A bank insurer, not a toxic bank
I don't know why the government hasn't knocked on the head the idea that it's working on the creation of a bad or toxic bank that would buy our biggest banks' dodgy loans and investments.
What I expect it to announce on Monday (although the timetable could slip a day or so) is the creation of the mother of all bank insurance schemes.
By the way, the Treasury is also considering making an offer to Lloyds/HBOS and RBS to convert the expensive preference shares they've sold to the government into ordinary shares.
If this happens, I would expect RBS to say yes and Lloyds to say no. And the conversion would see the state's holding in Royal Bank rising from 57.9% to around 70%, or a good step nearer full nationalisation (see below for more on this).
But back to this insurance scheme to give banks and their investors a bit more certainty about the losses they would face as the recession undermines the ability of many borrowers to repay their debts.
Our biggest banks would identify their bad loans and foolish investments. And they would then pay a fee to a new state-backed insurer to protect themselves from losses over a certain level on these stinky assets.
But the banks would retain these bad assets on their balance sheets. They would not be transferred to a new toxic bank. We as taxpayers wouldn't own the stinky loans - though we would be liable for losses on them over a certain level.
Why the urgency of doing this?
Well, in just a few weeks we'll see results for 2008 from our biggest banks. As I've already pointed out, Royal Bank of Scotland and HBOS will announce unprecedented, horrible losses.
And the HBOS losses would represent a massive drain on its new owner, Lloyds TSB.
There's a fear that unless the Government has developed some kind of safety net for them by then, there could be an alarming loss of confidence in the banking system of the sort we witnessed in September and October.
So next week we'll get the announcement that just such a safety net, in the form of the insurance scheme for toxic loans, is in the process of being designed and built.
In a way, it can be seen as a way of getting capital into RBS and Lloyds/HBOS in particular without fully nationalising them.
That said, the scheme will be open to all our very biggest banks. So Barclays too could insure away future losses on certain of its loans and investments if that suited it - although on Friday night it insisted that it had made stonking profits of well over £5.3bn in 2008.
However, I don't expect a long and detailed statement on the institutional mechanism by which we as taxpayers will pick up part of the bill for the longest banking blow-out in history.
Nor do I expect, as this stage, the government to put a number on the likely cost to all of us as taxpayers of putting a floor under banks' losses - although the potential liability would run to tens of billions.
Of course it's entirely possible that if the new state insurer values the assets properly, taxpayers could end up over the years of the scheme with a profit.
But it seems unlikely that this will be a very popular policy. Readers of this blog have repeatedly asked why we as taxpayers should bail out the banks for the consequences of their greed and recklessness. The question I'm always asked is: whatever happened to the old-fashioned idea that we should pay for our mistakes?
For those working around the clock this weekend at the Treasury, in Downing Street, at the Bank of England and at the Financial Services Authority, the priority is to restore the strength of the banking and financial systems, to stem the remorseless contraction of credit that's caused our awful recession.
In that context, the Treasury and UK Financial Investments (the institution created by the Treasury to manage its investments in banks) have been preparing to make an offer to Lloyds/HBOS and Royal Bank, to convert £9bn of their preference shares (owned by the Treasury) into ordinary shares.
The reason for doing this would be to remove from them the heavy financial burden of paying the 12% dividend of the preference shares.
In the case of RBS, for example, the dividend represents an annual cash outflow of £600m and for Lloyds/HBOS the outflow is £480m.
In theory, if the two banks didn't have to pay this dividend they could lend £27bn more every year (because under FSA guidelines, if the £1080m of dividends were retained by the banks as equity capital, the banks would be able to lend a multiple of that core Tier 1 capital).
My strong sense is that RBS would love to convert the prefs, which it regards as costly debt, into ordinary shares - even though that would see it owned 70% or so by the state.
However Lloyds TSB is less keen, because it's 43.4%-owned by the public sector and doesn't want to see state-ownership rising above 50%, which would be the result of converting the prefs.
It will be interesting to see whether Lloyds' shareholders would agree that it's worth paying out £480m of cash each year to taxpayers to prevent that creeping nationalisation of the bank.
Anyway, as readers of this blog know, there'll be plenty of other initiatives announced next week by the Treasury, most of which can be seen as deploying taxpayers' resources to encourage lending.
One of these will be an extension of the timetable for Northern Rock, the fully-nationalised mortgage bank, to repay what it's borrowed from the Bank of England and the Treasury. This would put less pressure on the Rock to shrink the amount that it is prepared to lend.
Which, at a time when the problem for the economy is a shortage of credit, sounds a bit like an outbreak of common sense at the Treasury.
I'm 
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Hurrah!! I finally got first post!
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Can anyone explain why Broon is PLEADING with the banks to come clean on their exposure when
a) he doesn't want anyone to know the answer
b) he should be instructing them legally to do so (and if that needs a new law - which I doubt) to pass it next week!
This is surely not spin to ensure no blame attaches to the architect (Broon) of most of our woes is it??
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Where are all the 'new' losses coming from in the banking sector?
It cannot be that they continued to invest in (toxic) synthetic investment instruments as the market for these ceased last year.
So these 'new' losses must in fact be 'old' losses. Now this raises a pair of tricky alternatives either: the banks did not come clean last autumn or: the accounting systems in the banks are so poor that they were unable to properly add up their losses last autumn? I cannot logically see any other alternatives.
In the first case the banks deliberately misled the authorities and in the second case it cannot be acceptable that such large organisation keep such poor records and if so that the management managed their business in such a way as not to know what was going on.
I fear the answer is the second case, and if I am right, what were the auditors doing to not insist that the management deficiencies were made good, and further why were the accounts unqualified as the auditors owe a duty to the shareholders which they do not appear to have met. This shouts Enron yet again and on an unimaginable larger scale.
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Nice stuff Robert. Just read your book, some of your sentiments here tie in nicely with what you wrote. It's a difficult thing: should we subsidise, bail-out, buy-up ec. etc. I just wish many of these bank and finance people could be punished. I doubt they will be though. One thing is certain, one way or the other, we, Joe and Jane public, are likely to be the worse of for this proposed insurance scheme. Have you seen this morning, looks like we have another scandal about to break. Some guy may well have been a bit naughty with his investors' money. Looks like Barclays'll have to run to the government soon too. Something they did not want to do. It's going to be a bruising week ahead.
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Red Lenin 1:
Congratulations.
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This is the precursor to moving to easing the mortgage supply.
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I think Robert is rather too locked into / facinated by the financial aspects of all this.
As I have said before the financial system is the servant of the real economy not the other way around. It is not the economy itself (although you would hardly know that from the media and government coverage).
It is a reflection of how we are living our lives and tells us when something is not working or unsustainable. It is telling us something is badly wrong in the real world.
All this proping up of the banks in various forms is all well and good but it does not create demand in itself or generate any wealth for individuals or the country to buy things, even basic things like food and energy. It only serves to cushion the blow. You can not borrow your way out of debt.
As business editor I would expect a broader focus than just the financial markets and banks, facinating though it is business encapsulates much more than that. A bit of diversity would be good in your posts and journalism generally in line with your title.
Jericoa
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shut down the markets for a while that'll teach them to be so volatile. we need to quantify the losses to rationalise and fully understand what's going on (cue marvin gaye)
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All these initiatives and complicated tinkering on a non-stop daily basis is just causing confusion and thus causes a loss of confidence in the minds of consumers and business. This is typical Gordon Brown. Tinker and dither.
What we need is the "nuclear option" and then a period of stability...thus creating a for recovery.
It is simple. Firstly, temporarily nationalise ALL the UK banks for a 5 year period and then once we are back to growth return the shares to the shareholders. Then authorise lending. Stuff the shareholders interests....the economy is far more important. Secondly, print money!
All we have at the moment is a mish-mash of civil service devised initiatives piled one on top of the other! None of which are working!
Someone needs to press the nuclear button and have done with it!
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THIS CONTINUAL GORDY OBSESSION
WITH LENDING AND BORROWING IS
BEYOND ME.
ITS LIKE GIVING AN ALCHOLIC A CASE
OF WHISKY A DAY.
I RUN A BUSINESS WISH IS CASH
RICH TO THE POINT EVERY TIME I
DISCUSS UK CASH DEPOSITS I GET
ACCUSED OF MONEY LAUNDERING,
AS FAR AS I AM CONCERNED THE UK
BANKING SYSTEM IS FINISHED AND
THE BLAME LIES IN THE BOARD
ROOMS,DOWNING STREET,THE FSA &
THE BANK OF ENGLAND.
WELL DONE NEW LABOUR YOUVE
TRASHED THE LOT!!
YOU ALL MUST BE SO PLEASED?
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The world's T Accounts (debits and credits) show the bleedin' obvious (measured in foreign currency reserves)
Credits
China, Japan, Germany, OPEC Producers.
Debits
Everyone else (especially US and UK).
Hidden bombs
Every major western bank and financial institution with derivatives. No one knows the true scale of the losses here and may not do so for many years. These are fractional bets on fractional capital and reserves, supported by shed loads of central bank note paper.
Blame Culture
All of us. Banks for greed, politicians for ego, regulators for stupidity, auditors for self preservation and greed, and all of us for enjoying something that is too good to be true (cheap, easily available credit).
Change
The Government. Politicians fear real democracy, i.e. when the people really work together to force change. Perhaps that time is coming. Democracy as we know it is not real, but shallow as change is made for the sake of political expediency. We all know it, but unless we act as a nation decisively, the status quo will prevail.
Remedy
Pay back what you owe, if you can, and look after your own (family, friends etc). Shift work/life balance towards life. Enjoy the smaller things more. Money can buy many things, but can never buy health, happiness and time!
Robert, you have a particular style of reporting, but keep going. It may feel gloomy, but in times like this there are always opportunities to change and make things better. Eventually, life as we know it will calm down. What is more, the REAL trouble will start when food, water and raw materials start to run short. If you think times are bad now, just wait. In the meantime, make every day count!
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Robert, you say "the priority is to restore the strength of the banking and financial systems, to stem the remorseless contraction of credit that's caused our awful recession."
Whilst the contraction of credit was the catalyst to the recession, is it not likely that consumers have now recognised that they cannot go on borrowing ever larger sums of money to sustain their lifestyle, indefinitely.
That the economy we have had over the last 5 years has been simply as a result of ever increasing debt; and that without that ever increasing debt the economy would have been much smaller than it was.
That the economy must now shrink to reflect what will be a smaller appetite for debt, as well as less spending on goods and services and instead spending on debt repayment.
So whilst the Government is trying to "stem the remorseless contraction of credit", that in itself will not return us to the position we were in two years ago.
It will be beneficial for companies that need to borrow to invest, but many of those companies will be investing to service a market that is much smaller than it once was.
This begs the question as to whether lending to companies facing a smaller market is prudent.
Gordon Brown claimed he had ended Boom and Bust, in fact the economy was booming, he just didn't realise it.
Now he wants to return it to the boom - unfortunately, for quite some period of time. he may now truly have ended Boom - but bust could last quite a while.
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It isn't JUST the fault of the banks. To echo a point John Redwood has been making - when the Government shoved billions of our money into RBS and Lloyds -HBOS did they have any clear idea of the magnitude of the problems? Just how much "due diligence" had they done?
If they didn't really know how bad the problems were then they clearly chose the wrong way of addressing them!
THis has been a disaster of historical proportions for the UK economy and I look forward to an in depth high level tribunal to look at the financial management of the UK in the last decade and the panicky responses since last September.
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Why not nationalise the banks anyway? They are not like other ordinary commercial businesses. As we have seen they are too important to the functioning of our society to fail and therefore wouldn't they be better off as part of the state? They have also demonstrated so clearly that they can't be trusted. With enough governetment support they will return to profit and why shouldn't we, as taxpayers, benefit from that.
Why should banks, with their liscence to print money, be privately owned? Why should we see those with money be given the privaledged opportunity to make money from money?
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Any thoughts on why the FSA has allowed the resumption of Short-Trading - surely it can only weaken the stability of an already volatile market? Presumably it helped the Barclays share price collapse on Friday?
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This comment was removed because the moderators found it broke the House Rules.
Is not the 'poisoned debt' crisis a very finite thing? If we assume that hardly any more 'Ninja' (No Income, No Job) type mortgages were sold in the USA after September last year (ie after the whistle was blown), then we are probably looking at a timespan of say three years max in which it will become apparent what percentage of these sub-prime mortgagees will default.
Most 'sub-primers' enjoyed a year's grace because the 'come-on' first year's mortgage repayments were charged at discounted - and often unrealistically low-interest rates. For many the pain began/begins in year 2 when market rate (and more) rates kicked in. Surely on this basis, most of those who will default will have defaulted by the end of year three, if not before.
By the end of next year therefore, the number crunchers should be able to begin to quantify the true default/risk factor in much of the poisoned debt on bank books and hence quantity the residual value in the bulk of these poisoned debt loans.
We may yet be surprised at the percentage of current sub-prime loans which have in fact NOT gone bad by September 2011, given that interest rates have tumbled.
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So Gordon Brown has decided who he is going to made public enemy No 1 and its the banks and not him. Yes they behaved badly, but who's been in charge of our economy for 11 years, did he not see it coming when others did. Was he not the one who changed the regulation of the banks.
He knows very well the public want someone to blame and that someone is the banks. For goodness sake the reason the banks can not balance their books is because all the wrong action has been taken from day one. Toxic debt should have been removed from the banks on day one of the crisis, thats simple banking. Its Browns slow action which is to blame, a bad bank is the key but its much too late now. All these silly schemes he keeps coming out with to prop up the peoples mortgages, and lending schemes for this that and the other, are just putting more pressure on the banks and stopping their ability to re balance their books. So tax payers money keeps being needed to help them out. The amount the Government charges the banks for all these daft schemes and the 12% they charge for the money lent is bringing the banks down further.
The whole future of the banking system and our economy is being put at risk because of Brown desire to keep votes.
Someone needs to point this out to the public before its too late, it cannot be the Conservatives because then they would be accused by Labour of looking after their own, and the public would jump on this band wagon as well.
There is a price to pay for all this debt and at the moment its people who have saved hard and behaved properly with regard to their finances. The ones that have been irresponsible are being propped up by this Government. But the chickens will come home to roost, and it seems the distruction of our country is the price Brown is prepared to pay.
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Insolvency of the Population
The way I see it - banks do not lend their own money, they lend depositors money. They are suppose to keep a cushion of capital to absorb bad debts. That cushion seems to well under 2 percent, given capital rules requiring 4 percent, but fancy off balance sheet financing etc gets the banks down to a much lower capital base in actual substance.
The depositors are the only ones who can pay - after all its their money. Options - negative interest rates (run on the entire system), a wealth tax of some sort, kind write down the bad loans directly against depositors balances, rather than through the reserves and capital side if the balance sheet, a tax payer bailout (taxpayers buy back their own deposits through higher taxation).
Hugh political problem - nothing is acceptable, but there is no other way. The depositors pay.
Ultimately, it'll be done by a stealth tax called inflation. Devaluation of both the debts and the deposits in real terms.
But bailing out the banks does not hit the problem, that of insolvency in the population.
Just taking unsecured personal borrowing. B of E figures suggest the average amount owed on credit cards, store cards, personal loans is £30,000 per household that has debt of this sort - half of all households. At 20% interest, the interest cost is £6,000 per year. They have a morgage on top of this.
Thats why nobodys got any money to spend. Peoples total income and then some is already precommitted to mortgages and debt interest. For the last 10 years people have been living by borrowing for ever more capital to spend and to make the minimum loan repayments. No new borrowing means no more spending.
Then there is corporate debt. Then there is the funding gap. Then there is investment, hedge fund and speculators debt.
Can we please wake up here. The population, as a combined group, is totally insolvent.
How long before all trade credit ceases? How long before money (or the promise to pay tomorrow) is not accepted in exchange for goods and services? How long before there is no food on the shelves?
Get the banks to come clean? We know. The figure will be well over £1 trillion, maybe £2 trillion.
The sooner money is printed helicopter style and given to those in debt the better. You then take it straight back off them to repay their loans - it goes to the banks. Then jack up both liquidity and capital ratios imposed on the banks which means the printed cash goes back to the B of E on deposit.
Then ban all consumer debt.
Mortgages maximum 3 times income.
Banks will then not be able to earn an acceptable return on capital - nationalise the lot.
Having fixed the banks, there'll be inflation like we've not seen before. Oh and then a more normal recession caused by global trade inbalances. A bit of a fib. A big recession. But thats better than a collapse of all economic activity.
Countries with deficits (trade) will have domestic inflation and a trashed currency. Countries with surpluses will have domestic deflation and rapidly appreciating currencies. Thats assuming countries don't fix their exchange rates and make things worse. China and others are standing in the shoes of America in 1930. I think a prolonged trade surplus is more damaging than a trade deficit. ie be wary of getting too rich.
Greed.
A pile of paper dollars is just a pile of paper when all is said and done.
Either way, the balance of payments has to balance. Let it go on for too long and the whole lot crashes.
Given where we are now, the consequences are unavoidedable. The world will have to get use to permanently high levels of unemployment. Technology takes jobs. Yet the population grows.
Me. Ive had enough of ranting on for now. Its best off my chest.
I'm catching the first train to Mars.
See you folks. I'm out of here.
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Post 12 egrid1
Your comments are very insightful.
The reality is that demand has been pumped up on plentiful piles of cheap false money. Pull the rug on that and demand falls back to it's natural level as does the size of the economy. Once that process stops we'll return to REAL growth not discretionary growth based on discretionary debt.
Living standards are at a standstill or in decline for the next 5 years.
The public sectorwill become far too burdonsome for the private sector to finance. Who will have the courage to issue a 5 year pay frees to public workers? Or even cut the public sector workforce by 10-20%.................or as Digby Jones suggests...........50%!
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Straight forward question....when will the Government and the Financial institutes tell this country the truth?........If this country is heading for financial 'meltdown', we should be given the facts and not patronised by people who think we won't 'understand!
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While the Mods (who are as Gods) ponder whether I've given too long a "taster " quote, a simple link to an excellent column - A Parade of the Basket Cases...
;-)
ed
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What on earth is Gordy playing at now?
Every expert/blogger/pundit that has been questioned or has offered an opinion for the last 12 months has said much the same thing; the banks cannot tell us how bad their assets are because they DON'T know.
If all the "bundles" of toxic assets that they bought had been stamped with a big black skull'n'crossbones they could tell us, but they won't know until things go individually wrong which ones to mark off.
Now HeeBeeG.B. is insisting, publicly, that they tell all; so, the bankers either own up thay they don't know or pull a figure out of the air.
Either way all kinds of ##it will hit the fan, markets will knee-jerk react, currencies will soar/plunge and we will all be even more depresssed than we are now.
Hold on ....... Robert, are you writing Gordon's speeches for him??
The results of this seem like perfect fodder for your next doom-laden article ! !
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These plans are all very well, but how can anyone actually place a value on these assets ? And therefore price the "insurance". After all, it was only three months ago that the Banks, the Government, the Bank of England and the FSA worked out what extra capital was needed to safeguard the Banks under a domesday scenario. I guess they got their sums wrong then. So what chance they'll get them right this time.
I'd love to sit in when the Banks' directors are trying to put a value on these things, even assuming they know how many of them they've got. "Your turn to roll the dice Eric !"
There was a story going around this week ( strongly denied by all parties of course ) that Nigel Rudd had stood down from the Barclays Board because his view of the bank's potential losses differed from that of his Chairman. If the two of them can't agree, what hope have the Regulators got ? And as for taking account of the later domino effect . . .
The auditors will presumably just say " no one can know ", and allow the uncertainty over the banks' solvency to drift along.
What an incalculable mess !
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I have regularly reviewed the published
accounts of the main UK clearers since
2001.
In my view there have been SOLVENCY
issues since 2002.
IF I COULD SEE THIS (I AM NOT AN ACCOUNTANT NOR DO I HAVE A DEGREE).
WHY DID THE SO CALLED EXPERTS
AND REGULATORS NOT SEE IT????
THERE WERE TELL TALE SIGNS OF THIS SITUATION AS FAR BACK AS 1999.
THERE IS NO QUESTION THAT THERE
SHOULD BE PROSECUTIONS AND
RECOVERY OF ASSETS ETC.
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As a taxpayer I'm OK with saying we'll insure the banks so that they can start doing what there modus operandi is, taking money, investing, lending, charging interest, making obscene profits, and enjoying things that the rest of the population can not (million pound houses, boats, private planes, 7 star hotels, etc. etc. etc.) BUT they better bloody well remember that they are forever indebted to us and what it the idea of saying we might loose money on this deal, write the contract to make sure we bloody don't, who is doing who a favour here?
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RE WHITEHALL CIVIL SERVANTS
A CULL OF 60%
NO SALARIES OVER 40K
WE ARE ALL PAYING TO KEEP THIS LOT IN CLOVER.
REDUCED PENSION BENEFITS.
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State insurance seems a much better option than setting up a bad bank and converting the preference shares to ordinary shares would also be help free up additional lending. However, all this just shows how quick moving the credit crunch situation and governent's response to it needs to be. The Treasury which always takes its time, looks at things in depth, weighs up the pros and cons seems always to be behind the times and playing catch-up
Incidently WHY DO CERTAIN BLOGGERS FEEL THE NEED TO POST IN CAPITAL LETTERS, ESPECIALLY WHEN BRAGGING ABOUT THEIR ENORMOUS CASH ASSETS? You know what they say, HUGE CASH ASSETS, tiny.................
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Cos what this country really needs is another organisation setup like AIG but just on a bigger scale ! cos THAT WORKS... Darling/Gordon can sell CDS swaps all round....
This is your life, good to the last drop it doesn't get any better than this, this is your life and it's ending one minute at a time, this isn't a seminar and it isn't a weekend retreat, where you are now you can't even imagine what the bottom will be like. Only after disaster can we be resurrected, only after you have lost everything are we free to do anything. Nothing is static, everything is evolving, everything is falling apart
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25 ac
You dont need a degree or smart bean counter to smell bull all you need is a nose. You do make me laugh.
: )
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Post 27. Alexandercurzon.
Spot on!
It will have to happen...and soon.
By Xmas there will, including me, be another 1.25 Million unemployed.
Let's make the public sector share the burden....
So let start by culling 500,000 public sector non-jobs..........like the one I saw a few days ago.......a part-time, job share arts development officer!!!!!!!!!!!!!!
Then with these multibillion pound savings lets give the private wealth creating sector massive tax and regulation cuts to spur the growth of REAL jobs in the year ahead.
What we need is Thatcherism on STEROIDS given the magnitude of our economic problems which are going to crashing our economy day by day......and which will carry on for many years until someone launches an ECONOMIC revolution Thatcher-style!
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Some sense.
Thank you to John from Hendon, Jericoa, BankruptbritainRIP, Prisionernumber6 and egrid1 for their contributions to this discussion.
If the penny has not dropped yet regarding the extreme gravity of the current worlds predicament then we are truely stuffed.
You just have to have faith in the policy makers - there is no one else!
But they seem to be delaying - going through steps that cannot work, steps that are politically acceptable.
Avoiding the necessary and politically unacceptable.
Hey. These trains to Mars don't seem to run on time. Fix the transport system. Something else for the to do list.
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Brown urges banks to 'come clean'
It beggars belief. It should read
Brown orders stable door shut as horse has bolted.
WHAT HAVE THEY BEEN DOING FOR THE LAST YEAR SINCE NORTHERN ROCK?
I really don't think they know what they are doing.
Wouldn't you have thought that at the time of NR they would have realised that before offering tax payer money to any other bank they would have insisted on full disclosure of the risks and gone through the books? THIS IS CALLED DUE DILLIGENCE!
At the time of NR Darling said "it has a strong mortgage book" At the top of the biggest housing bubble in history.
The only explanation is they really believed their own publicity that we would not suffer recession.
Every forecast this government comes out with turns to dust within months. They are completely and utterly incompetent.
They have to go!
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10 ac
You might think you have to move large amounts of money (even around the UK let alone over national boundaries to) be accused of money laundering. I can assure you this is not the case. Everyway you turn there is red tape and and concern with crime and terrorism.
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GB is surely right in wanting the banks to come clean on the true scale of their liabilities.
And he will, no doubt, lead by example. To set a good example, his government will come clean on the true, mark-to-market values of:
a. Future public sector pension obligations
b. Future old age pension obligations
c. Future PFI obligations
Anything less than full disclosure would, in this situation, represent total hypocrisy.
I am very sure he will come clean. (Woops! Just looked out of the window and saw a pink four-legged creature with a curly tail fly past...... )
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Although in principle I agree with most people on here about the terrible state of UK finances I think we are probably missing the most important point.
The vast numbers quoted regarding the cost of 'bailing out' or 'recapitalising' financial institutions does not represent any tangible pile of money that actually exists anywhere. The government can pull out any number it likes, they just need to tread a fine line between a number which is 'frightening' in its implications of how bad the underlying financial state of Banks are and which could unsettle the markets and a number which is deemed insufficient to deal with the problem.
As long as people believe that this 'money' actually exists and can be put to work then the Capitalist system will endure, contrary to what a few nihilists on here think (or hope probably). It isn't in anyone's interests to call the Governments bluff on this therefore they will in all likelihood get away with it and the recession will not be as deep or prolonged as being forecast.
The much derided Northern Rock depositors who were not quite as cynical or politically motivated and therefore demanded to be 'shown the money' and are blamed for setting the banking crisis in motion in this country are a frightening example to Governments everywhere of what happens when this belief system breaks down. That sort of thing just cannot be allowed to happen again, thus the 'bail out'...
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Public sector will not have to take any flack. NOT until after the next election. They will want to protect their jobs, pensions etc. Nu Lab is hoping they all will vote for GB to continue the trashing of the country.
Soon everyone will work in the public sector, have houses owned by the state, benefits paid by the state. That is until there is no one left out there to pick up the tab.
NuLab can call a Nationial Emergency and ban elections.
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12% is not expensive for the Prefs, given the state these banks are in.
For example, the RBS 6.6% issue (nominal $25) closed yesterday at $10.80, which gives a yield of 15.3% - and that's with UK government support ! (It's been higher - over 30% in October)
To swap debt for equity is to give them a(nother) massive subsidy.
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Isn't it about time that Gordon Brown came clean as well?
What is the cost of Public sector Pensions?
What is the cost of PFI deals?
All this shambles happened on Gordon Brown's watch as Chancellor. He should go and take his mates with him. Its not that he is a do nothing chancellor, more that he has been a do everything wrong Chancellor and Prime Minister. His irresponsibility and incompetence is breathtaking only overtaken in size by his inability to see how bad he has been for Britain.
Welcome to the world of ZaNulabour.
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hmmm!
Toxic debt was rolled up with good debt, and the value used as security or sold on at a specified general value. Bit like giving someone a bundle of notes backed with a couple of tenners and saying it's £100, but really just £40.
Spoof played by bankers!
Now the good debt is gaining in toxicity as defaults and plunging property prices hit the original package, it's total guess work as to the value of toxic debt held! What is £100m today could well be £200m tomorrow!
Even if the £100m is insured now, then claimed for, what happens as the good stuff goes bad too?
Effectively, insuring this debt means the debt is paid off to the bank. So again, surely this means the government would be better of paying every defaulted mortgage instantly! Why not go one step further, and pay of the mortgage of every person or company in arrears because of redundancy or company collapse!
How Bloomin' ridiculous!
Put the money in people's pockets through massive tax cuts-then there will be more money in the system altogether!
And while you're at it, Gordon, get those investigations and prosecutions going to restore confidence (just like the USA).
