Bank of England: wrong and powerless
The point of the Panorama I've made with Stephen Scott and Vivien White (which will be broadcast tonight at 8.30pm) is to convey quite how close we came in October to the collapse of the banking system.
It's a suspenseful story told in interviews with a quartet of the leading actors: the chancellor, Alistair Darling; the deputy governor of the Bank of England, Sir John Gieve; the chief executive of the Financial Services Authority, Hector Sants and the chief executive of Barclays, John Varley.
I hope the programme also gives a sense of the shocks generated by this near catastrophe and the tumultuous year that lies ahead.
For me, what stood out when interviewing this quartet was the revelation about how Royal Bank of Scotland and HBOS were - in October - only hours away from being unable to open for business.
Inevitably, in a 30 minute documentary, many fascinating contributions from interviewees hit the cutting-room floor (such as John Varley's remarks on how it will take between one and two years for the contraction of lending to stop - which you can read in the note I published on Saturday).
So here are some resonant and significant remarks from Sir John Gieve that didn't make it into the finished film; Sir John rarely gives interviews and is to stand down in March from his role in charge of financial stability at the Bank of England.
This is Gieve's explanation of how and why the Bank of England failed to curb the growth of the bubble in borrowing and asset prices which lies behind our current woes: "We didn't think it was going to be anything like as severe as it's turned out to be... Why didn't we see that it was so serious? I think that's because we, perhaps, we hadn't kept pace with the extent of globalisation. So the upswing here didn't involve the big increases in earnings and consumption and activity which we saw in previous booms. We saw the credit, we saw the house prices, but we did see a fairly stable pattern of earnings, prices and output."
As others at the Bank of England have told me, the Bank's Monetary Policy Committee believed mistakenly that the lending binge and asset-price surge were semi-independent from activity in the real economy, and that they would eventually moderate without wreaking devastating damage to prospects for households and businesses.
But, as Gieve says, the Bank had identified the bubble, even if it didn't fully understand quite what misery its popping could and would cause. So why didn't he and his colleagues raise interest rates to attempt to stem the growth in lending and the rise in the price of houses and other assets?
"If we'd used interest rates to try and address this asset-price credit growth, we would have been holding down the level of activity elsewhere in the economy, in manufacturing, in other services, holding down the level of employment at a time when consumer price inflation and earnings were stable and reasonably low. And people would have said, you know, 'this is a wilful reduction in the prosperity of the country'."
The mess we're in demonstrates for Gieve that the Bank of England does not possess the proper tools for dealing with incipient booms in assets and lending. The power to raise and lower interest rates isn't adequate for the task, he says: "I think that one of the main lessons from this is that we need to develop some new instruments which sit somewhere between interest rates, which affect the whole economy and activity, and individual supervision and regulation of individual banks.
"Maybe we need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand... I think we need to complement interest rates, which are a blunt instrument - you set one interest rate for the whole economy - with something which is more financial-sector specific."
So what might this new tool or instrument be? Well, it would have to be a mechanism to prohibit or at least discourage a lending splurge during a period of sustained economic growth, such as a formulaic stipulation that banks have to hold more capital relative to their loans and assets during the good years (which is precisely the opposite of what happened in the euphoric phase before August 2007).
And what about the price that we as taxpayers will eventually pay for the bailouts in 2008 of many of our biggest banks? I asked Gieve - who was intimately involved in these rescues - whether we would end up with a profit or loss on the nationalised and semi-nationalised banks. Would we as taxpayers get our money back?
"Well, I think it'll be a mixed picture. I mean, I think there are some [lending] books - Northern Rock, Bradford & Bingley - which the taxpayer is now holding which clearly have a level of defaults in them: I'm not quite sure how that will balance out against the residual of the capital. As for the more mainstream banks: yes, I think they've got a commercial future and I'm sure that in time they will, as for example the Swedish banks have after their crisis, revive and start building and growing as commercial entities again."
In other words, he says there is quite a risk of us making a loss on the Rock and Bradford & Bingley. But he's hopeful that we'll end up in the black on our massive investments in Royal Bank of Scotland, HBOS and Lloyds TSB.
ADDENDUM: It matters that we learn how to prevent a repetition of the economic mess we're in, partly for reassurance that we can plan on the basis that stability will return.
Which is why the frank admissions of what went wrong made by Gieve are significant, especially that interest rates are an inappropriate instrument for dealing with lending and asset bubbles.
What some may therefore see as worrying is that there is no sign right now of the Bank of England, or the Treasury or the Financial Services Authority being endowed with such bubble-busting powers.
I'm 
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While it is encouraging to hear people admitting mistakes and considering how to change the system to prevent a recurrance, I find it hard to believe that those in charge seriously believed that the bursting of this bubble would be benign. All they had to do was look 80 years back in the history books.
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So we will find out how the banks were rescued but who will rescue the rest of us.
Still at least the banks are only paying 12% where as the poorest of society have to pay 25%, while we will just keep paying.
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It would be good to get a similar (reasonably) frank set of comments from Labour government ministers (starting with Gordon Brown) about their mistakes and failure to see this coming. Since that's unlikely, here's one summary of Gordon Brown's struggle with economic management:
http://tinyurl.com/8g48q2
Pity also that the Tories haven't opposed Labour for the past decade.
Surely, though, the real point is that some economists and commentators were indeed screaming from the rooftops in the 3 - 5 years before this mess that we were heading for a train crash. The problem, I suspect, was that their political persuasion was inimical to The Brown Terror and so conveniently ignored.
Now we, and our children, will pay.
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Good morning Robert ,its the early worm that catches the bird.
Have you not done enough damage to our national ponzi pie in the sky lark without having to put icing on the cake as well.
Dont forget the little figurinals representing the Bankerrs and pollytitians dressed in brown symbolicing theireturnal civil union without a blessing from haven
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I would hope you asked them all one simple question.
"Why should the many millions of people that your inability to spot this problem early enough and take action to stop,believe that you should stay in your positions and carry on as though nothing has happened."
The honourable thing to do , when you have made errors on this catastrophic scale is resign.
They had seen what was happening,knew what the consequences would be,and did nothing !!!!
There is no way that any confidence can return to the economy while the protagonists are still in positions of power.They have destroyed peoples lives by their incompetence, people who had done nothing wrong its not right to still be seeing them in charge of proceedings.
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This comment was removed because the moderators found it broke the House Rules.
So the BOE Deputy Govenor is due to step down soon, no doubt on a fantastic fully index linked pension unaffected in any way by the crisis bringing the rest of the country to its knees - seems fair to me !!
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The boom in house prices, that contributed to this bust was driven by some pretty obvious factors.
Lenders increased their lending from 2.5 joint income to 5 times joint income. They no longer required a deposit and the cherry on the cake was not checking applicant's incomes.
One day there will be a journalist who does some proper digging and asks Halifax how many mortgage applictions they checked the income on. It will be around half of all applications, which leaves the other half open to abuse by the applicant.
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The drawback of this proposal - increasing capital reserve requirements in a boom - is that it's hard to imagine us wanting to reduce them again in a recession.
But there are alternative things the central bank could do - I tentatively suggest one in a response here:
http://www.knowingandmaking.com/2008/12/powers-and-strategies-for-central-banks.html
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You realise Robert that as soon as you get to the real culprit i.e. Flash, you will lose your job along with the head of BBC, just as the guys with Irag.
Look what happened to Ross and he only made a phone call to a Spanish waiter.
The dirt will be dished, you will be blamed for talking the pound down, sticking a pin in the bubble. Then blaming Flash when any idiot can see, it could not be him as he was not at home at the time.
I suspect that with the amount of damge you will be shown to have created you will be begging just to lose your job,they will call it treason at the least.
You are obviously a brave man I would like to say I will stand shoulder to shoulder with you but they have my email address. So you're on your own mate.
Good luck
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Whilst it's new to hear some honest comments on the crash from Grieve he also points out that they spotted this bubble and didn't do anything about it - for fear of being told off! I find this hard to swallow; surely if you spot a situation like this then you must do something to prevent it - regardless of what people will say
What on earth do these people do for their money? I thought we employed them to do exactly that. Spot problems in advance and work around them - not ignore it like petulant kids and say 'it's not our fault' afterwards. I admire the honesty but really the entire crowd have absolutely no backbone - all they had to do was do their job
I feel that the government has way way too much sway over these matters, let's face it - any government would have done the same in the circumstances (good earnings, low inflation etc) but the bank needs to have teeth, and it needs to be truely independant from government in these issues. Inflation figures have to take into account house prices in the future - it's ridiculous not to! How anyone can say we had low inflation I do not know
I note that these comments were only made due to the fact that he is retiring. Would they have been made otherwise?
I think not.
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well well, these disclosures surely blow a hole in Gordon Brown's oft stated excuse that it was all started by the sub prime crisis in US....! The BOE actually recognised our own sub prime problem two ye
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ooops... to continue
...two years ago and were unable or unwilling to do anything about it. i think they probably warned the government but GB was riding on the the boom and did not want it to stop!
Go for the real culprit Robert.....Gordon Brown, dont worry about your job, any national newspaper will employ you at a bigger salary if you really expose the true reason for this mess.
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Yes, for such large and grotesque saleries, these people have less of an idea of the banking system than I as a layman has. I saw it comming, wrote letters and was looked upon as a fool at diner parties. By the way, I sweep the roads for a living. If i did not find the odd shilling in the gutter my children would starve.
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Everyone seems to agree and accept that there is a need to improve the way the banks and financial markets operate and are regulated.
Unfortunately the banks and financial markets are a common artery that feeds into all sectors of our economy and therein lies the problem.
It is just not possible to have a single better regulated banking system that will meet the differing and sometimes conflicting demands of all the different sectors of our economy.
For me that suggests that our banks need to be downsized so that we end up with more specialised banks that are better suited and equipped to service the needs of each sector of the economy.
That might mean a banks operating in the manufacuring sector will not make the same sort of returns as another bank operating in another sector of the economy.
At macro level it must be possible for the banks and the treasury to decide how much money needs to be allocated to each sector, according to whether a sector needs addtional funding to grow as opposed to reducing the funding to an area that is becoming overheated.
To do that of course we need a better managed and better balanced economy and in order to achieve that there has to be a much better consenus in parliament on what constitutes a balanced economy, and how it is to be funded and run. One that is fairer and more just everyone.
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Capitalism is based upon commodity production: things are produced for sale not for immediate consumption.
The value of a commodity is not the amount of (concrete) labour actually expended, but that portion of social (abstract) labour that is credited to that commodity. This can only be known in exchange (in the market).
Prices diverge from values because of the tendency for profits to be equalised between different capitals.
The circulation of capital: M - C - M'
Money - Commodities - More Money
How does money increase into more money?
i.e. How can capital self expand?
This additional value is surplus value.
Marx's great insight was that the source of surplus value lies in the difference between the value of labour-power (wages) and the value created in the course of the working day.
Labour is the source of surplus value, i.e. the source of all profit.
The capitalist by seizing the means of production leaves the labourer with no choice but to sell his labour to the capitalist to survive. The capitalist keeps some of the value that the labourer produces.
Surplus value can be increased by lengthening the working day - absolute surplus value.
Or by curtailment of the necessary labour (the proportion of the day the worker has to work to produce his means of consumption) - relative surplus value.
Increased labour productivity is the main reason for increases in surplus value.
Competition drives capitalists to increase labour productivity. This increases the organic composition of capital, i.e. the amount of constant capital (machines, raw materials) to variable capital (wages).
This increase in the organic composition of capital puts downward pressure on the rate of profit (even if the first capitalists to introduce the new methods initially reap higher profits).
This downward pressure on the rate of profit causes the recessions.
Capitalists only produce for profit, if the initial outlay of capital will not increase in value they won't produce.
To the capitalists it doesn’t matter that people need things.
Exchange-value rules use-value.
But as businesses go bankrupt capital is devalued.
Hence the organic composition of capital falls (in value terms) and profitability is restored and the GDP grows.
Hence no one as such is to blame for today's crisis. It is inherent in the capitalist system.
But the system is a set of social relations, it is not nature.
It hasn't always been this way and probably will not always be this way.
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I just want to thank you for making television viewing so interesting this year, and for looking people in the eye when you speak to them - so refreshing.
I hope you have a well-deserved wonderfully relaxing Christmas. (ps just bought your book)
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Whilst it is reassuring that the blindingly obvious has at long last got through to those at the Bank what is still not being addressed is the culpability of those who now admit that they got it so disastrously wrong.
What their incompetence has achieved is nothing short of astounding - never in the history of the Bank has it been so incompetent - it knew there was a problem - it now admits, but did not do anything about it. I for one wrote to the Bank on many occasions over the last decade or more striving to get them to admit that there was even a problem and the arrogantly refused to listen and responded with a bunch of nonsense and platitudes. They cannot remain in their jobs - any of them they must all go if we are ever to get a recovery. That includes the FSA and the Treasury - I know they all knew as I for one wrote to them (along with many others) with suggestions on how to fix the problem - repeatedly - and they ignored all advice - by the way it is is also true of many of the media commentators who blindly followed the line of the Bank and the Treasury we deserve better we must have better and to start - those men must go!
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To stop a rerun of this mess in the future we need a few absolutes.
1. A mandatory means of calculating inflation which permits of no exclusions of convenience. The present system excludes mortgage interest and property values, thus ducting inflation into house prices.
2. A return of the regulation of banks to the central bank.
3. Empowerment of the central bank to set minimum mortgage deposit requirements and to regulate vehicle finance.
4. A thorough clear out of the commission men who have been running the banks.
5. An absolute ban on any concern with a banking licence paying any commission of any description to its employees. Bonuses, other than a thirteenth cheque to be likewise excluded. The current system has not attracted the best bankers, nor indeed any, but has gathered people at the top who have the skills to do very well on a used car lot.
6. Regulatory control of bank charges. Banks have to relearn the long forgotten most basic of all banking skills - the gathering of retail deposits from the broad public.
7. A mandatory declaration by every applicant for a post with the central bank, that he or she understands that no central bank can ever have more than a very slight degree of control on interest rates and that rates set arbitrarily too low are every bit as disaster inviting as those set too high.
Banking would once again become a modestly profitable business with share- holders attracted by safety of investment, not returns. There would be no need of any great control of capital ratios. A banker on slim margins, a proper banker, is very careful of the quality of the assets that he puts on his books.
This traditional banker wouldn't open a current account for a Madoff, let alone lend him money.
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Perhaps the media really should be interviewing me. The one person campaign highlighting that interest rates are a rip off and completely flawed.
Now the powers that be are admitting that interest rates are flawed perhaps it's time to talk to people ahead of the curve.
Of course that won't happy as I'm not famous nor have money so I'm not important.
Everything the former deputy is saying I've been saying for years.
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Robert.
How about a gift to us from you for next year?
How about you promise at the next luncheon/dinner/whatever you have where you meet the fat cats you ask each an every one the following question and then publish their answers in you next blog ...
"Do you accept responsibility for your role in this economic crisis? If no, then why not? If yes, then are you going to resign?"
Seems a simple enough question.
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What I find really alarming is that Sir John Gieve has been in this role at this critical time.
He did not leave the Home Office covered in glory and there were serious questions then about the propriety of that department's accounting standards under his leadership.
I do not think the process of anticipating these events and responding to them has been helped by having in the job a man who is not qualified by experience for it.
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Sir John Gieve admits to being a failure and not up to the job of maintaining financial stability.
He failed when in charge at the Home Office also. He was instrumental in allowing immigration rules to be openly flouted and disregarded.
His remarks about interest rates are disingenuous. He and the FSA failed to require the banks to maintain sufficient liquidity or increase their liquidity in view of their increasingly risky and excessive lending.
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Al last the BoE admit the MPC and the Bank rate have little to do with economic management. Time for theThreadneedle geeks to go!
In their place proper economic management intervention and statutory regulation.
Start with credit cards or a way of printing your own money.
Double or treble the minimum repay %. Force banks/finance houses to share information about client debts and solvency. How about a minimum age. A maximum number of cards. Maximum credit limit. Some proof of income. etc etc
Next mortgages, loans, FSA approval for new credit vehicles etc. I am sure that there is no shortage of ideas out there.
What the interview also clearly demonstates is the negligence of the government in the face of the looming mother of all crisies.
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It IS important to pay the delusional inksane ru[i]ning banks high salaries to confirm them in their inane belief that they [the mentally subnormal who can be persuaded 2 plus 2 = 5 if an algorythm is placed in their AAA's ] are the all wise all knowing masterrs of the universe, able to leap tall buildings with a single bounce .
After all, the the banking act confirmed them in their status of being "fit and proper persons [lizzards]",so why shouldnt they take their cut from money created from thin air ?
However
When tits run the economy and farewell state everything goes bust, especialy the suckers who thought they could milk the system to infinity and beyond .
Now that banks have exhausted their counterfeiting opperation ,governments are licking their lips ready to take over [as if they were never hand in glove puppets]and counterfeit to infinity and beyond
I demand my fair share of counterfeit money and a wheelbarrow .
Or else !
For sum reason our "great gravy train robbers "were not deterred by thought of being banged up jelly tight
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I see.
So they understood Pension Funds would be demolished by their actions ?
No ?
Where did they study Economics !
In fact why didn't they know or at least have an inkling of how big a problem this was going to become ?
They cannot pretend they do not know the dangers of keeping Workers pay below the Inflation of living costs.
We see evidence of a collapse in Consumer demand brought on both by wages that are inadequate to live on and people encouraged or even forced to borrow to live a lifestyle.
I'm quite sure they did know.
Of course arbitrarily Nationalising companies has devastated Shareholder confidence, (but see Belgium for possible redress coming).
And Britain with nothing to export but hot air, has seen its exchange rate collapse against the Euro. It will fall further.
Of course Nationalizing housebuilders will not improve investor confidence either if it happens.........
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No mention of the change to the tripartite system of BoE, FSA and Treasury.
This is why the Bank has no powers and all due to the Labour party.
If the system was so terrible as inherited from Thatcher et al why did they not change it in 10 years of being in office.
We know the answer but the BBC and others never ask the right questions and sadly RP, for all his good stuff, also never asks the root questions.
E.g. for this Panorama 'are you saying Sir John that the Bank had the powers but they were taken away from them?'
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#16 duvinrouge
Thanks for the insights into Marx, I have to admit i'm not really well read at all on Marx and I enjoy your posts. Whilst I think that there are a lot of truths there, this does seem to be a far more complex animal involving multiple factors that simply were not around when Marx wrote his theory
I agree with the basic theory - but would it stand in todays global complexities and intertwined economies?
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So when the BoE, two or three years ago, revealed to Tony Blair the true level of desperation in the UK, it is now admitted that no one takes action to save the people, but Teflon Tony Blair leaves smiling with a halo around his head and leaves his Batman and helper to appear the devil before the palace crashes and burns.
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Interested in dep Governor of B of E. I remember restrictions on lending in past. There is an answer which avoids being over technical. Being over technical is what got us in this mess.
Quite simply the government could and should have regulated the multiple of income that could have been lent for mortgages - and banned lending more than the purchase price. The problem of delinquent loans has partly been created by lending sums that can't be afforded after the introductory "cheap£ terms have expired.
This mindset could also tackle the overhang of credit card debt, by regulating the percentage repayable on NEW lending as a minimum of 5 or 7%.
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I do find it extremely worrying that John Gieve claims that top bankers did not forsee the effects of the credit bubble bursting. Perhaps this could be due to the industry being infested with "loadsa money" self interested, greedy individuals whos only financial qualification was a degree in mis-selling endowment policies during the 1980s.
One of the main causes of the current economic disaster has been that the financiers who have been running the majority of businesses for the last 20-25 years have a mind-set that long term planning is 2 years or until the next bonus is due.
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So when the Boe, 2 or 3 years ago, reveal the true devastation of the UK's economy and the forthcoming crash, Teflon Tony Blair does nothing to save his people, but pretends it has never been better, continues and worsens the people's lot, and leaves with a halo while leaving his Batman and helper to rule until the palace comes crashing and burning down, with few survivors.
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There are several technical points to make, but the main one is to say that proper analysis of a bank's exposure and of market conditions - particularly to incorporate what we've learned about exposure and risk in the past 2 years - coupled with genuine enforcement of the current capital adequacy rules, could go a lot further than is being suggested.
This may even obviate the need for a fancy 'counter-cyclical' rule.
Enforcement is the key. Which suggests that the 'tool' the BoE really needs is (to put it politely) some steely determination.
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Robert,
Interesting seeing you on the news am looking forward to Panorama tonight.
I was concerned about what I saw as a housing bubble in 2002. I even wrote to the then Prime Minister, TONY BLAIR, who passed my letter to the Treasury and the Deputy Prime Minister. I also sent a copy to the MPC of BoE. If you would like to get in touch I could send you a copy together with the replies.
My letter concerns house prices, pensions and the policy link to September 11th (10 months earlier). I even suggested a way of (temporarily) cooling the housing market by the introduction of a (temporary) 'interest premium' on all consumer borrowing - invested on the borrowers behalf as enforced pension contributions.
So the authorities WERE warned (by others as well as me no doubt) but: "there are none so blind as those who choose not to see"!
[Personal details removed by Moderator]
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#19 "5. An absolute ban on any concern with a banking licence paying any commission of any description to its employees. Bonuses, other than a thirteenth cheque to be likewise excluded. The current system has not attracted the best bankers, nor indeed any, but has gathered people at the top who have the skills to do very well on a used car lot."
Please !! You insult the used car salesmen !! Many of these so-called bankers would put used car salesmen to shame !!
Rant made, I totally agree with you about the commission-based remuneration system prevalent in banking these days.
Where are not the bankers of old where their word was their bond ??
These are refugee barrow boys in suits as witness their crazy gambling with the banks' money and their wild life-styles !!
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Interested in B of E dep governor seeing need for new instrument. There is a way that avoids being over-technical. Being too technical is what got us in this mess.
The Government could, and should have, legislate to avoid lending more than, say, 4 times income on mortgages. Also banned lending more that purchase price. The lurking problem of delinquent loans largely caused by lending sums that become unaffordable when the intrudctory "cheap" period is over.
The overhand of Credit card debt could be tackled using the same mindset. eg all NEW lending must be repaid by at least 5% or 7% a month.
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They should have included the cost of housing in their inflation figures......That would have prevented this mess.
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#27 "If the system was so terrible as inherited from Thatcher et al why did they not change it in 10 years of being in office."
Actually, it was Flash Gordon who changed the rules and emasculated all three to suit his political ambitions !!
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One issue is not that the level of interest rates were too low over the last years but that they were too stable. This encouraged everyone (bankers, consumers, govt) to the group-think state of believing that interest rates would never rise to a punitive rate. Interest rates have been over-managed for a long time by Gordo. Thus, there was too little risk so there were precious few precautions against the normal controls of carrots and sticks. If you take the sticks away then wouldn't you expect that everyone would behave as though we were living in a no-risk, no-limit society?
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The gov. of the BoE was certainly saying that we had a problem and issued several warnings about the coming problems, on tv and in the press. People were not interested as they had access to money through several lines of credit. As for the deputy, he was on a 3 week holiday during the worst of the crisis, so he certainly did not have any idea.
The government put in place a new system for measuring inflation that had, and still has little connection with the real rate that the real people are enduring. They are respobsible for the sytem that was set up to make it all look good.
The magnitude of the mess is terrible and will take longer then estimated to climb out of, and this government could be a bit more modest and accept some responsibility in presiding over the biggest borrowing binge ever, but that wont happen with our flash Gordon who is currently so puffed up and blowing his own trumpet.
The people who will have to endure this and pull is all together are us and we do not need to be told how terrible it is. Our pensions have been ruined by this government and we have no hope of recouping any of it. we should have been out there binging on all that credit whilst there was the opportunity when we had it. Robert, it would have been nice to see the BBC interview any members of the current government a bit more robustly during the past 11years. But we are stuck with this lot and you for a while. Bring on sanity and truth.
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So what does that say about the future of Northern Rock or Bradford and Bingley staff?
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The sooner the blame is put where it belongs, the sooner the economy can be fixed.
All our institutions have been weakened by the criminal gang that masquerade as a government; all our problems come as a result of their agenda of self-interest; our salvation will be in getting rid of them and making sure that they and their fellow conspirators in the opposition don't get anywhere near Westminster again.
Anybody with more than a two cell brain knew that credit was out of control and that the whole basis of the economy was weakened by excessive government take and waste; this crisis was known to be coming for decades but our red or blue leaders kept the pot on the boil to make votes for themselves. Many of the leaders of our institutions, particularly the banks, were in on the act; their activities were and are demonstrably criminal as well.
Until we purge our system of its toxic leaders we will not spit white.
