Our banks 'have to lend more'
Those of you of a puritan nature may have come close to fainting this morning when the Prime Minister told Andrew Marr that our biggest banks may have to lend more than they did in the boom years rather than less.
"Is he totally bonkers?" you may have found yourself asking. "Surely it was excessive borrowing by companies and households that got us into this mess. So how can it make sense for the banks to lend even more?"
The answer, which Gordon Brown hinted at in a characteristic mumble, is that our biggest banks provided only a proportion of loans during the era when the debt bubble was created. And lots of the other providers of credit in that time of crazy lending are now out of the market altogether or have become much smaller players.
That's one of the major reasons why there has been a sharp reduction in the availability of debt-finance even for creditworthy businesses and prudent households.
And, to state what you all know too painfully well, it is the main reason why our economy is contracting so painfully.
Here's an incomplete list of banks that were major providers of loans that - for a variety of different reasons - are no longer the aggressive providers of credit in the UK that they once were: the Icelandic banks (you know why); Northern Rock and Bradford & Bingley (ditto); the finance arms of major motor manufacturers; Citigroup/Egg; Alliance & Leicester (absorbed by Santander); many of the Irish banks and their subsidiaries; the smaller building societies; the specialist mortgage lenders.
The collapse of Woolies told this story. Among the big lenders who demanded their money back in November, only one - Barclays - was British. And Barclays' exposure was smaller than most. The big lenders - GMAC, Burdale (part of Bank of Ireland) and GE Capital - have overseas parents.
So how much capacity has been taken out of the British lending market? Well that's what the Treasury and the Bank of England are desperately trying to evaluate - because it will determine the next phase in the Government's commitment of taxpayers' money to ensure that sufficient credit is available to viable businesses and households.
My strong sense is that the Treasury is moving towards a plan that looks awfully like the Tories' proposal for taxpayers' to guarantee a proportion of lending to business.
What's under consideration is an insurance scheme, whereby banks would pay a fee to the Treasury to reduce the potential losses they would face on lending to companies and also possibly to households.
Here's how such a scheme could work - though it's early days, so don't assume that the numbers I quote will be the ones the emerge as and when a scheme is announced.
The banks would retain liability for - say - the first 5 per cent of the loss on a loan. So they would retain a strong incentive to lend prudently. But the banks would be able to purchase insurance from taxpayers to cover the next 10 per cent or so of any losses on loans that went bad (and, in a severe recession, many loans would go bad).
Why would this encourage banks to lend more than they are doing at present?
There are two reasons.
First, the banks could take a bit more risk when lending, because the loss to them in the unlikely case that all the stinky stuff hit the fan at the same time would be knowable and manageable.
Second, with the state sharing the risk, the banks' capital ratios would look much healthier as their balance sheets expanded, because the formal regulatory risk-weighting of lending would be significantly reduced.
Of course, the corollary of all this would be a significant increase in the risks and potential losses carried by taxpayers. And as I said in my Christmas Eve note ("We are the banks") the line between the public and private sectors would become even more blurred.
As for the banks, if they took advantage of such a scheme, they would be under an unavoidable obligation to direct their incremental lending at the UK: they would have to massively increase the credit they provide here, and shrink the credit they provide in other countries.
To be clear, there's a lot of this going on anyway. Royal Bank of Scotland, for example, is scaling back its global ambitions and is rebalancing its business towards the UK.
And there, as they say, is the rub.
RBS's shift towards its home market is a microcosm of what most banks are doing all over the world. And as banks do their patriotic duty and direct their increasingly precious and scare capital resources towards their domestic markets, the amount of credit available in the world as a whole is being compressed.
What's going on can be seen as a partial retreat from globalisation in the financial economy. The scale and longevity of that retreat in this new year will determine all our economic fortunes, wherever we may be in the world.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~53~RS~)
Comments
Sign in or register to comment.
". . . in a severe recession, many loans would go bad)."
"Would"? Not "will"?
At the risk of inviting you to call down on your head accusations of pessimism, what, in your definition, constitutes a "severe recession"?
Complain about this comment
Robert,
I am not a puritan and so was not surprised by anything Mr. Brown said. His Calvinist self-righteousness was so apparent it made this Anglo-Catholic quite relaxed and happy in my liturgy.
Indeed, for the first time as he and Andrew Marr prattled on I tried to divine the man rather than his politics. I regret that I found a very confused and confusing individual, no doubt very clever in achieving his elevated position, but quite lacking in both intellect and empathy.
One would have thought that the banking bail-out of last autumn would have already led to taxpayer guarantees of commercial and mortgagelending. Let's face it, without that aspect to the bail-out what was the point of the bail-out?
The main question I have is why hasn't this aspect of the banking bail-out been carried through as yet? Why is the government being so tardy? This, surely, is no time for leisurely decision-making.
I think the answer is to be found in the pysche of Mr. Brown. He hasn't a clue what is going on: he was clueless in the boom and now he is clueless in the bust.
As for globalisation this was overstated during the boom and, like everything else, it will decline to a more manageable and even sensible process. Commercially I am emphasising the virtue of local sourcing to my peers and am even getting a hearing now.
There are things to be gained from this recession (slump?) as well as things which we will lose. I hope that we will recover our economic sanity and lose that arrogance, exemplified by Mr. Brown's performance today, which knows nothing about productivity and the creation of value.
Complain about this comment
Having read this I checked to see where the BBC's resident money expert Martin Icesave Lewis is advising the public to put their savings. It's not UK banks. His top tips today are Anglo Irish and ICICI. While free enterprise allows foreign banks to pay high rates of commision to middlemen to recommend UK savers put their money abroad I don't see how the changes Robert Peston suggests will come about.
Complain about this comment
Great to see lots of people out on the streets yesterday with regards to the situation in Gaza.
Can we now please see lots of people out in the same way demonstrating against what is happening in UK plc?
We are all doomed if we don't find a voice, and a we must make it loud voice at that!
Complain about this comment
I aint got no money
I aint like those other guys you hang around
And its kinda funny
But they always seem to let you down
Complain about this comment
I am a commercial Finance Broker. The most ''commercially minded'' business finance lender at the moment is Dutch, following Barclays, Bank of Ireland, Bank of Scotland and the Irish Banks withdrawing form the market to a greater or lesser extent. Next I access funds form Japanese and other overseas sources. If guarantees are given to British Banks, I fear the overseas lenders would themselves withdraw form the market if they were not on a 'level playing field'. This would leave the less commercially minded British banks to return to not lending and the downward spiral continuing!
Complain about this comment
If what RP predicts is true then surely it would be better to nationalise all UK banks? Otherwise taxpayers will simply be subsidising bankers' inflated wages and boosting shareholders' profits.
I expect that in about six months' time, when another few hundred billion quid have been poured down the drain to no avail, the Government will seriously start thinking about proper nationalisation. Not an idea that I particularly like, but if things carry on in the way have have done, there may be no other option.
Complain about this comment
Robert does the idea of state guarantees on loans reduce the market dependence on Credit Default Swaps (CDS)?
I was assuming that some actions would be taken to introduce sanity to the financial arena but I have not heard of any significant changes - has Obama made any noises about CDS?
On globalisation my view was that business likes stability. If there was globalisation and then there isn't and then things pick up and there is globalisation back again how do you invest and plan?
Individuals who are well educated and over 45 are expected to work till 70 and then pick up next to nothing from their pension investments. If this crash does last a lot longer than one to two years many of these people will be on the scrap pile for good.
So a 21 year old graduate laden with personal education loan debts and living in a society in hock via PFI and the long term economic crash bill would be thinking also that planning for the future was near impossible.
"Gordon saved the world" may make it till March. By that time I wonder if it will have become clear that this is all going to last a lot, lot longer than one to two years.
Complain about this comment
#2 stanilic
I agree. Brown is out of his depth, and does not understand how business works. Like most in his cabinet he has not had a real job in industry, commerce or financial services. Lending is only a small part of the equation leading to economic recovery; business and consumer confidence is key to a sustainable future. Mortgage repayment of equity is high; few if any borrowers are taking extra loans to consume more.
I also understand that commercial loans are due to be refinanced/restructured over the next 2 years (GBP 50 bn was one quote). Do banks therefore have a greater duty to existing client borrowers that will probably need refinancing over new borrowers? I am inclined to think so, otherwise as Robert stated above the Woolies example will be repeated.
If the global financial sector becomes drawn to their own domestic markets, then this is a worrying development. Britain has always thrived as a trading nation. Is the Third World to be abandoned altogether, as regards investment opportunities? I do not think they will survive for vey long on handouts from the Department of International Development.
To the governemnt I say: do your homework and try some joined up thinking for the first time in eleven years.
Complain about this comment
Sounds a bit like the Small Firms Loans Guarantee Scheme?
Or RP were you meaning the government guarantee would be all but 5% of the value of the bank's loan book? Surely not.
Complain about this comment
This is quite similar to the Small Firms Loan Guarantee Scheme which works reasonably well at present (though it's quite hard to get bank approval for a loan through it - I hope the new scheme will be easier to access).
The insurance premium concept is similar - each year the Government charges about 1% of the outstanding balance on the loan as a risk premium. They only guarantee 75% under the SFLGS so this would be an increase.
Those who are unhappy about the idea of increasing company borrowing might like to consider an alternative where government would take equity stakes instead, as written up here:
http://www.knowingandmaking.com/2009/01/private-investment-by-central-banks.html
Complain about this comment
I havent heard very much regarding the secret off shore banks (and some on) Cayman,Jersey etc etc,oh, but they dont LEND ! they only HOARD.
The Prime Minister repeatedly said "In America" so many times I lost count ! !
Complain about this comment
This is all very interesting but I understood that the principle reason that Barclays chose an alternative capital source was that most of it's business (and employees) is non-UK and that far from contracting back into the UK it is expanding out. I fear that this whole situation is far far more complicated than we have been led to believe.
Complain about this comment
If as you say, we are the bankers already, why don't we go the whole hog? If we reserve the power to undertake fractional reserve lending to a Nationalised Bank, it is still possible to have a competitive financial services industry.
The first step is to forbid lending by banks unless they have the actual cash. Banks may borrow from the National Bank if they have sufficiently good assets as security. They can then lend to the market by charging a premium on top of the loan from the National Bank. This is what Money Lenders do anyway so we have nothing new here.
Any profits from the National Bank made on loans would be used to offset taxation.
In this way, we can gain the profits from fractional reserve banking because we are underwriting the risks.
Complain about this comment
The Tory proposal to guarantee bank lending to viable companies was a sensible one.
Unfortunately who can trust this PM to behave sensibly.
I feel the scene is being set for a massive influx of printed money. This is the last resort of a desperate government.
GB hinted at this morning when he talked of Obama injecting hugh amounts of money into the American economy.
That is OK for America with the dollar as the world currency but not for the UK with its sinking sterling.
Again Obama needs the go ahead from the senate. Who knows yet whether he will get it.
Brown behaves as an unelected president and needs the go ahead of no one but himself. He acts hoping everyone else will follow.
Very dangerous times indeed.
Complain about this comment
RP points out "the Treasury is moving towards a plan that looks awfully like the Tories' proposal for taxpayers' to guarantee a proportion of lending to business"
One can sense the spin the government was weaving already as the BBC's David Thompson said in an earlier news item:
"Opposition parties would claim that giving them more money was evidence that the government's original plan to revive the economy had stalled.
"However, ministers would be likely to argue that any flak would be worthwhile if a second bail-out helped shore up the already fragile banking sector - and got it lending to the public once again."
http://news.bbc.co.uk/1/hi/business/7809533.stm
So the Tories propose a loan guarantee scheme months ago, which Labour ignores or sidesteps by labelling them as a 'do nothing' party. Surprise surprise the Tories were right all along, Labour (read GB's psychological flaws) can't bare giving the Tories any credit so brief and hint to the effect that it would be irresponsible not to consider all options as the banking sector is frgaile and needs all the support it can get.
Net effect: GB steals another policy, gets away with it and paints the Tories as negative and not 'pulling together' in the true British sense..!
Complain about this comment
Do you know of any other industry that privatises its gains but socialises its losses?
Complain about this comment
Like every other business, banks have to make profits or they cannot pay the interest required to encourage and keep investment. Gordon Brown's performance on Andrew Marr's show this morning was a clear demonstration of what ails this country; Gordon Brown. The man is in total denial; he has no answers to the problems, only a neverending capacity for blame shifting and meaningless rhetoric. Cutting interest rates now will I fear lead to a cap in hand trip to the IMF., with its attendant " this will not affect the pound in your pocket " spouted by the dishonest Harold Wilson when his government also proved incompetent. The country needs investment, not from funny money printed by Alistair Darling but from external sources , and the only way to achieve this is by raising interest rates so that investment in banks becomes profitable and lending by banks becomes profitable. Propping up failing businesses with public money is futile, as is cutting mortgage rates if the banks cannot make a profit from lending. The governor of the bank of England has failed miserably to control the country's finances yet is still pursuing the same desperate course of action that he and Brown used to bankrupt the country.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This is the last thing the UK needs. having been hopelessly addicted to credit, the UK economy needs to go through a painful period of 'cold turkey', with all the withdrawl symptoms that entails, if we are to stand any chance of achieving longer term health and prosperity in the UK.
Gordon Brown's recipe is akin to going out and giving the economy another heroin fix, which will numb the pain for a short time, before the symptoms return - and worse.
The Germans as good as said this recently in a refreshing breach of international protocol.
Trouble is, if the taxpayer gives debt guarantees like this, irresponsible lending (and fraud) will flourish - and that is the road to ruin.
Instead of risking some (regretable) bank and business failures, he risks the failure of the entire country's economy
The UK takes another step on the road to national bankruptcy - but then it becomes ever more obvious that Gordon's only care is to make it to the next election. Won't be his problem after that, and he knows it...
Complain about this comment
# cormont
I can't speak for the oligarchs and money launderers in offshore banks I am an expat that get's my pension paid into an RBS offshore account. Any interest is taxed at source by 20%. My account is not covered by any government insurance and even worse when I tried to draw out the bit of dosh that I have there they refused to give me. If I could dump em I'd do it in a flash I've had a gutfull of this lot. Hoarders? you bet they are.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
The banks would retain liability for - say - the first 5 per cent of the loss on a loan. So they would retain a strong incentive to lend prudently.
But the banks would be able to purchase insurance from taxpayers to cover the next 10 per cent or so of any losses on loans that went bad (and, in a severe recession, many loans would go bad).
Why would this encourage banks to lend more than they are doing at present?
There are two reasons.
First, the banks could take a bit more risk when lending, because the loss to them in the unlikely case that all the stinky stuff hit the fan at the same time would be knowable and manageable.
Second, with the state sharing the risk, the banks' capital ratios would look much healthier as their balance sheets expanded, because the formal regulatory risk-weighting of lending would be significantly reduced."
Peston has woken up in 2009 dreaming!
Being as ALL that money has to come from taxpayers with the risk insurance you are describing, then who wins?
>the banks of course dummers!
>Who loses? You do idiots!!
Who continues to rip you off for bank charges> the banks of course!
Welcome to UK 2009!
If this con job is the future, then steer clear of the UK, it's bankrupt anyhow, as are the financial advisors proposing more of same!
Complain about this comment
alternatively you could sell the banks or merge them
Complain about this comment
One wonders if it might not actually have been more prudent to have a wholesale, albeit temporary, nationalization of the UK banking sector.
I appreciate such would be traumatic and would compromise UK banks' perceived international independence. Also it might have implications for confidence in the UK and HMG and in their global credit scoring. And yet, and yet...
We are heading that way in the end and it is costing much in every way possible. Sometimes it is better to amputate a whole leg and be done with gangrene, rather than keep slicing up the leg in the hope of over-taking its progress.
Complain about this comment
i had an interesting conversation on friday with my banker at HSBC (yes i am a premier customer so get to talk to a real person, not a recorded voice or some poor guy in an Indian call center who repeatedly told me i didnt have an account with hsbc!!)
I asked him to give me one reason why i should leave my funds with hsbc who are offering a measly 1% interest whereas almost any other bank would give me three or four times that. He said that HSBC sets its rate to stay in business and anyone like Allied Irish offering 4.5% are losing money on the deal. The inference being that HSBC is the "safe" bank, i pointed out that all banks basically give 100% guarantees and he said, yes in theory but it has yet to be tested...the Irish government could not give 100% if the bank fails as they just do not have the money! As to the UK banks could the government really bail out say RBS or Barclays?
Regarding Brown he really has no idea, everything he has tried so far has failed, so he suggests more of the same...With the pound on its knees who is going to finance the huge borrowing of UK plc? within six months interest rates are going to have to rise significantly just to enable the government to service its debts never mind finance a recovery. The sooner he goes the better for everyone, he has bankrupted the country and should be impeached.
Complain about this comment
Robert, 'taxpayers' obviously means those of us who actually pay tax - i.e have it deducted at source by PAYE, or from pensions and savings interest? After all, the people who got us into this mess, and the rich generally, usually manage to screen their money from the Inland Revenue.
Does this mean that having no debts and after paying tax all my adult life, without grudging it (except for the proportion spent by successive governments on Trident and such-like) am I now to face a noticeable reduction in my rather pathetic income, while also having to shoulder the risk for the banking fraternity?
I've been reading your blog for several years and it has helped me to understand what's going on. It was nice to see you on Panorama. I worked for your dad ages ago (1983-86) and I hope he is well.
Complain about this comment
Joe Gormley told Ted Heath that, if he wanted more coal, he would have to pay the miners more. When he got rid of Ted he told Harold Wilson the same story! And the miners got the money.
Likewise if the banks need more money to lend, they should pay the depositors more!
If bank rate is reduced the depositors will find alternative places to deposit their funds and the banks will have even less money to lend!
What interest rate is being paid by the government to those from whom they are borrowing ?
Complain about this comment
It seems to me that the 800lb gorilla in the room are the financial derivatives the banks are exposed to. In 2007 Barclays had an estimated £250 billion of liabilities on £30 trillion of derivatives.
Looking on the bright side, since most of the derivatives are interest rate derivatives, the banks should be raking it in after the recent interest rate cuts. Which poses the question, are the interest rate cuts another way of recapitalising the banks?
Complain about this comment
OK here we are as taxpayers about to give the banks more of our hard earned taxes, and for what? So the banks can pay more bonuses (and dividends...?) to the greedy ones at the top that leant money so irresponsibly in the first place and got us in this mess. The banks need to start leanding again, responsibly. Those that have borrowed too much need to start paying it back. I say nationalise all the banks that have benefited from our money and control them properly so they lend responsibly and contribute to the economy and we all benefit.
I think a far better use of taxpayers money would be to invest in the UK PLC infrastructure so that when we come out of this mess we will have something to show for the 'bad times'. If G Brown and his cronies are looking for investment ideas then how about reducing our reliance on 'foreign energy' by building and devoping an alternative energy industry that is a world leader; by investing in a nationwide fibre optic network so every house and business in the UK can get super fast broadband, and last but not least let's have a 300kmh high speed rail line from London to the North/Scotland and the South West (think less pollution, no need to build runways as domestic flights no longer viable, and the environmental benefits that brings).
At the end of the day I'm only a taxpayer and those in Goverment seem to act with no regard to those that pay thier salaries and elect them in the first place.
Complain about this comment
Happy New Year Robert. I look forward to more of the sanity and clarity that you bring to this subject during 2009.
I hope Brown was widely seen on Andrew Marr this morning - with every breath he demonstrated how out of touch and unsuitable he is.
Complain about this comment
Robert,
At what point will you admit that we are now a Communist state?
Already more than half the jobs are public sector funded with borrowed money and a third of the population are dependent on state benefits. The state also guaranteeing all our loans with borrowed money itself just highlights communism.
I cannot believe that you and the government believe that an economy can function with unlimited borrowed money and no thought as to the catastrophic consequences.
Complain about this comment
"Our banks 'have to lend more'"
Nice idea but, as I wrote last year, they no longer either have the money or the asset base from which to lend. Neither can they generate the money from the 'now vanished', synthetic financial instrument market.
This is compounded by the regualtors insisting on the strengthening of the capital ratios, and further added to, if added to is the right expression, by the huge and unjustified reduction in interest rates.
To quote private Fraser (from Dad's Army) 'we are all doomed, doomed'! Until the folly of the present policies is realised and reversed.
A possible indication of the way ahead is that some enlightened Building Societies are refusing to lower rates to savers and borrowers as they have realised to absolute folly of the interest rates policy - in fact the market has forced this realisation upon them. We truly live in interesting times!
The people who gave us the incompetent management of the economy for the last decade are still regulating the economy and the situation will not improve until they are sacked - not given knighthoods!
Money needs to be worth something for it to be valuable. Borrowers must expect to pay a reasonable price in the long-term and savers and investors must similarly expect a reasonable return. (6-7 percent) Zero percent is stupidity - negative interest rates as promoted by a commentator over the weekend are even more unwise.
Complain about this comment
In the long run, the only way interest on debts can be serviced is by profit on trade.
Increasing the money supply (credit) increases the debt burden. In the short run, any additional government spending helps some people and some businesses to trade their way through the recession and continue to service their debts. Plus, increasing the money supply this way also helps erode the value of debts by inflation (but also savings of course).
The drawbacks of this approach of expanding the money supply to get out of our problems are that the debt burden on society as a whole worsens unless the additional money is invested to make more profits than it costs in interest - although it can appear to work in the short term.