Why not force all the banks etc to include their debts in their balance sheets and stop this off book rubbish! Do the same yourself with our nation's finance and TELL IT LIKE IT IS!
Won't happen, I know. But a great thought!
If GB did this he'd have to call an election as the country would be in absolute uproar! Better we know facts than ponder on rumour
Off to make some seriously yummy ice cream now!
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Citygambler,
cred·it (krdt)n.
1. Belief or confidence in the truth of something. See Synonyms at belief.
2. A reputation for sound character or quality; standing....
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#25 and #27ac
Simple, they could not see it because they ARE professional accountants, experts and regulators.
They are incapable of seeing the woods for the trees. What kind of person becomes an accountant do you think or a government regulator?
Well rounded, dynamic, grounded people who learned thier trade from the bottom up and engaged with the real world and real people of all classes?
or
Top of the class graduates who came straight out of academia, looked around to see what payed the best, offered the most security and a gold plated pension as long as they kept thier heads down. They then spent their careers crunching the numbers and not rocking the boat ensuring the numbers they came up with reflected their bosses ambitions.
Jericoa
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Media headlines feature Brown demanding that the banks " come clean " on the amount of bad debt they have. This from the man who either cannot or will not tell the British people exactly how much debt this incompetent government has accrued in the name of the taxpayrer. Each and every day he comes out with a stupid initiative or statement designed to take attention away from the state of the economy. Everybody and anybody is blamed for the state of the country's finances from our own to the rest of the world's finance houses. No doubt foreign banks were the first to explode, but Brown had already sown the seeds which led to the disaster in Britain's financial sector. The only way confidence can be restored is for a general election to be held and for this awful government to be consigned to history.
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Barclays announcing yesterday that it will make a profit of more than £5.3bn in 2008 when it announces its results on 17th Feb doesn't strike me as the results of a bank that either wants or needs any UK taxpayers money. Not only that if you read the press release Barclays also says that its key capital ratios will strengthen.
My expectation is that HSBC's results will also be similarly strong.
Robert - you have mentioned Barclays statement in your article. Unfortunately virtually no other commentator has in any reporting I have read today. As most of the media reporting hitherto about the recession has been hysterical often by people who have never been through a recession before, we should not be surprised that yet again the facts have been ignored.
This recession is a function of the economic cycle. One of the impacts of an economic downturn is that it weeds out those businesses that are sound, quality well run businesses from those that are not. In the latter category some will fail. Banks are no different.
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37. penshawdave:
"Public sector will not have to take any flack. NOT until after the next election. They will want to protect their jobs, pensions etc.2
Whilst I fear you may be right, there could be one significant exception - local government.
There are persistent reports that local authorities may be about to cull 7000 posts, perhaps concentrated in those authorities which were daft enough to have money invested in Icelandic banks.
Welcome though such cutbacks would be, my fear is that the cuts will target front-line workers rather than, as is surely more desirable, back-office staff.
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"But it seems unlikely that this will be a very popular policy. Readers of this blog have repeatedly asked why we as taxpayers should bail out the banks for the consequences of their greed and recklessness. The question I'm always asked is whatever happened to the old-fashioned idea that we should pay for our mistakes?"
VERY WELL SAID INDEED RP - proof you DO read the feedback.
THANKS TONS
GC
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Been reading the excellent blogs for 3 or 4 months now and decided to post.
Surely banks need a whole new model now and 1080 million of foregone dividend payments should not allow 27 billion of loans!? Otherwise we'll be right back where we started with more toxic debts a few years down the line.
Gordon Brown is quite right in asking the banks to own up to everything, but the regulators should be monitoring this on his behalf all along! The regulators need to get tough on regulation and remuneration, bankers need to take significant salary reductions (perhaps based on the value of their share price or asset value reductions so they earn a fair wage like the rest of society) with bonuses clawed back until the banks address their toxicity issues. Insurance policies, much as I hate them, sound a better way than a toxic bank. The banks need to be responsible for their toxicity not just palm it off. Lets see the bankers sitting this out for the long term like any other person would have to and showing some responsibility for their actions. And while we're at it lets put an end to all this short selling malarkey by banning it completely. We need to give industry as a whole (including banks) a fighting chance and all this paper based speculation from people who haven't got the assets to put their money where their mouth is by actually buying shares. They would be far better putting their (likely to be) mildly intelligent brains into action for something more worthwhile for UK society - like these much talked about future industries that we could be leading the way in.
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An outbreak of common sense at the treasury – Bwahahahaha, good one Roberto!
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36 citygambler
Business is based on trust. The one thing you should never do is jepodise trust or there is cessession on business. That is exactly what they have done. The point is there is business pending, it is hibernating. The longer this panto goes on the later the restart and inevitably the greater the damage to those that fail to hibernate alongside.
Generally - I would like somebody to explain to me how the public sector can survive, other than via means testing in its current form. The economy has to contract therefore the tax take has to contract. It may be deferred but it has to happen. Pressure will result on fringe jobs. Funds will be cut to LG. The private sector will move to avoidance of business rates wherever possible, the trend is already there, reducing tax take further.
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Really? In a pig's ear will the banks play, they've not done so until now despite the Chancellor's threats and they won't do so even at death's door. They've lived with 800 years of having the whip hand and they're in total denial that the world's changed, they'd rather play Lear and bring it down around their ears than be men and realise they lost. You've seen my logic for why they're not lending, it's a dissociation between the compensation and the front-line lender, amounting effectively to a subjective junk-bond rating on HMG at that level.
This weekend's meeting is the Last Chance Saloon, every single throw of the dice thus far having come up snakes-eyes for the above reason. The thought the dice are loaded might not have entered into Ally's noddle, however, and that wonderful circle of failed bankers advising him on how to dig his way out must be a joy to behold. The only people he forgot to invite are the IMF, and that might be very costly to him in the long run.
The idea of UK Financial Investments making an offer to Royal Bank gives me a peculiar vision of games of round-the-table whiff-waff in my younger days, as we see Sir Philip dashing from one side of the table to negotiate better terms with himself on the other side, while his old chums from Lloyds and Sir Fred ye Shredde heckling from the sidelines. In the old days they used to stage a tourney afterwards so anyone who made real enemies could have a convenient accident.
Alexander, were you referring to the Moderators point or the real payload of my earlier comments? How Sir Philip undid the regulatory regime before taking the above position where he can play all ends against the middle, with the entire knowledge of the Men of Straw?
Now, #17, whatever makes you think such practices as the Ninja operation has finished? Absolutely nothing has been done to tackle the underlying causes of this crash, and now the short market has been reopened they'll sell the skivvies off your bum given half a chance. We already see what's been happening to the supplier of most of the said skivvies...
Robert, you asked about whatever happened to the old-fashioned idea we should pay for our mistakes? The average citizen owes 10k in his own right, making the citizen debt around 250 billion. By comparison, the banks have swallowed soemthing like three times that simply to plug their wounds so far, and that's clearly not the end of the story yet by a long stretch. So don't start preaching to people who were offered credit by ostensibly clean retail banks who failed to disclose they were packaging it up for resale through the CDO market, and who are now pulling the plug on people who have no bad track record simply to cover their own bums. The thought they could sell the skivvies off their own posteriors would, however, be the cream of the crop... Personally, I think its time their details were submitted to the CRO.
That being said, there's a deal of repayment to be done, and it seems to be starting, to the angst of the High Street. You can't use the same doish to pay down debt and spend it on the High Street, so Ally's got to make up his mind who he's going to support, retail or electors. Either way, his puddn's dry.
Still, not to worry, Tom McKillop, having been stopped from making a right McKillop of RBS, can now concentrate on planting the seeds of recovery in his other post as President of the Science Council, if someone could teach him which way's up. At 65, it's time he took up gardening.
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I wonder if Plodder still thinks being PM is the 'best job in the world'.
Pity he's not the best man in the world for that job.
Pity so many folk are losing their own jobs (which may well not have been the best jobs in the world) and chucked on the scrapheap.
Funny how some banks don't want to lend, that's how they make money innit?
Repossessions and foreclosures up and nobody came..
GC
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That seems a very valiant effort Robert, though I hardly believe that Crash will follow an unpopular line. A very stark outline, but I fear that efforts are once more travelling faster that Crash and Insolvent Ali can comprehend in their war room.
Since this is just part of the discussion are we to be lead to believe that there is a Third way?
If we change the ideas of accountancy such that these toxic debts can be ring fenced and the banks can write them off over a number of years why can't this be then applied to the rest of the economy?
Surely if these same rules had been applied to Woolies it might well have managed to trade it 's way out of its difficulty and the initial "insolvency" would have been a dire wake up call to the management to change direction.
Under these rules will anything be allowed to go to the wall? Or just anything but a bank will go?
The bad investment decisions are the problems. the people who made those decisions are still not accountable, and thus the process must include an extraction of the actual pure assets to allow continual trading and restore confidence.
Meanwhile a bank has no intention of trading in an atmosphere where you don't know who is telling the truth. The banking code needs to be introduced, and it might be as simple as introducing "my word is my bond" and a simple straw poll will quickly indicate the current reputation of anyone who would like to be termed a "banker".
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One of these will be an extension of the timetable for Northern Rock, the fully nationalised mortgage bank, to repay what it's borrowed from the Bank of England and the Treasury. This would put less pressure on the Rock to shrink the amount that it is prepared to lend.
Which at a time when the problem for the economy is a shortage of credit sounds a bit like an outbreak of common sense at the Treasury.
Another much more cynical way of looking at it is that the current Business Plan is flawed
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Brown should send in the fruad squad to each and every bank that the government has a holding in to find out what the hell has been going on.
It's his job to ensure that any corruption or mis-management within the banks that the government has ploughed money into is stopped.
As for Evan Davis report on clever people making mistakes..........................Mr Davis, it's called "obsene greed" thats all.
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Even if the government manages to stabalise the banking system in this way (and stabilising the banking system is very necessary) and puts them in a position where they are able to lend, how are they going to make them actually do so?
With such huge ecomonic uncertainties about the business environment many businesses has become high risk. The business I work in (consumer electronics) can't predict its sales and margin figures for 2009 with anywhere near the certainty it has done in previous years. We don't know how big the market will be anywhere in the world or how much changing exchange rates will effect our competitiveness against foreign competitors.
So to a bank we are much higher risk than at any time over the last 10 years. If we ask a bank for a loan its computer will say no - well if the computer has any sense and is trying to protect the interests of its shareholders, it will say no.
I think many businesses are in the same position.
Commercial banks should not be lending to the many newly high risk customers until the business environment stabilises. It would be bad banking to lend.
If the government intends to underwrite new loans to the newly high risk customers it will need to control (in quite some detail) the remuneration policy of the banks (if the banks don't stand much of the loss but can pay bonuses upfront they will lend to anyone - see bank lending policies in 2006 - and the tax payer will pick up the huge losses).
If the government is not prepared to intervene in the remuneration policies of a commercial bank but still wants them to lend to high risk customers with government guarantees it will have to set up its own bank / nationalise one.
However the banks do need stabilising for when the economic environment does improve to be ready to lend. I don't think that will be anytime soon. This move won't prevent the Depression.
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Robert
can you ask what safeguards will be in place that will stop the banks forcing these dodgy assets to go bad so as to claim the money and recapitalise themselves.
I would not trust this bunch of halfwits to negotiate a restaurant bill.
They have already been taken to the cleaners by the banks handing out billions when no even knowing the extent of the risk. They are only starting to ask the banks to come clean 1 year after Northern Rock.
It’s like taking candy from a baby dealing with Brown.
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The banks dont know who is holding the toxic debt? Gerraway!
You can bet your bottom dollar that the minute I decide not to pay my self-certified HBoS mortgage (fixed-rate for another 12 months you mug you -I thought interest rates should have gone up not down) my bank would know exactly who had to cough up.............
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the flaw in the argument is ......how do you insure something you dont know the value of? how do you decide the risk/premium? Once again GB comes up with a headline grab with little chance of it actually working, just like every other initiative he has come up with in an attempt to hang on to power no matter what!
As for asking the banks to come clean....what a joke, he can just ask his treasury mates just to look at the due diligence carried out before the billions of taxpayers money was given to the banks.
Re AC and money laundering, i have been with the same bank for nearly fifty years yet i still have to fill out a form when transferring money, either from france or to france, they must have thousands of these pieces of paper..... and how does this stop laundering? if i really wanted to launder money i would hardly transfer it from one of my accounts to another!
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#42
If you'd followed our posts when we covered this ground months ago, the Regulators are headed by failed bankers whose sole purpose in life appears to be to cover their posteriors.
I have now added to that thesis the deregulation of regulation in the form of Section IV of the Regulatory Enforcement And Sanctions Act, which gives regulators carte blanche to be asleep at the wheel. An Act created by Flash using Hampton as his puppet, aided and abetted by a certain Will Straw, whose relationship with Jack Straw's eldest one can wonder about.
To this we can add a number of jobs added to reinforce the FSA supervision, given out to a handpicked crop of recently-dismissed bankers. They don't pick the best, but the worst, for this job...
No sane man could dream that lot up if he tried. The trouble is, someone out there did, and we're going to pick up the tab.
At the end of the day, therefore, the ultimate answer to RP's question why shouldn't we pay for our mistakes is that these weren't our mistakes, but those of a Government which is acting without any kind of mandate. Nobody asked to be saddled with the Bank debt boosting their personal average indebtedness from 10k to upwards of 50k, simply to preserve the shell of a banking system whose fundamental rottenness has caused it to collapse internally, and much of which relates to debt not incurred in this country but in the US. My original thoughts of collapsing the entire thing into a single Public Retail Bank now turn to starting said PRB from scratch, so it isn't saddled with the wreckage of the past.
And while we're on the subject, of course the corollary is that we'll end up owning large chunks of God's Own Country. Perhaps we should exercise our rights and reclaim our property...should be an interesting exercise in seeing how many times they've sold us the Brooklyn Bridge...seems only just after we sold them London Bridge...
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"The question I'm always asked is whatever happened to the old-fashioned idea that we should pay for our mistakes?"
Wouldn't it be wonderful to have an answer from someone?
The sooner action is taken, people are held to account the better. Many professionals are held to account for their inability to perform (police, medics, military, nursing, lawyers etc).
Why not those in the financial industry?
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I have the distinct impression that the toxic debts are so tangled that no one knows which is which! Until the bad debts can be easily identified it is hard to see what can be done to sort them out.
Hopefully interest rates will start to rise soon to encourage saving. If not I can see issues ahead!
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Well that's that, then. It is only a matter of time.
A few points:
- Attempts to correctly estimate losses will fail.
- The loss threshold will leave the bulk of losses with the taxpayer.
- The conversion of the taxpayer's stakes from preferred to common equity is a gift. No "outflow" or "burden", no repayment. Was this a bait-and-switch all along?
- If the taxpayer is to subsidise credit creation, why do it through existing banks? Why not set up new "clean" banks with no legacy debt and IPO them? But of course - legacy powerbrokers.
Time to exit gilts and re-enter when they yield 15%.
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I do not see how you can have individuals in trouble failing on one system and have another sweetened system for multinational businesses - in trouble due to their poor judgement - without subsequent public discord and a resultant lack of trust and suspicion. It may well be the 'right' thing to do but it will have repercusions. I would personally look at the behaviour of these businesses when looking for a purchase or service. I point blank will not be dealing with some of them.
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Looking at matters, the Wall's accelerating. I was expecting it to hit in about six weeks' time, HMG reckons three weeks. They're in the markets and I'd tend to believe them as they can see what the banks haven't told us.
Reviewing the Thunderer's write-up on the first night of BBC's Hole in the Wall, I note that they write off the double-speed Mega-Wall as Ducking Stool Maths. That reminds me of something here...Time to get into position, folks - but oh dear, that'll send the Wall into overdrive as a proper run on the Banks ensues.
And of course, the most worrisome thought is that there's another Wall lining up down the track...
Elections in April, anyone?
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Isn't it time the government turned its attention to the initial cause of the credit crisis - the falling values of assets upon which 'toxic' loans or securities are based...the plummiting domestic housing market?
One of the few examples worldwide of a government initiative that has delivered tangible sucesses is the Australian government's modest (~A$10bn) stimulus package (admittedly addressing [so far ]more modest issues) which included a doubling or tripling of an existing government grant to fist time property buyers, to A$14k or A$21k (~£10k) for purchasers of new-build property.
The package appears to have stimulated the market to the extent that house price falls have been reversed, and the market stabilised.
In the UK this would help put a floor under mortgage related 'toxic' debt, and improve confidence in the banking sector by reducing their exposure to further negative equity. It benefits the wider economy by engendering confidence in the housing market generally, encouraging those many tracker mortgaged homeowners in secure employment (public sector, and other downturn-resilient industries) to spend some of the money saved from reduced mortgage payments, boosting the retail sector. Increased activity in the housing market also prompts expenditure in furniture, appliances etc.
It allows hard pressed housebuilders to offload some of their stock, improving their liquidity, and bring forward the day when new developments are considered, boosting the beleaguered construction industry, and addressing a fundimental and growing shortfall in housing in this country.
Given the previously unthinkible interventions in the markets the government has rightly already made, manipulating the housing market to attempt to stabilise it (but not return it to significant growth) would appear to bring benefits to the banks, public confidence, homeowners, home-seekers, and the housing and construction industries - a far better targetting of resources than some previous initiatives.
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55 - TimBJones
Excellent piece full of common sense
The recession will take time to work through. Eventually confidence will return to people and businesses and the economy will improve - that process needs to happen, the lessons of history, in this respect, need to be learned and followed.
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Yes Robert, the public DO want to know why these incompetent and greedy people should not pay for this disaster?
Otherwise they will do it all again in 30 years time, making themselves multi-millionaires in the process.
All those lottery-jackpot bonuses were paid on the premise that the banks were making big profits.
Wrong...they were brewing up huge losses.
The bonuses were paid under false pretences.
How do you explain it to a redundant person or someone with a destroyed pension when they see an upper-level financial worker cruising around in his Ferrari on his way home to his luxury pad?
What injustice. These are the people responsible for the wreck.
Property-based madness must stop.
Fuelled by hopeless bankers, it is destroying us.
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A bank is a glorified collection of clients money in separate accounts, if the government could guarantee every ones cash deposits could be transferred into a 'clean bank' we would be quids in. Debts and mortgages need consolidation into single accounts to be offset against savings with variable repayments allowed based on circumstances.
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62 werrington silent
I tend to agree it is dodgey. You cannot accurately value losses related to a future market. Remove the need to project values or carry losses to a date when the losses can be quantifed in a recovery position and the simple recourse is simply to declare a loss. If the banks have bought coupons at too high a price to stay afloat that was their mistake. The government continues try to both to intervene but at the same time protect taxpayer money. It cannot do it. The next step is to intervene and not to protect taxpayer money via some fixed deal. But the only way this can be done is to take control of the business. Better to let fail and buy from the administrators. I know it is all very clever and whatnot but at the end it just a game of monopoly.
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40, TigerJayJ,
Excellent post and I agree, why not just pay the mortgages off?
Robert, why not just pay the mortgages off?
TO KEEP THE PONZI SCHEME GOING, and to further ENSALAVE the population !!!
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Dear fellow blog-trotters,
Please get a few things into your heads.
1 Whether you like it or not, it is almost a certainty Gordon Brown will remain in office for as long as he can legally.
2 This Government will not disclose all the “off balance sheet” liabilities and the next lot will want to but when they discover how deep the hole is they won’t be totally open either.
3 The banks cannot come clean for a number of reasons not least being that they cannot value the so called toxic assets and they cannot value them at nil against cost, as the system really will collapse.
4 Inflation will rise
5 Interest rates will rise
6Taxes will rise
7 No one will be held to account
8 When you take Santa Claus out of his red suit, you will find it was Gordon Brown in disguise.
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Folk on here keep on talking about bad debts, and how they can never estimate what they will be. This is true as the bad debts are a function of time, this caused by joblessness and resultant repossessions.
Why not underpin the housing market Robert, by buying houses and renting them back to the occupants? Its incompetent what’s happening, as more people are made redundant, repossessions will rise as will the bad debts!
The government are going about this whole thing the wrong way, and did I mention the JAIL?
You know, for folk who commit FRAUD !!!
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64 rahere
GE odds heavily on for Conservatives. Last minute in 2010 fav month. The bookies have the best network. Cannot see any desire by brown to call an election. Surely wants to sweeten history as a trier against the odds.
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I wish Brown would get a perspective on things.
GC
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Real words from rela people( Tony Blair!)
http://www.ft.com/cms/s/0/b095c3ee-ddef-11dd-87dc-000077b07658.html?nclick_check=1
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On the subject of Mr Brown's demand that the banks "come-clean", perhaps Messrs Cameron and Cable should start forcing HMG to do the same on its PFI and other liabililities, including public sector pensions and those that they have manufactured by trying to underwrite various Banks in recent months? This should be in the public domain ahead of any election so that the country can see what its leaders have created.
G Brown is a one-man disaster area, and he should not be let off the hook for one moment from the mess he has dropped us in.
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The logical conclusion of discouraging the default of bad debt and acceptance of losses and bankruptcy is people and companies spending all disposable income after necessities and taxes on interest payments. Long before that point is reached, there is no aggregate spending power to make an economy viable. No demand for exchange of goods and services, just the basics. Then the pyramid breaks.
That event horizon is now coming into view.
New credit demand is dropping, the pleas for assistance are from the already indebted out of their depth. The unburdened are cutting back out of self-preservation, having seen the writing on the wall. Much economic activity is no longer called upon, yet there is denial that capital injections will turn around lack of trade and fixed cost cash burn.
Most disturbingly, the government is treating bond markets like a bottomless money pit - issue interest-bearing paper and they will come, and the taxpayers as the same - show them the coupon and they will find enough cash in their pockets.
It will not work.
There is insufficient surplus globally to fund this (stuff) when the base accumulating interest is prevented from contracting.
"For those working around the clock this weekend at the Treasury, in Downing Street, at the Bank of England and at the Financial Services Authority, the priority is to restore the strength of the banking and financial systems, to stem the remorseless contraction of credit that's caused our awful recession." - Robert Peston
They don't see it. They want to add to the pyramid now. They don't see how it looks extrapolated.
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#3 Absolutely right.
It is about time we stop calling these people stupid, brain dead or anything similar. They are not and it is all part of a ploy to rob the taxpaying slaves. It is so obvious now we are on the brink of massive social unrest, but that is exactly what we are being set up for to implement martial law. Same with the US.
Obama is in place to keep in check the most likely group to protest/riot as the people will not like the decisions he is about to make.
Your point John is as good as a gold plated, index linked, civil servants pension...
Enron, Arthur Anderson, Deloitte, Cerberus Capital Management. One big incestrial happy finance family. There are more to include but what is the point. It is quite clear to anyone not on the payroll who takes the time to look. This information online wont be around forever, even more so as we expose the fraud.
A superpost is in order of a compiled list that this government has had a hand in doing that has landed us where we are today.
There really isnt that much time left.
Further reading.
Bernard Madoff. Ronald L Ellis. Theodore Katz. Gabriel Gorenstein.
More further reading.
NHS is a Ponzi scheme.
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Robert,
You wonder why the Treasury isnt knocking the the bad bank idea on the head. Could that be because they are telling the Telegraph ( see 17 January edition) that it is their favoured option. The Telegraph speculate that a potential compulsory seizure of assets could be on the cards to facilitate this. The PM and his office make angry noises about bad bank loans and major forthcoming losses. Now the Government are part owners and talking to regulators, they might be privy to some pretty detailed stuff.
Barclays' shares take a big tumble with large volumes traded and they are forced to make an extraordinary impromptu disclosure to avoid them being coshed further in the markets and left weaker. They didnt take the Queen's shilling last October.
I am no apologists for the Banks nor do I own their shares, but what happened to the need for an orderly and fair market environment for investment in these securities, especially when the Government can brief here and there as to what they might or might not do which could have fundamental outcomes for the businesses involved.
If there are concerns about undisclosed liabilities on these 'toxic' assets ( and there must have been full disclosure last October when the Government sunk billions into them ) , why not suspend share trading pending investigations.... I forgot something here - the need to protect the taxpayer's equity. The mess gets worse.
Regarding the cap for the insured risk, how will we know whether the capped insured liability will restore confidence, if more bad stuff comes out later ? The board members of the Banks wanting or forced to take the insurance should individually sign the disclosure warranties fully identifying all the bad stuff on the 'insurance' application form.
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4. doctor-gloom
There was a time when these people would have been hung in the local square.
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#72 regarding repossessions..
And what happens when they can'teven pay the rent? Chucked out of course like a slum tenant. No. I say put a stop to the repossessions altogether!
And yes there will be the usual righteous squeals of horror, outrage and indignation to my view, along the lines of the usual: "Why should I, who have always been prudent with my finances subsidise irresponsible people who have been greedy and overstretched themselves.?'
Oh - hang on, greedy and overstretched, that remind you of anything under discussion here?
Banks - headline grabbing stuff!!!!!!!! Repossessions and foreclosures, personal misery, just not newsworthy, yes very unfortunate blah blah so sorry, nothing we can do I'm afraid. Ho hum.
GC
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BankruptBritainRIP post 9 says print more money - great for those on low incomes and with savings who will see their money devalued by inflation. Tried before in Zimbabwe and Germany with bad results ! New money should be created by government, not by private banks through debt, say increasing at 3% per year. Existing money then holds value, and faith can be restored in saving, pensions and buying shares. Real wealth can be created to replace the casino economy of recent years. House prices to come back to 3 times income, then overall debt is hugely reduced and housing is affordable. Housing need not be expensive with nearly 1 million empty properties in the UK.
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"77. At 4:01pm on 17 Jan 2009, WerringtonSilent wrote:
(snipped lots of good stuff)
. . . . Most disturbingly, the government is treating bond markets like a bottomless money pit - issue interest-bearing paper and they will come, and the taxpayers as the same - show them the coupon and they will find enough cash in their pockets.
It will not work. . . . ."
No - it won't - why can't they see this?
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re #3 'Where are all the 'new' losses coming from in the banking sector?
Well, as the recession bites, 1) more businesses go bust and 2) mortgages that were once 'prime' become the new sub-prime.
It's not rocket science, and it will get a whole lot worse the longer the recession goes on!! Remenber, the initial banking crisis arose before we were even in recession.
Hold tight everybody.
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72 java
Takes money they do not have.
The issue is what can be done to give confidence. There are steps but the scenery has to fall down a bit first. The widespread forecast of a 10 percent fall in house values in 2009 means that it will happen. The forecast of a lack of credit in the system in 2009 means it will happen. Next quarter interesting. End of quarter plus end of financial year. No hiding place. No financial instruments to play a tune on. Left with a barbers quartet singing givus a dime.
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I think it is time to ban short selling for ever, it brings nothing but misery and why should anybody gain from hype, manipulation and gambling.
Send the short sellers to the bookmakers.
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Yet more fiddling and the problem is'nt fixed, in fact it looks like its getting worse.
Wondering if fixed in reality means reconstructing the credit bubble that's maybe generated most of our economic growth for many years?
Also given the debt burden is it sensible to try to rebuild a mechanism that's got us in this situation in the first place?
I am beginning to believe the eventual outturn might be a lot healthier to just let the recession/depression take its course and wait to use what resources we have left later on when we start to emerge from this mess.
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#84. yukapataya wrote:
"Well, as the recession bites, 1) more businesses go bust and 2) mortgages that were once 'prime' become the new sub-prime."
But not I think to the tune of 100 billion pounds in about 6-8 weeks! Most of it has to be "old".