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It is far too simplistic to blame this fiasco on high house prices in the real world, what in my opinion caused the collapse of the banking sector was their own willingness to gamble on a whole range of financial paper, it was this unsustainable business model which brought the house of cards crashing down .
The answer is for governments to control money supply and not private banks, 95% of all money in circulation has been created by banks by fractional reserve banking.
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I have discovered the horrible truth!
All the Bank of Englands economics textbooks were printed on solid gold - when this was sold off no one at the bank of England was able to read up on the effects of asset price bubbles.
It seems the only explanation for why they failed to understand the completely obvious and then proceeded to do absolutely nothing about it.
Why Mr Gieve is being allowed to retire rather than fired I just can't understand - after all if I had done as poor a job as he has I would expect to be fired or offer my resignation as the honourable course of action.
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The thing that strikes me is how everyone is still in denial as to the sheer scale of the problems that we face. Listening on Radio 4 this morning, a representative from Toyota was up beat by the fact that he reckons car sales of the like seen earlier this year will return by the end of next year.
Couple this with the amount of personal debt, racked up by loans, mortgages, and so far left out of this mess from the press, credit cards, and you wonder quite what the future might hold?
Also, why can those in power not see that this is one huge mess that cannot be resolved as easily as just pumping taxpayers money into the system? When will people realise that for too long, the entire country, government included lapped up material wealth as if it were some status symbol?
The way we are going, and if the government does not abmit or believe the scale of the crisis, then we will simply end up a bankrupt nation.
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The Key phrase in the interview for me is :
"And people would have said, you know, 'this is a wilful reduction in the prosperity of the country'."
Leaders do not make decisions based on what they think people will say about them - they make decisions based on their accumulation of knowledge and ability to lead.
Does he mean in this sentance that he thought that it would have been a wilful reduction of the prosperity of the country, or that he did not, but was afraid others would view it that way?
Strength in leadership - just what we need.
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Dera Robert
The Bank of England did not know what was going on ??/
The Boss of Barclays saying sorry???
This was not anything to do with the world econmoy, this was to do with DOMESTIC POLICY--- nothing else, Gordon Brown, and Darling were responsible for this credit crunch, because, they knew that the Credit being spent was not sustainable, even economists knews this
The Banks were "not saved" they went under, as can now be seen from their refusal to lend, in fear of the credit requirements.
The British Banking system is all but dead in the water, and there is NO FLUIDITY AT ALL.
No, -----this is all down to Domestic Policy the Government, Banks, and the watch dogs who failed in their duty to control spending.
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I look forward to the programme, Robert.
I know I did not expect a banking collapse but then I am not a financial professional. I am relieved they got it as much wrong as I.
All I could see at the time was an economy functioning without any visible means of support. In 2007 I remarked about sky-hooks to much derision: it was a new paradigm; wasn't it!
It is now almost a year since I was last told by majority opinion there was no recession coming, that 2008 would be a bumper year and the panic was all got up by the media.
Intellectually, I am satisifed to have been right. It does nothing for the distress I am seeing all about me and the good people who will lose a lot if not everything in the coming eighteen months.
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IMF urges spending to spur growth - BBC headline
"He described European Central Bank chief Jean-Claude Trichet's warning that eurozone governments must keep a lid on borrowing as "noble".
"He's the head of the central bank - it's his job to say things like that," Mr Strauss Kahn said. "
Of course Strauss-Khan will say that too !! After all he is an "employee" of the major controllers of IMF, the G8, and *THEY* are in trouble !! So he wants the rest of the world to spend in order to bail out his employers !!
Notice how he *carefully* did not say where to money to pay for the spending is going to come from !!
After refusing to change the composition of the control over the IMF, they are now in dire straits themselves. Their cupboard is also getting bare and the countries with lots of lolly are refusing to lend them any more without any additional participation in the decision making processes !!
In fact, the East Asian nations have gone one step further and have set up their own "little" co-operative to help each other out in case of need !! Many of them have very bitter memories of IMF "help" in times past !!
With half the world's population in the area East of Pakistan, and an ever more affluent part of the population too, perhaps it is time to re-think the controls over globalisation and get rid of any colonial hangovers !!
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I find it mind boggling that Vince Cable and many others were warning loudly and clearly for a long time of the obvious iceberg straight ahead.
The well paid people who were responsible for steering our financial system failed to keep a look out or alter course.
All should hang their heads in shame, resign or be sacked at once, starting with... the captain in charge of our leaky economic boat... the former chancellor... Gordon Brown.
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We need to return to the standards laid down in the core syllabus of the institutes of bankers.
e.g.
Business Banking - Core A Subject - Credit Value: 1.0
The Canons of Lending
Security
Control of Advances
Assessing Customer Needs
Sources of Finance
When Things Go Wrong
Diligence and Bankruptcy
http://www.ciobs.org.uk/qualifications/cb_structure.cfm
Until the bankers follow their own guiding principles to the letter there is a good chance things will continue to get worse and history will repeat itself.
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Robert,
When are you going to do a similar piece on the wreckage of the regulatory system structure?
Why don't you ask whether Hector Sants was still in receipt of his LTIP from CSFB while a regulator?
Why don't you read Private Eye about the dinners Sants held at taxpayers' expense?
This is a club of inner sanctum friends. It is the opposite of the robust US system.
If you want to prevent this happening again, you need to restore the system.
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#46 "Strength in leadership - just what we need."
What he meant was that as a political appointee, he had to put more weight on the retention of his job than to "do the right thing" !!
Strength in leadership ?? Forget it !! Mrs Thatcher retired long ago and there isn't a single one in this current bunch that is anything like her !!
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This confirms something I've always felt which is that the MPC needs some normal people on it.
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So many experts on here, So many I told you so’s and so many hang them high attitudes, yet none of you have actually seen the interviews of heard what has actually been said, all relying on Mr Pestons take on things, he who of course has no agenda, gets everything right and has no interest in self promotion.
In all your critical articles Mr Peston I have yet to hear any constructive alternatives, all we get is the media’s favourite tool HINDSIGHT.
People please wait and see what is actually said and then make your OWN minds up.
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The banks were over-lending for years. We all knew that. Gordon Brown kept saying it wasn't a problem because interest rates were low, and the British people could "afford to service the debt" (i.e. a trite way of saying they could afford to pay the interest).
Lending must be controlled. We have speed limits on our roads, to protect people from the dangers of speeding. We need lending controls, to protect people from too much debt relative to their ability to pay.
It's not difficult.......
Tonight is must see television - Robert Peston on BBC1 and Niall Ferguson on Channel 4..........!!
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OK The Bank of England believe that more levers are needed to control the economy. Here's 2 for a start
From now onwards
1) Pass a law that limits house borrowing to say 3 + 1 incomes - maximum
2) Put in place regulation to force lenders to ensure that the law is followed. Income checks etc..
Short term pain as house prices re-correct.
Long term gain as we prevent over borrowing against property forever.
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#45 "The thing that strikes me is how everyone is still in denial as to the sheer scale of the problems that we face. Listening on Radio 4 this morning, a representative from Toyota was up beat by the fact that he reckons car sales of the like seen earlier this year will return by the end of next year."
Of course he had to say that !! Toyota just announced its *FIRST* ever loss in 71 years !! See BBC article on Toyota !!
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PS. The sharp house price correction will get the banks lending again quickly if the comments from the head man at Barclays are correct. Much quicker than the possible 2 years as touted.
For goodness sake, lets get the economy back on its feet again.
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#19 KenHarvey
Spot on sir!
Is it likely to happen?
We also need to put the brakes on the volatility of derivatives and their like. It seems like plain gambling with money you do not have as it is.
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I wrote to Tony Blair, the Treasury and the Bank of England's MPC in June 2002. Yes, I warned the authorities six and a half years ago - I'm sure many others did as well.
I was concerned with what I saw as a coming property bubble. I even suggested how the authorities might dampen it down.
Would you like to see a copy of my letter ? And the replies I received?
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Robert,
I'm surprised that you imply it is worrying that there is no rush to implement 'bubble busting powers'.
We are hardly likely to need these in the near future and it is surely better to consider the matter carefully rather than botch it up in the attempt to grab a 'doing something' headline.
Measures I'd suggest would include all aspects of the economy in the inflation figures - ignoring house price growth was a real clanger - and limiting mortgage income multiples whilst increasing deposit requirements.
This option will hurt those who bought their property at the top of the market but will benefit the population as a whole in the long term - we can't keep boosting house prices by ratcheting up the debt levels.
Finally, bring to account Governments who also mortgage the country to the hilt and fail to put aside funds to cover inevitable downturns.
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Robert, of all of your report this quote takes the biscuit:
"If we'd used interest rates to try and address this asset-price credit growth, we would have been holding down the level of activity elsewhere in the economy, in manufacturing, in other services, holding down the level of employment at a time when consumer price inflation and earnings were stable and reasonably low. And people would have said, you know, 'this is a wilful reduction in the prosperity of the country'."
Leadership is the word that comes to mind. True leadership takes the necessary action irrespective of its popularity. However, don't just blame the banks, the Government are just as guilty:
http://news.bbc.co.uk/1/hi/uk_politics/7628330.stm
The really frustrating thing is that it was obvious to the 'man on the street', and yet our so-called experts just ignored the signs. Well actually I would suggest that they encouraged the situation and all the revenue it brought them. Worse still the Government hasn't formulated a coherent plan of action even at this stage.
However, if you want some cheer at this time of year just look at this:
http://news.bbc.co.uk/1/hi/business/3617236.stm
The 'Bright Side' paragraph is stunning. Can anyone else find any prime examples of ostrich behaviour?
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so now we know the answer to whether the B of E knew and did nothing, or didn't know anything!
After 3 months we are still being drip-fed the truth-we are having our worst suspicions confirmed.
About time we got it all out in the open.
I would like the following for Christmas:
All those responsible (including those who knew nothing) sacked and/or arrested, their assets seized, fraud investigations started and auditors sent in.
Also, a Vote of No Confidence in the house.
I'm sick to death of seeing this country suffer as a result of such arrogance, greed and incompetence, while the perpetrators wax lyrical and continue in the positions if high influence.
They are dangerous, have ruined UK plc and they should already be locked up.
Trouble is, they've now had 3 months to get the shredders working overtime to cover their tracks.
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I'd like to wish all our bank executives a very happy christmas.
And for the rest of us...forget it.
We, the public, will ensure that their multi-millionaire lifestyles will continue, whilst we all go to the dogs.
Do the decent thing...resign.
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Robert writes:
"As others at the Bank of England have told me, the Bank's Monetary Policy Committee believed mistakenly that the lending binge and asset-price surge were semi-independent from activity in the real economy, and that they would eventually moderate without wreaking devastating damage to prospects for households and businesses."
Really? Are you seriously saying that these supposedly intelligent and educated people know so little about the economy that they would think such a stupid thing? When even little old me, not to mention thousands or millions of others, can see perfectly well that financial manipulations and asset prices are tied closely into the real economy. Admittedly they are not identical, but anyone claiming any knowledge of economics should not be blind as to how changes in asset values are related to spending, and how increased lending leaves one open to problems when interest rates increase, as they invariably will at some point, or when commodity prices go into a bubble, as they did.
Sack them all!
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As a High Street customer of Mr Varley and his crew I was somewhat taken aback when I went into my local branch with steam pouring from every orifice.
I received a letter, cost of time, printing and postage unknown as these facts are as near to a state secret as is possible.
The aforementioned letter stated that a direct debit had not been paid as it would have taken me 5 pounds into the red. For this infraction I was charged 8 pounds. 3 pounds further into the red than if they had simply paid the thing in the first place.
I took several months of statements into the bank and attempted to explain the lunacy of these actions to a member of staff. He looked at my bank statements and then informed me that I was overdrawn every month and that it was unacceptable. This DOLT could not even read his own employers bank statements. I had to take paper and pen and explain to him in words and pictures that you cannot extract money from an ATM if you are in the red without authorisation. I then had to explain in words of one syllable that all transactions are dated and only the withdrawals are time marked on the statement, and for some obscure reason withdrawals top the days transactions as opposed to the non timed deposits.
If an employee of said bank cannot do simple addition and subtraction with the aid of a bank statement then I am afraid that something a little more complex like the possibility of bringing a complete nation to its knees is not beyond the bounds of possibility.
Sleep well. We are in safe hands.
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#39 "Interest rates have been over-managed for a long time by Gordo. "
This is totally in line with the Great Gordo's maxim that "there will be no more booms or busts" !! Having abandoned that maxim when he got his nose rubbed in its waste products, his current maxim is "Let's borrow to spend our way out of this bust" !!
I wonder what his next maxim will be when he gets his nose rubbed in the waste products of this one ??
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Look at housepricecrash it was obvious that housing prices were above trend from 2001-2 and nothing was done.
But would we vote for a party that promises to keep housing prices down?
Time for an independant treasury to control bank and government lending.
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#64 "Trouble is, they've now had 3 months to get the shredders working overtime to cover their tracks."
Ex-Andersen employees had to go somewhere !! And they *DO* have the requisite experience in the use of such office machinery !!
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I think I am right in saying that Sir John, to his great credit, was in favour of raising interest rates to choke off the house price bubble. That was a brave and perceptive stance.
Unfortunately, the BoE was required to act on a strategy which looked only at retail inflation and ignored asset inflation.
As ever, the blame sticks with those who devised a financial strategy which paid no regard to asset inflation or credit expansion.
The buck stops with the Chancellor who presided over the bubble. 'An end to boom and bust' was always economically illiterate.
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Dear Robert
53*
Now i do not want to spoil your New Year, Thatcher was the cause of all this economic doom, This woman did more for the Rich than she ever did for the working classes, whom she destroyed invarious sectors, ----BUI Brown the Architech of the Credit Crunch is now burying himself in mitigation, along with Darling some one has been running this fiasco, and to be able to accomadate the entire Banking system, that some one has to bigger than governemnet or why else would they get away with it.???
Sorry Thatcher doe not cut it with millions in this country.
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So the BANK OF ENGLAND is
UNFIT FOR PURPOSE????
I was about to issue a Winding Up Petition against HALIFAX PLC
in early 2007 The Bank of England
and The FSA refused to get involved. . .
I THINK THAT SAYS IT ALL
NO RESPONSIBILITY!!!!!!!
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If the true inflation figures had been used in the first place, the problems would probably not have arisen. Unfortunately these had been massaged out of all recognition to back up Brown's now discredited " fiscal prudence ". If those at the top in the BOE had had the courage and nous to tell Brown the truth rather than pandering to his ego, then perhaps the crisis would have been easier to deal with. Lies will out; and hopefully the incompetents at the BOE, the treasury and Downing street will also be out of a job sooner rather than later.
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Robert,
Why don't you have another Panorama and pose the same type of questions to Brown/Darling to see if they will admit a total lack of awareness of what was going to happen??? Some hope...........
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#53 said "Mrs Thatcher retired long ago and there isn't a single one in this current bunch that is anything like her !!"
So something to be thankful for then! Just remember please that although Flash and Co have behaved appallingly by being more the origins of this mess do lie with Thatcher's deregulation of financial services.
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I'll make a point of watching this Panorama.
I agree that the Bank of England didn't have the right tools etc..
The focus on controlling inflation by the single tool of interest rates was pretty stupid. But that's the politicians fault. That's where they let us down...
But it is right that the Bank of England controls interest rates independently of Government. No arguments there, the Politicians got that aspect of it right. But what they have collectively failed to do by focussing on a single tool is keep the whole economy in balance.
If the only tool is interest rates, it is like the tale of the little boy with his finger in a Dyke, who suddendly finds another leak a few yards out of his reach...
Sooner or later the whole structure is going to collapse...
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Again maybe we should scrape off another layer of dirt and get down to the Tories / Thatcherite dream of de-regulated City trading, share ownership & home ownership for all.
Their dismantling of our manufacturing base and the switch to service and financial industries in order to smash the unions leaves us in an even deeper mess now.
In truth we have a system in Thatchers 1980’s capitalism which has failed as badly as its nemesis Communism.
We end up with the ridiculous situation of the government propping up banks with tax payers money which is then lent on to he tax payers by the Banks with interest.
The final insult is the very City Traders who created the mess still pick up their bonus even from the banks like RBS who are owned by the goverment.
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Let's not forget that the BoE has but one goal - a single fairly unrepresentative inflation number based on a CPI which did not contain house prices or mortgage costs AT ALL.
In that (far too narrow) sense they did a good job for a very long time.
Their remit was set by Brown, for politically expedient reasons - the housing and debt bubble engendered a feelgood factor which Labour has won elections on the back of.
At the end of the day the blame for this lies squarely with the governement. They are in charge, they set the parameters within which the FSA and BoE worked, there is no escape for them.
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Amazing they didn't know all that.
Myself and a million other people on the web had a very good understanding that it would be seriously bad when it all went the other way.
And they get paid how to fail at their jobs?
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Either hyperdeflationary scenario, which, as I understand, Henry Paulson tried to implement in September (with megebunkruptcies of most megabanks and megadefaults of imperial powers of capitalism) or (...)inflationary scenario implemented instead wipe out book value of assets. Some representation of assets (say CDFs), which is only distantly related to real assets (factories, houses, oil rigs, labour force) will have grown worthless by the end of next year with a current scenario.
The real assets (nonmonetary) unfortunately decay as well. Labour force is getting less qualified, demoralised, hungry at the very worst. Factories decay when closed. Whole markets may collapse with huge costs involved in restoring them (that's a paradox in itsefl - "A market for holiday in X" is a real asset, and it can be wiped out completely with huge costs involved to restore the entity - if there ever will be a wish again).
Calculation is that, while real assets decay all over the world, they will be wiped out completely in some regions with not much possiblility to restore and they will be quite easily restored in som other places. The game will start again
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Re BANK BONUS PAYMENTS
In SUNNY Surrey there seems to
be NO shortage of BANKERS
Splashing the CASH in the Estate
Agents House sales at 2 million
plus seem to be very much alive.
ALL THAT XMAS CASH BURNING
A HOLE IN THEIR ACCOUNTS.
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If a GOVERNMENT ever wanted to
create SOCIAL UNREST they
couldnt have DONE a BETTER JOB
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Robert, we are not over the crisis by any stretch of the imagination.
Why don't you make a program about the $500 TRILLION derivatives black hole and explain that this is 10 times larger than the GDP of the whole planet.
The sub-prime problem that everyone seems to blame for the crises, is only worth less than $2trillion, I believe. It was just a trigger. The real avalanche is still in front of us. As companies and banks go under, the various derivative contracts will be triggered, causing further bankruptcies.
The true villains of the peace are those POLITICIANS (such as Bush and Brown) who allowed banking restraints to be lifted and who did not outlaw the fraudulent practices of off-book accounting and the creation of a pseudo-insurance markets with virtually no backing for the bets taken.
The bankers have simply taken advantage of the lack of rules and lack of enforcement of rules, just like most players would do in any game.
Not that I want to excuse the bas..bankers.
Perhaps they should be treated in the same way as drug pushers (the drug being cheap and irresponsible credit) and confiscate any gains by companies or individuals aided by these practices.
Even more fundamental cause was the wide availability of 'almost free' energy to whole system, which has driven growth for the past century. Now that energy is becoming scarce and expensive, we have a century of decline to look forward to. For more info see www.transitionnc.org/?q=node/73 and the rest of the website
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Maybe that's why Tony left when he did - give himself a while out of office to distance himself from the oncoming storm.
One has to have some sympathy for the position the government was in - people are out to bash them for being a nanny state when they ban smoking in pubs... its not difficult to see what reaction they'd have got if they had poured cold water on the good times as they were perceived to be unsustainable.
Unbelievable that the BoE did not see this coming. Were they in caves during the 90s recession? And didn't they learn anything about the Great Depression when they were studying economics way back when?
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Robert read #10 & 13.
Don't worry about your job, just dig deeper into the issues.
I will write on your blog elsewhere if you leave BBC (if it's free)
Anyway, on the economy, many people would like to see UK go back to the good old times, when UK was the 4th largest economy, and we were rich compared to other countries.
Forget that I say. It’s not gonna happen. The world is smaller now and getting smaller every second. Every time a PC or mobile phone is sold in the emerging markets the world becomes a smaller place and easier place to communicate in.
Look at the world as a big city. Forget nationalism, look at it as a city where you can move anywhere you like.
Asia is the up-and-coming area. UK is the old neighbourhood. (Except it has more knife stabbings per capita than other areas)
So, nationalism is stupid. The globe is ours and large companies and banks see it as 1 nation/market place!
If the Bank of England and Flash Gordon are not doing a good job then we’ll move to another country, say Portugal. If Portugal is mismanaged (like here) then we’ll move to Finland and so on. I hear Singapore is managed really well (never been there).
Then I read #16 and think, recession’s not a matter of mismanagement, it’s the nature of capitalism. We just have to hope that globalisation doesn’t plunge the entire planet into recession at once. When China will be in recession , maybe US will be in growth again etc.
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Post 80-quite.
We haven't seen the programme yet but if what is here is anything to go by it will be more disingenuous excuses and vague predictions.
Ignorance is no excuse for people on the sort of salaries these guys are on. How on earth have they got to the top of their proffessions? Oh I know-it was because of their background.
It isn't credible that they know little more than the average reasonably intelligent person in the street. Therefore one has to asume they aren't telling the truth.
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The BoE existed to regulate the banks until that task was divided between the FSA, BoE and Treasury by guess who.
Seems like the tool of controlling the bank reserve requirement must have been mislaid in the process.
Actual banknotes and cash account for only 3% of the money in circulation, and control of the banks' reserves on which most of the money is layered (frb) is absolutely essential.
Our entire economy depends on fractional reserve banking, and it was and is unregulated. Why not?
Criminal negligence by all concerned.
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I have two questions, both relate to the lower paid (or poverty level citizens, as most disabled people are in the "earnings" scale) and their current treatment by the banks plus one pertinent comment to make.
Firstly, banks were bailed out to the tune of billions and interest rates have dropped to 30/40 year lows so, why have credit card and borrowing rates for the lowest earning percentile increased to 30%+ pa.?
Secondly, why is it that, following the OFT review of bank and credit card charges which brought down the single charges of around £26 or more per notice, the lending institutions have replaced the single charge notices by multiple notices each costing around £12 - 16, especially the credit card double header of a notice of charge for a missed payment plus another charge, simultaneously, for late payment - the two are mutually inclusive! - even if a payment has been made as soon as physically possible? Meanwhile, the paying bank has also charged a fee for bouncing or non-payment of the bill in the first place and charge upto £90 - £105 / day for the pleasure (charge is for 3 events per day at £3- - £35 per event!).
It would seem that the banks want not only to have their cake and eat it but to also a have a share in the cakes of those who can least afford to purchase one!
I cannot help feeling that any lending institution charging 15 times, or greater, the Bank of England base rate is guilty of usury - in this case, Government approved usury!
Having seen my pension disappear (the one-off charge against and then annual taxation of pension funds having set the tone - and ignoring the standard warning of "past results are not an indication of future returns" which Gordon Brown and the treasury conveniently ignored) even though I supposedly had no property exposure in the portfolio, the value of my house decline by nearly 25% and facing retirement proper (as opposed to the enforced by disability retirement for which I have to re-qualify every 6 months, or so it seems!) in the next four and a half years, I wonder exactly what I and others in my situation are meant to live on?
Baling out the banks, motor-car and related industries plus anyone else with either political or vote catching headlines seems to be a touch one sided. Surely baling out the consumers would have been more productive, ultimately cheaper and of more benefit to the country. Radical? Maybe, but it's the same people who will have to repay the current loans and it is of immediate benefit to them unlike the current fiasco which calls upon future generations to pay them off for no discernible benefit.
Finally, apart from HBOS, I've heard no apologies from any other senior management teams who are recipients of the current governmental (public purse) largess - a touch of humility from that quarter would not go amiss. A similar expression of regret from all persons and governmental bodies/quangos involved would do no harm either. I'm not talking about shoving some lower echelon scapegoat into the limelight - I mean Gordon Brown and his then treasury team (who participated in the start of the melt-down by a mixture of greed and fiscal negligence), the FSA who propounded it (by and large due to a mixture of ignorance and inability to perform any meaningful regulation or oversight) and the current Treasury team including Gordon Brown again, who can't seem to let go of the remit, (who dithered and thus compounded the melt-down) would be a start.
N.b. Lest anyone thinks that I'm a lazy, state benefits funded, layabout; In an attempt to remove myself from the poverty area and benefits dependency (I think that ~£9,000 p.a. qualifies as poverty level - according to the IMF and OECD it does anyway), I started my own small company in 2002, part funded by my personal credit cards, in that time I've never made a personal charge (salary or expenses) against the company, preferring to reinvest any earnings into the company. Unfortunately, the company now looks to be perilously close to collapse, leaving me with just the debts.
"Happy days", I remember a few in the days before political spin, personal grandiose and mediocrity took centre stage.
