2009 is payback year
The transformation of the years of easy credit into a financial nightmare for many big companies is illustrated by the Bank of England in its Quarterly Bulletin, which was published overnight.
This transition from credit feast to credit famine is depicted in a chart of the maturity profile of outstanding European corporate debt (stay awake, this matters to you).
What it shows is that next year, 2009, there will be a massive bulge in the value of bonds issued by European companies that have to be repaid.
Or, to put it another way, about $1000bn of "old world" companies' borrowings in the form of tradable debt has to be paid back during the next 12 months - with something like $800bn of this owed by financial companies and $200bn by non-financial companies.
That would be a colossal sum to pay off at the best of times, and is equal to about five times what's been repaid in 2008.
It is a disturbingly huge amount, at a time when even the bluest-of-blue-chip companies are finding it difficult and expensive to raise money by selling new corporate bonds.
More or less every chief executive and finance director I know is agonising about how to obtain debt finance - and is having very unsatisfactory conversations with banks.
Here's the Bank of England's characteristically euphemistic account of the implications: "a large volume of corporate debt matures towards the end of 2008 and over 2009, which presents significant refinancing risks for firms".
What's likely to happen is that Europe's biggest and strongest companies will vacuum up whatever meagre credit is available from malfunctioning wholesale markets and banks.
And that, in turn, means that weaker businesses, those most desperate for credit, are going to find that conventional sources of credit are simply not available to them.
Their desperate plight - their almost complete inability to raise vital finance - is shown by another Bank of England chart. It plots the market price of European leveraged loans - banker-speak for the debt of companies with big borrowings - which has collapsed to 65 cents in the dollar on average.
To translate: companies with large debts are only expected to pay back two thirds of what they owe, which doesn't make them a sound banking proposition in our harsh new world of tighter-than-tight credit.
So lots and lots of companies won't be able to raise the finance that would keep the bailiffs away, unless taxpayers step in as the lender of last resort.
Taxpayers have already done that to the tune of £600bn and rising for British banks (see my note "How much will taxpayers finance economy?"). And, as I've been pointing out for some time, we are being asked to provide life support to a swathe of the real economy, from steel makers to car manufacturers.
The Government will succumb and will lend taxpayers' money to non-financial companies.
In a way, there's no choice, because we'll be hobbled for years as an economy if our few remaining manufacturers and exporters are wiped out.
But many will urge that companies which borrowed recklessly in the good years - often to generate unsustainable growth in profits that triggered bonus payments or to finance excessive special dividends - should not be bailed out.
Though in punishing imprudence we would be foolish to punish ourselves.
The trick for government, therefore, would be to rescue fundamentally viable businesses, while somehow leaving feckless management to swing in the wind.
I'm 
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Oh dear, more bad news!
Though I think I agree with Robert - now that we're in such a widespread mess we need to help the better businesses through it, rather than leaving them to hang and finding our own necks are unwittingly in the same noose.
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From Mr Peston:
"Though in punishing imprudence we would be foolish to punish ourselves."
There`s that royal "we" again Robert.
It`s the lumpen proletariat who are being punished.The Brown dictatorship is punishing us for being poor at the behest of the international banking dynasties who control the governments and media of the world.
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Financial investments its abit like being in the bookies only in the bookies you know the odds.
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Corporate debt will be backed by taxpayers next year. It should not be, but it will be. Many undeserving companies will be propped up for political reasons. The normal and valuable process of streamlining that recessions provide will be discarded as our leaders try to save the fat. Too much damage for a constituency to handle, etc. Everyone is a special case these days.
There is no dilemma about what to do with the management under such circumstances. If a government rolls their debt, the directors must be removed and their posts advertised at substantially reduced renumeration. This is the LEAST we should demand as a concession to an otherwise flawed policy which will result in a legacy of waste characteristic of the planned economies of old.
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I like the idea of of "leaving feckless management to swing in the wind" but fear Governments obsession with an arms lenth approach to the companies it bails out will mean a retention of bad managment, leading companies that can only survive by suckling on the government teat.
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RP wrote:
"The trick for government, therefore, would be to rescue fundamentally viable businesses, while somehow leaving feckless management to swing in the wind."
I think we all know that "viable" in political terms is measured in the number of marginal seats saved, not anything of a financial nature.
There is a lot of debt to refinance, and a number of things will happen. Primarily the cost of debt will rise. Corporates then have a choice: pay the higher interest rate and probably see margins decline (they will have no pricing power until at least 2011 so no price rises to compensate). Or they can tap shareholders for extra equity finance. The impact there is lower share prices, as earnings per share declines.
Some companies will not get debt finance or be supported by shareholders. Why? Because returns (either profits adequate to cover the higher interest burden, otherwise known as interest cover, or return on equity) will look unattractive. Such companies, of which Woolies is perhaps the first of note, will go under.
And why shouldn't they? Such companies are probably marginal, based on the cheap and easy availability of credit over the last 4-5 years. We know credit was excessive then, which means it ought to decline and, unfortunately that means some companies will fail. Some of them may be big companies. It's doubtful, for instance, whether we really need all the shopping centres and shops we now have, given that consumption is unlikely to rise quickly as households save more to repais their savaged balance sheets (house values, pension plans etc).
That doesn't mean a major retail player will necessarily go under, but it does mean it's likely that some of the big High Street names will start reducing floorspace. Depending on how they're financed, that will reduce the debt they need to refinance. It probably means some of the property companies will be in financing difficulties in 2009/2010. But so what? If we don't need the premises, then we don't need them. What's the point of propping something like that up if it's of no economic benefit?
That brings me back to the start: it isn't an economic benefit the government is seeking, it's a political one. They don't want big redundancy numbers coming out between mid-2009 and mid-2010 when they hold an election.
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Yes, still awake, thanks.
But thank you for another very clear and relevant point made.
This is indeed where it gets very worrying indeed.
As far as the financial co's are concerned with the $800bn needing refinancing, the government absolutely should not help them in any way at all (beyond the existing set of banks recapitalised etc that take retail deposits, in order to guarantee these).
As for the non-financial businesses with the $200bn needing refinancing, it really should stay clear too. Surely these guys can do their refinancing via extra equity? OK, it will mean huge dilution and massive declines in share prices, but then that is the price of their executive managements incompetence in running the businesses (and it'll persuade a few of us to get back into the market too.....).
And if that won't work then they should go bust, but if a company goes bust simply because it has a huge debt load around its neck, its business wont be "wiped out" as you say. It'll simply be purchased by someone else who, if they have any wits about them, will probably go out and make a good amount of money.
Lastly, if the government does dare help a non-financial business, I certainly hope it asks for convertible preference shares in those businesses. Us tax payers will be being sold an enormous pup otherwise.
There is a lot of talent amongst small and medium sized businesses in the UK who as a group, as you have pointed out yourself, are not indebted at all. One huge step forward in getting the UK out of this whole mess would be for a major transfer of the management of productive assets to take place from the big companies - who have been neglecting their customers and markets, while concentrating on increasing gearing, returning money to shareholders, spurious wheezes and restructuring at the same time as paying themselves ridiculous amounts of money - over to the medium sized and smaller businesses.
I can't stress enough that the future for the UK over the next five years is going to be dependent on creating conditions that enable small and medium sized businesses to grow rapidly. Artificially supporting their larger dud cousins is not going to do this.
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Tim Harford of the FT wrote a great article about Robert Peston at the weekend: asking "Did Robert Peston cause the credit crunch?"
My answer is slightly different to Tim's: http://www.knowingandmaking.com/2008/12/tim-harford-on-perceptions-and-economic.html
This article is a good example. On this issue Robert has made some of the subtleties clear, but it's easy to misread it due to both the tone of the article and the mood we are all in. This makes it all seem worse than it is.
For example, note that $800 billion of repayments are by financial companies. Many of these will be to other financial companies and could well cancel each other out. Others are already guaranteed by governments and won't require any additional action.
The remaining $200 billion is spread across the whole of Europe. Britain's share (if the government were to guarantee the issuance of debt fully) is around £12 billion, and even if these ended up losing 35% of their face value as Robert suggests, we would lose only £4 billion. Based on the structure of the bank rescue, the taxpayer will be well protected with equity stakes if any repayments are not made.
However, there are definitely interesting questions here. It's very interesting to try to work out which businesses the government should support. It almost seems as if lending less money is more risky than lending more... if the government only picks a few companies to support, and leaves the others to collapse, the ones it has chosen will probably suffer too and the taxpayer won't get its money back.
On the other hand if it lends enough to all of them, as well as creating a big fiscal stimulus, maybe more of them will survive and more of the money will be repaid. Of course, that strategy increases the stakes enormously. Are we willing to let the government do that?
I think the basic message is that companies may need to adjust to living in a low-capital environment. Here are some ideas on that:
http://www.knowingandmaking.com/2008/12/reducing-capital-needs-of-european.html
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Debt for shares sounds and a fixed return of interest for each share like the only viable option.
That way at least taxpayers get a good return from the investment.
Shares should be brought at a discount to the market value taking into account how much business the company has lost because the borrow to spend consumerism boom has ended.
With companies having to roll over debt many will struggle to do so. The government will have to open up the books of those that approach it and see if they are viable to save in the long run. Those businesses that grew partly on the back of people borrowing and spending more are going to have to look at down sizing, not only to cope with the loss of custom but to pay money for borrowing too much as well.
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You're probably right that 2009 will go down in history as the payback-year (or the first of these). But it will depend on the political handling whether this will be perceived as the beginning of the healing or the beginning of the real nightmare. It just needs to be made sure that it will be those who borrowed who pay back, companies and private consumers alike. The rest needs to get through quickly and continue with what they have done before: Being productive and consuming within their means.
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I'd prefer to see each company in trouble being treated to the same types of restrictions and language as a someone in this country who is claiming benefits. Give them £60 a week.
Why should those who complain about benefit claimants, including the government, be any less tough on companies and their rich directors?
I'd also like to see each responsible director being barred from future directorships. They are clearly incompetent to have created the mess in the first place.
Aren't they supposed to be intelligent adults able to make clear decisions rather than following trends like a teenager subjected to peer-pressure in the playground?
No one made these companies agree to so much debt. We've already been subsidising them with tax credits to under-paid employees for years.
If the companies fall, well, we will create new industries and companies.
It will be tough, but I am we could retrieve assets and monies from rich companies just as we do from many other criminals. The government hasn't be afraid to produce retrospective laws in the past and they can do so again.
Or would that upset their friends in the playground?
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Just how can the UK government bail out these companies when it is technically bankrupt itself?
I would classify bankrupcy as when one has to borrow more money in order to pay just the interest on his loans. Well, the UK interest payments on its public debts has risen to £36 billion pounds per year (greater than the defence budget), yet Gordon Brown is planning to borrow over £100 billion pounds next year which is 3x more than the interest on the public sector debts.
See: http://www.marketoracle.co.uk/Article7526.html
Thanks Gordon for bankrupting us, just because you wanted to buy votes with public jobs and state benefits by you consistently spending above your tax income.
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So you can bet the car companies get help Robert, But the problem there is, there still going to have to down size by atleast 50% . there just wont be the same demand for the new car in 2010. let alone 2009.
the goverment really need start to get a grip, we import coal at a much bigger cost than mining our own coal, We need to open up the pits on a short term basis untill we can start to provide ourselves with enough renewables. This would also create jobs which will be very much needed.
To carry on with a globle ecomony is a joke, the globle ecomony as collasped,
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Thank you #7 for making a point I forgot to make.
When a company fails to pay its debts, it does not necessarily get shut down; that does not serve the creditors' interests any more than it does anyone else's. If the company does something fundamentally useful and productive, someone will buy it at a discount and ensure it continues as a going concern. This benefits the economy, as servicing an unpayable debt is not productive; it is a waste of productivity. If the company has no utility, its liquidation might give a smaller company its big break, by giving it the deal of a lifetime on tools, for example. This is no bad thing either. Maybe the government simply wishes to avoid a transfer of wealth from the merely indebted to real holders of capital?
Let the market sort the wheat from the chaff. The process underway is not abnormal and current conditions in the credit markets should be within the pain threshold of any well-run company.
Sadly next year's business plan sales pitches for taxpayer bailout money will amount to nothing more sophisticated than "I employ lots of people in your constituency, give me money."
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On a more personal note Robert, I am sure like all other bloggers, you do not despatch your copy into a vacuum but skim the comments. Every time you may come away with the impression that we are a tough crowd in the peanut gallery determined to voice displeasure come what may.
What you must realise is that this has become a sounding board for fundamentally unpopular policies. Whether this is an editorial direction of your choosing I do not know, but the criticism you see comes not from the breaking of news, but the breaking of future policy - and seldom is there anything to like.
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2009 Will be pay back year?
Robert Should that read 2009 to 2019 will be the pay back years..............
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The problem is that for the last ten years, at least, cheap money has meant that companies have found it more attractive to borrow than to raise equity.
It is madness as well as impossible for the government to support everything with taxpayers money.
The companies that cannot raise loan capital will have to go back to shareholders for equity capital and they will have to give whatever deal the equity suppliers ask.
The money is there it is just that those people holding it want a much better deal than anyone has so far been prepared to offer.
Company management does not like this scenario because it increases shareholder power and that is likely to curb the remuneration of the management. It reduces the value of the share options for a start.
If a car company, or anything else for that matter, goes bust; another supplier will get the business or a "capitalist" will pick up the assets cheaply and start again.The same number of cars will be made and sold.
The weak must go to the wall. That is the way business and everything else evolves and improves.
Goverment should concern itself with encouraging investment in areas that will be essential to us in the future such as energy procuction.Note encouraging not investing.
Government should not throw money around like confetti in the hope that some will stick in the right place which is what is going on at present.
We need to lay out a coherent plan and stop ranting.
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People seem very preoccupied with how we now have parity with the Euro.
In 6 months time we will have parity with the dollar !!!!
We are bankrupt and yet lending more ???
With all countries lending more can you tell me where this money comes from ??? We are obviously perceived as a bad bet as our currency is in free fall will this mean even higher interest rates for us compared to other countries when we borrow ????
The is a lot of comment about how this will help exporters ?? do we still have any ?? how much revenue is there from exports ???
I cannot see how we will be out of this in 10 years and in 12 months time will still be going downwards and i am an optimist.
How can we the general public force the lunatics out of office ??? and at least get new faces to look at !!!
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Insomnia has now taken over as my worries grow at the magnitude of the situation.
though whether this coming thought is born from deep depression, having studied so many column inches or some inspirational vision I don’t know but I am drawn to two dads army catch phrases [we’re all doomed] and [don’t panic don’t panic] why should we not panic well simply because we are all doomed.
Normally when a person a business or a country gets into debt they are humiliated by the creditor taking the moral high ground. You irresponsible unworthy debtor owe me highly respectable generous and legally backed creditor x amount of money which you have no doubt squandered and wasted in personal pleasure or ill managed venture.
Now from recent reports and exposures we find out that those who have previously taken this moral high ground have been far more reckless than the rest. Having discovered this fact through free trade most governments of the world under the leadership of world saviour ‘Prudent Scottish Gordon’ [after all where in the world could you find any other three words that conjure up so strong an image of safe with money] have followed his leadership and thrown the rest of their citizens money from down the side of the national settee into the pot.
The creditors of the world are now as broke as the debtors and the smirk of fiscal righteousness belongs to no one. So when any country calls at any other county’s door for the money they will find that all the debts gone toxic and the cupboard is bare.
Now one may argue that at the moment there is some non toxic debt about but it won’t take a long recession and a few million unemployed in every country of the world many moons to turn the rest toxic.
The governments of the world will then have to get round the table and properly discuss a solution that is global and is not nationalistic. A solution based on the facts that as we all live on one planet with one set of finite resources from which we create whatever we feel we need to enhance our time here and as we are now all in the same boat it has to be time to start cooperating with each other.
After all we all share the same air, the same land and the same sea. Now we all share the same debt and toxic assets lets see if there are some ways to share a solution, a different order of living by employing a new way of harmonising our lives through cooperation not conflict.
We have the means to travel anywhere on our planet in less than a day and a network that allows us to communicate any where on the planet with anyone, on a one to one basis.
Surly we need a new system of fiscal and social management to live with the powerful opportunities of that technology. Our tribal tendencies that grew up from the hunter gatherer’s needs to protect their community while out gathering or hunting are no longer relevant but we should value that everyone of us is different every one unique not look for a system that ties us in but frees us to cooperate and prevents us via incentive and law from conflict at every level.
That is use the systems we have to find a way to re-structure our lives after all by the end of 2009 there are few in the world that will not be in the same boat.
And whether that makes me a [stupid boy] for thinking such cooperation could ever exist I don’t know but I do know one thing there an awful lot of people who are going to feel by the end of 2009 that Jones has fiscally - stuck his cold steel up’em.
PS. there is just one horrible thought I have had if we are brought by our leaders through world bankruptcy to sit and discuss a new order for the future of society will Robert Mugabe claim he lead the way.
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No problem at all keeping awake, actually perked me right up!!
#7 post is spot on, and I urge everyone to back up and read it.
There is a lot of hope out there, and there are solutions to the conundrum, IF and ONLY IF, innovators in small business are allowed to operate in a free environment.
What Mr. Peston describes is much like what GM faces here--some $100 billion in debt stacked upon $2 billion in equity, and not many customers interested in buying their cars!
It can be worked out, with everyone, and I mean everyone, willing to take a major haircut. The corporate debt holders will have to settle for equity stakes, the common shareholders will have to suffer dilution, the union will have to settle for a lot less, and the taxpayer(who is forced to kick cash in) will have to settle for preferred share warrants, and hope to heaven it works.
It would all resolve so much more quickly if the Congress stayed out of it!
I can't describe (and get past the moderators) the sensation of watching Barney Frank and Maxine Waters, whose blind support of anything Freddie and Fannie undertook, browbeating auto execs about how they run manufacturing firms.
It's breathtaking, to say the least, in polite language!
The more the government gets involved, the more it will be picking winners and losers based upon political considerations, not economic realities.
Imagine Barney and Maxine designing a car that the entire country will be required to drive...not a pretty thought, is it?
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Well done Robert ,nothing like humour doom and gloom to start each new week in our winterr of disco intent with the fantasy that things couldn't get any worse when we know they will .
I have been waiting for the final musical chairs to be removed so that we can see the last man de s itting himself and finding nothing on a roll
Cheap loans provided by the fractional reserve banking goon show in the hay day of banking to stave off the day of wreckowning are now un reamortisable millstones for those that thought them the fasion statement trophy of their day.
And to think that we had the audacity to laugh at the polynesian cargo cults which sank their canoes with their granite credit default swaps now beggars belief .
As part of the fiscal stimulouse package Great Gordon should commission giant figurinals of the labour cabbynet [ similar to those on Easterr Island] to be placed on top of the white cliffs of Dover to keep our creditours at bay[particularly doodle bugger types that wish to invade Inkland and interfere with our bottom line in the sand Canutes before the tide does ]
Its time for those who saved the world [but could not save money ]to compete with Mount Rushmore and join the mportals of history.
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And, Mr. Peston, since I am about to be doing business in the UK--can you discuss the future of the pound vs the dollar? I keep expecting the dollar to crash vs the pound, because we are in the hands of idiots here, and all the UK posters expect the pound to crash vs the dollar.
What do you think?
It's a right fine mess, is it not?
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The taxpayer... interesting!
In order to get tax revenue, there need to be jobs. There will be a great number of job losses over the coming 12 months - far greater than anticipated.
A substantial number of "high end" tax payers will be leaving the UK - those who pay more in taxes than what the majority earn in a year.
And so on.....
The gist is... there is little (if any) faith with regards to the UK tax payer (both individual and corporate). You can see this so well illustrated in the declining GBP, etc.
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I watched an advert last night for a large high street bank , giving advice to customers about managing there money.
If this advice was given and taken by the banks then we would not be insuch a mess.
One area that realy concerns me is the giving of incentives or commision on what you sell not good, as this breeds greed, the person selling is going to do all he or she can to close that sale weather you can pay or not.
Financial institutions must look at there operation and tighten the process of lending.
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It is clear that companies particularly the larger ones have financed unsustainable expansion (and rewarded their directors and shareholders) using borrowed capital. It is equally clear that payback time is approaching fast. However the fat cats at the top of the corporate hierarchy are unlikely to see their 7-figure salaries affected – there seems to be no penalty for failure although I suppose their bonuses may suffer for perhaps as much as two years?
The pension companies which 'own' a considerable share of the equities market are also in trouble but mainly because for years they really didn't use their muscle to attempt to control the companies they invested in, and tacitly supported the culture of corporate greed. The people whose money they managed of course had zero say in the matter.
Brown will be focusing his lending (via the nationalised banks) not on those most viable but on those that yield the greatest political capital. So the risk to the banks (and taxpayers) is not minimised and we have less chance of seeing our money back.
What I cannot understand is, in the days where money is in such demand, why the cost of such money is falling. As a saver the return on thrift seems beggarly. Where have the market forces of supply and demand gone?
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So get the printing press working, because sooner or later the govenment won't be able to borrow the money either.
Then the money will not be worth borrowing.