In the long run, the only satisfactory approach is for additional profits and savings to service and pay off debts. Then to use the financial resources freed up to invest in new, profitable projects.
Gordon Brown and Labour as a whole cannot fundamentally understand this as they see PROFIT as a DIRTY WORD. Gordon Brown shows this ignorance by classifying any SPENDING he wants to undertake as 'INVESTMENT'.
Complain about this comment
Robert
If i understand you correctly you are saying that a hundreds of billions more lending will be made but not show up on the banks ballance sheets. Instead they will be shown as a UK government debt. When large amounts of this debt goes bad it will become non recoverable government debt.
Is this not just a variation of the years of 'off balance sheet' risky lending.
What will this do to our economy and our governments ability to borrow?
How far will the pound have to plunge when the cost of everything in the shops starts inflation rocketing.
Complain about this comment
A lot of people no longer want to borrow.
They want to pay back debt as best they can, and not be weighted with more debt.
Solve that one you shimmering orb of pale blue light.
Consumer retrenchment.
Enjoyed the credit boom? Took on big debt to become a FTB, or even more mortgage debt to trade up to a big house?
Beware of a prosperity which only loads you with more debt.
Complain about this comment
So we are to become debt factors for the banks. Fairly inevitable given the way the recession is gathering pace at an alarming rate- it might even be sensible if it is targeted at exporters and wealth creators.
What is becoming clear though is that a price has to be paid by these bankers- at present they have done far more damage than all the terrorists on the planet put together. The US have a far more interventionist line- fundamentally the combined boards of all the banks have lost enough value for them to be cleaned out of all the money they have plus all their pensions and there still would not be enough redress. But of course vengeance never got us anywhere so a straight dismissal or transfer to Kabul or Baghdad will do.
I think the next step is to stop being so flipping gloomy all of the time- we know it is going to be very nasty with over 1m job losses - but we should focus our attention on what needs to be done to help- especially those in real need. At the same time we must address some real inequalities and unfairness in our society and learn to work together for the common good. Pay cuts may be needed to help - and why do we not start with all members of parliament including ministers- let us say a 25% cut in pay- freeze on pensions and reduced expense allowances for starters- would be good if they led the way- after which why not a voluntary pay cut of all those earning more that £90k per year of 10% and a change in the pension regulation so that nobody can get a company pension or civil service pension greater than £75k per year- that ought to ease a few of the inequalities.
Of course the PM I believe said many of the right things in the AM show but no doubt came across as a sanctimonious fellow- but Alastair Darling sounded not too bad on the radio. If course the Tories really do need to get someone with some brains instead of young Osbourne who has shown all the aplomb of those upper class twits who led our people to mass slaughter in WW!.
Certain to be a rather interesting year I feel.
Complain about this comment
Forgive me for stating the obvious, but one can run a business in debt in perpetuity, but the same is not true of negative cash flow. Therein lies the nub of the issue.
British businesses excluding small businesses are levered to the hilt. Banks could be made more lax with respect to debt facilities, but once cash flow turns solidly negative and stays there, they will want their money back before recovery is zero.
That becomes an interesting balance, does it not?
On the one hand a political imperative to lend in exchange for taxpayer provision of capital and sharing of losses. On the other hand a business imperative to maximise recovery on bad debt to avoid depleting said capital, which means initiating liquidations.
Since negative cash flow always wins, debt deflation will continue. But I do expect much dancing around the issue in the meantime.
Complain about this comment
Robert,
Do I understand you right?
Those institutions that gave credit, that may have led to this current disasterous financial situation, have either gone belly up or been taken over.
And now the PM wants those banks, who did not get caught up in this folly, to now engage in the same practise. To be forced if necessary to lend money to individuals, in a contracting housing market, a significant proportion of whom are certain to lose their jobs in 2009/10.
Is Gordon Brown is LaLa land? Before he goes entirely bonkers I think he ought to ask the rest of us whether we are prepared to go along with his latest nutty idea.
He has already wasted 12billion on a headline grabbing vat cut, when the christmas sales were on. All of which most sensible people predicted would come to nought.
Is Gordon Brown`s sole aim in life to lay to waste the whole of this country?
At this rate Xmas will be cancelled next year. By then Gordon will have taken everything from us, except the clothes from off our backs - but don`t even rule that out!
Complain about this comment
"a sharp reduction in the availability of debt-finance even for creditworthy businesses and prudent households."
Who's to say which businesses are credit-worthy, as demand for goods and services collapses around the world? And what 'prudent' household would be looking to go (further) into debt at such a time?
The problem is in the debt-based nature of our economy. We've reached the limits (just look at our PSBR and trade deficit) and trying to stoke more debt will make things worse ... we need to re-think EVERYTHING we do, from the ground up.
Complain about this comment
I would be most grateful if Robert, or other contributors, could answer one simple but VITAL question - how on earth, given a deteriorating currency and very low policy interest rates, is government going to raise the funds that it requires on the money markets?
Government borrowing is expected to reach GBP 120bn this year - allow for redemptions, and some greater realism on "recovery in the second half of 2009", and the sum needing to be raised could easily reach GBP 150bn, maybe more. Where is that going to come from?
I understand that Germany recently had to pull a relatively modest (Eur 10bn) bond offer recently. Other countries are offering double-digit rates on government paper. Previously-wealthy oil producers are feeling a lot less wealthy now that oil prices have slumped.
Can the money be raised, or are we on our way to the IMF? And, if the latter, when does Brown call an election?
Complain about this comment
Robert & other readers -- thought you may find this article published in a local business publication interesting:
Big future tax rises inevitable
Imagine for a minute that you are a banker and I have a client that needs to borrow some money. This client is run by a Board of Directors who have no experience outside this particular business. They got elected by promising that they would give the customers loads of services. The business is forecasting sales next year of £536 billion but will have costs of £654 billion. Rather than try to cut its costs to match its revenues, this business wants to borrow £118 billion to fund the loss.
Oh, and by the way, because the business refuses to cut costs, it will make losses every year for the next seven years and wants you to lend them the money for that too. It won't be until eight years' time that the business will manage to spend what it receives in income in that year.
At that point the business will have a mountain of debt. How will it pay it back? Well, the Board are a little bit hazy on this. But their plan seems to be to hit their customers with lots of hidden charges so that they can make huge profits each year so that they can start to pay back the vast debts they've run up. Of course, how accurate the forecasts are is crucial. Just in case you were wondering how good the business is at forecasting, only 18 months ago, it forecast a loss of £24 billion this year, now it is going to be £78 billion.
Would you lend the business the money? I very much doubt it.
However, the Government hopes that someone will as the above describes Alistair Darling's plans for the economy as set out in his recent Pre-Budget Report. In Gordon Brown's last Budget in 2007, he predicted a downward trend of public borrowing, from £35 billion in 2007 to £24 billion in 2008, comfortably meeting his socalled 'golden rule'. Only 18 months on from that speech, Alistair Darling unveiled public borrowing was not £24 billion but £37 billion last year. It will be £78 billion his year (not the £24 billion predicted by Brown only 18 months ago), £118 billion in 2009/10 and £105 billion in 2010/11. Under Brown's 'golden rule' annual public borrowing should" be a maximum of three per cent of GDP. The recent figures show it is predicted to be eight per cent of GDP and it won't get back to Brown's golden rule for another six years... Brown's other 'golden rule' was to keep total Government debt to a maximum of 40 per cent of GDP. It will rise to 60 per cent of GDP and we won't get back to meet' Brown's 'golden rule' for another eight years.
All of these figures are dependent on the Government's predictions of a short, shallow recession. Of course if we get a long, deep recession these figures will be s significantly worse. The Government's strategy is to keep growing public expenditure by 1.2 per cent a year and to borrow to pay for it until the economy picks up and taxes can be put up to pay for it.
Because Government expenditure is not to be cut to meet its income, we will have huge tax rises in years to come to pay for the debts we are running up over the next eight years.
Complain about this comment
Confidence - or lack of it is what enables credit to be given or not.
I suspect that banks are very much the industrialists lender of last resort.
Much better, cheaper, to simply become late payers.
There are a whole succession of fleas all on each others backs. The big companies extract credit from their smaller company suppliers and so on all the way down the line to the micro companies. Meanwhile all companies extract a month's credit from their monthly paid staff.
Once a chain is broken, by a supplier running out of cash, then the banks will be asked to step in.
If the banks do not step in then whole supply chains will fail.
If there is no confidence then who can blame the banks for not stepping forward?
That is what GB should be worrying about.
Complain about this comment
I have a cunning plan... Our banks 'have to lend more'
Baldrick continually invents many "cunning plans", which are scathingly ridiculed by Blackadder (who often ends up using them in desperation).
Complain about this comment
if brown had guarenteed aid to lloyds and barclays they would have been able to lend more - instead they demanded higher reserves - thus causing these 2 banks to have less to lend. aid provided at 12% does not encourage banks to take on riskier loans.
brown has been the prime cause of the uk banking crisis - not a savior.
Complain about this comment
#34: Spot on.
All debt must be repaid with interest, and paying the interest with additional debt instead of production only increases the burden, postpones the inevitable and makes it much worse through the arithmetic of compounding.
Since we have too little production in which to invest to earn our way out, Brown invests in consumption to avoid contraction. The taxpayer has to run faster on the treadmill to stand still. There is a natural limit of course, which will soon become painfully obvious.
Complain about this comment
So if we withdraw funding from our banks will they all go bust? Or will we simply be left with Barclays?
...and who will accept accountability for the government policy being too little too late?
If we are therefore using Conservative policy, untested on the treasury model, shouldn't we have a different government?
I will offer £1 for the non-toxic assets of RBS, HBOS, B&B and Northern Rock. I will take none of the liabilities. All pension funds to be left behind with the administrator. All board members to be left to wind up what they have left and explain to their shareholders
Let the banks fail and lets get to see the floor of this recession. Whilst there is no realistic alternative to these moribund edifices the rest of the economy will continue to suffer.
Complain about this comment
To true Robert many will wonder if the world has gone mad and maybe it has but there is a great deal that could be done without massive commitment and risk by bankers and tax payers that would restore faith in the whole system and not burden the saver as much
First though A happy New Year to all.
Now you have too take on board one lesson you cannot fuel one sector or two sectors of the economy as has been done for the last 9 years around the world [including this country] just to try deferring the economic cycle.
You have to stabilise the economic table with a leg at each corner not another prop in the middle which just allows it to keep rocking as before we fuelled the house market and in unison fuelled the high street with money that was feel good - not do good.
House prices should still fall to their 2000 level plus relevant inflation about 125k for the average house. That would also stop a lot of pressure on wages next you need to encourage more home grown foods right round the world and more local movement of food.
Poor countries and unproductive lands could start production of more bio fuels for electricity etc improving their economies this takes away the need for so much international support t giving them chance to buy anything [but arms] and brings back self respect and hope
Next we need a policy to force banks to do what they say on the packet for regulators to fine them for misleading advertising and compensate customers they are the worst and finally to stop trying to fool anyone that they get free banking because every time they penalize their poorest customers and trades people with their outrageous charges the trader either passes it on to his customers or goes bust which affects every ones cost of living including the prudent savers who they kid hey are getting free banking and who actually least need it anyway
Any one should have to justify any action they take or any condition charge or term they place on another by answering - was this of benefit to the country community the society we live in and will my action or deed help improve the greater good or will it just benefit me or worse will it have a detrimental effect on others in the community the society the country in which I live. Any citizen may then bring this test to a judge against ay other citizen to have the fairness and social benefit corrected.
Banking is not free but it should be fair as should all businesses and indeed all deads and transactions to society and to individuals essentially there should be a moral and ethical code for operating all business by and it should be enforced.
Maybe sustainable has got lost with green issues [which incidentally have not gone away] but in the meantime how say we use maintainable. If we get house prices down and then lend twenty year olds on 50 year loans that would get more people started 30 year olds could have 30 year loans 40 and50 year old 25 year loans ay one else 12 year loans. Loans could only be a maximum of 90% of value
Businesses should be lent on the amount they have invoices outstanding, or stock that they have on their shelves, or raw materials or capital equipment, or property they own but no more and penalty fees arrangement fees and late charges should be abolished and every one should pay half a percent on the money they pay in to their bank and a pound for every cheque they issue
Now I have not worked out the fine detail and there are several more measures you would need to complete this social economic framework but you would have a fairer more maintainable framework for world trade and customers who could buy services and people who could supply them at reasonable cost you can start it locally but eventually you would need global consent and global jurisdiction to enforce it.
This may just star to remove world poverty and it may stop the economic table from rocking so much that we have no time to concentrate on the issues of life and death -like wars, poverty, resource management and dare I say mitigating the effects of climate change even if only by a few percent.
Yes it may be a little mad as you lead off in the article Robert but some will think us mad anyway what ever we do though please do not let us commit the greatest madness of all mankind and carryon doing what we have always done but expect to get a different result.
If we try something different future historians can say after five hundred years of boom and bust and growing world poverty their at last came a generation who tried to make a difference for the greater good of humanity.
I would rather fail form trying than exist by doing nothing
Complain about this comment
The banks lent money because they wanted to make money for their shareholders!
Now the government is a major or even majority shareholder in some of them and the banks are simply acting in the same way as before. On the face of it, it appears the tax payer has given the banks some £37b for absolutely no benefit.
As a major shareholder in public a public company with 40% or more that realistically gives you control of that company. So why isn't the government actually using that shareholder and appointing people who'll help the economy and get the lending moving? Simple answer maybe it's just given them a subsidy.... and hasn't actually got the will or the whereabouts to do anything!
I appreciate the banks were and are probably still are in a mess but they made those decisions themselves, just like any other business.
What about all the other businesses in the country? My bank charges are higher than ever and the interest on my overdraft are almost half of the annual base rate MONTHLY!
Complain about this comment
Hi Robert.
Happy New Year....missed you these last few days great to have you back.
Please keep us informed, in your usual excellent way as the British Economy seems more dire than ever...What are Brown and Darling going to do about this ghastly mess? Can't you advise them as you seem to have more idea than they and the Mandarins in the Treasury ...What are the shysters in the Banking World upto now????
Complain about this comment
An important underlying message in here is contained in Mr Peston's point about the retreat from globalisation as banks/lenders focus on domestic markets.
I predict that this trend will be unstoppable from here on and irreversibly reinforced by the end of mankind's era of cheap energy. With that comes the end of our propensity to go about our businesses and lives assuming aggressive, relentless, debt-fuelled economic growth. This year will be better than last year, and next year will be even better again. Forget that paradigm of economic certainty from here on.
The world is about to grow back again to the size it always was: Earth-sized, and not a "global village" which I always felt was a silly and, almost by definition, unsustainable (un)reality.
Those seriously deluded folk (including Brown, Darling et al) who think that this crisis is, to all intents and purposes, a little local difficulty are in for one helluva shock (does anyone really think we'll be heading out of this unprecedented mess at the end of this year - per Darling's risible economic forecast?).
We're now sitting at the top of a very long, downward slope for the global economy complete with bumps, twists, turns and severe shocks and surprises that few of us can imagine today. Take, for example, the Head of the National Grid's assessment that the Grid needs some £100 billion of investment to meet demand for energy by 2015. Where's that money going to come from now that the taxpayer is devoted almost exclusively to saving the shambles of our banking industry? Looks like madness from where I'm sitting.
In 10 years time (possibly just 5 years from now) the world will look nothing like most mainstream politicians and so-called experts are striving to forecast today, primarily because we've reached the end of the cheap energy road. With one or two visionary exceptions, most commentators have not the faintest idea just how intractable a mess we have created, nor how damned difficult it's going to be get out of it the other side.
My advice would be to take absolutely nothing uttered by politicians this year at face value: do your own research and make preparations for sweeping changes to your way of life and, moreover, the lives of your children.
We're entering a new world era and - as with this crisis - the last people to grasp the nature, scope and scale of the challenges we now face, still less to prepare us for them, will be our lamentable political elite. How would you score their competence thus far when it comes to forecasting, planning and managing our economy - and with it our quality of life?
Finally, absolutely the last person on Earth to rely on now is the guy who proudly (yes, he's very proud of the UK's current situation) engineered the unholy mess that we UK citizens are now about to endure, and some.
Good riddance Mr Brown.
Complain about this comment
#36: I have been telling Robert for some time that the credit market is frozen at the demand end too, but he insists on treating this as a purely supply-side problem.
Anyone wanting proof, check the footfall at an estate agent, car dealership, electrical goods retailer, furniture store, etc.
Complain about this comment
Last real tax payer out of Britain shut the door, Also can you ask Tony for that £6m pension back,
Complain about this comment
Getting the banks lending again to ensure sound businesses don't go under due to working capital problems is essential for sure.
Anything along those lines, even from the mouth of those who got us in this mess in the first place, should be welcome, we can vote him out later....and we will, politically he is a dead man walking.
That is all well and good but somewhere along the line someone is going to have to think about re-building a 'real' economy.
10's of thousands of jobs in financial services have gone forever from an economy that was for a large part underpinned by the growth in financial services itself, certainly not manufacturing or innovative technology or commodity exports or anything (it seems) that involves getting your hands dirty.
We even managed to nanny our traditional labour force into accepting benefits as a way of life. Too proud to plough the fields or be found under a boiler with a monkey wrench when you can have a flat screen TV broadband internet, a house and a crate of high strength cider a week on benefits...providing you make enough children and dont get married of course! Don't the eastern europeans do all the hard jobs anyway?
Is this the kind of society Gordon Brown meant when he said he had 'fixed the roof' while in office?
What a cumupance we will get for the society we have created.
Gordon probably meant well but like most politicians nowadays, they are mostly career politicians (usually ex lawyers) not ex captians of industry etc. What kind of training does a career politician get to qualify him or her to run a real modern country? It's great training to bay at each other entertainingly accross the debating chamber but to actaully run real stuff?
Vince Cable had a real job, he seems to be the only one in la la political land that saw this coming and has sensible suggestions to get out of it.
Speaking of which.
First we need to become self sufficient in essential needs again as far as possible (i.e. power, food and infrastructure) - always a good starting point...are the career politicians keeping up at this point I wonder....
From a base of being largely in control of our own destiny we can start to build an economy based on something real that is offering real value. How novel!
Somewhere along the line we will need a new political class who have experience in the real world ( i.e. we may need to pay our politicians more, most earn less than an average GP) and we will have to dismantle the carefully constructed nanny state.
Gordon Brown is invoking the British Bull dog spirit in this 'Global' (you have to laugh)crisis'.
Someone should tell him you do not get that bull dog spirit in the real world by creating a generation of work shy risk averse couch potatoes more interested in what they can get out of society than what they can put into it.
We only have ourselves to blame for the creeping growth of the nanny state, paralysing red tape and health and safety litigation mad culture.
I dont want to live in a society where bin men (sorry cleanliness operatives) refuse to collect my bin because it is too heavy to rock onto 2 wheels with 1 finger...its elf n safety y'know..!!!
For goodness sake wake up Great Britain ..smell the coffee.
If it was down to me we should install Vince as acting PM under a crisis government of national coalition then re-build a sustainable modern society from there.
helloooo....is there anybody out there?
Jericoa.
Complain about this comment
I know it might be a strange idea in these times were everyone is queueing up to "blame the banks and the yanks" for the current turmoil, but why not work together to get a solution that works.
On the recent Alistair Darling took great delight in telling us that he dictated to the banks what was going to happen in a take it or leave it fashion.
The problem was the deal he brokered appears to be unpalatable to banks and they are reluctant to take advantage of any more borrowing from HMG than the minimum they require.
This has a knock on affect that banks are not in a position to lend to the general economy.
Given the failure of the previous plan hopefully the treasury will learn from their mistakes and avoid a quick fix and negotiate with all parties involved to brker a deal that is fair and acceptable to all parties.
Complain about this comment
"I will not allow house prices to get out of control and put at risk the sustainability of the future."
Gordon Brown, Chancellor of the Exchequer November 1997
Complain about this comment
"OK here we are as taxpayers about to give the banks more of our hard earned taxes, and for what? So the banks can pay more bonuses (and dividends...?) to the greedy ones at the top that leant money so irresponsibly in the first place and got us in this mess."
Quite. It's about time these parasites were stripped of their personal assets. They've already stripped plenty of us of much of ours.
Complain about this comment
Face it Peston,
You're labour party's been found wanting, they are only a wee rattle
Or civil unrest away from death.
Here lies the Labour party, buried in 2009 by Gordon 'He saved the world' Brown.
The clown even believes his own propaganda now, idiot!
Complain about this comment
# 32
"The state also guaranteeing all our loans with borrowed money itself just highlights communism."
Pretty soon the current situation won't be anything to do with rampant capitalism at all eh?
Complain about this comment
All this whining blaming the bankers! Look, you have just got to accept that they need the money - it is important to ensure that they can maintain their lifestyles – expensive housing – big company cars with chauffeurs – high maintenance wives and children – do you really expect their children to not to go to private schools and Oxbridge and their wives not to go on holiday 4 times a year – do you want them to give up their generous pension and health care plans – next you will expecting them to give up their bonus! Please have a heart - if you sack them where will they go? They have no experience of running a real company and working for a living. (Any similarity with politicians is purely intention).