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We all know the difficulties of separating toxic debt, but it is the first step to be done. A bad bank is necessary for the recovery of the banks. Otherwise bail outs will not work, you will have bail 2,3,4, etc all will not work. At the time of N. Rock which in my oppinion should not have been nationalised, it should have been underpinned and continued to trade as a bank properly, instead of being run into the ground as it has, the bad bank should have been set up. Next interest rates should have gone up to encourage investment. This would have meant the recession would be painful but a lot shorter. An economy that works properly is the only answer to unemployment and fully functioning businesses and banks are an important part of this recovery no matter how much you hate them.
All Brown is doing is slowing the recession up, putting off the inevitable to keep votes.
The private sector is taking all the hit at the moment which is crazy, they are the wealth producers. The public sector in fact is gloating with its ring fenced pensions and secure jobs and thinking the bankers etc are getting their just deserts. Brown is protecting the bloated public sector to ensure he stays in power after the election. But we will have to come full circle when the private sector is on its knees and no longer able to fund the public and who ever is in power will have to address this problem and cut their jobs.
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Until a whole lot of people start talking about green shoots the economy and banks will carry on down the pan.
So lets all talk about green shoots and help the economy and be happy. Well done Baroness Vadera if only we had more like you.
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I see the headline today is 'Brown urges banks to come clean'.
Surely as regulated and listed entities they have a responsibility to shareholders and market watchers to be honest and to reflect their true economic status via their accounts.
Surely to do otherwise would be illegal.
Why does Brown need to make this appeal unless the Banks are being deceptive and are not informing thier stock holders of their true position.
And Brown is supposed to be in charge and wants to assist these bank managers to continue the way they are going.
Err .. No .. Sack the lot and bring in people who will do their duty.
It seems to me watching the events of the last year that the fiscal stability of our banks is shot and that the more money thrown at them, the more will disappear.
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71. sosraboc
.... When you take Santa Claus out of his red suit, you will find it was Gordon Brown in disguise.....
Yes but what will we find when we take Gordon Brown out of his suit and out of his disguise.
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You always know your onto something when your post gets referred. My #78.
Well it cant break house rules, so I guess it will appear when the volume of traffic is reduced.
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89 susan
You cannot seperate toxic debt. It is a myth until it is realised by the debt collector calling. You cannot value it. It is a variable. To deal with it now HMG have to create another financial instrument and play a tune on it which is how we got here the bankers playing a tune and HMG dancing along and saying I am lord of the dance join in. The banks cannot sell toxic debt and nobody can buy it because you cannot value it. It has some inherent value at some point but cannot be valued today other than written off. Something about sympathy for the devil. And everybody is supposed to join the dance. Well he who pays the piper calls the tune. About time that was realised.
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Here are a few question for Robert as I need some understanding and clarification.
How can Barclays says its profits are going to be so good , around£5 billion and yet its share price crashes?
Is this due to speculators or are there hidden losses?
Are Barclays taking a different view on potential losses to other banks and is this accurate or deluded?
How are the losses calculated ?
is this due to provision for bad debts and then this depends on the valuation of the security?
or is this down to actual bad debts and the loss after sale of security?
Is it right and proper for potential bad debts to be cleared out now when the actual figures will depend on the severity of the downturn? how can a true and accurate figure be made now ?
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The Government fails to see that the more they intervene to prop up the banks and engender "confidence", the more that both the public and business lose confidence in the banking system.
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Ysidant 90
We do not need people from the Labour Party, giving us propaganda messages thank you.
Peston will, I hope continue to talk about how dire our economy is until people get the message.
Baroness Vadera has cost the tax payer a fortune by bad business decisions. She is also one of a growing number of members of this Government who are unelected and should not be speaking for the Government anyway.
However if you sincerely believe that just saying everything is wonderful makes it so, then Im afraid your just plain...................................
Nevertheless if you could provide me with actual examples of green shoots I would be happy to be proved wrong.
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Slightly off message but Robert you seem to be channel for HMG to communicate with us. This is how it is done in Espana
www.plane.gob.es/
The PM explains Plan E , don't ask, for the english translation go the right hand corner tab on welcome.
I do believe in the small print at the end it says copyright G Brown
Read and weep, three years of Government surplus before the Kingdom of Modor came upon us.
PS. No banking problems as yet, unemployment high but a true figure
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#89 Susan Croft
''The private sector is taking all the hit at the moment which is crazy''
You make some good points there on a topic that appears frequently.
Gordons obsesssion with big government ( among other things) is VERY counterproductive at this stage.
They must feel a similar pain to the private sector, but you are quite right he willl not make that 'prudent' decision now with an election looming. No chance.
It is in fact even worse than that, big government and the associated tangle of red tape they oversee is strangling any attempts for government to put money directly into the real economy by infrastructure or other direct spending of any type.
Even if Gordon pushed the button tommorrow on any multitude of mothballed schemes which could help companies by the time it was spat out of the other end of the civil service regulatory machine and got past all the proceedures it would be many months before a single contract is awarded.
Already too late basically, most companies I know do not have that long to wait.
I remember a project I was working on, it had taken 6 years to get through numerous consultations and planning, everything from EU protected newts to an alledged 16th century church noboddy could find (but spend alot of money looking for its foundations!!). It was quite a simple scheme...then it was mothballed...too expensive...not enough costs benefits to the local economy somebody decided.
Nothing was built yet millions and years had already been spent at that point. I remember an 'old school' colleague said at the time.
'' If a war was on we could have designed and built the whole ****** scheme in 6 months for not much more than has been spent getting it this far''
He was not exagerating.
If Gordon had specifically gone out to consciously design a government and civil service structure to be utterly helpless in the face of the emerging crisis he could not have done much better than what we have today.
If he does have a decent bone left in his body he should 'come clean' himself and do what needs to be done.
That would start with a general election and a government with a mandate to sort out this mess over the next 5 years. A government at the end of its term in this crisis prevents them from making good decisions (forgetting about their track record).
Lets not forget the people NEVER voted for this guy to lead us
Its a terrible developing situation in the real economy and it is speeding up very quickly now.
Jericoa
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The real excitement will start when the audited reports and accounts for 2008 are published.
The anagrammatical profession will be squirming to word their qualifications and going concern get out clauses to avoid joining the great Arthur Anderson in the sky.
Any bets on how many notes to the accounts refer to fair value and best judgement.
Watch very carefully the investments held to maturity figures and be very suspicious of securities passing from the trading to the HTM unless there are very clear explanations as to how values were calculated.
Also be wary of comments that exposure has been hedged because the hedging instruments themselves are open to doubt.
92 Glenafon
The invisible man of course, it will only be the lingering stench of Pestons stinky assets that will confirm GB has been there
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Nationalise the consumer mortgages and throw the banks to the wolves, we only need northern rock to get by, bankers gave sky high interest rates to those that could least afford and super rates to the filthy rich doctors etc, similar to the power companies charging the poor on electric meters more for being poor. Some things are too important to be in a free market, banks, power, water, gas etc NATIONALISE NOW!
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Toxic assets, bad loans, Arabs nations lost $2.5 trillion, $billions of losses at Bank of America and CityGroup, the list goes on and on.
Over the last few month, there seem only bad news and more and more losses leading to the excuses and justifications for urgent governments handout of taxpayers' money to those who are still paying themselves $billions in bonuses.
This is a very one-side balance sheelt. Where are the gains and prodits? Who are making the equivalent of what has been lost. Even the total foreign currencies wealth of Arab countries, Japan, China, India, Norway's sovereign wealth fund (the second largest in the world) is a fraction of the losses reported so far.
To make sense and logic of what they have observed, some scientists believe there may be "dark matter" which cannot be observed.
So, where are the "dark money" and "dark gains" to balance the money and losses? In tax havens? In private banks and financial institutitions?
Why are governments so keen to burden us with more debts, riks and obligations ?
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"I say put a stop to the repossessions altogether!" #81
Good luck getting a mortgage then. If banks can't repossess then why will they lend at all? No one will be able to buy a house as banks will never take the risk, or at least charge ludicrous levels of interest to make up for those that will default.
On the one hand the government is trying to encourage banks to lend more, despite them now having the money to do so, and then also trying to make it more difficult for them to retrieve money they are owed in the event of a default.
The banks lent money to taxpayers in the first place, many of whom then defaulted leaving the banks short of cash, and then when taxpayers are called upon to bail the banks out there is uproar. hmmm.......
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Evening all; there are lots of good posts here today
The number of people saying that we should remain positive seems to be declining as rapidly as the value of a bank share, though I see quite a few who would like to blame the latest evidence of rot to some short sellers; they are but the barnacles on this very rotten old boat, matey
I particularly agree with what #50 rahere points out about the resistance amongst the various former Masters of the Universe to be honest (with themselves or us) about the depth of the hole they are in. And that these people from govt, BoE, banks for 'crisis weekends' are hybrid poacher/gamekeepers! they are all members of the same club(s). And as I've noted on this blog before, there is also Groupthink going on, which has a strong psychological impact
All these initiatives are backward-looking; there is no vision of or for the future; all the effort here and in the US is going into stop-gap measures to try and prop things up whilst the politicians, officials and bankers claim at an individual level that none of it is their fault; no-one wanted to see the various PONZI schemes; see no evil hear no evil indeed; perhaps the Obama administration will prove to be the exception, though that will not avoid us going through a long and harsh economic contraction, just increase the chances of emerging with some lessons learnt from it....
GB is thrashing around wildly, on the one hand scolding banks to 'come clean' about toxic holdings (which surely no-one can, as no-one really knows how many rotten apples there are now, the rot is spreading at an unknow rate, and no-one knows how to put a price on a rotten apple (make credit crunch cider?). Many on this blog suspect him of having desires to nationalise, though I think he just wants to play it both ways, because in the same breath he is apparently telling the G20 ministers that we need to stand by the existing system of global and open (ie deregulated) financial markets (see today's Guardian Larry Elliott p. 40). One can start to understand why the social-market capitalist countries like Germany are increasingly incensed with the Anglo-American form on these matters.
GB's support for the open market may just be a last desperate attempt to save the City of London as the UK's most valuable 'industry'. But as someone above noted, he's closing various barn doors after the herd has stampeded into the distance.
Speaking of thundering herds, Merrill Lynch is presumably now part of BoA and the US govt just went ahead and agreed to protect BoA against a further $118bn of bad debts there. They could have walked away and let ML fail but after the Lehman Bros blow-up everyone is just too scared to allow a big bank to fail I guess. The US fire-fighting generally takes place ahead of ours and on a massively larger scale. But none of this repeated intervention, there or here, is likely to stop the oncoming PERFECT STORM of collapsing credit and falling demand/consumption; will barely even slow it down, as far as I can see.
The unsustainable growth of credit can be traced back a long way - probably to around about the time the London and NY markets had their first largely unregulated expansions in c 1986. Aside from a couple of recessionary hiccups the inflation of credit has been going on for 22+ years if I'm right and our alleged increase in wealth over the last couple of decades has therefore been largely illusory. We now have to make the incredibly painful adjustment back to something sustainable, but in a world which has a population of 6bn and where our Masters have pushed corporate greed, globalisation etc and offshored a huge chunk of our manufacturing.
Somehow we will have to invent an economic BACK TO BASICS, which will come with a much lower standard of living but, on the positive side, more local production and rebuilding of skills with an emphasis on vocational work and communities, none of them bad things. We just need to cross the rope bridge with the waiting crocodiles underneath it, to make it to the other side!
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I'm getting sick and tired of all this bashing of the public sector. You seem to believe that they earn a fortune, don't do any work and have fantastic pensions. Well maybe that's true for the mandarins of the Civil Service but is grossly untrue when you look closely at the majority of public service jobs.
You bitch and moan about them being a drain on your tax pound but you couldn't earn what you do without the services that they provide. You moan about them having 'secure' pensions. Mostly those pensions are still below what the public sector enjoys.
Most of the people that you deride have earnt less throughout their working careers than many of you have in the private sector. Ah you say but we don't have final salary pensions anymore. Why is that then - perhaps some of your greed made them too expensive for your enployers and perhaps some of your employers got too greedy and led by their accountants thopught they could save a bob or two with money purchase schemes.
In the end, the majority of these people are doing jobs that YOU would not want to do at any price and under conditions that you would not tolerate.
I'm not saying that the public sector is full of paragons of virtue and that there is not fat that could be trimmed. What I am asking is that you actually engage your brains before spouting such ill-informed rubbish as fact.
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The thing that hit home this week to sum up this great country of ours was,
we cant afford a £350000 cyber knife for deriford hospital in plymouth,
BUT we can afford £500000 for a new logo for the Cornwall county council.
It is the uk and maybe thats why we are the laffing stock of the western world!
Jason plymouth
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As a taxpayer I would welcome being the owner of some 'toxic' assets, provided the price was right. Valuation is the key, but would the banks not accept a low price in return for certainty of valuation and escape from uncertainty? The taxpayer would have an asset which once had real value, admittedly at a much lower valuation. But values will go up again in the near future, don't know exactly when but with the long view of government I don't care.
RichardManchester
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Broon is asking for banks to declare their toxic debt on the balance. Isn't Govt a majority shareholder in a couple of banks, so why ASK?
Equally might be worth asking them about OFF balance sheet exposure / debt ... there's probably rather more of that!
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90#
Dear Baroness Vadera supporter below is a twisted green shoot to talk about.
In my area the estate agents have had busy week... the worried retired with their hard earning declining capitol sitting earning zilch in a badly run bank... have started shopping for a discounted buy to let.
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Latest news conference from Gordon Brown:
We will do everything we can and whatever it takes to help the global crisis hit hardworking families with international cooperation and fiscal stimulus.
Er
We will hit the global crisis with everything we can do to hardworking international cooperation and help families’ fiscal stimulus, whatever it takes.
Er
We will help do fiscal stimulus with international cooperation to can hardworking families whatever it takes global crisis
Er
We will help ourselves through fiscal hardworking and international global crisis stimulus to hit families with whatever it takes
Ah That is what I was looking for.
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The roadmap is taking us to national default in maybe 6 months time, hope the IMF has something left.
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@ #2 I agree.
Robert P you are being too brazen in your attempts to shelter Gordon Brown from the blame. Like him, you seem to want lots of impossible (because contradictory) things to happen.
- we cannot get back from an over- indebted economy (which G Brown promoted vigorously for ten years) by asking the banks to lend more.
- We cannot make homes more affordable if we also prop up a busting market with state subsidised lending
- it is worse than foolish to encourage people to borrow at current low rates. When inflation takes off the government will either have to put rates up (and bust all those borrowers we encouraged in to the market) or keep them low and let inflation rip (which is presumably his underlying hope - destroy sterling but deflate the debts)
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105. At 5:52pm on 17 Jan 2009, foredeckdave
Whilst I applaud your defence of the Civil Service and many of the things you state may be correct, the economic problems mean that our government may not be able to raise enough money to cover the many commitments that they are taking on.
In the private sector at a time of shrinking revenue and profits the major cost savings that can be achieved are usually through staff loss.
Many on here simply think that something similar should be occurring within the public sector, and thereby reduce the amount that the government has to raise, reduce the effect on future taxation etc.
If you feel that the public sector can deliver the increased productivity which reduces the need for our government to have to mortgage the future of the country then we are all ears to the positive aspects that you feel you can contribute and help the situation. Until then comments such as those by Digby Jones simply reinforce the view of a major drain on public finances.
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#3, John_from_Hendon, I think these are the old losses that were hidden off-balance sheet in dreaded SICs (special investment companies) - sorry if someone has already said this, I just couldn't be bothered to read all the comments.
I think there could be truth in both the cases that you present - the banks' own accounting systems fell short when it came to valuing these losses and mixed with a fair amount of dishonesty.
Also, I think there may be another factor involved.... in their haste to rescue these banks the government did a 'Horlick' (ie - didn't bother to carry-out effective due diligence prior to sinking enormous sums of our money into them).
Anyway, pretty dispicable, however, is anyone going to be held accountable? I don't think so and it's a disgrace.
When I first got a job in banking, I lied about my qualifications and was hauled up in front of my Director. He lectured me on how the business depended upon 'integrity'. Integrity my foot - I can't imagine a seedier business to be in, I was glad to get out several years ago.
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#102 puzzling
I have wondered about this myself. One way to look at it, is to identify banks that have not been bailed out. I believe that there are some very large savings or deposits out there who are very prudent about the choice of investment vehicle i.e. they wish to protect the capital and are prepared to forego the good return of interest as that price.
In general the tax havens have fared quite well Caymans, Bermuda, Panama etc. These places have small discrete banks, but also have no recourse to a central bank, There also small private banks in the UK that are very discrete and risk averse. I have a hunch that when Nu Labour looked like getting into power in the last Tory government large tranches of monies were transferred out of the big UK banks to these smaller safer havens.
We also have the scenario where there are more millionaires and billionaires than before. Do you think that they would all be dumb enough to their money in Northern Rock? No it will be spread around in several different currencies and markets. The other question you could justifiably ask is, if we have a global economy how come we do not have a global financial regulator?
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A sensible route (for a welcome change), although I remain mystified as to why the ban on short selling was lifted at this crucial time of trying to restore confidence.
The FSA, if it has any competent managers independent of hedge fund influence and hedge fund "friendly" politicians, should immediately reinstate the ban.
Insurance for toxic assets is clearly the more sensible option - these asset values will be audited at end December by accountants eager to avoid further lawsuits and therefore a prudent approach will be adopted on which to base the insurance.
Toxic assets produce an income stream and are therefore worth something and in these days of low interest rates their discounted value will increase - they are not bad debts.
The two are often confused in the media which doesn't help eg on friday's "Working Lunch" (which I now watch sparingly following the removal of the old team-at least when they got things wrong they were funny).
I am amazed accountants and other advisers have not yet been sued for their work in for example the rights issues, and the audited accounts of Bradford & Bing and NR, where implicit in such audits is the fundamental concept of a going concern.
They will be very anxious to get it right now.
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I thought that this whole banking fiasco was caused by the fact that the banks don't KNOW which assets are toxic.
Even if they do, which I doubt, they're hardly going to admit to them, just because Gordon Brown as asked them to
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The banks have been delaying the write offs they need to make because they are so big. The game is now up. The true situation was recently explained to me by a risk director of a japanese bank that is so conservative it doesnt have any real problems. Remember the Perrier water scandal in the 80's (like toxic debt now). They didnt know which bottles contained the poison so they had to destroy all the bottles to restore confidence. BoE etc have been pathetic. Until the banks come clean all the bailouts will be ineffective and a waste of money. Unfortunately temporary nationalisation is the only way out which will suit us taxpayers since in 2 or 3 years time we can sell our stake and that will repay the increaded government debt. It is incredibly simple to resolve.
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#37
'Soon everyone will work in the public sector, have houses owned by the state, benefits paid by the state. That is until there is no one left out there to pick up the tab.
NuLab can call a Nationial Emergency and ban elections.'
CORRECT, AND THIS IS CALLED COMMUNISM!
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Rahere
THE POST WAS EXCELLENT
As i am at an airport in bitter cold i will
be very short.
Excellent detail. . .
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#105 foredeckdave
''I'm getting sick and tired of all this bashing of the public sector. You seem to believe that they earn a fortune, don't do any work and have fantastic pensions. ''
I have no problem, far from it with the armed forces, police, doctors, nurses, teachers,public health inspectors, firemen, border control, the guys who clean the streets, empty the bins, maintain the parks and people who hands on maintain the government owned infrastructure in inumerable ways and their direct and necessary management team.
They are the salt of the earth as far as I am concerned and are welcome to my tax payer pound for their salaries and final salary pensions a like.
I am sure non of the blogs you take offence to are directed at those (and similar) types of people on the coal face of the civil service, I think the nurses and police and soldiers etc themselves would even recognise that, they often complain about the same red tape we do!!.
However, there is a Government funded PONZI scheme of regulators, regulators to regulate the regulators, ethnicity officers (what ever they are), paid study groups on the health and safety risks of playing football on the street to see if it should be banned for gooness sake...Not to mention the hopelessly ineffective CSA (even by governments own admission so it must be awful), the tax credit system alone must be keeping 50,000 people in work.
We all know and come accross the chronic over regulation associated with the nanny state, I do object to that and will continue to object to my tax payer pound going to someone who does not care to get on in the 'real' world. Those who prefer a 'made up' secure position which offers no real value to society, a position they prefer to active engagement with life.
I hope that clarifies things!!
Jericoa
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114 extremesense
I take it from your posting that you were not fired on the spot.
That underlines precisely what is wrong with the system.
I will repeat an earlier post of mine many many moons ago:
112. At 3:38pm on 19 Dec 2008, sosraboc wrote:
Hey 54.
At 12:59pm on 19 Dec 2008, robinstp wrote
Name lending. Greek crooks.
That?s interesting; I suspect you and I may have passed as ships in the night mate.
Like you, I can give plenty of similar examples.
How about the trader caught insider dealing by a VERY major bank. Too valuable to fire.
Caught again a few years later, too valuable to fire but the SFA did not approve of him so the bank sent him to the good ole US of A.
What do you know: caught AGAIN. Fired after some angry as hornets SEC people discovered the guy?s history.
BUT he resurfaces a few years later back in London as a Very senior investment banker. No one comments, no one cares. Now FSA is the regulator so before my time guv.
There are dozens of similar stories of corruption and compliance incompetence.
Only one guarantee in this life, if you tell the bosses you get disposed of PDQ.
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101 good post, but we are slaves remember.
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Wouldn't it be better and more positive and healthy to call this, not the bad bank or the toxic bank, but instead 'The DETOX Bank' - ?!
We might all believe in it then?
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Whoops wrong blog.
As I see it the so called toxic mortgages were bundled into packages together with reasonably granted ones. These were then sold on, say, from the US banks to UK and other banks. Perhaps the UK banks caught the bug and created their own domestic tainted packages but also mixed them with partial exposure to the US packages and sold them back to the US. AND backwards and forwards between all the countries that the international banks operate in.
Then add in follow on fashion: commercial and industrial debt joins this world merry-go-round.
It already becomes obvious that one single country cannot 'bail out' its domestic banking system in any way. Guaranteeing domestic mortgage principals or interest payments may help the beleaguered families indebted but would be unworkable: no lender would be individually saved.
International concert?. Done and ongoing but not so far good enough to unravel the complex interbank ball of string.
So banks withhold from starting new balls. Great! Economic activity falls leading towards global slump. Decreasing confidence and unemployment follow and even previously non-toxic loans join the merry-go-round. People with honestly earned, taxed and saved balances do not know which bank to trust to hold them let alone which currencies to use.
Firms do not trust each others' credit. Insolvency practitioners and lawyers get busy but even they have to bill in money.
Global social unrest is now a potentially more pressing problem than it's sibling, warming.
Nuff said. Where is the Silver Surfer when we need a Saviour, Gord.
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What I cannot understand is that Gordon Brown gave these banks 37billion of tax payers money without not fully investigating the true liabilities of these institutions.
What a boozo!
I just cannot understand this government anymore. They rubbish everyone else`s ideas but their own turn out to be the biggest load of rubbish of all.
Already there are signs that if this situation is allowed to continue the tax payer will not get all of their money back.
Is there any point in throwing good money after bad? The current idea of a second bail out has just shown that all that has gone before has not worked. Who is to say this will work? There are no guarantees that it will.
After all, who was the idiot who thought up the idea of a 2 1/2 % vat cut at xmas when retailers were cutting prices up to 70% or more.
We have absolute plonkers in charge at the moment who do not know what the hell they are doing. We just seem to lurch from one bad idea to another.
The time has come for Gordon to walk the plank and to be replaced by someone who is not tainted with causing this recession.
It is time we had a vote on this and not to just keep rolling over all the time and accepting it as a faite accompli. Gordon is giving away billions and billions of our money, least of all with the approval of parliament - let alone the consent of the electorate.
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The government are propping up the banks because they know that if the banks fail and savers lose their money they will be out of office.
They really do not care about the long term implications of what they are getting us into.
Banks are inherently insolvent because they borrow short and lend long. By this I mean that if everyone decided to withdraw their funds or loans they would be bust overnight.
The problem is that they pushed the envelope so far that the moment some loans went bad the whole lot should, by rights have come crashing down.
Like it or not the government measures cannot possibly work in the long term, whether they be a toxic bank or loan guarantee scheme.
I find it ironic that the banks are saying they cannot lend to unsound businesses, yet the taxpayer is doing just that by supporting the bust banks. Surely the same logic should apply to both.
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105 foredeck
Dont let it get to you, where there are problems there will be angst and justifiably. The side issues are the ones that hit people as the most bizarre. The attacks are not on the individual they are driven by worry about exposure and the feeling of being made to pay the price. The public sector will have its turn.
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#113 StrongholdBarricades
As a start I would make every Chief Executive, Senior Manager re-apply for their own jobs - after a period of 6 months in which their organisations/departments operated without them!
I would place a complete embargo on all consultancy contracts - they only ever tell you waht the organisation already new but expensively.
I would then incentivise (a lovely private sector term) the general staff to identify efficiency and effectiveness gains.
BTW I would also close all the quangos and only re-insate those that were actually missed.
I never said that there were not gains to be made but the general shotgun approach a la Jones is just too silly.
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100 sosraboc
... the invisible man ...
I never thought of that. I got as far as Aunt Sally and Wurzel Gummidge.
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Whilst nobody can accurately declare the amount of bad debt in the banking system I do think we can make some pretty accurate assumptions about the extent of it. One way is to take a look at some of the emerging precedents......
Bank of America has just found a hole in Meryll Lynch's books which would equate to about one eighth of British GDP.
AIG also had holes equating to around one eighth of British GDP.
Two global financial institutions. Debts equivalent to one quarter of British GDP.
Taking a look at the behaviour of the big Brit banks over recent years, it seems more than feasible that the four of five biggest UK players may also be sitting on liabilities of the magnitude found at Meryll and AIG.
HMG was about right when it pitched its bank resue at GBP400 Billion in october
What they desperately hoped at the time was that the 400 big ones would not be real money.
They hoped to get away with 37 B of real money and all the rest was to be done by smoke and mirrors.
BIG MISTAKE.
MONEY MEN ADORE BIG NUMBERS
THE BANKERS WANT THE 400 B
Next up, lets take a look at the corporates. These institutions are a cause for huge concern, because just like banks they borrow and lend vast oceans of money.
Robert Peston tells us that the British corporates have to roll over 1 very very big one this year (the big T). I would assume most of this will roll over successfully in some shape or form...but it would be madness to assume better than say an 80% success rate.
If so then HMG is on the hook for another twenty percent of Brit GDP.
This fag packet calculation now tots up to a shade under half of Brit GDP.
This is not money that is calculated for in the pre-budget report issued last autumn. And it is relatively a conservative estimate of the losses that could be borne by our biggest firms.
I do realise that government has to try to put a floor under this imploding economy of ours......but I believe there is now a considerable risk that the treasury is going to put its name behind so much sinking debt that the whole country may end up being plunged into an Icelandic style collapse
I for one would be much happier about all of this if the government was to ring-fence a rump of our industrial and banking infrastructure, whilst leaving the rest to fend for itself
Metaphorically speaking our industrial army has been routed.
Let's save the best battalions and the best hardware and withdraw from the field. Let's do a Dunkirk and live to fight another day. Let's not get bogged down in a Stalingradesque war of mutual annihilation.
We need at all costs to keep a viable government and a capable industrial and banking infrastucture.
Even if unemployment were to end up at 20% we could rebuild, so long as we have a strong enough engine at the core of our society.
