Faith in banks
It's more than a little local difficulty that Royal Bank of Scotland yesterday suffered the indignity of becoming a penny stock (though it's bounced a bit this morning).
Because of the plans for global domination of its previous chief executive, Sir Fred Goodwin, this bank is known from Wall Street to Shanghai.
It's big in America. It had till recently a symbolically important stake in Bank of China. It was the victor in the world's biggest ever cross-border banking takeover battle, when it acquired the poisonous rump of ABN Amro (but not "ANB Ambro," as Gordon Brown put it, when scolding Royal Bank yesterday).
Whether we like it or not, the collapse in its value from more than £70bn a couple of years ago to £4.6bn represents unfortunate worldwide advertising about the perceived frailties of our financial system and our economy.
In the context of how others see us, here are remarks made overnight by Jim Rogers, the well-known investor, to Bloomberg: "I would urge you to sell any sterling you might have...It's finished. I hate to say it, but I would not put any money in the UK."
Errr, say what you mean Jim.
Inevitably, sterling has fallen - to its lowest level against the Yen since 1971 and to its lowest against the US dollar since March 2002. For what it's worth, Rogers believes sterling will approach parity with the dollar.
The connection between sterling and the health of our banking system goes like this.
Our banks have colossal overseas liabilities; they've borrowed huge sums abroad. According to Bank of England figures, the gross foreign currency liabilities of British banks are around £4,400bn (having quadrupled over a decade).
Of course the banks all have matching assets. But the problem is that the assets tend to be illiquid, hard to sell. Whereas the lenders to the banks can often ask for their money back at relatively short notice.
The reason that Royal Bank of Scotland and HBOS - now part of Lloyds - were semi-nationalised in October was that lenders to them were demanding their money back. They were hours from collapse and it was therefore vital that the British state should be seen to be standing firmly behind them, to reassure all lenders to them that their funds were safe.
But when the Treasury acquired big stakes in Royal Bank and what's now called Lloyds Banking Group - and when it committed £500bn of loans and guarantees to make sure that all the big banks could repay providers of wholesale loans that could demand their money back - at that point the liabilities of the banks increasingly came to be seen as the liabilities of the state.
This is not an accounting issue of whether Royal Bank's £1,900bn of liabilities is on the public-sector balance sheet.
It's about whether, when it comes to the crunch, the state would honour those liabilities.
And, of course, we all know that the Treasury would honour those liabilities. The damage to the British economy of allowing a bank like Royal Bank to renege on what it owes would be unthinkably huge.
So it matters, in the first instance, that our banks are perceived as viable, profitable businesses - able to pay their way.
And it also matters, in the second instance, that the UK state is viewed as being able to honour the liabilities of its banks, in the unlikely event that a mob of overseas lenders to the banks all asked the teller one day for their money back.
What this means is that if you put any kind of probability on a recurrence of the collapse in confidence in our banks that we saw in October, then some portion of banks' overseas liabilities should be counted as an increment to the ballooning debts of the government - which is why there's a link between the perceived weakness of the banks and a fall in sterling.
Although - as you'll have spotted - there's a dreadful paradox: a fall in sterling actually makes the problem worse. Because, as Royal Bank of Scotland helpfully pointed out in its trading update yesterday, a fall in the pound increases the sterling value of banks' overseas assets and liabilities.
All of which is to explain why, in these febrile circumstances, something as nebulous as "confidence" in our banks really matters.
In that context, what may count is that investors yesterday believed that short-sellers were once again driving down the value of bank shares - even though I am reliably told there was very little short-selling.
That fear of short-selling may have persuaded other investors to dump bank shares, or given them a further reason to do so. Which is why the lifting of the ban on short-selling of financial stocks last Friday may have been unfortunately timed.
Also, as I said last night on the Ten O'Clock News, the prime minister' may have meant well when giving a stern instruction to the banks that they must come clean about the scale of their dodgy assets. But it unnerved shareholders, who wondered on what basis they could value banks, if even the most powerful man in the country didn't know what horrors lurk inside them.
As for the lack of detail in the multi-hundred-billion pounds plans announced by the Treasury to stimulate lending, that was an invitation to the City to fear the worst - to conclude that the banks would become profitless instruments of the state.
Where does all this lead?
Well if the world's investors already see Royal Bank as a de facto part of the state, if the constant noise about its future in the City and the media is damaging to wider confidence in the financial system, then the government may conclude that full nationalisation of Royal Bank of Scotland isn't necessarily worse than the status quo.
