
AND get to take our taxes.
Ronnie Biggs should throw these guys a party.
The more I think about this, the more I realise it is the biggest shafting in history.
The banks will survive, in the life of a bank say 300 years, this is nothing. A blip.
At x time in the future the 'toxic debt' will become assets.
And at that time, forget' masters of the universe', gods will be a better word.
And American banks? they will be out of this faster than anyone. And probably buying the derivatives back 'as a show of goodwill' at fire-sale prices.
For all of us peons this is a time of pain - for the banks a blip.
Bankers - I salute thee.
Complain about this comment
It's a beautiful thing Greenspan and co have got going for them. They monkey around with the economy. If things get better, then they can claim their monkeying around helped, therefore we should have some more monkeying around. If things get worse, they ignore all the monkeying around, and instead just blame the "free market" and "unbridled greed" and "capitalism run amok" and tell us we need some monkeying around to make it better.
Complain about this comment
Old Chinese saying:
"to try and change things to what they can not be is simply failing twice"
.. tell banks they can't have the bailout money, .. we've changed our minds and don't want to be fools
Complain about this comment
#245 Whilst politicians exhibit the traits you describe I am unpersuaded that this is in response to any popular demand.
More likely it is a requirement of big business - business likes stability and predictability.
Politicians have long since ceased to represent people on any kind of democratic basis - they are just system managers charged with maintaining the stability and viability of the system.
Politicians are packaged like a commodity and once every 5 years or so are offered for sale to the masses. A lot of money is spent on PR and focus groups and the media and "presentation." A bit like buying apples in a supermarket they are all of uniform size, blemish free, disinfected and covered in sellophane. Also like buying apples from a supermarket they are bland and far removed from the variety to be found in nature.
Their main interest is in ensuring a benign business environment and that involves taking actions and supporting ideas that keeps the general population compliant and under control. This requires them to lie and dissemble about the known and predictible effects of their policies. This is why virtually every statistic imaginable has been manipulated, or the underlying basis changed so as to make meaningful comparisons impossible.
The problems come when the "system" derails itself - i.e. the current credit crunch. Interesting times lie ahead - go one way and remove the proto from Fascist, go another and reclaim democracy.
Complain about this comment
All these people moaning about Brown and his other half-wits are now saying 'nationalise all the banks'!! Do they honestly think the Tories would've gone down this path? They are bigger half wits then the Brownites if that's the case.
Complain about this comment
Plan B
1. Banks go bankrupt
2. Assets get converted to legal costs and sold for peanuts, like insolvency practitioners currently do with property repossessions
3. The government step in and set up a nationalised banking system for less costs than their master plan
Complain about this comment
Alexander C
Re your CHAPS-did you read my blog a couple of weeks ago? My company had a week in March when all CHAPS in and out were taking 24 hours to arrive, even if they were done early in the morning. They quite literally disappeared! When I made substantial noises to our bankers, all I found out was that CHAPS funds were going to a bank suspense account overnight. Despite heated further enquiry, no explanation was forthcoming. At the same time, the same bank called in the overdraft on my friend's business (only needed to tide them over cos their insurance company were causing them havoc over their valid claim after a robbery). Predictably, this caused their business to fail!
At that time I openly stated that if this bank were doing the same with all CHAPS payments, then the amount of overnight interest they were earning was phenomenal! This overnighting stopped once I made a fuss, but we obviously changed our bank. Our outgoing CHAPS payments were all less than the £25,000 limit for Internet CHAPS, so we even did the processing on line ourselves!
This banks problems obviously began last year, not in the last three months!
What will you call your new bank btw? I want to open an account!
Complain about this comment
McFall is in a panic. A golden rule of politics is when about to panic go and take a cold shower.
The idea of spending even more taxpayers' money to nationalise the banks is very, very silly.
This is the usual state socialist response to any of their policies which don't work: there needs to be more of it!
The whole meaning of being radical, before it was hijacked by the disco-nuts and other poseurs, is to get to understand the reasons why change is necessary and effect those changes.
All the government achieved in October was to stop the banks going bust and taking down the entire economy and country with them. This had to be done as there was no alternative.
From that point on the government lost the initiative. They needed to make it clear to the banks that they were now conscripts in a struggle to keep the economy standing.