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if government's will be underwriting bank and corporate debt by next year, who will be underwriting governments? God?
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Bankruptcy is the most effective way of clearing debt ,without some bankruptcy all go bankrupt [fractional reserve banking ,you can only have your cake if you eat someone else[s]].
Think of it as a canibaaal convension where some of the guests become a la carte that others might live to blight another day .
Lloyds ate HBOS
Santander ate Ali b&b A after being told to open sesama [the other forty will go down thw hatch later]
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Aren't Gordon Brown's intentions for the UK economy beginning to look rather like the mother of all ponzi schemes?
And we all know what happens to ponzi schemes in the end, don't we?
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Re the last sentence, would you put money on NuLabour pulling off this "trick"? That lot are not fit to run a whelk stall, never mind decide discriminate between winning and losing propositions. And who is going to replace feckless management - Whitehall's finest?
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Dear Robert
YOU bet your life it will be payback time, and its going to hurt, especially the low paid, the poor and Pensioners.
Council tax will rise modestly, but councils will bring in stealth tax's by adding costs for views, and additional Buildings, (window tax) ie,
they have got the sums all wrong, this public liablity is out of order, and Gordon Brown, should resign.
Britain will be in recession long after the rest of Europe, tax will be huge, National insurance will increase, and interest rates will prevent savers obtaining reasonable pensions on their savings,and expats abroad will see at least 30% written off their pensions
2009---------------------
House prices will have fallen at least 40% or more, and the jobless will be in the Millions, this is pure unadulterated fact, the Governemnt and its advisors know this, and the Unions and the Opposition are correct in stating this.
Indeed, there is going to be severe hhardship under socialist doctrine, amd New Labour.
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I'm not at all sure it can work that simply Robert. If as this re-finance unfolds I decide I see a company worth investing in but the government choose a different competing company to bail out, I and others like me are likely to call foul.
I suspect we will not only call foul, we will lobby the relevent EU bodies to declare the government loan illegal.
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Re- organise, re-structure and move on.....
Its quite simple and we've seen it all before, although on a smaller scale to what is coming to us next year.
The big job providers will be protected, if they are worth protecting, the smaller ones and of course any retailers will be left to sort themselves out .......and they will.
The big retailer chains will reduce their floor space and the smaller independent retailers will either go bust or get purchased by the larger companies who (may) have a bit of cash lying around and everyone else will either go bust or survive to fight another day/recession.
Of course the knock on effect to our retailers shrinking in size is the amount of people that depend on our retail trade to do well.
Advertising, marketing, manufacturers to name but a few.
Their lies the biggest question, how large will our unemployment register be and the larger it is the longer the pay back period.......
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We have run the Boom on borrowings and as with all borrowings that needs repaying when the music stops. Much of our present position is due to allowing new, blue sky thinking and shameless spin to take place of wise old heads and a good bit of caution.
The old saying goes, Spend a penny less than you earn and you are a happy man, spend a penny more than you earn, unhappy man. Times havnt changed, the numbers just got bigger.
Should we help out the car companies and steel magnets ? The car Companies boast of being the leaders in just in time principles and screw their suppliers to comply, why have they built up such massive and unwanted stocks of cars ! Bad, and starry eyed spin. Steel companies bought assets out of borrowed funds and took delight in Lording it as the future business champions, those borrowings have to be repaid, and why should the taxpayer now pay again to rescue failure which was all to obviously coming.
Reckless banking and reckless Government made it all possible and perhaps now the roundabout has stopped we can fix the problems properly, if abeit slowly.
More good money after bad wont help anyone in the long term.
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Robert,
The demographic time bomb is about to go nuclear. All the pension funds depend on getting their income to pay pensions, soon they are going to have to start liquidating their assets to pay because the income is no longer there.
The investment banks will lose the income they receive through their portfolio management fees.
As for the Post Office which you refer to this morning, the government taking control of the pension scheme will be a dsiaster. They will suddenly have voting rights because they will be major shareholders in a substantial number of companies.
I think that you want to remind yourself of the Guiness Affair. Look and learn Robert and other viewers of your blog. There are lessons still to be learnt.
The whole game is up, look at how and why Arthur Andersen collapsed.
There are serious problems, you know that, I know that, soon the whole world will know that. Soon people will start talking as the big pay-offs to buy silence disappear. There has been a massive confidence trick.
What some people want to look at is the Robert Maxwell connections to the current labour government.
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IMF here we come AGAIN!
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Robert, Unlike previous articles you fail to mention any big company names that have these huge European debts. Are they US or UK linked or just companies that few of us know about or their funding banks? Barclays? HSBC? ING?
And just who allowed their debts (bonds) to increase to levels that couldn't be repaid? Bank managers? There's a coincidence........Loved just a tad less than Estate Agents....
Is it coincidence this morning then that the 'skulking' John Varley, Head of Barclays, so afraid of interviews in the British media and the BBC, is hiding over at Sky news and now encouraging a bigger run on UK property and equity assets, in addition to the UK pound whilst hiding behind Gulf state 'skirts' financing?
What does the man himself have to gain?
More dollar hedge fund profit taking, as Ms Horlick revealed on the Today programme this morning?
Or has Barclays significant exposure to 'hedge fund bets' on property?
Is this similar to the multi billion black hole found in its books last year, that it tried to keep secret? Or is Barclays Capital in trouble yet again?
I would hope that City analysts (lemmings?) ignore his whimsical comments about UK property falls and instead look at where Barclays is and has been investing. After all Zimbabwe is really not the sort of credible place for Barclays to be is it? Apart from the issues around Mr Mugabe, the country has rampant inflation. Or is Barlcays profiting from that sorry state of affairs, much like the years when it propped up the apartheid regime in South Africa and the numerous other African governments that held funds in, when waging wars agains their own people. Sadly Barclays has a chequered and
somewhat bloodied history.
John Varley should do the honourable thing, that his more credible Japanese counterparts do, 'fall on his sword'.
Barclays and the whole Banking sector could do with someone more in touch with the global economics of today.
Perhaps Robert should run for either Treasury Minister, head of the FSA or maybe (and better still) Governor of the BOE?
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I think for some of us 2009 will be "pay again" year.
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It's not companies that make decisions it is people who in the not so long run are able to look after their own comfortable retirement.
Clearly there has been massive short termism with company executives or gigantic collective stupidity.
If what Robert says is the true measure of things there clearly needs to be draconian regulation of credit in future and the government's obsession with base rate and inflation is little more than urinating into a gale!
Never mind it's christmas and we can all take heart in GB's (Blair's trans-alantic soul mate) reassuring assertion that we live in the best possible economic system.
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I'm beginning to beleive that we're going to have a recession a nasty one but only a recession no collapse of the whole economy, no depression - If that was truly happening the FTSE would of carried on down instead of trading in a range like it has over the last month.
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Perhaps a somewhat naive and oversimplified comment (and of course, easier said than done), but here goes ...
Would it not make sense to use the taxpayer bailout of the banks to initially ease the debt burden of those who now find themselves so financially overstretched in the short term, reducing their likelyhood of default (and thus the toxicity of assets linked in some way to these parties), before providing some form of financial compensation to those more prudent savers at some point in the future, from the release of equity in said banks once the situation has begun to recover and a certain value has been reached?
Having said this, I suspect without tighter regulation or greater prudence exercised on behalf of banks (in some ways evident as we see them tightening their belts ever more so as we speak) that things are likely to return (albeit briefly) to the way they were, before we find ourselves in a similar situation once more ...
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"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
(Thomas Jefferson (1743 - 1826), Letter to the Secretary of the Treasury Albert Gallatin (1802))
I can't help but think that one of the Founding Fathers of the good old US of A saw this coming 200 years ago ...
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There is only one possible solution to this mess and this is inflation. The interest-rate lever has been broken for some time and just as the previous high interest rates ruined the UK's industrial competitiveness, the present low interest rates will accelerate the steep decline of its currency. The manufacturing industry in the UK has of course nowhere near enough volume to make up the gap left by the demise of the financial services industry.
So inflation, which taxes money and reduces debts, is perhaps the only way out.
The government needs to take back control of the money supply (which was franchised out to the financial sector with the disastrous results we see today) and start printing money again.
The results will be mixed, of course. Inflation is never pretty. But the alternatives are surely worse.
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Comrade Robert, you old socialist you!
Your report on the riviting Bank of England quarterly bulletin was "spun" into a plea for the nationalisation of the whole of British industry.
A highly controversial conclusion and not one that the BofE intended or that the Brown government has even contemplated.
Have you asked Gordon, Robert?
"The Government will succumb and will lend taxpayers' money to non-financial companies". REALLY?
"In a way, there's no choice. because we'll be hobbled for years as an economy if our few remaining manufacturers and exporters are wiped out". NO CHOICE?
"The trick for government, therefore, would be to rescue fundamentally viable businesses, while somehow leaving feckless management to swing in the wind".
And install commisars, and apparatchiks and be run by the central committee in Moscow, sorry Whitehall, I suppose?
Robert, I haven't laughed so much in ages. I am ranking you alongside Rory Bremner as one of my favourite comedians.
Tovarisch Chelyabinsk
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Speaking as a member of the younger generation, who owes no debt (not even a mortgage) and has worked hard to save and pay taxes, I cannot object strongly enough to this mendacious plan to bail out one failing company after another.
There is no economic doctrine in the world that could possibly suggest that increasing the UK's already colossal debt is a good thing. The value of the pound is falling day after day and the UK is now seen as a credit risk.
If the UK goes bankrupt, everything we own will be lost. We must let these companies go to the wall. We urgently need some monetarist policy and a cut in the public sector spending.
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It is always tempting to blame the messenger, but our dear and unique Robert cannot be blamed for 'causing' the credit crunch any more than the person who treads on a land-mine 'causes' the explosion. One has to distinguish between the causes of instability and the trigger that tips the system from one state to another (the butterfly effect, if you wish).
The fundamental reason that things have to get a lot worse before they can get better, as Robert so accurately points out, is that everythign is interconnected in the economy. There are a whole series of dominos waiting to fall, and each takes time to gather momentum. You don't need me to point out what they are, but they will fall one after another unless appropriate, timely, and substantial corrective action is taken.
Unfortunately I don't see any indication that the government or BOE really appreciate the scale of the problem, yet, let alone have a solution. I think they are still trapped in the confines of their broken mental model of the way the economy is supposed to work (but doesn't).
One of the major problems that many retail companies will face is the consequence of their own management's actions some years ago.
Many were persuaded by the financial community to sell off their (previously 100% owned) premises and lease them back, as a way of generating finance that could be used for expansion (plus bonuses for themselves and dividends for the shareholders, naturally). Many of us said this was short-sighted at the time, and they will now pay the price as Woolies has done.
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Taxpayers money?? There is not much left anyway. Where does AD/GB this going to come from?
Stamp duty down
Income tax down with record job losses
Corporation tax well down, esp. in financial services
VAT down 2.5% for a year, maybe longer
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Probably more worrying for smaller companies is how the larger businesses will behave when squeezed.
Expect to see dramatically increased payment terms as the large companies push their cash flow problems down the supply chain.
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The inverse of the situation is that the funds repaid must be reinvested somewhere. HMG's answer should be to force lenders to extend the life of their deposits according to the existing terms, or drain them from the economy to fund the umbrella. Either way, end of problem.
As this is a mere continuation of the banks' refusal to function as credit houses, despite HMG's instructions to the contrary, I'd prefer the second solution, if only at first "to encourage the others", as the French nearly said about the execution of Admiral Bing.
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Dear Robert,
"lets do a George Orwell."
2038, the BBC has been given asasurances by Tessa Jowell That it will be funded by the taxpayer to the tune of £800,000,000 as the liscence fee.
"Do you see Britain free and democratic then,"? I do not ,
there is a definate threat to Constitutional Aspects of British ways of life, and we are moving towards a Federal State of Europe as can be seen by numeruos idedtifiers of such an organisationTHAT HAVE ALREADY BEEN IMPLIMENTED.
What is Interesting is that during this peruiod, how will this State Fund the issue we now find our selfs in The major issue that conpounds ever other one is the future of the Individual, an according to Governments they do not comment on the individual.
Now that raises the question on OUR FUTURE, because at the moment, everyones future is seriously indoubt, as Pensioners loose their pension rights substantiously, especially if you do not live in the UK.
and even that is now very doubtful to, due the Gordon Browns Tax on Pensions.
Governments ARE attacking the individual, because it is they who are suffering regards the failure of Governments to Regulate the Banks, and Financiers it is definately Governemnts fault that what is Happening is and was instigated by Governemnt Policy
That Policy is the Domestic Policy, of the UK Government, it is their policy that has put us into this situation, IT IS NOT THE WORLD GLOBAL ISSUE, at all, but serious faults in Ministers failing to control economic indicators and allow a free for all that has driven Uk Fianacial and Economic Policies to the brink of Armegedan.
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How can we rescue viable businesses with more taxpayers money/government borrowing and stay within the European Union's pact rules regarding these same levels?
Joining the Euro would quite probably destroy the Euro as well. Remember that the Eurozone base interest rate is higher than the B of E base rate, which would only cause more domestic economic grief for personal and corporate debt.
I am also not sure about propping up the UK car industry as it stands. Most of the sales over the last few years have been on the back of company car sales (I thought that the Government wanted to tax this?) and personal credit loans. Also fairly unique to the UK market there is also the "kudos" of owning a car with the latest year's registration - in the current financial climate, is this sustainable?
I would suggest that spending habits are due for a big shake up and government policy should reflect this rather than hankering back to yesteryear.
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I was aware that this would happen but
it seems i was 30% out on my estimate.
We will no doubt see a torrent of
insolvencies next year turn into a tidal
wave.
END TO BOOM & BUST!!!
HEADS MUST ROLL FOR THIS FECKLESS
STUPIDITY.
3000 jobs for Electrolux 600 in the UK
good start to the week.
TRUE UNEMPLOYMENT LOOKS LIKE HITTING
8 MILLION.
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Robert,
What makes a business 'fundamentally viable' now? In a low/no growth credit crunch world it would presumably be one which has little or no debt, and guaranteed positive cash inflows. Well those kind don't have a credit problem. How should we taxpayers choose which industries to support which don't meet those criteria?
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#37 Spot on analysis - though to "skulking" I would add a number of other expletives.
Unfortunately most of the population are blissfully unaware of the John Varley and Barclays that you accurately describe and believe him to be a fine, upstanding citizen.
As a consequence, when the head of Barclays says there will be a further fall in UK property, this is almost guaranteed to produce a further drop in the number of transactions and therefore a prolonging of the recession and all the adverse effects that follow.
Clearly Barclays have taken the view that they will make more money, by whatever means, by making this announcement and care little for the human consequences that will inevitably follow.
Further evidence, after the Madoff revelations this weekend, that the Banking system is rotten to the core...unfortunately it was ever thus...
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In a general sense, two things strike me about this crisis in the context of previous recessions (or, dare I say, The Great Depression).
First, the general global financial and economic conditions today seem to be much more complex, inter-connected and operating in real-time than at any other time in human history. Is this a good thing or a bad thing? My instinct is to assume that when the economic escalator was going up, it was a good thing (Gordon had us believe that this was all of his making, of course; it wasn't; he knew it, but it suited him and his Party to deceive us; such are politicians).
Now that we find ourselves on the way down, I fear there is potential for the moving staircase to run away with itself and plummet faster and further than anyone would care to imagine.
Second (related directly to my first observation), I wonder if the sum of this economic train crash will be significantly greater than the effects of its specific parts (catastrophes) being announced on a daily basis by Peston and others?
Taken my two points together, I find the various comparisons between our current woes and recessions of the 70s, 80s and 90s somewhat unbelievable. Surely, we're seeing such unprecedented ructions in the global financial and economic environment, against a backdrop of equally unprecedented scale and complexity that it's hard to avoid thinking that we're careering towards depression, rather than recession?
If you throw in the fact that we're reaching (if not at) the end of mankind's era of cheap energy (on which infinite economic growth is predicated) then one wonders if the next few years/decades are going to be more about armageddon than depression, let alone recession.
Anyone else thinking this way?
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Robert,
during the Great Depression, or Global Downturn I, the Stock Markets did not fall dramatically every day. There was no index to measure the stocks against. As for the Dow Jones it has to be the most ridiculous index ever invented, and only 30 stocks, unbelievable.
We should not look at stock markets in any other way than gambling dens. There is no investment. It is no different to putting your money on a horse and hoping that it comes in.
If you think that investing in pensions is any different to the 'Ponzi' scheme now exposed in America then dream on.
The demographic nuclear explosion will start to really kick-in over the next five years as the children born in 1944 now reach retirement. I am a 49er so will reach formal retirement age in 2014, by which time I expect the money all to be gone. There will be no jobs for the younger generation to pay taxes to pay for my pension, so where will my pension come from. Higher taxes, this will be a disaster. I am soon to be a serf, we have been on the road to serfdom for years.
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Everything Robert says is so true, but the entire world seems to be overlooking a global resource of $17.4tn of private wealth, accumulated mostly by successful entrepreneurs, most of whom would invest in wealth-creating SME's. We must never forget that this is where most of the leading innovations of the future come from. In the UK, there are 250,000 of these seasoned, wealthy entrepreneurs who have an estimated 5bn+ to invest, mostly in deal values £10,000 to £500,000 in start-up and growing SME's.
I don't know if pointing to URL's is allowed on these comments, but more on this in a press release (13-11-2008) that can be downloaded from the media zone at growthwire.com.
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Feckless management to swing in the wind?
I am struggling to think of any feckless management that's swinging, or has swung, in the wind. Even the bosses at Northern Wreck walked away with plenty of pocket money.
Unfortunately, when the banking industry and CBI call the shots, our great government simply jumps - no questions asked.
A disgraceful state of affairs, truly disgraceful.
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Welcome back to the Seventies!
Just as happened then we will get into a programme of sustaining companies with taxpayer bail-outs. Nothing will be done to restructure those companies for fear the prevailing debt will get worse. Productivity will go out the window and we end up owning an economy comprising sub-Soviet tractor factories.
Then someone will have to come along and turn off the life-support system as the taxpayer would have run out of funds and millions will end up on the dole as happened in the early Eighties. They will of course be damned forever in the eyes of many; just like the way Ma Thatcher is hated. So what politician is going to do that?
This is clearly a time of change and we need to change with it.
We need to identify the industries we can go forward with and use taxpayer funds to invest in the future, not to prop up failing and incompetent management.
The more time we spend contemplating the present and maintaining the current structures for fear of the consequences, the less we attend to the future.
We need a new political consensus, a new economy and a better future.
Get rid of Brown, get rid of New Labour and all the stooges!
Lets have a national government capable of dealing with the real issues facing this country: a failed economy, a ruined constitution, an incompetent political class and a generation of egotists pretending to be managers.
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Post 45, I commend you for two reasons.
Firstly for cutting to the chase. Why should those of us who have lived within our means bail out the wasters and fools bith individual and corporate that have got themselves in this mess?
Secondly for the use of the word mendacious in a blog. It is nice to see such clarity and force of views expressed so succintly and effectively and form one so young. I can only assume you didn't attend one of Comrade Brown's nationalised sink estate schools.
Oh and whilst I'm on rant . Post 43, A little inflation is the best way out of this. Wake up and smell the coffee!
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Robert Peston the Sage.
As a mortgage valuer, watching first hand the debt mania unfolding before my eyes, I've spent the last 4/5 years tearing my hair out at the sight of Robert Peston twittering on about how "We've never had it so good" and talking up the achievements of his friends in the Labour Party - as they conned us about economic "growth".
Let's see some re-runs of his comments about rising personal wealth based on house price inflation. How stupid they seem now.
Surely the "doom mongers" like myself were the true sages.
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post 55 moraymint
Very much my mindset this could trigger
anything.
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So, what you and your sources at the treasury are saying ,is that nationalisation is on the cards for our bigger companies, the smaller ones can fade away and the taxpayer can foot the bill. This is supposed to be a world wide problem , but it seems that Britain which "is best prepared of all the developed nations to face the recession " is in fact in a very much worse position than the dynamic incompetents Brown and Darling are telling the world. "We have European agreement " Brown trumpeted again at the weekend, but this I'm afraid was more wishful thinking. Europe is looking after itself and what happens to Britain is of no concern to them.
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You do relish your bad news, don't you?
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It is unfortunate that we have such a political dimension to all we do
Ordinarily banks would attract funds by high interest rates and lend at higher rates so the market is allowed to function.
Dodgy business goes to the wall and good ones thrive .
The craven desire to keep Labour powerbase secure endangers all of us
This is illustrated by the measures taken to assist poor families and those on benifits whilst not doing anything for savers and those who have stood on their own feet.
Tax credits for the rich who pass it on to their grandchildren would be effective.
Floods of capital become available to the wider economy.
One day soon the penny will drop that with such low interest rates there is only one place left to earn money --Shares !
A dividend at least secures some income and provides capital.
One thing you have not mentioned Robert is the 25% inflation Tsunami on the way .The Sterling collapse means goods being sold off at half price now will have to be replaced at the new cost in the New Year which is hardly a bank manager dream for small business.Why would a scared functionary in the bank risk it ?