Right now we need some straight talk from government. We know we have cancer ripping through the economy.
So stop giving us happy pills and telling us to hope for the best...GET THE SCALPELS OUT AND SAVE THE GOOD STUFF!
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Once again HMG are trying to do something. After the failure of their previous attempts why should we believe that the latest wheeze will work.
I do wonder where we are heading as no trustworthy institution is informing the population what all these rescue plans are going to cost us all!!.
Talking to many people over the last few weeks I am fully convinced that any amount of tinkering will not make any sensible person want to borrow during this downturn, bearing in mind that we have only just entered recession!!.
Obviously those with money do not need to borrow, and only those who are already up to their eyes in debt will attempt to borrow more, if they are allowed to.
Surely HMG must realise this, or are so detached from reality that they do not understand the situation in the real world. Many lenders have either gone out of business, thus reducing the amount of credit and the High Street banks cannot possibly fill the void.
Just how much longer must we listen to GB going on about restoring credit facilities, when even if you do who, other than the reckless, will want to borrow.
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Flash G has demanded Banks come clean about their toxic debts.....
..... So I presume he is going to tell us how toxic NR, HBOS, RBS, Brad/Bing, etc..... you know the ones he pumped all our money into, are!
He did ask didn't he?
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Here's an idea - offer anyone who cannot pay back a loan a government backed job - either building the third runway, the olympic stadium, keeping parks tify, cleaning drains - whatever.
Then take a percentage of the money they earn direct from their employer ;-) to pay back the loan.
It will look good on the books if nothing else.
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#114. extremesense wrote:
The losses may be in "off-balance sheet in dreaded SICs (special investment companies)"
Special investment vehicles were always bordering on a fraudulent piece of sophistry - hadn't the audit profession learnt anything from Enron?
Answering my own question - apparently not. Further, if this proves to be the case would it not be too presumptive to ask that the serious fraud office investigate the auditors of these banks for effectively defrauding shreholders.
I am aware that many large institutions have so many possible/probably cross owned subsidiaries that they found it impossible to properly consolidate their accounts. If this is the case, why were the accountants who worked for the companies silent - their professional standards commit them to reporting their employers - and what of the Financial Directors (most of whom are, and have been, professional accountants - with one very large British bank being a notable exception.)
This may well warrant a criminal investigation at the very least when things calm down a bit!
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118
I once worked for a Japanese house and also worked with their risk director closely. They too were ultra conservative.
They refused to accept ANY audit recommendations and challenged ALL event risks identified.
EVERY SINGLE ONE crystallised.
Who got shot? The auditor because he was not a team player because he identified and reported on the risks.
Here’s a few:
The accounting system allowed single entry book keeping
There was no audit trail in the system because the facility had been turned off
(You will be pleased to know the external auditors nearly had a heart attack when this was pointed out, they had failed to pick it up in several reviews and a very big British bank uses the same the system)
The risk team could not value their assets so asked the bank that had sold them the product for the valuation (you could not make it up!!!!)
HR refused to take CRB or credit references for traders or key personnel; it was only advised by the FSA so too time consuming
The CEO had UNLIMITED signing power on one signature
The live client base had BoE blacklisted clients on it
And on and on and on and on
I’ve worked in many banks. It is always the same.
Do not believe for a second that your Japanese bank is any better
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Foredeckdave
Re Public Sector
ITS THE TOP END WHITEHALL LOT THAT GET ME GOING REMEMBER THE
TOP END OF THE B OF E THE FSA
THEY ARE PUBLIC SERVANTS TOO??
YES YOU ARE RIGHT THERE ARE TOO MANY UNDERPAID OVER STRESSED
SOULS JUST LIKE THERE ARE IN THE
RETAIL SECTOR.
WE HAVE A NEW DISEASE OF
MEETINGITUS/LOOK BUSY DO NOWT.
UP AT THE TOP & TAKE THE MONEY.
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How can Brown and Darling be unaware of the level of toxic debts held by British Banks, apart from Barclays they have invested millions of pounds of our money into them. Is Brown saying they didn't bother to obtain such information, before investment???????!!!!!!!!!!!!
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Oh .. Lloyds-TSB getting further government assistance ... Perhaps this should be considered only after the company has explained why it has paid a $350 million fine in recent weeks to the U.S Treasury and what actions it took to cause this fine to be levvied upon it, and more importantly, if any of these actions were deemed illegal, perhaps they can tell us who is going to be prosecuted by the courts.
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Why does the Government and the Financial Press (apologists such as Evan Davis etc.) keep supporting this quite obviously inept industry; the "Banking Industry"?
Surely this crisis proves that they are absolutely incapable of managing our money and the current situation allows us to get rid of the whole lot and find a new way of keeping money flowing through the economy.
We need to protect the people (the public) not the banks.
As we have nationalized Northern Rock (and anecdotal evidence would have it that it is now repossessing homes quicker than all the other banks!), why not use the offices of this company to act as 'branches' of a Bank of England high street bank? Then, when people find their positions unsustainable, they can go to the Bank of England and have the loan transfered to that bank, at a more favourable rate of interest, which might allow them to pay it off. The current plan by the government will only serve to protect the banks, it will not protect the public.
Increasingly, this government shows that in the eyes of British politicians, people don't count. Business counts!!
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#132 fridgelad
loved the rallying cry
''So stop giving us happy pills and telling us to hope for the best...GET THE SCALPELS OUT AND SAVE THE GOOD STUFF!''
No use at directing it at the current government though. The most optimistic I can hope for is that somehow, somewhere someone is working on such a plan in the background and the government is just buying them a bit of time with the 'happy pills' for them to get something comprehensive together along with the required emergency legislation etc. By my reckoning at the rate of current real economy collapse it will need to be announced by the second week in February at the latest. It will be announced by Robert Peston of course 1 day before that.
Was that another pig I just saw flying past the window!
Jericoa
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Fripp 136
IGNORANCE as they HAVE NO IDEA
about what they are INVOLVED IN.
UNFIT TO HOLD OFFICE?
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137 sosraboc
You seem to think this is financial sector only.
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142 jericoa
Your a bit agitated today. Mexican wave?
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It used to be, as recently as 40 or 50 years ago, that a borrower would seek a loan because he wanted to make an investment in something on which he expected to make a profit after borrowing costs. The lender provided that money on the basis that it would be repaid, and with sufficient security over the borrowers assets to cover the bank, just in case the business idea failed.
Now that the banks - and the consumers -are finally coming back to this notion, of course the total amount of lending is going to contract. It doesn't mean no lending is going on. If you have a secure job (policeman, nurse, teacher, for example) and have sufficient deposit to be able to buy something with only 3 times earnings, the banks still want your business.
If you are in business with a clear cash flow that is plain for the bank to see, and the bank believes this income will continue, do you think they are cutting credit to such businesses? Not a chance. I don't hear Tesco or Asda complaining about their lines of credit. Or Primark. Or Shell, BP, Lidl, Aldi, Poundland and a host of other businesses providing essential goods to consumers at reasonable prices. Should we seriously be mourning the loss of businesses which sold tat at over inflated prices (Woollies) or management buyouts who milked their business of the cash flow they needed to keep it alive, putting the money in their own pockets, and being too lazy to find different suppliers (Zavvi)?
Take a business like Trinity Mirror, the publishers of the Daily Mirror and Sunday Mirror. They are rumoured to be "in trouble". Well, as newspapers go, their product isn't very good. The Guardian and Telegraph are infinitely better newspapers. Should we be mourning the likely demise of a mediocre business?
In the construction industry, the cost of completing some developments is now more than they are worth. Why should the banks, or the taxpayers for that matter, throw good money after bad? We've got one such development across the road from us in Edinburgh. Two bedroom flats for £250K. Who do they imagine in a low wage economy like Britain can afford such overpriced flats? "Even if the banks go back to their "no deposit, we lend to every man and their dog" ways, you still need willing borrowers.
Maybe we consumers have all decided that we would be mugs to pay 20% over the odds when we use a credit card to buy something, or saddle oursleves with a £200K mortgage when a £100K one will provide just as nice a property in a slightly worse area. Not before time.
As to those who slam public sector employees as a waste of their money, you have obviously never worked for a "blue chip" private company. The waste and under employment that goes on in such places makes public sector waste look like peanuts in comparison.
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Foredeckdave 105
Surely your anger is directed at the wrong people. It is the Government that has mis-managed the economy and has spent the money which would have been used for the public sector. You cannot spend what you do not have and you can not have pensions which cannot be afforded.
The private sector is sinking fast and whether you like or not it is their taxes which keep you in work. Any Government who comes into power will have to cut spending in the public sector in the coming years Labour or otherwise.
The only reason Brown is not cutting the public sectors jobs now is that it would loose votes for him at the next election.
It's one thing the Labour party has never learnt; you have to earn money to spend money. It has been a cynical ploy by Government to have as many people reliant on the state as possible, whilst destroying the pension system and over taxing the people in the private sector, i.e. the ones which actually provide the wealth in the first place.
I'm afraid the partys over, and we will all suffer, including the public sector. Put the blame were it clearly belongs, in other words don't shoot the messenger.
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stop stealing, stop telling lies, stop being hypocrites, stop being parasites.
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Post 81, excellent, why not bail out the repos? future asset for gov and folks stay in houses???
Oh, because of the TREADMILL, thats why gordo won't do it!!!
Guycrof for PM AC, sasha et al to make up the cabinet.
WHATS GOING ON IN BRITAIN, WAKE UP FOLKS !!!!
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Theres an assumption that these toxic debts are "on" balance sheet.
The Basle Accord,Basle 1, proposed a form of "regulatory arbitrage" that allowed parellel accounting systems to run "off balance sheet accounts", along side the official balance sheet accounts. I suspect these "off balance sheet accounts" are where the toxic credit is hidden. And not on open display to the prying eyes of accountants and actuaries.
Does anyone know the true value of these toxic debts? No. Figures at guesstimates vary from $56 trillion to $570 trillion. Mind blowing amounts for sure.
I cant see anyone in there right mind taking on these debts blindly or even giving a commitment to do so.
Will the banks come out in to the open and tell the world the true amount these toxic debts are worth? No.
There is something not ringing true about all this something that perhaps would lead us to panic and social unrest, revolution even.
The quick least expensive way to solve the situation is to fully nationalise the banks forthwith.
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These banks are businesses and they have messed up.... again.
The banks have been greedy and negligent.
Unfortunately due to their unique position they cannot be allowed to go bust as that affects innocent people, who work hard and honestly.
If their businesses are not viable they must now be brought under state control for OUR own good.
They must not receive any more handouts.
The government must go they now look really quite silly and pathetic.
Anarchy in the uk is coming sometime maybe?
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105. At 5:52pm on 17 Jan 2009, foredeckdave wrote:
wow, normally you are spot on, I don't know what you do but I think you need to understand there is a lot of resentment about public sector - why?
PENSIONS!!!
Gordon now says iTS OK FOR ME TO WORK FOREVER!!!
Would that make YOU Happy???
As I said, greatest respects, your posts are normally excellent!
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Insurance of losses beyond a certain point or a reverse auction scheme could be reasonably clever. At least it buys both the banks and the government time, since losses will not have to be cristallised immediately to their full extent, helping to prop up bank balance sheets and not immediately swell the state debt (the government will soon have to fight an election).
Still, overall lending levels should come down, not only because Brits were dissaving when everything seemed fine but also because it makes no sense to borrow to buy a house when prices are falling or to finance inventory that won't get sold.
Mr Peston, hope you can continue doing your job like this and not get arrested for constantly managing to obtain leaked info. Hope you and your mole manage to sleep and don't think too much about the Green saga.
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144
If Only
It is my sector but I am absolutely certain that the anagrammatical profession is everywhere so you can bet what I am saying can be extrapolated.
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Surely one of the problems is that the banks have been lending too high multiples of their capital, and that is why RBS (in particular) is pulling in facilities wherever they can. A 25 multiplier means that if the underlying security falls 4% then the bank becomes exposed to write offs, and even if there is a 2x security covenant, then an 8% fall in the underlying exposes the bank. It is clear that the banks are generating high profits (charging 3% of facilities to Bovis and Taylor Wimpy for example generates some £60m of revenue for the banks) and ongoing margins were nearly quadrupled in Bovis's case, but the bank balance sheets renain very stretched. So paying the usury rates on the pref should be no problem, as the banks will have good margins, but the balance sheet write offs are the problem, and Barclays are regarded as in denial. The test will be whether the auditors will put their PI policies on the line for the fat fees. Unfortunately, most managements of all kinds of companies will be complicit in "kitchen sinking" the 2008 numbers in order to have a hope of a bonus in 09, so auditors, valuers, managers and regulators will all be co-ordinating to sacrifice shareholders interests for their own benefit.
When will the non-executives of these banks )and others) resign in protest at the naked cynicism of the managements? We saw some signs at Mecom, maybe, but where are the rest?Corporate governance has failed in this crisis, and I, for one, worry about whether this means the fundamental idea of equity investment has been exposed in the "new world" as sharehoders are expected to take all the pain, while management keeps most pf the gain.
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#145 glenafon
You noticed then, many companies I know got through to Christmas by burning up whatever 'old money' they had left on the books, drew a line under it and waited to see what the new year brings with not much hope but at least christmas was not spoiled on the whole for the staff.
A couple of weeks into 2009 the cupboard is bare and the order book shrinking by the day, we are all waiting for some government contracts to drop (badly needed infrastructure stuff) but nothing emerges into the 'real economy', the usual proceedural hold up apply as before. There is almost no activity in the private sector.
The above summary includes the company I work for and many many others.
I will try to keep my emotions out of my commentary as much as I can.
Thanks for the reality check on that, I dont want to come accross as a loose cannon, im just trying to get amessage out there like everyone else here, hoping it may make a positive difference somehow.
It is almost certainly too late for my industry ( construction related), we are always the biggest ticket items..first one into a recession...first one out.
The car industry is next..we all are starting to see that now. You know the rest...
It may not be too late for others though if the right decisions get started to be made now..so I will keep on blogging....what else can I do?
Jericoa
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My post isnt going to be published. I will break it down to eliminate the sensitive part!
#3 Absolutely right.
It is about time we stop calling these people stupid, brain dead or anything similar. They are not and it is all part of a ploy to rob the taxpaying slaves. It is so obvious now we are on the brink of massive social unrest, but that is exactly what we are being set up for to implement martial law. Same with the US.
Your point John is as good as a gold plated, index linked, civil servants pension...
Enron, Arthur Anderson, Deloitte, Cerberus Capital Management. One big incestrial happy finance family. There are more to include but what is the point. It is quite clear to anyone not on the payroll who takes the time to look. This information online wont be around forever, even more so as we expose the fraud.
A superpost is in order of a compiled list that this government has had a hand in doing that has landed us where we are today.
There really isnt that much time left.
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Obama is due in to make changes. Or expected to. Obama is in place to keep in check the most likely group to protest/riot as the people will not like the decisions he is about to make.
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Further reading.
Bernard Madoff. Ronald L Ellis. Theodore Katz. Gabriel Gorenstein.
More further reading.
NHS is a Ponzi scheme.
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I've always been sensible and law-abiding. People have always said to me you never get anywhere in life by being decent and honest, and giess what... it's true! That's the one thing i've learnt from all this.
In the future i'm gonna lie, cheat steal. Get fake mortgages, rip people off. Abuse my wealth, and basically be scum.
Then i'm gonna get a job as a banker, or member of goverment.
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The fat cats at the banks must be purring with pleasure: They know that if they screw up big enough, the state will step in to rescue them!
This seems to be a very good indicator of the rot at the centre of the financial system. What's to stop this farcical mess being repeated at a later date?
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155 sosraboc
I know its not limited to the financial sector. (Wont post on a public site) . NB Crusaders in such businesses usually less welcome than in the Holy land in 1099.
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#90 Spot on!! Just tell me exactly and specifically what these green shoots comprise of and I´ll pass on the good news.
It seems that in her haste the Baroness forgot to mention the specifics.
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Why is everyone getting so worried on here?
Gordon is the best Chancellor we've ever had. He ended boom and bust and every economic decision he made has always been spot on.
So go to bed tonight knowing that your future is in good hands............and just be grateful that your fate is not in the hands of a novice....a man who keeps telling us to live within our means.
Gordon knows exactly what road map to follow to get us out of this mess......so please everyone trust in him and him alone.
He has been a complete success for this country and has the perfect vision for this country's final destination under his stewardship. It is a land of milk, honey and blue skies.
Alternatively brace yourself for the second Great Depression leading to war and social unrest.
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157 jericoa
Keep on posting.
Sorry didnt mean to prod. Vent ok by me. Nothing wrong with emotion, understandable
Big problem. Big beast need loads of food. I'm not unsympathic. Brutal problem. If teams disbanded then next thing is scream for people who have found something else. Seen it I'm afraid. Suspicious that Browns route to float money into economy via the public sector will be fraught, not used to acting fast. If there is actually significantly new money.
I dont write to upset. I just write what I have seen. In a sophisticated society (?) the specialisation demanded reduces the flexibility of business and individuals. The competitive drive demands higher efficency which reduces cash in the system and skills become more and more specialist. Leads to problems. The niche.
I saw a headhunter at one stage, bit of an idiot. Went on about this and that - I said do you realise I need 600 people doing something before I am needed.
All I can say is keep posting. regards
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The old fashioned idea that we pay for our mistakes is alive and well. We put Gordon Brown into Downing Street and kept him there. We will pay and pay and pay....
Today I have read that Brown is demanding that the banks make full disclosure of their losses. On the same day I read that Brown refuses to give any view on the likely depth or turning point of the recession.
A competent financier understands that the extent of the banks losses will not be known until well after the recession is over and the economy is growing again.
So Brown is either a fool or a charlatan.
Either way, we will pay and pay and pay.....
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164 arm and a leg - ion times
Its a big business thing. Bit like the Borg on Startrek having the plug pulled out of the socket. Needs to reboot.
Its always best to repeatedly go where no man has gone before. But wherever it is there are polystyrene rocks and they always win and you know they will.
When does browns credibility implode totally and he finally stops smiling. Considerable anger shortly. Tribe rally around leader when tribe under attack. Tribe get angry when promises fail. The mayan flushed out the priests and shut the temples and walked. Loss of faith in the system. Surely people cant swallow the hogwash.
Sorry perspective remains same here, position same here. Not near the storm geographically or economically. Always fingers crossed. No pleasure in seeing mess.
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#156
It's actually worse than you think - work it out under a stress sposition - as we have now and as the FSA requires all financial organisations to do.
FRB ratio 25:1 i.e if you have £1Billion you can create £25 billion loans - you assume 4% bad loans puts the bank into write offs.
Now put bad debts/ toxic write offs or whatever on the loan book at 10% (surely not too high these days)
The bank loses £2.5 billion - does not sound much BUT at 25 to one it then has to reduce it's lending by £62.25 billion!
So suppose you are an American bank and find this £62.25 billion requirement - and you have loans with british banks that you can call in.
You ask them for the £62.25 billion - and the banks have to cut loans in the UK by £1.5 Trillion - i.e the whole UK economy.
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If this is all part of a one big master plan
were the wars a smoke screen diversion
and have we been conned by neo-cons
able to run the con on a larger group of people
who lure their victims into traps
through a con-game struggle
between the spider and the fly
if this turns out to be true
how do we turn the tables
to exact our revenge
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#166
Thanks glenafon, there is no problem at all my end, glad you 'prodded' actually.
I am just trying to keep it 'real' here, that will involve some emotion now and again, probably even more so in future...
I must keep off the red wine on saturday night..it makes me so morose.
regards
Jericoa
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Robert. Where is the Government to get all of it's money from to do this? Does it borrow from China? What conditions are
imposed and what interest paid? When does it have to repay by? If our economy does not recover enough to pay what then?
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157 jericoa
This might make you laugh. I went to a meeting in the early nineties. They said what do you think are the coming problems. They went around the room and there were inane trivial things all written on the board. They came to me and I said 'the Chinese'. They all looked at me as though I was barking mad. what do you mean, are you having a laugh, you should take this seriously. Do you actually mean the Chinese. Yes. So they wrote it on the board. Have to say it did look a bit odd amongst guff like faster communication, quicker release of data and dross like that. The next day I gave them a few cuttings - the transfer of very basic data processing to China, the lack of international patent recognition, Chinese research paper topics and stuff. After that they said Oh, but wont come here just yet as a problem, surely. lol
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Re my comment 90 and replies from 97,109 and 164.
Without confidence we will get nowhere. We have to turn a corner somewhere else we are going on a downward spiral.
Just the same way as the hype was a spiral people and bankers bought into.
I think we need to start doing business nationally not internationally, locally not globally. Then we wont all catch a cold at the same time.
p.s. I dont belong to a party.
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Robert
Hold on a second... The Banks do know what level of 'toxic' debts they issued... Yes, they do...
Consider this...
You are now 7 months in arrears with your mortgage and our philanthropic National Bank (say RBS) who can now commence to consider that your debt is now in a such a parlous position that re-possession can be considered...
Do you not think that our State-run 'poodle' does not continue to operate the day to day Mortgage Account? Our 'poodle' does! And it will pursue its' errant defaulter... Our Banks know exactly - to the penny - how much each of us owes... And where to come to get it money back... Believe me...
The difficulty, as I kno. (sorry) think it to be, is this...
For the past 20 years, our toxic loan generating trough russlers (sorry, Bankers)have been securitising their mortgage books. Bundling up their Mortgages - selling them on - (we can now deduce 'willy nilly'). Re-lending the Capital sum raised, using the same formula... Time, time, time, and time again... The difficulty, we can now deduce is that these 'roll-overs' have - over time been backed in 'actuality' by fewer and fewer 'actual' loans... By this I mean that, as a mortgage is repaid, the Capital sum has been subsumed into the Banks Books - but never accounted for in the original 'Securitised' debt (debt sold on). It too, of course, is re-lent...
Given that mortgages historically have started to be repaid (in full) within 3 - 5 with the bulk of people moving within a 7 year period, it is safe to assume (for arguements sake that on this basis) that our Banks have in fact been 'trading' worthless paper for over 15 years...
To aide debate... By my calculation then (a very heehaw estimate) we have a 'black hole' of double the existing level of mortgages... If my bald 'heehaw' figure is wide of the mark, and conceiveably by a multiple of 4 - don't want to raise any undue 'fear and alarm'... we can expect that there is enough worthless paper out there to build a stairway to Mars (if not heaven).
Now, Gordski, knows this well... For was it not He who 'mesmerised' parliament with his blizzard of incomprehensible statistics for 10 years. Is it not He who now controls 'The Best Bank in The World' 'The Best Bank to Bank With' The Best Bank to Work for' 'The Best Bank to Invest In'...
The same Great Gordo will stand before the People tomorrow, and announce that in fact, given the eye watering nature and the level of Contingent Obligations of our High Street Banks, it would not be prudent to inject further Capital to these organisations.... But rather, for Dear Prudence's sake provide State Guarantees instead...
Gordo created the conditions for everlasting growth, but forgot to calculate that meeting the interest payment is not enough - we must make provision for the repayment of Capital... (A simple mistake, for did not NASA scientists famously fail notice the difference between Miles & Kilometers in their calculations...?)
Lets look at the State's finances as well, while we're at it...
PFI
Off Balance Sheet Funding
Pensions Liabilities
Three Red Busses on their way, methinks...
Payback time...
The good honest ministers son has all the jotters packed down his trousers - for what a 'whacking' he's lined up for himself!
But what about us?
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169 wee jonnie
Yup but that sort of thing all happened on a smaller scale in the early 90s. Canadian banks had a problem in particular I think. So cant say never seen. If banks cant provide function than move to another process. You wouldnt muck about like this yourself would you. Supply emergency prop and if not moving to fit for purpose look for other solution. Banks in problem then worth lot less, ie equiv to householder suffering dramatic re evaluation and distress sale. But so what. Dont see any bank nicety with householders even at this stage. So those that live by the loan die by the loan.
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Every 5 minutes we have ANOTHER tax payer funded rescue idea, whiy not simply give all the poeple at the bottom their tax money back and cut taxes, then they can do 1 of 3 things,
1. Save - ie money in Banks for them to lend
2. Pay off debts - reduce personal debt, pay off bank debts, hence reduce bank debt
3. Blow it on a wild spending spree - keep economy going.
The we wouldn't have to panic so much about potential job losses - bit NO , Gordon chucks billions to the people who caused this mess in the first place nd is grabbing thousands off me in tax! Basically I pay to keep the company who I owe money to alive so I can contiue to owe money to them. Truly it's the "poor whats gets the blame!"
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#168 - Spent the afternoon talking to a very old, but very lucid and cogent German - something about the loss of faith in leaders and how that paved the way for someone who appeared to be offering solutions, about how in the begining it seemed that the guilty were being sought out and everything was looking good.
Looking back sees the 1930´s as leading inevitably to WW2 - doesn´t mean she is right of course, and has obviously been wrong in the past.
There is a trend to dismiss the thoughts of the old as being geriatric ramblings - doesn´t mean everyone follows the trend of course.
Speaking of Mayans their calander expires soon - probably just a coincidence.
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JavaMan1984.
Sorry to disappoint but just felt like a bit of a rant to relieve the pressure! plus nobody was defending the public sector workers.
PS I don't work in the public sector.
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The 10 question idiots guide to the UK financial credit crisis:
Q1.What caused it?
Answer. Gordon Brown says it was the sub-prime house mortgage crisis in America.
Q2. How did this affect our banks?
Answer. They could not borrow any more money so as to give more loans and mortgages. This caused the UK housing market to crash, further reducing their capital valuations and hence even further reducing their ability to lend more money.
Q3. Why were the banks using the wholesale markets to borrow more money than they had in deposits?
Answer. Because Gordon Brown changed the regulations allowing them to do so from zero in 2001 to £700 billion in 2007. Northern Rock would not have gone bust if they were not borrowing more money than they had in deposits.
Q5. So it is Gordon Brown’s fault that he changed regulations which allowed this to happen and for none of the three regulators the FSA, the Bank of England, and the Treasury to have the power to stop this cycle of debt?
Answer. YES!
Q6. Why were the banks lending more than they had in deposits?
Answer. Because the UK house prices were increasing so fast that they needed more money to lend.
Q7. Why were house prices rising so fast?
Answer. Because there was more money in the economy causing asset prices to inflate.
Q8. Why was there more money in the economy?
Answer. Because Gordon Brown was borrowing and spending in the economy more money than he was collecting from taxes.
Q9. Why was Gordon Brown spending more money on government created and funded jobs?
Answer. Because he wanted Labour to be re-elected by a majority dependent on state funded jobs and welfare benefits, with his belief that he had abolished boom and bust.
Q10. So it is Gordon Brown’s fault that he created the house price bubble which has crashed, and has subsequently bankrupted the Country with growing public sector borrowing from declining private sector tax revenues?
Answer. YES!
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None of you get it do you, including Robert.
It the asset stupid.
Doesn't matter how much money someone has, if the price is going South they'll put off buying.
Everyone knows that is the fear about deflation that people will put off buying...so why don't they understand that in the context of assets...like houses?
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None of you get it do you, including Robert.
It's the asset stupid.
Doesn't matter how much money someone has, if the price is going South they'll put off buying.
Everyone knows that is the fear about deflation that people will put off buying...so why don't they understand that in the context of assets...like houses?
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180
Are they trying to reflate that bubble!
http://www.timesonline.co.uk/tol/money/property_and_mortgages/article5537245.ece
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GB hopes he is the premier league.
Notice how many of the big boys won in the last 10 minutes?