Complain about this comment
The government providing CD insurance? Isn't this what I suggested more than two months ago? I rather think it is. So instead of throwing hundreds of billions at the banks "to get the credit market moving" they could simply have thrown a few tens of billions, if that, to get the credit INSURANCE market moving, which is where the whole damn problem came from int he first place. Oh, but that wouldnt' have moved all these billions from taxpayers to the bankers, would it, which is what this whole thing is about. WAKE UP!
This is a scam, a slow motion caper movie - the biggest robbery in history. Are you not figuring it out yet folks?
Complain about this comment
#33
"A possible indication of the way ahead is that some enlightened Building Societies are refusing to lower rates to savers and borrowers"
From what I read in the Sunday paper, the "enlightened ones" are refusing to lower rates to borrowers because they "feel sorry" for savers. They're still going to screw those savers though, because that's the nature of the beast
Complain about this comment
' lend prudently'
Bwa haha ha haha, Classic Robert !!!
read my lips, THE GAME'S UP, and YOUR lot are OUT, OUT, OUT, FINSHED,
CAPICHE ?
Complain about this comment
This is just another cyclical 'event' in Economic history. From John Law's Mississippi Scheme to the South Sea Bubble to the Railway Mania of the 1840's to the Robber Barons of the 1870's to Charles Ponzi to the Wall Street Crash of 1929 through the Great Depression to any number of post war 'shocks'..
On and on it goes, people learning nothing from past experiences or worse, simply ignoring it because the pseudo-science of economics invents new untested and impossible to validate 'theories' explaining how the future is always rosy as long as you keep pumping money into the system.
All the tosh about if you invested money in 'The Stock Market' at any given point in history it would alway be worth substantially more in 20 years is not only a lie (If you invested money on October 29th 1929 your holdings would not have regained their original value until July 1954) but utterly irrelevant to how the market actually works. It is a matter of sheer luck as to how the market happens to be performing at the moment when pension funds and individuals need to redeem their investments.
Politically, economic growth is all that matters, how that growth is achieved (or is given the appearance of having been achieved) is immaterial. Thus the current essentially fraudulent ramping up of debt and derivatives from that debt is just the latest scam to appease the utterly short-term mindset of 'investment managers' here and in the US. Last week I saw an interview with the head of a FOREX brokerage who explained that in the medium-term his company would be investing in Australian Dollars. when asked what he meant by the 'medium term' he said two weeks..
That sums it up exactly
Complain about this comment
I read in the Guardian the interview with GB and he provides the following quote""I don't want to sound arrogant, but 10 years ago I was making both speeches and proposals to sort out this failure of global regulation and I couldn't persuade other countries after the Asian crisis of 1998 that it was necessary."
So now we know the man responsible for regulation in the UK didn't do it because...... no reason.This must as an admission require an explanation for the woes and costs resulting on the public purse.Clearly the blame lies with those he couldn't convince! I suspect not just the US but everyone else.
Complain about this comment
No matter how much you hated Margaret Thatcher (and I certainly did), your mission (as a subject, not even a citizen) is now VERY clear. It’s time to extricate the communists from power before your kids brains are like Gordon Brown's (i.e. Cloned)!!!
Complain about this comment
#49:
An equity stake in an insolvent company is just that. It does not necessarily make the company solvent and it does not make the business model viable. The banks do not have adequate reserves even for realistic loss provisions on existing loans, let alone new lending. Recapitalising them with ever-increasing amounts of taxpayer money fixes the immediate capital shortage, BUT, since that taxpayer money does not exist today but is a claim on future taxes, the debt burden on the country as a whole actually increases. All the government has done so far is shuffle paper. What needs to happen is a reduction of debt, not in one place, but net across the system. Not one politician or business leader has explicitly acknowledged anything of the kind.
Complain about this comment
62, Spot on,
I took the lot out of nationwide because of their attitude to me as a borrower and a saver! And another thing, things may not be well at all at the Nationwide.
I reckon pretty soon they may float ;-) Can’t wait for my voting cards to come through and cash in!
Complain about this comment
Banks "have" to lend more? That appears to have been the assumption which underpinned the first bailout, and that did not achieve the desired effect. A couple of potential pitfalls (for the taxpayer) can be extracted from what you write, Robert:
"with the state sharing the risk, the banks' capital ratios would look much healthier as their balance sheets expanded" - isn't this just cooking the books? The outcome you predict is just one of several (and the only one which appears to be faintly positive).
"if they took advantage of such a scheme, they would be under an unavoidable obligation to direct their incremental lending at the UK" - like the last unavoidable obligation the banks, erm, avoided last time? Banks are profit-making machines free of conscience. It is extremely naive for us to assume that they will suddenly "do the right thing" when profit could be compromised.
"[The banks] would have to massively increase the credit they provide here, and shrink the credit they provide in other countries" - how many of our banks are actually British in any meaningful sense? If they do this (and, again, there is no reason why they would, pragmatically speaking), I doubt we taxpayers would suddenly get our hands on oceans of cash, but we may end up propping up banks owned by other countries.
Really, what's the point? We lend to the banks, they don't lend it back. We lend them more, they still don't lend it back. How much cash can we throw away before we realise this?
Complain about this comment
Much has been made by Za-nu-lie-bour of them doing 'something' and how the opposition are 'do nothing' parties.
The 'something' is more akin to the behaviour of chickens with their heads removed. The something is anything that can be spun by the party press machine into stemming the tide of recession.
Complain about this comment
Robert,
From the recent comments on this topic it appears that, at last, the penny is beginning to drop that GB and his cabinet colleagues have really no idea of what might be a suitable course of action, faced with the predicament the world finds itself in.
He seems to be comforted by the thought that most of his opposite numbers across the globe are willing to follow his leadership and throw money they don't have at the problem. They couldn't all be wrong, could they?
Maybe I have missed something, but I am completely unaware of any logical justification of the course of action he wants to follow. All we get is a mantra that says we have to do something urgently.
The "something" is anything suggested by the government. Any alternatives are categorised as "doing nothing", such is their arrogance.
It seems that our World Leaders have unanimously accepted the idea that what we are now experiencing is like a temporary blockage on a freeway and that all we need to do is spend some money on widening the road so we can renew the journey at full speed.
It does not seem to have entered their heads that they might have been travelling in the wrong direction, and that this crisis has been a warning sign that we need to take a new direction, which would mean that we need to recognise that sustained year-on-year growth in GDP for all countries in a finite world is an impossible dream which will inevitably end in tears.
Could it be that getting back on the same path as we were on is a completely hopeless objective?
While it may be true that a healthy housing market can be an indicator of economic health, the apparent assumption that getting the housing market going again will lead to a recovery of a healthy economy is quite false. The key word is "healthy" and what we had in both the UK and USA housing markets before the crash was certainly not healthy. A healthy housing market follows from a healthy economy, but surely cannot deliver a healthy economy, unless we could start exporting houses!
Can I ,once again, beseech you and your readers to have a look at a very enlightening web site, which deals with issues which will have a big effect on our lives and more particularly, those of our children and grandchildren, which does suggest the need for a complete rethink on where we are going.
The address is
http://www.chrismartenson.com
I was directed to it by several comments on your blog, and I have found it to be highly thought provoking. I only wish I or you could persuade GB to look at it and comment.
Complain about this comment
#33
Good post!
No wonder the banks and building societies have got no money to lend as when interest rates are effectively negative saving is a waste of time and it is best to spend what cash you have before it is worthless paper printed by a desperate government.
Glad you are back Robert. All the best for 2009.
Complain about this comment
Why did the government not nationalise Natwest and HBOS straight away instead of using £ 37 billion in taxpayers money to increase their capital - an exercise that has not restarted lending. There is no gaurantee that putting even more taxpayers money into the banks would solve the lending problem. Thinking outside the box ie. a toxic bank or loan gaurantee scheme seems the answer.
Complain about this comment
So the Banks are persuaded to lend money loaned by the tax payer with an insurance policy to pay out 95% if the debt goes bad, underwritten by the tax payer?
Poor old tax payer eh?
Problem being is that who wants to borrow when there is contraction? Who wants to borrow when their job is at risk?
Ok, the Government, but leaving them aside, who would want to?
Its only worth borrowing if interest rates are 1-1/2% below inflation. Oh, they are, so inflation must be coming down alot further then.
Is there going to be an election this year Prime Minister? AAr Ahhh aggg, nothing on my mind at the moment, nothing on my mind. Is that a no then? Aaagh, its not on my mind.
Never mind, lets take a picture in the sublime light reminisque of SIX FEET UNDER and plaster it over the Sunday papers!
What a pra (t) or pra (gmatist)?
Complain about this comment
It is now of little consequence what Brown says - he will soon become an irrelevence - as indeed, will all the politicians. They cannot understand why we are here because they are wedded to the economic model, which has failed and is beyond repair.
The system will collapse in the near future and we potentially face chaos brought through fear leading to civil unrest and the inherent dangers contained within.
But, it is my fervent hope - and belief - that we are the verge of a wonderful new era where we will move away from a society based on consumption and the profit motive towards one based on higher-level consciousness whereby the needs of each other are put first. Business will be based solely on whether it produces social benefit.
Brown, Cameron, and Obama for that matter, just don't get it -yet. It is only when they - and society - break out of the box of economic models, which are dead in the water, that they will be able to move things forward. Let's hope it comes speedily.
Complain about this comment
It might have to be done as part of a package. Its also important to cut salaries and bonuses of banks and to claw back through windfall tax what these people got in the past.
It could be even better to set up a state bank and give mortgage through it, as this money will be paid to other banks and they could have money to lend again, state bank could be used to set the interest rate and government will have full control over it.
Complain about this comment
El Gordo and Comical Ali can talk the talk as much as they want, this desire to boost lending to the suggested levels it is not going to happen. There is genuine madness about with those two. The banks who were reasonable in their lending are still standing, some all be it with props, whilst the reckless bankers are poleaxed. Now El Gordo and Comical Ali's solution is to encourage the still functioning banks to up lending on par with the bubble banking levels of the failed banks. And the banks know that this lot will almost certainly get the heave ho in just over a year, whereas the debt will be around for a great deal longer. Hmm difficult, not. There may well be an attempt to underwrite medium term fixed low rate mortgage funding but it can only be limited. The bubble is gone and the businesses that floated on it are gone or going. Smoothing impacts is helpful, trying to stop a process just damages more.
Complain about this comment
If you want to get a message to Gordon sign this petition
We the undersigned petition the Prime Minister to resign due to gross financial incompetence in running the British economy.
http://petitions.number10.gov.uk/Fianance/
Complain about this comment
Writing as a UK citizen but observring the world:
Does anyone know what, absolutely, credit is? Or money for that matter? I suspect that money is ultimately credit.
If credit has reduced is that the fault of not so wise banks or of politicians?
Banks are founded on the principle of credit so I suspect that they should be the authority on it.
People write about the government providing guarantees for banks' credits so where does the government gets credit from? We are told it is from the taxpayers.
So do we believe in ourselves or not?
Of course we do.
So why should we allow a class of bankers to behave as they do currently or perhaps as they always have done?
So we should support Gordon Brown - not detract from his work.
Complain about this comment
Brown intimates that banks may have to lend at higher levels than they did in 2007. But that lending was to sustain an unsustainable boom.
The problem was that Brown didn't recognise that he was managing the economy in a boom.
So now he wants to return to what he thought was normal times.
The question that has not been considered is what the GDP would be assuming the public only borrow to invest, and not consume. Borrowing for consumption is unsustainable.
Over the last decade there has been a great deal of borrowing to consume.
What is the point in trying to inflate the economy beyond the equilibrium level? - that is just delaying the inevitable bust.
The massive injections into the economy to try to inflate it will, if successful, lead to massive inflation. The only way to reduce the inflation will be to remove all of that money from the economy - How will Brown do that?
We face the prospect of an economy that avoids the recession simply by massively increasing Government debt, to be paid for by generations. Funded by the much higher taxes that will be needed to avoid the inflation.
Gordon Brown must be in paradise!
Complain about this comment
No No No.
Why should tax payers be hit again.
It is time Gordon and the banks started looking after the business by helping them.
First thing Gordon, the are business dying in every village, town and city The Pubs, Clubs and bingo halls can be saved all it takes is a tax cut and a place for smokers.
Chancellor Darling has said the added tax and the smoking ban has closed these business.
No cost to the tax payers, it might even bring a bit of comfort to people.
Next the banks, tell them to lend business the money tax payers lent them already, the Government can stand over only, those loans.
If they do not lend after that banks have to start repayment of the tax payers money now, and in large payments.
Northern Rock could be a good starting point.
I do have a small shop, I do not sell alcohol or tobbaco, I am lucky enough not to need a loan, but I have hard working friends and family who are at their wits end because of the thoughtless actions of this Gov.
Complain about this comment
Robert this is just an extension of the 'welfare' state. The difference this time is that cradle to grave includes the banks. Let's see some money going into small and medium sized businesses. Employ somebody: get a reduction in, or exemption from, business rates etc. These dodgy banks are a millstone around our collective necks. My God, I read the other day that we might have to pay them to hold our money in their 'vaults'. Negative interest??? Premium bonds and the old bedstead are looking pretty alluring at the moment. When are we going to see some prosecutions? When are we going to see some resignations? When? As soon as we decided to bail-out these banks we effectively stripped them of the need to comply with a key dictate of the 'market': that the weak go to the wall. Our government have acted recklessly. We now have a group of senior financiers running companies that are effectively a part of the state. If this is the aim of New Labour then so be it, but go the whole hog and nationalise the lot of them or do the right thing and call an end to this monstrous waste of public money.
Complain about this comment
"That's one of the major reasons why there has been a sharp reduction in the availability of debt-finance even for creditworthy businesses and prudent households.
What a laugh. Creditworthy, hah. With not just Britain but the entire world bankrupt, where do you find a "creditworthy" borrower. Banks are reluctant to lend even to each other. That's because each knows that the others have been doing exactly what they've been doing themselves and don't know if those banks will be around the next morning to pay back what the borrowed the night before. Besides, they're clutching on to every last cent they can to stave off bankrupcy themselves just like everyone else.
So the former Chancellor of the Exchequer who helped get the UK into this mess is going to lead it out by doing more of the same. Figures. He should take a page from Alan Greenspan's testimony before Congress around a month ago; "There's something about markets I don't understand." Really Mr. Greenspan? And your flawed understanding led to policies you not only advocated but insisted would be beneficial that led the entire American economy, by far the world's largest over a cliff. And the UK and most of the rest of the world followed right along. Happy New Year Mister Prime Minister. It only goes down hill from here.
Complain about this comment
This is a government out of control such as a rogue city trader throwing good money after bad, only the difference is that Gordon Brown will not face jail when he is thrown out.
He will drift off into the sunset on his fat pension along with Tony Bliar and all their socialist cronies.
The people of this country need to start and rebel against taxpayers money funding private business.
They have relinquished our identity, they have destroyed any chance of myself or millions of others of retirement.
When will the tories and liberals call for a vote of confidence in the government?
This is beyond any comprehension of incompetance that any British taxpayer has faced before.
for god sake the opposition need to do something.
Complain about this comment
our banks to lend more , does'nt the prime minister realise there is a lack of confidence remember he said no more boom and bust people are very scared to borrow money
Complain about this comment
Individuals can already purchase unemployment insurance*
(*) = not eligible if on a temporary or fixed term contract or self-employed
(but you were talking about us being insurance services for banks)
Complain about this comment
The government have been eyeing the banks with envy for some time now. Their databases have all of us on them and are bang up to date. They have already issued most of us with ID cards. They have methods of penalising us which make the government's ability to do so seem pathetic by comparison, and they have managed to get away with every sharp practice Balzac ever described in connection with usury, as though it were perfectly alright to behave that way.
The more government subsumes the banks, the more it will treat us like they do.
Complain about this comment
You've got it wrong and so does the prime minister. Throwing vast quantities of bank loans at the economy is not a good use of the money, and it won't help the UK. Why? Because it will be badly used. The issue isn't quantity of cash but quality. The UK has a track record of malinvestment, chronic waste and epic corruption. Increasing the pool of funds to continue this is foolish and will bring another crisis a few more months down the road.
What we need is a plans. Big, well though out plans for economic and social development of the country. And then we need to patiently pursue them, not in a crazy, crunken, chaotic, sex maniac kind of way like the past 11 years, but in a way that upholds positive values and behaviour. What the PM is up to is like turning up at a Roman orgy with two bags of cocaine, heroin, 12 bottles of whiskey and 100s of tabs of viagra. A stop to bad behaviour will not be the result.
Complain about this comment
Robert,
you need to ask when the interest rates will have to rise to encourage more savers to deposit and thus enable the banks balance sheets to recover.
What are economists predicting that the interest rates will be by the end of 2009? 9%, 10%, 15%, 20%
Surely that will put "credibility" back into the credit market because most folk wouldn't be able to afford it.
At times like this you can't blame the consumer for paying off debt whilst their money will pay off more of the capital before the inevitable backlash and the rise of rates.
Complain about this comment
At least Crash Gordon's mishandling of the situation is so complete that the only rational response is obvious - purchase bullion in a Swiss Vault.
Complain about this comment
89 StrongholdBarricades:
Spot on. Interest rates have to rise, policy notwithstanding. Interest rates are the price of money; and money, if you think about it, has become scarce, so its price has to rise.
Keep a close eye on the gilts market. If gilt prices start to fall, it will be an indication that govt is finding it hard (perhaps even impossible) to raise the billions of new debt that AD talks so glibly about.
I would not be at all surprised to see gilt sales conducted by placing or reverse auction, thereby setting their own prices, but in the process sending the gilts market downwards and interest rates upwards.
Of your end-09 choices, I would guess 9%, but rates are now twice that in Russia - a country which has problems, sure, but also has huge assets.
We have seen the banking sector almost crack; house prices tumble; sharp falls in equities; big slumps in corporate bonds, and a currency disintegration. Logic suggests that the next fissure to appear will be a crack in the gilts market.
Complain about this comment
Well, that's the New Labour explanation for the reluctance of banks to lend obviously. "It's all the fault of overseas lenders moving out."
Listen, Robert, to some facts:
- The government has ORDERED the banks to increase their liquidity. In other words, they have PREVENTED the banks making the loans they wanted to.
- The government have changed the rules in other ways too to make it MORE DIFFICULT for the banks to lend.
- The biggest borrower of all is THE GOVERNMENT (around £100 BILLION this year and more next). If the government wasn't borrowing that money, it would be available to lend to individuals and companies.
- Lower interest rates DISCOURAGE lending and ENCOURAGE borrowing. So they make the loan shortage worse.
In other words, it's not the beastly foreigners' fault. It's largely Mr Brown's fault (together with the idiots in the US government who have been following similar policies to his for the last decade). I find it astonishing that senior journalists like yourself are utterly failing to hold them to account for their incompetence.
Complain about this comment
It woulod be nice to think that 2009 will be a year of opportunity:
(1) Remove this government and get the Tories in to manage the economy and starting off again.
(2) Get the banks to get credit going again to businesses. Support the big businesses such as JLR and also smaller businesses that make things. (support JLR in completing their eco design and development engineering) This creates the jobs that turn into people paying tax and apending money.
(3) In line with number 2, .......we should buy british. As an example, if you have a non-british built car on your drive then replace it with a british built car. There is no excuse for not doing this. Also when you go shopping, buy something made (or grown or produced) in Britain.
And tell Argos/Tesco et al that you want british made products!
(4) Review the spending that we do on our "benefits" state. Pensioners and the genuinely ill/disabled should be supported. Unemployment should not equal a free sky box! Of course there are some genuine cases but there are as many abusers of the welfare system.
(5) Make the most of the pound/euro exchange rate and support exports. This mean we have to make things....back to number 2 in this list.
(6) Get the UK troops out of Iraq This should reduce millions worth of spending. (I Can't see any options to remove from Afganistan this year)
Complain about this comment
"Is he totally bonkers?" Yes....
He's in a hole and just keeps digging,the question is how long before we have an election !!!!!
The banks have not passed on the money it was meant to do so hes going to give them more ????
Vat has had ,and will have no effect on the way we consumers spend.....our energy bills are still at artificially high rates .He has totally lost control of the economy.......and is still trying to blame America for what has been a total failure on the Governments part to regulate properly.
Government forecasts have been shown to be overly optimistic we need a new direction from new people that aren't looking after there friends interests but are treating the normal people of this country fairly which we are not seeing at the moment.
Complain about this comment
The great thing about the comments on this blog are that I usually agree with many of the comments. Especially when it comes to the incompotence of Gordon Brown, I am only glad that I did not see the show or my comment would be saturated with the usual anger I experience when I exposure myself to this man.
Complain about this comment
#79:
I find your reasoning impossible to follow, but I cannot support Gordon Brown, as his prescription for fixing the economy is unsustainable due to the positive feedback and limit inherent in it.
Brown borrows against future taxes and encourages others to borrow against future earnings, and in a bizarre interpretation of Keynesian economics that must have the poor man spinning in his grave, stimulates consumer demand instead of production. That consumer demand then stimulates production - overseas, thanks to the low cost country sourcing which Brown also cheered on. We must then find more lenders (preferably unencumbered foreign capital), and pledge more future taxes and production, to raise the money to pay the interest on that debt and perform the next iteration.
Thus Brown's perpetual growth machine extends across borders for capital and through time for collateral, expanding exponentially to deliver prosperity today. The limit to growth is imposed by taxable income, which inconveniently is finite. We should all know by now what this setup is called.