Jez (skint till at least 2012!)
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In retrospect. Property prices hit the bubbled roof and the Interest Rates should have been raised to cover assets of both banks and building societies, unless of course BoE were instructed (BY?) to return property prices to pre-inflationary levels to offset obvious forcasted demand in wages, which HM Government was then restricting certain groups of breaking paykerbs....and obvious dominoe effect of other groups demanding more gruel 'Oliver.
Whosoever changed the tide is to blame as apart from Global recession we could have had payrises. Gordon Brown feared this was getting out (ie Police) of control. It would have given certain groups that percentage spending power, that now Mr Darling is now in desperation trying to target in offset mistakes in policies.
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Dear Robert
Lets put the boot in ----Yes it was the Tories and Thatcher that destroyed Britains Manufacuring base, Banking Control systems, and turned us into a National service industry, that has little or nothing to do with the importance of Manufacturing, even now companies are going abroad as its too costly here , ----But New Labour are definately an extention of Thatcher, and although they are now saddled with a major crisis, the legacy of the Tories and her total lack of vision has lead us to this damning debacle in economics, AT THE END OF THE DAY THE ONLY PEOPLE RESONSIBLE ARE THE GOVERNEMNT AND POLITICIANS, WHO DID NOT REIGN IN THE BANKERS,------ CAPAITALISM TOOK CONTROL, ? 0H---------------------AND---- failed. where does that now leave globalsiation, and Afghanistan?
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I think the inflation figures should include house prices and mortgage payments.
If not they should have a separate figure for house prices and a separate rate for them.
The British obsession with extreme house price inflation and their belief that it is a wonderful thing is pathological and has contributed to at least 2 booms and busts already.
People on the continent think that something being very expensive is not a good thing.
Can we not have some genetetic therapy to remove this insane tendency which leads us to believe we can all become millionaires by watching eastenders as our houses treble in value?
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The best thing to do would be to knock off early for christmas and close the markets. There's not much going on now except for staff sneaking off on the sly for a 'cup of tea' or cut price cocktails.
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Strange how all these muppets
take their salaries month by
month but never resaponsibility.
TIME FOR RESIGNATION?
If i ran my business like this lot
i would be bust & in prison by
NOW.
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When he said "We saw the credit, we saw the house prices, but we did see a fairly stable pattern of earnings, prices and output"
I absolutely do not accept this.
It is incompetence on a colossal scale. They knew that property was the underlying asset fuelling debt but they openly declared it was not their role to control asset prices.
Those of us that have followed your insight into what was happening have known for a few years that the foundations were being eroded.
Its not so much a case of irrational exuberance as irrational optimism.
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Many times I have questioned why the Treasury appears to have escaped all blame for the current financial crisis yet, if anyone is to blame, it is the civil servants who must have been as aware as the BOE of the fragile state of the economy. And if they were not they should not be in their jobs.
And it's not just the banking crisis. For example, The Chancellor is obliged to consult with Treasury officials over the budget make up but did anyone bother to explain to him the potential effects of the 10p tax debacle?
Then we come to the VAT reduction and its minimal effect on the average person's household budget. 'Have your say' was full of condemnation within hours of the announcement but did Treasury point out the danger of investing in a folly MPs are just waking up to.
And if the Chancellor was warned ... why has no-one from the Treasury defended their position, poked their head above the wall. Or would that have been considered as whistle blowing?
Hooray Henrys, the lot of them; that's what I say.
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The main reason UK plc is SO
uncompetitive is due to high
living costs : NOT THATCHER!!!
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Today’s Christmas cracker………….Did you hear the joke about the chancellor and his economic vision for Britain?
Apparently, he put an end to boom and bust, lol If this ends up as bad as I think it might, Mr Brown could end up at the haig being done for crimes against humanity!!!
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Robert
Congratulations on getting the first full admission of responsibility from anyone important.
It only goes to show how pathetic they all were. For years they denied any link between the madness that was our housing bubble and spending in the economy.
Frankly i think they should all be sacked. They only needed to look at the number of new cars bought on credit or the tidal wave of debt consolidations added to peoples mortgages to know the truth. They spent years saying it was not the bank of Englands job to control asset prices when challenged about the housing bubble, claiming their remit was only to look at inflation while ignoring RPI which included housing costs. The whole mess is a disgrace and driven by people who were never independent from government but being rewarded for doing their bidding.
They ignored all the voices of caution prefering to allow them to be mocked as doom merchants. Even now there is still a huge amount of denial at the top.
The solution is simple. Fire all the useless public sector workers. We all know who they are - anyone not in the front line of providing needed services to the public. Employ all the builders to renovate the empty houses. Expel all the illegal immigrants and make the legal ones pull their weight. Support lending to genuinely profitable business that makes things.
It will not prevent the painful delevaraging of our debt and the futher collapse in house prices but it will secure a more stable future.
Or we could just print more money.
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I am looking forward to Robert Peston taking on the new "Head of Global Economy" role, encompassing being CEO of all banks, chancellor of the exchequer, having 10 votes on the MPC and heading up the FSA. I assume we will be cloning Robert so he can also fill other important roles in the broader economy (CBI, World Bank, IMF, UN, etc). A brighter future awaits us all.
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I am sure all bankers agree with me
Who cares? it ain't my money!
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Surely a large part of the problem is the lack of control of the money supply since the large-scale issuance of debt was given to private institutions.
If there was any disagreement as to how the omeny supply was growing, could they not simply have looked at the price of fixed assets?
As the money supply inflates, the price of fixed assets rises in proportion.
Or was the government still infatuated with its own rigged and artificial inflation figures?
In terms of control, it is gratifying (finally!) to hear that the bank accepts that the interest rate lever is broken as some of us have been saying for a *very* long time.
What is to replace it? It has to be some method by which the central banks can control the amount of debt issued, or at least the rate at which it is issued. I think that they need to do this under direct control; if the control is indirect doubtless the clever people will find a way around it.
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BELIEF BEGGARED
Robert these 5am posts are intriguing; you are truly burning your candle at both ends, just like the UK and the US economies have done over the past decade or so; do you now sneak your laptop into the champagne-fueled Christmas parties you are invited to, or sneak off upstairs and log on to your host's PC?
Anyway, I'm intrigued by the allegedly frank comments by this STROAMPer (soon-to-retire-on-a-massive-pension) Gieve. Has he been overcome by a bout of honesty or sudden clear vision. Or is he (and you) placing these 'sorry we messed up' stories to try to burst an entirely different bubble that is building up - the bubble of quickly increasing anger from us the people towards the individuals who run our failed and failing institutions? It must be the latter!
Let's analyse this for a minute. I worked in the City for over 25 years (not in finance BTW) and know first-hand about the self-serving, arrogant 'elite' that dominates the BoE, commercial banks and the City. It is a world of inhereted privilege, mediocrity and, in all too many cases, criminal behavior, where even the initially honest are tempted by the lax regulation and opportunities to hoodwink investors and make fortunes at little or no personal risk.
Which moves me on to Mr Madoff and his giant ponzi scheme........ several bloggers to the NY Times have suggested that there were several levels of conspiracy going on there; one of the more subtle being a conspiracy of silence by hundreds of investors who suspected Mr Madoff was a crook but kept quiet because they thought they were near the top of the pyramid and the 12% a year would keep coming in ... that's how pyramid schemes work after all.
I would suggest that Madoff's scheme provides a good analogy for the entire UK and US financial systems over the last decade: City of London=Wall St; Washington=Westminster; BoE=Fed Reserve Bank; FDA=SEC etc; all ponzi/pyramid schemes where an informal conspiracy of over-privileged fatcat bankers, regulators and politicians turned a blind eye to the oncoming disaster because they knew that they and their wealth would be personally safe from it.
In such circumstances whistle-blowers and voices of reason are not welcome and must be ignored; and they were
NOW OUR GREAT LEADERS, NEARLY ALL UNELECTED, HOPE THAT A FEW WELL-PLACED MEA CULPAS WILL PREVENT THE POPULACE FROM ORGANISING A LYNCHING OR TWO; AFTER WHICH THEY WILL TRY TO CARRY ON PRETTY MUCH AS USUAL
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This may seem a bit radical... but has anyone considered that these top policy makers should not be allowed to own property while doing these roles, because of a conflict of interest?
For years, as a non property owner I have considered the policies creating this bubble to be crazy. Not just for me, but for my teenage children, who had any hope of owning a home removed from them, as the older generation setting policies allowed so much (supposed) wealth to transfer to their generation.
There have been so many economics articles I have read in papers/online over the last 3-4 years where I have metaphorically shouted at the author "its alright for you to say that, you probably own a house". As it was clear they were smug about the crazy house prices and content to see them stay that way as they denied it was a bubble, and that at most there would be a "soft landing".
So, back to my point... can you trust these senior policy makers at the BOE and in the government to set policies, while personally benefiting from them? Maybe if they were forced to sell their property when they took on the jobs, and knew they needed to re-buy property 5 years later when their stint was over, it would affect the way they made decisions.
If this seems shocking, then it makes you realise that houses have not been considered to be homes, but investment vehicles and means of easy wealth generation, and of status. Its been standard talk in the Sunday paper sections on money to ask a specialist the question "do you invest in a pension or in property (as a pension)".
Can it be a fair society that allows those who have excessive wealth, purely because they bought a house before the boom, to then own extra houses that are needed by the next generation? Isn't this where we came from in Britain, where the few with wealth (by birth) lorded it over the rest?
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We didn't see it... (But then we are bankers - never in the front rank when it comes to spotting a trend but usually all jumping on just before the wheels come off).
Well others did see it coming and in places where one would not necssarily expect. In South Africa swingeing rates of capital gains tax were introduced to stop speculation in property. It reduced the attractiveness of homes as investments and slowed runaway price growth and pressed some to disinvest. There have always been tools at hand to control this madness and they were simple enough to install but the political will has been absent even if the understanding had been greater.
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Now finally someone from the BoE says that the UK's problems to a very large extent are home-grown. The US did not force the BoE to run with low interest rates. Neither did the US force Blanchflower, a known dove, onto the monetary policy committee.
The US did not force:
-Brown to run a budget deficit in boom times, making the public finances weak on a structural basis;
-the BoE to do what the government wanted, keeping interest rates low;
-the UK to have the weakest-capitalised banks in Europe at the end of 2006 and significantly weaker-capiatlised ones than in the US (comparing US moneycenter banks with UK clearing banks);
-UK banks to lend out money to 125% of property value, which Northern Rock did, combining mortgage and unsecured loans.
Following Gieve, I just hope someone will now speak out against the policy of trying to spend out of recession and let government debt surge irresponsibly. The debate about that policy has been very one-sided, highlighting the stranglehold that Brown has over The Guardian and the BBC (Brown Broadcasting Corporation).
The government's line now is that banks are not lending out money. But still existing banks have not changed their lending volumes that much after adjusting for the banks that have gone out of business (Northern Labour Wanless Wreck, B&B and some of the building societies). And do you want to lend out more money when you go into a recession? Does that make sense? Already in 2007 a quarter of the UK smaller companies with debt did not generate enough operating profits to service their debt (page 10 BoE Financial Stability Report).
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Every time we get on to this LOT.
There IS ONLY ONE ANSWER
LOCK THEM UP
THROW AWAY THE KEY.
I am SICK to DEATH of PAYING
TAX to see these MUPPETS
FLEECE US ALL.
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At long last the Man in the Street can make a point to someone Robert, even though there is precious little that you or the Beeb can do about it. You are under too much scrutiny. Like so many other comments on your Blog, just about all of us with a modicum of common sense (and despite what Flash thinks, there are a few of us around), could see the pit opening before us. I work in the lending department for a Building Society some years ago, and such irresponsible lending would never have been entertained, despite the public clamour for a more relaxed attitude. But its exactly the same situation as immigration, isn't it. We, the people, can see the problems building up. Most of us are dissatisfied with the current influx, but the Government can't/won't see it. Why don't you make a prediction Robert - at what point in the future will the Government (doesn't matter which Party) will finally discover that Immigration has brought this wonderful country of ours to its knees, probably for reasons other than economical. But getting back to the housing market. About 18 months or so ago, most of the national newspapers were complaining bitterly that house prices were too high, the poor first-timers couldn't get a foot on the ladder etc, etc and a hefty price reduction was needed. But now that we have got exactly that, the same newspapers are bleeting about it. This irresponsible head-line journalism has got a lot to answer for. I'm a TOGG and listen to Sir Tel just about every morning, and I have to say that he is as close as we can get to someone who actually says on the radio what most of us are thinking.
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Perhaps WE should FOLLOW
THE GREEKS and REVOLT?
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#97 Curzon
Absolutely - the cost of living vs wages compared to mainland Europe is very poor.
Prices of basic, everyday items need to drop significantly in the UK.
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Re 46 – steve_webprogrammer (and as reflected in my comment at 63).
Leadership was paramount in this situation. When things fail in such a systemic way you have to look at the highest level to find the true culprits.
You almost can't blame people for their actions when they work within a poorly regulated system. Words like 'integrity' are all very well, but if a competitor or perspective homebuyer takes a risk chances are you will too.
The Government should be held accountable. The 'Brown Bounce' is scary, as I've said before:
The arsonist of the economy shouldn't be called a hero just because he is trying to save himself and a few people in the process.
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The UK financial crisis is completely Gordon Brown's fault who changed the regulations so that BOE had no real powers, and it was he that via these new regulations allowed the Banks to borrow from zero to £700billion via wholesale funding above what they had in deposits.
The house asset price inflation did not just happen, it was Gordon Brown who created it with the borrowed public finances that were artificially pumped into the economy.
It has been Gordon Brown who has been the most recless with borrowing in order to create the house price led boom and to increase his public sector voter base.
Gordon Brown is directly responsible for causing this UK crisis to be worse than any other country.
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26, SuperCalmDown.
Although in the past I’ve had a few laughs at your call for public sector pay rises, I have to admit that the real problem at the moment (as you allude to) is that asset prices are too high whereas wage inflation is too low.
Demand for goods and services will not return (as you point out) until disposable incomes rise significantly. And for those wishing for further house price falls, you should consider the impact of this on the banks (which in turn affects the tax payer)………
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Glad to see them admitting their mistakes. I have been saying for a long time that the BOE needs more power than just interest rates.
Why is there no urgency to review the FSA/Treasury?BOE roles?
My fear is the treasury will emerge with extra powers; the treasury is the most polliticised of the 3 and will not act in the interests of the country, but of the government (which it considers to be one and the same, hence the problem).
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Forgive me for saying so, but it seems to me that previously serious, sombre people at the the head of the Treasury and the B of E are these days going a bit mental. What are these sinister "new instruments" of which Sir John G speaks??
The B of E (MPC) has a really simple job: use the base rate to keep inflation at 2%. If they had stuck to it then the present mess would have been much less severe. But they always erred on the side of monetary laxness. Why? Well Sir John Gieve gives it away - because of "WHAT PEOPLE WOULD HAVE SAID [if they raised interest rates]".
The whole point of the MPC is that it should not have to concern itself with "what people say", but somehow - perhaps because of political meddling, perhaps because one or two of the MPC members themselves have had their own personal-popularity agendas - it has become caught up like the Treasury used to be in the pressures exerted by the CBI and journalists with mortgages.
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Re: 84.
Yes, that interests me too. It would be an interesting programme.
The reason it won't be made, is that markets are so twitchy that it might create even more more panic....
We saw how Leehman Bros resulted in a domino effect in markets around the world, which caused a huge crisis that nearly (and still could) cause Capitalism to collapse in on itself like a deck of cards. Then where would we be ?
The whole Capitalist system actually seems to be like Madoffs scheme, a huge pyramid, but on a very much larger scale...
Panic because of that derivates problem, is just what we do not need at this time. It could bring the whole thing down.
If we're not panicking, there's still a chance of solving the problem, by propping it up somehow until some restructuring can be done, until better regulations and better engineering mean that the pyramid is completely stable and can survive earthquakes...
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The traditional economic theory I did at A level in the 80s made this bust quite predictable.
In the 80s
A balance of trade deficit was a debt to forign nations.
Eventualy the money needs to be paid.
In the brave new century
Globilisation ment we could raise cash on the international markets to fund a dficit for longer but the new economic geniuses in a fit of madness assumed that this ment a trade deficit was not an issue and could go on for ever (I would love to see the bit of the new throury that explanes forigners like to work for IOUs and never get real payment). Economists infatuated with the "service sector" and the "new" economy took there eyes of the fundimentals like nations have to pay their way as do we all.
In the 80s
Wealth was created by transforming things you could touch. I could create wealth by putting an extension on my house. Any other change in price was inflation (caused by oversupply of money to buy houses, greater demand for houses [possibly driven be speculation], a shortage of houses)
In the brave new century
Over the past decade we have had massive house price inflation fuelled by cheap cash for mortgages and rampant speculations by anyone that watched Sarah Beeny on TV. This mistaking inflation/speculation for real wealth has resulted in massive personal debt backed by inflated house prices. As the amount of physical goods we produce in this country has been devastated by one-sided competition with countries that have artificially low exchange rates we has taken the cheep goodies on offer at the cost of our own manufacturing base and excused it all by a constant re-definition of the term wealth to the point where it now seems to include zero sum gain transactions and the creation of fantasy money through bogus management instruments.
I.M.H.O. Economics as a subject has become a poor brother to astrology with very little figure and a lot of wishful thinking.
As a nation we have been spending £1.10 for every £1.00 we earn for a long time, this will not end until we go through a period of spending 90p for every £1.00 we spend and YES that will represent a 20% cut in high street spending. Hopefully that will clear out the plethora of institutions creaming huge margins off those cheap foreign produced high-tech toys.
This is crisis is not a demand side problem it is a supply side problem. Until we start to export again we are stuffed. Until Economic and planners get their heads out of their ‘clouds’ and get policies in place to even up our trade balance and curb (not inflate) national and personal debt we are sunk.
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I wrote to HM Treasury with a Mortgage solution 12 Months ago and they pointed out the free market was the only way.
I merely proposed mortgage lending restrictions of 3.5 Net Relevent Earnings as entered in your tax return.
This would have two effects:-
(1) house price inflation would be limited to wage inflation
(2) People would be incentivised using a carrot approack to get thier tax returns correctly and the applications thay make would be true as they are unlikely to state higher earnings in their tax returns that they will have to pay tax on.
Liar loans would be get rid off overnight.
The thing I cannot understand in the midst of this crisis, is why common sense is not being applied by govenrment, even now.
For example the concept of charging loss making business business rates is complely bonkers
e.g. Wooworths / MFI were dragged down be a heavy rates bill which could have been cancelled / rebated and give them at least six months cashflow, did it happen, not a chance.
Rates are to rise by 5% next year, again complete bonkers.
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If you were enlightened on the Illuminati banking strategy you set up or buy funds and sell at the right time, such as well before the american election. Otherwise, if you Buy High and Sell Low, you may need to Beg, Steal or Borrow, when it goes wrong. Play with fire you get burned.
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Re 57 - RobKirton and 79 the coopster
You're right; some clear-cut vision maybe even policy on lending is required. In this way at least the nation would know where it stands.
The exclusion of house prices from inflation measures crippled the BoE from controlling this situation, as it was their mandate to control inflation and not house prices.
I'm fed up with the lack of coherence in the Government's management of the economy over the past 5 years, and 5 months in particular. That's why I raised this petition against them:
http://petitions.number10.gov.uk/LendingReform/
Having written to my MP as well, you soon realised that there is nothing you can do at an individual level to voice your concerns with any degree of effect. At least reports and blogs like this go some way to creating a common voice.
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Off for Christmas after this, so here's a party game for the festive period.
1) Go onto the website of your local shopping mall.
2) Print out their "store guide"
3) As the new year progresses cross off the shops that close down.
4) The winner is the shopping mall with the highest closed or closing units by January 31st 2009
Happy Christmas to all - lets hope someone buys alexandercurzon a new CAPS lock key for Christmas.
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All - sorry about the multiple posts - error messages from the BBC
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BEGGARED BELIEF #2
If most of us think that this lot have really screwed up so far this century, we ain't seen nothing yet!
At this time of year I try to emulate Robert and attend as many drinks-fueled Christmas parties as possible (though I'm more of an organic beer man than a quaffer of champagne) and recently found myself talking to a couple of oil men - exploration guys to be more precise.
So I asked them about PEAK OIL, as you do, and if it was true or was just being talked up by environmentalists and doom-sayers. Is peak oil coming in 2030 or 2020 for instance?
They both said, without hesitation, that they suspect that we are at or close to peak oil right now, and that when we come out of this recession in 2010 or 2011 we will go direct from frying pan to fire.
OUR LEADERS, ELECTED AND UNELECTED, must KNOW THIS BUT ARE DOING NOTHING TO PREPARE OUR SOCIETY AND ECONOMY FOR IT; why? well that would be hard work for them and make them unpopular too
As some other posters have said, this could lead to DECADES'-LONG ECONOMIC RECESSION UNTIL WE ADJUST
hope that's cheered you all up; I see that the Archbishop of Canterbury is saying we're all doomed as well; presumably he's been given an insider-trading tip direct from the BIG GUY UPSTAIRS (and I don't mean GB)
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It was Thatcher that kicked off this nonsense. If u don't believe me then go look at the trade deficit figures.
There is an almost perfect correlation between the timing of the rapid takeoff in the trade deficit and deregulation coming into effect.
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Brown took a spin on the roulette wheel by betting our economy on 10 Black (pun intended).
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Right now bubble busting powers are not the issue. It does not really make a great deal of difference if the thespians in this particular play turn around and say they had the wrong script. It is obvious to everybody that they have failed. This is not the first event were interest rates kept too high or too low have caused problems and it is obvious that longterm interest rates relating to housing have to be separated from short term interest rates, which implies very tight control of access to mortgage funds and a conditional supply to limit leakage. I cannot see why borrowing over 25 years has to conform to overnight rates. It is the influence of housing on the economy which is the problem.
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I know I can sound like a broken record about this but the obvious measure of whether there is a bubble or excess consumption in the economy is the the balance of payments. The balance of payments shows that we as a country were living well beyond our means for several years thus creating a debt bubble that has now burst as well as asset inflation.
If Governments focussed on (a) keeping the balance of payments broadly neutral by restricting demand until that is achieved (whether by additional taxes, restricting credit by requiring higher capital ratios or even restricting government spending) and (b) kept their own accounts broadly neutral by running a surplus every year that the economy was growing at or above trend then excesss demand would be spotted and dealt with early and the economy could be more stable.
The core fantasy of the last 10 years was that Globalisation meant that the balance of payments (and for that matter the value of the pound) did not matter in such open free-flowing capital markets. Well it did. The Goverment thought it could have a free lunch on the back of plentiful international capital. We are all paying the price.
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We are well passed saying sorry and finding excuses. This time there has to be a clear-out of the leaders of all of the financial institutions and regulators who blinded themselves to the common sense that we were in for a disaster!
They only had to look back a short while to the DotCom boom to see the disastrous effects of an unsustainable bubble.
However, this time they should not be payed off with golden goodbyes but SACKED for incompetence.
New Economy - bring it on but let me hibernate whilst all the blood letting goes on over the next few years.
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Re 16 & 28: Thanks for explaining it so clearly duvinrouge. I have learnt to see money as energy of labour. Thats why I think capitalism is in fact a pyramid scheme. The means of production (hence survival) being under the control of the elites who milk our energy for their own profit. Go back one step further and think of the land grabs of medieval times when our land was taken by violent means by the aristocracy and the churches. Survival of any species depends on access to food/water/shelter and only territory can provide those fundamentals. Hence the mass fear built into the feudal system and todays derivatives. All this discussion about economics is a cultural layer added by the cleverest of homo sapiens to ensure their own survival. Call it greed but actually it is basic instinct. Are we truly civilised enough to find a more equitable way of living together on planet earth? Ideas please, not more economic shenanigans.
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My local Carphone Warehouse store is "shut until further notice".
Can anyone comment on this as I have not heard that they were in trouble
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Tell me this. What was the backbone of Britain when we did not have a prolific housing market, when only the priviliged few owned their own home. Was it our superb manufacturing expertise, and the ability to attract customers all over the world? Granted, other nations caught us up, then over took us, but other Western Nations have competitive industries that weren't given away to the cheapest bidder. I'm a simple man, but even I can see that it can't be wise in the long-term to sell industries that we surely will depend on, if not now, but in the future, such as nuclear power. As a family man, for whom others are dependant, I would not entrust important commodities such as fuel to my neighbour, no matter how well I get on with him. We might fall out, and he could cut off supply. I wouldn't sell my half of a shared driveway to him in case he decides to block it off. Other European economies don't seem to be giving away their 'farms' - they're buying, not selling. Why does Britain seem to do the opposite - or have I got this wrong?