He thinks something will turn up.
Regretably he is Spurs.
Fancy football but feckless, futile and .................
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The economic crisis is only one variable in the worldwide crisis of how we all live and manage our lives. We will always have these global economic problems when Governments and individuals follow a live model that puts growth at the top of the tree, living above your means for the majority of countries and people can only result in disaster.
1. Stop short selling of any Index, Currency, commodity, share, everything
2. Stop speculators (gamblers) trading in any Index, Currency or commodity
3. Stop speculators (gamblers) from buying property or land
4. Stop creative and misleading account procedures
The above acceptance of these practices create an environment that cannot be monitored or regulated.
· The corrupt can operate under an umbrella of acceptability
· The naive can be pressured into corrupt practices
Stopping the above will give an accurate picture of how global economies are performing. Everyone will be able to have confidence and trust in the figures they see
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There are some that believe the US indirectly brought down the soviet union and japanese economies previously. For example the plan was to let the japanese buy all the american real estate and then take it all back again.
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@131 Alex Curzon
I wonder what else has been buried, this is appalling no doubt you will have triggered the FBI watchlist and people will be knocking on your door for outing the truth
Given what Ive read on these blogs I think it is time to take my money out of the bank, and store up some food for the perfect storm to hit
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178 arm and leg - ion times
mayan
Think it is to do with things not being able to go on as before, not the end of the world for man. Comes up in other cultures also. Shamanism was common the world over until fairly recently. Most of human history. Who knows. All heading on converge horizon at present.
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re 160:NHS is a Ponzi
I've been asking for over 15 years, how is it that the State Pension Scheme is allowed to continue, it strikes me to be a Pyramid Scheme - we pay for the current pensions, so who the hell pays when we are out of work and /or retire? But no one in authority answers.
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#174 I sympathise with general point. It is true that without confidence we will get nowhere. However it is also true that without rationality we will get nowhere.
The Government has no clue - but they are going to sequestrate as much wealth as they can to pump into the system. Supplementing the sequestration route is an immoral PR campaign to try and persuade the ordinary Joe in the street to chuck his last few coppers into the pit.
None of it will work, because none of it can work. All that can happen is that a few more hapless Joe´s can voluntarily impoverish themselves faster than is necessary by falling for this nefarious sophistry.
I can see why you want to believe what you argue because accepting that the government despises you and holds you in complete contempt is not what people want to believe.
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#143 Alexandercurzon
I don´t buy your argument of ignorance and incompetence. You can´t possibly commit GBP 400 billion to a bunch of banks, or for any other purpose, and forget to do due diligence.
You don´t undertake due diligence because you deliberately choose not to.
Stupidity is much easier to forgive than considered and deliberate bad intent.
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It would appear that the market believes Barclays to be taking a more optimistic view of the value of their assets than others; if this is indeed the case then I consider Barclays to be correct.
The various 'toxic' loans consist of packages of mortgages and other products, and within each package there will be loans of varying quality. Even in a downright depression it is unlikely that all will default; the majority of borrowers will keep their jobs and maintain their repayments, whilst loans now in negative equity will improve as security values eventually increase again.
The reason that asset values have been ferociously written down is because of the practice of valuing such packages at the price at which they could be sold in today's market - as no-one wishes to touch them with a bargepole there will be plenty of good lending which is being valued as worthless. Indeed the level of write off has reached such a colossal level that it is probably more in total than the amount which was borrowed in the first place.
I believe that John Varley takes the view that by keeping assets on the books until maturity the losses will be much less than if they were to be disposed of in a fire sale, and in that he should be correct.
As to loans that have already been written down, but continue to be repaid, every penny paid back is clear profit, rather than just the ongoing interest element; as such I would expect to see some very large profits to be made over the term of the original loans. If these are to be taken over by the taxpayer it would be ruinous for the banks but very good for the taxpayer in the long term.
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#189 TheEnglishman
So what do you propose?
I'm sure that you will find that the majority of pensioners are living on far less than the average income. So do you propose that the State pension is removed and leave them in total poverty?
Given the fraud that has been visited on both the private and occupational pension schemes by the shysters of the finance industry, I would rather that the State took some responsibility for me in my old age.
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It's interesting that the Golem is demanding the banks "come clean" and own up to the extent of their toxic assets. Is he ever, I wonder, going to come clean about his own role in this sorry saga.
I mean, why should the banks act prudently under a regime where there'd be no bust? Why should the government put aside something for a rainy day, when rainy days were banished?
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Love reading this blog
Thank you RP
Posts are interesting and educational
I enjoy them even when I do not agree with the point of view
Often I agree with both sides of the argument posted
Because things are not black and white and both sides and all views have something valid to say
What you are saying to me is –
1. No green shoots
2. Great Britain plc is up the creek without a paddle
3. Gordon Brown is to blame – his tinkering is making things worse
4. Banks are getting away with murder
What I say to you is –
1. This will not go on forever, all things come to an end, and when the green shoots finally do appear it would be nice to have an idea of how we would like to do things differently so as not to get into the same mess again, and I mean radically differently.
2. For too long many of us in Great Britain have thought the world owed us a living so maybe this will teach us to take responsibility for our own prosperity and make sure we have a paddle and know how to use it instead of relying on the state and unearned incomes, and I do believe that deep down the people of this country are good and will rise to the situation, just reading your posts restores my faith.
3. This government under Blair and Brown has been a total disappointment. They have squandered twelve years when they could have delivered joined up transport, environmental and energy systems – what did we get – war in Iraq, and Brown, so full of his own self importance, so lacking in humility, statesmanship, and now shown to not even have economic competence. So yes I agree Brown must take a lot of the blame and should go – but who will replace this awful government? I see nobody stepping up who looks any better to me. Did I see Monbiot this week talking about voting Tory? Cameron is looking good but I worry about the rest of his pack.
4. A plague on all their houses – the banks have truly got away with crimes and have feathered their own nests and shown massive incompetence. Instead of paying the price we still allow them to award themselves huge bonuses. It makes me weep but they must be allowed to get away with murder so that things can stabilize and we can get to those green shoots. But my golly please please when we crawl out of this black hole can we then screw the banks the way they have screwed us.
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I would think that the USA is damaging out banking sector as it a lot worst over there.
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#182. therealhotairmail
"None of you get it do you, including Robert"
Sorry but you dont either. Its a LOT worse that you think.
Over the last twenty years or so all the financial institutions have been running accounting frauds.
Someone lends them £10 and they lend 5 or 6 other institutions a tenner each. They claim to have assets of £60. Their share value soars. Someone owns £10 of their shares at the start and they are now worth £30 so they can lend 5 or 6 institutions £30 and are now worth £180.... (sic)
20 years of this and someone calls in a debt.
I'll get it from A, who asks B for it who asks C for it who goes back to A to ask for it.
Well someone must have it...
No!! It was never there - well apart from the starting £10 and that went on the Xmas party twenty years ago!
Soon you'll be thinking a Ponzi scheme was a better bet!
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Robert and all: going LONG and allowing businesses prosper CREATES wealth; going short destroys wealth and lives; shorters will have no armani suit to wear if all the armanis go bust. It makes no sense to allow organised raids the likes of friday afternoon and be assured that other less "democratic" countries would use solid arguments to slaughter the vultures. Much to say about democracy here when taxpayers cannot choose how to waste their money.
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This is a little off key but it will get there trust me. I have just realised that the UK as a whole is more than just a bit like the company I work for.
The big boss man came from Head Office and we all did a presentation. At the end he said just a few words.
"You know why clients keep shafting you? It is because you are too nice and you aren't important enough to them."
The UK is just like that nd that is why we will be hit worst than most by the forthcoming depression and when it ends we will be weaker rather than stronger.
The USA will be all right because the Chinese and the Arabs have too much invested in it that they cannot afford to let it collapse.
The Germans will be alright because they still make things people need. Germany being the largest exporter of goods, rather than commodities, in the world.
The French they will be alright because they look after themselves and always buy their own stuff even if it isn't the best. Also if they don't like things they do something about it and get on the streets and protest.
Well in Britain we are open for business which means it is easy to get money and jobs in when times are good and just as easy to get them out when the times are bad. When we get done over we just sit and take it. The French don't; the American and germans wouldn't take it either.
We order new tube trains from a foreign company with a big and well established train manufacturing plant in Birmingham. It happens to be the oldest plant of its type.
Then after they get the contract the foreign company shuts the British plant and says they will build them in Spain. We can't do anything about it becase Red Ken didn't stipulate that they must be built in the UK.
I'm sure we could all list similar things.
Until we as a country fundamentally alter the way we act and how we take things nothing is going to change.
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#14
The banks have been OK up until the last few years, so I don't think there is a need to take them under state control indefinitely - although they have shown themselves to be incredibly stupid and have now ceased to function as banks.
The regulation of banks has to be far more draconian to prevent this type of situation from arising again (although it will, no doubt). Too many have stood back and allowed dangerous practices to develop in the banking sector as if they all knew what they were doing - when they did not.
The problem with nationalisation is that the nationalised industry is generally inept and out of step with what is going on in the world, the industry is expensive, inefficient and comes into conflict with the government of the day and becomes a pain to the public who have to pay for this pain.
The solution has to be within the banking industry as a whole, then properly independently monitored for the sake of the country as a whole.
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As a simple citizen I suggest:
1.
Set up some NEW government-owned banks to do the necessary banking business in a sensible manner free of gambling-debts.
2.
Recognise that buying houses on easy credit is a mugs' game. There is no reason to continue pushing credit at people who cannot repay it.
3.
Put the bankrupt gambler-banks into administration and shut them down as fairly as possible with depositor protection the priority.
4.
Don't take over responsibility for their debts and obligations or acquire their toxic debt in a "Bad" bank?
5.
Don't push us all into penury to relaunch the spurious pretext of economic growth.
rebuild sound businesses to earn food and fuel for ourselves and our children.
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#167
Actually we did not put Gordon into Downing Street - not as Chancellor and certainly not as Prime Min.
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The money that its taking to re finance the banks is slowly but surely forcing us into a deeper crisis....it stands to reason that we couldn't afford to do take this action a year ago, cause of the country's debits, why would we be able to do it now...or has the B of E or the labour party been stashing away some rainy day money under a financial mattress?
I can't see it myself, wake up Gordon and see the Depression
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I'm not an economist but I think the blog is fascinating and I have some random points that I think (?!) are valid:
1) We already have a toxic bank - in fact we've got quite a few. Can the Bank of England start current accounts? I would like one... Is this possible? Could it work? Sorry for my ignorance - it seems like an insurance policy I'm happy to sign up to as a taxpayer that will cost less than the existing proposals. OR nationalise HSBC or the best operating high street bank - not the worst - and kill off the competition??!!?!
2) Politicians are purely seeking power. Gandhi was the purest politician as a lawyer and a doctor he was (unwillingly) made a politician by the people. His skills were needed for those countries (South Africa and India) and for those times.
3) I think we need engineering, science, agriculture, trades and manufacturing to be valued properly to enable real leaders and experts to emerge. That means preparation for the future unrest due to the unsustainable legacy of the older generation who've allowed us to come this far.
4) I suggest we adopt a Swiss or German planning system to stabilise land and house prices over the long term. These countries have managed this over 3 decades (inflation adjusted). This will result in better quality construction and sustainable homes and communities. AND no boom to bust - dare I say it...
5) This can only happen quickly in a de-centralised Britain. De-centralising Britain requires taking away power from power hungry politicians and giving it back to communities. (I don't know how to do this quickly in a so called democracy?! because voting hasn't worked) Communities defined by tax at the Parish level - giving communities the right to be able spend the tax they earn rather than having 85% of their revenue 'provided for' by central government 'decision makers'.
6) Does anyone know of a functioning non-monetary/ skills-based credit system? If so, is it or can it be applied on an inter-community basis yet?
7) If you are over 50 and wield any form of influence (political or other) AND are not heeding some of the warnings in these blogs, FEAR the angry revolution of the future generation when they build up enough steam to act on the realisation you've done nothing and are still doing nothing, to help provide and incentivise the sustainable energy, homes and businesses the UK needs.
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The Toxic Bank idea threw me for a while, He hadn't mentioned that one.
As it stands it looks like He won't be persuing that one. (it was never in the plan)
The plan is(was), nationalise a couple of banks (but only pay with promissary notes), prop up a few industries (with promises but no money) borrow a great wadge of cash from abroad to keep public services going and promise to pay it back in sterling, print cash like it's going out of fashion to cause rapid inflation which will make paying the borrowed money back easy as pie.
He told people to spend their cash now cuz He knows it's going to be worthless (worth less) very soon.
He does have a plan and He is sticking to it (whether that plan is barking mad or not remains to be seen)
Interesting take on a different (more community based) economic system I found whilst looking at drupal (a cms)
www.upasana.in
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do nothing - the Tory approach, misery like the past.
try something - the new approach, it might work but the alternative is worse !
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We may need to save the banks to avoid bank-runs and protect savers.
We do not need to save the bank organisations in their present form or the jobs of the bankers and we should not do so. Moral hazard is a basic requirement of capitalism: if bankers can walk away from this big a crash with millions in bonuses from previous years intact then they have no incentive to be more careful in the future.
The govt should create three new 'good' banks:
British Mortgage Bank, British Small Business Bank and British Commercial Bank. The bail out funds should be given to the new banks not the old failed banks. The failed banks should be put in administration and the new banks should buy their assets so that customer accounts are transferred across and savers don't lose money. The new structure requires far fewer staff to run because there is only one mortgage operation with one computer system rather than four, one small/medium business operation rather than four and one big company operation.
The old banks are then liquidated and their staff made redundant: since they are broke there are no generous severance packages.
There are lots of unemployed bankers. The new banks will therefore be able to hire the people they need at far less attractive conditions than they previously enjoyed - no bonuses for anyone, ever. The result is the new organisations have a much lower cost base and should make a good profit and be able to be privatised after a few years.
The new banks are focussed on market segments so they can build up real expertise in their particular area and do proper due diligence on the loans they make. All the fancy risky stuff is isolated in the big company bank, the mortgage and small business bank loans are entirely funded by the govt and depositors.
The liquidator then goes through the books and phone and e-mail records of the old banks looking for any fraud or wrongdoing with a view to recovering money from previous employees.
This solution reduces the apparent competition in the market but in reality there is no competition between four banks all controlled and funded by the government. Real competition will come from new players such as supermarkets using the pool of cheap talent from the redundant bankers to enter the marketplace. It is like the airline industry - competition did not come by preserving the old flag carriers it came from new entrants like easyJet, RyanAir and so on.
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#105
In general the public sector is cushioned against the economic environment and it has in the past had very good pensions with excellent early retirement options and jobs are generally secure.
Gordon effectively put a stop to final salary pensions in the private sector when he introduced his reforms in 1997, they have one by one stopped since then.
Workers in the public sector generally had lower incomes than the rest of the economy, but that is no longer really true but jobs are still relatively secure. The public sector is also generally overstaffed and provides poor service to its customers - I only have to cite the police service to prove a point here.
I've worked in public and private services and see the differences quite clearly.
In the private sector you may be told your job is finished at 9.30 am in the morning and sent home; the 4000 quid that you paid into your pension is worth 3000 at the end of the year; there is probably no union to represent you...no matter how bad a public sector job may seem, the equivalent in the private sector will probably be considerably worse.
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192
study fractional reserve banking which is the model our banks use. The default rate only has to exceed the FRB ratio and you are snookered. Some banks have been using over 40:1 At 40:1 only 10% need to default and you are bankruot
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Any recession is good for the survivors and bad for the victims.
Same goes for the rounds of redundancies and layoffs.
Winner takes all.
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Darling was really smug when Peston interviewed him in that Panaroma doc. We brokered a deal over the weeekend, on the Sunday I said I'm going to bed there is no further negotiation to be done it's take it or leave it, or words to that effect. Where had he plucked this ridiculous figure of the 12% penal rate on the preference shares? He should have, but not surprised he didn't, realise that this would restrict lending further, or did they realise? Was this just a tactic to bring about effective nationalisation of a large portion of the banking system.
The gov's priority should be to get the money back it has injected with a reasonable amount of interest. The main objective of the injection was to increase the banks ability to lend, what they actually ended up doing was further constrain lending, by the excessive penal interest rates and the ridiculous requirements on capital ratios. Dumb and dumber.
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Nice bit of positive PR for Barclays there, well done. Barclays should be commended for not having to run crying back to mummy when things got tough, and supported against was looks more and more like a speculative attack.
I've got all my fingers crossed that those hedge funds get a real kicking Monday. The Barclays shares in the US rebounded quite strongly after the early release of their 2008 results showing stonking profits. I know that there are supposed to be glass walls in these investment banks but it seems a bit suspect that most of the bad news being generated about Barclays came from RBS analysts.
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Let Face it the taxpayer will have to funds the banks and other company's to keep theme going at it is the only way of funds and how can GB be so silly putting the taxpayer at risk if the banks can't reply the government the uk is getting like the GDP.
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Jeroica-so sooty to hear of your troubles-my heart goes put to you, your family and others in the same boat or worse than you. Everyone should be thinking 'there but for the grace of God...'. As I said in a board meeting yesterday-noone has crystal ball-who knows what tomorrow will bring (apart from yet another initiative idea which makes the B of E crank up the presses even more!) a strong order book is reliant on customers not having difficulties-and would you tell your supplier you are struggling and risk withdrawal of all credit terms? I doubt many would. Even businesses seemingly unaffected at the moment could easily run into difficulties in a few months' time, and not from any lack of foresight either. The victims of this mess are so widespread it's breathtaking.
Green shoots? How about the sturdy oak trees? Believe me, we could do with reports on those surviving this dreadful time. As a nation, we have already, sadly, become immune to the sadness and daily tales of woe paraded across our screens. The numbers are so large, it's hard to keep the human aspect in our minds.
There is also the denial factor of 'it won't happen to me'. This is a serious problem which could be addressed by the media. Focus on the real people and the reality of redundancy and repossession-then maybe people would really sit up and take notice. Baffling everyone with fancy terms and massive numbers is not real-it just makes people change channels!
Straight talk, simple talk-this is what it means to you the people. Sorry Robert, but you patronise at times, then despite saying you will make it simple, you don't-you wrap it up in rhetoric just like everyone else. People can't relate it to themselves-if they are still working, still getting paid, still payingctheir bills and buying their food, they think this is all woffle.
Let me make it simple.
Noone's job is safe. You could be laid off tomorrow.
There are already food shortages-look at the empty shelves in your supermarket. What food there is has cut down your choices and costs more
Energy is costing more and will keep going up-less money in your pocket.
Your mortgage may have come down, but if you lose your job you won't be able to pay it.
Take a trip to your local Job Centre-fancy joining the queue?
Reckon you can survive on benefits? Make enquiries, see what you'd get and then compare to your usual weekly outlay.
How would you feel if you are working but your bank goes bust overnight and your month's wages disappear? What would you do?
Time to wake up and smell the odour of decay.
2 sets of accounts should be illegal. I only have one set for each of my companies-I've been audited by the tax man and vat man and complimented on the accuracy. My co-directors rely on my accounting procedures to assess the companies' stability and progress. Equally, my conscience would not allow me to be 'creative' with them in any way. I am sure I am not the only person in this country who in honest - anyone who isn't should be shot.
Simply put, as it really is simple:
The banks need to be bashed from here to kingdom come, and made to tell the truth. Re lloyds for example-the story is they kept vital info off the wire transfers to the US-specifically the names of the account holders. What laws does this break?! Also, I recommend everyone to check on whose behalf they were acting-I can't say or I'll get moderated again. Believe me, You NEED to know!
Banks are bust, the country is another Iceland in waiting, and I sincerely believe that even the world bank (let alone the IMF) has enough money to get us out of this.
Stock up your cupboards, invest in alternative cooking methods, portable heaters and candles. Start weaning your children off computers etc, learn how to cook from scratch, knit, sew, and make things if you don't know already.
In effect, speak to your elderly relatives about thrift-you'll need it.
I dread to think what's going to happen when thevlender of last resort (the B of E) can't get a loan from the IMF!
Sorry for the long post-but on a lighter note
We just bought another company and hope to retain the majority of the staff, and, most importantly...
My home made ice cream was delicious-infinitely better than red wine for medicinal purposes!
Anyone want some?
One last thought, with food shortages creeping up on us, obesity and related issues will cease to be a drain on the NHS, and as a nation we'll be far healthier-unless they eat my icecream of course!
Night all!
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Well here we are in 2009 and nothing much has changed since 2008 wrt the banking crisis.
I love Robert's articles which try and justify to the layman what the Government want you to know (lol).
My understanding is this:-
How can any layman trust Politicians (from all sides of the House) who are themselves corrupt?
They don't want to come clean to the electorate and publish their expenses because it would be a resigning matter for some and an embarrassment for others. Solution---pass a law to exempt themselves (corruption beyond contempt).
So too with the bankers. They cannot publish openly their bad debts without losing their jobs, so it won't happen and new laws (very unlikely) wouldn't make any difference.
Solution----Auction their bad debts to the market place Anonymously. Only a high ranking treasury official (bound by the Official Secrets Act and maybe some additional non-disclosure law) would know the real identity of the seller.
This would solve the problem directly and their would be plenty of participation in the auction.
US of A is thought to have wasted the first $350Billion that they put into their system and it didn't work.
The UK have only wasted GBP37 Billion so far...let's not waste any more because you can't fix the problem this way.
Just a comment on Banks, they need to please their customers if they are to survive. At the moment they are not (borrowers nor lenders) and therefore deserve to be liquidated.
One last thought...from all that I have read and seen in the last couple of months, PM (Brown) is gearing up for a Spring 2009 election......remember you heard it here first on the Robert Peston Blog!!!
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I would like to point out that this has been around for some time and for all these poor souls who harp on about this and that, it defies belief that you think this hasn’t been done or spoke of before. How do you get a point across? Those whom are more intelligent would absorb it in a different way, if you were that way inclined! And perhaps not speak of it! Yes! People creaming in it because they knew!
Took me a while. Well, now we are well and truly !!
They were not borrowing money, they were simply creating it!! Based on a deposit you give them in exchange for your loan! With interest! So with one of your nuggets they could lend out say 9-1 at one particular time*, and had to increase this to cover the expansion of debt on their own books because in reality, the funds were never in existence to pay back!! Once you get your head around that fact you can start to marvel at the sheer audacity of it all.
*Ratios. Tinker, Tailor Soldier, Sailer. Clunking, Fist. Brought to Bruin.
Where we go from here? I honestly don’t know, but I have some positive dreams about where we could be. There just isn’t enough backing. It keeps me up because its just not real.
Free thought, free your mind. Theres more to life, than being bogged down by these oppressors, who want us all to exploit our differences and continue pointless debate.
Some of you, I imagine, were seriously over by the Tories in the past. If I apologised for that would it just for a minute help you to stay with me for a moment? We cannot today consider that a preemptive move was any fault of one party. Keep the status quo! Until it is realised we NOW have the opportunity to make amends and there is only one way to do this. It suits neither party to break the mould, so to speak because it was all going so well for a time.
Poor souls. Soo many will be cast to the wayside if it isn’t realised. The infrastructure is barely in place, but it can be salvaged if we take the correct action... While it is still possible. But, you and I know it would take a radical change to implement this. I fear that April only allows the admittance of snooping on emails that , more likely has been going on for some time, but presently beyond the container, which I find more hard hitting than the word confines, of law. That said, time is of the essence and we will only get one last shot at it.
Iceland, which is in recession right now could be salvaged. By harnessing the geo-thermal energy that it produces. It would produce enough to supply the entire world with enough energy until the world finally disintegrates, however that should be. At the rate were going it will be a sooner, rather than later event!
#193 Could we extract our cash, learn to barter and use it as cash and include assets into the fold amongst each other...In some way bypassing the red tape, bringing the true cost of everything back to reality. We need a Plan B and have enough wealth here to immediately start the planting of food and everything associated, for survival. I wasn’t there, but the war, from what I hear was a rough time and everyone lived on rations. Harsh environment, however the most deaths were on the battlefields not from starvation. I believe if enough of us are willing and in the know we could turn this around to our advantage. There will be in a crisis, enough human spirit/dignity/pride to assist each other in times of.
How about applying it now! Before Plan A? Or at least come together on an idea while that holds up in the meantime.....
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Jeroica-I meant sorry, not sooty! My phone has really bizarre predictive text-my apologies!
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#31
Its all very well wanting to cut public sector jobs. But unlike private sectors workers ,whom the majority serve a luxury need: Us public sector workers teach your kids, mend your roads, put out your burning house, catch your criminals, keep you alive.
Other than useless whitehall numptys and accountants (who are fairly useless these days), public sector workers are the few actually helping society!
If we have no money to spend on goods - then the private sector is useless, albeit power companies. So please dont confuse public and private sectors!
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Are you good people ever going get to have an election, and let all this get aired out in public?
Here, everyone knows that if things don't look like they are headed in the correct direction, November 2010 awaits the party in power, and the results could really be ugly for them...
Just a thought from across the pond.
An election would do everyone a world of good.
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There has been much talk of the 'working classes' on Roberts blog and how daft they were to borrow and how they will be hurt.
Well, I would like to set the record straight.
1) We are £75,000 in debt. 'Would you like more?' Yes please said I.
2) Someday the baliffs will turn up, but Bi eck, I'll be ready for them.
3) I don't trust Politics and University degree people any more
4) I don't trust Banks and their staff anymore
5) I don't trust buisiness anymore.
The thing that cheers me up MOST as I think of ways to protect my family is:
LISTENING TO THE SQUEALLING ON THIS SITE!
oik oik
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#220 how did you get 75000 in debt? and y should i help you out? would you help me out?...yes i bet you would. people who have fallen behind in debt...to bad...just pay it back and we can all move on.ive always paid my debts off why cant you?
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Robert - is another day of grim banking news not going to cause another week of Sterling fun and games? Our public sector finances are horrible.Confidence in our currency will drop further.
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221 people who have fallen behind on debt the stigma of bankruptcy no longer exists the state will pick up the tab then feel the weight lifted from you. just make sure you learn the lessons and live a simpler life debt free .
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The "new losses" are old loans which are now going bad because the people who would be repaying the loans can't afford them anymore (or are out of work), or the underlying asset value (quite often property in this country) has fallen.
For so long as property values fall, and unemployment rises, this will keep going. Changing interest rates will not make a great difference in the near term.
What we are doing, as a country, is to pour water into a bath that has no plug, in an attempt to keep the level of water already there stable. That works if you pour water fast enough, but its not pretty.
And its no use just blaming the banks. They lent money unwisely, but we (or at least most of us) were equally unwise in borrowing. Businesses financed themselves through overdraft rather than equity. People bought on credit card rather than loan.
The level of general indebtedness has to fall. It will fall because there is neither the income, or the asset value, to sustain it. Sooner or later, it will level out.
Look to 2010/11 before we even reach bottom.
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I agree with Jericoa, the financial system is a reflection of the real economy. Howevr I would go further and say that the real economy cannot function without a functioning financial system. We do not have that and bankers have lost sight of how to do banking, they have learnt how to be intermediaries and salesmen. For the long term success of Britain as a financial centre we have to relearn about risk and reward.
For the real economy we have to learn that to be a wholly tertiary economy is not enough in a world that is becoming as well or better educated than we are. That means that for us to pay our way in the world living standrads have to fall. In turn that will mean reduced immigration and increased migration. The market does naturally rebalance. It is the politicians who dictated by a 4 year electoral interfere with the natural order.