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Yesterday was just a subliminal blip on the radar, it's back to BAU Business As Usual again
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If RBS are nationalised the Government will have acquired another tool by which they can control (or attempt to control) the mortgage lending market. With so much contradiction in their policies and statements, it's about time the Government stated their aspiration for the housing market in the medium term. They are using a lot of our money to fund this venture, and I for one have little confidence that the money will be spent to best effect.
Please read following petition:
http://petitions.number10.gov.uk/LendingReform/
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Yes, it is essential to lubricate the processes that are needed to cause a restart of bank lending.
But it is equally essential to bring back stability to the Stock Markets and confidence to the wider economy and to the Pound Sterling. Surely the Government must realise this but their actions including yesterday’s seem to have the reverse effect.
Assuming the Government is not pursuing some covert marxist plan to take total control of the whole financial sector, then they must now be desperate to find an action that would be beneficial. Many of their actions have been unprecedented but now have become the norm. But all have failed to restore either confidence or stability.
If the Government were to allow any of LloydsTSB, RBS, or Barclays to fail, or if they were to announce a full Nationalisation, neither result would restore stability or confidence to the Markets.
But, I believe that this suggestion would do so.
It might be called soft continuation of partial nationalisation, but it is practical and in the present situation should be actioned immediately.
The Government needs to make two immediate announcements:
1. That the ban on Short Selling of Financial Stocks is reimposed with immediate effect, and
2. That with immediate effect the Government will purchase in the open market Banking shares of a list of banks, which would need to include LloydsTSB, RBS, Barclays, and perhaps others. The announcement would state that they would continue to do so until the price of each had increased to a defined level that would be stated in the announcement. This level for LloydsTSB and RBS should be the price at which the Government purchased the recent offer shares (173.3p and 65.5p), and for Barclays would be an agreed price, perhaps £2 or £2.20.
The effect would be immediate and probably dramatic:
(i) Stability would return as investors would know that while the price remained lower than the stated price then they would be foolish to sell,
(ii) The immediate price for each of these shares would probably be much higher than now, and possibly close to the target,
(iii) Any Short Sellers would be severely burned,
(iv) It is likely that the Government would not have to purchase a large volume of shares as the announcement itself would be likely to cause the share prices to rise close to, if not beyond, the target prices,
(v) An upward momentum of stability and confidence would be re-established that hopefully might be self perpetuating and take the price continuing upwards with general easing of financial tensions.
I ask the Government: Please Do It Now.
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In this poker game between the traders and HMG, the govt are playing like ameteurs. They have declared their hand, and the traders can now bluff them as much as they like. With Ali D declaring that they will do "whatever it takes" to keep the banks running, he has lost all negotiating power. Therefore it is inevitable that the governemnt (and hence us taxpayers) will come out of this badly and the traders will, long term, do rather nicely. The Chancellor can lend £20b, £50b, £100b, whatever, but he is not in a position to demand that the banks give him something in return (such as lending to business). If, as is currently the case, the banks simply refuse to pass on the money, what can the Chancellor do? Nothing - he has committed himself (us) to saving them, so can't let them go to the wall. The banks can just demand more money and the govt has no choice but to pay.
A similar thing happens frequently in my industry, ship building. Every time a new warship is built the government think they have this contracting business worked out. Pay the contractor a firm (fixed) amount and pass the risk of building the ship to budget on to the contractor. But, ultimately, the government can not absolve itself of risk. Half way through the ship building period, the ship builder turns to the government and demands more money. The govt says "no, you gave a firm price" to which the shipbuilder says "fine, then we will stop building". The govt has no choice but to pay up, because the half built ship can't be taken elsewhere for completion, it can't justify buying half a (useless) ship and at any rate, it puts the defence of the realm at risk not having a complete naval force. So the govt cannot win, and it will get similarly beaten by the banks.
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OK Gordon, ten years as Chancellor which would you like to confess to - stupidity or negligence?
Why is the Labour Governemnt still treating the private enterprise system like it is a religious experience for them.
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Huh and I thought it was as much about the share holders being worried that they come last in the handouts!
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Surely time to demand back those "performance bonuses" which turn out to have been no such thing.
This would be an undesirable precedent in terms of retrospective legislation, but extraordinary times ...
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I've been wondering about the banks' foreign currency liabilities for a while now. Thank you for clarifying that, Robert.
Whilst the state can always repay its Sterling debts, i.e. gilts, by printing pound notes, it cannot repay foreign currency debts nearly so easily. This was Argentina's problem; it borrowed money in foreign currencies and the government was driven to seize private pensions.
I don't pretend to know how to solve the current mess, or even know who to blame for it, but for the UK government to take over huge foreign currency obligations does not sound like a good idea.