It is the political distortion that will keep us in a hole for a long time .
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...."feckless management swinging in the wind...." oh you mean like the management of HBOS , NR, etc, etc..........All still drawing vast salaries, some even "advising" the government.
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Looks like Madoff is going to get the GOLD
Medal for his enterprise.
I guess he has TROUNCED the lot.
Horlick will be spitting Feathers in her
Office today.
Would love to hear her VENOM.
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If we lived in a JUST state we would need
to see i guess a 40000 plus increase in
Prison places to deal with the culprits.
But there will be no justice?
AS ITS POWER AT ANY COST FOR BROWN.
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# 54 and others
Varley hasn't said anything that hasn't already been said by about a thousand other analysts. He's forecasting an overall 30% fall in UK house prices and for the downward trend to this total fall to take much of 2009 to work through.
Most analysts also see no strengthening of GBP until end-2009, though Barclays' own research then sees the possibility of significant EUR weakness towards the end of next year, as Eurozone takes longer to come out of recession.
So I'm not sure why you're picking on Varley. If you want to criticise him, failing to say anything new might be his biggest weakness.
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Actually the UK is not bust, our national debt is quite low compared to many other countries. We can afford to run a large budget deficit for a few years and this is the right strategy to pursue at this time. The exchange rate is not a problem either. Of course it has declined, because the BoE has violently changed tack from a high interest rate policy to a low interest rate policy. The lower exchange rate is good for the UK and will counter the deflationary tendency of the impending recession, encourage exports and discourage imports. Just the medicine we need. The flexibility of having our own currency is vital at this stage and I predict we will emerge from this recession sooner than many parts of the inflexible eurozone. Cheer up everyone, and happy Christmas.
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By all means support the companies and keep the people in work, but at the same time the management who have managed to run these firms so low should be removed without compensation and replaced with people who know how to run a business in lean times (NOTE: not a political appointee).
The fact that such things have totally failed to happen during the bank rescue does not make me hopeful.
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I have one point of disagreement with this and it is that the definition of weak and strong may have nothing to do with feckless or incompetent management.
The entire private equity business model has been to buy good business and to change their capital structure to improve returns. In English, this often meant debt financing.
The companies that survive will be the ones that escaped this gearing and may or not be the best companies. I am afraid that the timing of debt rollover is now probably more significant than anything else in these businesses. I am also afraid to say that, in many cases, the private equity firm has already made off with the profits by repying their acquisition cost back by making the company borrow to pay for special dividends etc.
I cite as an example (nothing special about this one) that of Esporta, the sports club group. This was a perfectly respectable buisness model, with low gearing etc. It was then bought out, geared up, could not refinance and went into administration. In this case, the equity buyer did lose his shirt, but the point is still the same: a perfectly good company is in administration for no reason other than debt piled on as part of restructuring ownership.
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Are we seeing something deeper unwinding here?
For years we have been fighting against two major trends. The first is the march of technology. Remember when we were all promised a life of leisure as all our needs were met by machines? I now have more food than I can eat, more clothes than I can wear, more entertainment than I can enjoy and more transport than I can use, etc. Maybe we just need 25% employment and to attempt more is futile and damaging.
The second is the transfer between generations. My parents generation have been retiring at 55 and living for another 30 years. The holidays and golf that they enjoy are being funded by subsequent generations through inflated asset prices (primarily land) and debt. This has become unsustainable and shows up in the huge debts of young people through from university to middle age, together with grotesque house prices.
Japan has been ahead of us on this and have spent the last 15 years unwinding the position.
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i think the world IS GOING TO END. and then i'm going to write something self important here written staright from the pages of my first Chicago School economics textbook.
did i mention it's all gordon browns fault. i'll pobably insult him in some way now too, whilst the most important decision i made today was the colour of my tie to wear.
i might shoehorn in a comment about our impending COMMUNIST POLICE STATE, spell 'New Labour' incorrectly in a tired ironic joke sort of way, and then moan about BBC bias.
i'll proably even use my name to sign off with a pseudo-nationalist comment about being 'English', or anti-european, that most people couldn't care less about.
aand to make it look even more impressive, i'll WRITE BITS IN CAPITALS FOR NO APPARENT REASON.
It's all thanks to the liberals. An immigrants, it mst somehow be all down to the immigrants.
yours,
Angry from England-Not-Britain
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Wonderful to be wise after the event (ha-ha I've just heard I'm a grandad again.), however back to finance. For 11 years we have been told there is no sin in borrowing money, and no doubt many of the hyper salaries have been paid with exactly that, BBC and Banks being those with the highest profile, and fiddles galore in Parliament using tax payers cash. How comes none of these high powered individuals foresaw this event, or has their quest for wealth whilst it lasted dulled their knowledge of the truth, because now each to his own proportion of debt, it's going to be the survival of the most prudent, and those who are capable of living within their means. Welcome to the poverty trap. It appears up to 3.5 million could be there. So much for good governance.
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Re no. 74. My father-in-law took early redundancy / enhanced pension from Midland bank at the age of 51. He is now 74 and going strong (which is great). I wonder how much it would cost now to buy an index-linked pension tied to last salary at 51?
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I totally agree this is what the government SHOULD do, but there's probably a million reasons what they cant discriminate in ther efforts in saving the worthwhile businesses.
My take through the crisis so far has been to let businesses and people suffer the conesequences of their own financial behaviour. In terms of business growth, organic growth in my vocabolary can NEVER be based on lending to support the growth. On the contrary, growth based on lending is an artificially geared growth not at all aligned to a company's ability to neither do business, nor aligned to the growth potential. But as we all know, credit came at no cost, or so many thought for a long time,and yes the temptation to take advantage of it got too much of a temptation.
I do not think the crisis can be financially manipulated by applying new loans, as it just prolongs the crisis, although I am sure it would help temporarilly. I'd much rather see the government state to the corp businesses that they should NOT expect any help, forcing the corp environments to apply all their skills and experience in operating their companies by the new rules of the world, meaning a world with much less debt. Surely Corp Britain will be able to adopt to new rules and make the most of it.
Brgds
Carsten
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Dera Robert
The time has come to have all these Bankers Arrested abd charged with Fraud,
Dozens of them who over saw the
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So what that a few badly run banks and businesses (banks are businesses like all others) Woolies was going to the wall anyway, there is only so much demand for pick-and-mix, I have never seen anyone actually buy anything from MFI for years.
That car manufacturers have huge stocks of unsold cars simply means that they are too expensive, if they halved the price then I'm sure that they could shift a few.
I'm sure I could get credit if I was prepared to pay a high interest rate, the market should be left alone to find the true worth of a product, propping up lame duck manufacturers and service companies only makes it harder for the good (unsubsidised) ones to shine.
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Dera Robert
The time has come to have all these Bankers Arrested abd charged with Fraud,
Dozens of them who over saw the Credit Crunch, and the Sub prime scandal are Government Advisors, and STILL sit in the board rooms of these rip off banks.
MAKEOFF????? ENRO, ??? LEHMANS???? HOW MAY MORE WILL RIP OFF THE PUBLIC AND THEIR PENSIONS SAVINGS BEFORE THEY ARE BOUGHT TO ANSWER FOR THEIR FRAUDULANT DEALINGS.""???
Its time the FSA, did its jib along with the serious fraud squad
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When will we learn? Bad businesses should fail; if the underlying market/assets are good then they will be taken over by better management.
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#75
Are you one of Bremner, Bird & Fortune - you summed up 80% of the posts on here perfectly!
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Just one point about the evils of borrowing;
Will the government be advising young people not to take out unsecured loans to fund further education?
What a thing to do; state-sponsored indoctrination that it's great to start your 20's will a mountain of debt.
You couldn't make it up.
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Nos 74 and 78
I'd be interested to see what kind of financial sector we would have if one takes the logical step of saying. Give us money for your pension fund - we can only guarantee you can claim it after your death.
Mind you thats better that todays 'Sorry we spent it, theres none left for you!'
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#57 - that may be true but they are as greedy, maybe even more so, than the banks have been.
Of course we'll put money into your business but we want a minimum 25% annual return on our investment.
I'm no socialist but it is this greed, allied to the ludicrous short termism of the stock exchanges that have led to the massive increase in corporate debt.
Many good well managed companies would not invest in their futures because the city expected pay back periods to be farcically short.
If the government is going to invest our money in industry, let them do it by giving 400% capital allowances for investment in manufacturing plant and equipment.
I don't remember which politician it was who said - "never forget - governments have no money. Every penny it has is given to it by the taxpayer".
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#27 "if government's will be underwriting bank and corporate debt by next year, who will be underwriting governments? God?"
No way !! God's too busy looking after the poor and the sick to worry about the prodigal son !! This prodigal son blew his patrimony and now expects the fatted calf ??
As for the run-the-printing-presses-and-wipe-out-our-debts-with-inflation brigade, well, you got your wish and the Sterling has gone through the floor !! Any rollover of debts will be at punitive terms !!
The world's markets are punishing Britain for its fiscal imprudence !! Any further bailing out of lame duck industries will see much further falls of the Sterling !!
And to hear a public sector union official insist that the public sector workers need their bloated pensions in order to retire "with dignity" and completely ignoring the fact that millions of private sector workers will not have that option because they are unemployed, brings to mind the pigs in Animal Farm !! All animals are created equal, but some animals are more equal than others !!
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You can't just let businesses drop, if you do so then the effect will be catastrophic.
It might be galling but there, whichever companies receive money will have to put up with severe restrictions and with any luck when coming back out of government protection, the governement may even earn money from it all.
In terms of manufacturing base, this is another reason for the UK's difficulties (there is hardly any manufacturing left) so allowing these businesses to go to the wall would make the UK entirely dependent on the 3rd sector and financial services in particular, which would be disasterous.
This is where the govt. can take the moral upper hand, and say that allowing the market to take care of it all doesn't work and that at govt. has to legislate, not just allowing the market to run wild.
I hope for the UK's sake that there aren't too many job losses, otherwise this will have a profound effect for years to come.
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#54 houseflogger
Bit rich you talking about 'rotton' banks when you are clearly an estate agent/house flipper/buy to let type.
You are simply a greedy speculator falling rapidly back to earth interested only in your own interests. Tough luck.
My daughter and most young people may well be 'blissfully unaware' about John Varley but not the impossibility of buying a home at a price related to UK earnings. I am not in the least bothered that my house will fall in value by upto 50%; its my home and i did not use it to borrow huge sums of money to fund my lifestyle, or borrow against it to build up a leveraged portfolio. We have robbed our children blind and sit here expecting them to pay our pensions as well as save for their own. Now as Robert says is the time of 'reckoning'
You have moved from denial to panic. Fear and anger are related. You must move on now and accept your errors which like the banks have been driven by greed and hubris.
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Pants Robert, total pants.
If firms cannot pay back their debts, the following will happen...
1. A firesale, they will destock rapidly to bolster revenues. Great news for consumers and customers alike.
2. Lay off staff. Not great.
3. Get rid of non contributing assets, another firesale of parts of the business that aren't performing. Great news for shareholders and in the medium term for those parts of the business to be shaped up and made more productive.
4. Go bust. The customers are still there, the business is still there but the balance sheet says they are insolvent. They are bought up, broken up, streamlined, good news in the medium to long term as a more credible and viable business.
To paint it as some kind of nuclear winter apocalypse shows Robert you have absolutely no appreciation of the economic cycle.
Yes, it's uncomfortable and to some, painful. However, it is an inescapable part of the economic cycle, it is all part of economic renewal.
What government should be doing is absolutely NOT intervening, let the market run its course.
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I cannot believe that my comment (number 77). I simply asked whether anyone had noticed the last episode of Little Dorrit, put out last Thursday, in which a giant Ponzi scheme collapsed, as it seemed so relevant.
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#30 Oi !! Stop casting aspersions on whelk stall owners. I know some fine whelk stall owners purveying excellent whelks !! And nothing Ponzi about their whelks, either, unlike some people who think they saved the world !!
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Are we seeing something deeper unwinding here?
For years we have been fighting against two major trends. The first is the march of technology. Remember when we were all promised a life of leisure as all our needs were met by machines? I now have more food than I can eat, more clothes than I can wear, more entertainment than I can enjoy and more transport than I can use, etc., etc. Maybe we just need 25% employment and to attempt more is futile and damaging.
The second is the transfer between generations. My parents generation have been retiring at 55 and living for another 30 years. The holidays and golf that they enjoy are being funded by subsequent generations through inflated asset prices (primarily land) and debt. This has become unsustainable and shows up in the huge debts of young people through from university to middle age, together with grotesque house prices.
Japan has been ahead of us on this and have spent the last 15 years trying to unwind the position.
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#32 "I'm not at all sure it can work that simply Robert. If as this re-finance unfolds I decide I see a company worth investing in but the government choose a different competing company to bail out, I and others like me are likely to call foul.
I suspect we will not only call foul, we will lobby the relevent EU bodies to declare the government loan illegal. "
Oh, you mean like the government's treatment of Barclays for getting an Arab bailout instead of kowtowing to the government like Lloyds TSB ??
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I am puzzled, again ...
To whom are $1000bn being repaid? Are those lenders just going to sit it instead of lending it out again? Maybe those wholesale credit market lenders are going to leverage the credit crunch, which they may have caused or even engineered, for even greater gains. Perhaps they are considering using the money to buy up firesale assets and companies on the very cheap ???
It seem this may be a time of crisis, losses and recession for most of us but it is a golden time for gains and cherry pickings for a few.
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I do wish the media would simply stop writing such rubbish. I run a large company - listed - and are currently increasing our debt facilities. The simple fact is that good business will be able to roll over their debt, characterised by those that have stable revenues linked to good products or services. Indeed my co's borrowing costs will be lower this year than last year as UK Libor has fallen so far. The banks are in fact being very helpful in facilitating our increased borrowing requirements.
On the other hand, those companies that have too much leverage or have revenues or assets that will fall will certainly find they cannot borrow as much as they have done in the past - rightly so - and they will have to sell assets else raise equity. That may have bad consequences for shareholders, a problem that is hardly new!
So it is the same old story as in the last recession which is that the worse it gets the more "doom" financial journalists and commentators unearth. Like it or not we are in a recession, they happen, it is bad, we have to cope and we will. Such panic stricken prose do not help.
Please Robert desist from talking us into depression!
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#35 "What some people want to look at is the Robert Maxwell connections to the current labour government."
I thought Captain Bob went for a swim.....
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"The trick for government, therefore, would be to rescue fundamentally viable businesses, while somehow leaving feckless management to swing in the wind."
Robert,
You ignore the fact that the government has already set a precedent by bailing out the banks. Thus, surely to stand on legal ground the government must bale out all those who act less recklessly than the banks...must be a very wide scope in my opinion
Bankrupt the banks, pick up the assets without the liabilities, then chase the bankers for the rest.
Then pass the legislation that ensures that once a bank repossesses, the debt is finished. That will ensure wise repossessions and prevent firesales of assets below market value to gain quick cash. Don't back date the laws.
Hoist them on their own petard.
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How many large 'global' companies have achieved world domination not by quality of, and demand for, their products or services. but quite simply by racking up huge mountains of debt?
Any company can become the 'world's 'leading xyz' if they can borrow enough to undermine their smaller competitors. Look at Enron.
Tax money should not be used to prop up large businesses which are only surviving on debt. Let them go to the wall. There are plenty of SMEs with sound business models waiting in the wings that will soak up the unemployed from these failed global industries as we come out of recession.
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#39 "Never mind it's christmas and we can all take heart in GB's (Blair's trans-alantic soul mate) reassuring assertion that we live in the best possible economic system."
Do you mean he, who thinks his favourite book is "My Little Caterpillar" ??
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#75, #85
I'm glad to have made an impact. My real point is you can classify these posts into 3 classes:
1. Echoes and woes with nothing much to add.
2. Viewpoints adding fresh contributions.
3. Internal debate.
The point of bringing out the armageddon scenario is that there's a sizeable subgroup of Group 1 who are change-resistant and are therefore in denial, hoping it's a bad dream and everything will return to their kind of normal, ie how it was. One thing that is for sure, however, whatever your outlook, is that it won't go back the way it was.
As there's no God-given guarantee things will even keep going (the 425AD scenario or worse), it's as well to remind folks of this risk, to have a complete gamut of possibilities, and to remind us all that accurate statistics are essential for a clear vision. Given the recent track record of the various statistics offices, with senior managers resigning because the job's impossible, my case is the best thus far made, and mock as you like, if you can't come up with something better, which to be frank shouldn't be that difficult, then you're simply railing against yourselves.
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I am interested in the widening difference between Robert's view of 2009 (which is gloom all the way) and the government line, as explained by AD in the PBR, to the effect that recovery will begin after mid-year.
Assuming Robert's gloomier view is right - as I am sure it is - what happens to AD's public borrowing targets if they are re-based for no mid-2009 recovery?
As for house prices, restoring the price/income ratio to its historic average (of 3.1x) suggests a peak-to-trough fall of slightly more than forty percent, so there is a long way further to go yet.
A very imminent risk is that businesses which have struggled on trading through Christmas will closely abruptly thereafter. January good be a new low for the economy.
I am sure Robert is right in his gloomy assessment, but so too are those, posting here, who think that 2009 will not be the end of the gloom.
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Robert,
I.M.H.O the marketplace is not so frail as we are continually being warned.
There has been widespread optimism leading to crazy financial products. The system of credit accounting is in need of a shake-up. But let us not start taking figures and waving them in the air and shout "The sky is falling".
Much of the exposure is covered and - when the push comes to a shove - they are almost all equally exposed TO EACH OTHER.
It will be a very brave - nay foolish - organisation to rock the boat it is sitting in too hard.
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This whole sorry situation is playing right into Brown's hands. There is now a real chance that he will achieve his lifelong dream of establishing a Communist state.
How?
By destroying people's independence by destroying wealth; investments, savings, property, even jobs.
When the majority are holding out begging bowls, and he can choose who to feed, then he has total control.
Which is exactly what he wants.
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If people have borrowed beyond their means, why should they be bailed out to keep what they have gambled on?
The cards have now been shown, and some people will have a bad hand.
Those who,overall, have been most prudent and sensible will survive intact, and may grow bigger in the future. They will recruit as they do so.
Almost natural selection to me.
Yes we need to help people stay off the streets, and Government can sort that out through infrastructure improvements, unemployment benefits etc.
Maybe I am too naïve of the complexities of all this, but helping any unstable, unfit or undisciplined organisation stay in business with tax payers money does not sound sensible to me.
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#55
Global oil production has peaked.
We can no longer sustain global food production to feed the world.
The global economy is collapsing, bubble by bubble. As we prick one, the next one inflates and pops.
I fear we are heading for events on a monumental scale. The perfect conditions for war.
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Governmant bail out always comes with strings attached , some of which are bound to be political and in the case of Labour such strings will be pulled by trades unions.
Neither governments or trades unions are any good at managing businesses - as history will readily show.
1970s Volume Two - on sale soon at a Government owned shopping mall near you...............
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Hi all, I read every one of these RP Blogs avidly. There are some very smart people contributing and I'm learning a lot as well as being entertained. This is definitely the best the BBC has to offer.
As with many complex subjects there are a lot of diametrically opposed points of view, each of which are usually expressed most convincingly.
The way I see it ATM, no matter how smart I become or however hard I work to get a thorough understanding and a useful predictive ability, It'll never happen. That's because there are too many factors, both known and unknown, plus lots of crazy tinkering at the edges by powerful (but not powerful enough) vested interests.
The current situation in the UK has mainly been arrived at by the Gov manipulating the situation in it's own best interest This is why so many smart people disagree with the actions taken.
Understandably, most everyone is promoting their own take on the subject. Though it's also clear that there are many far sighted philanthropists adding to the mix. So thanks for the crash course everyone.
And here's my own selfish questions.
Inevitably, everyone can't be protected. There's got to be a Peter for every Paul.
One group that the Gov is concerned about, if only for the vote value, is householders with mortgages, of which I'm one. We are being shielded from the worst effects by low interest rates and emergency rules imposed on the banks controlling repossession procedures.
What happens if the larger, global aspect of the economy forces the government to print lots more money? Will the effects of this force interest rates up, so putting more people out of their homes due to an inability to pay?
If as some people claim this inflation/higher interest rate scenario is inevitable, is not all the current tinkering and attempts at shielding mortgage holders pointless?
Or, is it that there are other measures which can be used to counteract the effect of inflation and higher rates, which can be used to protect certain privileged groups?
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What a joke £400m lost by the RBS in a fraudlent investment and the former chief excutive walked away with an 8m pension pot instead of facing a prison sentence this is what really is wrong in this whole mess people who created false paper profits are rewarded while the core industries are left to suffer.Clso these god dam rotten financial institutions down today and go back to basics its really quite simple a profit is only a profit when the money from it is in the pockets of the investors and also i would say to the rotten financial institutions that a loss is only a loss when the shortfall is realised
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Re: Post 55
Yes I agree with most of your thought, this is going to be nothing like any previous recession, it seems obvious to me this credit crunch is going to be a vastly bigger different beast and last for ages.
However, i do think financial Armageddon is OTT.
A better regulated global financial sector and good businesses must surely arise from the ashes.