Should anyone mention it, printing is default by other means. Call it creation of reserves, quantitative easing, whatever term you prefer, it means we are collectively down to having to debase the currency to make interest payments.
On our present course we will hit a wall within a few years unless the credit and currency markets call time first as they did with Iceland.
Is there anything here worthy of support?
I would rather sit here and detract.
Complain about this comment
Robert Happy New Year. I'm amazed that everyone is ignoring the fundamental problem - we have little manufacturing Industry!
Even Stalin spotted this flaw in the Russian economy in the 1920s.
Of course the Tories won't point this out as their great leader-ine closed down much of our heavy industry.
Complain about this comment
The entire story is here - http://www.howitends.co.uk/
Complain about this comment
When are you all going to waken up ?
It is meant to be like this so that someone can come in and save us all from misery.
Frying pan and fire.
What you see going on is an act, a performance, a nonsense in reality.
When the jews return to Israel - see freemasons, see Scotland Homecoming 2009.
You are being hoodwinked, en masse.
cheers
Complain about this comment
#31 bubblypolly
"I hope Brown was widely seen on Andrew Marr this morning - with every breath he demonstrated how out of touch and unsuitable he is."
Indeed - What did he say about Cameron? Something about "No time to learn on the job" and his "Experience".
And here we are, finding that Mr "Experience" has wasted billions on VAT cuts which anyone with half a brain could see would not work, and the Cameron loan guarantee is what is needed.
And he says an election is "the last thing on his mind". I bet!!
Hopefully he'd be wiped out.
Complain about this comment
75, Great post however the powers that be (the rich folk) are content to propel the myth indefinitely (if they can).
Until they are dislodged, its
Hi Ho Hi Ho,
It’s off to consume I go
Complain about this comment
Robert, I disagree with your diagnosis of the problem.
We are not in a recession because of excessive borrowing/lending.
For sure the credit system exacerbates the problem, but the trade cycle (boom and bust) is inherent to the capitalist system.
The capitalism system has boom and bust in its very essence.
Hence all the suffering people are going through is the result of a man-made system based upon private ownership of the means of production by a few & the rest of us having to sell ourselves (our labour) to them.
The credit system is not the cause.
To think that reforming it by somehow keeping checks on lending is a false hope.
Credit exists so the few (the capitalists) can make even larger sums of money.
It also gives the authorities the ability to delay the bust.
As they have been doing since at least the 80's.
But as awe are seeing the more paper wealth gets out of line with value the bigger the necessary capital devaluation required.
The system is the problem and it cannot be reformed.
Complain about this comment
When an organization faces continuing negative cash flow with no solidly predictable end in sight, that organization can find no lender and is bust.
Brown's plan, such as it is, fails to identify the paragon who is to provide him with loans. The IMF? They have had heavy demands already and their funds are not limitless. Broadly they are funded by the U.S.
and they may not be able to borrow more. The British public? Have a heart.
Complain about this comment
Robert.
Your comments appreciated - but am I missing something?
Whilst I am aware that it is 'easy' to blame the Banks for failing to pass on help / loans etc., surely the point is that our Supreme Leader should, when he was frantically wishing to appear to be doing something, was actually increasing all our liabilities, with very few conditions. Should he not, at the same time that the money was made available, have stipulated terms under which the funds were acknowledged to be available (from the Banks themselves.)?
It seems to me that he did not, and much of what we have since seen, was actually another of the famed Brown 'track covering' exercises! He would have been forced to 'confess' that he had all our Budgets totals wrongly described - exposing concealed PFI etc., - when he was saved by the bell! Well, here we go again! He should have made those terms when he was in a position to do so.
It seems to me that he did not!
Not only Andrew Marr surprised!
regards, Architrave.
Complain about this comment
I hope our Government isn't stupid enough to further nationalise - the taxpayer will then bear the total cost of irrresponsible lending in a recession, as the banks would not be able to act as a brake on the irresponsible lending that will be inevitable as bank bosses pander to their political bosses.
Journalists who haven't a clue as to the consequences of nationalisation of the banks merrily sensationalise the idea and seem to treat it as inevitable, joining in the general attacks on the banks, to better sell their their column inches.
The Sunday Times this morning has an interesting example of banks failing to lend to small businesses, namely the case of a restaurant owner who took a bridging loan to acquire a third restaurant in October, only now to find he can't get a mortgage on the property.
Why should a bank provide a mortgage on a commercial property whose value has probably fallen and could fall further, in a business which might fail in a recession as people eat out less, where the owner not only took on the risk of a restaurant business in a recession but also took on the risk of a bridging loan to buy a property in a falling market?
Are the banks expected to bail out failing/risky businesses and take on the risk that should be borne by the owners of these businesses, until the banks themselves are destroyed?
It seems to me a recipe for disaster and eventually a visit from the IMF.
Complain about this comment
The second tsunami has not struck yet (or if has started (Woolworth’s et al) then it is not finished until after the next quarter) and like all such disasters it is not possible to do much to prevent damage before hand (a few sandbags here a few sandbags there), but you can get some to high ground, the essentials businesses that we are going to need after the disaster (O.K. the banks being one of them). Once the water starts receding then we can assess the damage and start putting together a plan to get the economy going again. Circumstances are pushing us in the direction of state capitalism and it is likely that this will be the ‘new model’ economy with all the dangers that poses democracy and world peace. Some aspects of the present day are reminiscent of 1914 and I get a bit edgy when Russia starts flexing its muscles, often just to push up world oil prices. But this is not 1914 it is 2009 and we are facing what the Marxist would call a crisis of unsustainable capitalism, what the Greens would call a crisis of unsustainable economic system and what the capitalist would call a major crisis of a unsustainable economic model. When GB calls for the Dunkirk spirit – he is not joking – it is as bad as that and worse – so bad that we all hang by a single thread and if the thread breaks and the bond bubble bursts its goodnight.
You know it is bad when a leading Japanese business man starts seriously floating the idea that Japan should cancelling $980Bn of US Treasury Bonds debt.
(http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4093676/Asia-needs-to-fully-wake-up-to-the-scale-of-the-Wests-economic-crisis.html)
Remember the nations with surpluses are just that nations with surpluses, there only so many more sand bags, but if they stopped gloating for a minute, then they might realize that they can use the surpluses to create higher ground for their economies and the world economy.
So, over the coming months will the world work together and help alleviate the problems or will it be every nation for its self – you already know the answer.
So Happy New Year to you all and I really mean that – for it tis only a game.
Complain about this comment
Advise to Daivd Copperfield by Mr Micawber
Annual Income £20.00, Annual Expenditure £19.05 result Happiness.
Annual Income £20.00, Annual Expenditure
£20.05 result misery.
The blossom is blighted, the leaf is withered, the God of day goes down upon the dreary scene and - and in short you are for ever floored
The people lived beyound their means, the Banks loaned money beyond their means and now our government is planning to spend beyond our means. and now problably for the next couple of generations we will all be forever floored.
Complain about this comment
Given that the government has pawned off all our companies, resources and talent. What next?
When I retire I will have a worthless pension.
When I retire I will have worthless savings.
When I retire, I may be lucky to still own my own home.
When I die, the goverment will tax it.
If I become sick, they will sell my house to keep me.
Tell me this folks, whats the point of working in this country?
PLEASE TELL ME!!!
Complain about this comment
The coming calamity will be all the harder to endure knowing that the Fabians in NuLabour will be hugging themselves in glee that the destruction of the English middle-classes they planned for is coming about.
Complain about this comment
#97
No one as yet has anwered the fundemental question: what is the British economy?
Manufacturing has collapsed due to a long list of reasons, some recent (the growth of China as a manufacturing giant because of the massive pool of cheap labour and deals with African countries for raw materials) and others historical (failure of the Wilson government to take notice of 'In Place of Strife' leading to the madness that was BL etc in the 70s that led to the inevitable death in the 80s).
Construction, well that has been bumbling along largely staffed with cheap labour from Eastern Europe.
Farming. Ditto but hampered by the CAP.
Fishing. Killed by the CFP
Transport. Haulage has been strangled by excessing taxation and competition from abroad.
Tourism. Until recently hampered by the high pound but now looking for a resurgance for 2009, if the tourists have the money to come.
Financial services. This psuedo industry has been to goose that has been laying the golden eggs, until the shell has been cracked and found to be rotten inside.
Government/Local Authority. This is where the majority of white collar work has been generated, mostly doing non-jobs implementing government whims and spying on the populace.
We are really in trouble.........
Complain about this comment
Hmmm.. I am reminded what it was that Dr Wiedeking - the boss of Porsche - said in an interview last year.
“The Porsche philosophy is that first comes the client, then come the workers, then the suppliers and finally the shareholders. When the first three are happy then so are the shareholders,”
I get the strong impression that the UK banks still consider that their shareholders interests come first. Until they change that then inevitably their client - the UK economy - will suffer.
As Dr Wiedeking also said:"With [Germany’s] social-market economy we have created an outstanding system and we shouldn’t give it up. It has served us well for decades and can further do so. Consensus strengthens our industries. If we regularly listened to investors, we would become too short-term orientated. "
Seems logical to me.
Complain about this comment
Robert
With the Government embarking upon a grand scheme of social engineering by publicly funding bank lending, I feel the need to ask some questions.
Who, on behalf of the taxpayer, is doing the maths? The first capitalisation of the banks looks like an excercise to avert an imminent banking collapse rather than a calculated recapitalisation to facilitate increased lending. As Banks dont trust each other fully, why should we when we assess our investment / bridging loan to them.
The damage done to their balance sheets by the losses incurred through their off-balance sheet dealings with asset backed securities / credit derivatives is now combining with nasty asset deflation making good profitable loans potentially bad and bad loans toxic .Capital / lending ratios are being tightened which , of itself, directs the Banks to build up capital and screw profits upward with higher priced credit on new loan to value calculations designed to factor asset deflation out as a risk. At the same time the borrower must be good for the money and put up collateral - not forgetting him/her demonstrating a viable business plan : you know, all those old fashioned things they should have been doing anyway to protect depositors' money...except that depositors' money seems to have been surplanted with leveraged bulk funding from global sources which is now evaporating.
Now the real economy is knocking customer business plans to hell and unemployment looms. So, in the real world, how is credit to be expanded? Unless I have missed something the PM has said to the contrary, Banks are being run for profit and the credit lines to the rest of us will depend on this fact.
Back to my questions : what are the size of the Bank losses on dealings in asset backed securities / credit defaults ; what are the size of the Bank's bad debt write-offs and security value write-downs going forward? At the same time, who were the people with the duty of care making/regulating/oiling the toxic off-balance sheet market in asset backed securities / credit default swaps etc? Did the regulators take a long holiday while this catastrophe developed? I note the hedge funds offloaded their stuff in 06/07 for a good turn - nice one!
Lets not leave the answers to the 'great and the good ' in Westminster / the City...
Complain about this comment
Although I personally benefit from the rate-cuts as a tracker morgage-holder, I think it is wrong to cut interest rates in this country.
The cut is beneficial if businesses, manufacturers in particular, because they can borrow money cheaply to boost their business.
But alas, in this country there was no business apart from the speculative financial, not to mention manufacturers.
How the UK can benefit from rate-cuts and to whom banks are pushed to lend our money is a mystery for me.
Complain about this comment
Dear Mr.Peston,
I read to-day in The Washington Post that the British Banks during 2008 doubled their investments into US Treasury Bonds.
I am not privy as to the relevant amounts, nevertheless it begs the question 'how much money have they made in currency speculation' and how much of that invested currency came from we the public via Alistair Darling?
I submit that a so-called profitable trade which could make them more funds would enable them to lend to UK companies - or would it?
More like ,purely in my view,more currency speculation to the possible further demise of the value of the Pound!
Complain about this comment
Brown once again "saving the world" and Peston comes back to life. The Labour party pet journalist helps out with the spin as usual.
I guess its still not the governments fault for this mess or the Bank of England or the FSA its still those naughty banks.
Not one public sector employee has been made accountable for the mess the Uk is in. We will have to wait a year to hold Brown accountable.
On topic this is another mickey mouse idea that will not work. Brown still clutching at straws until he goes into a rant / sulk mode and nationalises the banks out of spite.
Whick Peston will no doubt leak the night before.
Complain about this comment
#86
Actually you can buy unemployment insurance if you are self employed - providing the wording is checked - look for the cover for 'cessation of trade' - which covers involuntary bankruptcy.
Proper insurance brokers offer such cover - banks and other financial services mis-sell it. (especially these days as they grasp at any means possible to make money)
Am still waiting for the FSA to announce it's fine on Lloyds Tsb for mis-selling PPI - I expect it to be about £25 million.
Complain about this comment
#114:
US treasury purchases were part of a wider flight to perceived quality which sent yields to record lows, with negative prints on short duration bills. It was less speculation than a way of safely storing cash that became a bubble. Unfortunately given the skittishness surrounding the sustainability of the US national debt, it is more difficult to exit that trade in volume than it is to enter it. If you like, many nervous investors are packed into the room and the exit is narrow. No trade is profitable until you get your money back, in this case also without causing a panic.
Complain about this comment
Dear Mr.Peston,
Further to your above article, unless things have changed dramatically in the last 48 hours the Americans are expecting a flood of foreign exchange investments from the rest of the world. China, the current largest donor of foreign currency to the USA increased its investment 42% in 2008. The Americans are expecting in 2009 a flood of petrodollars from the OPEC countries.
With the latest Middle east confrontations that no doubt will happen. the last Middle east confrontation lead to the US dollar increasing by 20% in a 'World ' flight to 'safety'.
So America is not expecting a problem of a tightening of credit funds - Mr.Obama will have funds to excess.
Then watch out for dramatic interest rate rises and inflation!
Complain about this comment
Happy New Year Robert, Thank God you're back it's been terrible not having your blog to read.
I read your book over the holidays, and Paul Mason's actually: both are very good and its a tribute to the quality of the BBC to have such journalists working for it.
What came across is that you've got some serious concerns about pensions.
I don't blame you. I think that the pension schemes are going to get hit very hard by this indeed. SO hard in fact that many are not going to be in a recoverable position. I think that the state sponsored schemes will be lucky to get away with minor cuts, and I don't think they'll be that lucky.
2009 is quite simply decision time. The government has to make a judgement: inflation or deflation? If the government goes for inflation then we'll get out the debt trap, but more than likely once started it might be impossible to stop: risking social instability and economic disruption. If it goes for deflation we're heading for massive unemployment, way beyond 3 million, and grinding depression.
It has to either/or. And I expect the decision has to be made soon. Although, I suspect I know what the choice will be: there's something very British about low inflation.
To return to your book, although you stress your friendliness towards capitalism, you don't come across as a true believer, and there are a couple of areas in the book that suggest areas of doubt:
1) You write 'there was inadequate insurance against a contagious collapse of confidence' when writing of the downfall of the money markets. BUT, the collapse of confidence was justified. Niall Ferguson seems to think this too: that the Great Depression was just about the herd instinct of fear getting control and staying that way. It's not. There is a lack of confidence based on evidence - the credit/banking industry had run out of markets. Lending so outrageously to the subprime market was a signal that the system had reached saturation point, and was approaching a major reverse.
2) You write 'what it (drying-up of credit markets) showed was not that any individual institution had taken on excessive risks, but that the architecture of the system was seriously flawed'. The architecture IS the system. The same way a Church building is its architecture. The system will always extend credit to the point of collapse because it has to function that way, otherwise, it collapses or doesn't get going. The clever financial products distributed small doses of risk around the system. However, like administering small doses of poison, the first few might not kill you, but if you keep doing it, then you'll kick the bucket. The financial system built-up massive risk, just spread it across the world where no one could track it. And because no on tracked it, people thought it wasn't there!
Complain about this comment
The LATEST LENDING DIRECTIVE??
JUST ALL THE MORE REASON FOR ANYBODY
WITH ANY MONEY TO BANK OVERSEAS.
GET REAL GORDY YOU'RE DONE NOW!
Complain about this comment
There are a lot af angry posts on here today.
It is like the Robert Peston blog has been invaded by the John Redwood blog.
Complain about this comment
The banks are not lending as of yore because the truth is they are broke once unrealised losses are recognised. Further measures will be necessary and guarantees are worth trying but there are no magic solutions - it is quite likely further recapitalisations will be needed. One way or another the Government is going to end up controlling them for quite a few years.
But as debts are never repaid in full in these types of distress situation. Inflation is clearly on the agenda here and in the US. That is what quantitative easing (qe) is all about. So, yes, the government can bail out RBS and others by printing pounds but it is the value of the pound (and the dollar) that will suffer in the coming couple of years.
Watch gold. It is already a record highs against the pound at over £600 an ounce. it could double from here easily as qe takes effect.
Complain about this comment
I'm afraid that this country is bankrupt!
Over the next two months the above fact will be communicated to us, albeit slowly, in drips and draps, so that we take in the shock gradually, "nanny state" style of course... So as not to hurt us, poor little things.
In March, we will be marching. For jobs, energy, food and leadership, it's that bad!
My advice; Don't ask Government what they can do for you, ask what you can do for yourself; Plant some spuds etc, get some chickens and buy case-loads of those cheap tins at the lower market end stores!!!
Time for glass of my home made wine ;o)
Complain about this comment
Just like most of the contributors and readers of these columns, I have a bank account. Just like those readers, I too have a modest income.
I expect the money from my modest income to be carefully used by the Bank.
That means I expect the Bank to exercise due caution when making loans and overdrafts to either personal or business customers.
If they don't exercise caution, that is what puts my money at risk. I don't want that.
The banks have taken too many risks in the past few years, perhaps relying on the impossible thought that boom and bust had been consigned to history. Fact is that you cannot get away from economic cycles!
Government cannot simply tell the banks to get money out of the door because that simply brings us back to making bad loans.
The idea of a Loan Guarantee scheme similar to SFLG is attractive, BUT the rationale behind that scheme is that the government provides the guarantee ONLY because of an absence of other suitable security from the customer.
The SFLG scheme is NOT intended to prop up uncreditworthy firms and should not be. I gather that when SFLG first started, banks WERE using the scheme to help prop up poor propositions and teh Bank of England/DTI had to reign in the banks use of the scheme.
Any new scheme HAS to be subject to common sense conditions, one of which has to be that the basic lending proposition stands up. Otherwise it is no more than throwing cash out of the window - and we, as a country cannot afford that.
Again, it comes back to the reality that I as a customer (and taxpayer) want to see my money used responsibly.
Complain about this comment
Brown is advocating socialism for the rich and capitalism for the poor. Sorry Gordon, no. Bankers fuelled by massive salaries and their bonus culture failed to act like responsible banks and instead functioned like giant hedge funds and the gamble failed. So now the Prime Minister wants more taxpayers’ cash to clear up the mess at a party most of us never even attended.
In January 08 Jonathan Freedland wrote about these double standards which underpin modern capitalism:
"Behold the hypocrisy. The free marketeers have spent the past two decades preaching against the evils of state intervention, the dead hand of government, the need to roll back the frontiers, and so on. Yet what happens when these buccaneers of unfettered capitalism run into trouble? They go running to the nanny state they so deplore, sob into her lap and beg for help."
If Gordon wants to give them more of our cash then our equity stake should be significant along with all banks’ CEO’s pleas for mercy as we make sure their massive salaries are hung, drawn and quartered down to size.
Complain about this comment
I cannot believe that you entertain this nonsense for a second.
The only people who will win in a borrow more environment are people who AREN'T like me - hard working non benefit scroungers.
Labour's idiotic irresponsible policy of living beyond your means got us into this mess; anybody with common sense could have seen this coming; it's about time Peston woke up and admitted that.
Complain about this comment
......banks start lending? Am I missing something or would I be right in asking what bank in their right mind would borrow money at 12% only to then lend it on at 4-5%? Gordon Brown's idea of bailing out banks at this punitive rate is sabotage by another name. By also suggesting that the banks sort out their capital assets ratios whilst they were at it was the final nail in the coffin. Can't help but wonder where the PR machines are that should be putting the banks point of view forward whilst the MacCabinet bad mouths them? Could it be that the money proferred came with a keep your mouth shut clause? It's all politics to these people, they don't give a damn about anything aside from what will keep them in power. Lying scumbags the lot of them.
Complain about this comment
#125 scorpioDorsetboy
I think that's really rather unfair on the banks. HSBC told the government where to get off when they offered the "recapitalisation". Barclays decided to borrow the money privately rather than from the State to fund the government's increased capital requirements. Lloyds TSB was bullied into taking part in the rescue of HBOS. Basically two big British banks (HBOS and RBS) had to be bailed out - the rest tried rather hard to AVOID "running to the nanny state".
Complain about this comment
#123, your advice is excellent and bears repeating.
"Don't ask Government what they can do for you, ask what you can do for yourself"
For years we boasted about our superior economic model up and down Europe and they whispered how such growth was possible. Then we ran out of marks. Britain is bankrupt and the market may call time this year, and there is a risk, once it digests the budget.
Even Iceland was too big to save.
Complain about this comment
I liked it when GB said that lowering interest rates would 'help drive down inflation'. What kind of mad broonomics is this?
He hardly gave a single proper answer to any question, just the usual platitudes about america and the gloabl economy.
The only question we wanted an answer to concerned the general election, but he fudged that one too.
I just cannot understand why anyone is taken in by this buffoon.