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Well how about bringing housing back onto the RPI? Instead of merely interest repayments?????? what's that all about, include some sort of index of property both commercial and private. Especially include the top 4% of households by income to RPI.
But oh no they will not do that. Give us more powers that we don't understand. It is clear that retail banks can not operate like investment banks. That separation is a definite. When retail banks operated with clearly divisible investment banking arms they often got it hugely wrong; see NatWest Markets. Operating with easy credit shovelled into them they got it massively wrong.
Responsibility needs to come back into the market, by this I mean legislation is required to make retail banks operate on their traditionally sound footing whilst the majority of the market has to accept financial darwinism. If you fail you're bust. The Chicago boys only sustained because of bail out after bail out. Bravo boys! Laissez-faire free markets for them and their big ranches whilst we bail them out time and time again.
For the guys at the Bank of England to say they didn't understand that easy credit affected the real economy?????? Please anyone who cared to look around the UK could see we weren't developing/manufacturing anything in the last ten years but property. If an economy spends more than it earns for many years I don't know how anyone couldn't see a bubble coming ten years ago.
I don't blame the BoE for all this. There was very little they could do. If we absorb Mr Friedman's policies then we're totally in sync with the US. To take us out of that would have been political and economic suicide. Sure Mr Brown should never have run such a huge budget deficit. We were saved by Bush's despicable tax cuts post September 11th, didn't matter if Brown either understood that or not until the bust came. Each time he over stated growth to justify his budgetary growth he lucked out.
As for Gieve's saying if they'd have dropped interest rates the rest of the economy would have suffered? What other side of the economy? We were just a property bubble. You don't allow that to fail cataclysmically. You try and provide the smoothest platform for people to be able to stabilise themselves. That's low interest rates in sync with the US. What manufacturer would suffer if we had low interest rates and they could re-negotiate debt before a credit famine? What manufacturer would suffer if their exports became cheaper due to the exchange rate lowering? What manufacturer suffers if interest rates drop and wage inflation pressures thus drop? Low interest rates would have mullered the city of London as the carry trade would have woken up to our economy being a pack of cards. That is the only excuse I can see to not lowering interest rates. It has no effect on the manufacturing industry in this country. Gieve's was clueless before and clueless now. God speed to his retirment, he can go advise some Chinese company on globalisation and blow them up.
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What ever the longer term outcome, we still seem to want to stay with the core capitalist metrics to drive the world economy. The demand for growth (in profits) rather than sustainablity is still at the heart of our economic thinking. Even now we see stories about how disappointing it is to see company X's profits down by y million on last year! Even though they are still making 10s of millions in profit.
Using growth as a measure can never be a long term sustainable goal in a finite world, with finite resources. It impact in terms of driving human behaviour underpins most of the ills we see in terms of climate change and extintion of whole species around the globe. Additionally, while growth and profit are the only corporate motivators then we will continue to see all of the bad side of humans - greed, short termism, lack of consideration of the impact, even on our fellow man.
I feel this is a point in human history, with economic and planetary chaos facing us, that it is time to consider how to establish a sustainable economic and business environment that builds on globalisation, but whos capitalist focus is removed or refocused on delivering something to the benefit of all mankind.
Communism as an economic model died a few years back, surely it is time for us to put capitalism away too, and use our creativity and capabilities to produce a new model for the 21st century (with the hope that it can sustain us to the 22nd)?
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Some good points above (79 and 120) about effect of excluding house prices from the inflation target. Personally, I don't think it makes sense to include the interest component of mortgage payments in the inflation measure that the B of E targets, but it WOULD make sense to include the house-price component.
This would have forced the MPC to keep interest rates higher as the asset price bubble starting to get out of hand (2004-2007 especially) and to have started cutting interest rates a bit sooner in 2008; and with hindsight that would have been better for everyone.
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You change the way you move, the way you dress, and change your corner of the TV studio society.
You begin to look happy, suddenly you discover, you have dropped out
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It strikes me that the BoE could use money supply growth to control asset prices. The November inflation report shows broad money growing at over 10% from 2005 to the end of 2007, at the same time as asset prices spiralled out of control.
If the bank could increase the money supply as lending (velocity) decreases, such as now with quantitative easing, and tighten supply as lending increases, they might have some ability to impact on asset prices.
Money supply has a much greater affect on the financial world than the rest of the economy, so this would be more effective at controlling asset prices than the blunt instrument of interest rates.
Mixing this with controlling banks capital ratios, the BoE's policies might be more affective at controlling the overall economy.
Episodes like this result in an evolution of our running of the economy. We are still a long way from understanding the interrelationships and their impact on the economy, but long term the lessons learnt in recessions should result in more stable economic environments in the future.
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#128
I broadly agree with your comments. My fear is that the electorate is still in denial and will vote at the next election for the politicians who offer them what appears to be the easy way out involving continued high public spending funded through borrowing. The electorate will however eventually be forced to recognise how bad the mess is we are in and accept the tough medicine that is required. This will involve deep cuts in public spending. In my view, the Labour party will look for an election in early spring next year before unemployment rates hit 3million plus and the electorate still believe that the recession may not be too severe.
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Robert
Did any of those interviewed say it all comes from USA and that we in the UK are blameless ?
Or did you not interview Gordon on this occasion ?
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The concensus among writers on this blog is remarkable. There are still reasons to be proud to be British.
I for one find the housing bubble story to be exagerated. After all houses are the only assett most of us have which has kept up with real inflation.
In the 1950s and 60s one man on an average wage could support a family of five. I know because my Dad did it. When I was 20 I had a lovely spacious bedsitting room in SW3. I was a commis chef. Try either of those options now. The real problem as some have said is that wages have decreased dramatically in real terms, because of inaccurate inflation figures and ever increasing taxes.
When successive governments lie about inflation we have absolutely no chance.
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The comments above are not very insightful, in fact I am more concerned now on reading these inept financial remarks that I was before.
If the programme tonight does not discuss the unexpected correlations between different business sectors which lead to the deterioration in the credit market it's just more media gibberish!
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Cosmically there is no such thing as a victim and we truly deserved what we got. Laws of Nature can be brutally cruel but are required in the big scheme of things.
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John Gieve was Perm Sec at the Home Office and left this position to join the BoE just before the then Home Secretary pronounced it not fit for purpose.
Why did anyone think that Sir John was capable of leading a significant chunk of the BoE when he lead the Home Office into being a basket case.
He seems to go from one basket case to another without being found out or held to account. The mauling he got from the select committee is probably the nearest he has come to being held accountable.
These political appointments have got to stop. We need world-class financiers and economists to lead our financial institutions, not those on the civil service gravy train. The in-fighting between the treasury and the BoE is also disgraceful and must stop.
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I sit a home and wonder why I don't understand how something works. My simple engineering brain cant make sense of it.
But Hey... those guys running it must understand what they are about.
Then things start to go wrong and it becomes obvious that my doubts have some merit.
But Hey... those guys running it must be able to see the flaws I can see.
I sometimes forget that other people have virtually no scientific training (http://en.wikipedia.org/wiki/John_Gieve)
MY PLAN TO SOLVE THE CRISIS (after the style of Sir Alexander Curzon).
1. GET RID OF POLITICOS
2. BAN ECONOMISTS (Especially Austrian)
3. MANDATORY ADDING UP AND TAKING AWAY PRACTICE FOR BANKERS
4. A DICTATORSHIP OF ENGINEERS
ITS NOT ROCKET SCIENCE (which is a shame because that's what I do)
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Why only a 30 minute Panorama programme? Isn't it worthy of a longer slot? Especially since it sounds like you had the interesting footage to fill it.
Channel 4's The Ascent of Money has been a success and it's had to keep us interested for 60 minutes each week. Perhaps the BBC think we're too dumb?
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I agree with many posters thatcher did start it.
but she has not been in power sinse 1990.
She is histrory - brown is today.
last 11 years have been down to brown as chancellor and pm.
No attempt to blame thatcher for our current woe's will distract from the fact brown was in charge and made policy.
He has had 11 years to take a different route but he didnt.
Blaming thatcher is as pointless as blaming noah for the flooding in the midlands last year.
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Let's have a vote -
Who thinks that #17 deb1712 is really Bob Peston?
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Robert. Just a quick word to say thanks very much for a very informative blog over these trobled months.
It's not easy to distill what's happened into simple terms.
All the best for the New Year!
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oh blah blah blah. boo hoo hoo!
-we didn't know that fiddling the figures and hiding massive inflation of the money supply for years and years would cause the biggest credit bubble in history. we didn't know that falsifying the GDP and allowing the economy to be looted could end up like this. we just didn't see it happening! how could we, i mean, its not like something that's ever happened before is it?
It's complicated! All those numbers and figures! It's not our fault! we didn't do it! it wasn't me! it was someone else!-
Pull the other one. It's got bells on.
Another day. Another banker making excuses, whilst still retaining his job.
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133,
Bringing house price’s back into RPI would excacerbate present problem of deflation (Could this be a precursor to printing money to avoid this ;-) )
I predicted some time ago that this government ‘may’ reintroduce house prices back into the index ‘at a convenient moment’
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@125 scamp
Technical point of order.
You can't have an "almost" perfect corelation.
Something is either corelated or it isn't
Enviromentalists make the same mistake when analysing global temperatures and Co2 . There is a corelation there, unfortunately for them it is a lag not a lead, still they managed to get most people convinced. maybe if you persist with your misinformation you will suceed as well.
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Robert
All of this will be interesting to watch this evening, but I am reminded of Sir Isaac Newton commenting on the South Sea Bubble saying:
“I can calculate the motions of heavenly bodies, but not the madness of people.”
Proving I suppose that financial, chaos is nothing new, just a re run of an old movie, with different scenery and actors, but underlying it all, somethings never really change!
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Reading through all these 'admissions', I'm reminded of a quote from the film "Serenity":
"You know, in certain older civilized cultures, when men failed as entirely as you have, they would throw themselves on their swords."
Fat chance of that happening - we'd probably have to import the swords anyway.
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Information Technology Proverbs
1. Listen carefully to your data
2. All systems are rubbish
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41:
The staff of Northern Rock and Bradford and Bingley, will probably find many, possibly all of their jobs going.
Like the small shareholders and Pension Funds, all the little people are losing out.
Not to mention the Mortgagees of NR who have to pay higher Interest rates.
A travesty !
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I find the distinction between the real economy and the paper economy right on. The paper economy was designed, in theory, to facilitate the real economy by replacing the bartering system and by compensating those who wish to save and invest, deferring current consumption allowing those who wish to consume to do so.
How can we allow an artificial creation like the paper economy to bring down the real economy? Have we so little imagination that we cannot find a way out of this without the untold misery currently being rained upon us? The question goes beyond regulatory powers and into the design of our financial systems on a much broader level.
On a fundamental level banks merely match up savers and people who wish to borrow to ensure that there is a balance between them. Otherwise, we could have an excess of consumption at the expense of investment and the attendant production capability that it is supposed to facilitate.
Instead of doing this, our banks have gamed the system and brought us all down. We can no longer allow those games. We have to find ways to prevent the games or to ensure that the rules are set up that people will naturally find it in their best interest to fulfill their fundamental role and forgo the financial engineering that created the illusion of wealth at the expense of real wealth creation.
The the risk management systems were supposed to facilitate necessary risk taking on the part of entrepreneurs by allowing the transfer of risks to others better able to handle them. They have not achieve this aim, but instead have been vehicles for a rampant speculation. We need to look at ways of allowing proper risk management while reducing the amount of speculation inherent in that. Risk management should be a proper insurance scheme, and not a means of gambling.
We also need to have a close look at the role of the bond rating agencies which rated much of the debt currently being considered worthless as AAA. This smells of corruption, or, if not of corruption, of gross negligence and incompetence.
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"If we'd used interest rates to try and address this asset-price credit growth, we would have been holding down the level of activity elsewhere in the economy, in manufacturing, in other services, holding down the level of employment at a time when consumer price inflation and earnings were stable and reasonably low. And people would have said, you know, 'this is a wilful reduction in the prosperity of the country'."
In other words, they feared the political reaction to what they knew was the right thing to do, so they didn't do it.
So much for the political independence of the BoE, for which Chancellor Brown was given so much credit, and which seems to have left him with the power while passing the responsibility to the BoE.
And the kindest expression for the BoE personnel involved would be that they "fell below the level of events".
It's not "that the Bank of England does not possess the proper tools for dealing with incipient booms in assets and lending". It's that it doesn't possess the proper bankers.
To be fair to Gieve and his colleagues, doing the right thing would probably have cost them their jobs. Instead it'll cost ours.
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151:
Misleading about Inflation should be a National Sport.
Redefining the Inflation measure has been used as a means to convince workers to accept lower pay rises for many years.
If you convince enough people, it can become true ish.
But of course reality resumes at some point and people find they cannot afford to buy what they need, or they find they have borrowed all they can to subsidise their lifestyle.
Then it all collapses.
The people with strong negotiating positions receive pay rises to make up for Inflation.
And the weak members of society receive next to nothing.
Nearly every Govt is guilty of this.
So nows the time to make up the Pay losses of the Public Sector with an appropriate pay rise, say twenty percent.
That would put them back to where they should be, and , importantly inject demand back into the economy.
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#16
I enjoyed reading your post. But I disagree with your locating the cause of what is happening with Marx's theory about the rate of profit. Marx, generally, experienced recessions due to over-production, however, this recession is one that has been caused not due to an inability to get a decent profit for a commodity, but because the debt that is an inherent part of growth got too large, and the banks released that they were running out of people to lend to at a sufficient rate to ensure more money was entering the system than was leaving in the form of repayments.
In one sense Marx is right: the diminishing rate of profit in all markets causes the capitalist to constantly seek new markets and slowly exhaust them, but who would have thought that instead of having 'commodity' capitalists bring us to recession, it would be the actual banks themselves whose markets would start to collapse, and thereby trigger the retraction in growth and the run for retrenchment by the banks. (So I suppose if you are prepared to call loans commodities then Marx is partially right.)
It's strange to hear John Gieve speak about having growth whilst using a new-type of interest rate tool to control certain parts of the economy. Without loose credit, without massive unsustainable borrowing in this country, there would have been no boom. So to have boom while controlling the excesses or certain areas of the economy, like house prices, is a contradiction in terms.
I also think that the social shocks that this downturn is about to bring UK society means that a change to a kinder, gentler capitalism is a long way off. I don't know if people have the character, after almost twenty years of spending, to deal with some of the shocks and loss of status.
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155.
spare a thought for Christen Schnor, the senior banker at HSBC who was found hanged on Wednesday afternoon at the Jumeirah Carlton Tower Hotel in Knightsbridge, west London.
He leaves a wife and two children.
Christen Schnor, an honourable man and an example to bankers everywhere.
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So interest rates are not the right tool to regulate our economy. What is the point of staying out of the Eurozone then?
Had we ben part of it now we would have an appreciating currency and be far less likely to suffer seriuos inflation if and when we get out of this hole.
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160,
What about the private sector, are they second class 'subjects'? How will a public sector pay rise filter through to the private sector? I'm already paying for your pension as it is.
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I find it deeply disturbing that the Deputy Governor knew that asset bubbles were inflating, that they were unsustainable AND believed that they would self correct without causing significant disruption to the economy, which appears to be the sub text to his interview transcript.
Herbert Stein is famously quoted as saying that THINGS THAT CAN’T GO ON FOR EVER DON’T, a mantra that would do well to penetrate the collective psyche of our political leaders. What Stein did not say and perhaps should have is that the transition from one state to the next is ALWAYS disruptive and that the larger the bubble or whatever is away from long term trends the greater will be the pain of the disruption when it eventually, inevitably corrects.
The tools may not have existed to tackle the specific problems without causing damage elsewhere in the economy but surely it is in their (FSA, BOE, Treasury) remit to design new tools as and when they are required. It cannot be acceptable that people in these positions apparently thought – well yes there is an issue that needs addressing but there is nothing in my toolbox that will help, best just pretend its not happening and have another early night.
That they saw the signs and failed to protect us is a damning indictment of the stewardship of those charged with managing the nations affairs.
We deserve better than this.
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Simplest solution is to let the Government take over all mortgages and set up debt consolidation loans with flexible accounts to put mortgage and salary (and, only if you wish, any savings) into one place.
Defaulters with a house worth over a million should be converted to flats to keep the posh post code. However this should not be packaged as MBS or S&L products because a million mortgages combined together is riskier than a few.
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What on earth are you talking about Robert? Minimum reserve ratios? Like, say, 10% as they have in America? Where the problem originally started?
The problem is a FUNDAMENTAL feature of fractional reserve banking. It is BUILT IN. The fractional reserve system requires exponential growth, it is simply not possible for it to be stable. Ever.
Any engineer will tell you that any percentage per unit time is an exponential function. Not something you would want to base a countries monetary system on...
What's required is fundamental monetary reform.
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I think it's probably fair enough to say that the BoE couldn't do anything much about the crisis because they lacked the tools.
But don't they talk to the government? For me, the real question is why didn't the government do anything to stop the excrement hitting the fan?
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pot_kettle #153- unfortunately, you are completely wrong regarding CO2 levels and temperature. There is correlation, allowing for the various other influences on the climate, and in the current period, the CO2 is forcing the temperature upwards. Moreover, the CO2 hypothesis has several things going for it, starting with the laws of physics, as well as a number of predicted observations such as stratospheric cooling.
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If the BoE are admitting they knew about the potential issues with the housing market and interest rates; could I sue them over the decision I made regarding my mortgage to fix it in July this year, as the indications they were providing was that they were going to raise interest rates in the short term to combat inflation?
If someone told you they were going to do something, and they did the complete opposite you might be a bit angry !!!
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Dear Robert
The Banking sysytem WORKS, what does NOT WORK are those responsible for running it,
They have failed monumentally, that includes Government Officials , Bankers, and the regualtors,
When all is said and done, heads should role, as this debacle has ruined many ordinary people, yet Those who failed them, get Huge Bonus's and that is not only wrong, BUT it is Amoral.
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Robert - the first five paragraphs and "I" and "me" are mentioned four times. Also reference to interviewees as "actors".
This old news was serious at the time. This situation is serious - no one is acting.
Is it me - me,me,me,me (not you) ie. your customer/client/licencepayer - or is there somewhere else I can look for the facts at the BBC rather than some job sustaining profile-fest promoted by you.
I look forward to your 6 month/one year/annual anniversary of the "day the UK banking system nearly collapsed" rather than merely the end of year celebration you are raking over again.
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Surely what we need right now is to introduce a Land Value Tax. Land speculation is the cause of these bubbles time after time. Fiddling around the edges and trying to cure the symptoms is not going to help anyone. If we want an end to boom and bust, a Land Value Tax is what's needed.
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Surely part of the solution is a return to Consumer Credit Control. A return to the 1960's, where it was normal for governments to dictate the minimum deposit and maximum term for hire purchase agreements on cars may not be feasible, but goverment control of minimum monthly repayments on credit cards is both feasible and desirable.
Personally, I think the rot set in when credit card companies reduced the minimum monthly repayment from 5% of the balance to 2%.
This turned credit card debt from useful short term credit into, literally, the "never never". This is when too many people "forgot" that their debt had to be repaid.
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@169 Calc
well done you bought the lie.
Did you do the research and measurement yourself?
If so how old are you to have measured far enough back in time and if you are that old why were you wasting so much time measuring CO2 instead of inventing cold fusion?
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John Varley seems to absolve Barclay's Bank of any criticism yet feels the need to apologize on behalf of the Banking Industry.
Breath-taking arrogance from a Bank which has gone to the Gulf States for survival on terms that stifle Barclay's recovery!
These bankers must think we are complete idiots to carry on behaving the way they are!!!
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A Philosophical Question for your all
If a tree falls in the forest and no one is there to hear, does it make a sound?
If the banks withheld bonuses, would the bankers leave thier current employers in search of new employment opportunities?
I am simply baffled that banks are paying bonuses despite losses. They say staff will leave, how and why I ask, there is no where for them to go unless there is another planet with a sucessful banking system I have never heard off.
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I have heard Mervyn King admit to the Economic Affairs Committee at the House of Lords that they don't really know what they are doing when they change interest rates and that the effect may be felt only two years later...
But why has the "Monetary Policy Committee" that used to meet in the House of Lords become part of the BoE?
Why has Alan Greenspan promoted the myth of 2% inflation target?
Why does everybody responsible hide behind "globalisation"?
I have offered my software methods to Sir John Gieve, but have not had had a response. Maybe the "political will" is lacking to solve the crisis for it is a plan that works according to design???
With best wishes for more and more power to your investigative interviewing elbows,
Sabine
Organiser, Forum for Stable Currencies
[Unsuitable/Broken URL removed by Moderator]
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The real culprit for the mess is Gordon Brown. The buck stops (or should stop) on his desk and ultimately it is up to jhim to ensure that the economy is run on sound principles to ensure long term stability. This means that there has to be sufficient flexibility and reserves in the system to accomodate short term problems.
His pronouncements at the outset - back in 1997 - were sound enough, but look behind the detail and it was all hogwash. He said that he'd free the BoE to manage rates to control inflation, but then placed all sorts of restrictions on them. He said that he would ensure that house prices would not become a dominant factor in the economy. He said that regulation would be modernised and set up the FSA, taking regulation of the banks away from the one set of people that really understood them - the BoE.
Unfortunately, he has shown repeatedly that he cannot be trusted with anything - let alone our economy. The guy lacks basic experience and understanding - just look at the mess he made over the gold sale fiasco. What makes it worse is that he believes he knows better than anyone else. He has made countless "promises" and forecasts - all of which are worthless. How come one minute he is proud that the city can be managed with " a light touch" and at the next he's calling for more regulation. He simply doesn't understand.
In most other countries the top economic people have years of experience in related fields - but Brown had none, he probably couldn't even balance his cheque book. To entrust the economy to someone like him was folly, and he was only fortunate that Ken Clarke left him a benign and promising outlook in 1997.
To make things worse, he was determined to divide and rule, which is why he set up the FSA with responsibilities for areas previously dealt with by the BoE. The FSA is worse than useless. (BTW why have we heard no complaints about the bonuses those guys got).
As long as he is in charge and Darling will have to do what he is told - things will just get worse. My real sympathy is with those poor people in hock up to the eyeballs because the promised growth has turned into bust.
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I have to say I just don't buy this explanation of the Dep Governer. I remember a couple of years back they were trying to make out that there was no link between economic growth and equity withdrawal when it was abundantly obvious to all disinterested parties (ie. not estate agents, banks, building societies or government) that the link was palpable.
I remember saying 4 years ago that if house prices collapse it will be an economic disaster.
I think it is disingenuous at best of the Bank to say that they couldn't see this coming. The IMF have been saying our debt burden was unsustainable for years and just a glance at the growth figures of the past decade demonstrate that without the massive expansion of the public sector and equity withdrawal we would comfortably have been in recession (also growth never got about 2% which is hardly solid....).
No, this is about the Bank deciding that it is better to look stupid than collusive in the debacle that we are witnessing.
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Why is everybody surprised that his crisis has happened? You only needed to see what was going on in the property market in America and in this country the £1.3 trillion of borrowing to deduct that it all could not go on.
Everyone wanted to live like lords. The neighbours used to go out with a stretched limousine, they used to take upteen holidays and send their children to private schools. People that had never been skying started in their 40s and 50s to sky (with a few injured backs as a result)!
The cheap borrowing was crazy and my crying out this cannot go on was ridiculed with 'doom, doom, doom!' as the reply. A bit of 1930s history explains it all.
And as for Robert Peston being blamed for hyping all this up, he seems the main finance commentator to realise what was going on.
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Well, well, well, what a surprise.....
"Ex-employee returns to slate current encumbents" - no surprise there then.
What makes me laugh is this statement:
"But, as Gieve says, the Bank had identified the bubble, even if it didn't fully understand quite what misery its popping could and would cause"
....am I to presume none of the BoE staff went to University and read about previous bubbles bursting and the misery they caused???? - Do they actually know anything about Economics?
It's not difficult, in econimic boom times you gradually defalte the economy (or rather reduce the rate of growth) and then in the bad times you will have a lot more flexibility than the rest. The ridiculous competition that occurs between nations of "who's growing the fastest' is a joke - like a bunch of children riding their bikes with no hands for the longest - until one of them hits a wall!
...the truth is - no one is actually growing, it's all a sham. Unless someone has foudn a way of producing elements (which by definition is impossible) - then NO-ONE IS ACTUALLY GROWING.
It's lucky that the BoE aren't in charge of something important, like blowing up a rubber dingy - because they would let the pumper keep pumping - remark about 'how large it's getting' before the thing blows up scattering a bad fish smell on everyone standing close!
....luckily it's merely the Economy they have screwed up and obviously not that serious.