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"The trick for government, therefore, would be to rescue fundamentally viable businesses, while somehow leaving feckless management to swing in the wind."
We have just had 5+ boom years. Any company that had to borrow and piled up debt in a boom simply is not viable in a downturn. Therefore, any company that needs a bailout is not viable and should not get one.
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#98 - nice to hear from someone like yourself.
We are British and the press love to be very British and what trait do we have - We love misery! We relish bad news. If there is good news the press will spin it to be bad. If there is bad they'll exaggerate it to be very very bad.
There are glimmers of brightness but the press do not report them, which of course re-inforces the despair and thoughts of impending doom. Shame on the press. Especially when the economy is driven as much by perception as demand!
Viable (as in viable products) businesses should be propped up and fixed. However, I think the top 1-3 layers of management/directors should be lopped off and the business turned into cooperatives. This will also result in a large immediate cost saving with minimal impact on unemployment figures. It will also be highly politically favourable with an electorate baying for blood from those who caused this. God help HBOS who are sending 100 branch managers (and partners) on an all expenses paid trip to New York as a reward......DUH!
The idea that there is a top layer of "talent" that must be paid highly to ensure a successful economy has been shown to be complete utter nonsense to even the most naive. It's time for a change......
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Let's look at the upside. A nice recession will help us meet those 2050 carbon targets.
All those out-of-work bankers and car-workers can start growing their own, and set up a barter system to sideline the banks and the tax man.
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#69 Alexander, I am sorry to disagree. More prison places is not the answer. Perhaps disused council flats on sink estates are, together with electronic tagging.
Along with this, we need the Proceeds of Crime Act to be extended to the financial sector. People in the city who have salted away their wealth should be forced to prove that profits which paid their salaries and bonuses have not subsequently turned to losses. Start with current the head of the FSA. CEOs of HBOS, RBS, NR etc who "retired" in the last 5 years should be top of the list. To leave them with anything while innocent people are being made destitute undermines the public's respect for the rule of law. What is the point of law without justice?
As for inflation, that is just a way of repudiating debt. Unfortunately, that too punishes the innocent rather more than the guilty.
All banks except the most sound should be allowed to fail. Individual and non-financial company deposits should be transferred to a new state bank. The trouble with the state bailouts of banks, is that they make private sector monooly money debts to other banks and financiers into public debt. These are the debts which should be repudiated and written off.
Then, as all money is but an entitlement to consume goods and services, credit should be given to those industries and activities which are genuinely productive. It may be overtly funny money, but what we have had over the last 15 years is covert funny money. The key is to match the money in existence to the supply of goods and services. Unnecessary imports should be strongly discouraged. I see this as the worst crisis since world war II. Effectively the economy should be put on a wartime footing.
It will be chaotic and bloody, but sovereign defaults a couple of years down the line would be worse. The demands by the public for vengance would grow and will unfairly target the innocent.
I do not enjoy being a doommonger. I would live to wake up tomorrow and discover that all this was only a bad dream. But it isn't. The people we have trusted lo look after our bets interests have turned out to be crooks, ccharlatans and incompetents who don't know their fundament from their funny bone. We can't trust any of them. We must get together and thrash out an alternative.
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As usual many good points here. The key is to distinguish between the business and the debt. Unfortunately the highly leveraged "run for cash" strategies adopted in the UK mean we are probably more exposed to this risk than the rest of Europe but writing off that debt is a key to successful and necessary deleveraging and creating a viable future.
To have the taxpayer rewarding those why piled debt on UK businesses by giving them a higher return than the market is offering (Robert says about 2/3 at the moment but that is only an average) would be outrageous. Far better to try and assist those buying out the businesses and the jobs free of this debt. Experience in Japan and elsewhere shows that keeping doubtful debts on the books with taxpayer support is the worst way of prolonging the agony and the long term damage to the economy. The Hedge fund method of running our businesses was always dependent on cheap and readily available credit. That model is dead and we must find a new one to keep our businesses going.
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RP - you've been listening to too much of Sir John of Family Value's claptrap - most notably on the Politics show on Sunday.
"But many will urge that companies which borrowed recklessly in the good years.."
Care to explain the difference between reckless and (so help me, ghastly word coined by Sir John..) 'prudent' borrowing..?
Borrowing as much as a pound of sugar seems reckless now knowing that the whole economic substrate was actually ice-thin. For my part I think 'Reckless' could fairly describe a Chancellor and later PM (aka Gifted Gordon) who disguises the truth, nay, lies about it, not the people who trusted him to maintain, in his famous phrase 'stable macroeconomics'.
I'd really like to know, because - now - accusing people and firms of 'reckless' borrowing - then - is a pretty 'low' low thing to do and a generalisation one might expect from politicians but not from you.
How about buying on account from the USA at $2 to the pound and then finding the pound drops to $1.50 even while the goods are in transit generating a huge loss for me. That 'reckless' too? Crikey. I must be an idiot. A crystal ball would be better than having Gordon Brown in charge. Where does the buck stop?
GC
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#101 I very much agree that there are many companies out there that got large (and quickly) simply by racking up huge mountains of debt. In the process they often undermined competitors (and not just small ones) which had been growing organically by re-investing profits. Letting such highly leveraged companies go to the wall may well be a way of creating space for their competitors to survive.
The Private Equity nonsense has led to a similar siituation where otherwise perfectly good low-debt companies have been refinanced and saddled with debt. Could we somehow require that such companies be immediately relfloated, and let the Private Equity buyers and their backers go to the wall instead?
It is true, as a number of posters have said, that if that if otherwise viable businesses that are saddled with debt are allowed to go into administration, then the productive part of those businesses may be bought and can then continue to run successfully. Unfortuntately this is not likely to happen so cleanly. The company may well struggle on for a while, trying to survive short term while slashing medium to long term investment - and by the time it does go into administration it is in a severely damaged state.
I think we know where we need to be in a few years time as a country. The financial services sector will be much, much smaller. We will need to export in order to pay off the debts we have built up. All this means that manufacturing will have to grow, not shrink. So I can accept that Government support for this sector is going to be necessary. But if the Government is going to support manufacturing firms through the recession it needs to pick and choose based on business model and whether there are any British competitor firms that could take up the slack if a particular company is allowed to fail.
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#92 - pants?
I nearly wept reading your post esp the bit about 'painful' for some'...
Echoed by the words of the German Leader in 1945
'The individual matters not. Only the state matters..'
FWIW You can't replace old-established companies with new ones.
GC
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I'm all in favour of people being rewarded for knowledge, skill and expertise but the ratios between the average and the top salaries are disproportionate and just plain wrong. Who the hell needs #$4.5m+ a year? For what? So you can eat your Shredded Wheat out of Ming Dynasty china set whilst looking up at your original John Heartfield prints of German plutocrats oiling the wheels of Nazism? Something must be done to derail this greedy self-perpetuating juggernaut.
It amazes me, that Timothy Leahy, who runs that highly successful supermarket, Transylvanniaco [T'co] , receives only half the salary of some of Britain's favourite bankers - I use the term lightly. Whilst T'co might be as mean as mouse shit and cash-thirsty, it is run like a proper business. It makes a huge profit and it's efficient.
I agree with all those posters who think that a clearout of the higher positions in British banking is necessary and that the newly appointed should come in on lower pay threshold.
I also concur with those who suggest that major British companies should not be allowed to fail. We cannot afford to lose any company that has a foreign order book big or small. When things settle down a bit, we are going to need these companies to help recoup euros, dollars, yen and yuan etc.
When Captain Smith ran into that fateful iceberg there was a Board of Trade inquiry? When are we going to have the equivalent for the British banking system, the US banking system, the German banking system, the French banking system...?
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So just what is the logic in this arguement. The stronger businesses will access the available credit and squeeze out the weaker ones so they cannot access the credit.
And the government will sort out which are the stronger companies and the weaker ones and help the stronger ones.
But the stronger ones have already proven strong enough to hoover up the available credit so they dont need the help, that is implicit in the proposition.
So the government will actually be helping the weaker ones by definition. So the government will be trying to judge which are the slightly less weak of the weaker ones.
I'm sure they will do that well. Come this way Mr Puniverse the taxpayer will lift your dumbells for you.
The problem is there is overproduction and the world simply does not need all of these products.
This squeeze is simply sorting out the weak businesses that have been in decline hiding behind a 5 year consumer feeding frenzy.
The corporate objective in a consumer society is to produce and produce, to expand and expand, and to try to shorten the product life via fashion or built in obsolescent to the point that the product is out of date or no longer functional before you have got it out of the shop. So you return and buy the replacement before you have driven home. That is the ultimate objective.
It is an unsustainable model.
The government may want spend and to party on dude, but is will only make things worse.
This proposal that the government 'decides' which large, and note the word 'large', business is 'strong' at some later point in the future, because by definition they are not 'strong' now, is a irrationale arguement.
This looks very much like preparing the public to accept further intervention from an intellectually, morally, and economically, bankrupt government.
The real problem is the economy does not need these businesses in their current size and operation, and inevitably that also means there are jobs which are not required, that have only been held in place this long by Browns bubble. That is the hard fact. It is most unlikely any subsequent growth will be derived from the sort of intevention proposed because as soon as it is removed the downward trend will return, it is inbuilt to the process. It is because of the implementation of this sort of flawed policy that we are in this situation.
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Re: Brownbankruptsbrits 2. at 1.30am
That is not the 'royal we' Mr Peston has used. The 'royal we' is used to replace 'I' as in 'God and I'(referring to the divine right of kings and queens) as some believed they had, including Mrs Thatcher! Mr Peston might have used 'it' but 'we' is ok in that context I believe. He 's not talking about himself but for us for whom he is paid to comment for and not by divine right!
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Robert Peston may be particularly well informed, and the best read, but is he not also the most irritating of presenters. Could I suggest he sticks to writing or takes some training in presentation techniques. I do not know anybody who doesn't cringe at the moment he opens his mouth
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"Europe's biggest and strongest companies will vacuum up whatever meagre credit is available".
Hey, Robert, you forgot didn't you? Even the biggest and strongest will be queueing up behind the biggest borrower of all - HM Government. The government's reckless borrowing spree will steal credit from perfectly viable firms - who will then have to be propped up by the government (or not).
This whole issue just shows the complete lack of coherence and sense in government policy. Real companies will go bust and real people lose their jobs because the government has taken money those companies needed to borrow to stay in business.
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Can anyone tell me why if there is an unprecedented demand for lenders, and a shortage of them, then why are interest rates so low ?
I thought if something is in demand and in short supply it should be expensive.
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I quote -"The trick for government, therefore, would be to rescue fundamentally viable businesses, while somehow leaving feckless management to swing in the wind."
Overall this monday's Pestonisation article is rather worrying however the final paragraph is the most worrying.
To select winners on the basis of a prudent/non prudent rating is the politics of the madhouse. As one or two of the comments have noted we need a bit of vision as well.
The world economy is hitting the buffers and cool heads are now needed. Out of the mess of now, a new UK should be being shaped.
Unfortunately we have an election in the medium term so the opportunity to shape UK will probably be superceded by marginal seats and prudent management not by choosing future winners.
Step up to the mark Dave and give us some vision!
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I largely agree with the comments made by 80. Directors and bodies supposedly providing the "checks and balances" like the FSA, the FRC, the ICAEW etc and their respective ministers should be held to account. Fined and have their assets confiscated.
It doesn't take a genius to be fail or advance a loan on no security.
No director or government has consent to reduce anyone's wealth to zero and worse.
Stop pussyfooting.
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Go on then. Lets be brave. Even democratic.
Let's have a public X factor/Strictly type vote on which companies deserve saving rather than allow politicians with their own agenda to make the decision.
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Robert writes:
"But many will urge that companies which borrowed recklessly in the good years - often to generate unsustainable growth in profits that triggered bonus payments or to finance excessive special dividends - should not be bailed out."
Yep, and I'm one of the many who urge that they go to the wall regardless of their discomfort (like Madoff).
Boost the Dole payments as necessary to save their workers.
Robert continues:
"Though in punishing imprudence we would be foolish to punish ourselves."
Keeping these variants of the Ponzi scheme in business would be the real foolishness.
Shake them out!
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#124 "I do not know anybody who doesn't cringe at the moment he opens his mouth"
Sorry, I don't cringe, I smile - even when the subject is no laughing matter. I think Pesto is entertaining and informative. I'd rather have an imperfect human than a cyberman anyday!
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#119
re: "All this means that manufacturing will have to grow, not shrink. So I can accept that Government support for this sector is going to be necessary. But if the Government is going to support manufacturing firms through the recession..."
I agree with what you say there and yes the country WILL desparately need mfr in the years to come, ho ho. But as far as my mfr firm goes I'm just not going to contribute any more than I must to Brown and his govt - or Cameron's for that matter. None of them deserve anything from me. Collectively we could out them if we downed tools!
Like Montgomery might well have said, 'you'll have to go Gordon, the men don't want to fight for you anymore..'
They think I'm going to carry on doing my best in this country with them in charge? For what? I'm out of the UK as soon as I can afford it. On principle and for a better view.
GC
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# 98. unbeatableeleanor4
Interesting post. It fits in with my own analysis, which shows a remarkable number of UK quoted companies expected to grow EPS in 2008-2010, not exactly indicative of any total economic collapse. There are very many more that won't grow EPS over the next two years, of course. However, the picture is one of recession with recovery in late-2009/early-2010, and nothing worse.
I suspect your (and others') interest rates will be lower in 2009, although the banks will actually make higher margins. That will be a simple result of Bank Rate at 1% for most of next year versus 5%+ for most of 2008. You and the bank can both benefit.
The only reason I can see for the government getting involved is that the economic and political cycles are now out of synch. GB therefore faces going into an election with rising unemployment. Labour was spooked in 2005 when the closure of Rover was announced right at the start of the campaign. I suspect they might, therefore, want to "save viable businesses" at least until mid-2010.
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126
Remember that the comment about 'unprecented demand' you refer to comes from the same sort of people who have been telling us for the last 5 years or so that there has been unprecendented demand for housing and that prices would never go down...
'Unprecedented demand' was only there because of 'unprecedented availablility'.
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Here's a quote from Voltaire which might as well be about Our Great Leader.
'He was reduced to the bad expedient of devaluing the currency, a remedy which never cures a nation's ills and which is particularly injurious to a country which imports more than it exports.'
I'm not too sure about anything anymore but I think it is pretty certain that Gordon is less intelligent than Voltaire was.
I just got back from Holland-couldn't afford anything there all of a sudden.
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#83 freecornwall "Its time the FSA, did its jib along with the serious fraud squad"
I agree totally, but the FSA needs a new boss, not Crosby. Remember, he was ceo of HBOS until July 2006, and so helped create the current problems.
Why are the opposition not calling for his head - daily?!
GO directly to Jail, do not collect 2 million pounds in salary and bonuses!
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And the worse keeps getting worse (to paraphrase JK Galbraith re the great depression) but it seems more and more true of this recession/depression.
I agree with this report but suggest some more comment on the very real question of whether the UK Government has the financial capability and capacity to actually do the job of bailing out significant swaths of the real economy.
UK PLC Balance Sheet is actually quite small compared to the banks - faced with the alternatives of a sharp and very painful recession/depression or national bankruptcy surely we have to take the pain now and emerge at least with something left?
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Thank you for the article THE NEW CAPITALISM.
It should be read and re-read until its lucid
explanation of the causes and effects of the current global crisis is fully grasped. Every day
you shed a little more light into the darker corners of our financial systems. This tyro will
be forever grateful.
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I was just wondering how people on this blog would feel should it turn out that all the doom and gloom was not justified?
Don't get me wrong, I really do feel we are headed for a lot more pain than the Government would have us believe, in fact I'm fearing something way worse than most people could imagine. However, would those of you writing on here feel stupid should your speculation regarding economic armageddon, unprecented levels of unemployment, total house price collapse (circa 50%) civil unrest/disorder etc. turn out to be way off the mark?
Those of us on this blog who are predicting a horrible meltdown seem to be speaking from a position of knowledge and are able to make valid points to back up the argument for doom and gloom. Might we, though, just be very wrong?
Is there a chance that this Government might be doing the right thing?
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#122 Glanafon
"The corporate objective in a consumer society is to produce and produce, to expand and expand, and to try to shorten the product life via fashion or built in obsolescent to the point that the product is out of date or no longer functional before you have got it out of the shop. So you return and buy the replacement before you have driven home. That is the ultimate objective.
It is an unsustainable model. "
I couldn't agree more. This morning I heard on the radio of the works to carry out lighting upgrades to the Millenium Bridge Newcastle-Gateshead "The Eye". The current lighting is being replaced and there are savings to be made in terms of power consumption - so far so good. The bad - It is being done at council tax payer expense to the tune of £700k as the original 7/8 year old lighting is now obsolete and parts cannot be found.
This sort of problem is facing every business / council / individual in every aspect of business and life. The age of built in obsolescence just has to end for all of our sakes. The economy and ecology of our planet just cannot stand it.
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AqualungCumbria wrote: "In 6 months time we will have parity with the dollar !!!!"
If that is the case, then let's hope that it is parity with the US dollar, not the Zimbabwe dollar.
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#78
Pensions are seen as deferred pay. I was made redundant in 1992, aged 43. rather than take a substantial sum of money, which would have been taxed, I stuffed it into my company pension so that I started to draw a pension aged 50. I am 60 next year. I intend to have got more out of my pension than I actually earned whilst I was working for the company now paying my pension. Revenge is best tasted cold.
Oh, and whilst many workers are lucky to keep their jobs rather than even get a pay rise, my pension will have increased by 5% this year. A good rise, bring on inflation. Don't know what will happen with deflation.
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www.hoovervillesoupkitchen.com
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My comments are intended for Varley head of Barclays.
Throughout the times of rising house prices which in part were spurred on by television programs and wild reporting of escalating prices the banks benefitted or should have done so by the expanding ecomony and charges made against accounts. Regrettably we now have totally irresponsible remarks being made by people who should know better, especially as they are in positions of trust. Without comments being made by the likes of Varley we would see a natural leveling of prices and the market would start moving slowly again and the economy improving.
There are enough so called experts out there who think they can look into the future without more idiots putting their all in. Once the Banks get their act in order maybe we could start to put some trust in what they say in the meantime, as with packets of cigarettes information received from Banks could seriously damage the economy and cause further hardship and misery to people desperately trying to sell their houses.
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Given the enormous levels of public debt required to finance this and wildly optimistic projections of public dector debt given by the government it seems improbable that this borrowing can be accomplished in pounds. Does Robert expect that the only way to sell all this debt is in Euros ? If so, will we have to meet the 3% budget deficit rule and in so doing have to slash government spending ?
We may be in the Euro sooner than we think.
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110 CycleMike2:
Good points. I think the inflation/interest rate question needs to be seen in terms of the sequence in which this might happen.
At present, we have deflationary pressures caused by the early stages of the recession/depression. Government is likely to print money on the (fairly valid) argument that deflation is bad. At this early stage, stoking up a bit of inflation need not result in higher interest rates - rates are usually raised to prevent inflation, so Govt would hardly raise them in order to choke off an inflation that it actually wanted.
The main risk here is to Sterling, and govt has already said that the forex markets can go hang, 'a weak pound is good for exporters' (which it would be, if we had any), and so on.
The big danger after that is government addiction to the printing press - that is when inflation takes off. This might be followed by higher interest rates (which would affect you adversely as a mortgage payer) but, by then, inflation would have eroded the real value of your mortage, which would have stood still whilst all other things (such as your income) are likely to have been driven upwards by inflation.
The really big (indeed scary) risk here - underestimated by govt, in my opinion - is that foreigners may be unwilling to fill the govt's widening debt requirement, or may be willing to fill it only at very high risk-weighted interest rates.
This is where the crash in the value of the GBP is so serious. It is, from a UK perspective, probably the single worst thing, economically, that is happening right now.
Some of us (myself included) may be tempted to relish the way in which the forex markets are passing a damning verdict on Brown's performance (remember 'Britain is best-placed to weather a recession....'? - risible even at the time). But, if Sterling continues to nose-dive, we are all going to lose from it.
The other snag with inflation is that it destroys savings. This is bad for those who have been prudent (notably old people living on income from savings) and rewards the improvident. But a policy which punishes the diligent whilst helping the feckless seems tailor-made for this administration, so wait for the sound of printing-presses working overtime.......
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127 dontmakeawave:
I wouldn't worry too much about whether the govt can pick winners, because they won't even try.
The viability of a business will not even come into consideration when ministers are choosing which companies to rescue - the only criterion will be 'how many jobs in how many marginal seats?'
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#55
I think you might be onto something. One other poster here touched on the effect of technology as well.
Amongst the impact of the financial crisis we are also seeing a marked paradigm shift in consumer habits which will lead to the need to redesign some of the bigger businesses in ways that are significantly less labour intensive. One example is that of Royal Mail which is seeing a marked drop in activity as a result of email. Another example is the number of high street stores that are posting losses for the first time as they are being out done by internet vendors that can undercut them on price due to lower overheads (e.g. Currys)
It is a case of adapt or perish and could not come at a worse time, when jobs are already hard to come by - the impact of this change in consumer spending will deepen the effects of the recession. I suspect that it will also mean that the same level of commercial activity will ultimately require lower levels of employment.