The real economy, the financial system and politics all fit together and when that is rediscovered from all this pain then we can look forward to a sustained stable period.
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214 Tigerjayj
The fat ones will still find food- Chips!
We lost our businesses, marriage the lot in 1991 in the last fiasco. Borrowed money against our house to prop up the business, then a customer defaulted and we were gone! My ex was personally bankrupt, and I chased around the town by two thugs who reposessed my BMW.
We both (separately) picked up the pieces and started again. Got jobs and lived within our means. No credit cards, no credit at all(apart from mortgages).
I now have some small savings in the bank. I have never looked upon my savings needing to offer a return I just leave it in the bank so that it is 'safe' and I cannot get my hands on it! I have each month paid a little more towards the mortgage to pay it off quicker!
Really just trying to say why oh why do we really need to keep going down this route of requiring credit? It hasn't worked in the past however many years how on earth can it work now! Why encourage lending, to what end! Stop the credit, it isn't the answer...
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This insurance scheme is just another fudge. Our glorious leaders should understand that the banks are simply administrators of money and therefore wealth.They are not the backbone of wealth.
The generators of wealth are businesses and they need money. The banks have failed to manage money and it is obvious we are simply filling in bottomless pits by pouring billions into them. The structures, organisations, philosophies still exist.They have to be dismantled NOW.
As a means of facilitating a new system I believe that all UK banks should be nationalised and amalgamated into one bank. Only then will we be able to see the true scale of losses; toxic assets; waste, fat cat gravy boats; inefficiency; duplication and money guzzling nonsense.
Only then will we be able to re engineer a banking system that works for business and wealth creation and NOT simply to bloat itself and its over paid managers who haven't authority to manage anything.
Once we have stability we can then look at privatising sectors of banking that will be run properley as a service industry to business not as a wealth creator in its own right.
Until such a drastic move is made I fear that we are going to fudge and haemorrage.
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RE Gordy etc Opinion poll
Google D notice dunblane
some interesting figures fro 2007 on
times site also Illuminati??
An INSURANCE SCHEME???????????
In my Lloyds days similar was called
STOP LOSS INSURANCE
PROBLEM gordy YOU CANT STOP THE
LOSS.
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Re UK BANKS
NO LONGER FIT FOR PURPOSE AS
ARE NULABOUR AND B OF E AND FSA.
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Always amusing to read blogs on the financial crisis as it conveys just how weak a grasp Joe Blow (as well as a swathe of amateur economists ) have on the situation. Peston has indeed done well on the subject, as the vast majority of journos (including several on the FT) have no real clue, able only to regurgitate a few lines they've gleaned from bankers, or the like. I'm still not convinced as to the depth of Peston's understanding but he's well-connected enough to sound convincing.
To address some of the comments:
"John-from-Hendon" declares a conspiracy over what he refers to as 'new losses' by the banks. The explanation is very simple: while banks may have been slow to 'mark their positions down' (Barclays is widely believed to be chief culprit amongst UK banks), the 'new losses' are quite simply a re-marking of positions at the end of the reporting quarter. Clearly, asset prices don't stand still, and right now they're going through broad deflation as the financial sector delevers. This looks set to continue and, as a result, banks will post further losses for several quarters yet. They will also be taking real losses as loans default etc.
"doctor-gloom" trots out the well worn line about bankers being "punished", which is the equivalent of declaring loudly that you're not qualified to comment on the subject - although the popular press must take some of the blame here as they've been feeding Joe Blow this line to an extent. The situation, as always, is more complex, and involves, among other things, Alan Greenspan's disastrous monetary policy post 9-11, clueless regulators (on both sides of the pond) and ratings agencies whose 'models' were hopeless. The banking community, although playing a full part in the crisis, were just getting on with their jobs in the existing environment and a given set of rules. Another culprit that is rarely alluded to, but played a major role, is the investment community - they just sucked up the toxic waste like hardened junkies. Banks were largely acting as conduits - nobody forced investors to take it. The word 'greed' is normally associated solely with bankers, but investors score equally as highly on the greed scale leading to highly irresponsible decision-making. Just look at the Madoff affair for proof - bankers avoided the guy like the plague because he was a blatantly obvious fraud. A toxic mixture of ignorance and greed led Madoff being able to operate his Ponzi scheme for decades. My heart bleeds for all those who thought consistent double-digit returns are achievable in the real world. This Darwinian blow is justice indeed.
But where does the buck ultimately stop? With the government, of course, not that you've heard Gordon Brown stand up to apologise for his role in the affair. Do you blame the parents for their child's bad behaviour or the child itself? Instead, he's managed to paint himself as a 'saviour' of the global financial system, even if the glow from that episode has begun to fade rather dramatically as we enter another phase of the crisis. The opportunity for Britain lies in keeping the banking environment in this country competitive, avoiding excessive regulation, rather than doing the politically expedient thing and punishing bankers and the banking sector. Many may not appreciate the fact, but banking has played an immense role in driving the economy in the is country - like it or not, we are a service economy and if banking goes to the dogs, we'll all be negatively impacted in the long run.
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RE HBOS losses.. . .
To CARP on i really do wish i had
followed through with my "WINDING UP
PETITION" for HALIFAX PLC in January
2007.
The 2004/2005 accounts revealed
solvency problems back then.
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alfonsalonso 230
Many contributors have made the points you have made with far greater
clarity.
They have also done it without being
insulting to opther posters.
Have you not noticed a few people are somewhat cross as they see our whole
economy being wrecked by a bunch
of PROFESSIONAL IDIOTS.
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Robert,
It seems that everybody knew, except you maybe, that the scheme people were looking at was an insurance scheme, not the creation of a toxic bank. Banks would pay a premium to have part of their book insured. What banks need is to free capital to lend. And by the way, before seeing more inaccurate comments, you do not need to consider necessarely your most toxic assets to free capital as they generally have been provisioned for.
Accurate information right now would help!
PS: It was genius to increase the capital ratio targets, and here I do not speak about the necessary recapitalisation of some banks, at a time when banks are asked to continue lending!
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Suspend Barclays shares before the market opens on Monday.
Keep them suspended until 24 hours after their 2008 report and accounts have been issued.
If the short sellers were in some sort of concert party and the accounts are good they will be badly burnt, if the accounts are diabolical the shares will be marked down further as they should be and the short sellers will be vindicated.
Use this suspension tactic whenever there is major short selling on the back of rumour and falsehood.
They will soon learn.
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Even Angela Knight of THE BBA
BLAMES THE YANKS!!
FUNNY THAT? THE ESTABLISHMENT
PARTY TRICK?
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230
'As banks have played an immense role in driving this economy', do you think they have done a good job?
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Bear with me this is a contribution to the Banks toxic credit and something positive that the regulator could do.
Whilst the Banking industry is collapse and Credit is unavailable, why is it when I apply for a new credit card the reasonable credit limit is set at 2 - 3 times my monthly income at a time when I already have 5 other cards with similar limits?
What is a reasonable personal limit on credit cards? As a starting point I would suggest a total store and credit card limit of your personal monthly income, you could argue a total limit of 1.5 or 2 times but there is a limit based on monthly income. This represents a reasonable monthly spend with some emergency spending built in. If a larger loan is required then clients and bankers should be forced into regular negotiated loans. For those of us lucky enough not to need credit card debt this is how we operate our finances, other less fortunate or responsible clients I feel would benefit from a real financial limit.
I suspect that if you applied this rule to the existing credit card user population there would be a large number appear on the Bad debt side of the equation. As a proposition of how to overcome this problem – All excess debt over the limit of the multiple of monthly income would convert to automatic loan accounts at half the rate of the existing credit cards balanced pro rata across all store and credit card lenders. Monthly repayments set at a slightly lower level than appears on the credit card account releasing some income whilst forcing irresponsible borrowers to try to repay their excess credit. Anyone who does not repay this could certainly not have afforded the original borrowing.
I believe that this would have the following effect:
1) Stop the ongoing irresponsible lending on credit cards by existing banking institutions, This has been talked about for years but until now the government did not appear to have the moral authority to properly regulate this aspect of bank lending.
2) Provide a mechanism for overextended clients to recover from their debts without resort to bankruptcy
3) Responsibility for the bad lending hits the banks who made these unsecured loans in their profits rather than the taxpayer in the asymmetric bet our government seems insistent on taking on.
4) Customers who have borrowed beyond what is reasonable get an opportunity to recover themselves.
5) The banks win by an automatic reduction in the size of the toxic debt problem as at a limit point some toxic credit will become non-toxic.
6) Customers with moderately bad debt will gain potentially a little extra cash each week and possibly more that the2.5% Vat reduction achieved.
7) Responsibility stays with those responsible – Polluter pays principle – rather than the Tax payer
This process will impact on the Bank’s illusory profits, we as taxpayer are inevitably going to pick up the bill for the Banks’ unrealistic lending policies of the past, but we can militate against the worst effects and stop the problem both getting worse and happening again.
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This is much what we know already, no need for further run on banks as they have crashed already ....now is time for recovery and common sense to prevail.
Bank insurance a good and necessary idea.
Calm down everyone, this is the only way to proceed.
Should be called Toxic Panic, and Robert, we need a bit of peace and quiet for the damage to heal .
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Number 230
It always puzzles me why people feel the need to dismiss less well informed folk as fools and laugh at them. You work in finance, I assume, therefore of course you understand it better than those who don't. Doesn't make the rest of us idiots.
The points you make are sound, obviously.
We are ALL to blame one way and another. Or rather, the concept of 'blame' becomes nonsensical, because everyone is just doing what makes sense in the context in which they happen to find themselves. And that includes government, who seem to be your bogey man of choice. Governments want us to be prosperous and happy because then we will vote for them. Are they really going to rein in a boom? Of course not.
And of course in the long run we need the finance industry to be sound and functioning properly for the health of the whole nation. I doubt anyone would disagree with that.
But if you were a regular reader of this blog, you would know that there are some smart and thoughtful people who post regularly. I come here as much to see what they have to say, as to read Peston's thoughts. The people on here have a cross section of relevant and interesting experience and they often make more sense, or at least are politically more neutral, than Peston himself.
There is a certain amount of understandable frustration amongst those of us who were more financially conservative at having to pay - through inflation, taxes, defaults or whatever - for those who were greedy. By bankers, most people include the whole financial sector. It's just a shorthand. Maybe not an accurate one from your point of view.
There is also a feeling that the situation we find ourselves in defies logic - encouraging spending and borrowing to solve a problem caused by too much spending and borrowing. And that it makes a nonsense of any kind of morality in finance. Since those who played by the rules - ie paid off their mortgages, saved for their retirement so as not to be a burden - seem to be the ones being punished, while it seems that many of those who had a hand in creating this crisis have paid little or no price. That would include the government, I suspect.
You are reading the posts of a group of people who feel confused, powerless, frightened, frustrated. It's actually pretty remarkable that they talk as much sense as they do.
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j wilkes 237
Credit Cards Limits 1k max
Bankruptcy TWO TIERS:
CREDITOR PETITION 40K min debt
Self PETITION min 5K
Voluntary Arrangements at 10pence in
pound up to 40K without creditor
approval.
I feel that will bring unsecured personal
lending back to reality.
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If we must go the toxic bank route, we have a precedent.
Lloyds of London and its run off vehicle Equitas.
We also already have the man credited for its success in harness at Northern Rock; Ron Sandler.
Watch this space.
If you do not know of the Equitas set up read Lloyds of London entry on Wikipedia.
The similarities are uncanny.
Probably why Peston has been fed the line that it is a bank insurer not a toxic bank and reported accordingly as the Government knew he would.
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You can blame Brit Banks for trusting Yank Banks
and borrowing and speculating in bad investments
Yank Banks bought some Brit Banks
Yank Banks lent Brit Banks Billions daily
Brit Banks bought Yank Banks MBS products
The Yank Banks MBS products tanked
Yank Banks stopped lending to Brit Banks
Brit Banks assets stank
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I guess the banks are in a number of catch 22 solutions. Firstly they know the government will not allow another big bank to fail, so bail outs are a given...BUT whilst they want to be rescued and supported in times of crisis caused by irresponsibility, they do NOT want to become government owned for when the recovery comes in 2010/11 (see comments on Lloyds TSB).
Again they do want to get rid of bad debts if possible, but also they don't want to have to come clean on how BAD their balance sheets are for fear of causing their shares and hence shareholder status to fall away (ref Barclays shares on a seemingly false rumour). So a secret underwriting of bad assets? maybe so, but more importantly what value will be placed on them? If they are undervalued the banks will not be convinced, if overvalued we waste money.
Finally do the banks really know what bad assets they have? Given the way some of these securities were packaged as 'job lots' to be sold on, unravelling the triple A's from the others is hard, also how accurate and honest was the certification of those securities before the banking crisis hit?
To answer the question do we put in more money to support the banks, I think we have already passed the point of no return. One ryder here though is what is the end game of the exercise? I don't beleive the government is honestly thinking that this will get lending back to the old easy credit levels of 2005/6, but that some really necessary lending will start again. Gordon Brown knows we cannot have irresponsible lending again, and that banks are now assessing the risk of lending in a more realistic and responsible way that is here to stay.
All this talk however will not avoid the deep recession that is now about to begin the take effect. We cannot 'spend our way out of recession' - just think about it for a minute, it is just not logical.
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#199
Diplomacy is the art of letting other people have your way - and as an Irish ambassador added, ensuring they get the credit.
There are several psychological aspects to this. We now have sufficient evidence in front of us to show that although the conomy has obviously seriously derailed and will never go back the same, HMG and GB are unwilling to change it in any serious or undoable manner. That makes him in particular change resistant, and thereby manipulable - there's no point in being chief honcho on a crashing outfit, but there is in being a puppetmaster, or even kingmaker, making certain the current head man does what you want to position you right for a few years down the line and yet gets the blame for the crash.
The second aspect is that of the general population. Insurance only works because the insurance companies pay out as little as possible. However, this one is being deliberately placed between a rock and a hard place in the housing market. Consider the situation of someone with a family in negative equity: he's now got a way out by defaulting on the loan. HMG must still house him, so he'll probably get to keep his house, but the loss he's been facing magically disappears. Do that often enough and you'll generate a Kodiac market in property (Kodiacs being the biggest bears around), which will be so much worse than grizzly that this system too will fail. The only real solution will be to make all debt legal lien on earnings, deducted at source, so there's no option on default unless the borrower is truly made redundant.
#25 AC
The FSA was a sacred cow - it was impossible to make a complaint stick, because you were whipsawed between them and the Financial Ombudsman, all insiders. A BBC Trust solution is called for, with a bar on banking insiders.
#36 CityGambler
No, you miss the point about money. It's an intangible, you can't eat alloy but you can spend it. In managing the money supply, the Bank and the Treasury have to balance between an estimation of the true wealth of the country and its true growth, and can to some extent confirm the guess with real tax income, which is assessable. There may therefore be some scope between inflation, public spending and the government debt portfolio, taking the balance of trade into account, for extraordinary spending, particularly if by weakening the exchange rate we can stimulate the export market.
The classic example is that of Captian Hull's daughter. The Captain was commander of one of the first ships to cross the Atlantic. On arrival, he was appointed banker to the nascent colony, and produced "pine tree" shillings with the proviso that for every twenty he minted, he could make one for himself. When his daughter eventually married, her dowry was her weight in shillings - and she was no lightweight either! His descendants are stalwarts of the Bostonian circle to this day.
#42
Oi! I started in industry and moved to Europe. The trouble is we tend to the timorous before politicians who are mostly spielers, whether lawyers, teachers or actors.
#54
Your typo just about sums them up - we do indeed need a fruad squad. Keep it, I think it points certain fingers.
#111
Your roadmap is the Wall, and HMG indicated it hits in about three weeks, not six months. This is why it's the last chance saloo, the barrel goes dry about then.
#115
There's no global regulator because it means national governments surrender their sovereignity. It's like why we have a European system and National systems.
#116
People have not been sued because the system's weighted against it. Go back through the Stock Exchange postings of the banks in early September, when it was already clear they knew we were in trouble, and be amazed at the "all is well with the world" pronouncements they were publishing as fact. Even the Moderators here refused to publish it, when I named certain RBS dated documents against their first run-ins.
#131
Sorry, missed that one before the Langoliers ate it, try posting on another blog and let us know where.
#168, 188
You will recall I was the first to mention that Mayan calendar here. For those who joined recently and who need an idea of why we're suggesting their is no bottom to this pit, I would also urge you to review Abbot Malachy at the same time - I've followed him since when we were trying to understand his prophecy on JPII, which came true on his death. You know I'm a fairly good digger here - I'm also sitting on one of the Biblical Apocalyptic antecedents, I'm fairly certain I know what the Rennes/Dan Brown scenario's about in that respect, and I have the Vatican as a client - they asked me how to survive in this kind of economy a couple of years back.
However, there's a biblical paradox here - Apocalypse happens when nobody's expecting it, and if I've been commissioned to expect it, then it won't happen. That's why the Mayans see it as a change of era, there's another era yet to come, which is also echoed by the Biblical scenario, if you want to walk that path. #163, oddly enough they weren't that unwelcome at the time - they soon outstayed their welcome though.
#169
Yes, you're right, this was the exponential vector which ran out of steam through the CDO recycling. Pragmatically, though, under such circumstances the rules become meaningless and the Banks don't own the enitre economy, much though they think to the contrary.
#173
The biggest problem is such lack of insight. I preached Eastern Europe then China and India to RBS and Warburgs in particular in the 1980s (thanks to a coincidence in cognomeniture with a leading economic journalist which is one of the reasons I don't publish in my real name), but we're now in 2009 and there's no more cake to grow, unless the Esquimaux have something they've not shown so far. As a result, the battle's on for the biggest slice, and the cake's being reduced to crumbs. Oh well, there'll be some building to do after this lot and this time we may perhaps learn not to destroy the lot in the search for our fair share, however fair may be defined.
#174
Sort of. The problem is resources are lacking in all countries, which means resource-rich countries want to trade. The likely next equation will be priority consumption from home sources, marginal consumtion backed by tarriffs and importation taxes from foreign sources, possibly tiered to privilege particular parties, not unlike the 1950s situation before virtually everyone was given Most Favoured Nation status thereby detroying the status.
#181
Like I've said before and I'll say again, unless and until asset values become concrete the buyers won't come back in.
#186
Hate to say so, we simply outthought them and let them destroy their own economies. Yes, the USSR was premeditated, I was interrogated upon it at length by external sources who I suppose were from the security services in a thesis I did in the 1970s, and like I said above, I promoted it in the 1980s in time for the UK to lead in in 1989.
#189
Add the art market
#204
One of the SF writers had a great method for valuing property - have a single-rate tax percentage, but on a value set by the owner. The stinger is that he can be forced to sell to the first comer at that price.
#217
Your phone copied it from the posting the Langoliers murderated.
#230
The buck stops with HMG? Fine in theory, weak in practice as we're still waiting for it to happen. Your argument on deregulation should be read within the framework of my earlier post on Hampton, that this was a setup.
#232
Rahere being a professional idiot himself, I don't think they even rank as that, it takes skill to be that entertaining. The real word is Politician, ranking somewhat below Republican in the slime scale, and now roughly equivalent to the term Aristocrat in France in 1792. The old Steeleye songs about the cuckoo in the bush are oddly apposite now, were it not for the fact the BBA were the ones doing the nesting.
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If we hadn't copied the Americans in the Banking Exams
We would not have failed the test too. It is all their fault the dumb school bully said.
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AC's criticism of 230 is (to me) baffling. There's nothing being said that's insulting towards any other poster at least on my reading. It may be that Alfonsoalonso doesn't sign up to the cosy Daily Mail consensus that otherwise passes for intelligent comment on these boards but that of and in itself doesn't mean he's being insulting to anybody.
Odd to me that a collection of posters who seem to have a fairly settled set of fruity off-the-peg, golf club snug bar, so-I-refused-to-pay-my-licence-fee opinions choose to air them at the epi-centre of the global liberal/left/trotskyist/metropolitan/trendy-wendy conspiracy that is the BBC. To borrow a phrase beloved of a sometime Mail favourite "you couldn't make it up".
Surely the lefty-biased moderators at the BBC should be doing something about this affront to our civiilsed values?
Fwiw I think that there's more of a problem with posters (no names of course) who have one basic line of argument viz "I'm right, I'm right, I'm right, you're wrong, you're wrong, you're wrong,ban-it-and-sack-it, ban-it-and-sack-it" which is repeated again and again and again and for extra emphasis in great big shouty capital letters. Such dedication to recycling must warm the hearts of the environmentalists among us!
Intellectual lightweight that I am I think I've twigged what the majority of posters here would like - bankers heads on spikes, the rack for Brown and Darling and Hadrian's Wall to be rebuilt. Since none are going to happen what exactly is the point of continuing to harangue us quite so stridently? Does time weigh heavily for some of us? Maybe a hobby would be a good idea or taking the dog for a walk or getting drunk and challenging squaddies to a brawl or standing on your head whilst reading the Torah would help pass the time productively.
That's the hangover sorted...
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I think the Government should and still should nationalise the mortgage book of the banks then set a fare rate of interest for the term of the mortgage.
This would stop 75k people loosing their homes.
Anyone with a together mortgage should have the unsecured loan part written off if they get into mortgage difficulties.
Banks would only be given the opportunity to sell mortgages to anyone who is financially secure.
I also think that before the Tax payer gives the banks the insurance scheme they make all of the toxic assets on the books public so that the public knows the risk.
I also think the police should investigate the banks and the dealings that brought this situation about.
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thulefule 246
HOPE THE HANGOVER GOES AWAY!!!
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Why doesn't the government create a new 100% government owned bank and fund it with the billions of tax payers money (it is giving the existing banks) and let the existing banks go bankrupt? This way there is still a way to get money into the market and we the taxpayers are not liable for the greed and mistakes of the existing banks.
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how is short selling not fraud ?
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So we give a load of money to banks to bail hem out so they can get on with business and lend again. They then dont lend as there paranoid about all the money they lent in the past. Then the goverment wants to underwrite all the `risky` debt they have in an effort to promote lending again.
Call me stupid but any historical bad debt is, there problem. If we want them to lend again why dont we underwrite new debts under favourable terms. We the people then know that the money we coughing out is used exactly for what it was intended, nothing more, nothing less.
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I'm surprised that no one is currently questioning the solvency of the UK Government. The Government is promising money it simply doesn't have to bail out other bankrupt institutions. At what point is the penny going to drop? Britain is broke.
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#122, sosraboc, no, I narrowly avoided being fired and was put on probation for a year. I knew that my behaviour was dishonest as I lied - it wasn't a mistake or naivety.
I agree entirely with your posting and agree that there was a noticeable change when the FSA replaced SFA, IMRO, PIA, LONRHO, have I missed one?
The main change was that I can't really remember visits from the FSA - they always seemed to be the invisible regulator and passive when they did visit.
The system was, is and will continue to be rotten as the government doesn't seem to want to rock the boat. People need to be held accountable - with prison sentences where necessary. We can't just go on.
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#230. alfonsoalonso wrote:
Accuses me of declaring a conspiracy over what he refers to as 'new losses' by the banks.
I did no such thing. My main criticism is the way in which we have allowed accountancy and reporting to develop over the year to permit such an array of artificial off-balance sheet complexity.
I have watched from the inside in increasing disquiet the artificial 'fiddles' that have been eroding the quality of a proper balance sheet and sound full value reporting. I will not go though the litany of minor changes to reporting and accounting standards over the last thirty years, but suffice it to say for the benefit of those who look on as outsiders to the business of accounting, and no less auditing, the changes and developments in that 'industry' have caused disquiet about the quality of the work being done not only among industry insiders, but also investment analysts who need to work with the results of financial reporting.
But nowhere did I suggest that this was a conspiracy. I remind you that a conspiracy requires that two or more people to compound together to deliberately carry out some act.
The media have declared that the possible rescue requires from 100 to 200 billion pounds. This is a gigantic worsening of the balance sheets of the banks since the last rescue. I simply find it incredible that the worsening can have been so large, given the previously published exposures of the institutions concerned. My biggest fear is that the so called 'experts' of the city have little actual grasp of their own balance sheets and of those of the market.
If as you claim that this 100 to 200 billion is the normal progressive revaluation of the bad debts of the industry since the first rescue let me ask this very simple question, why are the cumulative rescues so huge when compared to the value of the institutions making the losses and of their published loan books.
If you are right, which I doubt (I favour incompetence), the depression we are entering will be quantitatively worse and deeper than the 1930's and deeper (and longer?) than anything ever experienced in the last millennium. (Given that record and accounting only really go back 2 or 3 hundred years.)
Again if you are right the whole of the nation's capital built up over millennia is effectively gone. The other problem is that the debt exposure may not be just in the UK - this the gigantic downside of being a 'world banking' hot-spot. This raises the very real question: how far should the UK taxpayer be asked to rescue foreigners?
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It is frightening that the politicians and bankers who led us into this fiasco are still in charge and the politicians are still giving their banker friends taxpayers' money.
What I would like to know is that once the great financial genius that is Gordon Broon has finished helping his friends in the banking industry with massive amounts of money he does not have, and all the other cash injections, what my tax rate is likely to be in a couple of years?
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#136, John_from_Hendon, yes, I think so.... SIVs are the dishonest banking alternative to PFI - hiding your accounts.
I agree, we need to start investigating/prosecuting although what we need to do and what will happen are two different things.
They'll find a few small-fry Madoff types, use the press to give them enormous coverage and create the illusion that someone's paying the price for this illegal disgrace.
Pressure to do more will come to nothing because the banks and CBI members hold the UK to ransom.
I think I preferred it when the unions had the power.
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In addition to my previous comments, I wonder why the government does not set up a lending agency for small and medium sized enterprises and for people wanting to buy houses?
We can then let he banking system that caused al this aggro in the first place rot in their own crap!!
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I find it odd, to say the least, that no-one seems to find the fall in Barclays shares directly related to the lifting of the short-selling ban. The shorters drove HBOS and RBS shares down to critical levels some months ago. I cannot understand why this pratice is not outlawed as it's exacerbating the loss of confidence in the banking sector.
Added to that, the continuous stream of media reports from news agencies, 'think-tanks' and other quangos saying that it's going to get even worse, merely adds to the doom and gloom, driving the market even lower.
We need to highlight positive, optimistic economic news in order to lift the mood, cause confidence to return and bankrupt the short sellers!
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I wish I could understand it all ....If the public have no money to spend then the wheels of the economy will not turn and companies will just fold and bank get in a worse position... need to give the money to us the public to spend ....giving to banks does not solve problem......even if banks then want to lend...people do not want to borrow as they know they will not be able to pay back....common sense really and we are become more aware of it now...web the public need the help to help others to get economy started...if jobs are lost and companies closing...because people are not spending as they do not have money....it is us that needs to be assisted...simple
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250. At 10:54am on 18 Jan 2009, spetmologer wrote:
how is short selling not fraud ?
+
short selling is above the law it is not regulated
bad investing is wrong but legal and un-punishable
those mythical 'get out of jail free' cards do exist
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253 extremesense
Acquired wisdom comes from making mistakes and learning from them. Perhaps your Director was right to forgive. Certainly so if it changed your behaviour. I might have been too hasty in the same circumstances and thus less thoughtful.
Let us hope we all come out of this mess wiser.
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Robert
In reading a lot of public comment you could justifiably come to the conclusion that this dreadful crisis has emerged because bankers have run amuck and, belatedly, the poor old politicians have had to pick up the pieces with taxpayers' money. All because of some weird fancy stuff going on the the States.