GET RID OF THE BoE
GET RID OF THE POLITICIANS
GET RID OF CAPITALISM
GET RID OF INTEREST
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I gather from all of this that that no one did any financial forecasts for the future.
They knew there was a bubble so why was no one able to forecast what was likely to happen when the bubble burst.
It all seems to be based on the likelihood that someone else would do that but in the end no one had.
From an onlookers point of view it seems totally unbelievable.
More likely that everone knew but times were so good no one wanted to stop it.
Foremost to blame are the governments. Not only here but elsewhere in the world.
They were the only ones who could legislate to put the dampers on.
But they only look short term so why would they jeopodise their election prospects.
There is much suffering as a consequence and if there is to be a future for this country an independent body should be in place to scrutinise all government spending free from political interference.
This I believe is what the Tories propose.
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....and will all those banging on about Gordon Brown being the sole cause of this - that holds no more weight than "It was Maggies fault" or "it was Calvin Coolidge" to blame.
Is it the fault of the rodeo rider when the Bull throws him from it's back?
It would be nice if all the 'politico's' took their team supporting attitude to a political blog and stay off this one. I realise that the simple minded can only handle concepts of "you're either red - or your blue" - maybe they have bit minds (1 or 0)
Both parties in this country have tried to run the economy in my lifetime - AND BOTH HAVE FAILED DISMALLY.
This leads me to the conclusion that it matters not who is in charge, but the system which they are in charge of. Until the system changes, the politicians will do whatever they feel is popular.
Both Tories and Labour alllowed the country to bubble because it wouldn't be popular to put the brakes on - just as John Gieve has stated.
MY GOD A CHILD OF 4 COULD SEE THE PROBLEMS WITH THIS SYSTEM! WHAT'S WRONG WITH THEM?
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"The mess we're in demonstrates for Gieve that the Bank of England does not possess the proper tools for dealing with incipient booms in assets and lending. The power to raise and lower interest rates isn't adequate for the task..."
who took the powers away from the bank of england and gave them to the FSA?
in my experience, whenever a person or company, etc, muddy the waters around an issue, its for one reason only, to avoid blame!
the bank of england were never going to control the economic issues, as the wonderful gordon brown took their powers away and gave them to the FSA.
i dont believe the bank of england have anything to answer for, the government of the day set up the FSA for what reason?
brown could have left the powers with the bank of england, but he chose not to, why?
the FSA had an essential role to play, a simple one - keeping an eye on the banks, if any overstretched on their borrowing (in pursuit of bigger profits) then the FSA steps in and stops any further borrowing until that bank refinances itself to cover any losses if things go wrong.
it really was that simple!
as we are all now paying for, they failed to do this... why?
could it be the FSA staff and "procedures" were not upto the job gordon brown had given them?
that would be believable if the government had not followed the exact same strategy with the public finances!
if the FSA were truly as "independant" as gordon brown was telling us, then they should issue a statement telling us exactly who ordered them to do nothing when the banks were over stretching, or if they werent told to ignore economic warnings, then why did they choose to do nothing.
the most alarming fact of this mess for me is that gordon brown and the FSA refuse to answer questions about their role in the near total collapse of our banking system.
had the FSA done the job they were given to stop the banks from over borrowing, then at this time, we would be in a position of strength, rather than plugging the black financial hole, because of its failings, to the tune of £8000 for every person over the age of 18 in the UK!
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This comment was removed because the moderators found it broke the House Rules.
Many far-sighted people have been wary of globalsation and it is crucial that this phenomenom be carefully considered. Free markets might sound 'right', but if unelected, and unregulated corporations can take decisions that effect whole economies, that cannot be right.
As to interest rates, the Bank has known and accepted that its Bank rate has no formal link to any other, so it was imprudent expect it to work. The solution is to separate retain banking, mortaging, and money creation into completely separate entities, with ONLY the BofE licenced to create credit. No more SPVs, etc, etc, no more creation of credit by one institution lending to another, expansion of credit being restricted to real deposits and the velocity of circulation of money.
We need real money backed by real assets, even, perhaps, only gold. Beter a lower level of economic activity, than wlf booms and deep busts.
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179
Your comments are right on the nail and judging by the weekend polls joe public is educating himself in and is beginging to get worried about the prospect of so called quantative easing ("loads of money")on the back of short lived deflation and then resulting in unfettered inflation once the credit flows.
Trouble is desperate people do desperate unprudent things like flying headlessly around the world telling others what to do like the Emperor without his clothes on.
Still take some solice in the King Canute story as the charade is really getting that obvious with every UK economic statistic a basket case.
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....to add further to my point - and to raise something I have previously raised.
Democracy is short-termist.
It's been proven that some things cannot be managed with a short term outlook.
The french have a fantastic rail network - because their system ensures that the management of it out lives the president.
We have a victorian rail system - because our government CANNOT think beyond the next election.
Put yourself in their shoes, would you embark on a 500 Billion 30 year rail project to re-lay all the tracks so we can use a wider gauge and faster trains like Europe?
.....before you answer, remember most of the money will need raising in the next 5 years (while you're here) but the benefits won't be seen for 25 years (when you're probably not here).
.....and it's the same with our Economy - NOBODY LOOKS BECAUSE NOBODY EXPECTS TO BE HERE WHEN THE BUBBLE BURSTS.
It's like pass the parcel - when the music stops, make sure you're not in power holding the deflating economy!
Maybe if they used their thick brains for once they could resolve this problem easily - simply elect each department seperately with the terms being appropriate to each.
.....and if we ended up with the Tories running Health, Business and the Home office and Labour running Transport, the economy and immigration - then so be it.
The cross departmental dependency would provide a good check and balance which is lacking in our current system.
You would never have got a crash because the Chancellor would have made sure the brakes were applied at the right time as he would have been here to have to clean up the mess he created.
....where as this Chancellor knows he will be long gone before this particular brown stuff is all up the fan.
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John Gieve's remarks show how insular British thinking is in terms of international affairs. It seems some people at the helm of the nation's finances still think Great britain is a great power, and lines on maps still mean what they did a century ago. No wonder the crisis came as a shock to him.
Also, his excuse for not raising interest rates is pathetic - and Robert Peston is wrong to say that "The power to raise and lower interest rates isn't adequate for the task." It may have been, but the larger problem is that the Bank is clearly not as independent as we suppose. If they were, they would have one goal, and one alone - to protect the value of the currency. As it is, the BoE is leaned on by the government for political purposes.
Had we joined the euro, we would still be facing the recession, but as we are - outside the eurozone - we face two crises: the worldwide recession *and* a currency crisis. The BoE are now unable to raise rates (both because the government won't let them and because the markets would punish sterling), and yet given our astonishing levels of debt and financial isolation from Europe, the pound will decline all the same.
Doubtless people are asking to be paid in euros, putting their savings into euros, and, if they're brave, keeping their debts in sterling.
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#161
I'd like to correct myself. I think that, after thought, Marx was more than partially right, as you can view the entire credit expansion as a response to the continued loss of profit provided by the system itself and the gains in productivity.
I'll have to go and think this through.
However, please note, this whole thing is bigger than Gordon Brown.
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Shirkers shirking!
The Bank of England response to the crisis was moral hazard and to worry about inflation.
What a load of nonsense Sir John Gieve says.
To suggest there are no bad debts in HBOS and RBS is delusional.
To suggest the govt will lose money in Northern Rock is plain stupid as the govt. hasn't invested a penny in NR as it stole it from NR shareholders.
The Bank of England are culpable for the mess we are in and shouldn't be given an excercise to piffle their way out of it.
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denzil69
No good blaming Gordon - where are the "Strong letters" sent to the chancellor from the BoE warning that this huge credit monster is likely to expode?
.....there were none - or they would be out by now.
Which ever way you cut it the BoE was set up to report on Econmic conditions. If they knew there was a problem, and the treasury weren't aware - then the BoE is at fault for not making it clear enough.
If the Government an FSA ignored such a call then of course they would be at fault.
No warning came - and nothing was done as a result.
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Comment #145 hits the nail on the head:
and who appointed the former Permanent
Secretary of the dysfunctional Home Office
(Sir John Gieve) as Deputy Governor of The
Bank of England with oversight responsbility
for the financial and banking system - in the
teeth of widespread scepticism / incredulity?
It was Gordon Brown.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4170009.ece
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I am sure that the Panorama programme is a very important description on one level of what went wrong.
But as you have said confidence won't return until there is in return the prospect of stability.
But to me these admissions above are "minimal" and reflect an attempt to redress the psychology of the situation - they are not sufficient to explain what really went wrong.
Its not a question of metaphorical heads on sticks (personally I think Gordon Brown should be one) - we need to know EXACTLY what went wrong and therefore need a public inquiry.
Clearly as it is global there would be limits but its no excuse. If we live in a global economy we still need stability.
Should Blair have discouraged stronger FSA regulation?
For example so far as I know there are still enough Credit Default Swaps out there to sink the global economy. It can't be right when the CDS values outstrip real money by factors of hundreds of percent.
Should short selling be banned (sounds like a no as most of the damage was done by long selling).
When the tripartite regulators knew that there was a problem what did they do (apologies if that is in the programme)?
Rise above the politics and do what is right for the long term interests of the country Mr. Brown.
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#16.
You (And Marx) are missing something. Labour is only one factor of production. The "All profit is exploitation" argument ignores the all the other factors.
The reason the banking system was invented in the first place was because the allocation of money used to be incredibly inefficient - piles of the stuff used to lie around unused.
It's more efficient to move money from people with the stuff but no ideas, to people with ideas but no money - hence borrowing and lending. "Poor" entreprenuers get the money to develop products that produce growth. With the banking system you get greater capital productivity.
Blaming the bankers for this mess isn't really on. They were behaving rationally under the regulatory system they lived in. The culpability lies with the politicians and the distrotions they introduced. The grossly distorted inflation figures mentioned by others being a prime example.
I've never understood why politicians believed that inflation was always bad, so long as it wasn't house price inflation (when it became good). Nor why the tax system would be designed to divert money from pension funds (which are productive in that they provide equity financing to companies, which are productive assets), into housing, which is a non-productive asset.
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What on earth makes people think that putting the same people - ie bankers who LOST billions of pounds/dollars/whatever and regulators who failed to notice systemic incompetence and widespread fraud - in charge of deciding what happens next will prevent this mess from happening again?
The current headless conspiracy of bankers, regulators, accountants, investors and lawyers have virtually all been shown to have failed society as a whole; people who were supposed to understand but clearly didn't, just mounted the gravy train when it passed by and held on as long as they could.
The general public could be forgiven for wondering why hedge funds, for instance, are even legal? How bankers are allowed to create financial products based on thin air to derive massive profits in seconds while 'gambling' is roundly condemned in society?
How can the plight of a banker, jobless but with enough money in the bank to live a comfortable life if they never worked again, be compared with that of a bank worker who has lost their job and faces losing their home?
Regulation cannot be the answer if the regulators failed to see how serious things were last time and failed to act where they could. Any new regulation, once it has passed through endless committees and drafts, will surely be watered down and full of loopholes, and we will be right where we are all over again.
Surely is the time for some new thinking, for drafting in new ideas, new types of intellect, new ways of thinking, and individuals who might avoid bringing the world to the brink of ruin through incompetence and greed.
Unless things are changed now - while we have the opportunity to change them - we will be facing some different kind of catastrophe a few years down the road, and this time it might finish us off for good.
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pot_kettle #175 - indeed, you demonstrate your lack of knowledge quite clearly.
For starters, I don't need a time machine to read the record of past levels of CO2 that are stored in ice cores. Since you are apparently unaware of even this simple concept, you really shouldn't argue any further.
As for cold fusion, what about it? It is irrelevant to the topic under discussion.
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#157 supercalmdown
Thanks, that's about what I thought, but just wanted clarification. Especially in light of the 1900 jobs Santander is chopping next year (announced recently)!
What I don't understand (still) is how Northern Rock can be recruiting/promoting staff and paying them 30% bonuses when it's will surely be shut in a couple of years?
Or do the men at the top know that and are just sharing out whatever isn't nailed down?
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GREAT...."THE ROBERT PESTON SHOW".
Just what you wanted all along.
I wonder how clever you will make yourself look by putting your unique negative spin on the story right at the end. Feathering your own nest at the expence of other peoples' jobs.
WELL DONE. so glad I pay my licence fee.
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#19 KenHarvey has hit the nail on the head in his first point:
"A mandatory means of calculating inflation which permits of no exclusions of convenience. The present system excludes mortgage interest and property values, thus ducting inflation into house prices."
We've had years and years of simpy rip-roaring inflation, but by some quirk most of it was funnelled in the housing market, leaving the CPI, RPI and some other indicators relatively unscathed.
By instinct I'm not a monetarist, but it's high time the RPI was supplemented by an indicator that defines inflation as the overall money supply (cash plus credit in all forms), with rising prices as a symptom, not as the real thing.
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Dear Robert
"WHAT BEGGERS BELIEF IS THAT THEY SAY THEY DID NOT UNDERSTAND WHAT WAS HAPPENING, WHAT A COPE OUT,
WELL DONE
VINCE CABLE, HE KNEWS??????
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Giving the clowns on the MPC further tools won't help avoid such a situation again.
I and many others were warning of reckless lending and the effect of the inevitable house price crash from 2002 onwards. Others denied it was a bubble and argued there would not be a crash.
Even if the MPC had the tools to restrict lending it would not have done so - because it didn't see that a problem existed.
Kate Barker (a fellow member of the MPC) wrote a report largely putting down rapidly rising house prices to a shortage of houses, lack of building and restrictive planning. The MPC pointed out it didn't target asset bubbles, and in any case because all that lending was secured agains property that was rising in value, it wasn't really a problem. This is classic bubble mentality.
If a member of the MPC couldn't see that house prices were ballooning in value because banks were giving money away by the bucket load, then how on earth can believe that they would have used additional powers to prevent a lending splurge or house price bubble that they weren't really concerned about?
This all comes across as someone who was pretty bad at his job blaming his tools rather than the incompetence of him and his colleagues.
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"...didn't do anything about it - for fear of being told off! I find this hard to swallow.."
Unfortunately, rather than finding this hard to swallow I find this normal. Anybody in public office whether directly elected or appointed by those who are directly elected have to weigh up the fact that correct but unpalatable decisions will result in the public calling for them to be sacked and as the politicians want to get re-elected they usually cave in.
I heard recently, in a moral maze discussion on democracy, that the mental age of a crowd is that of an eleven year old child.
Any wonder the country is in a mess when you have to please the crowd if you want to get re-elected which means that when it comes to 'unpleasant' but necessary decisions they have a referendum so they can consult an electorate who, if they can be bothered to vote at all, will vote from a position of prejudiced ignorance and call it a victory for democracy when policies designed to ease pollution and help prevent climate change are shot down because they might mean the voters have to actually do something, like recycle or pay a congestion charge.
It would have been a brave man to tell banks to stop lending so much to the people. I can hear them now... "How dare the government try and stop me buying into the dream of a pile of bricks doubling in price every two years!!!!"
Everyone blames the government, but it was we as a society who bought into the dream of never ending house price increases. All those banks unwilling to pursue the dream were forced by share holders to get involved because we all wanted the unbelievable returns.
Now we blame the Bank, The Govt etc anyone but us. We're no longer citizens we're consumers and we have rights.....
Roll on reality and roll on the recession. Maybe we can learn to be citizens and members of a society again that pulls together and not apart.
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So, Robert, does it tell how Brown was warned by the IMF about the following. in some cases, more than once, in the years since 1999
1. Unsustainable level of public debt
2. Ditto private
3. Economy built on the bubble of a housing boom
4. Our very own sub-prime mortgage
I do hope so. The public need to be clear that whilst this is a global phenomenon, that the UK is the worst placed developed economy to deal with this (contrary to the PM's lies) is down to Brown and Brown alone. It is his fault things are as bad as they are here, and the likelihood is that he will bankrupt us before too long.
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The government is clearly to blame for this mess. Have a look at Mr Mandelson on RP's clip explaining the asset bubble. They knew about it but didn't want to interfere because of the stamp duty and "growth"that was coming out of the house price inflation.
Gordon Brown as chancellor knew what was going on but his "story" relied on the asset bubble funding it. It was as we now all know it was nothing more than a zanulabour "house of cards".
He'll be calling it "his country" next.
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"...is to convey quite how close we came in October to the collapse of the banking system."
Robert,
With dodgy accounting and embarrassing arrogant omissions such as we can read here ... http://www.cnbc.com/id/28344934 .... you are spinning an unhelpful yarn to suggest that it is worth saving?
You haven't been smitten with the Bumbling Brown Hubris and Denial Syndrome, have you? Might I suggest a chat with Andrew Gilligan or is a repeat of that that earlier BBC saga something you are anxious to avoid.
How have things been avoided, whenever the same drivers in hanging on like limpets to their parasitic empires, and nothing has been really changed?
We expect a lot more than was the norm these days from news and media, with the earlier norm being accurately explained by Mark Twain ..... "If you don't read the newspaper, you are uninformed; if you do read the newspaper, you are misinformed."
Would you care to disagree that things are worse than before rather than better and getting better? Or would you rather avoid the bloody obvious.
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The reason why the bankers didn't see this coming is because that the best people were not employed to be in charge. Instead it was the less able friends/sons/daughters of friends in high places that were put in charge.
Nowadays, its not what you know, its who you know.
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Borrowing is not the problem. Forgetting that you have to pay it back is. "Interest Only" mortages caused this.
£200k at 8% is £1,333/month. At 4% that number halves to £666.
If you could afford your repayments at 8%, you can now borrow twice as much at 4% Yippeeee!
However on a 25yr repayment the numbers become £1,561 and £1,066 respectively. This not only forces you to be realistic in your borrowing it also reduces the volatility of payments relative to interest rates.
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The way the various authorities have managed the economy over the last decade puts me in mind of a man and his family travelling along the motorway in their car...
"Daddy" (the government/treasury) is operating the vehicle, steering and pressing the accelerator. When a strange noise/vibration starts "Mummy" (the BoE/FSA) says "what's that?". "Nothing" says daddy, pressing the accelerator down more, thus changing the frequency of the vibrations and making it seem less noisy.
Meanwhile the "kids" in the back (the banks) are shouting "faster daddy faster!!"
It starts to get hot inside, instead of saying anthing to daddy, mummy just fiddles with the unlabelled levers on the heating and ventilation system. The noise comes back even louder but daddy pretends he can't hear it and turns the volume up on the radio.
Eventually the most sensible kid asks "is it supposed to be making that noise". "of course it is, son. It's a V8" daddy imparts sagely. "oh ok"
Of course eventually the old banger can't take being gunned along the motorway indefinitely, without at least someone stopping and lifting the bonnet to see what the problem is. And finally the car grinds to a complete, steaming, smoking halt, grievously damaged, as all the other cars race past as they are stuck in the hard shoulder.
I know this analogy is a little laboured, but to my mind, what Gordon Brown has done is effectively drown out all protest, with his overbearing manner, insisting he knows best, and driven us into the ground.
He's a bloody disgrace and my only hope is that we'll have a change of leadership at the top as soon as possible.
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It appears from the revised Memorandum of Understanding between the Treasury, the Bank of England and the FSA that there is still a conflict between the responsibilities of the FSA and the BoE. The FSA has to supervise the banks but the BoE has to ensure stability in the financial system. Surely the latter requires control of the former?
Currently retail banks fund short and lend long. If short term funding becomes excessive and then dries up and cannot be renewed, there is a liquidity crisis. We have one now where £750bn has to be repaid by the banks over the next two years at a time when the funding cannot be renewed.
So do we assume that in its supervisory role the FSA has been adding up the short term funding gained by each of the banks and has been comparing the total to some measure which is deemed acceptable and passing the result to the BoE for action?
If so, how was it that £750bn - equal to 50% of one year’s UK GDP - was deemed acceptable?
If the FSA did not do the addition and assessment of acceptability, why not?
If it did, and passed it to the Bank why did the BoE not act?
According to the Memorandum the Bank of England also has responsibility to act to deal with fluctuations in liquidity. So when money supply was going through the roof and house prices were rising 10, 15 or 20% per annum, why did it not act to curtail the liquidity?
If it can undertake quantitative easing to deal with a fall in money supply why can’t it undertake quantitative tightening? It does not need new tools - it has them already.Why did it not increase regulatory bank ratios for example?
Given that we are about to embark on quantitative easing (QE) and liquidity will be increased, how will we or the forex markets have any confidence that the right amount of easing will be applied and that it won’t be allowed to be excessive again?
Will the BoE be transparent about the level of QE?
Without that confidence and clear parameters/publication of intent, we run a risk of a run on the pound.
Yours faithfully
Nigel Reed
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i tried in vain to find out why Sir John Gieve was made deputy governor of the BOE, he has no banking or financial experience. How many of the others running the BOE also are not qualified? that is one of the problems of UK Plc it is run by amateurs, i cant wait for all these so called experts and commentators to tell us their forecasts for next year......as if any one of them predicted the events of 2008 correctly.
It has already started with the Barclay's boss telling us his forecasts....is this the same man who ruined a perfectly good bank by not seeing the consequences of the government and banks actions? something that was was glaringly obvious even to my mother!
Robert Peston's new year resolution.......get GB to confess that he blew the UK economy!
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It appears from the revised Memorandum of Understanding between the Treasury, the Bank of England and the FSA that there is still a conflict between the responsibilities of the FSA and the BoE. The FSA has to supervise the banks but the BoE has to ensure stability in the financial system. Surely the latter requires control of the former?
Currently retail banks fund short and lend long. If short term funding becomes excessive and then dries up and cannot be renewed, there is a liquidity crisis. We have one now where £750bn has to be repaid by the banks over the next two years at a time when the funding cannot be renewed.
So do we assume that in its supervisory role the FSA has been adding up the short term funding gained by each of the banks and has been comparing the total to some measure which is deemed acceptable and passing the result to the BoE for action?
If so, how was it that £750bn - equal to 50% of one year’s UK GDP - was deemed acceptable?
If the FSA did not do the addition and assessment of acceptability, why not?
If it did, and passed it to the Bank why did the BoE not act?
According to the Memorandum the Bank of England also has responsibility to act to deal with fluctuations in liquidity. So when money supply was going through the roof and house prices were rising 10, 15 or 20% per annum, why did it not act to curtail the liquidity?
If it can undertake quantitative easing to deal with a fall in money supply why can’t it undertake quantitative tightening? It does not need new tools - it has them already.Why did it not increase regulatory bank ratios for example?
Given that we are about to embark on quantitative easing (QE) and liquidity will be increased, how will we or the forex markets have any confidence that the right amount of easing will be applied and that it won’t be allowed to be excessive again?
Will the BoE be transparent about the level of QE?
Without that confidence and clear parameters/publication of intent, we run a risk of a run on the pound.
Yours faithfully
N Reed
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Er................what is the BoE employed for?
2 YEARS warning & naff all done?
BTW will Iron Pants Brown be stumping up for the disaster of HIS making in flogging off the UK's gold @ market stall prices?
Will Prudence Darling be brought to account for the complete and total shambles that has existed on his watch?
Nah! The whole useless bunch of Tamworth Crosses, will be pensioned off on index linked pensions paid for by the peasants who are left to pay for their staggering incompetence!! Apologies to the Tamworths BTW!!
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calcination and pot_kettle
Why dont you two take it outside, we're trying to talk economics in here and your distracting.
Thanks.
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My gob is smacked. Put simply, our financial leaders and economists are as a group of collective brains, no better than the public at large in knowing what comes next. The Bankers at the BoE and in the City should hang their heads in collective shame.
Well, let me tell you that if we continue to believe in market forces (which in my view we should), then let the weak fail. Let credit availability shrink. Let consumption fall. Why?
To allow the next generation of human kind the chance to start on the road to working life, with fair and equitable asset values. Asset values in all classes, whether goods and services, food, energy, or jobs and houses are over valued. Bring them in line. Make them more realistic and affordable. Create the conditions for more respect and self esteeem in society. Worth not greed. Sadly, I can never envisage any current living policitian achieving this in the UK today.
We are going to go through a painful adjustment after years of debt bingeing. All of us with debt (me included) have to repay it as fast as we can. Living within our means.
The Government took the "lesser of all evils" approach by bailing out the banks. Without money,we have no economic framework and we are all scuppered.
Sounds trite if you are without a job though. What about the unemployed? What hopes can they aspire to? Looking after your own doorstep srpings to mind.
Government needs to continue to support. There is a need to use taxpayers money to create domestic demand and to revitalise utlilites, like road and rail, schools and hopsitals. Don't waste money on failing private companies. Let them go. Create new work in the health and infrastructure of UK plc. Rewards will come.