However you look at it the last four months have moved incredibly fast and it has become clearer that we are moving into a deep and dark economic cycle.
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2009 may also be the year that the Government come to terms that as a country we are living beyond our means. In the boom the high tax yield has struggled to fund the welfare system and just as the tax revenues start falling, the demand is goint to rise. Pensions, healthcare, welfare payments are geared to boom time tax yield, no savings in the boom time equals massive gap in the years ahead. Gordon can't keep writing cheques on tomorrow.
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Not one more Taxpayer bailout of a private owned company. It is tantamount to theft.
If a company is deemed vital to the country's well being and it is going bust, it should be forcibly and completely nationalised, at gunpoint if necessary, without a penny of compensation going the shareholders (who will benefit from any bailout). It's executives and directors should be arrested and investigated.
The banks themselves should be completely and one hundred percent forcibly nationalised, without any further compensation to the shareholders. The fraud squad should go in and their executives and directors should also be arrested and investigated.
The power to create and destroy money should be in the hands of a properly democratically elected government (not this two party shambles we have at the moment) who are accountable to their electorate, and not in the hands of private companies and individuals who act as if they have been given god's own piggy bank to play with, and who are currently accountable to no one.
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It is worth bearing in mind that for Labour, this is largely a political crisis, not an economic one. The economic issues are dealt with in a straightforward manner - print money. Yes, this will lead to inflation, but the only ones who need to worry about that are those with any wealth left, and of course, they don't represent Labour's natural constituency.
In political terms, however, Labour have a number of key objectives, that are helped enormously by a Mandelson run spin machine, of which Robert Peston is a vital cog. This story is typical of many Robert has run over recent weeks and months.
The first thing to do is not knowingly underestimate the problem. The bigger the problem seems, the more benefit accrues to the government when a solution is purportedly found, regardless of whether the solution itself has any merit (enter Mandy's spin machine). In this case, it is clear that the government, in the run up to an election that may now be only a matter of a very few months away, cannot be seen to be walking away from jobs, regardless of how redundant those jobs may be.
They calculate, probably correctly, that the political price of a bad economic policy is less than that of a good one. If one looks at Cameron's speech today, urging action against poor management in the financial sector, this is similarly politically, rather than practically motivated.
It is a matter of the deepest regret that we in the UK, regardless of whether or not we really are "best placed to weather the recession", will have our true ability to do so, fundamentally inhibited by the political priorities of both main parties, but in particular the government, and we will undoubtedly suffer significantly as a consequence.
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How about this as a new model for lending.
Instead of the sales people getting commision on the loans they sell imediatly.
The sales person gets their bonus on milestones of successful repayments.
Say the loan is a 25 year mortgage.
After 5 years, 10 years and upon successful repayment they get a nice lump of commision.
This might make them sell more responsibly.
The bank bonus's should also be worked out on successful repayments rather than sales.
Even if a successful repayment is classes as the poin the loan is refinanced.
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Re-reading post #7 shows some very good points, particularly about 'SMB's. Government interest always seems concentrated on the largest companies (perhaps because they have the most money for lobbying, but I'm sure we can think of more venal reasons!).
Perhaps if we can draw an analogy with evolution, we are now experiencing an extinction event.
The companies most highly adapted to the recent debt-driven financial regime have grown so huge and fat on debt that, when environmental conditions have switched suddnly to a colder financial climate, they can no longer survive.
The question is, should we try to stop evolution, or should we welcome it?
(There - I didn't mention dinosaurs once. Oops!)
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152 NO MAD TT
If you said millstones instead of milestones you would get a lot of votes, or did you mean millstones anyway : )
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There is no generally agreed definition of economics but Marshall's version (also endorsed by Galbraith) goes something like "the study of mankind engaged in the ordinary business of life".
Does anyone's idea of the 'ordinary business of life' include the possibility of systematic fraud carried on undetected for years on an inconceivable scale continuing and made possible only by an inexplicable wholesale abandonment of every established norm of prudence by every leading financial insitution across the world?
So what we're experiencing appears not to be the consequences of bad 'economic' decision-making or 'business' misjudgement within any meaningful use of those terms.
No one should suppose therefore that previously heralded economic or financial or business experts by virtue of their training and experience have any better knowledge or superior intuitive feel for what has been happening or what is going to happen.
But if the crisis cannot properly be regarded as an economic or financial event, then what on earth is it really ?
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Just shows how out of touch the treasury is with their optimistic forecasts for 2009.
The perfect storm is an apt way to describe what is happening worldwide.
As one front is is held back several others open up and there is no way of knowing where the next ones will break out.
Already pessimistic forecasts will become worse and everyone in the end will just have to stop and watch it burn itself out.
Cheap sterling is good for exports some say but do they forget that manufacturers have to import raw materials and these will cost much more.
Their prices will inevitable have to rise to sustain their margins.
Anyone who thinks they have the answer to this really needs their head examined.
The best that can be done now is to try to manage the situation as best they can as it unfolds.
Throwing money at it no longer has any effect apart from worsening the inevitable.
Trying to save money is a better alternative.
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Dear Robert
"Just how close has democracy come to realise that its very existance is threatened by the Antics of a few greedy Capitalists, who have been bailed out by an equaly failed socialist movement."?
Federailism is just around the corner.
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152. NO MAD TT AM
I've got an idea regarding financial services pay. How about, bankers get no bonuses. Ever.
How about they learn to become happy with their already generous salaries and wages. Which are consdierably higher than the national average anyway.
And if they can't perform or don't feel incentivized enough or motivated to do their job well and responsibly, then they go to the job centre and find a new one more suited to their needs.
After all, since when did people require special rewards to do jobs they are already paid for. You don't see soldiers in Helmand refusing to risk their lives because they're not incentivized enough. You don't see nurses refusing to treat patients because the Christmas bonus didn't come in.
The only people who defend such ridiculous rewards, are the people who are part of the club or aspire to be. These leeches are precisely what has gone wrong with banking and they need to be removed.
There are hundreds of thousands of intelligent, educated people out there that could do the work and you wouldn't need to loot the economy to pay them either.
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companies expecting future losses might as well stop trading now.
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I ment millstones just being daft!
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"The Government will...lend taxpayers' money..." But won't taxpayers' money now decline considerably as baby-boomers retire and companies lay off about 10% of their staff?
Then, central government will give less support to councils, which will raise Council Tax vastly to meet their commitments - which will tax savings to extinction.
Sterling could collapse, whereas we could have joined the euro when it was worth 67p.
I see no 'quantum of solace' anywhere. Any suggestions?
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More bad news - why is it that every time I switch on the radio/tv or pick up a paper there are so called "experts" commenting on how bad things are going to get? Where the heck were they when things were apparently going so well? In the last recession the Telegraph had a "green shoots" index which helped to talk things up more positively - bring it on! If you've got a job (most of the working population still has and will have) and you don't want to move house (most people don't/won't) nothing will really change. There is more good happening than bad - let's start to focus on this more and put these doomsayers back in the land of negativity where they belong!
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i just realised that robert's "scoops" started at the same time as mandelson returned to the fray, coincidence...or have i discovered "deep throat"?
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Re 151#
It's helpful for the US that this crisis has occurred at a time of presidential changeover. Obama can make the tough decisions without having the short term worry of the effect on his popularity.
If Brown really wanted to act in the best interests of the country he would call an election now so that the right measures could be taken without having to panda to the electorate in the short term.
I think if he did decide to call an election now citing that political stability is vital to resolve this crisis and not stick to short term vote winning policies I think he'd get a lot more respect. Certainly from the cynical people like me ...
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Not only has the UK borrowed too much, it has borrowed too much and spent the money on upproductive things. This means that just saying 'debt got us into this mess, more debt wont solve it' is too simplistic.
Exporting and technology businesses have had a pretty rough time attracting loans and equity investment during the boom because property and bank stocks looked safer. Right now technology and export sectors actually need investment so as to expand and profit from the currency depreciation and survive a credit crunch induced gap in orders.
Borrowing to invest in exporting industries which generate cash-flow to pay back debts to other countries may be sensible even when borrowing to support the 'internal' UK economy is not.
If debt and/or printing money is needed to combat deflation they a key aspect is market confidence in the borrower. In this respect the UK has a critical problem. Brown has shown himself to be a debtoholic: his entire record has consisted of selling off assets then borrowing to pay for spending on public services beyond that supported by tax revenue.
Many people have commented on the sales of gold and taxing of pension funds. However the auction of the 3G spectrum licences was probably the most short sighted asset sale. By designing a system that forced the cellphone companies to overpay for the spectrum or get out of business the government appropriated the money that should have paid for the equipment needed to deploy 3G services. Getting 3G rolled out in Europe first would have built on the lead Nokia, Ericsson etc had from GSM and severely disadvantaged US and Asian competitors. Instead we killed off the local 3G market for several years and let our rivals back in the game so we could fund state spending without raising taxes. This kind of track record does not inspire confidence in the governments ability to pick winners or support industry.
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.....like I said before, all this bailout stuff would be fine and dandy if we were in a COMMUNIST SOCIETY.
However we are clearly not.
What concerns me is the message these bailouts send to the people of the west. We have a systsm - capitlaism - we all understand the rules (only the strong will survive)......and yet, now that the game is going against them - the very people who have benefitted from this system for years - NOW WANT TO CHANGE THE RULES.
Ah - I think not, and if the Government continues to bail out companies left right and centre - breaking the rules of it's own economic system - then it will cause (further) distrust amongst the population.
Bailing out the banks was the first mistake - I am not convinced the entire system would have collapsed if they had been allowed to fail.
The mess we're in now is there isn't enough dough to go round and we will have to start making decisions on which companies are 'worthy of salvation' and which are not.
We may as well give the means of production back to the workers because the current owners have messed this right up!
I mean seriously - are we going to hold a lottery to see who gets the funding?
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152,154,160
I did in fact mean milestones LOL I am lost and confused. :)
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#97 and others.
When Milton Friedman said inflation was created in WHitehall, he was making a crucial point about the money supply as it was then controlled. It hasn't been controlled that way for a long while now - credit has replaced banknotes and private banks have replaced the treasury.
When banks lent money and sold off the debt as an 'asset' which had a value, money was created out of nothing.
When loans are repaid the money is destroyed. It is this we are seeing now, and this is causing the deflationary spiral which is so very damaging.
The government is attempting to borrow money to support those who cannot roll-over their credit, and issuing gilts to do so, so long as there is a market for them.
Inflation is simply another means of achieving the same result, the difference being the way the costs are distributed and the way the credit market is distorted. It is arguable that the distortion is less if the government prints money than if it borrows it. It is also arguable whether the devaluation of the currency that results is any worse than that which will follow the huge increase in borrowing that is the alternative.
There are obvious dangers in this inflationary approach, but this might be preferable to another solution which is either inefficetive, or in which the dangers are less obvious . . .
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148 dknotty
No wrong way round.
The transition was already in play to higher tech, internet. The recession just crystalised the process and accelerates the decline of the old school operation. That is why 'helping' is difficult, the process was already in play.
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Following on from 'The New Capitalism' last week and now ' 2009 is payback year'. I cant help getting the feeling we are collectively 'hanging on' until Christmas, one last hurrah before the prospect of financial armageddon in the new year realises itself.
A giant wave formed by the convergence of huge job loses, closely followed by a second wave of bad debt from those job loses, house price decimation all while the corporate pay back requirements are also at a maximum and at a time we have far too many employed in the public sector to a govenrnment deeply in debt with a rapidly vanishing source of income.
Am I missing something here? It is starting to sound like the economic equivalent of a perfect storm to me, the eye of which will pass directly over the UK like no other nation.
It is however a necesarry correction and we are at our best with our backs to the wall as a nation. I am actually quite hopefull that we will re-build a new system fit for the future. But the old system will need to be destroyed first and we need a true leader with genuine vision to inspire us and take us through what will be a period of huge change and disruption. Where is he or she? We need them, very soon.
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It will be necessary to prop up some businesses during this recession - unforunately. I firmly believe that the banks needed supporting; after all they do control the money supplies for everyone, but if a business was on a sound footing then they should be able get by now. If they fall then they probably weren't viable anyway, it's not pleasant but that's business!
What worries me is that it will be the government who decide which business gets help and which doesn't. Given their past form on decision making I don't hold out much hope! We need to try and help any manufacturing businesses we have as they will be key to getting the economy going again - as will the construction industry. I worry that businesses will be saved for political reasons and not economics
It will boil down to 'how many votes will we lose?' as to whether or not help is given - and this is wrong. I would hope that this would not be the case: time will tell
I also think that the doom & gloom reporting is getting a bit much now! The UK is a resilient beast and we will get out of this (hopefully all the wiser!) and industry will recover. The weak firms will go bust and the strong will survive - this is a normal economic cycle! We shouldn't get too involved in trying to keep things as they were, this cycle needs to run its course. The sooner it does then the sooner the recovery will be
BTW - does anyone know what odds you can get on the phrase 'green shoots of recovery' being uttered by a politician before the end of January?
Now that would be worth a couple of quid! (actualy - might stick a couple of Euros on instead, they will be worth more in the new year :-)
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Where to start??
The people pursuing a technical track on this are fair enough...but the fact is it has always been "the morality, stupid!"....(Or at least the Ethics and absence of them)
The Million dollar/pound/euro bonus crew knew it wouldn't last but having banked the money and cobverted it into other assets their policy of averting their gaze is vindicated
We are even seeing the emergence of the Madoff , Enron-style, sheer- alleged fraud - schemes crashing and burning.
I sound like some old fashioned God botherer, which I certainly am not---- but with Religion sidelined, 'traditional respect for 'the classical virtues' (honesty, responsibility, respect for truth) disregarded casually almost every day.... and with the removal of governance aka 'light touch regulation'...what did we expect--- where were the 'rules' to come from anymore??
The new paridigm of "IT productivity" was exposed as just so much rubbish... now the debt-is-good beliefs have also been exposed as just old fashioned stupidity.
Having got THAT off my chest I'll close with a couple of more subject specific points... First in this recession I don't see the problem as what happens to ...GM and Chrysler are exceptions.. (They'll get their money for sure) but they certainly aren't where the unployment will come from---certainly in this country.
The unemployment will rise as 4 and 5 person businesses become 2 people businesses... and 9 and 10 businesses become 2 people businesses.... the nearest we have to a bloated old fashioned "big industry" scene are the Financial sector big businesses and the Public sector.
The government haven't a clue how to help the micro sized businesses and the "small" end of the SMEs--- hence (among a host of examples) their blockheaded 'advances' recently in the field of extending "parental rights"
And the final point I'd like to make ---I could go on for just about ever..... concerns Yvette Cooper and her "we have no policy to defend the pound"...
Exactly what are the criteria for deciding in the Cabinet when the Government toggles from the "Do anything necessary party" of dynamic action...to the "do nothing" shoulder shrugging party of ...er...doing nothing ???
The rhetoric is as usueless as the policies...and that makes me sound like a Tory I suppose...and I am not one of them either....!
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I think, Robert, that this is as I suggested a while ago, that there are going to be buisnesses that 'hit the wall'.
As you say we can't save everyone, only the fittest will survive but the trouble is, no one wants to be the ones who go under. I expect next year to be very 'noisy' with companies screaming at the government for help but not getting it. It's very sad because some of us down here, the working class, are also going to suffer.
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#91
You should be careful making assumptions based on contributor's blog titles - and perhaps redirect your vituperative remarks towards Barclays Bank, the only major British Bank still operating in Harare, where they have suceeded in keeping in power a regime that has systematically starved its own people and murdered many more.
On a lighter note, I reorganised my businesses over 12 months ago and they are all doing ok - thanks for asking!
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Stop, Stop, Stop........
1. Who's to blame and how did this happen.... I cannot for one minute believe that there won't be legislation to prevent us having to spend god knows how many billions in 10 years to dig us out of the same mess.... so what are the new rules going to be?
2. When the new world order finally settles into place as far as banking and the global economy are concerned, what's it going to look like?
What World are we going to save these businesses for? Will it want or need them? How easily will the gaps be filled? Are they going to help rebuild ‘Britain’ or just fuel more consumer spending......?
At the moment we seem to be spending to keep the ‘Old World’ in situ – but if the rest of the World moves on?
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Post 162.
If the Leeds4eva you refer to is Leeds Utd I think you should be a little more circumspect.
You have drawn my attention to the fact that Mr Brown and Mr Ridsdale have, on the face of it, a lot in common, and I thank you for that.
Third division for Leeds, and no sign we will get out of it. Third world for the UK in a couple of seasons.
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#152
Good idea. Reward on results over the life of the loan rather than closing the deal.
That will never catch on! These sales/bankers spivs are only interested in short term gains. You only need to look at Enron and Mark-to-market accounting.
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I am not sure I agree wholly with the article. European corporate bond issuance is markedly up this month so although it may be expensive to raise money by selling new corporate bonds it can be done. This shows that the big corporate world has another way outside of wholesale markets of raising money and probably does not need our government distorting the market.
There is a problem in that many of our large corporate entities are essentially insolvent due to over leverage. Many of the big companies in the UK today are only big because they borrowed lots of money to take over their competitors. Many of our large companies have sold of their assets (the family silver so to speak) so they have no buffer against a downturn. You could argue that they ought to be broken up rather than bailed out.
Do we really want to reward business mismanagement with bailouts. What happens if by government making choices the market is perceived to be unfair and as a result viewed as fundamentally unsound.
Government will try anything to support house prices and there is little doubt that they will fail with prices falling by more than 40 percent. Government will try to protect jobs, by bailing large business only to damage smaller and mid size businesses. The government will borrow large amounts of money until it cannot borrow any more. In my view it will eventually become obvious that by trying to delay and soften the necessary adjustments the government have made things worse.
It is only a matter of time before markets switch of the tap of money the government can borrow. Gilt sales are already suffering, so any discussion about who or what the government will bailout is moot. The good news is that we are in an environment where hard work and endeavour will reap rewards providing government can relax its nanny state attitude.
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Top heavy service economies don't work. Our technology has robbed us of skills which have actual physical value. It's not just the state of the credit market we have to worry about. It's our national institutions like the military, the NHS etc that we need to be extra careful to protect. And what is going to happen to our pension desert?
Has anyone heard the word we so desperately need to hear - restructure? It's an impossible task, that's for sure, but it's about the only option left to us.
Ration book,anyone?
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We should count ourselves lucky on the mainland - in Sark (channel islands) 1/4 of the population were all made redundant in one go this week
http://news.bbc.co.uk/1/hi/world/europe/jersey/7783676.stm
If that was replaicated here that would mean 15 Million jobs gone in one go!
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@150
But you don't say who is to replace these fired/jailed/hungdrawnandquartered executives. State appointees? The evidence suggests this would produce even worse results, and by what right does the Brown government step in now, having been asleep at the wheel for at least 5 years?
The checks and balances to be properly imposed on Capitalism broke down over recent years. That is an indictment of politicians, not the system. And there is no-one more guilty than the aptly-named Brown. Not that I have much use for the other lot, but it's Time For A Change.
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@163
Have you ever seen them in the same room together?
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#164
It is true that the US now has a stable political position from which to manage the crisis, however I'm not sure you could accuse them of taking "tough decisions". Throwing USD16bn at an industry that steadfastly refuses to adapt to modern technology or environmental innovation, purely to preserve three million jobs can hardly be described as a tough decision. Expedient seems to me to be more apt.
Adding caveats about "having to change" don't alter the fundamental message: The government will underwrite non-productive industries and preserve blue-collar jobs at the expense of taxpayers generally. Sound familiar?
It is interesting that only last night Top Gear had an item about an American built car that runs on a hydrogen fuel cell. Although the hydrogen is no less expensive than petrol, the only emission is water. The car is only available in California, and who developed it?
Honda.
I'd give Honda the USD16bn on the proviso they build the car in Detroit and roll it out across the US. Now that would be a tough decision.
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165 Tom:
Very good post, and you are right about 3G.
Just as bad, though, I seem to recall Brown selling the nuclear builder Westinghouse Electric for a song in 2006, presumably thinking that 'we will never need to build nukes, will we?' End result being that we have to rely on EDF to stop the lights going out. The man's track-record is truly abysmal.
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146 Friendlycard
The problem is one is left with the impression that the dregs at the bottom of a cup o Rosie Lee are used to make decisions. Could be worse I suppose 50 50 chance of getting it right whatever they do. Things are moving around quickly so it is difficult to see an outfit which has had trouble making a few decisions at leisure correctly making a lot more under pressure.
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# 176
We may be third division but i'd rather have Gary Mac' running the country than Gordon Brown!
Even with our current position!
Can you imagine Leeds UTD with Gordon in charge - he'd make Ridsdale look like an amateur on the mad borrowing/crazy policy front!
Actualy now I think of it............Gary for PM? Gordon in charge at HQ (Elland Rd HQ)
The world would be a safer place!
Lord knows what the footy would be like :-P
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Fraud risk in the work place is due to rise say accountants KPMG. (BBC website). Is this possible.
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#185 Friendlycard
"The man's track-record is truly abysmal."