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Just remind me again exactly how much did we pay for the RBS shairs yesterday?
what percentage of the bank did that give us?
And exactly how much are they worth today?
I hope the goverment placed a MASSIVE short option on its shairs so that we at least made a killing!
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Robert,
I wonder if you could possibly help me because I always thought that banks had their books audited every year. You know those highly paid accountants who walk through the doors collecting astronomical fees for signing letters that the figures represent true and fair value.
So, what have they been doing during this great global collapse? Can we have an investigation into this whole sorry fiasco.
What I must say is that some people have this naive thought that the banks are being nationalised, well can we take it then that when I walk through the door of my local nationalised bank that the person on the other side of the counter is a civil servant, and that they have signed the official secrets act. Just a thought!
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Actually the question is whether the UK government CAN honour those liabilities. How many of them are GBP denominated? Is the UK government simply going to print money to pay off the GBP denominated liabilities because it certainly doesn't have the cash and its ability to raise debt is going to get more and more constrained.
Look to a UK default on its government debt and saying hello to the IMF....
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I suppose by being in the first handful of countries having to go to the IMF in the next few months there will at least be some money left in the fund to bail UKplc out.
Its a case of lets get our hands on it before anyone else can.
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Rogers is an immensely irritating individual whose contributions are little other than him talking his own book. To believe that shortselling played no part in yesterday's debacle is naive it is again very evident this morning, just look at what is going on in LLoyds and Barclays. Our pensions hve done well as a consequence of the FSA's idiotic actions. Sure make Sir Fred the scapegoat for RBS' predicament if you must but please lets not overlook the howlers committed by the FSA on short-selling and capital requirements, and the accounting profession's obsession with Basel II. Perhaps trading in finacials should have been suspended alltogether pending clarification.
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With RBS I fear Crash has got us all into a huge hole with probably immense and as yet unidentifiable losses.
To think that just a few years ago Scotland and the Scots had an incredibly good reputation Worldwide for financial acumen and integrity.
Three men Sir Fred Goodwin, Crash and Alistair Darling have blown a huge hole in that reputation. One that British banking let alone Scottish banking may never recover from.
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Poor poor Sir Tom McKillop!
What a way to go.
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It's obvious that Foreign Global banks located in the city would never their transfer money and accounting systems to London but they would happily leave dodgy assets there.
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The phrase I hate the most is: 'Perception is reality' because it's not. It's only reality to those too lazy or unable to find the truth.
Our banks are so unbelievably undervalued because we don't know perception from reality. No one is pinning risk and value to their debt, particularly their potentially toxic debt.
We will carry on riding the merry-go-round until the banks can put numbers to this. Until that happens there is really nothing else worth talking about. However complicated, the banks must get on with it.
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Quote "As for the lack of detail in the multi-hundred-billion pounds plans announced by the Treasury to stimulate lending, that was an invitation to the City to fear the worst - to conclude that the banks would become profitless instruments of the state."
Another great success story for Government's handling, eh ?
On another tack, Robert, I could not follow through your logic in your post above.
If as you state above ,
a: that until recently the banks had foreign assets and liabilities matched
b: that many foreign liabilities had to be repaid early to those overseas owners who demanded them back
and
c: that the value of sterling has semi-collapsed,
then the banks must have overseas assets worth more than their liabilities, and with Sterling's big fall this must make the value of the assets much larger than the liabilities, and the banks must now be hugely, immensely profitable.
Or is it that someone, somewhere, has not been telling the truth ?
Were the banks already not solvent previously ?
Or are the assets of the banks so ridiculously overvalued (by semi-fraudulent accounting techniques) that the banks were never solvent ?
I just cannot make head or tail of your reasoning.
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typo in para 3
abbreviation of until is 'til not till
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I find it ironic that you were the person who started the run on a UK bank, and yet discuss the importance of faith in banks!
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Faith in banks is just what is needed. A period of calm. As such ending the shorting ban was a bad idea. RBS' statement on the same day as the bailout was a bad idea.
All the news is bad and the price of getting it all out at once has been a big collapse in confidence.
This is very bad media and senitment management indeed.
Sadly, there are few options left for bailout Number 3.
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Finally, some real clarity about this. It has always been an issue of solvency. The banks fear they aren't because of unknown (or, unknowable global loans and the scale of potential defaults).
The government gallumphs to the rescue, without being clear (if it is actually possible), about what we are all rescuing.
There is resulting fear and worry about the government's and national credit worthiness.