Readjust the benefits system to fit the new order - work to live. Realign benefits to meet real needs. If you can work, you should be made to work. Mobility of labour is not an issue as those who want work will migrate to it. For 40 years, the key group of UK plc that has been affected are married couples with children. They have been tax discriminated against. Ask any sensible human or social economist - the correlation between growing social disorder and reducing tax and benefits policy favouring families is direct and true.
Government should provide assistance accordingly in this area. Can't work = reduced or even (as Sweden and Australia have done in the past) no benefits. Tough love, but one for the betterment of UK plc.
The BoE cannot do all these things alone, so why has Government asked them to try by removing fiscal policy from political clutches? The Government knows, through the ONS and its Census data every 10 years, what is to come. It does not make good reading. Less working people, more retiring dependents living longer - less tax to pay for more benefits. The numbers do not stack up.
Government should also not fail the taxpayer / electorate. It should make sure that those benefiting from state aid e.g. the banks, give all UK citizens value for money and a return in the investment from the Government to them. I am somewhat sceptical about ever living to see this achieved.
Why do so many migrants want to come to the UK? Because it has much to offer. We just need to change the present offering a bit and make things more work oriented not benefits oriented.
Finally, politicians should take the greatest care. They do fear a real democracy as they would not be able to govern effectively. They should listen to the electorate. Failure to listen or to listen without hearing could lead to a very dangerous future for our society.
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#142, you’re right about inflation but wrong about house prices.
They don’t report inflation/Money supply accurately. It’s well known in some circles (like Banking)
House prices were going up.
Gold prices were going up.
Oil prices were going up.
Food prices were going up.
Prices where exploding and they were still reporting 1.8% inflation per year! They would call it "Core" or "Adjusted" or... inflation.
If Bank of England rates would have been higher (2001-2007), we would have
1. Borrowed less / saved more
2. Spent less on things like petrol (because we had to save more)
3. Had more equity in the house probably.
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It's all about structure, structure & structure. (the structure's wrong)
Think about this. The government(s) allows banks to create money through fractional reserve banking.
This money (debt) is geared 10 times in relation to the banks capital reserves. The bank does not lose money as such when they write down/off debts, there solvency percentage simply goes down.
It's like you have 10 pound in your pocket, but the government lets you lend out 100 pound's to 10 of your friends at interest. If only 5 pay you back - you've not really lost anything, but your ability to lend 100 pounds again diminishes to e.g. 50.
The government complains that you're not lending out as much as you used to, you say - ah you need to help me, my ability to lend to your suckers (ops. subjects) has diminished.
The government says don't worry we will give you a fiver, underwritten by the taxpayer, so your back up to 10 pounds. The only demands being you make groveling apologies to the public through the media, that you accept that the government appropriates all blame for this mess on you. And you promise to be more careful next time.......
The only solution to the crisis (based on the present structure) is to create more and more debt. FRIGHTENING IS'NT IT
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This comment was removed because the moderators found it broke the House Rules.
Another opportunity for the self promoting Peston to bolster his own ego. The man who "caused the first run on a UK bank since 1866" and proud of it. What a plain fool.
The truth is of course, it's no fun on the front line trying to run a business against the backdrop of his daily diet of speculation and expose's. One thing I can firmly predict for 2009 is a backlash against Robert and his apologists at the BBC he's become as deluded as Margaret Thatcher and Tony Blair the architects, along with Gordon B, of this dreadful, de-skilled, over geared disaster of an economy, we are left trying to create a future within.
So have a good Christmas Robert and spare a thought for those outside the protective veil of the media whose lives you have made so much worse than it need have been. Sleep easy mate.
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free speech #215- nice to know someone is reading the posts.
Fortunately, the other posters seem to have nailed the immediate problems already. What gets up my nose however is that Browns approval rating seems higher now than it was, despite him being partially responsible for the mess. Too many people prefer someone who does something about a problem, never mind if the problem could have been avoided in the first place.
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#15
I have to agree with the notion that smaller banks would be preferable to what we currently have. While banks have been merging to be big enough to weather the storms, it seems to me that banks that are too large to fail are a national problem. As we've seen, if a bank is badly run, it falls to the taxpayer to pick it up - that just doesn't happen for any other type of business.
It ought to be possible for the banking industry as a whole to help a bank that gets into trouble, by a form of mutual insurance/assistance, rather than by takeover.
If there are only a few huge names on the high street and they are guaranteed by the taxpayer, then there is no real need for them to play by a workable business model. That must be crackers.
If, as customers, we decide to walk away from a failing bank, we will end up paying to keep it in business.
Is it me?
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We've all heard the saying "Northern Rock put the NR is uNRegulated", but I think the way things are going, it'll be "public uNRest" in 2009 unless we get some answers that add up!
Or is getting things to "add up" too much to expect from our countries leading economists and financial "geniuses"?
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At 4:20 p.m. anyone with a guilty conscious should call security or escort themselves out of the building immediately.
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I mean conscience.
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Robert Peston and others in the media industry appear to be relishing their profile, and almost gleeful in their portrayal of events in the present economic and financial worlds.
I wonder if Mr Peston could turn his attention to understanding the consequences of his reporting, and imagining how much damage he and others cause to the wider population by constantly undermining the confidence of ordinary people to go about their normal daily lives.
Could he speculate on how much worse the recession is going to be because of the media??? Will he wonder how many more people will end up in the unemployed statistics??
I suspect not because he is no doubt very happy to be able to make an easy living, with no real accountability for his actions.
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It is remarkable to see people like Varley and Gieve queueing up to tell the telly cameras what went wrong. They've got more front than Birmingham Town Hall.
What ever happened to shame ? I suppose it died around 1968, along with Christianity and marrying the mother of one's children.
Shouldn't the BoE's monetary policy committee be growing beards and hiding away in small seaside villages, moving location frequently in case anyone finds out who they are ?
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Robert i have followed your comments on the credit crunch since it started and also on the bbc news .
I would like to ask the following questions
The goverment set up a a regulatory body called the FSA which did not spot the severe overlending by the banks, why?
Markets often correct themselves by causing maximum pain to the disadavantaged postion holders.
Why then go against the market and lower interest rates and risk deflation? You cannot buck the market.
We were being told by the IMF that the average debt per person was £16000 in the UK a figure which rose dramatically under Labour- did the goverment think that people could just keep in rising debt forever?
I am afraid that the size of the potential (liabilities)debts of our banks -take RBS £1800 BILLION are to large to plug even by us the taxpayers.
With regards to a true level for house prices i would suggest 4 times average eanrings will be final resting price of 3 bed room semi house around £120,000
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No matter how you try and slice it Thatcher and her cohorts were to blame for the start of this mess. It was they who started us down this "Loads of Money", everyone wants to own their own home, you can't buck the market road. Trouble is no politician since had had the guts to question these deceits since!
Money became the only factor that was of any importance. So we have the seeds of the mess we are in. No real economic base to sustain us and mountains of individual and business debt.
However, society has to take its share of the responsibility. Lot's of us feasted on the increased availability of credit. Just how many of those self-certified re-mortgages were fully used to purchase new homes? Why did we not question businesses who underperformed yet still managed pay increased dividends to shareholders. Why do we accept that the government have to indemnify those who invested in legal and General when they should have investigated more closely a too good to be true offer!!
I don't know where this will all end but if we keep trying to prop-up a failed globalised system we will only delay the inevitable emergence of a new viable system.
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It's all very well saying oops we're sorry we missed all those indicators. Just what is said about the devaluation of the pound now down a third against the Euro and 25% off it's high against the dollar. This bubble has caused absolute mayhem and will continue to do so. Ask the hundreds of thousands of pensioners living in the Eurozone. Their savings are no longer secure, their pensions are near to worthless in real buyinmg power and their property values are going south fast. When N/Rock happened and the story came out about guarantees of accounts I checked with my RBS offshore account only to be told that it did not qualify. When I tried to draw my cash they set a limit of five thousand pounds. The fact is they DO know what they're doing and they've got no intention of helping their customers no more than the government is under Brown. He's only interested in getting re-elected. The BOE and the Fed have much to answer for.
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It seems to me that most bankers and economists are not intelligent as they like to think. Most are incapable of independent thought and follow a set of pseudo-scientiicf rules as if they are gospel, without understanding (or even wanting to understand) the limits of these rules. We are constantly told that the brightest young graduates went to work in the city. This was wrong - the flashest young graduates did, enticed by fast money and fast living. For what its worth, the brightest mathematical minds work in defence, security and academia, in my experience.
Economists only seem to measure inflation for a health check on the economy, and the only tool to tackle inflation appears to have been interest rates. What is needed are more measures, and more tools. That much is, and always has been, obvious. If one of the purposes behind raising interest rates is to reduce spending, maybe targeted tax rises would be a better alternative in some situations. The BoE's hands were tied somewhat by the mandate of keeping official inflation at 2%. With the cost of Chinese goods dropping, official inflation levels were low and consequently the BoE could not riase interets rates, despite the fact that house prices were getting out of hand. A tax on 'high risk' lending (e.g. over 4 times salary), an increase in stamp duty or variable VAT rates etc could all have been used to much better effect than just using interest rates to balance the conflicting requirements of various sectors of the economy.
As to the question of when the economy will return to the heady levels of 2007, well that will require a genuine increase in wealth, brought about by increases in productivity and efficiency, not an increase in 'virtual' wealth created through the issuance of debt. That is no easy task and will take many, many years. Fortunately though, it might give engineers more of a say in the running of comapnies and less power to the bean counters!
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I am certainly no expert, but I've long thought that adjustment of interest rates (and simply chasing inflation figures) has seemed too simplistic a method to control a whole economy.
Particularly as we always seem to be way behind the curve and always badgering people either to 'stop spending or borrowing' or 'start spending again'.
Giving someone just one tool is always going to lead to quite a basic end product - what could you make with just a hammer? Or just a screwdriver?
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It is pretty obvious from this that the bank of England and FSA are not independent of the government. Appointments to the bank of England committee and the FSA have political elements. This is matched by the office of national statistics which also is not really independent. I suppose the fact that there statistics show things worse than the government depicts is some consolation but independent analysis by the likes of the IMF and the world banks paint a much clearer UK picture and it is not the rosy one the government depicts. Public relations have hijacked honesty so that the spin takes precedence over substance.
I confess now that I am at a complete loss about the financial state of the UK. I see inflation not rising when it clearly is, I see inflation high when prices are dropping. I see crime figures which don’t seem to match the facts. I see immigration numbers which are consistently revised upwards. I see losses at Northern Rock not on the government balance sheet nor the under funding of the pensions. I see examination pass marks consistently tweaked so the pass rates look good. I see hospital waiting lists coming down when my own experience says otherwise.
All these statistics appear to be manipulated to paper over the cracks and now the paper is tearing we are beginning to see the crumbling structure underneath. What disappoints me most is not that there is no accountability but we really had very little expectation of our government and industry leaders. Deep down we knew the figures were being manipulated and in our apathy of not tackling this we are now reaping our just dessert.
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The world’s gone mad, as nbc point out below:
It's something any bank would demand to know before handing out a loan: Where's the money going?
But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.
"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,"' said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."
“DECLINING TO”?! Mad, mad world -
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RE: 221. calcination
> What gets up my nose however is that
> Browns approval rating seems higher
> now than it was, despite him being
> partially responsible for the mess.
I wouldn't worry too much about that, it's temporary.
Next year will be grim for a lot of people. The PBR quite obviously painted an overly optimistic view of the future and it will be visibly unravelling by February 2009 at the latest. Unemployment will be rising steeply, the economy will be shrinking faster than Brown claimed, government borrowing will be rising (even) faster than he claimed - so the future increase in the tax burden will be rising (again), house re-possessions will be up (often by banks that are actually or nearly government owned) ... oh, and President Obama will be asking for a big increase in Britain's Afghan commitment. This is the high spot for Mr Brown, the rosy glow of Christmas cheer and retail spending. It will all look very different in a couple of months.
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Traditionally, only war gets us out of situations like this.
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#196
First of all I must say I'm impressed with the fact you understood #16 better than I did.
I must also say I don't agree with the notion that the bankers behaved rationally. I think there is a big difference between behaving within the system and behaving in the interests of their business and its clients. In terms of the bankers behaviour towards their business and clients, they were acting irrationally - allowing 125% loans and 50 year mortgages was incredibly risky and the banks must have known this. To endanger an entire business for a quick buck has to be irrational. If it was rational it would still be happening.
I do agree that the CPI was a faulty measure of inflation and I think this has compounded the problem - particularly by having such a biassed measure for the BoE to have as its benchmark. The ineffectiveness of this measure is now apparent for everyone to see. It was only ever good for the government as it showed an artificially low rate of inflation.
#16
You should email this to Gordon, I think he missed this before he claimed there would be no more boom/bust.
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"It's a suspenseful story told in interviews with a quartet of the leading actors"
no, I doubt it.
How about -
It's a self-indulgent story glossing over ten years of government incompetence to tell how Gordon Brown saved the world.
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yet another so called expert gets it wrong. while thousands of people face losing everything he will no doubt be totally immune from heartache with an index linked pension.
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All very scary.
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#220
I have to agree with most of what you say. There are far too many people in positions of influence adding to an already difficult economic situation.
It is completly un-neccesary for senior bankers in both the private and public sector to been seen falling over themselves to court publicity.
The vast majority people fully understand how to run their own lives, nothing is added by all this constant being wise after the event. 20:20 hindsight is always very clear.
With the fall in oil and other prime commodities the economy will recover fairly quickly in my view. I am sorry for the numerous people on here who seem to have their hopes pinned on much lower property prices but you may be disappointed It seems to me that property is already very affordable in part due to low interest rates.
Buy to lets are now giving a 7-8% returns a much better place to put savings than un-realible banks.
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#161
Marx does include credit is his analysis.
His main point was that it simply postponed the inevitable and made the recession more severe.
The circuit of capital - M - C - M'
Capital is only capital if it completes the circuit.
The capitalist only turns money into commodities for sale if there is profit to be made.
Credit maintains the market for commodities beyond total social value and hence enables growth to continue temporarily.
Eventually the market has to realign with total social value & capital has to be devalued.
It is still overproduction that lies behind the credit crunch.
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Re: post 23
The claim is that the Bank of England does not have the power to prick a bubble.
Oh, but it does!
It can suck liquidity out of errant banks by forcing them to place it on deposit with the BoE to prevent them destroying their solvency ratios.
All the banks or mortgage lenders forced into nationilsation destroyed their solvency with 125% mortgage loans, loans at extraordinary multiples of income, 100 % no deposit mortgages, buy to let stuff, bogus valuations etc, etc. etc.
This is not a failure of legislation, but a failure of regulation and the will to regulate in the national interest.
Whilst head of the Home Office, John Gieve showed a similar disregard for immigration rules, effectively suspending them.
The then Home Secretary, John Read suitably summed up the Home Office at this time as, "not being fit for purpose".
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All very scary...what next, the cancellation of Christmas?
Even more frightening is the fact that people are actually getting paid whilst they make these global ( and colossal) mistakes.
"Gizza job....I can do that".
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#161 and #16
At last, some realisation that it's not the drivers of the bus - but the bus itself which is causing the crash (I could work in journalism with puns like that).
To add to this, I would say the reason loans effectively became commidities, was because money was so cheap to borrow people viewed it as that.
For some real world examples - have you heard in the last 8 years the following:
"I have a 9 million pound property portfolio"
What his actually means is this person has a number of properties, all VALUED at 9 million, with borrowings of about 8.999999 milllion.
HOWEVER, the capitialist in this instance thought he really had 9 million - and thus went out and spent like that, buying cars, perfume and other luxury goods and services. This money then feeds back into the system, shop workers get pay rises, new stores open, back to Mr Landlord and he can't stop renting places out to all these new workers.
The bean counters and statisticians thought 'hey look at this marvellous growth going on - everyone is richer and everyone is spending more'. It was assumed this was all caused by real growth.
What will happen now is a re-alignment. Businesses will start hitting the wall, the rising unemployment will ensure the worker takes less wages and works harder in future. This increase in productivity (at the expense of the workers wellbeing) will replace the lost value - eventually.
This was the problem, and it still fits with Marx's theory, in fact as far as I can see, current events do not fit any other economic theory better.
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We hear a lot about where we are going to end up but if my memory serves me correctly in the mid seventies there was a computer programme called i think the Geneva project which forecast that if the rich nations did not distribute the worlds wealth by allowing the undeveloped countries to have a 3point increase in their standard of living, then by 2000 there would be conflict between the haves and the have nots it did not happen instead we have had economic migration on a scale that no one imagined and now the rich countries do not seem to recognise that any increase
in the developing countries is going to have to be paid by a decrease in the rich so people in the rich countries who think they will achieve their original living standards might be advised to dream on
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The bank are surely right about interest rates being a blunt and ultimately unsuitable tool to control everything in the economy. But why hasn't anyone seen the obvious connection between Planning Policy and the nimby attitudes towards housing expansion in the suburbs and southeast and interest rates.
Shortage of housing means interest rates used to control demand through pricing the cost of capital, high interest rates attract foreign capital and shortage of houses pushes up prices, and so on.
How can the price of capital for manufacturing investment be driven by a tool used to try a keep down housing prices.
The problem is not to restrict demand, but increase supply
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What is it they say...
Ignorance is no excuse!
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#229.....................!
oh come on how much longer are you going to blame Thatcher, she actually left office nearly twenty years ago, for the past 11 years the labour government has had the chance to change anything she did, but has chosen not to!
How about blaming the present mess on the profligate Hanoverians? Get real, i am afraid your wonderful labour party has once again cocked up the economy as they have done every time the British electorate has made the mistake of putting them in power.
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Whilst this may be a fascinating programme, three of the four people being interviewed are hardly unbiased observers. Indeed, all have an interest in making things appear worse than really were, in order to make their role in 'saving' the banks look more important.
Until such time as I hear Sir Fred Goodwin say that RBS was within hours of not being able to pen, I will take the claims of these three with a large degree of scepticism.
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#196
Marx's Capital was subtitled "A Critique of Political Economy".
That's to say his main target was those who peddled these seemingly plausible theories about each factor of production getting its rightful and just return.
The skill of Marx was to be able to get behind the everyday appearances and to shine light on the essence of the system.
Land by itself produces nothing. It requires human labour.
The sophisticated machines we use in agriculture are created from labour.
Indeed all capital is dead labour, i.e. historical labour.
The classical economists were familiar with this but because they did not understand the difference between labour-power and the value produced during the working day, they resorted to nature, e.g. harvests being affected by sun-spot cycles, etc.
I do not deny your argument about ideas. But this is mental labour. Thinking that simply putting money in a bank and reaping interest because that act in itself adds value is non-sensical.
Denying entrepreneurs to become multi-millionaires through borrowing other peoples money is quite likely going to result in the human race producing less.
But given the ecological disaster that's just what we need.
Far better to have the Earth's resources used to meet human needs and to avoid recessions/depressions where people lose their job, their house and in some cases their lives.
Why have such barbarity?
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Politicians rely on the "feel good factor"to stay in power.GB did this by turning a blind eye to the fact that house price rises and the level of personal debt were unsustainable.Now his solution is to encourage us into even more debt by spending money we haven't got-ie borrowing it,(if you can) or spending our savings (if we have any).And the reason for this is obvious-he has to go to the country within the next 18 months so has to keep that"feel good factor"alive.
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Mr. Peston is still propagandising for 'getting back to normal lending'. Sorry but if the past lending is repeated the problem will be repeated.
We do not need much fancy new stuff, just sensible attitudes and regulations.
To start with a simple restriction to something like 75% of any purchase can be a loan. Further UK house loans may only be funded by UK deposits/savings. Charging higher rates of interest and paying higher rates to savers. ANY sign of house prices rising and the interest rate should be put up. There is no need for it to have any relationship to inflation.
The main bank rate should never be permitted lower than 5%. Not ever. Controlling the general booms/inflation should be by taxation. Raising taxes to cool booms, so there is money put aside for lower taxes for situations like now. All boom intervention tax raised must be saved/paid off debt, and not permitted to fund any extra government spending in the boom.
All the while The BBC and the government continue to pretend lower interest rates will solve anything when that was the problem in the first place, along with excess borrowing, being repeated by government rather than people.
They all need to get over the house price obsession, lower is very very good, the faster the better, to at least half what it was, absolutely not 'getting the housing market going again' that is the worst possible thing to happen.
Overall government and the BBC must stop hating savers, stop treating lower interest rates as a good thing when they are clearly very bad things. Current policy of low rates hurts 7 times as many people as proper interest rates. So 7 times more people are restricting their spending as they lose income, as did with sensible rates over 5%. Who could spend into the economy? Not those with debts, no point aiding them, pay those with savings more they have money and can feel better and spend it.
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"Mrs Thatcher retired long ago and there isn't a single one in this current bunch that is anything like her !!" - ishkandar
Well, at least one thing to be thankful for then!
The root of the Great Crash of 2008 is the market-worship established by Thatcher and Reagan. Ever since then, the mantra of the global elite has been "Privatise, demutualise, deregulate!" New Labour followed this religion uncritically, while the greatest single contributor to this global crisis was the US Commodity Futures Modernization Act of 2000, which enabled the building of the tower of Credit Default Swaps and similar opaque financial instruments.
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Sorry if I'm a little cynical in doubting all these new economic gurus currently doing the rounds with their predictions for the future as they seem to be the very same people who made the worst mistakes.
Presumably they think they can talk their way off the scaffold and into a cosy new job in the house of Lords, choosing as a title some unlucky rural place that's barely ever heard of them.
Do we really want some overpowered accountants micromanaging the economy? There was nothing wrong with interest rates as a tool, the correct rates were just not politically expediant.
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The BOE made the classic mistake of being so late with its "corrective" action, that it effectively applied positive rather than negative feed back to the system it was trying to control.
It is in danger of repeating the mistake. Even though at the moment there is deflation, which an important part of the recovery mechanism in a recession, its effect will limited by the drop in the value of the pound.
Rather than considering a further reduction in interest rates, the BOE should now consider a timely increase in rates to attract sterling deposits and bring the pound back up a little.
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data at the root level is invalid?
test posting
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Am I mistaken but is our PM the same person that allegedly bounced his student rent cheque three times whilst an undergraduate?
If so, is it any wonder we are in the present mess as a country?
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#237
You say e-mail this (#16) to Gordon.
This raises the interesting issue of why so many in the Labour Party who claim to be socialists support the capitalist system.
Most simply do not understand economics and fight for causes, e.g. trade unions rights (bigger slice of the capitalist cake), race equality, women's rights, nuclear disarmament, etc.
At heart they have a deep sense of justice and fairness, but fail to understand the reproduction of human kind (the big picture).
Now someone like Gordon Brown must surely have read Marx.
What would Gordon say was wrong with Marx's analysis?
My guess is that he has seized on the theorectical possibility of the rate of profit not having to fall because of a growth in the organic composition of capital.
This is where there's clearly technical growth (by having more and more machines), but that this does not necessarily result in a growth in the organic composition in VALUE terms because the cheaper commodities result in a reduction in the value of variable labour (i.e. wages).
(Sorry if I losing a few of you here).
Such a theorectical possibility is easily seized upon when you've had seemingly high growth and profitability for most of the post war period.
But this is where Loren Goldner's superb analysis on the role of fictitious capital comes in.
To which the credit crunch is perhaps providing justification.
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It is all veey well talking of counter cyclical policies in the future but in the past two months, the Government and FSA have actually increased reserve ratios required of UK banks - this is actually pro cyclical - and they wonder why the banks aren't lending more. Plus, how much of the touted 50bn (or 600bn, depending how you measure it) 'rescue' package has actually been released to the banks? A small fraction I believe
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Since when did anyone expect the Bank of England MPC to get anything right. Each month they mis-read the facts as they stand, and predict the future wrong every time. Merv & his cronies have been predicting a rosy and recovering future for us -and not too much pain, since they first realised the recession was too obvious to deny.
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Since when did anyone expect the Bank of England MPC to get anything right.....
I had always assumed it was political interference that was clouding their predictions, especially when Chancellor Brown said he would 'free' the Bank from political control, cos he was untrustworthy even a decade ago, but maybe it was incompetence of smug institutional bankers all along.
I would have though the first thing a Governor would do when given 'independence' was to confront the Treasury and tell them what rules were going to apply. Did Eddy George not spend all his time in the early days doing just that? & if not, why not?
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Has anyone read this?
http://sayanythingblog.com/entry/obamas_plans_for_global_wealth_redistribution/
Now here is a person (and this came out before he was elected US President) who may be able to lay claim to be someone who genuinely might save the economic world and help humankind.
As for our Scottish PM, the least said the better!
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The 'lessons to be learnt' about controlling asset bubbles have certainly been discussed for at least three decades that I can recall.
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I accept that the BoE has only limited powers to do anything in controlling a bubble, other than interest rates. I also accept that the IMF warned HM government on levels of debt, etc.