The Banks' role as essential suppliers of credit has long been recognised in terms of the public interest and, to avoid the profit motive driving them towards enormous risks, there has always been close regulation by governments.
What I would like to see is more discussion about the combined effects of a loosening of this regulatory control leading to this 'perfect financial storm' : examples such as repeal in 1999 of the Glass Steagall Act in the US keeping separation between banks and securities dealers/sexy investment banks ; wholesale transfer of banking supervision from Board of Banking Control / Bank of England in UK to the FSA c.1999-2002 and whether FSA were resourced to cope when they were given mortgage brokers and insurance brokers to look after etc. ; Basel 11 / G20 international codes designed to direct Banks' capital and risk structures from 2003 onwards to a place where what we see now should not be happening , involving what looks like bank self-certifying methods and rating agencies.
Come on, lets expose all of this to us, the great unwashed, so we get the whole picture!!
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Mr Brown told the Financial Times the banks had to "come clean" about these bad debts so people could trust them again.
Time that Gordon Brown stopped the spin and forced his own MPs to "come clean" on their Expense Claims. Equally he should immediately block any Freedom of Information legistlation changes that may protect "MPs". How can a committee including some of the worst offenders be legitimate ?
ROBERT -- this needs to be discussed in public -- before the damage is done - again !
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Thanks wharfgirl, tigerjay and glenafon (hope I did not miss anyone)
Woke up with a sore head this morning.
Liked the Chinese story Glenafon... didn't make me laugh though!
I keep pushing my ' payback for the opium wars' analogy shamelessly here, noboddy has taken me up on that as yet but it is on similar lines to your submission Glenafon so you have given me an excuse ..here I go again...
As a nation funilly enough we dont like to reflect on the fact that we were a nation of drug pushers to the Chinese for a while to our huge profit and thier huge debt (sound familiar) as pedlers and controllers of the opium trade. We got a nice little island out of it for 150 years (Remember Hong Kong)
We even sent warships and utterly crushed their navy (huge technological mis match at the time) when they refused to pay thier debts for the hard drugs we supplied them with...seriously morally reprehensible failure on our part. This is well remembered as a huge national humiliation in China...funnily enough we tend to down play it here, it is not well known.
Having lived in China for 5 years I can tell you they have not forgotten......only surpassed by what the Japanese did to them later on in WW2 for which we got many brownie points back.
Returning the compliment 1995 to 2008 with plastic toys, magnetic wrist watch winders and flat screen TV's that only last a year then you need another 'fix' has a kind of poetic beauty about it dont you think ( blame that last comment on the hangover)
Lets hope they dont send the boys round like we did when we cant pay our debts though..
I see the above more as a quirk of history, having worked there for many years I have tremendous respect for the Chinese and Chinese culture. I dont for a minute believe they would behave as badly as we did 150 years ago but they will enjoy the historical irony of it.
Thats it for me for today.
Jericoa
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Here's the basic conumdrum.........
How can we trust a person who history will show has made a series of catastropic economic decisions over the last 12 years to make the rigth decisions now to get us out of the mess that they are part-architect to?
It's like getting a bad hair cut and then asking the same barber to perfect the cut. The fact they couldn't do it in the first place proves their inability to deliver second time round!
We have been marched by this man to the top of the cliff for 12 years and now like leemings we are going to let him push us over the edge with his obvious inability to avoid a Depression.
How much more sleepwalking does the British electorate intend to do?
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254 John_from_Hendon
John you are wasting your time. Life is just a minestrone. We are all in the soup. If we were all the same we would all agree and it would be boring.
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Don't be conned by this. The government can increase the amount of National Insurance it levies because this is insurance related. When is a tax not a tax?
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Short selling
To maintain liquidity in the market, market-makers (MM) are obliged to quote a two way price.
This means when you ask for a quote, (generally done on your behalf, as private individuals will not be dealing directly with the MM) the MM does not know whether you are a buyer or seller. The MM is obliged to honour the price quoted in the size requested.
The MM will still have to quote in stock he may not have on the book. This forces him to be short. He can hold the position by borrowing or buy the cover elsewhere, either directly or though derivative products.
This is an essential aspect of a functioning and LIQUID stock market.
The perceived problem has arisen because the markets have developed derivatives to create short positions and traders other than MM have been given the capability to borrow stock. These traders are betting in huge volumes.
This is a throwback facility dating from when the market dealt in two and three week accounting periods and it was possible to buy and sell stock in the accounting period and net the positions at the end.
After big bang certain functions were maintained despite shorter and shorter settlement periods
NB this is a simplification but gives the basics.
Without an ability to go short liquidity would be almost non-existent as all deals would have to be matched and each side would have to have the stock or money to settle. Without liquidity there is no market.
This of course is the crux of the asset problem, no liquidity.
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alfonsoalonso 230
Absolutely spot on this is what I have been trying to say in my posts.
The Government is to blame and for the reasons you give, but Brown wants the banks to be the ones the public blames so he can nicely side step his failures.
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So government credit insurance? Wasn't this discussed on another blog very recently? Then followed by the suggestion of HMG underwriting big business loans? Then the toxic bank idea and now this?
Is anyone else's head spinning with all these ideas and possible initiatives being floated around on a daily basis?
Alex C -would love to know what post 131 said-like another poster, didn't get to read it before it was referred to the Murderator's sin bin (love that wire play by another poster-flash of brilliance-very funny!). Have you got the gas back in your factories yet?
The balance sheets won't show what the bad stuff cos it's off their balance sheet! The banks can show massive profits (liable for corporation tax which will please Gordy) but it's the skeletons in the cupboard that are the problem.
You don't need to be a high flying financier to understand the problem. Running 2 sets of accounts is an appalling practice, and should be stopped immediately. Short selling is very risky-not my cuppa, but it's not illegal. Neither is hedging. On observation, it seems like a good way to cause a run on a bank, without actually demanding money over the counter. There must be a fire somewhere causing the smoke which leads to it happening in such brutal amounts. I would imagine that as banker bonuses are linked to how well the bank does for it's shareholders, short selling may actually be the weapon to wield the retribution so desired by the people of this country.
We all know how we got to this point, and I personally think anymore tinkering by the government should be stopped.
They want us to spend and want to improve confidence?
Ask the banks to detail OFF book debt, then explain how they made such massive profits. Get them to put it all together and I suspect all the banks will be insolvent.
Stop printing money, ban credit cards, make the credit card suppliers drop their appallingly high interest rates.
Also force the business behamoths to pay their bills, in full, on 30 days or less-local governments can, why not the likes of Tesco, Boots and others? Fine them heavily if they don't-more money in the coffers.
Then, give working people a massive tax cut. This will help businesses and workers alike. Simple, straight forward - not difficult Gordy.
That's the short term fix.
Then look at encouraging farming, manufacturing etc so we can become more able to support ourselves, increase export trade and bring imports and exports into balance.
All these daily proposals do is reduce the government's credibility even further. It shows them to have absolutely no idea what's going on, and no idea to fix it. The latest call by GB is a silly attempt to convince the electorate he is on their side.
Get out of the kitchen Gordy and take your pals with you. You're trying to put a chip pan fire out with a petrol pump. You are using the banking crisis as a way of hiding the disastrous government accounts. Don't you get it yet? We all know the truth-you just can't tell it!
The electorate don't believe you. They know the banks and the country are bust.
Want the country's confidence to return?
Come clean, makes the banks come clean, help the workers and then step down. You can do it all in a day-even a couple of hours!
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And do we know for sure that the bailout monies have been given out? How cancer find out?!
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You're in a taxi and the driver through his own errors crashes it thus injurying you. A week later you get in the same taxi only to find the same driver smiling back at you with conforting words. Do you take the same risk and let him drive again or get the other taxi driven by a novice?
I've been made unemployed for the first time in 25 years. The queues at the dole office are horrendous. Expect 80,000 jobs lost in the Uk in January with a further 100,000 lost every month for the next 2 years. This is going to be the mother of all recessions/depressions.
Our taxi driver hasn't saved anything for this rainy day. We are doomed completely.
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#230 alfonsoalonso
The taxpayers of the world have so far been dragooned into providing about $13 trillion to shore up the banking system. It is heartening to see that the recipients of such massive aid are so humbled and so grateful.
Your explanation for "new" losses is reflective of the case. However when the Prime Minister of the UK is going around suggesting the opposite it hardly surprising that a degree of confusion may exist.
Your attempts to disaggretage the financial system into its component parts is merely misleading and an attempt to diffuse responsibility. Who are the "investment community" that you disparage? Would they in any way have been linked to or otherwise relied on the advice of Investment Banks? The word "investment" probably provides a clue to the answer.
As is so common with this kind of argument the few facts and the chosen presentational style serves to draw attention away from that which is either not true or otherwise reprehensible.
If everyone knew that Madoff was a fraud - then why didn´t they do something? If bankers avoided Madoff "like the plague" then how do you explain the losses incurred by Banco Santander in relation to Madoff?
When you speak of a "toxic mixture of ignorance and greed" you neglect to inform the people that precisely the same charges supplemented by evidence aplenty can be levied against the banking community in relation to their long term business dealings with the criminal fraud that was Enron.
Your final paragraph can only be sensibly interpreted as a threat. You provide no suggestions as to how the banking sector can be kept competitive other than an implied suggestion that it would be inappropriate to enquire too deeply into their recent business practices.
This suggestion, if followed, will of course have the happy consequence of ensuring that the general population remain ill informed, thus allowing their views and concerns to be continually written off as the ramblings of the ignorant.
If someone gave me a lot less than $13 trillion I think I would have the humility to simply say thankyou.
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Re: 77
'Most disturbingly, the government is treating bond markets like a bottomless money pit - issue interest-bearing paper and they will come, and the taxpayers as the same - show them the coupon and they will find enough cash in their pockets.
It will not work.
There is insufficient surplus globally to fund this (stuff) when the base accumulating interest is prevented from contracting.'
It doesn't matter whether there is real money available to buy bonds in future, there isnt actually enough real money in the financial system to fund the current holdings of bonds by various parties around the world. It comes back to my original post (36)about the belief system that is all that props up the global economy. The Bond markets ARE literally a bottomless money pit for as long as the Government wants, because although the pit is empty of anything that you can see or touch, by some mysterious process financial institutions believe that the pit is filled to the brim with redeemable notes that say 'I promise to pay the bearer on demand the sum of'....
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Tigerjayj
Look up for the post 131 its repeated
on here and greenshoots etc. .. .
VERY VERY INTERESTING!!!!!!!!!
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MUPPETS = lenders banks etc!
MONGERS = thick ugly borrowers who don’t know they need to pay back the loan!
This government is looking after the MUPPETS who have lent to the MONGERS.
And in so doing is looking after the MONGERS.
The insurance to look after the MUPPETS will allow the MONGERS to keep up their thicko borrowing practices.
And stop us all from heading into a world of pain.
Gordon please stop the MUPPETS lending to THE MONGERS and save us all from this nonsense.
If we need this INSURANCE please let it be for only the time we need to get out of the nonsense we are currently in.
I E
Close down the insurance once the current MONGER loans are paid back.
And Please set laws to stop the banks lending too much to MONGERS.
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Good stuff from Robert, and good blogs today.
But there is absolutely no truth in the silly rumours that New Labour is to be re-named "The Las Vegas Appreciation Society", or that the British Bankers Association is to be re-named "The Berkshire Poker Club".
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here's how it will go ...
- the next 2 years we get continued contraction aka SLUMP - 4 to 5 million unemployed - deflation and negative interest rates - falling asset prices
- we exhaust all our traditional pro growth tools and have to resort to a major bout of quantitative easing - we PRINT MONEY left right and centre to try and pull out of the tailspin caused by lack of bank credit
- it works and things start to pick up - works too well in fact and before we know it we get RAMPANT INFLATION in addition to our other woes - currency goes down the pan both at home and abroad - major civil unrest
and when I say "we" I mean UK and quite a few other places
perhaps we'll eventually emerge with a better way of doing things (I like to think so) but the next few years, whichever way you look at it, are quite a SCARY prospect
oh and I'm sorry to have to say that it's pretty much ALL OUR FAULT - not Brown or Bush or any other particular politician, don't go there please, it's a blind alley ... it's me and it's you
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Tigerjayj
Re GAS still OFF weve installed back up OIL BOILERS IN ALL PLANTS.
We keep 5/6 months oil in stock so its
not a problem now.
Each factory has its own generator to cover 200% this allows for all situations
other than a NUCLEAR STRIKE?
THE PROBLEM WAS STEAM GENERATION FOR FINISHING GARMENTS.
I am going to install LPG storage this year for 4/5 months supply.
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Bankruptbritain
Expect 7,000,000 plus on OUT OF
WORK BENEFITS BY 2010
8,000,000 BY 2011.
FISCAL PRUDENCE MY BACKSIDE?
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#262
Totally agree. But we know it won't happen!
Nice dream though-get all the skeletons out of all the cupboards and once the dust settles, we'll be able to make headway on getting out of this mess!
The tinkering around with the economy hides the truth. This just drags the whole country down.
To hear the honest truth may be brutal but will be liberating too. But then the media would have nothing to report so they'd have to look for positive stuff-there is plenty out there!
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Robert;
Your question:
'I don't know why the Government hasn't knocked on the head the idea that it's working on the creation of a bad or toxic bank that would buy our biggest banks' dodgy loans and investments.'
Could it be that the government and the banks do not wish to 'reveal' (discuss) the true scale of the losses and toxic debts as including a large amount of debt overseas?
Arguably, a more accurate view of the level of the banking crisis in the UK would emerge with the formation of a toxic bank and this would be damaging for G. Brown in a run up to an election, the banks and their share prices and the overall economy and business confidence.
My estimate is that G Brown/ A Darling will play for time and keep scavenging for 'green shoots' of recovery while the tax payer foots an ever increasing and humungous level of debt. I think this is partly politics and arguably Brown and the banks would do well to keep a lid on the facts - in protection of their own interests. Cynic would argue G Brown's survival instincts are over-riding any real evaluation of this being done in good governance.
The spin doctors, civil servants and advisors will presumably be keen to keep a lid on the true position - if indeed anyone has a handle on all of this.
I think the British people need to know precisely why an official toxic bank is not being set up if that is to be the outcome - even if it is or would be very likley to be much larger than any other existing bank in the UK.
The reason for saying this is that we if don't know enough or the full facts then a lot of money will in my view go back into the hands of vultures when the banks start lending including more money going into the hands of super greedy internationalists seeing the UK as an extremely soft target for a fast buck and a knighthood while Britain foolishly tries to punch above its weight and stick its nose and throw money into almost every foreign affair.
The truth is that we already have a massive national toxic bank called HM Treasury and which is underwritten by Joe Public (or rather millions of ordinary hardworking British people) who are being misled and not told the truth over this entire banking fiasco.
If the labour government know that the true scale of the UK banking toxic debt problem is much larger than reported and the Labour ministers are at the same time trying to buy time to try and stay in power the this tells us lot about this government.
I am perplexed at Gordon Brown's government's constant reference to global problems, Black Wednesday, Margaret Thatcher etc in defence of any criticism from the main political oppoistion- presumably G Brown standing on a platform shaking hands with the Chinese dictator in agreement to Britain's huge trade deficit is not a globalisation issue in G Brown's view?
Does Mr Brown think that is a good deal for the UK and does he think that 11-12 years in power is enough time for a government to accept proper responsibility for the current state of affairs?
It's now looking like the City of London/ British banks have over-leant money heavily overseas to grow money flows/banking profits in the UK - that money would have been better invested in real UK sustainable projects like energy, recycling, new green industry if the UK had a credible energy/ transport/ recycling/ industrial and ethical business policy intended to improve the lives, first and foremost, of ordinary British people.
Welcome to Toxic Bank UK plc or should it be better called Vulture Venture Capital UK plc?
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What I don't get is why we're encouraging more borrowing at silly rates when the interest rates will eventually have to go up again, threatening the repayment abilities of the borrowers. Aren't we just prolonging a nasty bubble?
Surely no responsible lender would lend for more than the shortest term at levels like 3 and 4% to people so desperate for credit that they'll likely be dodgy repayers?
I'm getting fed up of hearing about greedy banks. The government were in on it too, happy to take their huge cuts of the profits in tax; happy to let the economy look good while allowing individuals and businesses to get into unbelievable levels of debt. It had to crash but don't keep blaming the banks.
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230 - alfonsoalonso
Couldn't agree more
Some important truths that need highlighting here:
1. We are in a recession which is a function of the economic cycle. Banks always incur bad debts in a recession as some of their customers get into trouble and can't repay them. Some of those bad debts will have been caused by bankers making mistakes. Some would have been as a result of the economic downturn. Banks will always lose some money - if they don't then they are not lending enough. The skill in banking is getting this balance right and assessing the risks properly.
2. Banks will not increase lending significantly until their view of the economic climate and specific industries has improved. That said high quality, lower risk, clients will usually always be able to get the loans they need - even now.
3. Banks generally do not "pull the plug" on borrowers without good reason - usually that the borrower has defaulted on the agreed facility in some way. Lending facilities are subject to written contracts between banks and customers.
4. Changes in capital adequacy requirements introduced by the Basel II regulations tightened even further recently by the FSA in the UK mean that banks need to keep more capital to comply with regulatory requirements rather than be able to lend it.
5. The changes in the way that bank's must value their assets - the "mark to market" rules which have been introduced since the last recession have undoubtedly resulted in more losses being announced by banks than would have previously been the case. Often the underlying clients will not actually be in default. Those announcements will continue until asset prices start to rise - then, no doubt, some of the losses will be written back as profits.
6. The UK banking sector has contributed many tens of billions of pounds of tax revenues to this government and employs hundreds of thousands of people through its success on the world stage. Additionally all the major UK banks contribute significant sums in sponsorship and community projects. We should remember that as stories of "bankers being punished" are circulated.
7. The regulatory framework for banks was changed by this government in 1997. If there was a failure of regulation then this government is responsible
8. This government is also responsible for the economic climate created through its monetary and fiscal policy which was clearly too lax for too long.
9. Its easy for the government to make pronouncements as in the press today to the effect that the recession is the banks fault and nothing to do with them. They want everyone to see this as somebody elses fault not theirs
10. The hysterical reporting of the recession by the media often by people with little detailed knowledge of the complex issues involved has just made things worse. A constant stream of gloom and doom stories about "bailouts" accompanied by whichever large figure is plucked out of the air today just feeds the flames and further damages confidence.
A sense of balance needs to be restored here
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Those who blame 'government' or 'the government' are right to blame 'government.
Why? because they didn't govern.
Why did they not govern?
Because since Thatcher/Reagan "government" has only one function - to enable the free development of market forces with no state interference (as it was so elegantly defined). What you have is not 'Brown's fault' or nulabor (creepy as they are). They were just obeying the orders of the unseen hand of the market.
You Brits voted for it again and again. You loved it. The left was looney. Free Market was cool. You bought into the dream. Sleepwalking. You've just woken up and baby it's cold outside!
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PICTURE THIS
THE WHOLE CABINET WANDERING ALL
OVER A SLAG HEAP LOOKING FOR
PIECES OF COAL ALL SOILED AND
DIRTY IN RAGS.
SUMS UP NU LABOUR?
ALL IS TRASHED!
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Ever since Alan Greenspan asked why it was that long-term interest rates had become so low? - it turned out that China's massive trade surplusses had found their way into US bank vaults - banks everywhere have shown gradually growing instability. Eventually, catastrophe occured and Lehman Bros went bankrupt and all hell was let loose.
This is a problem that all countries face: Germany, Japan, China, France, Russia, Saudi Arabia and so. We're all in the soup together and in various ways. So how can we escape?
One way is to copy the US plan for Lehman, and let even more banks go down. So depositors lose their savings and businesses everywhere curtail supplying credit, employing workers and holding stocks. Which is disastrous.
A reasonable alternative includes buying Bank shares now with Bank of England credits and whilst they're on the floor. Then we should sell them in tranches when the shares recover levels of a couple of years ago. It'll take a while, but that solution seems a lot nicer than letting us all go bust!
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254 john from
''The other problem is that the debt exposure may not be just in the UK - this the gigantic downside of being a 'world banking' hot-spot. This raises the very real question: how far should the UK taxpayer be asked to rescue foreigners?''
Short answer - they should not.
Further -
It is one thing for the taxpayer to provide - at a premium via 12 percent coupon - the cash to prop a banking system short term. I favoured that as an observer whether I am right or wrong. It is another thing to continue to be drawn into the black hole of the bankers mind. His corporate 'brain is squirming like a toad' to quote the Doors.
The banking system either has to be taken over by the taxpayer at a knock down price or ringfenced and left to sort out its balance sheet.
To me it is at the point that you intervene or not and personally I prefer not. The purchase of the 12 percent coupon was not forced onto the banks by the taxpayer. It was forced on the banks by the banks lack of strategic thinking. Tough.
There appears to be some criticism of Comical Ali for demanding a high percentage, ie it was not a viable figure to allow the banks to then lend. So what. The criteria in the deal was to protect the taxpayer. That remains the case.
The current concern of provoking lending is reasonable but a different issue. The obvious proven mechanism is the US housing investment tool of the 1930s - which worked prefectly well from what I can see - until they started tinkering with it decades later. That is probably what this underwriting discussion is all about. The government likes stuff that has worked in history.
However a far bigger problem is the issue of trust in both the government and the banking system which has been fractured. All the time that the banking industry continue to say smugly that the loan book is a moving unquantifable problem then they have no credibility and should recieve no money or underwriting. The end of the financial year would seem a pertinent point to review.
Incidentally if continued abstraction of funding by whatever mechanism - ie scrips for coupon swops - from the taxpayer to the banks - leads to the ownwership of the bank by the taxpayer then so what. If you dont like it go elsewhere. There are repeated statements as to how big and how important and clever the banks are. Fine, get on with it big boy.
If you hadnt noticed Mr Banker the problem is you are seen as misrepresnting your position. That makes it difficult to have any meaningful discussion. If you were in High Court almost everything you say would be discounted as once you have been identified as misrepresenting then a shadow is cast over everything you say. Savvy.
Personally the worse thing to observe is a big operator who has to lean on the small guy and still remains unapologetic and above all smug. Who also concurrently pursues the small guy if they are in trouble.
To this date there has been no actual apology from anybody still in position, check the texts. It all cleverly suggests somebody else should apolgise. Check it out.
The abysmal lack of effective regulation is obvious but Brown and Brown Ring will pay the price and presumably those that follow will take more care.
Finally Mr Banker I will ask again. Can you please confirm that - other than the case of fraudulent lending by the bank - that all UK issued mortgages are in fact protected by a insurance policy paid for by the householder. Such that the bank claims all losses as a result of failing to redeem the mortgage against the insurance company. Therefore losses on UK mortgages are not the problem of the banking industry. Full Stop. If that is the case then please identify those claims rejected by the insurance industry as fraudualent. Please also advise when your mortgage losses originate.
I await, as usual, your silence on this matter.
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Alex C
Knew you'd sort the problem!
Thanks for the info re missing post-very interesting as you say-and chilling when you think about it. Not a surprise, is it? They pop up everywhere, and it certainly gives a whole new slant on government attempts to rescue banks.
Off to work now!
Catch you all later!
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There is so much talk of "taxpayers" PAYING for Brown's daily wheezes.
In fact the taxpayer has paid NOTHING to date.
But all these wheezes will have a cost...to be paid in the future.
Brown is running a DFS style Government basing todays wheeze on tomorrow earnings. In essence "buy now, pay later".
This is not sound money!
If we can't pay later then we'll be bankrupt! If we stop this obsession with building up current debt and future liabilities then maybe we'll have a more secure foundation on which to make a recovery.
Brown's daily wheeze are like someone applying for a credit card and when the credit limit is hit then applying for another. And unless you can be CERTAIN to pay it back then you'll be bankrupt.
The is the road map that Crash Gordon is taking us down. He doesn't care that we'll hit the buffers in the next couple of years because deep down he knows he is politically DEAD!
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244 you really need to get a life!!!
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284 MarkL64
re regulation, copliance etc.
Yes HMG failed. However - Tell me, when you are out in your car and the national speed limit is 60 mph on a country lane do you insist at driving at 60 mph despite the fact the road is not up to it ie not using your judgement.
There are lunatics around here that do it. They end up in the hedges sooner or later.
Similarily when regulation lapses effectively to an advisory level rather than a properly regulated and audited framework do you simply then not apply judgement and work to the maximum 'legal' limit. You apparently suggest you do. Thank you for explaining your industries mentality
I do not think anybody is suggesting that no good things are done by the banking industry. It is the downside that is the problem. It is reasonable for anybody to have opinion whether right or wrong. It is reasonable for opinion to be corrected.
Now can you please answer the question at the bottom of my last post 288 so it can be quantifed where the UK mortgage losses are coming from.
Now, despite it being Sunday I have work to do for a while.
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Does this speech from Ed Milliband indicate another "blame it on the banks"?
He said the crisis had arisen out of the market system itself, blaming a combination of excessive lending fuelled by a lack of effective regulation, mainly in the US.
or is there about to be another U-turn as Crash recognises that he got it wrong?
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So the first bank bail-out of last October has failed. Perhaps we ought to find out why before we go off and spend any more money.
My guess is that there was no prompt follow through on the causes for the original crisis, everyone then went on the long Christmas break and forgot about it whilst the real economy went to hell in a hand-cart.
The fault for all this lies with the government. Indeed I agree that the banks are at fault as well but it is for the government to hold them accountable. Yet the government seems not to want to hold then accountable.
This just is not good enough.
Brown must go immediately, there needs to be a coalition government to get to the bottom of all this, hold individuals responsible, recover what monies that can be and set a path for national recovery.
Otherwise this will begin to get very dangerous for us all.
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You may not like the words used by alfonsoalonso 230, but he is right in a lot of ways.
Let me tell you what I think the banks would have done if there had not been interference by the Government.
The banks at the time of the run on N. Rock would have moved firstly to stop the run, by the guarantee of all depositors money. That would have stopped the run. Next they would have set up a toxic bank (i.e. a bad bank) to deposit all bad debt. That would have kept confidence between banks in tact.
Next, they would have realised there was a crisis of capital and put interest rates up to encourage investment. This way the banks would already be on the road to recovery. It is quite possible if these measures had been taken, the bail out would not have been necessary. The Government dithered and allowed the confidence to drop while the run continued.
All the measures the Government have taken are to ensure that they stay in Government, not to stablise the banks. The schemes they have come up with are to; force the banks to lend, to prop up toxic debt and to have interest rates low for mortgages which will end up defaulting anyway when interest rates do go up, will just de-stablise the banks even more.
The answer now is not to pump more tax payers money in to banks. That is just going to waste more money. The options now are limited,
the Governments own debtness adds to the problem.
I think in the end the banks are going to have to be allowed to operate with autonomy with nothing expected of them, so they can balance their books, otherwise this whole scenario could turn into a disaster.
The Government is entirely to blame. They have sacrificed the recovery in Britain for votes. They will in my opinion, have to start printing money and if the Government continues with its present actions, recession will turn to depression.
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On reading more info around today, it appears that the loans to be guaranteed by the government seem to be the unpackaged debt, not the current toxic stuff, but unpackaged loans deemed, by the banks to be risky.
Is there a line drawn here?
Greater clarification please-is it the dodgy dangerous packaged off book stuff or day to day unpackaged stuff being guaranteed?
(Yes, I know I'm at work, but paused for a chocolate bar and couldn't keep away!)
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#225 stubbo
Yes both the finacial sector and the 'real economy are mutually dependent to an extent but the tail is trying to wag the dog at the moment I think.