Agreed, let's hope that he gets a proper bashing at the next election - which I think is almost a given now. I just hope that DCs lot can run things better, he's starting to make the right noises about cutting spending and reducing debt but we'll have to see what sort of carnage they inherit from this shower.
Remember during the 18 years of tory rule the tax burden & public spending fell with many state entities ended up in the private sector (Water, energy etc) under Blair and (especially) Brown we've still got those things being paid for privately by the citiezen but the tax burden and pubic spending is careering out of control upwards for little obvious benefit!
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"These sales/bankers spivs are only interested in short term gains"
Unfortunatly we can extend this to our government and a large number of people in the world!
Been shot down for sugesting this before but in so many areas we need to start looking at the bigger picture.
What sort of a messed up world are we leaving for the future generations :(
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Robert,
Your analysis is spot on. However, can you find it in your heart to focus on some good news? The sort of news that contains the words "some recovery" as was stated in the FT this morning.
This was relating to improvements in the shipping markets and the increased demand from China in iron ore.
Although not solely domestic, we need to have a sense of light at the end of the tunnel and I think you can get the ball rolling.
We are still a great country and we can achieve great things!!!
Kind Regards
Quentin
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185 glanafon:
Yes, and if anything you might be over-stating the quality of their decision-making processes! I was trying to work out a likely sequence of their thinking-processes, like this:
1. 'Deflationary presssures - so we'll inflate - it will reduce the value of everyone's nominal debt, most notably that of mortgage payers and HMG'
2. Later: 'Oh dear, we've overdone the inflation, interest rates have to go up, but at least we'll be paying this interest on smaller (real) debts'
They probably are calculating it this way, in my opinion. The snag is that the market almost certainly sees through this, so refuses to lend enough to HMG, knowing that inflation plus devaluation will destroy the real value of their capital, even if the lender eventually receives a higher rate on devalued capital (hence the current sharp decline in Sterling).
When this plan fails (about now), it leaves three options:
1. Bluff - tell markets that the outlook for the UK is pretty good, national debt is a lower percentage than other countries' and the GBP is fine and dandy
2. (After the mkts have stopped laughing at that one). Raise rates to attract capital and defend Sterling - no alternative, as we've no reserves left
3. Go to the IMF (which I think could happen in 2009).
Bottom line for me is that the UK has borrowed too much - individuals, corporates and govt, the latter disguising the true scale of their borrowings in off-balance-sheet obligations - and this excess borrowing has reached the tipping point at which no one will lend the UK more money.
It's an old, old story of the consequences of living beyond one's means. In the words of the old song*, "This old earthquake's gonna land us in the poorhouse; it seems like the whole world's insane".....
*'Sin City', Flying Burrito Brothers
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#123. liesdamnlies wrote:
"Re: Brownbankruptsbrits 2. at 1.30am
That is not the 'royal we' Mr Peston has used. The 'royal we' is used to replace 'I' as in 'God and I'(referring to the divine right of kings and queens) as some believed they had, including Mrs Thatcher! Mr Peston might have used 'it' but 'we' is ok in that context I believe. He 's not talking about himself but for us for whom he is paid to comment for and not by divine right!"
Quite right regarding the use of the royal "we".My point about the blood-sucking banking dynasties corrupting business/governments/media stands though.
Any thoughts on that thorny issue?
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We may end up at a total bail out figure (banks, pensions and company debt) of over £50,000 PER TAXPAYER.
That's approaching World War 2 debt figures per person.
The return of super-tax?
VAT on food?
VAT on property?
Massive cuts in NHS, education, or military?
Probably all of these.
The "madness" of the banks...why didnt they listen to Vince Cable?
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181. ohmygawdbutler :
-But you don't say who is to replace these fired/jailed/hungdrawnandquartered executives. State appointees? The evidence suggests this would produce even worse results-
While I completely agree about the current administration being useless at the helm of the banks. I have to disagree that state appointees could be any worse than the current crop of racketeers.
Frankly Al Qaeda couldn't have done more damage if they'd occupied the top tier banking posts in the past decade.
We still seem to be clinging on to this notion that the banking industry is full of experts. But when you consider that Bernard Madoff was considered one of these, you know you have to be worried.
The problem we are facing, is that the very people who got us into this mess, the elite, the bankers, and the government (by this I mean both parties, they're both heavily funded by the City after all) and the rotten system they represent, are going to be the ones to get us out.
This is, in my opinion, completely ludicrous.
We need to clean the stables. With bleach if necessary.
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#139
No.
#98
Great - I am pleased you can borrow more money I assume you have a business plan to pay it off rather than just 'service it' - and that plan takes into account reduction in consumer spending?
A good business can 'roll over' the debt - well please do so - it puts you at the mercy of the banking system. In fact over borrowing is at the crux of our problem - companies kept borrowing to fuel growth always assuming that there would be growth. That is what happened in Japan - while 'growth' = inflation occured everything was happy. When it stopped and the buble burst . . .
You state that borrowing costs will be less as LIBOR has come down (it has) - have you factored in stress testing e.g. what would happen if the pound really collapsed and interest rates were pushed up to 10% to try and attract people to put money into the UK? The 'do nothing party' LABOUR say they will do nothing to stop the run on the pound - but I bet they will suddenly change their minds and panic. I was taught to be cautious and am marekdly less sanguine than your firm appears to be.
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167 NO MAD TT
Dont worry about it, just a warp in cyberspace. Its all grist to the mill.
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#187 ...Fraud risk in the work place is due to rise say accountants KPMG.
well they would wouldnt they all the more business for them....except the accountants and auditors have been found wanting, they signed off the accounts of all these companies that are no more! Why havent they taken any of the blame? Who signed the accounts at AIG, Bear stearns, Northern Rock etc etc? who audited Madoff securities? i think we should be told!
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31#
"pure unadulterated fact"
Apart from the extraneous use of 'pure' you made a lot of statements which you then presented as facts.
If we take 'house prices to fall by 40%'you are at variance with Barclays who are forecasting a further drop of15% on top of the 15% already lost making a total of 30%.
Another lender ( can't remember the name) came out with figure of a further 10% through to 2009.
Can you name your source to back up your figure?
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Just back from a CREDITORS meeting for
yet another badly funded business thats
DEFAULTED on its BANKERS.
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We've just been told we aren't getting a pay rise this year. Is anyone else getting the same treatment?
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goodthinkinggeorge wrote:
Actually the UK is not bust, our national debt is quite low compared to many other countries. We can afford to run a large budget deficit for a few years and this is the right strategy to pursue at this time. The exchange rate is not a problem either.
What about the PFI deals kept off the books and the government pensions.
Government pensions contribute £19 billion each year but cost £29 billion. And the difference overall is already £1 trillion.
National rail debt is underwritten by the government.
The true level of UK debt is much higher and borrowing further simply because our carefully manipulated national debt appears lower than others is a poor reason to add further debt to our over stetched national debt.
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188 Scouseflyer:
Extremely good point - we are now paying twice, once to privatised entities and again to a government which taxes more but provides less (the difference being poured into increasingly expensive government).
Same thing happens at local authority level - they kid us that council tax has not gone up very much, but forget to mention all the sevices that are either chargeable extras, or are no longer provided at all. Someone called this 'Rip-Off Britain', I seem to remember.
A friend of mine, who runs a successful hotel, is an example of this - not only has his business rate shot up, but the Council no longer collects his waste as they used to in the past, and he has to pay a lot for this service to a private provider. He once asked me exactly what he gets for his Council tax nowadays; I told him to look at the Council's glitzy new head office if he wanted to see where his money had gone.
The whole tax and service thing has become a con-trick, designed to pay for bloated bureaucracy.
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There are a lot of people on here thinking Gordon will get a thrashing in the next election.
As I recall at the last election we collectively voted an extension of term for a know liar. That is, you can no longer believe a single word of his promises but the electorate voted him in anyway. What on earth makes you think anything different will happen this time.
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The World has run out of money. The synthetic money creation mechanisms broke down earlier this year and it is highly improbable that they can be resurrected in the short term.
Add this to the 'small' trillion dollar of loans needing to be rolled over and the World's monetary situation is without doubt very very tight indeed and probably the tightest it has ever been (far tighter than the 1930s).
Now, when a commodity is in short supply and the demand is huge its price goes up. The commodity is money. The cost of money will rise and I cannot see any possible mechanism to prevent, or even ameliorate this. (Can anybody suggest a viable mechanism to prevent this?)
One way to cushion the UK internally would be to engineer a dramatic fall in the pound, but as most of these loans seem to be denominated in US dollars or Euros this will exacerbate the problems of the holders of the notes when they become due.
(However the Treasury unwisely and probably deliberately announced its intention not to support the pound over the weekend and this will put all indebted UK companies on the rack - maybe they, the Treasury, don't care!)
If you thought the last quarter of 2008 was bad you ain't seen nufing yet!
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191 Friendlycard
I didnt know many people had heard that one.
Funny thing is GB and AD dont seem to know whats what. One minute all okay fairly shortly. Next we need to plan for feeding Lame Duck Giganticus with a giant loaf of bread. In the Great Depression 85 % of businesses in the US actually kept on and came out the otherside from what I read. Downsized of course. Perhaps its time for the Thatcher era motto, how do you create a small business, take a big one and wait a bit. Honey I shrunk the economy.
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Funny really that some of the POSH TOWNS
IN SUNNY SURREY seem to have some of the
BIGGEST CROOKS living in or around them.
When i moved here i thought it would be
a respectable area i didnt think some of
the neighbours would be CORPORATE
THEIVES in their 3 million plus MANSIONS.
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This was relating to improvements in the shipping markets and the increased demand from China in iron ore. Post 190
So an upturn in demand for non renewable resources is going to solve the problem is it?
Actually the real situation in China is non too good. Orders are down in most sectors by at least 20%. Factories are closing on a daily basis.
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193. stevewo
I doubt you'll see cuts in the military. they'll need them if they want to cling to power for much longer.
But i reckon this will be the perfect opportunity for them to take away the NHS, like they've always wanted to, and put us on an American style system where the poor get ill and just wait to die.
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191 Friendlycard
Think it depends on how bad it gets elsewhere ie outside UK. last UK gov exchange rate gamble was Lamont, that went well didnt it. Problem is if gambling they are not gamblers and will get roasted by the pros before they even realise the shirt is off their back.
If things float down elsewhere which may well happen then may be benefical and pound would bounce. There must be a load of stuff in the system due to surface at the end of the financial year. Elsewhere sitting on timebomb also.
Actually right now there are some areas doing quite well (but whether it holds is another thing). Doesnt help those hit hard.
If 2009 grim, even if 'only' million (plus a factor for families) GE difficult for GB. The unforgiven. Will have used phone a friend, and 50-50, will only have ask the audience.
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I'm always surprised to read the (admittedly few) blog posters who reckon that things are not as bad as they seem right now. Whilst I agree that such a maxim can be a useful personal pyschological tool when the going gets tough, anyone who thinks that our situation is anything other than parlous in the extreme is deluded IMHO.
May I suggest you take a look at Jim Kunstler's blog (he wrote "The Long Emergency") and his post today entitled "Change You Won't Believe" to begin to understand what probably lies ahead.
Then, all you optimists out there, come back and tell us that Peston doesn't know what he's talking about, or that, er, things are not as bad as they seem.
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Are there really any Large British Owned Companies that should be bailed out by the Govenment?
Vauxhall (part of GM) Corus (part of Tata) Leyland Trucks (part of Paccar (US)) were selling their tales of woe last week. Should our State be providing aid to foreign firms, just to safeguard jobs? The state should concentrate on providing support to competitive British firms, particurlarly SME, who will be the ones generating the new Jobs when the recovery does begin. I know it gets mentioned on here a lot, but look at Germany, the bulk of there economy is based on SME's employing up to 100 staff. Their economies of scale keep them competitive.
It certainly wont be the Carmakers who are the big employers of the Future in this country, so why help keep them afloat. The state cannot pick and choose what companies to save from bankruptcy, it is the role of administrators to salvage what is left of the remnants of the firm. As I keep saying we have many Administrators in this country ready to charge their extortionate fees, so just let them get on with their jobs.
The Govt should get on with it's role of looking after it's people, and that is not by subsidising redundant jobs.
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My post 206
Sorry:
THIEVES IN THEIR 3 MILLION POUND PLUS
MANSIONS.
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#203. Uphios wrote:
"...As I recall at the last election we collectively voted an extension of term for a know liar...."
Yes, but why further complicate and destabilise an already dizzyingly complex situation by introducing truth into the mix?
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in the midst of all this gloom and doom we need a laugh..........
it has just been reported on cnbc breaking news.....that "the changes in VAT are already making a difference"...Gordon Brown!
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When the government decided it had to bailout (or support) the banks with taxpayers money during the earlier stages of the credit crunch I believed, as a matter of principle, the banks should not be bailed out this way and they should be made to suffer the consequences of their own actions.
None the less and in spite of my misgivings I did accept there was some merit in the governments proposal because the banking system is the common artery that feeds into all sections of our economy (both nationally and internationally) and all areas of our society.
Having accepted that the bailout was necessary I found it somewaht galling to note that none of the senior bankers who were responsible for discrediting the UK banking system and putting UK citizens into financial hock for many years to come were not going to made to pay for their indiscipline that brought on the credit crunch. As far as I am concerned many of our senior bankers are guilty of a least wilful neglect and lack of proper finacial governance on a grand scale. If they are not guilty of neglet and proper governance then that raises the question of what do senior bankers do to earn such vast rewards?
Our senior bankers often proclaimed they were the elite of the banking world and fondly rewarded themselves with far more money, for overseeing the running a single bank, than the Prime Minister is paid for overseeing the running the of whole of the UK econmy. Senior bankers roles are no where near as demanding or as pressurised as the Prime Ministers role where every action and every word is constantly being scrutinised and disected by the public and media.
Now it seems that many of our glorious and equally overpaid captains of industry are about to join them in the taxpayer bailout queue.
Where will it all end?
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The way forward - a National Corporate Bond ?
We clearly face a very serious problem and one for which there is no easy solution. If care is not taken, and it hasn't been so far, this credit famine will have a devastating effect on the companies that are our very lifeblood. This will, as you so rightly say, particularly effect smaller businesses if larger ones vacuum up the available credit through conventional corporate bonds.
There is a further problem; although corporate bonds currently offer exceptional value on traditional perspectives, they also have a high level of risk at present which is almost on a par with shares, and I for one have doubts as to whether he have "bottomed". We therefore need a different financial model, albeit on a temporary basis, which will allow pension funds and private investors to invest with a modicum of safety, and vulnerable companies to raise cash to see them through the crisis.
I feel we need something along the following lines :
- National corporate bond funds with a two, three, or five year lifespan covering a) small companies; b) medium sized companies; c) large companies;
- These to be delivered through retail fund managers at a low fixed charge;
- Offering a fixed interest rate comparable to Gilts;
- Bonds to be I.S.A. able and with at least the capital underpinned by HMG.
You may very well argue, that we already have an effective corporate bond market, which is true, but we are in exceptional times and if there is just as much risk in bonds as in the stock market everyone quite rightly decides that "cash is king".
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Dear fellow bloggers,
Just to echo so many others - it is the government's responsibility to us and our future that counts.
The present government is neither particularly able or, perhaps, moral. Certainly never both. It WILL look to electoral success rather than rebuilding the economy.
But what is the hold on them that seems to make them sell off the Crown Jewels time and again? Next it will be our great but rapidly declining science/technology contribution.
Years ago we ditched the TSR-2 then destroyed every jig and blueprint of a machine that was streets ahead of the opposition, whichever east or west superpower. Will it now be the turn of brilliant new energy ideas based upon nano technology?
We presently appear to have some very advanced solutions to energy problems (please note NOT coal). But will we invest in them? Will we hell. Well neglect them or sell them off if promising.
It'll be business as usual with US bank exec jobs for our ex PMs. Absolute power corrupts absolutely.
We are, once again, Lions led by donkeys.
And now the Government (our government!) has just sold Channel 4 to German RTL TV? Just pray that they have the integrity to keep up its great track record. These days Germany is far more sophisticated,liberal and not driven under by the Official Secrets Act. However it wasn't as good at making grown up TV.
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#214
Of course they are. The difference is that VAT receipts are down by 14.3%.
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"cnbc breaking news"
You sure that wasn't cbbc breaking news.
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I hope you're all putting the alexandercurzon clues together about how well he's done for himself...
It'd be a waste of his time if you aren't!
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205 Glanafon:
I remember a slightly later version of the song, all very messianic and 'end of the world', in keeping with the current mood. For the record (sorry, accidental pun) I don't think this is the end of the world as such, but I do think that GB, AD and the other 'better by mid-09' people are playing at Polly-Anna; this crisis will run for years, in my opinion.
You are so right about this crowd being clueless and constantly changing their minds - it seems to depend on which audience they are addressing.
And I don't - I'm sorry to say - wholly rule out this lot getting re-elected. Crisis favours incumbents (9/11 helped Bush a lot, as did Iraq). Labour has a huge client state (benefit recipients, state employees, etc) in addition to ideological supporters. The electoral map of the UK is skewed hugely towards Labour (whereby identical votes cast for Lanb and Con would give Lab a small overall majority).
All very depressing.
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What a bunch of worriers there are in the UK have they forgotten that :
There's no gain without pain, or in this current situation extreme agony.
The markets know best.
For every seller there's a buyer or is it the other way round?
No bailing out lame ducks.
Bring back Howe I say.
Actually I didn't know that we had any manufacturing industry. I thought the UK was an envied economy built on service industries.
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214 jolo:
Thanks, I needed that!
When can we expect the "Gordon Brown Joke-Book?" Here are some for starters:
1.' Sound finance.....'
2. 'Britain is best-placed....'
3. 'Balanced budgets through the economic cycle....'
4. 'Prudence......'
5. 'No more Tory boom and bust.....'
6. 'British jobs for British workers.....'
and of course
7. 'Saving the world.....'
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To No.163
Tony Benn on a BBC 'discussion' programme yesterday said "If I'd said a year ago that
Mandelson would be brought back and given a
Government job and that the Northern Rock and others would be part Nationalised - the men in white coats would have come and taken me away."
- or words to that effect.
Thought you'd be interested. I think you're the first to introduce' Mandy' into this blog.
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210 moraymint
I (we) was hit in the last recession because I (we) trusted the government and big businesses and the banks. I have more than some idea of what it is like.
The problem with recessions is they are arbitary in impact which is why a governments first duty is to manage an economy. To operate a meritocracy as far as possible. Wealth is not generated in the public sector, and large businesses have the scope to downsize without disappearing which is not available to individuals or small businesses.
Here we currently work on the inverse of all 'normal' business rules as we have regarded the 'normal' framework as bust for a long time. Whatever the normal response is supposed to be we do the opposite. There is no point in heading for the lowest common denominator, it is too crowded a platform.
I am not complacent in my opinion, and I am only too aware of the inflexibilty of the current situation for many. The key issue is the inability to respond quickly enough within a highly structured debt and overhead environment, concurrent with the removal of credit. For that reason I believe help should be given, and not reluctantly, to individuals and small businesses.
I can only report my experience. People will not stop spending money they will just spend it in a different way and overall they will spend less. Good Luck
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# 215 godfreybrown
Those 5 words "where will it all end?" sum up the astonishing mess that we're in. Moreover, one wonders just how much longer our politicians will go on treating us good citizens as a bottomless pit of cash and goodwill?
Indeed, I suspect the damage is already more than done. Of course, it's not just you and me that are now going to pay the terrible price of our politicians' rank economic incompetence, it will be our children too.
It'll be interesting to see if/when the emerging economic nightmare rolls over into a social nightmare as unemployment rises rapidly and so with it the potential for crime and (even more!) dishonesty, as well as civil tension.
I'm one of those who believes that this crisis has barely surfaced and has the potential to snowball into unprecedented challenges for our relatively cosy, stupefyingly debt-fuelled way of life here in the UK.
I say this partly because of the way things are alreadly looking (bad) and partly because many, if not most commentators are failing to factor in the imminent end of mankind's era of cheap energy. Forget endless, aggressive economic growth on which most recovery plans are now being predicated - not least the Brown/Darling Fantasy Economic Plan, already looking extremely flaky after just a few weeks of confrontation with reality.
I refer back to my post at # 210 and James Kunstler's world view which I consider to be far more realistic than anything currently being spouted by our political elite.
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#220 thinkb4
I'm here largely to learn (thanks to all those who have extended my comprehension).
Consequently, my finger automatically scrolls past any post with extensive CAPITAL LETTERS
and
DOUBLE SPACING.
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#223
When you look back at what he has said you can only presume he is some kind of Political Stand up Comedian, and the joke is on all of us.
Have any of his prophecys ever been based on reality?
You could forgive him for some of his exaggerations if he was in some way inspiring, but he simply seems to having nothing going for him.
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204 John from Hendon
I have you pegged as a glass half empty type of fella. If you really want to be gloomy look at the planet, then this will be in perspective. Oh and don't look to the US, the have the highest recorded incidence of mental illness of any country. Apologies to americans but a fact, could be you are better at recording it of course..
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Off topic: may I add a comment about Woolworths?