Complain about this comment
Dear Sir,
It is about time the people realised that they get the government they deserve!. To put it simply a nation can get along with a strong government and a weak society, or a weak government with a strong society. What we have had for many years is a weak government and a weak society.
Brown does not have the moral compass to fall on his and Labour's collective sword. All they can see is - in their eyes - the need to have the people dependent upon them - the government. It is communism by default and stealth.
Far from reducing VAT and interest rates - they to be INCREASED. This will not only incentivise savers and investors, it will also reduce the debt burden by stopping people from spending what they cannot afford.
Of course we need to have sensible lending return to the market place, but that lending has to be based upon proof of competence and intent by the borrower. Bring back good old 'hire-purchase' principles where one had to put down a deposit of 205 to 30% - i.e. proof that you had a job and also that you were responsible enough to save before borrowing.
Sadly we will be forced to go through at least another 18 months of Brown and Darling obfuscating, fudging and fogging the issue, wringing of hands and blaming America, before the people can throw them out of office. Lets hope the ship hasn't sunk by then.
Meanwhile give the BoE back it's true independence, put the FSA under BoE authority and also sack the current governor who apparently, and I quote, "realised that debt was too high and the global system was in trouble, but did not have any idea of just how bad it was" no, he like Brown had his head up his **** and didn't want to see.
Thatcher said 'you can't buck the markets'. Yes, but what governments should do is set the limits within which markets can operate. Virtually all goverments worldwide have abrogated their responsibilities in this regard.
Complain about this comment
121. At 9:12pm on 04 Jan 2009, fireyshandy wrote:
There are a lot af angry posts on here today.
See 123 for reason, we is in danger mon ami !
Complain about this comment
#130. wykhamist wrote:
"I just cannot understand why anyone is taken in by this buffoon."
Can you not? Surely, as the fact seems to be that most are being taken in, then the answer must be, must it not, that as politics is picking between the options that we are presented with - the other option of Little Lord Fauntleroy appears worse?
I do agree with you that the economics he spouts is a nonsense, but nevertheless the fact seems to be that his nonsense is more appealing to the public that the silence of the opposition.
The present regime's nonsense will be impacted upon by the market and its (the markets') common-sense will prevail. It is just a pity that the reputation for sound economics that the Bank of England may have had (I leave aside its manifest errors.) is being thoroughly and comprehensively destroyed by the pursuit of the present wrong policies that are setting about to destroy the whole idea of money having any value. Zero is madness!
Complain about this comment
#132, lol, share a glass of wine? it's not taxed, or prohibited, well not yet...
This thing has to go it's course before we get enough like minded to revolt.
The biggest ponzi scheme ever is now collapsing! I'm just sitting backing and enjoying all the pontificating.
ssshhhh. Peston knows it too ;o)
Complain about this comment
64 sounds like the intro to Vince's forthcoming book - not in the shops until April though, so will probably need an additional chapter by then.
So... how to escape from the pincers of rising food and fuel prices, diminishing credit and investment returns, whilst also providing for an ageing baby-boomer generation (so we don't see too many pensioners dying in underheated homes or in boxes on the street), as well as avoiding war (in trade rather than with bullets). Tricky.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
#128 Adam_C_UK please the banks have enough apologists.
Barclays profits plummeted in August due to their risky business model having got their fingers burnt in the sub-prime market. At the same time they announced job losses while the bosses still received their bonuses. Not very equitable is it?
You’re correct about not turning to the state for cash, but desperate for cash they were so they had to go cap in hand to Middle-East investors. Moreover in their desperation they had to pay £300 m to advisors to broker the deal. It’s worth remembering the boss of Barclays' investment banking division, Bob Diamond, recently took home more than £21m ($42m) in pay and bonuses.
HSBC fair no better with massive bad debt losses announced a few months ago. Five HSBC directors were recently given a £120m pay jackpot despite this catastrophic foray into US sub-prime lending. This resulted in the bank announcing significant job losses in their IT division and very recently the bank had caught another cold having been suckered by Mr Madoff.
My point is the recklessness of all banks means we all have to pay one way or another either as taxpayers (the most visible), through job losses, increased bank charges, higher interest rates (look at Barclaycard APR and remember the former CEO admitted Barclays ripped off customers off) etc.
So do you still want to give these people more of your cash?
Complain about this comment
So 'Dig for Victory' seems to have been replaced by 'Borrow for Prosperity'.
However all this borrowing will have to be spent on something, my guess is that the Government is willing house prices to return to their previously hideous levels. The new blitz sprit would see us all take on excessive debt and bail out those that have become comfortable living beyond their means (in addition to the increase in taxes that's coming). Next we, the public, will be blamed for the financial crisis because we're not borrowing and spending enough!
The Government are lost, spouting inconsistent and contradictory policies in a vain attempt to convince us that they have the situation under control. For example they state that they wish lending to return to 2007 levels and yet they want the banks to rebuild their balance sheets.
As asset prices are inextricably linked to this problem, and considering the Government have bought the banks; it's time for the Government need to state their aspiration for mortgage lending in 12 months time in terms of Loan-To-Value (LTV) ratio, multiples of annual income, and loan duration. An answer to this question will let us all know whether we're either looking at a real crash in house prices (not just flats and apartments) or a return to irresponsible and risky lending. That's why I raised the following petition:
http://petitions.number10.gov.uk/LendingReform/
I wrote to the Treasury and the response was useless. Isn't it comforting to know that all our taxes are being hosed at a financial inferno that will just engulf us all. How can the Government justify using our money is such a reckless and talentless way, simply - I don’t think they can. We just have to suffer as we watch our money go up in smoke.
Complain about this comment
Robert
Can you please explain to a simple mind how and why Britain's problems can be blamed on America as Brown claims.
Was/is he really a political eunuch - if so how can he claim with any justification to be the man to lead us out of our present troubles?
Complain about this comment
#135 wrote: "Tricky."
An understated way of saying impossible, of course. We made poor assumptions, decisions and investments. What now happens is lots of claims on capital and not enough to go around. It is inevitable that someone will be denied.
The government believes it can do a better job than the market of deciding who will lose out without the country falling to pieces. Their record gives me no reason to feel confident. Indeed, the bankers keeping their jobs and renumeration was not a market decision, it required consent which was supplied by silence. So we can imagine how sensitively they will tread the rest of the way, like bulls in a china shop.
Complain about this comment
Government offering loan insurance does not seem like a sound idea. The problem as i see it it is one of sensitivity. A good lender will be sensitive to market movements, sectoral pressures, etc. The government has to rely on a more narrow range of vibratiosn to play out its policeis otehrwise it would have to sit around and sound out all in sundry before acting. I relaly fear for competition and the market economy after the current depresion has lifted in three or four years time.
Complain about this comment
The Clash said London Calling Rude Boy. Give 'em enough rope -
Sandinista! Combat Rock.
moderation should allow this selection with out any objection!
Complain about this comment
If this is the best that the best can do, well I dispare. The top people of this country, be they politicians, bankers, or academia. Oxford, Cambridge, Eaton educated, the best of the best, well one must question such a profoundly incorrect belief that these people are indeed what they claim. A Priminister that believes you can spend your way out of a credit crunch, an opposition leader that believes this government or Gordon Brown is responsible for every thing that has happend. Fact is I would not trust them with organising a pi** up in a brewery, spitting image comes to mind. We need a profound change in the way this country, and the world is run. There is no such thing as a free lunch, if we get rich it is at the expense of someone else, this is true on a global scale as well as personaly. If you get rich it will be at someone elses loss, you may not care, but it will come back to haunt you.
Complain about this comment
What worries me from all these comments is that most ordinary folk appear to have recognised the fundamental failings in this Government's economic policies, but also recognise that GB and Co are not honest and not listening. Now, given that there are smart people in Whitehall, they are presumably not listening for a reason. Could it be the GB has decided that a scorched earth policy now will give his mate Balls at least a chance of moving into Number 10 in 2014 or thereabouts ? In the meantime, are we not supposed to live in a parliamentary democracy where the people's representatives can hold the executive to account ? Naive I know, but that's the theory, and we lecture the world on the benefits of democracy. Mr Cable does his bit, but as a lone voice he is ignored. Messrs Cameron and Osborne strike me as being strangely silent wastes of space. Surely somewhere in the Palace of Westminster there are ambitious, knowledgeable and competent individuals who feel like going for broke and telling it like it is. Who knows ? If they are presently Labour MPs they might just keep their seats by being independent. Then again, with their generous pension entitlements paid for by those who will be far less well off, perhaps post election retirement is looking good just now.
Complain about this comment
Reading the blogs there are a LOT of very angry people out there.
Those who are supporting Gordon are either non existent or are keeping very quiet in the midst of the verbal barrage.
I hate to say this but he does need to get money flowing to business so that they do not collapse like 9 pins due to working capital issues.
He is right to do this I think and it is designed to have the same affect as the Tories proposals of lending direct to business.
We may want to rubbish it simply because it came from Gordons mouth but it is a very serious problem brewing, essentially the bankers credit crunch breaking out into 'real' economy.
Before you all slaughter me for having the audacity to support him on this, it does not mean I will vote for him.
Gordon is the political equivalent of a dead man walking, his past mistakes as chancellor can not fail to be better used by the opposition when the time is right. Here are a few ideas for posters for free:
No more boom and bust....What do you call this then?
Labour isnt working....again.
or how about
A wild west 'Wanted' poster of Gordon entitled
''Charlaten who sold national gold reserves at the lowest possible historic price'' Do not approach this man alone, as he is considered highley likely to blame it on someone else.
The Tory party marketing machine can have those for free.
good luck with it.
Jericoa.
Complain about this comment
Hi Robert,
Happy new year to you. After all the recent festivities its great to have you back with reality of 2009 and whats in store for us all. How can crash GORDON have the audacity to remain as PM when he has no idea what is going on in the real world.
No more bust, lets have a change ASAP before its too late.
Keep up the excellent reporting Robert.
Complain about this comment
Doesn't matter what the banks do about lending.
The government is going to borrow and borrow and borrow to keep it's mates in the state sector from facing the same realities as the rest of the working population.
Things are tight but that hasn't stopped our town hall from buying two more civic art works and another, unwanted, traffic slowing scheme last month!
As in the soviet union these parasites are going to drag the whole system under.
Complain about this comment
1. I’ve just spent a week beating my brains out dealing with BT’s Indian call-centres, who are perfect proof that we don’t need globalisation – the cultural differences between nations mean that no nation can adequately service another, the inefficiencies of this kind of scale far outweigh the efficiencies possibly gained, therefore it’s time to retrench. If that’s tough luck on the third world, that’s life, you can’t make a silk purse out of a sow’s ear. In other words, globalization has been revealed to be a synonym for hegemonisation, which does nobody any favours beyond the outgoing US Presidency and his friends.
2. An extension of this argument is that the entire world has been conned by bunkum worthy of Barnum and Bailey – the general feeling in the population now is, if I can’t touch it, I won’t buy it. That’s bad news for all kinds of hybrid instruments, but probably good news for basic probity in the long run – the wind is whistling out of the bubble, and about time too. This time, it’s the conmen who are being shown the way To The Egress – and they can be grateful that the only tar and feathers are verbal. To talk about confidence in these circumstances should be rewarded with the real thing – what is there to be confident in? The problem is that we’re now seeing a domino effect starting, when Zavvi collapsed because Woolworths collapsed. That’s being echoed all over the West Midlands and Wales, as companies fold because their customers or suppliers fold. The roads are empty, the stores are empty, the population aren’t buying because they know that before long it’ll be their jobs going and they’ll need every penny to survive.
3. How long does it take GB to understand that the credit market’s broken beyond repair? It didn’t work the first time, it didn’t work the second time, and now he wants a third go. Once may have been an accident, twice carelessness, three times will be criminal – the banks are now entrenched in their caution for exactly the same reason the population aren’t buying, we’re talking about individuals when we talk about bankers, individuals who aren’t going to put their necks on the line however much the risk is guaranteed by HMG, any default will still be exactly the same black mark internally each individual banker’s desperate to avoid to keep his own job. Unless GB takes firm control over the banks and forces them to do as told, this is so much whistle-down-the-wind (or rather, the kind of mess in a corner HM Plod have been spending a disproportionate amount of time supervising the cleaning up of of late, by lending the perpetrators a mop and bucket).
4. There’s no shortage of cash of the right kind, however: I’m staving off insurance companies who want to pay me off, on the grounds that I’d rather get nothing from leaving it with them by not completing my claim than get nothing from leaving it with a bank where I’m already over the guarantee limit. This is an insane market for investors, there’s no point in buying into a falling market, swapping it out to invest elsewhere will simply add a currency loss into the mix. My safe is getting full, I've got what I need so I can't spend it, I can't even give it away, as it's entailed in trusts in the long term. And finally inflation will soon demonstrate that it's so much junk anyway.
Complain about this comment
If UK PLC is going to get going again
Millions of people are going to have to
start WORKING for a living,get out and
PRODUCE SOMETHING other people
WANT to BUY.
Not to mention stop living on
BORROWED MONEY and ACTUALLY
EARN IT!!
GORDY WHEN WILL YOU GET IT???
Complain about this comment
#146:
Working capital issues are not as straightforward as a closed lending tap. Consider why they might have arisen.
1. Falling sales. Realistically for many retailers, demand for their goods and services will not return for the foreseeable future - not just consumers' ability to pay, but desire too. Times always change. No-one wants to talk about it, but consumer credit demand has cratered.
2. Excess inventory. Before the credit crunch, just how many new cars did dealers expect to sell? When was the last time you saw an old model, let alone a banger?
3. Inability to pay dollar and euro invoices with pound sterling sales. Taxpayer support increases public debt and reinforces the currency trend.
4. Customer late payment of invoices, possibly because of the above, possibly for reasons of other self-interest. There must be a lot of this going on, perhaps the CBI could conduct a survey. Contractual disputes are not a matter for the taxpayer.
5. An overhang of debt from a private equity deal. Bad timing, old chap. Who signed on behalf of the taxpayer?
I could go on, but you get the idea. Many businesses claiming to be "credit-worthy" are either in denial about their prospects in a recession and its consumer-led element or have already incurred a loss which would be transferred to any lender extending credit. It is natural for anyone to lobby for "one more chance" but that does not mean the floodgates should open. I can think of few blameless sectors that deserve access to additional funding right now.
I accept some businesses will have a problem replacing maturing short-term financing at an affordable interest rate. But what return would you personally demand in view of the above? A taxpayer-backed bank is the same as "you personally" lending by installment with the contents of an ISA as far as I am concerned.
Gordon Brown says the government must act decisively to ensure businesses can borrow, but to what end? To pay an overseas supplier, a private equity group and some warehouse fees before locking the doors? This is the reality.
The reason I do not trust Brown is I know what many of the issues are, and he does not address them. He claims lack of lending is the problem - it is not. He says that getting banks to lend will solve the problem - it will not. He says that is where he is focusing his efforts - I think he is stalling for time to avoid tainting his legacy further with a creative default. In the meantime if he succeeds in forcing more lending, there will not be the sales to repay him and no word about anything I have mentioned except acting surprised.
Complain about this comment
time to throw the baby out with the bath water and start again
Vote of no confdence now please.
Complain about this comment
Motion seconded. Move to vote please.
One does not change horses mid-stream, but the alternative looks more like drowning by the week.
Someone else really needs to look at the books. Now.
Complain about this comment
"So how much capacity has been taken out of the British lending market? "
Brown will take even more capacity out of the lending market by reducing interest rates to virtually zero. Savers bereft of interest income will invest elsewhere thus reducing this capacity even more!
The reduction of interest rates from 5.5% to virtually zero will deprive the economy of approx £50 billion of interest income which could be funding mortgages, buying goods to stimulate the economy not to mention providing the government with considerable tax revenue.
"Its a global problem says Brown" - yea so global that our currency is now worth 25% less than virtually everybody elses!
Complain about this comment
Brown will take even more capacity out of the lending market by reducing interest rates to virtually zero. Savers bereft of interest income will invest elsewhere thus reducing this capacity even more!
The reduction of interest rates from 5.5% to virtually zero will deprive the economy of approx £50 billion of interest income which could be funding mortgages, buying goods to stimulate the economy not to mention providing the government with considerable tax revenue.
"Its a global problem says Brown" - yea so global that our currency is now worth 25% less than virtually everybody elses!
Complain about this comment
Brown will take even more capacity out of the lending market by reducing interest rates to virtually zero. Savers bereft of interest income will invest elsewhere thus reducing this capacity even more!
The reduction of interest rates from 5.5% to virtually zero will deprive the economy of approx £50 billion of interest income which could be funding mortgages, buying goods to stimulate the economy not to mention providing the government with considerable tax revenue.
"Its a global problem says Brown" - yea so global that our currency is now worth 25% less than virtually everybody elses!
Complain about this comment
Well that is the usual Brown genius.
The "smaller" players made loans in **BOOM** times that didn't make sense then and as such have had to massively retrench and/or go out of business. So the plan is to get larger players to make the same loans in **BUST** times? Anyone still think BARCL was stupid for not taking UK gov money?
Complain about this comment
#138, well time will tell if that was a good decision or not. I suspect that not taking government money will prove to be cheap at ANY price. The difference between BARCL, HSBC and HBOS and RBOS is that the former were able to survive as stand-alone corporations.
Complain about this comment
#29, man learn some basic finance. The value of the derivatives quoted are face value. I do a two year interest rate swap for 1 billion it sounds impressive but the actual cash changing hands will be in the low millions which is less impressive. Also the high figures come from the way these products are traded. If I have an OTC derivative for 1 billion and i want to sell it then unless it is very liquid I will take a hit. So instead I enter into another OTC agreement on the OPPOSITE side of the original trade. So lets say i have a CDS where i promise to pay out if GMAC has a credit event then rather than sell that CDS I BUY another CDS where i will get paid if GMAC has a credit event. Now the face value is 2 billion but - in theory - the actual risk on my book is 0.
Also not all interest rate derivatives go up in value if interest rates go down.
PS a sharp person will spot a number of issues here, mainly counterparty risk that doesn't mean my book is actually flat but in any case the risk is not 2 billion or even close. Moral of the story is the face value of derivatives out there will go up as a result of trading but the amount at risk won't necessarily go up by the same amount or even have a simple correlation.
Complain about this comment
#65, actually GB interviews are great comic relief. I used to think the guy was simply a pathological liar but it seems he is genuinely delusional.
Complain about this comment
I do not understand why no one can see it. Flash took the credit for all these boom years, which did not really exsist, but were just based on debt.
Therefore if he gets the banks lending and us borrowing the economy will go back to a debt based boom and we will vote him in.
Unfortunately for poor deluded Flash, we have woken from the dream and realise we are in hock upto our ears, and want to get out of it. Of course it is not easy as he has taken away any interest from savings. It is only a matter of time before he prints money to pay off our debts them we really will be tempted back to Curry's.
Even if he achieves his aim of making the debt available I think the majority will say no thank you, lets get back to reality. Well I hope they do.
This is indeed a testing time, will we sell our souls, or pull back from the brink.
We have taken this game as far as it will go, now is the time to pack up and play another. Thanks Flash it was fun while it lasted but time to move on, for you and us.
Complain about this comment
Dear Robert
"All the tax payers have done" is give back to the banks what they have lost through manipulation of the shadow economy, Even Chief Executives did not know what their staff were up to, YETm no one is being sacked WHY,?
Now the banks will not lend because they are using out money to regain crediablity on the world markets before lending us it back
Gordon Brown has mow confirmed this will last two years, and no matter what he says, this is down to Domestic Policy, and the world gets the Blame for being on the band wagon, when in fact the Government, the FSA, and the watch dogs sat back and did NOTHING,
Complain about this comment
I wonder if HMG and others in authority will now consider the downsides of globalization, the most fundamental of which is that effective control of a country's economy is domiciled elsewhere, in the hands of unelected entities?
As to 'the banking crisis', how about revoking all banks' licences and designate the BofE as the sole bank allowed to operate in the UK?
Complain about this comment
I suppose I am bucking the trend here but I find your commentary about the recession so so pessimistic . We have been here before and we did survive . So for all you doommungers out there we have had this situation before and survived it .
As to who is to blame its all of us .
And the reason .... one word sums it all .
GREED
Complain about this comment
A second comment:
The more I read RP's blog, the more I realise that many people identify the basic malaise and people's sagacity.
The bubble has truly burst, reality has returned, and we watch the fallout. The age of instant gratification has passed, and we live - as if in slow motion - the unfolding consequences of a debt-fuelled economy unravelling.
We may have felt the the banking crisis brought us to a precipice, that we managed not to descend into the abyss, but what we are learning this economic crisis is like slipping on scree: it can be pretty sheer, but there's no stopping until the bottom is reached!
The Great Depression did not last just a year and this event has lasted not that long.
Complain about this comment
This quote is from BBC political correspondent David Thompson on an accompanying article on the subject -
There's already anger that the banks are failing to respond to needs of businesses and homebuyers.
There is undoubtedly anger (rightly so) about the part the banks played in getting us to where we are but as mentioned by several earlier bloggers there is no longer the demand from business or consumers for the level of borrowing which previously existed.
This supposed anger is an attempt by our political leaders to paint the existing villains of the piece as being responsible for the failure of their wonderful scheme to avoid the recession. It was only GB and AD who thought that their VAT scheme would have any benefit.
Someone should tell them that pantomime season is now over and booing at someone with fake indignation will fool no one - we will direct our anger at them as well as the banks as they are as guilty of generating our economic woes as the banks.