A post here mentioned how we had to re-build our banking sector and reputation in that sector as it is a key source of income to the country and helps us pay our way in the world.
I would say
Our reputation is shot.
In China there are 5million graduates from higher education every year. I think there may just be a few bright sparks among them capable or running a financial hub better than we have.
Next idea for what we are going to sell the world to pay off our debts and our way in it please!
Oil...going
gas...Gone
Coal..plenty but too difficult to re-open pits and opencast sites due to over-regulation (isnt coal mining quite dangerous..its elf and safety y'know).
Manufacturing..still plenty of jewels out there but will not be enough in itself
I know lets shop our way out of trouble...anybody fancy lending us some more money out there?
agriculture...sorry, its too cold, not enough arable land to feed our own let alone export.
Did I miss anything?
I hope so....
Jericoa
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Re: 295
The banks would not have guaranteed all deposits for one simple reason - they don't have the money to do so. Only Government has the theoretically unlimited resources available to make such a guarantee.
If you don't understand why this is so, look up 'Fractional Reserve Banking'
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295 susan croft
All you have done is describe action from NR onwards. You have not made comment on the bank industry actions in the 5 years prior to that point. Whilst bank to bank activities have varied, with the resultant variation in problems the fact remains that it is apparent that less than sound decisions have been made by some - QED.
You are also effectively advocating less interference, ie less regulation. Are you quite comfortable with this position when you have made no comment on the period previous to NR when it would appear by most definitions that not enough regulation was in place.
By all means sort out the situation without the taxpayer. It was not the taxpayer who approached the banks.
Somebody has commented that credit or as I prefer it debt is still available. This is correct. We are fed up of being approached and turning it down.
The banks are very quiet in making comment - they either do not want joe public having scrutiny of their position or they have something they do not want to discuss. However guilty the government is to suggest that the banks, at least some of them are victims is quite bizarre. Nobody forced them to lend, they chose to.
Further I am still waiting and have been waiting for months to hear how a UK mortgage failure protected by a householders insurance policy, as part of the package, can result in widespread UK mortgage losses to a bank. Still waiting.
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Will the swapping of preference shares for ordinary shares be accompanied by a lifting of the ban on paying dividends to ordinary investors?
That was the biggest failing of the Government's initial recapitalisation plan - the desire to penalise ordinary investors as well as short-sellers and speculators.
Until that ban is lifted there is no prospect of full confidence being restored to the banking system and the return of genuine investors to the fold.
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Hmm, just read the latest piece on the BBC website, headlined: New rescue scheme for UK's banks.
Didn't we already save the banks?
That proud boast by Gordon the Golem seems to be about as accurate as his boast that he'd eliminated "boom and bust".
Who will play Claus Philipp Maria Schenk Graf von Stauffenberg to the Golem's Hitler (the only war leader he remotely resembles in terms of character)?
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Being a very suspicious individual, I am wondering why the banks are so reticent to come clean on their holdings.
Here is one thought.
If the government pays more to British banks for the poorly performing assets than the British banks can buy them for in the international market what is stop the banks making an arbitrage killing at British taxpayers expense?
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citygambler 298
Yes you are right of course it would need Government assistance but if you read my post properly I said this would have been the banks solution.
In other words the Government is doing what it wants, instead of what probably the banks want.
I am very familar with 'Fractional Reserve Banking.'thank you.'
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#284 MarkL64
We are NOT in a recession. If by recession you mean that the cyclical downturn will self rectify within a year to eighteen months. If we must use non-specific terms then we should be using terms like SLUMP or DEPRESSION.
To my mind, your analysis is part of the problem. It implies that the banks (and by that I mean the whole of the financial services industries) are really paragons of virtue and not a major part of the mess that we are in. That is just not supported by the facts that are already in the public domain. The drift of your argument appears to be that 'we' the banks did nothing illegal and if we did it is the governments fault for not regulating us more closely. Just how hypocritical can you get!
I now feel that it is far more important to the wellbeing of the country to plan and implement a scheme whereby we can keep our people warm, fed and secure. IT IS THAT SERIOUS.
Put money back into the position in which it truly belongs as a means of aiding the real economy and not as the prime driver of it!
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I VE GOT THE PERFECT PLAN TO END ALL THIS CREDIT PROBLEM;
1.THE GOVERNMENT SHOULD APPOINT A NUMBER OF FINANCIAL AUDITORS AND ASK ALL BUSINESSES TO SUBMIT THEIR ANNUAL FINANCIAL REPORTS.THIS WILL ENABLE THEM TO ASSESS THE LEVEL OF PROFITS OR LOSSES THEY ARE MAKING.
2.AFTER ALL THE STRUGGLING COMPANIES HAVE BEEN IDENTIFIED,THE GOVERNMENT CAN NOW PRINT MORE MONEY AND BYPASS THE BANKS BY DEALING DIRECTLY WITH COMPANY ACCOUNT DEPARTMENTS.THIS WILL ENSURE THAT THE BANKS DONT GET TEMPTED TO LOAN THE MONEY OUT FOR PROFITS OR ADD INTERESTS WHICH WILL RESULT IN THE CHAOS WHICH ALREADY EXISTS.
3.THE MAIN CAUSE OF ALL THESE IS PEOPLE ARE SCARED TO SPEND BECAUSE THEY ARE NOT SURE THEY HAVE A JOB THE NEXT DAY.
4.THE GOVERNMENT SHOULD GIVE THIS MONEY TO THE STRUGGLING COMPANIES ON CONDITION THEY KEEP THEIR EMPLOYEES AND KEEP RUNNING AS NORMAL.NO ONE SHOULD HAVE A PAY RISE FOR A PERIOD OF ABOUT 6MONTHS TO 1 YEAR.
5.THE GOVERNMENT SHOULD THEN ANNOUNCE ON THE RADIO AND TELEVISION ASSURING THE POPULATION THAT ALL THEIR JOBS ARE GUARANTEED AND THAT THEY SHOULD CARRY ON WITH LIFE AS NORMAL.
6.AFTER THIS THE CONFIDENCE IN THE POPULATION SHOULD START PICKING UP AND THEN THEY WOULD BUY AS NORMAL.THIS WILL GIVE THE BANKS THE SPACE AND TIME TO RECOVER AND START GIVING CREDIT AGAIN AS NORMAL.
7.ON THE SHORT TERM THIS WOULD HAVE AN EFFECT ON THE VALUE OF THE POUND BUT AS SOON AS PRODUCTION AND CONSUMER CONFIDENCE INCREASES,THE GOVERNMENT CAN INCREASE THE TAX FOR THE COMPANIES WHO HAD THAT MONEY IN ORDER TO TAKE ALL THAT EXCESS CASH OUT OF THE SYSTEM.
8.THE AUDITORS APPOINTED BY THE GOVERNMENT SHOULD SUPERVISE THIS OPERATION ON A MONTHLY BASIS SO THE MONEY IS NOT ABUSED BY ANY COMPANY.
9.KEEPING THE COMPANIES FROM CLOSING IS THE KEY TO SOLVING THIS PROBLEM BECAUSE THE WORKING POPULATION WILL STILL SURVIVE AND THEY WOULD BE ABLE TO PAY THE MORTGAGES,CAR LOANS AND BILLS.
10.CONCLUSIVELY,THE BENEFIT SYSTEM WILL FEEL NO PRESSURE BEACUSE PEOPLE WILL STILL WORK AND EARN A LIVING FOR THEMSELVES.THIS OPERATION WILL CONTRA ALL ECONOMIC LAWS BUT ITS A BETTER AND QUICKER WAY OF TURNING THINGS ROUND.THANKS
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I'm just sick of this now. We're so far past then point of no return, but the bad news is we're on the way to ruin. If the Government can ask the Banks to be transparent with their levels of 'toxic' debt, we should demand an apology from the Government for their mismanagement of our economy.
Here's my prediction for next weeks headline: 'Government To Save Banks With Further Taxpayer Support'
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# 295 Susan-Croft
If the banks would have taken all of the actions that you insist they would then there would have been no need for government emergency action. All they had to do was speak up - they could even have done it privately to the government.
Now please supply me with any industry statement from the time that clearly indicates that the banks were even prepared to take the actions that you suggest.
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glanafon 299
We are were we are I know what lead up to the banking crisis it was a failure in regulation, mainly due to the Government changing it in 1997. The Government was happy to allow this bubble to continue because to be honest it was making a great deal of money out of it.
However what I am affraid of is that bail outs will continue to happen which will not succeed and we go much further into debt. A way forward is needed and I believe this Government is getting wrong for its own means.
I am in no way suggesting less regulation. Finding a solution is so important now, but I fear that Government is making banks so weak that the options are becoming much less to solve the problem.
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303. susan croft
.... it would need Government assistance but if you read my post properly I said this would have been the banks solution....
But if you are dependent on somebody else in an action you are not independent are you. That is the whole point. Where did the idea come from that the government should have the same orientation as a private business. A private business has the mission of developing a monopoly and maximising profits. A government should have the criteria of eliminating monopoly and increasing competition and protecting the consumer via regulation in the marketplace. Where is the commonality, other in desperation.
The far more pertinent question is how did the destruction of trust in NR or any other bank develope. Why are you not looking at that issue. Yes the government has failed but if we take NR for example they did not have to indulge in what could only be described as bad practice. Nor did the banking industry have to move from a domestic deposit to lending balance and ship money in form overseas. That was a conscious decision. You do not do it in your sleep, or is that the problem too many people were sleepworking in the sector.
I'd stop digging if I were you.
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One method to discover what the problems are would be for the FSA to interview every single internal auditor of the British big banks, Barclays, RBS, HBOS, HSBC, Lloyds TSB etc under oath and in camera with a guarantee they would not lose their jobs.
You would quickly find where the control problems emanated.
Then send these internal auditors into their competitors armed with the skeleton keys identified in the interview process.
Reports should be made to the DPP and prosecutions should ensue.
Of particular interest should be audit findings that were hidden from general publication through side letters, draft findings rejected by management and swept away and who received what parts of the relevant reports.
If any report finding did not get to the audit committee, the heads of the audit departments should be identified as should the executives who made the decision to withhold.
Going forward, all banks should be externally audited by an audit firm other than their current auditor this year and firms should be rotated every three years.
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308 susan croft
I am afraid I believe it is quite simple, that the sandcastle is in trouble as the tide comes in. It does not matter who built it or what efforts are made, most will be futile. Debt is debt and is crystalised when it cannot be serviced, until that point it is not a problem.
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Foredeckdave 304
I agree that to keep people warm, fed etc is what we all want, but how do you do this without a fully functioning banking system.
We cannot continue to borrow when our financial system is in melt down.
For goodness sake Brown is supposed to know everything there is to know about the economy, could he not see this coming then? Why did he not tighten up the regulation before we crashed? Why did he change it in the first place.?
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I return to the issue of supposed UK mortgage losses for UK banks.
My understanding is, as repeatedly stated, that in the event of a UK mortgage holder failing to maintain the UK mortgage that the bank recovers any losses against the insurance policy which is demanded be in place at considerable cost to the householder. That the bank recovers losses against the insurance policy ie against the insurance company. That the insurance company then has the option of recovery against the householder, and does go that way frequently. That this mechanism provides a no risk loan for the bank and also keeps the householder focused on paying as long as possible to prevent foreclosure. Further that in the US no such onward pursuit of the householder occurs as it is not permitted due to law introduced in the 1930s. That in the US a householder can in fact walk away and throw the keys in.
So can the UK banking industry confirm that they have no losses against UK mortgages unless they have made a fraudulent loan. No it would appear they cannot comment.
Well I am sorry. As no comment is ever forthcoming I can only conclude that the mortgage losses are not UK, they are piped in from elsewhere. If this is the case perhaps the real question is why should the UK taxpayer be bothered.
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#310. sosraboc wrote:
In summary: that Auditing should be tightened up.
The problem with this is that the whole nature of Auditing has been so polluted in recent years that I doubt if it would give you a proper answer!
I think the standards and rules by which accounts and produced, including the laws, (i.e. the Companies Acts) need tightening up if your suggestion is to work!
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"We cannot continue to borrow when our financial system is in melt down."
Therein lies the rub. Domestically, people do not want to borrow. They have little faith in their continued employment prospects and even less in an industry that led many of them to over-extension and now demands its pound of flesh. Commercially, those firms that are desperate for more loans are exactly those who the finance industry will not touch with a bargepole
To use a sailing analogy, we are like a fleet of yachts. We have all listened to the Met report and shortened sail. Those yachts with better skippers and crews are preapring to go to bare poles and seek more searoom. The rest are trying to escape under sail but are pinned on a lee shore.
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glanaton 309
I dont quite understand where private business or otherwise comes into this I would advise you to go back and read my post again.
All I am concerned about is that Government has taken us in the wrong direction in this crisis and given my reasons why. After all you cannot say something has gone wrong if you do not know why.
I have then said why our options are now much less to solve the crisis.
Its obvious we have a difference of opinion, so theres no point in discussing further.
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316 susan croft
A bank is a private business, whether plc or not.
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314 John_from_Hendon
I agree with your comment on tightening.
However, before we tighten I would like to see where the controls broke down, hence my suggestion.
Once we know that, we can start the tightening process.
The reason I would gather the IADs is that they know where the real internal control horror stories are within their own organisations.
Far better than the externals and infinitely better than the Regulators.
The external auditors have been a waste of time but properly armed they can send in their forensic teams and as one of the earlier blogtrotters said:kick in the doors.
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How long can the borrowing go on for. What is the debt per taxpayer so far.
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The main issue is definitely the valuation of the assets.
There's definitely a trade-off between crystalising the loss and putting a cap on it.
However, there something seems to have been missed - these loans should have been valued in the bank's accounts at a level reflecting the degree of risk.
It would seem that this risk has been understated and as such the loans have been over-valued; thus overstating profits.
Its definitely a failure of the accountants and regulators dealing with the financial services sector and in some ways it may have been deliberate deception; after all higher profits declared = higher bonuses.
Assets need revaluing immediately to take account of the risk and thus related losses - establishing a real position of the financial sector and removing an element of uncertainty.
Also, shouldn't the banks be obliged to insure both their loans and deposits in the future - at their own cost?
It would add to the cost of finance; but it would relate that cost to the associated risk; rather than having the country forced to cover it.
All in all the insurance approach should offer a way out - but the banks should end up paying for the bail out due to a low price being paid.
Of course, the grave error of allowing merchant banking and retail banking to be intermingle, also needs to be reversed.
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We want to encourage necessary finance - but this needs to be carefully controlled.
Reducing total borrowing wherever practical would seem to be desirable.
Freeing up finance for working capital and profitable investment makes sense; cheap finance to re-inflate the spend, spend,spend retail bubble; especially when much of that will go on imports seems less desirable.
..similarly, is it desirable to attempt to provide "cheap" money to push up speculative investments producing no real output; e.g. house prices?
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295 Susan Croft
I agree alfonsoalonso 230 made some good points.
However, if you believe any bank would have or even could have guaranteed the NR depositors money without taking over the bank, you are sadly deluded.
The competition would have been delighted to Hoover up the NR depositors money and would not have needed to guarantee it over or above the standard depositors scheme.
The NR business model was totally flawed and the other banks knew this. At the slightest hint of property prices falling or the wholesale markets drying up NR was doomed and who would want to take their book on.
As for acting in concert that would almost certainly have required shareholder approval; unlikely to have been forthcoming and certainly not sufficiently quickly. This assumes such action would even be legal under EU or UK law
With regard to a toxic bank. The so called toxic loans would be assets on the balance sheet of the toxic bank and rapidly depreciating assets at that. To have a balance sheet the Toxic bank would need liabilities, usually in the form of customer deposits and interbank loans. Who in their right mind would invest in an unquantifiable toxic bank where their own assets (deposits) are hostage to the sub-prime market?
The toxic bank will also have to have sufficient capital to meet capital adequacy requirements. These are a legal requirement that cannot be avoide without legislative and regulatory changes. I cannot imagine the circumstances beyond Europe wide meltdown that the EU would allow this.
Only the government i.e. us poor taxpayers, has the capability to pump capital into the problem.
The banks were putting interest rate up through the interbank market but also cutting their credit lines, hence the seizure of the money markets and NRs demise.
Whether we like it or not the economy needs sound banks. My issue is that until we know and understand what we have we cannot quantify the aid that will be needed.
This government has a record of over egging the pudding and my fear is they will do too much in a panic.
I also think the Government is mostly to blame. They have sacrificed the recovery in Britain for votes. I also agree that they will probably start printing money.
I suspect we are already well down the road to recession turning into depression.
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I have no solutions and neither do governments. There is no magic bullet. When a bubble deflates it deflates, when a globalised bubble bursts it bursts at a horrifying rate almost like a force of nature. Like a Tsunami.
. Basic economics.
Understood for two centuries.
Boom and Bust has accompanied us since capitalism began working its magic. All we can do is analyse.. try to understand...and learn ... until in 50 or 70 years the whole thing repeats.
Capitalism is the most successful wealth creating machine that has ever evolved. It is, however, dangerous. Fire is useful until it takes hold in your roof. The key is control (or REGULATION)
Britain is a minor player except that since the 1980 UK has been an arch-globaliser. Turbo capitalism.
British Banks are "British" only in terms of their historical roots.
They are supranational entities not beholden to mere government. "Dead hand of the State". They have shareholders who in the main are not British. Barclays is almost an Arab Bank. God knows what HSBC is!
No one elects them. They are above mere minnows like UK.
Governments are for them an inefficient nuisance. Source of bureacracy (read regulation) which gets in the way of the business they understand as "professionals" What do mere democratically elected politicians know!
They believed their own propaganda and recruited thousands of greedy little multinational acolytes to send to the centres of Planet Finance.
They didn't need 'government'. It was inefficient. Useful though for 'law and order' and organising high-tec armies to 'encourage' membership of the global market.
Their job was 'wealth creation' end of story.
The formulas were brilliant. Best Brains from Cambridge, Princeton. Squeeze to the extreme. Banish risk.
Bang. Fed raises interest rates. Engine seizure.
Now they are running to governments. Governments fear the consequences of not acting.
Moral Hazard! Abandoned.
Its a tale of hubris, leverage and other people#s money.
Couldn't make it up, could you!
We will recover but there will be a lot of casualties.
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#295 Susan Croft.
Interesting thoughts. Yes Sr Alonso is correct in many ways he is also in error in many ways, and his errors are apparent both through omission and comission.
You set out a number of actions that the banks would have taken post nortehrn Rock had it not been for Government interference, but provide no evidence at all to support any of these contentions.
You state that Government actions have been driven by a desire by the Government to remain in power. This may be true but for the charge to stick you need to explain why substantially similar policies are being followed in the US. Whilst there is some scepticism within Congress I do not observe any radical policy differences as between Bush and those trailed by Obama.
There is a slight problem with your desire to "allow the banks to operate with autonomy with nothing expected of them"
Anytime you take someone elses money you are obviously obligated in some way to the provider of the money. The only way that this cannot be true is if the money is provided as a gift.
They didn´t have to take the money - and my bet is that the took the money because they finally managed to work out that their only alternative was insolvency and bankruptcy.
There is no rational basis to conclude that the Government is entirely to blame. Despite their claims to the contrary both government power and competency is limited.
Prior to this crisis The Anglo-American banking system had pretty much the regulatory regime that it had lobbied for (for example in the US it was the banks themselves that lobbied for the repeal of Glass-Steagall). In any event the banking industry obviously agreed that the overall market environment was sufficiently favourable to justify a massive expansion of business.
The banks themselves were responsible for assessing and understanding the market environment and for developing and implementing a business plan that was appropriate given prevailing market structure and conditions, the regulatory environment and political stability.
It is irrefutable that the banking industry collectively failed to properly understand market risk, and the responsibility for that failure can extend no further than the banks themselves.
There was a failure of policy in providing an effective early warning system, but that did not cause the insolvency. Through their own policies and deliberate actions the banks created their own insolvency.
The spinmeisters, dissemblers and masters of sophistry will find that there are not enough words in the dictionary to disguise that simple fact.
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The government is not acting (feeling its way) out of a desire to remain in power. There is no alternative. They are making it up as they go along ie they are reacting not controlling events. There is no difference between the parties. The last thing the Conservatives want is the responsibility. They have nothing to offer and would also be flailing around. (and they don't know the actors on the world stage. At least Brown does).
Why are some Congress unwilling to support the further funding. Ideological. Let the market decide. They are culturally inclined to shoot rioters in America. We don't want the riots in the first place.
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322 sosraboc
'Whether we like it or not the economy needs sound banks. My issue is that until we know and understand what we have we cannot quantify the aid that will be needed.'
Quite
It is because the banks have an infrastructure role that I have supported the so called bail out, which is not a bail out.
It is because the banks apparently cannot quantify their liabilities that I do not favour getting close. Further I believe that the banks will not sell the so called toxic assets because they are actually worth a greater more than the projected value, it is future market related. In fact if the banks genuinely wanted to ditch the toxic assets at rock bottom values I am sure the whole issue would disappear, but they would sell.
Until it is quantified what these so called pending losses actually are, then in my opinion as a non specialist person, it should be proved they are not simply piped in from abroad and that the UK taxpayer is being played for a sucker.
I do not know whether your comment is sound or not but it sure sounds reasonable to me.
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armagediontimes324
I did not say at any time that the banks should act on their own. If you read my post I said this may be the only option left to the Government if they keep weaken the banks by having to prop up toxic debt etc
Next I believe the Government is to blame because what led up to this was a failure in regulation, all organisations need rules. Brown changed these in 1997.
Next Obama is not following the same policies. America already has a toxic bank and yes he is going for a short stimulus to the economy that much is true. He is also going to cut taxes and cut back on the state, that is our public sector, I do not see Brown doing this.
You can make the banks the focus of your blame, thats fine, Brown will be very contented with that, then he can side step any failure on his part.
Only time will tell which one of us is right.
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#327 - There are 2 core issues here. One is in seeking to determine responsibility for the initial insolvency of large swathes of the banking sector. The second, separate but intimately connected point, is an analysis of the Government response to the insolvency.
In my view nothing can detract from the proposition that the initial insolvency of the banks was caused by the actions of the banks themselves.
I have spent a large part of my life setting up capital intensive businesses in many parts of the world. Not all of these places had benign regulatory regimes. In some instances regulation was missing, inoperable, subject to arbitary change or otherwise defective. Businesses can be (or could be) structured to remain robust within quite disparate regulatory environments. Appropriate due diligence can reveal jurisdictions whereby likely operating risks outweigh any potential business rewards. In all circumstances the decision is taken not to invest. Where mistakes are made then the responsibility for those mistakes clearly resides with the business investor.
If industry can operate like this then why can´t banks? The answer is that they can. However the banking industry became systemically deluded and mispriced risk. That is the explanation it does not serve as a justification to remove or diminish the responsibility of the banks for their own ineptitude and insolvency.
It is clear that governments had ample information available to allow them to foresee and act to forestall an ultimate collapse of the type now being witnessed. Neither they, nor their agents, acted. This is incomptence of the highest order, and they should be held to account for this failure.
Similarly their response to events has, almost without exception, been to throw money at the problem. This will not work, but then nothing can now work. The only real question is whether any given course of action will have either no effect or serve to worsen the problem.
No politician is going to admit that they have no solution, and that they cannot be certain as to the effects of any given initiative. The inbuilt impossibility of addressing this truth results in politicians being mistrusted and open to ridicule - as is now happening.
Clearly Brown is guilty of massive incompetence and of dissembling on a massive scale over a long period of time. But what difference does that make? It is not like there is a paragon of virtue waiting in the wings.
At different points of the curve you will find different guilty players. I don´t understand why anyone would expect competency or honesty from a politician. However I think it reasonable for the ordinary man in the street to assume that the senior management of some of the worlds largest companies would not sanction and enact policies that would destroy their companies and very possibly their entire industry.
There is ample evidence from around the world as to how politicians can succesfully operate over the long term with complete disregard to the welfare of their own citizens. (North Korea, the Taliban, The House of Saud etc. etc.). There is no evidence anywhere that commercial enterprises can be succesful when they wilfully induce their own insolvency. It is for this reason that the incompetency of the banks is of a higher order than the incompetency of politicians.
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327. Susan-Croft wrote:
''armagediontimes324
.... Next I believe the Government is to blame because what led up to this was a failure in regulation, all organisations need rules. Brown changed these in 1997.''
Susan, I refer you to part of my post number 292 re my comment to MarkL64 his post 284. Hiding behind regulation is ridiculous. Judgement is required in any activity including banking.
posted by glanafon -
''re regulation, compliance etc.
Yes HMG failed. However - Tell me, when you are out in your car and the national speed limit is 60 mph on a country lane do you insist at driving at 60 mph despite the fact the road is not up to it ie not using your judgement.
There are lunatics around here that do it. They end up in the hedges sooner or later.
Similarily when regulation lapses effectively to an advisory level rather than a properly regulated and audited framework do you simply then not apply judgement and work to the maximum 'legal' limit. You apparently suggest you do. Thank you for explaining your industries mentality''
I appreciate that posting is difficult and particularly on complex issues, further that there is some content which you posted which is valid but some of your main argument is weak. Fundimentally - Nobody forced the UK banks to lend, they willing moved to do it. They were independent commercial businesses ie private businesses taking risk and pocketing profits, some would say hand over fist. They paid tax to HMG, as do others, including individuals, they are not unusual in that. What is unusual is they are asking for taxpayer money to prop them up and failing to perform their infrastructure function.
If they cannot cover their position and are not trusted by their customers it is due to their action.
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1.08bn additional Tier 1 capital gives LloydsTSB and RBS the ability to lend another 27bn? Two questions:
1. Isn't a 25 times Tier 1 lending multiple (4 percent capital backing) the sort of madness that got us into trouble in the first place?
2. Where do the banks get the actual money to lend if no one's depositing (near nil deposit rates) and the money markets are frozen?
Things will not return to normal until rates – both deposit and lending – return to their normal range. Repeat the mantra – it's not the cost of credit, it's the lack of credit.
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328 armagediontimes
''It is for this reason that the incompetency of the banks is of a higher order than the incompetency of politicians.''
Hmm. Labour was to all intents and ourposes elected to not repeat the Conservative debaucle of the early 1990s. As such they and one of their key architects of the following period, Brown, have failed. I regard him as negligent in the first duty which is to manage the economy, in particular to mitigate sharp shocks which are damaging. Massive shocks can wreck a system. Mitigate through buffering and damping in the system.
The banks failed. Simple as that. QED. The issue of who failed the most is a tough one. The banks however had easier stuff to measure. I cannot see how hard it is to measure money. They are suddenly telling us they can do it, so either they have a massive learning curve or they could do it before.
I see it as a photo finish with Brown winning by a pixel on the screen, well clear of a few misguided consumers, followed by the baying mob.
HGM is immune from prosecution I believe. The banks deserve SFA scrutiny. Would cost a lot, but not as much as they are asking for.
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It (an insurance scheme to offset toxic assets) sounds good in theory, but won't it contravene the Capital Requirements Directive?
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LIBOR
I would be very interested to see what the current figures for inter-bank lending are just now, compared to -say- the past 12 months, and from whom to whom.
I would suspect that every bank lends a tidy sum to each of its competitiors and then uses the incoming deposits to fractionally lend out irresponsibly to a factor of 25 times the original figure .....
How sustainable is that?
And Brown wants them to lend more?
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As 90+% of UK Tax-payers are English can we look forward to a name change for the RBS to, dare I suggest, the "Royal Bank of England"?
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