My local branch is now beginning to look like a run-down Pound Shop. The empty shelves, of which there are many, are now being covered with their "50% off" posters.
Such new stock as is arriving is now being put out in large plastic rummage bins (with hand-written labels describing the contents), and it seems to consist of pink children's socks and other highly desirable oddments, found in the back of some long forgotten warehouse.
A member of the staff told me that they were even being told they might be required to sell this very sad junk on Boxing Day.
If ever a poor suffering creature needs to be put out of its misery it is Woolworths.
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#224
Mandy was first mentioned at #151, but has of course been with the blog since he told Robert what to write.
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Somebody asked how long to payback. If things go badly, or should that be brownly, it will take 50 to 60 odd years to pay back.We have only just got rid of the US mortgage taken out to stop the UK going bust after WW2. That is assuming a debt deal can be cooked that can be apid back over that period. That is probably the worse case. 2 generations of the nation.
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Talk about prophets of doom!
Why weren't all these "experts", who are now taking great pleasure in trying to demonstre how clever they are by producing bean counter analyses of debt ratios and offering one-dimensional opinions on the impact of forthcoming events, issuing warnings two years ago?
I seem to recall that they were all busy talking about "new economic paradigms" to explain the USA's economic performance and extolling the virtues of Brown's management of the UK economy etc.
Perhaps Robert Peston could explain why holders of maturing bonds would not wish to re-subscribe to bonds issued by companies which have managed to pay interest at much higher rates than the new bonds are likely to pay, but which are still going to be much higher than any deposit account is going to be paying.
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#217
"The present government is neither particularly able or, perhaps, moral."
It's our own fault for allowing it. Some years ago George and Tony set a whole new level of leadership morality. Since then, anyone wielding the smallest amount of power has been able to get away with just about anything. Why stop when there's so little resistance?
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thinkb4 post 220 oldnat post227
GUESS YOU ARE BOTH HAPPY to have your
pockets picked then??
Is it a sin to point out how various people who have run businesses into the ground
are living the HIGH LIFE.
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#187
"Fraud risk in the work place is due to rise say accountants KPMG. (BBC website). Is this possible?"
How would they KNOW this? They failed to spot the lack of value in the instruments held by those companies they audited.
This whole thing is about a lack of regulation. Not one agency spotted the false valuations.
Examples:
Worldcom
Enron
Madoff (by his own admission)
How many more stacks of cards are there out there?
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#216 "The way forward - a National Corporate Bond ?"
For such a bond to work, there *MUST* be cash available AND willing to purchase them.
Firstly, the willingness to purchase bonds of any sort have evaporated from the markets as our dearly beloved government is busily devaluing the currency !! Such bonds may go the way of the Tsarist Russian Bonds or the Chinese Railway Bonds !!
Secondly, any cash available will be moved as quickly as possible into a more stable currency, e.g. Euros, which have a fair chance of keeping its value !!
Thirdly, and most importantly, who decides which companies are eligible for such funding and using what criteria ??
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In other words the government is going to print itself silly.
That's not news robbie, the government have been silly with money for a long time.
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236 Toldyouitwould
Quite a few I think. Next few months should squeeze some pips.
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in addition to my #214 sayings from GB.......
he came back from his electioneering visit to Pakistan waving a piece of paper and praising the "new co-operation" (at a bargain price of £6 million)...today the Pakistan PM has turned down GB's request that the British could interview terrorists!! So what exactly did he get for his money?
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#233 "....why holders of maturing bonds would not wish to re-subscribe to bonds issued by companies which have managed to pay interest at much higher rates than the new bonds are likely to pay, but which are still going to be much higher than any deposit account is going to be paying."
It does not matter what the interest rate is if the underlying currency is going through the floor !! If there were any Zimbabwean bonds based on the Zimbabwean dollar, I'm sure the interest rate on them will be many times the invested sum but no one will want to touch them with a 50 ft. barge pole !! By the time you get any interest, the whole amount (capital and interest) wouldn't be enough to buy a single bean !!
Smart holders of maturing bonds will be anxiously awaiting the maturity to collect their money and immediately, if not faster, move that into another currency !!
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Message 230 noninflatable
You are right about Woolworths. The place has been on the death list for years.
Inventory was just allowed to build and build. If something failed to sell through it was speedily forgotten and the next big idea brought forward.
This has been the way many retail businesses and distributorships have been allowed to operate for years. The mistakes are quietly stuffed away in the back of the warehouse as the management hastily moves on to more exciting ideas. Reputations have been built on this type of skullduggery.
However, all that old inventory has a cost which the business has to carry. In the days of easy money these mistakes could be hidden behind the usual management bluster, turnover figures and stock churn.
Now it is no longer the case. Woollies is just the first of many in my view. It is going to get cold out there after the January Sales: very, very cold!
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I would have absolutely no confidence in any UK Govt selecting currently viable companies, prudent or otherwise, and still less in them picking future winners. You only have to look at the track record over many years. This would be he road to ruin. Instead, the govt needs to act at the macro level and let what is left of the market to distribute the available finance, after all no bank is going to waste it by lending to another financial institution.
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Sorry to be slightly off message but a question for Robert.
So Mr Madoff through an American company has stolen £30 billion some of which was invested by our local authorities.... is it likely that Mr Brown will freeze American assets under anti terror legislation !! Or does he only pick a fight with small countries like Iceland ? I think I know the answer, do you?
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This comment was removed because the moderators found it broke the House Rules.
187. At 2:56pm on 15 Dec 2008, glanafon wrote:
Fraud risk in the work place is due to rise say accountants KPMG.
+
It's the Costs that KPMG charge and conflicts of interest with their clients such as insolvents / trustees / hmrc that are fraudulent.
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As I sit here thinking about 2008 and pondering the outlook for my 3,000 or so mature accountants in 2009 it just struck me how easily we were all suckered into the situation in which we now find ourselves and I just wondered two things – what really is the definition of, or was the point of the word Authority as used by the FSA, and rather than bail-out the Banks that were the root cause of the problem the Government should have been setting bail terms for the hundreds of out-of-control senior executives and their non-execs who were clearly driven by ego and vanity, power and greed, a total lack of corporate governance, gross incompetence, destruction of shareholder value, treating creditors and employees with total disregard while trading whilst insolvent. All of which has basically saddled this and future generations with a mountain of debt that will possibly never be repaid. If I as the director of a small Limited company had behaved like that I would have been put behind bars having first been struck off as an FCA and as a company director. Happy New Year! Martin Lloyd-Penny
www.matureaccountants.com
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#187 "Fraud risk in the work place is due to rise say accountants KPMG. (BBC website). Is this possible."
Whaddaya mean is this possible ?? Please see article on a Mr. B Madoff !! KPMG must be highly relieved that they were not the anointed ones chosen to audit said company and, therefore, have to follow in the footsteps of Arthur Andersen !!
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Out of curiosity which so called business genius started the borrow and return capital to Shareholders trend ?
And will Nominee Account holders ever get Voting rights ?
Shouldn't be too hard in this high tech era.
So the Gov't is faced with a stark choice.
Hope the Private Sector can Export Britains way out of trouble.
Or boost demand in the economy.
In an ideal world they would have an industrial and manufacturing policy ready with which to help Britain grow exports.
But failing a Private Sector export boom, a Public Sector pay rise is the only way to go!
Unfortunately, it is becoming a case of Inflate or Implode.
Right now the Private Sector is Imploding...............
My personal Inflation rate is running at nine percent.......
Oh well, cut back more spending! WHat can I do without!
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#240 "So what exactly did he get for his money?"
Two poppadoms and a biryani to go with his tandoori chicken ??
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January forecasts will be the usual schedule for smaller budgets and across the board redundancies strategies.
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234 CycleMike2
You are absolutely right. On the whole and over the long term, people get what they deserve and above all the governments they deserve. To be harsh, that's why most of Africa is in such a mess: the toleration of bad leadership, and we are going the same way. The relationship between politicians and people is one of mutual contempt.
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There are actually a lot of very good opportunities here for investors as a lot of these are rock-solid companies who have used the proceeds of their bond-issues to invest and expand in a foresightful way.
Every big successful company has made a big bet at a critical stage in their development.And on borrowed cash.
I am actually starting to feel that economic doomsayers are a bigger problem than debtors.
Stop running our economy and our currency down and use all of your media savvy to get the confidence of people back up...you are not merely an observer Robert, you have responsibilities too!
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240 jolo13
Just shows the problem with Afghanistan. Any heat they pop over the border, its porous.
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Cue James Brown
hey! Gotta gotta pay back!! (The big payback)
Revenge!! I'm mad (the big payback)
Got to get back! Need some get back!! Pay Back! (the big payback)
That's it!! Payback!!! Revenge!!!
I'm mad!!
Get ready thats a fact, Get ready you Mother for the big payback (the big
payback!)
Hey!! I'm a man! I'm a man! I'm a son of a man, but don't they tell ya then
hop again
Get ready for the big payback (the big payback!!) Hit 'em again!!
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(the big payback!!) Sold me out for chump change
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241 ishkandar
It returns to the issue of the risk of loss of capital which is the problem at the moment. It affects the housing market, it affects commercial loans, etc etc. It stops investment dead, the loss of interest is problematic to an investor but it is nothing compared with the loss of capital .The only body seemingly unbothered by the risk of loss of capital is the government, because it is not their capital, it is the taxpayers. It could be that it is necessary but it is an alien mentality to almost everybody else and there is only one strategy to play at present it would seem. That is my concern.
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if the Big Payback sounds like a gangster hit
it's because it is
it's like Godfather III
when they killed the pope
and bought the vatican
to become more legit
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at least no ones been murdered yet due all to the stolen monies..
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Re post 44
Has anyone noticed that Robert Peston has proposed a hard left social agenda to cure the ills of the UK economy?
For all the waffle about the evils of capitalism, that post after post rants on about, many will learn the far greater evils of the hard left socialist agenda, comrade!
We have to accept that the liberal, capitalist, democratic system is best, warts and all.
This time financial deregulation (courtesy of Thatcher/Blair) has gone too far. As bad as they are Wall St or The City have never built any gulags.
Baiscally the car's ok, it just needs a new model.
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As Thatcher pointed out when closing the coal mines, why pay over the market price for something you dig up that you can just as easily import.
The reality is that we can import anything for less than we can make it ourselves.
As a consequence according to the glorious doctrine of global trade we should be closing the car manufacturers as we can import for less.
No point in paying through the nose.
That then means you have to accept the oft believed principle that globalisation is good.
Why should we be looking after businesses that have leveraged themselves beyond survival, or whose market has moved beyond thier capacity to compete.
Or are we finally accepting the fact that globalisation has limits. There must be some protectionism in the World, otherwise established economies will fail, a situation that appears to be occurring now.
I know that the majority of people in my particular field have been left to the winds of globalisation. It used to be that to be accepted in my I.T role required extensive experience, specific skills, and strong aptitude. No more, all that is required is you work for a company in India who charge less for less in the hope they can avoid any calamities.
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"The trick for government, therefore, would be to rescue fundamentally viable businesses, while somehow leaving feckless management to swing in the wind."
That would be Nationalisation, then?
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284 ishkandar
No KPMG are suggesting ongoing fraud, cooking the books now orin the near term. You are quoting history. I doubt things could get bigger than history in the short term.
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the problem with fraud, corruption, arms dealing, money laundering etc is it's difficult to control and contain .. and it spreads like wild fire.
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Nick-ola Horliks (no pun intended) new fund compositions is :
10 % fraud
90 % unsure
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she should eat the losses
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The financial system needs to be changed and cleaned up so the world economy is not held to ransom by the likes of Madoff. The gamblers on Wall Street and the City have played with peoples' savings and pensions and racked up huge losses. The tax payer and real economy is left to pick up the bill.
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252 ohmygawdbutler
No sorry. Innocents get culled with the guilty. It is arbitary. Politics is effectively 2 party in the UK. Minority turnout usual rather than unusual. No PR. You dont get what you vote for that is the problem. If you say some people get what they voted for - ie they deserve it, then yes, but many others affected. There is a trend for incumbents to hold on even in face of disquiet until implosion occurs, ie some sort of collapse. Attempts by critical mass of electorate/incumbents to hold status quo seem to freeze situation, temporarily at least.
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I still would like to know what Thatcher & Brown actually discussed at No10 a year ago.
Something about whose policies were to blame for this mess, I wonder?
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There is one way that local governments and large companies will solve this problem, they simply won't pay the smaller companies for the goods and services that they have received.
This has been a recurring theme for smaller companies doing business with large US entities for the last two quarters. Unable to finance their own debt, large companies and local governments have handed the problem on by paying bills on 90 days, or longer.
The small companies will, most likely, be unable to bear this burden and will not be around in tweve months.Our small company has seen increased levels of activity in the US market in the last few weeks.
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The financial situation is what it is and what I do not understand is why no action is being taken to address one of the drivers that allows business to over extend themselves with credit. In France it is against the law for a company to have debts older than 45 days - this simple legislation means companies either meet their payment obligations on time or are faced with steep fines/administration - either way it stops them crippling a smaller supplier with bad debt - therefore stopping the rot before it escalates into the sort of problems we are seeing now with credit being frozen.
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So lots of big banks and hedge funds were invested in Mr Madoff's Ponzi scheme.
For years it paid 10 to 15% interest which presumably helped all the hedge fund and bank clients deliver good numbers and collect management fees and bonuses.
So are these hedge fund and banker geniuses who collected bonuses on 'profit' made investing in a blatantly fraudulent scheme going to pay them back?
They can claim the problem is bad regulation but if a normal person was going to invest several £100M in a private company they would want to visit its offices and read its accounts carefully and see who had audited them. And if it didn't publish detailed accounts or explain how it made money and its auditor was a one man outfit in the middle of nowhere they might think it wasn't a great bet no matter whose name was over the door.
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If UK credit outlook is so poor - as you suggest - why is the premium for UK debt vs Bunds only 30 basis points and much more for French Bonds?
Maybe the big financial markets don't share your analysis?
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A little les time carping about our French neighbours and a little more time imitating them might be in order ...
http://www.ft.com/cms/s/0/15610780-cae9-11dd-87d7-000077b07658.html
Yours Aye,
Graucho
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I'm now starting to think that the sooner they hold an election in 2009 the better. This is our money they're going to be spending, propping up institutions in marginal constituencies where they need the votes, irrespective of whether those companies can EVER be profitable again. So th less time they spend doing it the better. Once they're back in power with a new mandate for five years, that's when the pain will really kick in.
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Okay look at it this way. So an entrepreneur has bought up all those juicy steel mills throughout the world using OPM. The OPM was generated by dodgy derivatives but no one cared, after all it was only bits of paper which had lots of noughts on.. Prior to all this the steel mills bumbled along some privately owned ,others government owned. Now the entrepreneur has suddenly found that he can't pay back the lolly. There he was being feted all over the world by politicians and leaders after all he was a 'contributor too"! No one wants the steel and you can't switch those mills off like a light bulb they take alot to run down and even more to kick start em up to get them going again.
So the entrepreneur, who has only himself really to worry about says stuff it and a bunch of steel workers now get to lose their jobs. Not only bang goes all the periferal stuff right down to the corner shop, not to mention the lot that supplied the 'funny money' in the first place.
The question is... is it okay to bail out the firms that can't perform anymore? And... who is to blame for letting the entrepreneur run amok with loadsa lolly, buying up all the steel mills? And.. is a redundant steel mill really an asset worth having for those who are left to pick up the tab. For steel mill you can read car plant or whatever else is gonna fail next, take your pick!
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@259 kikidread
"at least no ones been murdered yet due all to the stolen monies."
No, the stolen monies were occasioned by the rigging of the financial sector by the US administration to pay for the murders in Iraq and Afghanistan.
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"Neither a borrower nor a lender be."
Homespun wisdom that now seems truly apposite.
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This is how Nazi Germany started. We certainly live in interesting times!
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Add that to the U.S. problem and we have an even bigger mess. A quote from an U.S. economy watcher today:
"While it is likely that the Treasury will extend emergency credit to the companies until January 20 or until the newly elected Congress can consider a new plan, the prospect of a chain-reaction bankruptcy collapse of the three giant companies is very near. What is being left out of the debate is that those three companies account for a combined 25% of all US corporate bonds outstanding. They are held by private pension funds, mutual funds, banks and others. If the auto parts suppliers of the Big Three are included, an estimated $1 trillion of corporate bonds are now at risk of chain-reaction default. Such a bankruptcy failure could trigger a financial catastrophe which would make what has happened since Lehman Bros. appear as a mere hiccup in a hurricane."
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2009 is going to be pay back year? What planet are you on? We will be paying for this for a lot further down the line than that. And why? Because we do not have anythng tucked away to help us on our way. Every time someone says we have reached the bottom, we know that we are not near it. There is a lot more to come and we will just have to get on with it and hope that your friends do not sell us down the river totally.
The amazing thing is that it has all come as a surprise to our leader and his inexperienced crew. There is not a single on of them that has any exposure in the commercial field and I do find it galing to see the media fawning on them and letting Gordon get away with takig no responsibility for any of our problems. They thought you could borrow and borrow like no tomorrow and not have to pay at all. Todays politicians are not on the real planet, they are insulated with large tax free allowances, no receipts required, nice pensions, etc. Not like the rest of us, the REAL people. We ae the ones who will pay for it all.I am a female pensioner who has been totally let down by this government who have changed the rules so many times no one knows what I am entitled to. Thanks Gordon. They will try and bailout their favourites but in the end as many bloggers said it is the SMEs that will build this country again, not Gordon and his motley crew.
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"As bad as they are Wall St or The City have never built any gulags."
"The gulag " isn't the only alternative to ultra-capitalism, chelyabinsk.
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# 249. supercalmdown
"Oh well, cut back more spending! WHat can I do without!"
You don't seem to make much good use of your computer, so maybe that would be a good start?
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Well of course there's to be a pay-back time, but if we're lucky it won't be anything like the 11% pa average we all got applied to our house prices over the last ten years. Everyone seems to have a different theory and it's certain that the cleverest profiteers won't get stung - they never do- but the gov't should be judged on whether it can get stability and credit back and whether it can continue to protect the poorest. If it does it may win the next election too - and then it will really have to thing smarter.
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#40 scouseflyer
The FTSE is currently holding up for two reasons:
1. The pension funds are still getting incoming contributions that have to be invested, so this buying tends to stabilise the prices from time to time in a generally falling market.
2. The dramatic drop in interest rates has slashed the earnings from deposits. in comparison, this makes the income from dividends a better return in proportion to the share price, so tending to support the price.
As the number of company failures mount and the defaults knock on to affect the earnings of other companies, it is reasonable to expect the downward trend in the FTSE to resume.
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Allowing Gordon Brown to stay on to manage the UK out of this financial crisis is a little bit like inviting the burglar who has just ransacked your house to come back and fit the new locks.....
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#241 Ishkandar
If any of these eu corporate bonds had been issued in Zimbabwean dollars I'd want to buy the shares of the issuing companies since they'd be repaying about 3.5 pence/ euro cents for every £/euro.
The topic of currency movement and its impact on investment decisions is fascinating, but in the context of tradeable long-term debt currency movement is only a junior element compared to the strength of the issuer and the coupon.
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This is again, rather frightening to read. However we will do what we have to to battle through (or I may move to Australia, one of the two).
It will be interesting when we come out the other side, just what sort of new legislation gets put into place to control financial borrowing - for both consumers and businesses. I can imagine this being another step along the road to great government control over what we can do and how much risk they'll allow people to take. If we're lucky, it will cap mortgages to 3.5 times income and somehow also stop the credit generation in spending beyond their means. However it's more tricky for businesses - although I agree that we cannot allow businesses to defer so much debt we will still need to allow a certain amount of financial risk to allow businesses to grow and innovate.
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Now let me get this straight!
I earn a pound and Godden Broon wants me to:
Save as much as I can – what with interest rates where they are?
Buy as much as I can – let’s see what’s left?
Bale oot the Banks as much as I can – sod off
Support pensioners as much as I can – I am one of those!
Help the rising unemployed – well maybe.
Help my kids with the negative equity – top priority!
Buy some new ships for the navy – what for?
Support the Postman’s Pension – sorry Pat that’s a no.
Pay off my debts as much as possible – trying on this one.
Help the Government employees retire at 60 – sod off.
Pay for the past 10 years bloated spending – no choice.
Well I don’t mind telling you I have some Euro’s I am going to bring home to try and sort out my problems – anyone know the rate?
Mind you I think I have the answer – Mugabe just kept on putting zeros onto the end of his bank note numbers and he got into trouble because the number became too large - well we have started with large numbers so let’s take a few zeros off - simple!
Is there an economist in the country that can give a view on this?
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Good to see the BBC softening up the populace to extend taxpayer bailouts to the broader economy. All those companies unable to access the bond markets will need help. Not many small businesses issue bonds - so no need to help them in any way.
Still they are big companies - so there is no choice is there? Imagine the carnage if these behemoths were allowed to fail.
Fear mongering and panic is one approach to the situation. Another is to review some relevant facts and try to draw logical and rational conclusions.