Complain about this comment
Oh boy! We're still looking at the symptoms and not the causes. It is the SMEs themselves that need the capital, not more debt funding through the banks and the current loan funding crisis for SMEs is the manifestation of a far more deep-rooted problem which has been building for two decades and now laid bare by the ‘credit crunch’. Flawed financial legislation in 1986 outlawed the long-established entrepreneurial investment culture where wealthy, successful entrepreneurs were the primary source of risk capital for early-stage, growing SMEs.
Over 20 years this unique source of high-risk, private equity funding has been progressively eroded and replaced with debt, provided against inflated assets, leaving those SMEs that have borrowed to grow now left high and dry with no capital to call on. In short, inept legislation created the problem and expecting the taxpayer to underwrite further debt-driven ‘solutions’ will only exacerbate and prolong the resulting mayhem.
Complain about this comment
Thankfully I didn't see the Andrew Marr fiasco yesterday.
Andrew Marr and the other 'interviewers' let Brown and his revolving cavalcade of propagandists away with murder. The BBC should be operating a 'no platform' policy while Brown and his ilk refuse to answer simple questions and bat them away with a tirade of discredited and rigged figures.
Marr shouldn't just get steam-rollered by a tirade of garbage from Brown. When Brown blames the banks and the yanks Marr should cut him off. Then, after a suitable period of silence ask the killer question.
Mr Brown you keep blaming the yanks and the banks for the UK's crisis. Are you really saying that the last 10 years of 'prosperity' weren't really unsustainable after all?
This is the the point that blows Gordon blaming the yanks and banks completely out of the water.
Everybody now recognises that the entire past decade of prosperity was nothing more than a borrowing binge of epic proportions. And yet only Gordon Brown seems to think that the yanks should be blamed for stopping the madness.
We should be thanking the yanks for calling 'time' because Brown's plan was clearly to simply continue borrowing ever more money indefinitely. Which, coincidentally, is his master plan for getting us out of this debt-fuelled bust.
So much for tough decisions. When the economy is going well we borrow 3% of GDP (which, thanks to the wonders of Brown's government were what was required to sustain a 2.5% 'increase' in GDP) and when it's going badly we borrow 10%. Which will likely still deliver a -3% GDP growth. Utter economic insanity.
Gordon Brown is absolutely off his head and the British Labour Party are a bunch of criminals for allowing him to continue to destroy the UK economy in this reckless fashion.
If Brown wants to evoke Churchillian blitz-spirit he'd be better telling us to tighten our belt and dig for victory rather than telling us he's going to trash the currency. That's not Churchill. That's Mugabe.
We should all be posting shoes, wellingtons and workboots to Sarah Brown so she can hop them off her useless husband's thick skull every morning.
He's probably too thick to get the message but at least the Post Office could cheer us up by reporting the number and weight of old shoes being delivered every day.
Complain about this comment
any prudent business insures against bad debt - what is the big deal as we more or less own the banks we are effectively self insuring - makes perfect sense and a cheaper option all round
Complain about this comment
Yes, it is horrifying to think that the Prime Minister, who appears to exercise unchallenged autocratic authority in what is supposed to be a collegiate form of leadershiop, is promising virtually unlimited borrowing and spending. Why doesn't he simply stop wasting time and declare that the recession over because he, Brown, has unlimited funds to prevent it ever happening?
The tragedy lies, as Stanilic's comment implies, in Brown's psyche. Call him what you like - Calvinist, self-righteous, clueless, over-promoted - he appears increasingly adrift in the real world, ready to say and do anything. His colleagues, apparently, are more than willing for him to carry on until 2010 and, then, into another four or five year term. The scale of the disasters he has brought upon the nation is so vast that one has to question the morality of those around him who, clearly motivated by self-interest, want to prop up the rule of this dysfunctional oddball.
Complain about this comment
#160
I used to think the guy was simply a pathological liar but it seems he is genuinely delusional.
I still can't decide. I'm genuinely torn. It seems quite conceivable that he's just some sick, twisted individual - the bully he's often portrayed as - who really does 'get off' on treating us all like complete fools. That he really enjoys the impotence we feel as he just destroys the economy knowing that there are 400-odd Labour MPs who, whether through ideology, stupidity or sheer vindictiveness are content to let their guy destroy the entire economy as some kind of displacement therapy for their grievances with Margaret Thatcher.
Or he could be genuinely so delusional he thinks he's doing a terrific job.
Whichever it is it doesn't reflect well on him or the Labour Party. I have to hope that they get their just rewards come election time. Or that there really is a hell. Because this government surely deserves to burn in Hell for their destruction of the UK economy.
Complain about this comment
#169, the UK owns two banks - B&B and NR. It has a majority shareholding in one - RBS - and possibly in another - the combined HBOS/LTSB - I don't remember the exact percentage. Just because the PM says it and the journalists parrot his lies doesn't mean you should.
Complain about this comment
#171, well i assume his usual interaction with "normal" people is via journalists who are unwilling to challenge his lies.
It is hard to imagine with all the information that must be flowing across his desk that he bury his head in the sand this long but the sheer magnitude and the brazen mendacity of his spin would cause a person to feel a little bit embarrassed.
Complain about this comment
Jimmy Brown is an idiot. Enough said.
Complain about this comment
Re Royal Doulton Waterford Group
5th January 2009
Another administration order the
DELUGE BEGINS!!
WELL DONE GORDY?
Complain about this comment
laughingblacksheep
Well said!
My diagnosis is illness?
Complain about this comment
#164
We survived because:
1. We had competent political management. GB now claims it was "luck" that we had ten years' good news, which shows his incompetence: he had about six years of carry-forwards from the previous administration, and four more years hocking the family silver. If he can't recognise the truth of that, then he can't assess the depth of the hole he's dug, and can't be trusted to stop digging, as we currently see.
2. We had an ace in the hole. Last time it was North Sea oil which restocked the piggy-bank. Unless we can deliver on something like fusion power or viable superconductivity and quickly, we're reamed, bored and countersunk.
3. The idea of pump-priming was that a small investment could kick-start the economy, but it needed timing and the opportunity's gone. We're in the unfortunate situation of Emma Micawber, whose fortune was frittered away by the foolish Wilkins living on the principle theat "something will turn up" rather than doing something about it. His famous principle, not unlike the Chancellor's, of "income 19/6, result happiness" was refuted by Henry Mayhew in 1861 in his London Labour and the London Poor, who showed how narrow the margin is between 19/6 and 20/6 in real life, how relatively minor downturns can make real people thoroughly destitute.
4. We talk about the government's guarantees to the banks. Those are useless if the government is itself bankrupt, as will soon be the case: it depends on HMG being able to find the hard cash to pay out if there's another run, and the only thing stopping that under the current circumstances is the shortage of safes to keep it in.
So yes, we are so so pessimistic because we are so so disillusioned by HMG's inability do do a blind thing other than keep muddling on, allowing exactly the same things which got us into this mess to continue. Alexander, for instance, insists that the hedge funds are still viable, but the simple truth of that matter is that they too have taken the same kind of knocks everyone else has, whether they admit to it or not, and are incapable of delivering in the long term. You can only protect a position hedged at the top of the market if you sold at the top, and there's no sign they did that, so they're sitting on big unrealised losses which the current SAPs allow them to turn a blind eye to. This bubble has still to pop properly.
And in the mean time the conmen are allowed time to hide their tracks deeper and deeper - nothing was done to get to grips with a sense of hard reality at this year-end, and so we continue in free-fall. Like Wile E Coyote, all that will be seen or what was once an empire will be a small puff of smoke as we impact at the foot of the cliff.
Complain about this comment
I wonder what Sarah Brown thinks about the future for her two children -- or, perhaps, Gordon hasn't told her the truth either
Complain about this comment
"A weak currency is due to a weak economy and a weak government. " Except, of course, when Brown leads the government.
And what he would say is the cause of a weak banking system? Ah, we know the answer to that one, the US of A.
#54 Jericoa: What a pity that when Brown 'fixed the roof' he didnt check the foundations.
Complain about this comment
Robert - I now think that the Power Brokers have had a word in your ear about spin and properganda. Your words seem like those of a politician trying to make people believe it is better than it is, can be or will be.
However, the IFs have it
If globalisation is restricted
If the deal can be agreed with the banks
If the taxpayer will stomache it - They always roll over
If other governments do not offer better deals
If UK people still want to risk taking a loan
If it happens at all
If enough wonga is made available
If.......
Too many ifs for this one to fly.
Complain about this comment
At some point we have to get back to a model that works - why not now!
Would it be possible to get an idea of lending from, say 2000 ish - business and personal
This might give us an indication of what life might be like when we come out of this mess..... could maybe help us quantify demand in years to come...
It might be worth saving some businesses based on 2006/7 revenue - but they might not be the best years to use as a bench mark!
I'm also still trying to come to terms with the idea that the inevitable increases in my tax might just be going towards driving house prices back up.....
..... shouldn't the Gov have used the same logic to bail out Woolies and then get them to put their prices up..... after all when you are the Gov or the BBC you charge whatever it costs to run the company - business is so easy sometimes!
Why pay once when you can pay twice eh!
Complain about this comment
Re. Brown's state of mind, on which several posters have commented, I have long thought his "son of the Manse" upbringing may have a lot to do with it. Some kind of perverted moralism about taking from the "rich" (which in practice means virtually anyone who actually works) and giving to the "poor" (which means Labour's hangers-on on the state payroll or benefits). Add in a lot of self-righteous arrogance and you begin to understand the man.
But the economic crisis seems to have turned this flawed personality almost manic somehow, almost messianic. It is creepy. Not that I think his associates are any better - Balls, the Millipedes, Blears, Flint and McNulty are almost equally creepy.
Complain about this comment
#54
Is this the kind of society Gordon Brown meant when he said he had 'fixed the roof' while in office?
Gordon Brown didn't 'fix the roof'. Gordon Brown stripped the lead off the roof and sold it at 20p in the pound to a bunch of tinkers.
Which is why the rain is now pouring in and his only 'solution' is to borrow another half a trillion quid (on top of the 340bn quid he borrowed since 2001) to continue to pay his legions of public sector drones and pray that something turns up in the meantime. Or that an election ends the madness and he saddles somebody else with the fallout from a decade of utterly criminal incompetence/wilful destruction of the UK economy.
And his risible excuse? The yanks were doing the same thing.
Well Gordon. If the yanks jumped off a cliff would you do that too? Actually - please do.
You're supposed to be a grown up. You're supposed to be making decisions on the UK's behalf not blindly squandering borrowed money just because the yanks are doing it too.
And then to blame the yanks just because they sobered up first is even more incredible. 'It's all the yanks fault' he whines.
Whaddya mean Brown? Do you mean the yanks should just keep on providing even more amounts of funny money and dodgy debt to underpin our decade-long squander-fest?
Complain about this comment
#159
The offset only works if there's no underlying asset risk, and you certainly can't offset an entire portfolio - I know, because I taught Arthur Andersen and KPMG the law on that nearly thirty years ago. Arthur Andersen then didn't listen to my insistence on prudence and it destroyed them.
A real example was the portfilio I had unwinding in support of a synthetic option on the day of the London hurricane in 1987, 750m each side supporting an underlying option of 2.5m. We covered our side, the counterparty banks only covered 500m of their 750m liabilities, we were 250m short that night. I was therefore on the phone the next morning to the Bank of England who posted my dictation as statute law in the middle of the 1987 crash, much to my horror: I enounced the principle that if an Act of God forces such shortfalls, then the compensation should be at the closing overnight rate on the previous day, in alignment with the enforced extension of money-market loans they had already announced. Even that did not suffice, though, two banks lost their credit lines with us because they paid no compensation whatsoever on 50m of the 250m shortfall.
In this market, if the banks have no confidence in each other, then neither should we, and sadly the entire hedge principle comes undone because there's no reciprocity. The only thing which could save it is to securitise the trades with tangible assets, and even that's a dodgy game in these days on packaged mortgages.
Once, my word was my bond, now it only binds me when I'm in profit. Unless and until small shareholders and investors have real teeth, then the entire thing's kaput. Or put it another way, when my word was my bond, a defaulter could be kicked out, made persona non-grata and blackballed. When the Stock Exchange had a visible trading floor, this would happen in full view of the entire market, and the ritual was that his ejection was preceded by his hat: they were picked up and physically flung out of the building through the air, none of this plastic-bag and carrier box accompanied by a security guard nonsense.
Perhaps the first thing is for the FSA to publish two lists, one of Fit and Proper Persons, and the other of Blackballed Delinquents. This should also include every company director who falls foul of the Companies Act two strikes, you're out rule, which isn't being applied and allows crooks to rebadge their undertaking and continue scamming as usual, and Companies House should be required to get the list up to date and apply the law properly.
Without mentioning the various other regulatory tasks they are still defaulting on.
Complain about this comment
Can I draw your attention to the article by Edmund Conway in today's Telegraph.
It is clear from it that the BofE and FSA and with it the government was fully aware of the problem that was brewing in the British economy.
http://www.telegraph.co.uk/finance/comment/edmundconway/4109557/Media-is-partly-to-blame-for-the-recession.html
Complain about this comment
171 Mr U
I've come to the conclusion it does not matter whether Brown and the Brown Ring are mad or self deluded or a con men. They are just plain dangerous. It all appears to be theatre. At this point I also think that they are having little impact one way or the other. Things are in process at a scale that is beyond the control of a few boneless politicans. Yes if lending was to be expanded then the economy would expand. So what. If stones where made of cheese we could eat them. Lending has to pass a risk assessment. Borrowers have to be willing to take risk in return for profit, at the very least the safe return of capital. There is no sign of either equation being satisfied currently. One of the great myths being pumped by Brown is the shortage of lending. There is no shortage of money in the system, there is a failure in the lending risk assessment for some would be borrowers because their atributes damaged. There is a reluctance by would be borrowers to borrow because the profit projections are lousy. My conclusion is that Brown is simply attempting to rewrite his history. Brown is already backtracking a decade and saying I wanted to do this that and the other but the other boys in the playground would nay let me. It is all going to be the Great Brown was a victim and if everybody had listened it would be great. Well too many mugs did listen so it is going to be just grate. The bloke is about as much use as a chocolate frying pan.
Complain about this comment
With Council Tax being directly related to residential and business property values (16% depreciation over the last year), can we expect a 16% reduction in Council Tax for the year 2009 - 2010 ??
Complain about this comment
185 skynine:
Thanks for the link - an extremely good article.
Complain about this comment
Is the penny finally dropping? Will people now actually see that we are NOT in a recession we ARE in a SLUMP.
We are already fracturing as a community. On one side we find "businessmen" using the system e.g. firms going into administration having already pre-agreed with the administrator to buy the profitable parts of the original firm under another name! Ethical its not but it's LEGAL!! Contrast that with the head of the Chambers of Commerce demanding that the Minimum Wage is frozen.
Brown spending more money when we haven't got none. Cameron spouting "tough love" and wanting to drive everyone on benefits back to work when the unemployment levels rise!
Sure we appear to be at the sharp end of the economic decline. But watch this space. Both the US and Europe will quickly follow us in 2009. We have all been sleep walking over christmas but the holiday is now over and the 'real' state of economic play will now come to the fore.
Unemployment levels will not just increase by 'only' 600,000 they will incrementally increase well beyond that in 2009. This train ain't stopping 'till it hits the buffers.
Complain about this comment
Well here we go again...I find it amusing, in a sad 'waiting to watch the accident happen sense', that Labour (and the rest of our chattering classes) seem to want to keep spurring consumption without regard to the building blocks of a solid economy.
First, we have a temporary cut in VAT which will be followed by an increased NI tax on employment...hurrah...!
Now we have a rehashed Tory loan guarantee scheme...huzzah...!
All this will paid for by big increases in public borrowing whilst we print more and more rampantly deflating pounds...shazzam...!
A 'Brownian' interpretation of Keynes is invoked as the solution to all of our problems. However, instead of paying for one group to dig up holes to be filled in by another in the traditional way the Brownian model will be:
- conduct initial feasability study on the nature of holes to be dug (number, size, location, etc);
- determine public support for the initial prioritised list of holes (likely to require a full public enquiry lasting several years);
- invoke discretion of relevant Secretary of State to impose 'preferred list' of holes as opposed to any publicly supported list drafted produced by the full and open consultation process;
- hire consultants to plan the procurement of the relevant hole digging expertise from suitably pre-qualified hole digging outsource service companies under the PFI/PPP schemes;
- employ the same (or different) consultants plus Government counsel and external commercial legal advisors to draft a suitable 'hole digging outsource' contract plus an hole digging output based specification with appropriate clauses to measure and reward the selected hole digging outsource partner for their performance whilst providing hole digging outsource services;
- take a minimum of 3 bidders through a minimum of 2 years of negotiations to reach the final hole digging outsource agreement (ensuring that this is, somehow, off the Government balance sheet);
- put in place a hole digging outsource PFI/PPP monitoring team to manage the contract and the services provided by the selected hole digging outsource PFI/PPP partner;
- start, several years later, digging holes whether or not they are needed and / or a good thing to be doing...;
- employ public relations consultants (Dr's of Spin) to convince the public that the targets set at the outset (to dig holes and fill them in again) have been achieved or, if they have not, then the revised targets are more appropriate in the current situation and that what we need is more (and better) digging of holes in the future to improve the economic prospect of UK plc in the future.
So what should we do?
By all means let us dig a big hole. Then we can put Gordon and his Cabinet and David and his Cronies (and a few Liberals for good measure) into it. Then fill the blasted thing up again and get back to some proper productive work.
Complain about this comment
Robert,
It seems to me that the key question is what is this "additional" borrowing for?
If it is for new investment it is irelevant as there is no demand.
If it is to assist the housing market it is irrelevant as only idiots are buying and idiots by definition are not a good risk.
If it is to roll over existing debt for existing businesses then the comments made above about cash flow being king are on the money (if you will forgive the pun). The reason Woolies could not roll over its debt and survive is that it did not have a viable economic model that would allow that debt to be serviced. It is a fact of life that in a recession as severe as this one many businesses will be in the same situation and therefore unable to roll over their debt whether the capital is available or not.
The net result is that borrowing (other than Government borrowing which is recklessly out of control) will substantially decrease.
The only legitimate target is businesses which do have viable business models who need to roll over the existing debt. This is such a small part of the 2007 market I really doubt that there is a credit squeze at all. The so called credit squeze is a squeezing out lending which should never have been made at all or which was only viable in a totally different environment from the one we will have in the next few years. This is a GOOD thing for the longterm viability of this country.
The rather modest Tory proposal should ensure that such credit is available to such businesses at acceptable cost in a market where so much available capital is being sucked up by Government. The cost will fall when the Government finances get back under control (that is after an election).
Complain about this comment
187 MontyHall
Funnily enough I was looking at precisely that issue. In Wales they went for a new system based on screwing more blood from the stone and revalued all residential property values and upped the rating band of pretty much all houses. Household income remains the same, Council services appear the same but you have to pay more, mainly due to a drop in Central government payments to LGAs. This 'reform' was delayed in England due to the natives being more restless. Well guess what, my house looks to be dropping into a lower band so given a little bit more time I will be asking for a revaluation and the associated drop in council tax. There is little point in requesting a revaluation until I am well inside the band because of the inevitable fudge which will be employed but at present the matter is on track. Here in Wales the Welsh Assembly boasts it spends 5K per head of population. The size of the expenditure is a matter of civic pride not worry. AMs also buy themselves iPods on expenses. Its called detatchment from reality.
Complain about this comment
Has anyone else noticed Mr Bean's (Gordon's) hair getting more grey with every interview?
Complain about this comment
It is absolutely insane to offer the banks one more penny until they come clean with the amount of toxic debt they have and what they are holding off balance sheet through subsidiaries.
No one can sort any condition until they know all teh facts and all Brown is doing is scaring teh electorate in what will happen if no more help is given.
That is crass politics and what he should and you Robert shoudl be doing is seeking to find what we still don't know not harking on about the little we do know.
The electorate is far more savvy than you or Brown and his spinmeisters give them credit, and anyone I speak to knows the real problem is not finding a solution its ensuring that we have all the facts so we can abide by what actions needs to be taken.
Robert, what you haven't understood is that the Banks are playing a game of poker here and weak politicians ( Brown included) are trying to play opposite them with no experience of how to handle them as they should be.
The banks are all but insolvent and what is needed is an acceptance that shareholders take the rap fully not taxpayers.
What also is needed is a complete change of management, a suspension of dividends as well as all bonus payments.
Please understand the only care Banks have for their respective customers is how much they can get out of each one.
We need less greed and more sanity prevailing here and we are not going to get it whilst the people who are now recognised to have ignored what was going on are stiil in the same position.
It just stack up and the more you highlight this the better we will all be.
Complain about this comment
#184, the underlying asset risk isn't the problem. If i have a long position in CDS and an identical short position then the movement in the underlying will not affect the VALUE of my portfolio of these two positions.
What will affect the value is:
1) Almost certainly the long and short will not be identical. For liquidity reasons I will be buying and selling contracts covering one year. So I buy long now and buy short one month later. There is a [usually]small risk that the long protection expires and in the month the short protection is still in force when GMAC undergoes a credit event. So there is risk in this instance.
2) Maybe i try to be clever and buy long now and one month later buy short but an 11 month contract. Well 11 months is non-standard contract and less liquid so there is a liquidity cost.