The only minister with the gumption to go around kicking butt on this topic is dear old Mandy. Whilst I shudder at the thought perhaps Mandy should be Prime Minister as he seems to be the only one in this government able to both think and act at the same time.
Complain about this comment
Hah, Seems the Swiss are more intelligent than we are.
The Swiss know that UBS bosses earned among the highest salaries in Europe. Added to that were huge bonuses which they continued to award themselves even as the financial crisis unfolded.
It was all too much for one indignant shareholder. Leaping to the podium he turned to UBS chairman Marcel Ospel and told him "give back your fat bonus, now".
Marcel Ospel stepped down as chairman, and a new pay structure with fewer bonuses was announced.
So, like spurned lovers, the Swiss are taking their affection elsewhere. At least £70bn have been removed from UBS over the last year.
The bank is haemorrhaging money, and smaller local banks are doing a roaring trade.
And here is where the Europeans show the democratic way...
And so, like the patriot he is, Mr Minder has embarked on a truly Swiss course of action to prevent such excesses in the future.
Using Switzerland's system of direct democracy, he (Thomas Minder, the manager of a small but successful business) has collected the required 100,000 signatures to hold a nationwide referendum to end, as he puts it, "the corporate rip off."
And what can we Brits do? post ineffectually on blogs.
Complain about this comment
Pardon, Full link to above references..
http://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/7741561.stm
Complain about this comment
Were banks investing their own money in dodgy investments or their clients?
Whose money were they spending?
Complain about this comment
Kikidread... They were creating money from nothing.
Have a little look at this. It gets more relevant to the present day towards the end.
Its a bit long though.
Complain about this comment
the chancellor needs a rethink - spending levels will never return
Same dog bite you in the morning
And will bite you in the evening
So I am..
Once bitten, twice shy
So please don't ask me why
Complain about this comment
In The Wet
Nevil Shute
1953
He saw it all coming
Complain about this comment
it's not a political issue and the solution offered is not the full shilling
Complain about this comment
259 Didlittle or didlot bankerrs realize that creating money from nothing would one day inevitably lead to creating nothing from money ,although they get bonuses either wayout way ?
Why did Tony Blair accuse the FSA in 2005?
was it because the FSA understood the threat to banking stability caused by NothernRocks [and others]together mortgages [125%LTV] which subsequently unchecked , lead to market colapse and the massive liability for taxipayers .
Given that 80billion pounds of Northern Rocks performing loans were sold on ,then can we then assume that the 20 billion pounds outstanding asset/liarbility is made up of mostly NR together mortgages that were 20%overloaned and inflated even at 2005 prices and which now will cost billions for the taxipayers .
Is the bail out more about saving the wicket by covering tracks and sleepers with fig leaves?
Did the Tony second coming of age party deliberately want a blind eye turned to NR lending practices whos ever growing bonus driven staff union contributed to Laaabour prty finaaance [so i've read ]ETC ETC ?
Are Labour subprimessists in the house of Lourdes waiting for a miracle to save theiir AAA'S or is the whiting on the roll good enough for them ?
Complain about this comment
Neither a borrower nor a lender be
Complain about this comment
Pardon kikidread, i see the link did not print.
http://www.xchange.org.uk/news-view.php?news=175
I hope the above works now.
Complain about this comment
i do like your comment style stilliiteraty
Complain about this comment
Regarding the repayment of government loans being within 5 years, causing restrictions on bank lending:
This is not an unusual situation when negotiating repayment of loans. It is quite possible to schedule repayments based upon performance. This might actually encourage the banks to lend more as it may strech out their repayment timing and therefore give them more credit from the government.
It is not necessary to nationalise the banks only make them perform in the way you want based upon your ability to control them by nature of your investment in them.
If by not realising the repayment in 5 years as a result of this the economy is stimulated and grows then repayment timing an be extended and result in a win for the government and the banks.
In summary structure the deal to our short term an longer term advantage. A bank would!
Complain about this comment
Robert, am I being too simplistic here but I thought that the way banks make their money (or at least used to in the dull old-fashioned world) was to lend it to the rest of us charging interest? The art of good banking being to manage the risks on lending so that the returns on the good bets outweigh the occasional loan that goes sour.