But the rest, surely, is then down to the Government.
Forget the power of hindsight for a moment. What would have been your reaction if Alistair Darling (pushed by Gordon Brown or not) had announced the need for, eg higher VAT, curbs on borrowing, tighter mortgage controls, etc? You would have screamed the place down and demanded both Darling's and Brown's heads. If you're honest you know you would have.
So, here lies the problem. First, in early 2008, how to convince Brown & co that the bubble was likely to burst? Second, how to convince the Great British public of the same? Mission Impossible, to me.
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Please!!! Sir John Gieve says that the BOE recognised that an asset price bubble was building, but didn't want to stand accused of causing the economy to grow slower than expected. For goodness sake!!! We NEEDED the Bank to slow the economy. We NEEDED them to dissuade consumers from spending their illusory house price gains on goods and services. We NEEDED the Bank to stop people from spending money they didn't have. Why can't the Bank of England just admit that it got interest rates horribly wrong during 2004/5/6/7. Throughout those years, interest rates were simply too low. And I'm not just saying that with hindsight - in 2005 I sold my house, believing it would be madness for the Bank to allow house prices to continue rising and the spending binge to continue. It was clear to me in 2005 that the Bank was letting things get out of control. But their focus was far too narrow - inflation two years hence. The real problem is that they focused on too narrow a target. They were too blinkered and didn't take into account the bigger picture. I don't accept the "two tools" argument. The fact is they had the most important tool at their disposal - and they screwed up.
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"Land by itself produces nothing. It requires human labour." - duvinrouge
True. But equally, labour by itself produces nothing. It requires land. The "labour theory of value" (which Marx did not originate - it goes back to Adam Smith at least) is mystical woo, as at least some Marxists (e.g. G.A. Cohen) have recognised. Nor is it necessary in order to show that capitalism is exploitative.
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We should go back to the boring days of banking when bankers were paid to do nothing.
Computer Systems should tighten validation to display a warning message:
"Warning trade in toxic dangerous Asset Type will cause massive financial exposure press 'PF6' to continue"
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Lies lies lies.
If I saw it coming, I do not believe for a second that they did not.
What did they think was going to happen?
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Re 189 TheresOnly1Soupey
Fantastic point. As a Government worker in the field of procurement (not a civil servant) I see this all the time.
Everyone does the least possible (or is just plain incompetent), and hopes they're not in the hot seat when hard decisions have to be made, or someone looks for accountability. I've seen so many people manage a move off a project when they know the s**t is about to hit the fan.
A long term view is absolutely vital if we are to truly recover from this situation.
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In response to 265, this seems to be a self defeating argument. In many areas of life, including the security services, it is the job of certain people to monitor what is happening and ensure that an appropriate response is made, how ever unlikely the circumstances. Yes it is difficult and it might be difficult to convince people, but when this sort of thing isn't done problems on this scale are created.
If spotted early enough the adjustment can be small and almost un-noticed. In my experience, virtually everybody knew that the current situation would end badly. 18 months ago newspapers were printing stories that we had record levels of personnel debt and all of the new jobs that had been created over the last 10 years were in the public sector and therefore not wealth creating.
The fact of the matter is that a number of people get paid a salary to do a job who's job description includes not letting this sort of thing happen. Gieve et al failed spectacularly and on a scale that we still don't quite understand yet.
As has been mentioned a couple of times already Gieve has significant previous form - the Home Office. Why would anyone, let alone the PM, think that this was a good appointment?
THe root of the problem may or may not reside with Thatcher, but there is no doubt in my mind that Gieve and two or three others around him are guilty of sleeping at the wheel and must therefore be held to account with at least their jobs.
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#259: "Most [New Labour supporters] simply do not understand economics"
Well, one thing we need to admit is that most economists don't either. For centuries now governments have been advised by economists on how to build a stable economic system and every attempt has failed to deliver.
We're much better off scraping all this deep, futile, analysis and have politicians who concentrate on building a better country. Economics is part of that, of course, but those who think economics is to a nation what engineering is to a bridge are deluded fools.
250 years of failure speaks volumes about economists' claims, does it not?
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I must say that I find all this rhetoric and pontificating fascinating and to some small extent amusing; that there should be such indignation and one-sided bickering is almost laughable!
'We' the British public are suffering and will suffer more because 'We' continued to borrow and borrow and borrow for that new car/extension/holiday which we could not live without, and our political 'leaders' continued to allow this to happen because of their inherent need for popularity - politics has ever been thus, and to feel suddenly outraged by this equation is to admit one's own ostrich-like stance.
The old adage 'no such thing as a free lunch' still rings true - regardless of how incompetent Bankers or Politicians may have undeniably been, it should be remembered that the 'I want it all, and now!' mentality is largely to blame for the current mess.
I could be bitter about this (I have just been made redundant - Merry Christmas!) but the truth is that this situation is long overdue and I suspect that those who shout the loudest are those who played the game to the max and are now finding it has unravelled around them.
There could also be a class element to all of this, although I believe that's a dirty word these days. Living in Hartlepool as I do (Lord Mandy's former stomping ground) I don't find it at all unusual for a shop to close down on the high street - Woolie's will be just another empty lot to join the dozedns of others closed long ago. Likewise, I have understood all along that the house I bought 8 years ago for £60k isn't REALLY worth £200k now - the facts of life are plain enough to see if you want to see them, trouble is a lot of (dare I say wealthy?) people have become used to ignoring basic economic truths and will unfortunately go through a great deal of pain now as a result.
As to our chances of getting rid of Gordon? I ventured into town today to put in my claim for Income Support (oh how the mighty are fallen!) and couldn't move for the hoardes of people festooned with shopping bags seemingly desperate to spend their (non existent) money. I fear that for all the educated discussion that goes on here, until the masses start to feel the pinch (which could be a long time by my observation) then Gordon will be quite safe in his tower.
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Anyone know when the next batch of derivatives is due for unwrapping? I seem to have read somewhere that it's tomorrow (23rd). If so, what's the prognosis?
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I recommend reading JK Galbraith "The Great Crash" - its a great way of getting Robert's stories before he writes them.
See chapter 3 "Something should be done" for his discussion of why the Federal Reserve did not puncture the credit fuelled US stock market bubble before the 1929 crash. Like the Bank of England the Federal Reserve had been made nominally independent so the politicians could dodge the responsibility for potentially painful decisions. The Federal Reserve knew there was a bubble but recognised that if they punctured the bubble deliberately everybody would blame them for the resulting pain. It was safer politically to wait until it punctured itself then react and there were also possibly personal interests in keeping things going a little longer.
Inaction in the face of a bubble is a politically astute choice for politicians and central bankers unless there are serious consequences such as loss of office for following it.
Another bit of deja vu in the Galbraith book is President Coolidge's Brown like boasting to Congress about the unparalleled economic success of his administration a few months before the crash.
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The 'less than' or 'greater than' symbols or quotes seems to cause problems posting?.
Does any one know any technical commands
There has been a problem...
Your comment contains some HTML that has been mistyped.
Name cannot begin with the ' ' character on line 1
Name cannot begin with the ')' character on line 1
e.g. 'less than' PF6 'greater than' in double quotes
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#19 Good comment - what about having another nation eg France i/c of monitoring our inflation stats - a bit like not marking our own exam papers. We could reciprocate.
#61 Would like to see the reply.
#115 Agreed. The BoE in Gieve is an example of a politically motivated, incompetent Old Boys network. Not the way to run a modern economy.
At the apex of the pyramid of stupidity there has always been one constant for the past 11 years.
Any lasting solution has to start with regime change...
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236,
Traditionally, only war gets us out of situations like this.
Well don't expect me or any of MY family to fight for this S hole of a country!!!
It's over to the immigrants to EARN their corn, bish bash bosh.........The ferries are awfully busy these days, GB do you think so?
Numpties!
CSA, TAX, TAX, TAX - Fight a war? Don't make me laugh!!!
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#267
Obviously labour requires land (nature).
And, yes I agree the labour theory of value belongs to the classical economists.
It was the neo-classicals who thought they could explain economic activity (human labour changing nature) without (it in quantifiable terms).
I don't know G.A. Cohen - please can you post a summary of his argument/position?
If you are arguing that there is a non-quantifiable way to explain the exploitation of labour I'm open to hearing it.
It seems the quantification of things (by humans) is perhaps part of the problem.
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Surely the Bank of England's and FSA's own records would be a good indication of what they did wrong. They do have records don't they?
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We all now how Labour like to control everything-to know what we're all doing,where we're doing it,where we're going,how fast we're going there,what we're looking at on the internet,what we're saying in our E Mails etc.etc.All these state bail outs come with strings -more political interference.
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What a sense of powerlessness. Try to exercise well-informed, cautious and responsible practices in managing of your personal financial affairs, and at the end of the day you're helpless in the hands of the likes of icesave, HBOS and RBS. Enfranchisement and democracy are but illusions, parliamentary elections and the antics of the bank of England irrelevant. Let's examine globalisation and we migh discover where the real power lies.
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Sadly, Max Keiser may be correct in saying this massive theft of everyday peoples' wealth won't see the light of day. I honestly believe that enough of the public are aware of a problem, but only make an uneducated guess as to what it is.
What can we do? First it is important to note that the hits on this blog are the regular visitors who are in or have an interest in finance and business. The remainder are those who may be facing a problem. An economical financial one would be an all round educated guess.
The percentage of readers whom still don't get it is astounding. The very reasons for these uncertain times can be found by researching older pages or if astute enough information can be found above which will point you in the right direction, but for those of you who missed it...
It would help to familiarise ourselves with the power of information. What are these institutions and companies?
and many, many more. How is it we can discuss on a blog in specific detail why we are where we are today and yet, none of these inter-connected organizations spotted or spoke up about any of this crisis? None of them have gone public on anything that resembles information already in the public domain. I feel it is a game and the time is running out. Who wants to break that kind of news? Well break it to yourself. However you feel you have to in order to deal with it. These people won’t help you now. Resources are running out. Confidence has run out. Good businesses are going to the wall because there is little money circulating. Something the money makers have done before now. The BBC is in limbo. The archives hold information that is not aired. It is hard not to see the strain on the faces of those on TV in the public eye. The original lie has to be covered with another and so on. It can’t continue and they may or may not in time, be liberated. The moderation on here has been of a better standard and more facts are getting out. I think they too now understand how deep we are in it and are very much a part of it; Reading and publishing the comments here.
The best action to take is to spread the word and that in itself is more than challenging. I’ve felt I got my point across to people in the past explaining money and how it is brought into existence, only to be asked a completely irrelevant and redundant question shortly thereafter. I don’t mind admitting that. Such is the complexity of the illusion we all live under. Comfort zones, I’m alright Jack and I’ve seen and lived through one of these before, is distorting the reality. With a little help from the media.
"We are grateful to the Washington Post, the New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years...
It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national autodetermination practiced in past centuries."
-- David Rockefeller, Speaking at the June, 1991 Bilderberger meeting in Baden, Germany.
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Maybe people who dont follow the financial markets actively find Robert Peston's bbc reporting insightful and useful, maybe they dont - I dont know.
I do know that I find Robert Peston bbc financial reporting along with most of the bbc's economic coverage to be dumbed down and superficial. No wonder Joe Public doesnt understand what is happening and why.
So I choke on Robert Peston's guide to the new financial order- hang on a minute. Did Robert Peston predict any of the financial turmoil we are living through now before it commenced in dec 2006? eerrr no I dont believe so.
So why doesnt he own up to said fact - he missed the risks of the greatest bubble in human history will it was inflating. Just so Joe public can have a bit of contextualisation (ohh a bbc word).
The bbc would serve the public better by giving more airtime to the small number of commentators who predicted accurately rather than noisemakers telling us what the whisper is from downing street today or what the market is panicking about today. Warren Buffet said "by the time you can see clearly what is wrong with a bank, it is too late to do anything about it ". Hence foresight is at a premium as today's failures were cast by actions two years ago or more
If the bbc ask their viewers who did predict major credit related troubles i am sure they would receive a good list. i can provide my own.
Please spare us the overpaid lightweights on an ego trip about gossip and give us commentary from those who took the time to understand the processes at work and drew the correct conclusions - who may well be better postioned to understand what we face.
Other thoughts- banning short selling didnt do much did it Vince Cable? Guess what? short sellers do a lot of research (unlike journalists, regulators , bankers and cenbtral bankers)
Why are Irwin Stelzer and Will Hutton on the tv so much?
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Does Robert Peston actually read the comments on his blogs?
Or does the prospect of all this waffle put him off his breakfast and make him press the delete button? Or reach for a box of cartridges?
Have you actually sat down and tried to read some of these comments? It's like a dialogue of the deaf with the blind. This expression of opinion is all very democratic but hardly edifying.
Maybe the only real function of these websites is like the safety valve on the boiler - to let off steam. More heat than light being generated.
Or is it the modern form of Mass Observation which was conducted by the government in WWII to monitor opinion and morale?
The real hero of the hour is the BBC moderator who does actually have to read all of this stuff and upon whom this torture is inflicted.
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#133 "God speed to his retirment, he can go advise some Chinese company on globalisation and blow them up."
The Chinese do not hire what they term as "economic saboteurs" !! They usually take them out and shoot them !!
Quite unlike over here where they are given an index-linked pension and a knighthood !!
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"Inevitably, in a 30 minute documentary, many fascinating contributions from interviewees hit the cutting-room floor." If you had left more of you on the cutting room floor we could have enjoyed some of those fascinating contributions.
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#156 More Information Technology Proverbs
GIGO - Garbage in, Garbage out !! Applies equally to government policies !!
KISS - Keep It Simple, Stupid !! Something that the derivatives traders seemed to have forgotten !!
FUBAR - Fouled Up Beyond All Recognition !! Ex-Army term eminently applicable to the current economic situation !!
Some homilies, too -
If you don't spend enough time doing a proper design, you'll spend 20-fold more time fixing the resultant bugs !!
And finally, something that cannot happen in the civil service and banking - You pay peanuts, you get monkeys !! It seems that they get monkeys regardless of the pay !!
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dear robert,
"if voting changed anything it would be banned"
thanks for the heads up to the tax payer since sept 2008.
the british tax payer is looking for the imprisonment of the rogue bankers and regulators? but there's no chance of that. prison would send a message to the next lot keen to pursue their bonuses by any means necessary
small business is being destroyed. the tax payer has no faith whatsoever in the establishment (banks, regulators, politicians. if only they knew how despised they all are.....all feathering their own nests at the costs of people on average wages !
all still salaried inspite of their incompetence whilst the innocent suffer as usual. note the similarity to events in africa...the people starve whilst the despots ( banks, regulators, politicians) strut around in mercs and designer suits and enjoy their palatial homes on ill-gotten gains.
confidence will not recover as the hatches are being battened down in homes across the country.
there is no emergency chute for those who have lost their jobs. will the last person in the UK switch out the light !!
they've been trying to shoot the messenger, and now to gag you. you may choose to leave the beeb - who won't support you if push comes to shove so (i) comply with our best wishes. we don't believe a world that alistair or gorden say now anyway - they speak with forked tongue. or (ii) get on the blair-styleee lecture circuit, and don't hold back !
22 Dec 2008
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# 284 absolutely right. Newsnight has a scottish economics editor whose name escapes me, who puts things in a better context but doesn't seem to have access to so many leaks. I quite like Declan Curry's working lunch too but for real info, I prefer the Economist. This blog is far more politics than economics, in my view.
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I had some forethoughts about the rationale for this programme but wanted to wait to see what really could be learned? Some interesting comments but the real conclusion was that it was effectively a whitewash for Labour's responsibility for this mess. Another nail in the election toolbox for Calamity. Ultimately RP has an impossible job along with the BBC as noone wants to alienate the govt. I wonder if RBS would be willing to be quoted as saying that lending will not recover for 2 years as mentioned by John Varley or would this be in conflict with their govt funding???
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Robert just watched your piece. A shameless piece of self promotion you made Obama look like John the Baptist to your Messiah!
Still you're a likeable chap and can get away with it.
The other thing that stood out was what a likeable chap Alistair "Badger" Darling was. So unlike his predecessor.
So come on Gordon, give us right wingers a Chancellor we can truly hate. Prime candidates would be Harperson or Milibrot, but a stand out is your mini me: Ed "Balls" Balls.
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Surely I can't be the only one who thinks all the jargon used by the finance guys is a load of hogwash.
What exactly is meant by the terms ASSET BUBBLE? or MARKET? or LIQUIDITY?
....serious question, because if experts are so sure they know what they mean...why have they only just started getting excited about them
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Almost every man in the street has known for almost all of their mature working life that if an individual, a business or even a country like UK overexpands and over borrows then they may go bust .
So if the bank rate has now been speedily lowered because of the undoubted influence of Government in order to try and stimulate the economy WHY ? WHY ? wasn't the bank rate raised significantly some 5 or six years ago by goverment influence to take the steam out of an overexpanding economy and also undermine the get rich quick speculators. If it can be lowered now it could have been raised then.
Bankers and their associates can't make those reckless financial moves in times of much higher bank rates and that would have headed off the current crisis.
So, not only the banks (who have always been mesmorised by property) but also the Government who permitted the fueling of a super boom should be held to account. A point to remember is that many politicians were also known to be making substantial paper gains in terms of their own property investments.
The way the UK economy was allowed to run free was key additional factor to those similar factors in the USA market which started the domino effect.
Robert depends upon bankers, politicians
and others with finiancial information to provide the sources for his scoops and my one regret is that his fear of killing the golden goose prevented him from showing how the Government failed to rein in excessive growth over a 7-10 year period.
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Forgot to mention one other piece of financial jargon that makes no sense to me....KNOWLEDGE ECONOMY.
....by adopting the language of the finance guys do we not run the risk of going native?...perish the thought
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Specifically regarding the following points:
Quote:
"If we'd used interest rates to try and address this asset-price credit growth, we would have been holding down the level of activity elsewhere in the economy, in manufacturing, in other services..."
and also this:
"I think we need to complement interest rates, which are a blunt instrument - you set one interest rate for the whole economy - with something which is more financial-sector specific."
My belief since the 90's crash is that it's about time the Bank of England, and all others including the EU, USA etc, considered using more than one base rate:
- Mortgages
- Business loans
- Personal loans
That way a change in one would not always "affect the whole economy". Currently it's the same as trying to play golf with just one club.
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The financial 'experts' that are constantly questioned by the BBC on a daily basid (and other media outlets ) have only mainly ever been able to to comment upon what happened yesterday and part of what is happening today.
Those 'experts' were the ones who did not foretell or prevent the current superbust.
Those 'experts' are the ones that we still have to listen to everyday.
There is an unfortunate period in a working life when so often an 'expert' commentator begins to believe that his words are gospel.
Only age terminates that belief and then one is deemed to be to old to express any wisdom that can be valued.
Pity .....c'est la vie
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I met Sir John at an IOD event 4 years ago in Essex. I asked him "Does he believe as a country we have the balance correct between a manufacturing industry heavily taxed and with much red tape and the financial industry which through de regulation has created an obscene bonus culture that has failed to understand the difference between wealth generation and profiteering. He response" The financial industry in London generates enormous tax revenue for UK PLC and is at the centre stage as a global player. Our manufacturing industry is transferrring to Asia and as such does not generate the same level of tax income as our financial industry. That answer confirmed to me that the government and B of E were too close to the City to recognise the great swindle that has now engulfed UK PLC. The issue for me is the failure to understand the difference between "Profiteering" and "Wealth generation" by supporting an industry based on the movement of money as opposed to the many industries that generate real wealth through innovation and hard work.
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After seeing the program tonight, its all become clear where the 'scoops' come from folks.............
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I watched the Panorama programme this evening with great expectations... but was deeply disappointed.... this was not a programme so much about the issues of the credit crunch, but more about the credentials of Peston as the BBC's Business Editor... we did not need to know about his education, his speaking engagements, or his awards... this is BBC spin at its very worst.... on a par with the biggest spinners of all - New Labour....
It is obvious to us all that the incompetence and greed of the Bankers, the inability of the Government and Regulatory authorities to take firm and decisive action earlier to control the boom in asset prices - I simply do not accept the notion that the Bank did not have the tools.. of course they did.
In my teaching and lecturing programmes for at least 4 or 5 years I have been liking the management of the UK economy to driving a car with a single pedal... the accelorator.... and without a brake, the end result will always be disasterous.... there has to be a balance between monetary (accelorator) policy and fiscal (brake) policy. With those two pedals in separate institutions and management it is no wonder we have landed in the mess....
That we now have a policy of encouraging spending to boost demand is simply incredulous.... we are in crisis mode.... spending too much got us into trouble and will not get is out of it. Behaviourally, which is critical, the BoE has always acted in 0.25% changes to base rate... since 1997.... right up until November 2008... and then they hit the panic button... they acted far too late in the cycle... 24 months to late
We heard on the Today programme this morning that 1.7m people are on the social housing list and 700,000 empty homes are in need of refurbishment... why not leave VAT where it was (many of the smaller businesses are not passing on the VAT cut to customers in any event... just pocketing the extra 2.5% profit themselves!!!!!).... and spend the £12bn VAT bill on building social housing... keeping the construction sector going and satisfying a more immediate and urgent social need.
With the high street already discounting prices by 20%, 2.5% is to be frank a complete and utter waste of time.......and money...
I do however agree with a couple of Peston's comments... the authorities were always (and to some extent are still) behind the cruve and Peston's final comment that the main losers will be the savers... and that is mightily sad....
History tells us that 1 year in to a mess takes upto 5 years out... the next few years will be exceedingly tough for everyone and many otherwise fine companies and individuals, who have managed their affairs well, will struggle to survive hit by a recession not of their making but made in the boardrooms of banks, regulators and Governments...
I only hope we have learnt the lessons... but again history reminds us that we have short memories... and that does not bode well for the future....
Derek J
Wrexham
[Personal details removed by Moderator]
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"I don't know G.A. Cohen - please can you post a summary of his argument/position?
If you are arguing that there is a non-quantifiable way to explain the exploitation of labour I'm open to hearing it."
Cohen is a member of the "analytical Marxism" school, which attempts to reformulate Marx in terms acceptable to modern analytical philosophy (which means non-dialectically). He's currently Chichele Professor of Social and Political Theory at All Souls College, Oxford.
IIRC (I don't have his book "Karl Marx's Theory of History: a Defence" in front of me) he argues that the concept of "value" has no actual function: prices are determined by supply and demand, and "value" is a supposed property of products that cannot actually be detected, and has no causal role. He argues that capitalism is exploitative in that it infringes workers' autonomy, but I don't recall the details.
I would say exploitation results because capitalists and workers have (necessarily) unequal positions in bargaining about wages, first because the capitalist, being richer, is not under the same pressure of necessity as the worker; second because the capitalist can always, within a capitalist system, resort to force more effectively - either calling on the force of the state, or recruiting private forces; but I'd see "exploitation" as necessarily a moral term, that cannot be objectively defined. Whether Cohen would agree with this, I don't recall. (For the record I'm not a Marxist, although I recognise his great importance as a thinker.)
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The fact is that these people are paid a lot of money to make sound judgements.
They have shown atrocious judgement on many occasions and in situations when their decisions were obviously wrong to many e.g. decreasing interest rates in August 2005, preaching moral hazard just as nobody wanted to lend, and generally acting too late in this cycle.
We now see King and Bean apparently going out of their way to further destroy confidence in suggesting the banks will need to be nationalised-are they deliberately trying to undermine the Government and the economy, as well as our pension funds?
Perhaps sacking them without compensation given their performance, coupled with a large reduction in their government guaranteed final salary pension would bring them out of their ivory towers and into the reality millions now face.
The BoE was a respected institution - under King it has seen the first run on a British bank in 160 years, a destruction of confidence in the British banking system (and the econmy generally), obvious antagonism with the Treasury, and a very serious loss of credibility.
Is it not time King did the decent thing and resigned.
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The program makes it sound as if we are over the worst. No, we have hardly started.
Why don't you make a program about the $500 TRILLION derivatives black hole and explain that this is 10 times larger than the GDP of the whole planet and can never be repaid or settled.
The sub-prime problem that everyone seems to blame for the crises, is only worth less than $2trillion, I believe. It was just a trigger. The real avalanche is still in front of us. As companies and banks go under, the various derivative contracts will be triggered, causing further bankruptcies.
The true villains of the financial peace are those POLITICIANS (such as Bush and Brown) who allowed banking restraints to be lifted and who did not outlaw the fraudulent practices of off-balance sheet accounting and the creation of a pseudo-insurance markets with virtually no backing for the bets taken.
The bankers have simply taken advantage of the lack of rules and lack of enforcement of rules, just like most players would do in any game.
Not that I want to excuse the bast...bankers. Perhaps they should be treated in the same way as drug pushers (the drug being cheap and irresponsible credit) and confiscate any gains by companies or individuals aided by these practices.