3) There is posting of collateral. Lets assume we are talking about 2006 and AIG has it's AAA rating and i do these two trades and I am Mickey Mouse Hedge Fund LLP. AIG demands collateral from me but i can't demand it from them.
4) There is counterparty risk. I am long with LEH and short with GS. LEH goes bankrupt and suddenly i am short and not paired off.
and there are other risks.
The point is that despite the fact i have a 2 billion face value position the amount at risk is far, far smaller.
I am not entirely sure i get your story about the synthetic option. I assume this had to do with some form of synthetic portfolio insurance. That didn't work because of liquidity and basis risk. The bit you seem to be complaining about is the fact you drafted your bank's contracts poorly.
Complain about this comment
In response to #133:
Has anyone considered that little lord fauntleroys Conservatives and the Lib-Dems might not want to take over from this shambles of a government and be slaughtered themselves at the subsequent election?
If they dont take action, we are bankrupt, and if they do, we will blame them, and for the next fifty years have people whining about whoever did a Thatcher on us.
We have nothing to look forward to in the next few years but rampant inflation, massively increased levels of taxation, mass unemployment, poverty for many in employment, and probably food and fuel shortages. I cant even imagine the civil unrest.
Welcome to 2009.
Complain about this comment
#192 and others
It is not the current valuation of your property on which the council tax is based but its assessed value when the tax was introduced. Properties which are allocated values on comparable properties which had been built at that point.
In theory rebasing the valuations to reflect current prices (whatever they might be) should not alter the tax paid because the bandings should also be adjusted so the same proportion of properties are in each band.
However as the Welsh have experienced what politician could resist the opportunity to milk the electorate that little bit more!
Complain about this comment
78. At 6:18pm on 04 Jan 2009, PortcullisGate wrote:
If you want to get a message to Gordon sign this petition
We the undersigned petition the Prime Minister to resign due to gross financial incompetence in running the British economy.
http://petitions.number10.gov.uk/Fianance/
.....i just had a look and noticed that even Tony Blair has signed it!!!
Complain about this comment
The answer to all the economic woes lies with the super wealthy/greedy. France had their revolution and we need to learn from it.
Complain about this comment
Balugh said:
"So what should we do?
By all means let us dig a big hole. Then we can put Gordon and his Cabinet and David and his Cronies (and a few Liberals for good measure) into it. Then fill the blasted thing up again and get back to some proper productive work."
Can i help? Seems like the only thing to do
Complain about this comment
#186
I've come to the conclusion it does not matter whether Brown and the Brown Ring are mad or self deluded or a con men. They are just plain dangerous.
You are completely correct on that one. If ever we needed a 'do nothing' party in power it is now.
It is quite simple what has happened. We have collectively borrowed and squandered too much money and have nothing to show for it except a few rapidly depreciating assets and a few holiday pictures.
The solution is equally simple.
We need to pay back the money. We need to live within our means.
But the greatest concentration of morons in British political history still cannot get their thick heads around that simple fact.
There is no 'quick fix'. There is no painless solution.
We borrowed too much money and now we must pay it back.
Borrowing even more money isn't the answer. That just means we'll have to work longer and harder to pay it back in the future. They're already projecting more borrowing to the point where we'll be working forever just to meet the interest payments. And even half a trillion extra will probably prove to be hopelessly optimistic given this incompetent government's track-record on budget projections.
To think that 400-odd ex-militant students could blind-side an entire nation and destroy their economy so thoroughly is just sickening. Even more sickening is that we seem powerless to stop them from creating further damage. They just seem unstoppable in their capacity for idiocy.
And nobody resigns from the cabinet. Nobody says 'Enough, this reign of idiocy has gone on too long. I will not be forever recorded in history as party to this insanity.'
Nope. The thought of another 18 months of pay and pension contributions and they'll get on the Andrew Marr show and spout any amount of pure moonshine. And, given that they were educated when only 5 or 6% of folk were going to university they have to know that it is pure moonshine. They cannot possibly all be so deluded that they believe a single word of their own lies.
Utterly contemptible. Rotten to the very core of their rotten souls.
I feel sick to think of it.
Complain about this comment
Sadly for all of us I fear that Gordon Brown is completely out of his depth. His actions are not working and he doesn't have any policies in place that will redress the awful situation that is continuing to worsen.
Complain about this comment
Seems like all the "angry bloggers" out there want to know why "the downturn" hasn't been sorted out yet? Typically short-term view - is this one of the problems?
Any news yet, Bob of the govt.'s Northern Rock loan? Half of it was paid off about 3-4 months ago - surely its close to being paid off? Now that would be a bit of short term good news for your distressed readers.
Complain about this comment
The BBC website is full of little homilies on 'how to cope (..with this or that) during the recession....'
How long exactly do we need to 'cope'? I mean far do ahead we now look to see an end to the chaos? Because judgin by the effect of the 90s recession there will never be an upturn as such, this is the new 'status quo' with the usual winners and losers among what's left in the debris, as media commentators love to point out.
Repossessions and foreclosures and redundancies and liquidations up and nobody came...
GC
Complain about this comment
#196
If they dont take action, we are bankrupt, and if they do, we will blame them, and for the next fifty years have people whining about whoever did a Thatcher on us.
And that's the rub.
Brown isn't going to be making any tough decisions. He's going to keep on printing money until the cows come home.
Another 18 months of that mentality and we'll be in an even bigger hole than we are now. The currency is in the toilet. As good a sign as you can get that the rest of the world thinks our economy is in the toilet and what do the Labour shills do?
Claim that it's great news because it will make our exports more competitive.
Conveniently overlooking the fact that over the last 10 years our manufacturing base has all but disappeared. All we do is unpack boxes of parts made in Japan or France and bolt the cars together here.
It's utterly Orwellian. Pound down the toilet? Good news. Government squandering out of control? Good news.
And conversely, when the yanks and the banks finally call time on a decade of insane borrowing and squandering..... how does Labour react? It's bad news.
Yeah! If only the yanks could invent some new excuse to conjure bazillions out of fresh air and encourage our banks to lend hundreds of billions more to UK homeowners so that they could tie themselves up in hock for another generation then everything would be just fantastic!
Thank God for the yanks and the banks calling time. Too bad they didn't pull the pin in 2002 before we all got so badly in hock but better late than never. But what is the Maximum Leader's answer to this? Kid on that 2007 represented a sensible amount of borrowing and exhort the banks to get borrowing back to that level.
I may have to go over to Guido's blog and swear for a bit because the English language lacks polite vocabulary to accurately convey the amount of contempt I have for this government.
Their continued existence is an abomination. They are utterly devoid of integrity, principle or any redeeming characteristic. Each of them from Brown on down is pure garbage.
I bet in a vote of confidence not one of them would even abstain. Nope. They'll just sit there, claiming their salary while they destroy the economy.
There should be a grassroots movement to mob their surgeries at every conceivable opportunity and spell out just what a disaster they are and the righteous contempt in which they are held. The problem appears to be that they are constantly surrounded by a bubble of like-minded incompetence that just cannot accept that they might be wrong.
And wrong in the worst possible way. Not just wrong in the 'shall I paint the kitchen white or cream' kind of wrong. But wrong in 'is it five empty chambers and one bullet or one empty chamber and five bullets' kind of wrong.
And they're holding the gun to our head.
We are absolutely doomed.
Complain about this comment
In the hope of bringing a wry smile to someone's face I offer this line from this mornings Telegraph: Does Haringey Council really need an Equalities Officer (salary: £38,000-£41,000), the job description for which states: "You do not need to be an equalities expert"?
You just couldn’t make it up.
Complain about this comment
In the 1960's I asked my father how the German people just followed a man like Hitler into such a massive war. I could not understand why they did not refuse to fight.
Here I am in 2009, more worldly wise but could be asking the same question by replacing Hitler with Brown and War with Financial disaster.
Presuambly if there had been blogs in 1937 a lot of wide eyed German people would have been making remarks but no one would have done anymore than we are doing now, just talk as we march off to war.
As others have mentioned we cannot rely on opposition parties to stand up to this government, don't want to be seen to be disloyal.
Someone give a lead, they may be surprised how many will follow and before long a trickle could become a torrant.
Complain about this comment
Robert, it's nice to see y'all back to carry on writing the British state's obituary for another year........ though I don't think the messenger is to blame for the message, as some people seem to feel
As for the latest prognostications from Chairman Brown and the detailed commentary generated on whether the latest 'initiatives' will work etc, I feel that it is all heat and no light; but it serves its purpose of feeding column inches to the ever hungry media and keeping up the pretence of a PM and gov't at the tiller, manfully steering us through (?into) the storm
The reality is that our political parties and institutions don't have a clue what to do and are scared witless; so they try this and that and hope that only a few of us really catch on to the fact that this crisis is largely down to a combination of corruption and incompetence whilst they were at the wheel (tiller) and saw the iceberg in 03 or 04 but were scared for their captaincy so decided to do nothing about it; hold to your course and full ramming speed please, engine room! ding ding
I would recommend the following excellent Op/Ed piece in the NY Times about the breath-taking corruption in the financial and banking world and the complicity of govts and authorities in it; and how they are now just trying anything that comes to hand to see if anything works; it's about the situation in the USA but as we all know, the UK followed and follows them precisely, but with a few months lag. Here's a quote from it:
'SAY what you will about our government?s approach to the financial crisis, you cannot accuse it of wasting its energy being consistent or trying to win over the masses. In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers.'
the link is
[Unsuitable/Broken URL removed by Moderator]
All of the current attempts to encourage spending on credit etc will have very little impact and the economy (GB, US, Euro, world) will shrink painfully anyway; the billions now being thrown at problems therefore amounts to little more than a series of PR stunts; the downturn and freezing of credit can't now be stopped and perhaps it shouldn't be
Depending on how and when Peak Oil arrives etc we will come out of it sometime in the future or not; nobody currently knows if we will, let alone when we will; not surprisingly, there is no politician alive and in office who would want us to know that that is what they think too!
Complain about this comment
This actually tells us that UK banks were somewhat squeezed out of the UK market by some of the US lenders. Those US lenders did not price risk properly, lent to the wrong people and virtually forced UK banks to take on more risk than they would have done. Now those lenders have disappeared we want our banks to take over that lending?
Lets us just pretend for one minute that those risky loans were not to businesses and people who should have gone under years ago. Let us pretend that the rates at which these over leveraged paid there debts correctly priced risk (which since they went bankrupt was unlikely). The result of insuring UK bank debt would be that UK banks would have and unfair advantage over their foreign competition. This results in a whole range of foreign investors pulling out of the UK making the problem even worse.
Successfully turning the UK economy will take precise timing with accurate targeting. Lending needs to happen to healthy businesses, not to the over leveraged and this is why I think the government is panicking and trying to act too early. Let the deadwood fall by the wayside so that the healthy can be encouraged at the right point. The electorate is wising up quickly and they will exact their vengeance on any hasty ill timed government actions.
The normal indicators for a turnaround in economic fortunes during the next 12 months are not there. House prices are still falling and will continue to fall until they have fallen at least 40 percent, unemployment has not stabilised, purchasing managers sentiments have not turned. Japans economic downturn did not end after 12 months and it seems unlikely this one will either. The markets will most probably tank from easter onwards as it becomes obvious there will be no turnaround in the next year or two.
Complain about this comment
#2. Gordon Brown
quote/ I regret that I found a very confused and confusing individual, no doubt very clever in achieving his elevated position, but quite lacking in both intellect and empathy.
/quote
Ditto. For years I have been trying to fathom out GB and failing. Now I just think it's all self-aggrandisement, simple as that. ..and I am no Tory. We need to replace him with a coalition led by Vince Cable.
Complain about this comment
This article is describing something that has to be avoided if economies are not to go into depression. Protectionism. The big downer is that protectionism is starting and being encouraged in the banking sector. If banks don't lend overseas, this will take the global economy on the protectionist path of the 1930s. By drawing up lines to say that banks must lend more in their own country, we are drawing up a critical trade barrier in the biggest and most important global industry - financial services. Whoops
Complain about this comment
Banks, Robber Barons, Lawyers, Shylock - Bastards ?
by rocketone atModern Times in Mudshires blog
Well known lawyer Anthony Julius, famous for being Princess Diana’s divorce lawyer, was rabbiting on about one of history’s oldest and most well known miscarriages of justice on the Radio Four ‘Today’ programme this morning.
It was all about that poor misunderstood creature Shylock in William Shakespeare’s ‘Merchant of Venice’.
Anthony Julius was explaining how seven lawyers had just re-examined Shylock’s case and five had decided by a clear majority that Shylock was absolutely right in the first place to have his pound of flesh and the fact it would have killed Antonio, from whom it would be taken, irrelevant.
Shakespeare writes about how the poor fellow had signed a binding contract to lend three thousand readies to Antonio so he could blow it on showing off to his girlfriend so she would agree to marry him.
Nothing new there, as the present disastrous World wide credit crunch seems to have been caused exclusively by irresponsible banks lending lots of money to irresponsible people by actively encouraging them to spend on showing off to their own girlfriends and generally living the high life quite beyond their means with an utter disregard of reality.
When scatterbrained Antonio found he had been so busy wooing his girlfriend he had neglected his business and run out of money to pay Shylock’s loan back, Antonio discovered he had neglected the fact he had signed a contract with Shylock providing Shylock with security for the loan. This security was to be forfeit if Antonio was unable to pay the loan back at the agreed time.
A terrible miscarriage of justice then happened. Poor Shylock took his case to court asking for the security which was now rightfully his to be paid. But, instead, the court decided to fine Shylock half his fortune and punish him with what community service used to be by forcing him to convert to being a Christian.
The court had been forced to agree the security was rightfully and legally due to be paid to Shylock according to the terms of that binding contract with Antonio. But the court, being biased towards the rich and powerful in the establishment, as courts often are, imposed arbitrary and unreasonable conditions on Shylock taking his security from Antonio.
The court told Shylock he could have his security, but only on condition no harm came to Antonio by virtue of any of Antonio’s blood being shed. Reasonable enough, you might say. But then the court added that as Shylock was so insistent on having his security from Antonio, according to the strict terms of the signed contract, then it seemed only fair Shylock be punished if he failed to honour his side of the contract by actually taking the said security.
Unfortunately, as the security in question was a pound of Antonio’s own flesh, closest to his heart, there was no way Shylock could remove it without shedding some of Antonio’s blood and probably killing him stone dead at the same time.
So, Shylock was punished by losing his own money and being made an outcast of society as he was forced to convert from one religion to another, so being condemned and shunned by both.
A fitting end to a vicious and rapacious lender, most people down the centuries have agreed. An early example of a financial regulation authority cracking down on gross mis-selling of financial products others mightthink.
But not today’s lawyers ! They are still indignant Shylock’s contract providing him with the security of a pound of flesh was thwarted by the court and Antonio completely let off. That contracts are not completely binding and must at all cost be honoured, regardless what terrible consequences might ensue, is truly offensive to the sensibilities of lawyers.
So a bunch of today’s lawyers decided to organise an appeal for Shylock to see if they could put right what many lawyers have always thought a flagrant breach of contract unjustly dealt with by the court. They felt Shylock ought to have his named cleared and a miscarriage of justice put right.
After all, a contract had been signed. Antonio was fully aware of the consequences of failing to pay back the loan on time. Shylock had been treated unfairly. He didn’t get his security or his loan back.
Ah, so now Shylock has his good name back as modern lawyers have reversed the original court ruling against Shylock and put right a wrong that has offended all good lawyers down the ages since ‘The Merchant of Venice’ first appeared in print all that time ago.
So, let that be a warning to all you poor sods who have been encouraged, even, positively brainwashed by the banks some might say, into borrowing money you are now having increasing difficulty paying back as the Global Financial Crisis completely destroys the World economy and makes tens of millions of people jobless.
You may be sure the banks will all have their pound of flesh. They will be unconcerned how much more damage they wreak on your personal life as they take every last possession away from you, including your house.
After all, the banks have already destroyed the World’s entire economy and put tens of millions of people out of work. Why should they care a hoot about ruining your life completely.
Who cares if you are made homeless and suicidal -by the bank. Why should the bank give a damn about your wife and kids leaving you after your family is turfed out onto the streets.
Your life may be utterly hopeless as you wander the streets homeless, unable to function, entirely without your precious possessions collected over a lifetime. You signed the contract; you borrowed the money; the banks say. We want everything we can get back from you. It is our ‘right’. It is our security. You signed the contract with us and we want our contract upheld by the courts.
No matter the contract was unfair, or even frequently a complete rip-off. The banks don’t care. You signed the contract. We want our pound of flesh and by God we will have it at all costs even if we destroy everything else in the process, they say. The fact you have no choice but to sign the contract because the banks have a stranglehold over absolutely everything to do with money is quietly ignored by the banks themselves.
Of course the banks have wheedled a comprehensive control over almost every financial transaction, making sure they take a cut each time any money changes hands. They even charge you to take your own money out of the bank to spend. It was even suggested in a weekend newspaper this last weekend that banks might soon be charging people to put money in the bank in the first place !
So the banks have been used to forcing increasingly unfair, and quite unreasonable contracts down everyone’s throats. They have got away with it for so long they have become breathtakingly arrogant about always being in the right no matter what they do or how much they corrupt our financial system.
Banks being always in the right has brought the World economy to it’s knees and ruined millions of people and even made a whole country bankrupt already with more to follow.
Isn’t it about time something was done about their unbridled evil?
It would be a really good start if people started by not using banks at all for any purpose if it could possibly be avoided. Inconvenient, maybe; possible, yes. And maybe not so inconvenient after all when you discover how much better life is without destructive grasping, incompetent banking.
Banks are the modern robber barons. Many robber barons were bastards of legitimate landowning aristocrats, themselves granted their lands by Monarchs to repress the peasant working classes.
Bastards every one. Banks; Robber Barons; Bastards; they all seem the same to me. Bastards.
Complain about this comment
Posts #170 and #171 must be read again!
Hear Hear to them both!
Complain about this comment
My post #22 also questioned Brown's megalomaniac / pathological behaviour..... but it was moderated out!
Complain about this comment
"And as banks do their patriotic duty and direct their increasingly precious and scare capital resources towards their domestic markets, the amount of credit available in the world as a whole is being compressed. "
Banks patriotic - some mistake surely? and how would this depress the amount of credit available globally? Surely it would just affect the distribution of credit.
RBS is only reining in its global ambitions because it needs to sell assets at the botom of the market to redeem GB's expensive preference shares.
A comprehensive credit insurance scheme is so obviously te way forward tht it should have been set in place last year. Let's hope that the Treasury don't make it too expensive to use.
Complain about this comment
Robert
there is much mention of the 30's New Deal. Its very hard to guage the relative scale of public intervention then with the proposed public intervention now - whether into the banks, wider industry etc. Could you or your researchers get behind the headlines so that we can get a real feel of the debt pressures building on the current economy and whether there is any precedent in the past to judge how we might cope?
thanks
Complain about this comment
It's all Gordo's fault is it? It's all part of some rabid socialist plot is it? Don't just wake up - GROW UP.
Honest Gov, none of this mess was my fault. I didn't enjoy the short term benefits of this credit driven boom. So now you can't blame me and I shouldn't suffer for it!
Hypocrites! None of you complained when the value of your houses kept rising. How many of you didn't change/upgrade you car, furniture etc. when credit was so easily and cheaply available or go on more expensive holidays?
No what you really moan about is that you didn't cash in your chips before the proverbial hit the fan.
Grow Up. All of us will now have to pay the price.
Now we need to engage in a major strategic exercise. We need to identify those elements of the economy that we will ensure do not fail for the country's well being. We need to ensure that we build a new, well rounded, economic base that is not built on the short term Thatcherite economic model.
YES we do need to be protectionist. We do have limited resources and they need to be employed for our benefit. The rest of the World will have to look after itself.
Complain about this comment
#217, nobody said it is ALL GB's fault and i suspect more of us would have more sympathy if:
a) He hadn't taken ALL the credit for the boom during the last 7 years( during which an asset bubble was building )
b) Denied ANY responsibility for ANY of the problems ANYWHERE
c) Blamed literally EVERYONE else.
As for socialist plot, you think if he hadn't been spending like crazy that the country wouldn't be in a better position? He is like the guy who keeps buying tat because he believes he can always do a balance transfer or bump up his limit. However, even this guy probably realises that he didn't "earn" the goodies and when the bank asks for it's money that somehow it is everyone elses fault.
Complain about this comment
#217
On the question of whether it's Gordo's fault or not, the important point is that his character has been exposed for the empty shell that it is. A little less of the blaming everyone but himself wouldn't go amiss - remember this is the man who wanted to take the credit for 10 years of growth. Now apparently the 5-10 years of decline we are in for is nothing to do with him.
Grow up Gordon should be the message.
Everyone knows it's not all his fault, but he and his Government can't have it both ways. To be realistic they must accept at least as much blame as anyone else, and in some areas (eg fixing of data, smoke and mirrors spin, off-balance sheet chicanery, non-transparent accounting, massive borrowing, lax spending control, destruction of asset values for private pensions to name but a few) they absoluteley and willingly lead the field.
Whoever replaces Gordon and his mob, we can't be any worse off.
Happy New Year to everyone by the way - on the bright side let's hope it's no worse than 2008.