The US Fed estimates that in Q3 2008 aggregate US houselhold wealth destruction totalled some $2.8 trillion, and they estimate that full year wealth destruction will total $7.2 trillion. This wealth destruction will not end on December 31st, and will most probably accelerate. This situation in the UK will be analagous, although obviously scaled for population.
It would not appear that any great insights are required to understand that a general population subject to such rapid and massive wealth destruction is singularly ill suited to funding the costs of further ill defined and likely unfocused corporate bail outs.
Throwing money around on the scale witnessed and proposed will exacerbate the problem and lead to disaster. It is difficult to beleive that the errors already made and about to be compounded can be explained solely by stupidity and ignorance.
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277. At 10:20pm on 15 Dec 2008, hodgeey wrote:
@259 kikidread
"at least no ones been murdered yet due all to the stolen monies."
No, the stolen monies were occasioned by the rigging of the financial sector by the US administration to pay for the murders in Iraq and Afghanistan.
+
so were the feds anti-money laundering + anti-terrorism schemes really setting it all up on the inside?
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I would like to offer my assessment of the quality of Government provided by the Commons over this financial mess that we are in.
I was channel hopping (like you do when there's not much on telly) and I happened to stop at BBC Parliment live.
The debate concerned the Queens Speech but touched on all the recent legislation concerning bank and building society nationalisations.
I listened to the viewpoints of
Jim Cunningham -LAB
Mary Creagh -LAB
Mark Lazarowicz -LAB
Someone from Glasgow -LAB
Roberta Blackman-Woods -LAB
all extolled Government forsight and decisive action.
As I was about to fall asleep on strolled Chris Grayling _CON and boy was he good!
He stated that the PM's measures had been described by the Germans as "a load of old Kugels" which made me laugh!
However, I digress, my point is that on this Blog we have 250 different opinions of what went wrong and how to put it right.
So too, the House of Commons must have 630 different opinions (and that's all they are, about what to do).
We expect our elected representitives to make judgements about subjects they cannot possibly know about.
Contrast that with the Senate hearings in the States where experts in the particular field gave their assessments of the likely financial consequences of bailing out the motor industry. It wasn't just USD15 Bn but could be as much as USD125Bn said one expert who provided the assumptions for his forecast. Ah said the Senators -that's quite a different matter, we need more time to look at this.
I think that we need to adopt this Senate Committee (public hearing) approach when Billions of pounds are being debated.
I will not, of course, be holding my breath as MPs like to feel important and it probably isn't the British way.
One other feeling that comes through strongly on this Blog is the feeling of helplessness that posters seem to have. Remember you can only do what you think is best for you and your family so act accordingly.
Only nine more days 'till Christmas so enjoy it everybody and worry about 2009 when it comes.
Evenin' All.
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@161
There as to be a happy medium between protectionism and a free world trade somehow.
If thatcher had of kept a few of the coal mines open and working on low productivity This would of stopped our imported coal then rising. by buying less and uping production of our own coal would keep coal prices down. The very fact the importer knows this he keeps is prices low. otherwords protectionism in a free world trade market. This is one of the reasons we are now paying higher electic bills. because they failed to protect us. Our politions dont have foresight and never had.
The same could be said for many other things in the uk. As soon as your protection goes prices rise.
By all means import cheap keep protective and stay cheap.
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#291 "so were the feds anti-money laundering + anti-terrorism schemes really setting it all up on the inside?"
What do you think ??
They pointed fingers at everyone else about torturing prisoners while they ran secret CIA torture cells everywhere !!
They lectured the world about Human Rights and the dignity of Man while they ran the Guantanamo Bay Health Resort !!
They demanded that everyone *MUST* cut down on their pollution while they are the biggest per capita polluters in the world !!
They insisted on the freedom to travel anywhere in the world while they build a Great Wall around Fortress Amerika along the Rio Grande !!
And the list goes on....
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#288 "It will be interesting when we come out the other side, just what sort of new legislation gets put into place to control financial borrowing - for both consumers and businesses."
You've missed the greatest culprit of all - the government !! As I have said many times, it is the government borrowings that sank the Pound !!
They said that they will allow the Pound to float. This is spin-doctorese for saying - we're so broke that nothing we do will make any difference anyway !!
Never mind the religious fanatics destroying the world, the financial fanatics in government have already beaten them to it !!
Thank God, the Far East, having suffered through the Asian Currency Crisis, spend the intervening 10 years busily squirreling away every shred of foreign reserves they could lay their grubby little paws on !! They will ride out this financial storm with relative ease. That's where I'll put my money in !!
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#287 "The topic of currency movement and its impact on investment decisions is fascinating, but in the context of tradeable long-term debt currency movement is only a junior element compared to the strength of the issuer and the coupon."
Absolutely true !! What you've said will always apply to a reasonable, tradable currency !!
However, the strength of the issuer is inextricably tied to the issuing currency !! If inflation is at 1200% per month, the coupon becomes a meaningless number !!
My friend's grandmother once showed me large pieces of intricately printed paper she brought over from Germany as a girl. They were Weimar Republic bonds. What price those bonds other than as curios ??
Try redeeming the Tsarist bonds. There's 90 years worth of coupon in them !! Or the Ching Dynasty Chinese Railway bonds !!
Collecting defunct bonds is a fascinating hobby. There's always a little story behind each of them !!
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#281 "They will try and bailout their favourites but in the end as many bloggers said it is the SMEs that will build this country again, not Gordon and his motley crew."
So absolutely true !! Unfortunately, it will be the large lame ducks that will be bailed out, not the struggling little businessmen(and women) in the High Streets !!
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#280 "What is being left out of the debate is that those three companies account for a combined 25% of all US corporate bonds outstanding. They are held by private pension funds, mutual funds, banks and others."
And the Enron employees' pension fund was invested in Enron !! I wonder what they got back ?? Were they also bailed out ??
Perhaps they should sack the entire senior management of the Big 3 and put Mr. Madoff in charge !! The whole thing is not all that different and, at the very least, he gets the money in !!
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#276 "Now the entrepreneur has suddenly found that he can't pay back the lolly. There he was being feted all over the world by politicians and leaders after all he was a 'contributor too"
Surely you've not speaking of that Great Nabob of the steel industry ??
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#263 "No KPMG are suggesting ongoing fraud, cooking the books now orin the near term. You are quoting history. I doubt things could get bigger than history in the short term."
I wonder who signed off the audited accounts of the Big 3 and stated that they were going concerns ?? If they are going concerns, why do they need the money so desperately that they may fold in weeks if the bailout is not forthcoming soon ??
Didn't Andersens state the Enron was a going concern right up until it went splat so spectacularly ?? What does "a true and fair view" mean nowadays and what is that view worth ??
I know that external auditors are supposed to be "watchdogs, not bloodhounds" but unless those "watchdogs" were blind, deaf and dumb and suffering from massive sinusitis, they could have seen the perilous state these companies were in and reported accordingly !!
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A billion.
Such a small manageable thing.
So much more comfortable than a thousand million, don't you think?
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Do we do the smallest scrap of good on these blogs?
I doubt it.
We are as the crackling of thorns under a pot.
Still, as my dear old, deceased mum used to say "Better out than in".
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So many lies. No matter of what creed or religion we humans can't even trust ourselves let alone for any communal way.
What next? Hopefully we can return to 'small is beautiful' where values can be even touched let alone perceived. Invest in local services, your home town and its folks (your real neighbours) and spend not even a second of your time for anything large or authoritative. If you find that you must then it is obviously a dictatorship.
I'm now off to top up my Xmas box, pay the plumber, electrician and carpenter, say "Merry Xmas" to the road-sweeper and, ah yes, get new tyres for the bicycle... the only big apple I'm going to enjoy will be a real one, goodbye yellow brick road!
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This comment was removed because the moderators found it broke the House Rules.
# 285. croydo
FTSE (and other equities markets) are holding up because so much bad news has already been discounted into share prices. Most equity indices are (or at 20/21 Nov were) trading at historically low forward price/earnings multiples. Basically, equity markets factored in a relatively high possibility of a Depression. Now we realise we're "only" headed for an early-1980's type recession. Hence the 15-20% bounce in equity prices.
One of the key facts to note is that bad news is not now pushing equities back to, or through, their 20/21 Nov lows. I'm hopeful we won't see those tested again, though I'm equally confident we aren't going to see any huge upward surge until Q2 of next year. And I suspect we're looking at about a 5-year horizon to get back to the October 2007 highs.
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# 292. splendidhashbrowns
"I think that we need to adopt this Senate Committee (public hearing) approach"
We have this already. That's what the Select Committee system aims to do. I think some of their hearings are televised, so you should look out for Treasury Select Committee hearings.
I think the big challenge in the UK political model is to get MPs away from simply regurgitating their party line. There is much greater party discipline in the UK model, because MPs generally have to "behave" if they aspire to government appointments.
The US's separtion of powers provides for a very different environment, where the legislature generally is more questioning of the executive. As was seen in the recent Presidential election, too much loyalty to the executive (President) can harm electoral chances. Obama banged on and on about McCain's record of 95% support for Bush's legislative proposals.
So I suspect if you want to see a US-style approach to things, we may have to move to their system of government first.
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#299
Of course the Nabob is not touched by this I merely refer to the way big biz is led these days hence the choice of industry you think will go pear shaped. It's really like a bigger game of monopoly. Only the properties and the people are real, even if the money is'nt! Funny old world eh!
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#305 JayPee28bpr
I note your view, but I suspect it is overly optimistic.
However, I will be pleased for everyone's sake if you are right (and I am wrong)!
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The accountancy "profession" is a very large part of the problem, both here and in the USA, yet so far seems to have escaped criticism, by and large. The auditors are in bed with all their large clients, and of course, they have to be, to stay in business. A negative audit report will simply result in a rapid change of auditors, that is a fact of life. It is therefore very worrying that so many billions of investors' money is placed on the trusting assumption that the audit report is worth the paper it is written on. In many (if not most!) cases, the audit report might as well have been written by the directors themselves. This will always be the case while the auditors are appointed by, and answer to, the directors (theoretically the shareholders, but in practice that means the directors). That is why you should never ever entrust your money to any PLC or private company. Put your money into a mutual or co-operative bank or building society, and become an ACTIVE member. Don't expect startling returns, but you have at least a chance of being dealt with honestly. The standard joint stock company (i.e. owned by shareholders) is simply an inappropriate model for any organisation which handles the public's money.
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#290 armagediontimes wrote:
"Fear mongering and panic is one approach to the situation. Another is to review some relevant facts and try to draw logical and rational conclusions."
"Throwing money around on the scale witnessed and proposed will exacerbate the problem and lead to disaster. It is difficult to beleive that the errors already made and about to be compounded can be explained solely by stupidity and ignorance. "
Just about everywhere I've ever worked, done business or visited I've found people who do their jobs conscientiously and well.
So what is the real cause of all these massive blunders, losses and failed projects?
Either the workplace is almost entirely populated by semi-conscious incompetents, OR, there are a smaller number of very smart, fabulously wealthy coreographers leading the veiled dance exotique.
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183#
For your info there is a university in the UK that runs its fleet of vehicles on hydrogen.in a pilot scheme.
Why do you say hydrogen is as expensive as petrol?
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A single garage roof in central england can produce enough electricity to convert and compress enough hydrogen from water to drive a converted petrol vehicle 50km a day.
When the vehicle runs out of Hydrogen it can switch to petrol.
The down sides are that the vehicel needs petrol to start, you have to pay duty on every mile you drive under hydrogen, the engine only gives 90% power under hydrogen and that the average distance traveled by a car is 65km per day.
The upside is you do not need to have a massive hydrogen filling station network to do this and most current petrol cars can easily be converted.
This technology was proved to work in Bedford over 10 years ago. And at the time cost approx £5k to convert the car and install the system.
Once installed the first 50km per day traveled IS zero emissions and free execpt for duty!
If the goverment was truley green it would not charge duty on the miles traveled under hydrogen and give grants to install this system.
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It's a numbers game of how much can the government borrow money at compared to how much money can be borrowed at on the debt markets. If the government can borrow at 3% and then loan to companies at 4% then problem solved?
But this is then in effect part nationalisation of industry, and removes the risk factors that keeps industry competitive and productive.
Say a large housebuilder like Taylor Wimpey was allowed to borrow money from the government to re-finance it's debt(which it does need to do), but Joe Bloggs family builders had to go to the wall because he couldn't refinance his small business bank loan. Unfair, anti-competitive and immoral, but it does give Brown even more power. I'm sure this was his plan all along.
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I've been saying for years that the East will become the West and vice-versa, and it looks to me like that might just be happening in economic and political power terms. It won't be an overnight transistion but I bet that in 50 years we'll be deemed a third-world country. I'd like to bail myself out of this country... but where do I go?! Everyone seems to be suffering apart from those countries where I REALLY wouldn't want to live.
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# 312 wombateye
Get real.
And just how big is the garage roof in central England?
It does not matter of course because the amount of energy used to make the solar cells, which you claim will power the car, exceeds the amount of energy that the solar cells produce during their lifetime.
Seems a waste of energy to me.
Who was it that proved the technology in Bedford?
Was it perhaps a friend of Mr Madoff?
Get real.
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Well it seems my fears are correct - there is as much chance of succeeding in business here in the UK as winning the national lottery !
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With the current price of crude oil now down to c.$45 from the peak of $147 is it not the case that pump prices should now be around 68-70p a litre for unleaded.
Would it not be the case that fuel priced at more realistic levels would help many small businesses to offset the increased cost of credit .
It would also bring down the cost of transport which effects the delivered price to stores.
Is this not another example of naked profiteering by the energy industry.
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The problem we are going to face, as taxpayers, is our money (in the form of bailouts) is going to insolvent, failing companies who make products people don't want and can't afford.
It is money down the drain creating jobs for the sake of jobs.
Why punish sound businesses and reward incompetenly run ones?
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Stop press - we're all saved! Gordon has said that the great British survival spirit will save us all......
Translated this means we're close to the end of all tangible steps that can be taken to prop up our failing economy and we all need to prepare for a big dive in 2009.
I am fearful that many still do not realise the enormity of what is about to happen. The redundances we have seen to date are the tip of a large iceberg, being mindful that what happens in the economy today play out in job cuts 6 months down the line.
Still some good news there too - shares in businesses tend to rise as redundancies are announced since they are seen as losing 'dead weight' and getting leaner.
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We live in a debt based financial system. Fractional banking is when a bank has £10 of printed money issued by e.g the Bank of England - US Fedral Reserve (BOTH PRIVATE MANAGED INSTITUTIONS) which automatically becomes £100 when it hits the commercial banking system- £90 of this non exisiting funny money is then lent out to us and we pay back real wealth through interest charges. Fractional banking is threfore by DESIGN the creation of debt/credit out of nothing without the requirement of banks having to actually own REAL assets to cover the debt. Can anyone tell me of a time when we or ANYONE else had a 0 national debt. Ab Lincoln tried it once and was shot by a banker ! If our system is based on debt why should we panic because the national debt is trillions of pounds. This is how a debt based system is designed to work is it not ? However were now told we have too much debt (now im really confused) and that we need to panic. Can someone explain this contradiction to me in plain english ?
Uhhmm lets see.
BANK - Im a bank and my job is to create debt through fractional banking (Mmmmm debt is good) where l loan you NOTHING of value. You in return will give me back real wealth in the form of interest (nice work if you can get it)
CRY FOR HELP - Oh no were all screwed cause becuse someone now tells me we have too much debt. What we going to do !!!!!! Uhhhhhh should we reduce our debt and live within our means ? Helllllp Goverment what should l do as im confused, this banking system is far to complex and l cant pay back the debt !
GOVERMENT - We advise you to carry on spending faster than you ever did. In order to help you do this we will take your already taxed money and give it back to the same banks that created the problems in the 1st palce. They can inject that money back into the commercial fractional banking system and loan it back to you at even more interest thus creating even more debt.
Ps We " the Goverment" will need to use your currrent and future taxes to pay back even more interest on the amont (700 billion bail out loan) we had to borrow from the corporate banks. They said they would be happy to lend us "the Goverment" as long as we could pay them back with interest through taxation over the next few years. Thank the lord for taxation as when we die (as monty python would say) our children and childrens childrend and childrens childrens children can continue to pay off the debt.
By the way l know about the high street banks however WHO are these corporate banks who suddenly stopped providing credit to the commerical banks and how comes they get NO media attention, after all someone got to be pulling the strings !.
Sounds like a scam to me. However im uneducated so what the hell do l know.
ANYONE !!!!!!!!!!! can you help explain to me how more debt helps ? Does current goverment and banking policy not actually create EVEN more debt which l thought was now bad ? Do we slowly aquiesce to this debt based system as we become more and more disallusioned.
So Commercial banks are not being provided the credit in order to continue trading with each other and instead being forced to pay back their own debt opposed to mantaining the status quo which is to usually encourage them to create more debt. If even the commercial banks and corporations are at the mercy of these super banks or creditors can someone at least tell me WHO they are ?. These same organisations seem to be buying up large well run businesses for a fraction of the price creating for themselves a greater monopoly of control through centralisation and consolodation whilst killing off competition. Is this by design for greater control over wealth ?
Why can we not remove the power of infaltion / deflation from these powerfull superbanks. Do we really need them to manage the financial system as they dont seem to be doing a great job ?. Rather than allow these private institutions to create money why not let the goverment CREATE the money required to facilitate trade and spending instead and bring in LAWs that would mean all banks would need to operate within a fractional reserve requirement of 100% opposed to 10% . This means money would no longer be able to create money from thin air and charge interest on it. If they are not able to do that then our hard earned cash does not go back to them i.e were no longer in debted to them and maybe would have more control of national debt and our own wealth! It may not be perfect however its got to be better than the system we have in place today where national debts are designed NEVER to be paid off. l dont see how we get out of this without reforming the banking system and removal of power from these preditory institutions whos only job should be the facilitation of the trade of goods and not the creation and control of the wealth of nations.
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THE PEOPLE WHO BORROW WITHOUT THOUGHTS OF REPAYING SHOULD BE PENALIZED
EQUALLY THE BANKERS WHO HAVE A CULTURE OF GREED ARE THE ONES TOO
UNLESS THIS CULTURE OF GREED IS PURGED WE WILL NOT SEE THE SUN SHINE THROUGH
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"It does not matter of course because the amount of energy used to make the solar cells, which you claim will power the car, exceeds the amount of energy that the solar cells produce during their lifetime." - prudeboy
This is frequently repeated, but is untrue. See for example:
http://www.ecn.nl/docs/library/report/2006/rx06016.pdf.
Energy payback time on the best photovoltaic cells is now down to around 1.5 years. Unfortunately, once a "factoid" like this is in circulation it is practically impossible to kill it, particularly when it serves a political purpose.
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Unfortunately, once a "factoid" like this is in circulation it is practically impossible to kill it, particularly when it serves a political purpose.
eg Oil is running out.(Really?)
eg Economic growth is bad for the environment(look at the environmental destruction in the old Eastern Europe)
egDebt is the root of all evil ( Learn to respect debt,learn to use it responsibly, learn to pay off debt, for if you can you will prosper )
egEvery carbon molecule is sacred (get a life!)
egThe environment is more important than the people.( in a green dictatorship,with bin snoopers and emissions inspectors and car-banning)
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Dear Mr Preston,
Given you excellent previous wins in uncovering wrong and missdoing - can you look into the whole affair relating to the UK Governments handling of the KSF IoM Limited - and it collapse - forced by the freezing of its assets under secret papers - here in London.
Our MP Sir Michael Spicer has been unable get any answers out of Alistair Darling, as have many other MP's (Sir Henry Billingham - has publically said he will not let this rest untill all depostitors have got their money back).
A good start point for you would be an Article in the Manx Herald on 22nd December titled 'Kaupthing Bank "Show us the money" petition launched on the UK PM's website'. This should fill you in and give you an apetite to investigate further.
Good luck and I hope it brings another great scoop for you and the BBC!
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Now the government want to fit a gadget into our cars which would slow them down to the prevailing speedlimit. There is not a step you take or a meter you drive which is not controlled by some law for the purpose to protect our life and limbs. If this useless government had applied in the last 8 years only a fraction of such "protective" regulations to the financial sector of the UK (using maybe 1.5 braincells of common sense) most of this suffering could have been avoided. Gordon Brown et al: I dont want your boom and i dont want this bust. I dont envy David Cameron to have to sort out this mess.
P.S. can you imagine Brown & Darling running a corner shop ! I'm sure they would call it Woolworth !
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Actually the one saving grace is that we do not have the Tories in power at the moment.Their curl up and die approach to this crisis was utterly useless.
Positive and real steps have been taken which are already showing tiny signs of progress.And with another nice hefty interest cut next week we will be well on the way to recovery.
Movers and shakers will be able to reinvest and borrow with a favourable mix of lower BOE,lower LIBOR / BOE Base premium,and more stable banks willing to move forwards too.
And with everyone but the brave predicting doom,this is exactly the right time to get your feet wet and invest.
So I wish everyone a happy new year, and I think it has to be better than the stinker 2008 we have had.
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Oi, Peston? Where ya been? Is this any time for a business reporter to take an extended break?
Next blog please!
PS happy new year!
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