Even more fundamental cause was the wide availability of 'almost free' energy to the whole system, which has driven growth for the past century. Now that energy is becoming scarce and expensive, we have a century of decline to look forward to. For more info see www.transitionnc.org/?q=node/73 and the rest of the website
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I have tried to read most of the comments, which appear mostly to be about assigning blame for the mess we are in.
I can summarise my own view by saying that there has been a profligate misuse of the Fractional Reserve Banking system aided and abetted by our government in pursuit of its agenda. An article I read on this topic today highlighted that the USA, UK and Iceland were recognised as having had the most cavalier application of this, some would say, inherently dodgy system.
However we are where we are, and what concerns me now is what to make of the bailout proposals and fiscal stimuli which the PM and chancellor keep on describing as absolutely necessary.
Has anyone heard either of them trying to explain what they expect will be the sequence of events which their actions will initiate to lead us out of the mire. It is all very well to say that urgent action is vital, but how do we know that their suggestions are any more than knee-jerk reactions combined with wishful thinking?
I have this mental picture of the pair of them striding across what the think is a flat field, like blind men, not realising that they are heading for a cliff edge. Having been told of the impending drop, they conclude that what they need to do is make an investment in a platform which will project over the edge and allow them to keep walking for a few steps more.
Sadly all that will do is postpone the agony and what they need to do instead is change direction.
The real question for us all is how can we best get off this path to oblivion?
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No thankyou Mr Gieve. No need to work out your notice. Just leave the title and pension at the door. You've done quite enough - We can take it from here.
One down, many more to go... OK, it's a dream, but surely that's allowed?
Social justice. Bring it on!
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Morning Robert,
sorry, but I missed your party-political last night (too busy getting the Christmas food shopping done).
No doubt it will be repeated and I'll catch it then.
Would you please provide a comment or two in your Blog on what happens to UK plc when all of the banks are nationalised?
I see another (Anglo-Irish) was nationalised yesterday but the director who may have been found out has already resigned- so that's alright then.
I see RBS closed at 41.5p yesterday so the taxpayer has lost over GBP 5 Billion on buying shares in this discredited (pun intended) bank.
I would also like your view on the proposed changes to the Insurance industry regulation to make it easier for them to meet funding requirements. I hope that this is not another financial scandal about to explode!
Enjoy your round of hob-nobbing at Christmas but be warned, these important people that you meet will drop you like a stone when you are perceived to have no further use as their mouthpieces.
Only two more banking days 'till Christmas Ho Ho Ho.
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What was particularly interesting last night was that the programme really focussed on Robert Peston's views/opinions/morality as a journalist.
The programme made me feel less mad ( I couldn't really get my head around why the market didn't fail sooner after reduced regulation allowed anyone to buy as many 'buy to let' properties as they wished on 100% mortgages). The real issue is that Britain (and perhaps the world) has lost a grip on morality. When 'poverty' trapped single mums are shown in houses with flat screen TV's feeding their kids junk food from a take away then you know something is wrong.
As an entrepreneur I take risks with my own money other than the need for bank finance for asset purchases. The removal of credit facilities has a first hand effect on a business such as ours. The removal of any ability to asset finance with our existing bank despite positive cash balances in the same bank means we have to use valuable cash flow capital to finance long life assets, reducing our ability to continue our growth momentum. I understand risk and the effect it has on my business and family. I may make big returns if I succeed but equally I may fail and have nothing. What infuriates me about the present situation is that people with 'no risk' jobs, in charge of safekeeping investors deposits have 'tricked' those investors into believing that their money was safe and then gambled that money at no risk to themselves for personal financial gain. When a 4 bedroom semi detached house in SW london can cost up to £2m you know some people must be earning too much.
So ... they gambled all our money. I may be OK in my early 40's as there is probably time to survive. For those at retirement age the future is more than bleak. Gordon Brown and labour's growing economy turned out to be no more than financial wizardry. Let's get a grip. The idea that you can get massive returns for no risk is nonsense and immoral. A brief recap on Robert Pestons life revealed how he chose 25 years ago not to be politically affiliated and not to own shares as otherwise he would compromise his journalistic integrity. If only we had a few more Peston's in top jobs at banks/hedge funds/British Public industry then we would almost certainly not be in the mess we are in.
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300. At 10:35pm on 22 Dec 2008, alpha365 wrote:
I watched the Panorama programme this evening with great expectations... but was deeply disappointed.... this was not a programme so much about the issues of the credit crunch, but more about the credentials of Peston as the BBC's Business Editor...
307. At 07:35am on 23 Dec 2008, steverushton wrote:
What was particularly interesting last night was that the programme really focussed on Robert Peston's views/opinions/morality as a journalist.
297. At 10:20pm on 22 Dec 2008, johnwellblog wrote:
There is an unfortunate period in a working life when so often an 'expert' commentator begins to believe that his words are gospel.
292. At 9:44pm on 22 Dec 2008, gruad999 wrote:
Robert just watched your piece. A shameless piece of self promotion you made Obama look like John the Baptist to your Messiah!
Looks like some people are finally coming to their senses.
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#301 Analytical Marxism
Thanks for the post.
I can see that you do not have to have a theory of value to argue that the capitalist system is exploitative (immoral).
But the labour theory of value shows quite clearly that labour is the source of profit.
I also agree that prices are determined by supply and demand - but only individual products. What we are studying is the economy as a whole. The labour theory of value shows that there is a total social product (the amount of social labour) which underpins all the prices in the market.
Credit (fictitious capital) can enable the total paper claims on wealth to exceed the total social product (the boom) but only temporarily (the bust).
The labour theory of value seems invaluable in explaining the trade cycle and why capitalism is inherently unstable.
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Whatever else hit the cutting room floor, I am glad Robert's conclusions did not: the prudent will now be forced, by low interest rates, to bail out the feckless; and people, mainly in the boardrooms of banks, lost a sense of right and wrong. Precisely.
J'accuse:
1) Bank 'managers', or their modern equivalents, should have refused to lend couples great multiples of their joint incomes to 'buy' houses - which only really meant that the banks owned the houses. They should have refused, as of old. This fuelled a false housing boom that appeared to prop up the economy, whereas really it only deepened debt so that the crash would be all the worse when it finally happened;
2) Banks sent out persuasive applications for credit cards to teenagers; then allowed them and others to build up levels of debt they could not hope to pay off. They should have stopped the cards at the first sign of run-away debt;
3) Banks lent to countries and businesses that had no hope of ever paying back. I recall Barclays writing off a couple of billion pounds' loans to Africa; no doubt this process happened quite a lot;
4) The Bank of England and the FSA, which, for fifteen years, failed to regulate and control over-lending, as they now admit, and as countless members of the public pointed out throughout those years.
Yes, the public were also to blame for being financially naive and selfish - but we are busy people who trust others to do their job as we do ours. Perhaps that trust should never return.
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"But the labour theory of value shows quite clearly that labour is the source of profit." - duvinrouge
Not so. You can just as readily use the same mathematical manipulations to show that any class of commodity inputs is the source of profit, as John Roemer has shown.
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Sir,
I find it hard to accept that "the Bank's Monetary Policy Committee believed mistakenly that the lending binge and asset-price surge were semi-independent from activity in the real economy, and that they would eventually moderate without wreaking devastating damage to prospects for households and businesses."
Monetary theory shows that an asset-price surge is one of four types of inflation. In the case of an asset-price surge economic growth, viz. growth of G.D.P., has come to be dependent on increasing prices of assets. This is a dangerous strategy to follow, because history shows that the surge will come to an end, asset prices will fall, and economic growth will come to a halt at least for a couple of years.
The remedy against an asset-price surge is also clear: the central bank should increase short-term interest rates to make buying assets on borrowed money unprofitable.
Regards,
C.J.C. Oosthout
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Last Sunday Telegraph informed me that the FSA are about to pull its ban on short selling as it has come under pressure from "market purists". Aren't these purists the people who landed us all in the shit in the first place?
Until I retired 5 years ago I was an insurance broker so have personal experience of the idiots that are employed by the FSA. My registration was delayed by about 6 months as my "statement of facts" did not meet their requirements, at the end of the day after a blazing row I was told " I am not reall supposed to tell you this but the statement needs a comma to be inserted after the word ....!" That was all that was holding up my application!
This is the trouble with the FSA they have got bogged down with the minutia and are blind to the wider picture.
The FSA need to ban the sale of the financial "instruments" that really dropped us in it and not allow them to be repackaged, as the city slickers will try to do and ban all short selling including commodities - the price of oil will continue on its downward slide until it reaches $25 then it will wiz up to $150 again mainly driven by these same slickers.
It is about time that the FSA took control of the wider picture.
How about an article by you along these lines, hopefully the people that count will be swayed by you pearly words of wisdom?
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A very interesting article although I would question some of the assumptions.
Surely, one of the factors that drove the economy was mortgage equity withdrawal. I saw figures from the USA that showed that without this, their economy only grew by 1% per year since 2002.
Was the UK economy any different?
I do not see the difference in inflation caused by a rise in earnings, a rise in the price of oil and a rise in the price of housing.
Maybe the BoE was too close to its' political masters. Removing the cost of housing from the Consumer Price Index was politically convenient and presented a better picture on the economy than was really the case.
If we look at the fundamentals driving the economy over the period, such as our global competitive index, balance of payments, savings ratio, debt ratios etc. - none made good reading.
I think deep down we all knew that an economy based on interest only mortagages at 125% of the house value was unsustainable. What we did not know was the catalyst that would bring it all to an end.
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#303 TransitionPaul
"Why don't you make a program about the $500 TRILLION derivatives black hole and explain that this is 10 times larger than the GDP of the whole planet and can never be repaid or settled."
This sounds interesting. Tell us more please, #303.
Make our Christmas!
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To actually state who the responsibility lies with in this whole catastrophe is impossible. However, a few names come to mind- BoE, FSA, The Banks, Flash Gordon and his Darling, TB etc. As the Financial Services watchdog, it seems like the the only watching the FSA were doing was the zero's in their own personal bank accounts.
If anyone actually believes the lies told by Gieve then shame on you. Did anyone actually think he would say, " We all knew exactly what was going on and saw what it would lead to but was enjoying the fake prosperity so much we didn't want to do anything about it". Come On! Rather he did exactly what he was told to say by their advisers, they all had no idea what was going on and underestimated how all that borrowing would bankrupt the entire nation.
The Banks on the other hand borrowed money to anyone who filled in a form, and that was the sole requirement. Never mind payslips ( which can be bought online), as proof of income and any other credit history checks. All the common sense went out of the window. Working part-time with two kids no problem the banks would have given you 125% mortgage. And all of this was fairy money they didn't even have.
Gordon and his mob continue to lie their way through this and hope that everyone is as stupid as they are. The sooner they stop blaming the global economy and start looking at their involvement the better off we'll all be. Someone needs to take responsibility and saying you had no idea of the extent of this problem is simply not good enough.
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Surely all banking is a 'ponzi scheme'? It relies upon being able to borrow to pay back your debts, whilst keeping your investors money invoilable.
It woeks whilst other banks and institutions will lend money at reasonable rates against your assets.
The two weaknesses are:
What if you can't borrow money at the right rate?
and
What if your assets are not worth what you lent at or aren't worth what you paid for them.
Both of these apply currently.
The lending organisations gearing/leverage is wrong.
Property lending needs to be legally ringfenced so that lending to and borrowing from mortgage companies has a distinct required ratio that may not be broken.
External (to this process), may not be brought into this equasion, Ie purchasing purchasing a tranch of somebody elses lending book, particularly intercountry, where different markets and rules apply.
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In 1960, the BoE started the Special Deposits system in which banks had to make 'Special Deposits with the BoE to reduce liquidity and lending. The BoE repayed them back to banks at times when the BoE felt it desirable to increase liquidity.
In 1975, the BoE held £615m, about £5 bn in today's money, and over 3% of all loans to banks' customers at that time as Special Deposits. In 1971 they held over 6% of all loans as SDs. Had this system been in operation these last five years, I suggest the cost to the Government and us of this debacle would have been less, possible a lot less, than it has been so far and is going to be?
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Brian Reading former adviser to Edward Heath, explained in the Times nearly 20 years ago why interest rates would not work and would eventually go out of fashion. It was fairly obvious to the layman.
Robert Peston's Analysis of the problem is spot on, but his hopes that we will come out of this crisis with some a more caring government are hopelessly optimistic.
Our culture and education system, attitudes to productive work science, trades, engineers and factories, are still steeped in the old class system. - Gentlemen and civil servants are classically trained educated people who do not get their hands dirty by joining industry.- When millions are unemployed, government finances have collapsed, civil servants are striking to avoid taking pay cuts. We will then be begging a dictator to sort it all out not some Mr nice.
Eddie Hatfield.
Cambridge
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I was quite intrigued at what appeared to be implied by the statement on interest rates and a refusal to increase them. Surely Crash Gordon wasn't trying to stop them rising so he could harp on and on about Black Wednesday and not have the Tories point out his interest rates were heading skyward? As for the exchange rate, Crash is a bit quiet on that front now too. Personally, looking at the Tories, I can't see much there to get excited about either. I hope the soup kitchens stock tomato, I quite like that.
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The 'New Capitalism' will this require countries to function like the Soviet bloc in the 1970's/1980's where the money supply was completely state controlled?
I think so and I do not think this is far away as the pound is re-adjusting on a downward trend against major currencies not just because of the credit crunch or interest rates but because the pound is not sufficiently or as well 'resource backed' like the yen, dollar rouble or euro.
A major problem is the government growth targets set by governments are mainly financial and these are unsustainable and a shrinking working population, GDP, balance of payments and money supply controls are not being administered properly by UK Government/Bank of England.
The GB pound may be near worthless inside a few years and this will in my opinion, in the absence of of a major GB exporting economy, further heap the pressure on GB operational banks.
GB urgently needs radical new policies and new financial instruments e.g. private pension flexibility, NHS 'operation bonds', and some social engineering e.g. conscription to armed service (as unwelcome as it sounds) to abandon the grotesque main priority of achieving annual growth in GDP, if the British pound is to avoid a gigantic slide in value in the coming years.
Massive government debt is not the answer - the UK needs proper forward looking energy producing industry and a proper energy and research policy for public transport - this would stimulate the economy like never seen before.
If G Brown keeps course on his 'sinking New labour ship' the pound - GB £ MONEY will become worthless and this is the new future unless radical policies are put in place which measure prosperity and performance on low carbon emissions, 100% housing, low crime, 100% unemployment, high export surplus, 100% re-cycling (potentially one million new jobs on recycling alone?) etc etc - but who can deliver this?
I don't think any of the three main political parties have the policies, will-power or 'know-how' - and the banks do not seem to have the self control and sense of responsibility as these are, I believe, the real 'over-riding' concerns.
Beam me up, Scottie!
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'The upswing here didn't involve big increases in earnings and consumption...'
Just where do members of the BoE hang out? Increases in some earnings and in consumtion genertally have bee obscene. High streets burgeoning with rail after rail of tat bought by people who treat shopping as a 'therapy'. It reached the point where I virtually stopped shopping. The overindulgence was revolting.
The problem is, we have a society much of which has been conditioned to expect to spend way beyond its means. Those who the government think have scope to spend know they don't. They are the few who realise just how much needs to be saved to provide for their pension etc and they're watching it destroyed by the day in meagre savings returns & future tax hikes, not to mention inflation - 5%, 4%, 3% -rubbish, double digit more like.
Trying to bring up a family not to borrow over the last 10 years has been really difficult. The banks haven't helped, but they've only made possible what the government has sponsored as normal, reponsible behaviour. A statement from the government recognising its folly and a campaign teaching us the difference between I need and I want and how to save for both would be a good start to restoring confidence. The alternative is an even greater recession in a few years time.
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I could not believe what I was hearing from Sir John(?) Gieve in the interview for Panorama
The whole purpose of giving the BoE control of interest rates was so that they made the tough decisions between ongoing expansion and building up of trouble. His statement to the effect that the MPC would be criticised for damping growth and expectations was precisely what they were there to do.
It was rightly decided to take this judgement out of the hands of politicians. But the MPC simply played politics with the decision they needed to make. In short they have not broken free of the politicians who put them there.
They should be all dismissed and new board appointed - with a very specific brief that makes it clear to them and the country that they are there to use their economic judgement and that only.
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My question is : Can you tell me who owns the Federal Reserve,? seems to me, to be an important question today. Is any of this stuff that I have found below accurate or correct?
What is your opinion?
http://wiki.answers.com/Q/Who_owns_the_federal_reserve_bank
for an in depth explanation(3.5 hours) watch this one
http://video.google.com/videoplay?docid=-515319560256183936
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315.
Even if it is correct (which I sincerely doubt), the $500 trillion is a meaningless number as for every payment under a CDS there is a receipt. It is a zero sum game. Yes there could be problems if major CDS underwriters cannot pay but the ultimate loss can be no greater than the debt insured. The CDSs for Lehman, Freddie Mac and Fannie Mae settled OK, the net payments being a fraction of the gross sums insured.
It is a bit like adding up all the home insurance in the world and saying wouldn't be terrible if everyone's house fell down at the same time.
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The Bank of England was never given true independence by Gordon Brown. All it was given was an inflation rate to keep to. That inflation rate was later changed by Brown to exclude housing. So that is one reason why house prices and debt were allowed to get out of control. Mervyn King did say, in a radio interview, that he wished that he had had housing in his remit so why did he not tell Brown? As for Gieve, how can he say hthat he did not want to affect the broader economy when it was obvious that we were booming because most of the jobs we were creating were for people from abroad. Finally if as Gieve says they did not see the damage that bursting the housing bubble would caiuse then why should we have any faith in King and his merry band of advisors now? The obvious problem that they are ignoring is that housing is grossly overvalued and there is too much debt and lowering interest rates to zero will do nothing but scare us even more into holding on to every spare penny.
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CRANJACK"The obvious problem that they are ignoring is that housing is grossly overvalued and there is too much debt and lowering interest rates to zero will do nothing but scare us even more into holding on to every spare penny".
Housing is valued at what people pay for it.
It is not what valued at what skinflints want to pay for it, it is valued at what they have to pay for it, because if they do not pay that ,someone else will, who does not want to live beside skinflints.
And looking now at low interest rates, and current low house prices, housing is now looking relatively cheap.
If you have a tracker mortgage, you have a heck of a lot more spare pennies than you had a few weeks ago.
This is not the doomtime for everyone.........if you are lucky and in employment this will be a brilliant time to buy a house.
With current interest costs, the monthly cost of a 2008 purchase is now at 2004 levels.
And if you are not in employment, you soon will be again if the housing market gets back on its feet.
I wonder if we are experiencing a generational shift and maybe that is why the economy is crashing....I think the young are spoilt and frightened of working hard to support their families!In fact many of them do not look after their families at all.
That is the biggest source of poverty in this country.
For goodness' sake let's not have stupid young people voting the Tories back in and wrecking the economy AGAIN like they did in the eighties.
How history has been re-written to make Thatcher look like a success when she strangled the poor and killed manufacturing off. It took fifteen years to get back to pre-Tory manufacturing levels.
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If only Gordon Brown would admit that he was the source of the error.
It is after all the job of the Government to ensure that everything is someone's responsibility.
Instead, all we get is -
"We are well placed......" when in fact we will be hurt the hardest of all nations - just take a look at the depreciation of the £.
Constant use of the word "Global" at every opportunity, when in fact GB let the whole thing rip away while he was ready to take the credit, when he should have been putting in checks & balances to protect us.
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Only one thing left to say and that is just how very nice it is of Gordon to so generously allow all the elderly savers to pay for the correction of his mistakes with the lowering of the returns on their hard earned savings.
Let's all remember this at the next election. If we havn't frozen or starved to death that is.
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298 - Nicely put JohnWarner.
Trouble is that manufacturing just isn't tidy enough for bankers, so they absolutely fell on the idea of making buckets of money without doing any more than moving a few bits of paper.
Paper they understand, but making and building things requires brains.
They just proved that they have no brains.
They proved they have no socks either. Have no socks, can't pull them up can they?
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Some poor so and so is sat in a freezing cold (probably) office at the BBC moderating these comments that pour in non stop.
Just like to say thanks for your dedication.
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327:
People are unlikely to buy a House if they believe they may lose their job, or indeed, not receive a pay rise.
Holding Pay rises below the real rate of Inflation has squashed demand for Consumer goods in the UK economy.
The only way out of this is to take steps to improve British manufacturing for the purposes of Exporting and to allow pay to rise naturally with Inflation.
Hmm, I wonder which Housebuilder will be first to be Nationalised in 2009?
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329:
In order for your Savings to grow in real terms you would need an Interest rate of over eight and a half percent.
Eight and a half percent is my estimate of the real Inflation rate.
As stamps are going from thirtythree pence to thirty six pence each for a letter this year, my rate is looking a bit conservative.
Also the collapse of the value of the Pound will also make cash deposits worth far less.
People forgot the Banks were owned by Pension Funds, so check the value of your Pension, if you are lucky you may be able to make other provisions before you retire.
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332 & 333
New and distressed property on the market at sale prices. Required yield of 8.5%+. An asset class with likely long term growth potential from where we are now.
Mmmmh. I think 2009 will see the return of buy-to-let with a vengeance.
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The current situation reminds me of an episode at lunch with fellow teachers in Perth, Australia about 1962. In came a bank official and distributed credit cards to all and sundry. I asked him to explain, which he did, saying this would be a way of having far more of what we wanted right now, and paying gradually and later. I then turned to my fellow teachers and asked if this was linked in any way to some unmentioned pay rise ... They were not amused. I was the fool, refusing to take the credit card gift of a lifetime. Or was I?
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Little is mentioned of the fact that the same mistakes are still being made. Having found mortgages to be a poor means of future bank income, banks are now turning to "premium" debt instruments to try and re-build their balance sheets.
Another wave of credit crunch still to come therefore will be when the "expensive credit" bubble bursts in the not too distant future. So far, cheap credit such as mortgages have dried up. Banks are still willing to lend out high-APR funds to credit-unworthy borrowers since of course only the desperate and uncreditworthy are in the market at over-the-odds rates at this time! Who really needs that new car at 20%+ apr?
The rest of us have already tightened our belts to the level of "If it's not something I can afford out of cash in hand, I don't have it!".
The "wave one" credit crunch of the prudent was bad enough. The "wave two" Credit crunch of the reckless will leave the government powerless to bail out the massive number of financial firms that will be brought down by it. Many finance houses are not high street banks, but have fingers in lots of other pies not related to finance.
This is very serious indeed. If a company such as Experian (owning catalogue mail order as well as expensive forms of credit card) gets into trouble despite being "experts" on credit markets, then what other firms fall apart if they go down? Come to that, would their collapse usher in a "golden age of credit fraud" in a similar way that a big city blackout represents a golden age to petty crime?
Call me a doom and gloomster if you will.
The best way for the public to continue now is to get off the credit radar altogether, liquidate current borrowings, and just leave your mortgage. Don't pay for the fraud and bad debts of others via your increasingly costly credit or store cards.
If the government are admitting how bad things are, then rest assured that behind the scenes the real situation is even worse than that!
The taxpayer already looks like being the creditor of last resort - but what happens when there is hardly anyone at work paying enough tax to raise these funds? I shudder at the prospect of the printing presses being turned on, and the UK going the same way as the Weimar republic in the 1920's.
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Robert, We sold our house in Oct 2007, and placed the proceeds with the nationwide, we are now begining to worry that as the interest rate for savers is so low, is there a possibility that savers like ourselves would be better off withdrawing from the UK building society's and look overseas for better rates and greater safety.
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Robert you are so right politically when you point out that Geirge Osbourne is now appreaing to be more right wing financially than the government is.
Can I just say that , and by the way I am a long time real socialist ( i.e. old Labour ) , would it not have been more sensible for the government to have put tax payers monet in to the C0-op Bank for example or a state bank than giving billions to a failed existing banking system.
Like you I am in despair.Keep up the good work Robert you do understand the subject and you are able to put it across on radio and tv very well.
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The banking system is run simply to confuse and to put people off looking at why it fails so many, apart from the fact that banks are loan sharks one and all. The man in the street wants somewhere to store his money and get something back that is why shareholding is popular and when Thatcher opened the rail and unities to the masses it was a sell out. They think they own pieces of these places when they own nothing but their money is used gamble and lose and then be blamed for it .
Few look at the bank notes that are not money but a note to say that the bank will give you the value of that money maybe.
When I was young in the fifties there was more money in coins and pound notes they looked like you could exchange them for things now not so. The Govenment and banks are working towards credit cards for everything and not only do we not have to have any cash we can also be traced were we go and be kept under control which is easy on this small island something else people forget. The controlling of the many by the few.
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