Complain about this comment
From my experience in business I would be asked, quartely, by the accountant to assess the value of our assets - placing provisions against obsolete or items which can no longer be sold. Inventory and plant being both asset and liability, and the balance sheet would be evaluated accordingly.
Are loans not assessed similarly? Do the regulators (auditors) not confirm the value of these assets (or liabilites)- or the security against which the loan was made?
Before we encourage our home banks to lend more we need to ensure that the rules are clear and that we tax payers will not be picking up the bill again in the near future.
"having lost sight of the orignal objective (prudence), Gordon is redoubling his efforts and pressing on regardless"
Complain about this comment
#217, being protectionist is the last thing that is required. There is not one segment of the economy that should be protected from failure because you don't throw good money after bad.
Complain about this comment
The most interesting aspect of Gordon Brown's interview with Andrew Marr was that he appears to have had a good few jabs of Botox for Christmas. This, coupled with the perfect teeth and soothing soft focus of the camera and for a moment I thought Barry Manilow was our new PM.
Complain about this comment
About Alexander Curzon - fellow poster here.
I think the carping comments of apparently envy driven sarcasm hurled in the direction of Alexander Curzon are unpleasantly typical of people in this country.
I have no idea whether Alexander Curzon is an irritating person or not, nor does any other poster here. But he may be; so what ?
I too have looked at his Facebook profile. What about it ? If someone thinks it merits envy driven sarcastic stabs, they must be soft in the head.
At least he has the right idea of how to run a business - not to be overwhelmed by debt and save money in the kitty, make and retain real profit etc.
And the idea that someone busy running a large organisation must somehow be mystically banned from posting comments on internet blogs is just childishly preposterous - innit ?
Pssst ! - Gissa job Alex ?
From blogger 'Modern Times in Mudshires'.
Complain about this comment
217 foredeckdave
I think you need to look in the mirror when you ask that people grow up. I have never supported the upward manipulation of house prices by government and have never taken any satisfaction in it. I have not been at the Mad Hatters Tea Party, perhaps you have. As for Brown he is not entirely to blame, but there is no doubt he is the main culprit by a long long way. The UK would be in better shape to face a global downturn if different policies had been implemented, that is self-evident. The bubble occurred over 5 years, was clearly identifable, was warned about in that time by many, including the IMF. Need I say more. The sooner we are rid of this egotistical deluded man the better. As I suffered a loss well into six figures due to a inept administration which featured a certain Norman Lamont it takes a lot for me to consider the Conservatives, but anything is better than this lot.
Complain about this comment
#217:
I did not benefit from the credit bubble. I always paid cash. No house, no upgrades of car or furnishings, no lavish foreign holidays, none of that. My occupation is neither discretionary, nor funded by tax. My fault for choosing not to take part, some might say, yet that restraint is what gives me the moral authority to fire broadsides at this mess and the people behind it.
#216:
During the Great Depression, the amount of debt was several times smaller than it is today relative to economic output. Everything was less leveraged, including government, and a substantial amount of deflation was allowed to take place over several years before government intervention began on a large scale. Luckily for them, they did not know better and doing nothing was the best way to go cold turkey, unpleasant and unpopular though it was. When government did intervene, much of the bad debt had been defaulted and there was enough capacity to take on new commitments.
Today the government's own figures show a debt mountain that will destroy our balance sheets if we attempt to grow it before shrinking it. We are reduced to openly officially contemplating a debasement of the currency later this year to deal with it as it is! Worse, the current prescription puts the cart before the horse, financing consumption rather than production, thereby guaranteeing that the ability to even pay the interest on that new debt will never be created.
Simply put, borrowing to finance consumption is not investment. Implying the contrary is a lie. Beware the politician who spins that web.
The only way out is financing production while allowing deflation of consumer debt and timely asset recovery until it is in balance with the production that supports it.
The other path leads to monetary failure. Who seriously believes a repeat of Iceland will play out the same calm way on British streets?
Complain about this comment
On the issue of GB's culpability, we must be getting close to the point where his blaming the credit crunch on US will damage US/UK relations.
Complain about this comment
#217 foredeckdave
Well Said. All this Gordon bashing is getting a bit boring.
THE FOLLOWING IS A QUOTE FROM NOURIEL ROUBINI
"Many kudos to Raghu Rajan who, already in 2005 even before I expressed my deep concerns in 2006 about the excesses of credit and mortgages leading to a financial crisis and recession, had pointed out in his excellent paper about the market failures and agency problems that were leading to excessive risk taking in financial markets. His 2005 paper is the best introduction to the distortions and market failures in financial markets that led to the worst financial crisis since the Great Depression."
you can find the article on the following page
http://blogs.wsj.com/economics/2008/08/23/a-proposal-for-the-banking-sectors-capital-woes/
#205 - WE all caused the collapse of our industry by demanding cheaper and cheaper goods - T shirt at 1.99 ?
Complain about this comment
#221 So you want to continue the strategically incompetent globalisation strategy? If we do we end up with no British owned industry whatsoever. Now there's a fine way in which to build a strong recovery!
Complain about this comment
#221 peepobaby
To quote and old government leaflet ....
"protect and survive"
Complain about this comment
I'm pleased you've written this article Robert. The remaining banks have been criticised for not lending, when in fact they are. As you say, supply has dried up partly because there aren't as many lenders any more.
Normally when demand exceeds supply, new players come into the market. Last time, it was a range of foreign banks and some ex-building societies. Who might it be this time? Tesco etc perhaps. The trouble is this takes time and time we don't have.
Whatever is done should not penalise banks that are lending and their long suffering shareholders. The government should make absolutely clear that these banks are lending. It also shouldn't stop long term new players entering the field.
It will need confidence, which means we need to to recognise that every loan depends on several savers. Savers are definitely not being encouraged at the moment. We need confidence in what we want Britain to look like after this mess is over - what are we going to make? what are we going to sell and to whom? How are we going to take financial responsibility for ourselves? How self sufficient should we be as a nation? Get this sorted and ways of financing it will emerge.
I don't see any of our political leaders giving us this sort of vision at the moment.
Complain about this comment
More years ago than I care to remember I did a degree in geography. Ever since then I have been acutely aware, and increasingly worried, regarding the interactions of population, energy, resources and the environment. And of course in the intervening years I have accumulated all sorts of assets.
Since the financial manure has hit the air conditioning, I have been desperately trying to work out in my own mind what sort of "event" is occurring now and how best to respond to it.
If you too want to make sense of where we are, and realise it's not simply a financial / credit / banking crisis, I recommend, as others have done here:
www.chrismartenson.com
Take the Crash Course. I did and I guarantee it's the best three hours you will spend this year. If you "can't" afford that long, at least play chapter 16, "Fuzzy Numbers". You really couldn't make it up, but somehow "the land of the free" managed it............
Complain about this comment
I am encouraged by the fact that the Government is trying to hold down interest rates - I know it will fail and it will be a good thing that rates rise: to punish those that have borrowed recklessly and reward the prudent.
I am also encouraged that, given current low savings interest rates, Government is sufficiently worried (about people who are currently self-sufficient but with reducing income may become a burden on the state) to consider removing basic rate tax liability on savings. If minded, they can succeed in doing this(!) and this will be very welcome (and morally right having taken away MIRAS some time ago).
The next step is to remove the ability of anyone (personal or business) from claiming tax relief on any borrowing.
Only then will we be actually trying to control excessive borrowing...
Complain about this comment
#221 is correct, trade needs to be kept open.
Britain was among the first to recover from the Great Depression because it was a favoured part of a large trading block - the Commonwealth. The US and its Smoot-Hawley nonsense sparked retaliatory protectionism globally and damaged world trade, lengthening and deepening the Depression. Instead of creating a cozy utopian environment in which people could thrive, they went hungry, businesses lost their markets at the stroke of a bureaucrat's pen and we all know what happened to the capital markets - the Crash ended up as the only thing well-capitalised.
For Britain, global protectionism in a depression could mean hunger. That might be jarring and counterintuitive, but if trade barriers go up, we are 60m people on some islands that import everything. It is futile telling people denied the essentials to await an export-led recovery in 10 or 20 years.
Low cost country sourcing fixes itself as nature takes its course - most products procured in this way are not essentials and will not be purchased, and the countries supplying them are frequently unstable and will fail. For essential and capital-intensive goods, we need world trade functioning while we begin the slow process of competing from scratch. If the barriers go up before we have made enough progress, we fail too. We will certainly compete on cost: there is one advantage of our likely relative poverty.
Complain about this comment
Robert:
British banks need to lend more money to [everyone] and companies, and also, businesses to get the economy started and moving again....
~Dennis Junior~
Complain about this comment
233 werringtonsilent
Trade has to be kept open. As signatories to international trade agreements the UK would be penaltied if it entered protectionism apart from anything else. As for the other popular gripe about migrant workers which pops up every so often- If they are members of the EU they are legally free to migrate here, just as UK citizens are legally free to migrate to other countries in the EU. What will be interesting is when all the ex pat retirees return here because they cannot afford to live abroad due to the collapse in sterlings value. I have heard of a number who are finding things next to impossible. As for imports from low labour economies - they have to slow. Those countries are likely to be hit badly, as they have less to lose they will be hit all the harder.
Complain about this comment
233 WerringtonSilent
get it right mate there was no Commonwealth during or immediately after the Great Depression. There was the captive market of the EMPIRE - before, during and immediately after.
The Empire did not save us from the depression. Britain ultimately came out of the Depression due to WW2.
Complain about this comment
230 mullecon
I'm not convinced that the availability of funds for lending is the problem. The traditional banks say they are lending more than before. It is the gung-ho likes of NR and B and B that are no longer playing. So if you backtrack to 2000 and domestic borrowing was balanced by domestic deposits then that was regarded as ok. Then due to stupid lending the imbalance grew to some 650 million GBP funded by overseas money mainly via crass bankers like NR HBoS and Band B and that is now seen as a bad thing. So lending at the moment is down. But so is the demand to borrow, especially on housing. Traditionally mortgages have always been rationed, so the current talk of rationing is meaningless. Lending on houses is stuck because of devaluation forecasts not because of the lack of funds. The demand from lenders for 25% deposits is there because of devaluation fears not because of lack of funds. I see this as another brown mirage, look its somebodys elses fault they are not lending the way we want them too. It won't wash because you do not lend if you think the capital is at risk, and you do not borrow if you think the capital is at risk. And at the end of the day nobody with any sense will listen to El Gordo and Comical Ali because they have no longer got any credability. QED consumers behaviour. That is the point - QED consumers behaviour UK wide. Personally I know loans are available to me because I have turned them down and asked people to stop calling.
Complain about this comment
#235: I agree, Club Med is worse off than we are, destined for higher unemployment, and in a ZIRP environment with a devalued pound, all but the most cash-rich of expats will have to return to compete for jobs here. There is no work left for EU entrant builders except finishing the odd glass and cardboard tower this year. An ironic reversal of fortunes.
#236: Commonwealth, Empire, captive or not, we maintained our ability to trade. No-one can declare themselves an exception without retaliation. The US tried, look where it got them. There is an economic balance of terror when it comes to barriers to trade, and it is all the more important to acknowledge during a time such as this.
Although WW2 completed the recovery for the Anglo-Saxon world, Britain began to recover while the US was still plunging. Britain enjoyed access to markets through the 30s, the US was a resource exporter crippled by trade wars it initiated. It was not until Europe crippled its own production during the war years that the US found the demand and market access adequate to facilitate its own recovery.
With 20/20 hindsight, it turns out the US needed the war more than Britain did. Post-war Britain was a mess, the US was not. No sooner did we pull ourselves up than we lost it all, then North Sea oil and gas came along, too late for Callaghan. And here we are today, having squandered another fortune and borrowed ourselves up to the hilt. To argue for protectionism with this history is madness. We need to cut consumer borrowing and spending, save and reinvest in production of tradeable goods. Protectionism will condemn us - at this point we have little to protect so the consequences will flow one way.
Complain about this comment
Werrington, that is a very very selective view of Britain's recovery (if in fact it ever did) from the Great Depression.
Given that the Empire covered at least a quarter of the Earths surface you have to ask yourself why we suffered the effects of the Great Depression at all. The answer is simple. The Empire cost us more than we were making from it! If WW2 had not happened we would have seen the break-up of the Empire sooner.
However, we will see similarities with the Great Depression as we enter GD2. There will be mass unemployment and we will see the return of soup kitchens. However, rather than hunger marches we are more likely to see civil unrest. This may create a very fertile ground for the re-emergence of the Far Right!
We don't trust the politicians, we don't trust the bankers and financiers, we don't trust the captains of industry, we don't trust the police or the lawyers, we don't even trust each other. We have clearly identifiable minority groups to target and blame. We have a growing sense of injustice and a national feeling of the hopelessness - both nationally and internationally. To me this is a very similar environment to that which existed in the 30s in Germany.
Complain about this comment
Would there be any point in supporting banks if their clients leave?
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
#233, more fundamental question - what exactly is Britain going to export? When basics like food and fuel are mostly imported does it really make sense to put up trade barriers?( This is a rhetorical question... )
Complain about this comment
my daddy was a bank robber
he never hurt no body
he just like to live that way
he loved to steal your money
Complain about this comment
#241, apparently what i wrote broke the rules, so i have to write it to make it comply. The US cares deeply about what Mr Brown has to say. Mr Brown is a genius and furthermore extremely popular and everyone wants to be his friend and benefit from his deep wisdom. All hail Brown, the greatest leader this country has ever had....
I guess that will get through!
Complain about this comment
Jamming with the Clash
on a UK Tour
I see faces I see places
I man never see before
Complain about this comment
I have a new idea.
Repayment mortgages are a bit expensive - you have to pay more than the rate of interest to cover capital repayment.
Interest-only mortgages (which were not permitted at one time) are a start, but carry a greater risk that the 'loan to value' will increase.
Why not have a 'fixed payment' mortgage where there is a minimum fixed payment for the 25 year term set at (say) 2% above the *present* bank rate but where actual interest is charged at 1% above prevailing bank rate (with a hike for any amount of unsecured loan to(say) 10% above base rate) so that it is in the borrower's interest to make payments above the minimum amount when he is able to do so in order to avoid losing his credit cards. In return for such a low minimum payment, arrears of more than a month would trigger instant repossession. That should be a profitable loan for a bank to offer.
The best bit is in the brackets above!
Complain about this comment
.. another one (idea)
Builders + Mortgage Companies combine to offer new properties at 0% interest.
eg halifax + fairview build and sell a home for £200,000
15 years payments = £1,111,11.11
i.e. get 5 years free! for buying a property!
Complain about this comment
Re: 247 above - it would only work if banks didn't think houses were overpriced
Complain about this comment
#246, the problem with capital repayment mortgages is that banks usually front-load them. So they assume you are going to have the mortgage for 25 years, calculate the likely interest and you pay this off first. It means you spend the first 5 or so years just paying interest. Moreover, given most people do not stay in the same home for 25 years, you are paying interest on a loan your are not going to have.
The best kind of mortgage is one where you can make repayments directly but it is interest only.
A slightly better approach would maybe to not have a fixed timeframe mortgage but have the repayments above a certain minimum amount be flexible. In good times you can over pay and in bad times underpay. Schiller had some good ideas on this.
Complain about this comment
249. Mr. blacksheep is blind and a thief to and of good ideas
Complain about this comment
#250, apparently i upset someone. Given you have nothing to actually say - and what you do is incorrect - i won't actually bother reading you anymore.
#246, I assumed from reading that your suggestion was that the term for the mortgage should still be fixed but the payments within that term can vary. My suggestion is that the term should not be fixed.
Complain about this comment
No, people need to save more, especially those in debt.
However, they can only save if their Salary keeps up with their cost of living.
If they do not receive pay rises that match Inflation (running at about nine percent now) then they will be unable to save.
And thusly the Consumer economy continues to implode.
Expect more companies to slip into administration as the vicious circle of lower spending and lower sales continues.
But then the Gov't and Opposition both knew this would be the case.........
Complain about this comment
#252, the correct course of action would have been to RAISE interest rates not lower them. That would encourage people to save and not to borrow and also raise the GBP and cut inflation
Complain about this comment
#252 "However, they can only save if their Salary keeps up with their cost of living."
How about trying to keep their cost of living *DOWN* to within their salary ?? I'm quite sure Mr. Macawber had something to say about this situation !!
Complain about this comment
you are raving
some of the banks lent more than they had
they borrowed to lend
the worst culprits are largely controled by the state
why would the prudent banks pick up the slack
why would the prudent banks lend to outfits that can't cover debt like waterford wedgewood
give us a bit of joined up thinking for once
Complain about this comment
I am about to break my New Year's resolution of not posting comments on RP's blog ever again but having read the posts on the last 3 blogs, the mindless repetitious diatribe which will go on for ever (like Groundhog Day) has changed my mind, although only this once. Since R.P's blog spawns these egotistical posters the only way to kick my habit is to stop reading the blog and this is now a slam dunk.
Complain about this comment
Robert.
Surely, you overlook some valuable points...
Our Nationalised Banks are in no position to lend any more money...
Get on the streets with your Panorama chums... Find some disenchanted Bankers out there in the real world... There are perhaps more than you would care to think or indeed imagine...
'Off the record' chats I'm pretty sure could point you in the right direction... This years Christmas drinks in The Green Man may not have gone with the usual 'bang', but by Jove, how nice to hear your name mentioned so endearingly... lol! Friday before Xmas... Leader, giving it 'large', Troops a little less exhubertant...
Corporate lending is a real 'no go' area... Just ask...
SME's - the lifeblood of the nation... Look at your local Banker when he tells of the formerly 'a-political' HO Spin-doctors feverishly in action...
Ask in your your Retail Branch whether they can tell what they are doing is actually profitable - or can they tell you what their 'points total' is?
Who in the Head Office Risk functions - be it Credit/ Regulatory/ Back-Office, or any other... has stood forth and said sorry we made a mistake? Sorry, we didn't listen... Sorry, it's my fault... Sorry... Our 'Best in Class - World Class, Without Equal' sic... was found utterly wanting (burst not by a single prick, but a seemingly never ending series of little punctures)... Sorry, I resign... Sorry... I repent... Forgive me...
Where were the Internal Auditors? Busy pulling the wool over the FSA's eyes? Again! For, yes, indeed, it must be, again... Who really thinks we need clues there? Titter yea not...
Where were the External Auditors...? Any 'qualification' in the Accounts over the years...
(Robert: I am not convinced that you, or indeed I, know the full story yet, but I don't hold your line on Banks/ Banking entirely. By my reckoning this bubble has been growing apace domestically... since 1989... and alarmingly since 1995...)
Basel 11... AMA... I really don't think so....! Do you... ? Does anybody...?
All swank and no spunk!
The quicker, the 'short selling' starts the better. The real market value.... ? Pence, and surely no more than a copper or two at most...
Gordon can have his masthead at 'The Mound' and the rest of us can have a network of 'Royal' Post Offices again...
The pidgeons have come home to roost... but there should be no white doves for those so responsible (should that be irresponsible?). Bring on the hawks...
Robert - its up to you...
Get out there... Get the real looming story behind the UK's biggest Bank collapse - ever...
Complain about this comment
177Rahere
His famous principle, not unlike the Chancellor's, of "income 19/6, result happiness" was refuted by Henry Mayhew in 1861 in his London Labour and the London Poor, who showed how narrow the margin is between 19/6 and 20/6 in real life, how relatively minor downturns can make real people thoroughly destitute.
That book is fantastic, isn't it!
Complain about this comment
Ref post 198.
945 people have signed the petition asking for GB to resign for his miss-handling of the economy.
Come on, does this merely demonstate how apathetic the British public are? Yes, I agree that there does not appear to be any credible alternative, but surely there must be more than another 944 people that agree with me that he should resign.
Get signing now.
Complain about this comment
The country needs to support employment so that people have cash to spend. One way to do this is to open up a scheme of building affordable homes, which are needed for first time buyers. That needs small housebuilders to tackle the problem, and in order to sell they need Government backed mortgages.
(Pharnaces)
Complain about this comment
Has anyone noticed a worrying trend in the housing market? First time buyers are apparently getting back in there helped by 'a combination of lower prices and lower interest rates'....
Now at some point interest rates go back up so it seems that we are in the process of creating the next reposession scenario. As these new buyers stretch themselves to get the loan they need at 2%, what happens when it finally gets back to 4 or 5% ?
Watch this space
Complain about this comment
#261:
Luckily supply of mortgage credit remains low. People should not be pushed into a housing market priced at the limit of affordability at less than 4% interest. Mortgages are long term loans, historically one would have seen 6-8% interest rates over the term, paid down as quickly as possible and needed to budget for spikes to 12%. Anyone borrowing £200,000 on a variable rate should at least do an internet search to see how it turns out.
#260:
What first time buyers need is higher interest rates or slashed credit availability and some cash. Increasing the price of credit or decreasing its supply decreases the price of assets normally bought with credit. An average £150,000 house with 4% mortgage rates no longer sells for that with rates at 8%, it sells for much less. The first time buyer can afford to put a proportionally greater deposit on the table, thereby reducing payments or loan duration and total amount payable. Whisper the heresy softly, what first time buyers need is credit deflation.
Why ask for government houses and mortgages when you could just ask for a normal house and mortgage at a lower price? Solutions do not have to be needlessly complicated. Usually they are that way to cover people who made bad choices.
Complain about this comment
View these comments in RSS