How then do the banks intend to make the money they need to pay back the bail-out sums without lending? A few months ago they could have just re-invested in some whizzo offshore scheme for far higher and quicker returns than a bit of lending to some tedious entrepreneur but judging from everything that's been written I'd say that avenue was now closed to them - where do they go from here?
R
Complain about this comment
# 268
Not too simplistic. You're just missing a twist.
Whenever banks lend, they need to set aside capital to support that lending. Typically, they'll need GBP 8 capital for every GBP 100 in "normal" loans, such as your overdraft if you had one. So, the more they lend, the more capital they need.
Now, the government is planning to inject significant amounts of capital into several banks, so that lenders (depositors) to those banks have more confidence that they have sufficient capital to absorb future losses, ie the banks won't go broke and depositors lose their money.
Part of the injection will be via preference shares, carrying an annual dividend payment of 12%. That's very high, and it's difficult to see how any bank could earn a 12% return doing normal, boring banking, such as providing us with overdrafts or personal loans.
So, the banks want to redeem those pref shares asap. The easiest way to do this is to reduce the amount of capital they need, ie reduce the amount of money then lend. Per the illustration above if, rather than giving you an overdraft of GBP 100 the bank withdraws your facility and tells you to repay the GBP 100 overdraft, then the bank needs GBP 8 less capital, which they can then use to redeem the expensive pref share capital.
So banks can pay back the governement capital two ways: indulge in sensible, profitable lending, and use the profits to redeem the government's shares, or they can reduce lending and simply reduce their need to capital. My vies is that forcing the banks to take expensive prefs shares is a mistake. It just encourages credit contraction, and risks doing so to an extent that perfectly sound lending decisions will be adverselty affected. I'd rather see the governement take more ordinary shares, with lower dividends, and not place any restrictions on the banks buying these back. Instead the governement would sell the shares in the secondary market when bank shares recover. The banks get capital, with no artificial limit on its life, and at a lower cost.
Complain about this comment
BANKS! no thanks!!!!
So we queue up in a branch that is usually well away from a car parking area [if we are lucky u can find a space and pay to park!!] after a boring wait like the russian food queues the 'BANK' takes OUR money and lends it to a 3rd party who may be a lowly paid worker in the usa buying a house that is overpriced and they can never afford the repayments or plenty other risky cases [funny how when u need a genuine loan u cant get 1] so OUR money is lost!!!!!!!
this is after the BRAINS at the top of the banks have taken huge payments for themselves.
so now u cant obtain even a reduced loan which u can more then afford as the 'BANK' has lost it.
the banks have been overseen by the chancellor for years, it so happens he is now the PM!!!!!! not my fault he says it started in the USA!!!
Complain about this comment
The problem is much too big for a simple solution of any sort to work. Basically, we have all been cheated by a system which has promoted the ability of self-interested entrepreneurs to fleece us all.
They have fleeced us not only by their reckless attitude to money we have placed in the hands of the banks, but for many years now, through the tax system which has poured billions of unaudited finance through their sticky paws, into so called procurement & resourcing services. Most of these services have numerous faces, all not providing much in the way of services, many of them not just duplicated but in multiples.
They have provided limited funding to these services, which can only be accessed by providing a complex business plan. The new service takes 18months on average to set up and after 5yrs the funds must be reapplied for. This is causing waste and inefficiency on a colossal scale. Meanwhile the procurement companies are spending billions which they should be spending on services, buying shares in equity funds, banks and the like and enriching their own shareholders. Sounds familiar doesn't it.
My suspicion is that the financial black hole we are in, is worse than anyone can possibly imagine.
What is more worrying is that a lot of the money has gone in very dodgy directions....and could be used in the future for nefarious purposes.
Complain about this comment
The paradox is even greater. thebanks got into trouble through overlending - to consumers and companies - who were encouraged to borrow by a profligate Government who was leading the way in living beyond its means on credit.
Now banks are told to lend more by a Government that is borrowing more to bail them out. Classic economics says that when a Government borrows more there is less for everyone else.
Furthermore having failed to be prudent in good times, the Government has little room to boost teh economy as recession hits. Greedy bankers perhaps, but that is a cheap shot. Government mismanagement has a lot to answer for as well.
Complain about this comment
View these comments in RSS