So, print money (inflation of money supply) or, a spectacular national default. Take your pick.
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Robert, how many more dodgy 'securities' are being hidden in 'special vehicles' in offshore tax havens? How much do we really know? God knows where this'll all end. As someone said this morning socialism for the rich and capitalism for the poor. Soros argues that in future new types of 'security' ought to be pre-approved before they enter the market. I think he's right, otherwise, once the brakes are off they'll be all at it again. We have to be thinking about a comprehensive public inquiry into all of this mess. I hope in the US Obama has the good sense to do something along these lines, it might just push the current 'New interventionist Labour' to do something similar. I must be dreaming, it's not going to happen under this bunch of pudding heads.
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The 'currency market' is telling you what the rest of the world thinks of Broon and Darling, Bobby.. time the BBC reported that as far as the world is concerned, our Govt is just plain WRONG.
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Deafening silence from the Scottish Nationalists.
Perhaps they realise that if they had succeeded in gaining independence, Scotland would now be as bankrupt as Iceland, thanks to the utter folly of their supposedly prudent Scottish banks.
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And do we really think the world is going to have confidence in the UK? A country whose enterprise spirit is now encapsulated in a welfare system so generous that millions of Brits will not even consider working. And with no prospect of altering that inside two generations?
I don't think so.
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Its all very well for Jim The Jolly Roger (his comments sounds like those of a pirate) to say what he said but America and nearly all the world have very similar issues as the UK - so where would he put his money - the answer he moves it continually and stokes rumours behind his trades. Not so easy for Jo public so one must to quote Kipling - keep your head when all others..... - I would say do not listen to anyone, (not even Robert but continue reading he is interesting), but trust in only yourselves during this crisis, and remember there are always great opportunities in any crisis. Clearing out the dead wood in the worlds economies may be painful but it is necessary and will be beneficial to all of us in the long run. No pain no gain..........
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He has already given Merv the keys to the printing press so may as well start spending, buy the banks and Jaguar, could re-open Woolies while he's about it.
Give bucket loads to the Rock get house prices up, lets really build a bubble to be proud of, then light the blue touchpaper and stand well back.
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Can someone explain to me why it would be so terrible for the RBS to fail?
I understand the situation is more complicated now given the government/taxpayers have pumped in vast sums of cash to keep them afloat so far.
If the bank collapses, apart from RBS employees losing their jobs which is obviously not good. Surely all those who owe RBS money from this country in loans & mortgages etc would have them written off. Wouldn't this just inject a massive amount of cash in to consumers pockets, that would then be used to restart retail spending etc?
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Good blog Robert. You hit the nail on the head with your last comments. When Brown opened his trap with his injudicious comments, he made the situation immeasurably worse. It has been noted before, that when he gets angry all common sense (what little there is in the first place) flies out of the window.
So the RBS shareholders got spooked. It looks like the new Lloyds bank Group shareholders are following suit likewise. the remaining banks were also tarred with the same brush but to a lesser extent.
Brown effectively has been in this job for twelve years. He should know better. Rumours and statements by the authorities have always been the basis for price swings in the stock markets.
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Bert
yesterday you said it was not a bust bank - where you coming from chief?
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#3, anyone with a brain would dump their shares on the government so essentially you are advocating full nationalisation of most of the high street banks.
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Deafening silence from the Scottish Nationalists.
If they had succeeded in gaining independence, Scotland would now be as bankrupt as Iceland, as a direct result of the utter folly of so-called prudent Scottish banks.
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We simply cannot afford to nationlise RBS. Its share price is a joke; its balance sheet is massive. The risks of doing so are driving down Sterling. There are many more urgent needs for what remains of Government credit than meeting liabilities RBS has run up around the world. We need to focus on protecting our liabilities to depositors and then allow it to be wound up. If we go on like this we are going to end up like Iceland. At some point some sanity must be restored to the public finances before we are all ruined.
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Come on moderators........what are you going to do when the slurry REALLY hits the aircon in an avalanche and Robert is doing five pieces a day? Hurry up.
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This appalling Government hasn't a clue. Brown loved the false boom for years and encouraged it. He has not even had the decency to admit even the slightest hint of his own disastrous failure.
Either that, or he does know what he is doing and is trying to drive the final nail into England and hand our soul to the EU, lock stock and empty barrel.
A total shambles.
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Once again thank you for some very insightful points, Robert.
But exchange rates are relative of course and the weakness of the situation in the UK would need to be set against the strengths and weaknesses of that in the US and the Eurozone etc, where the foreign liabilities may not be as great but the extent of the toxic loan problem/potential impact of a pure trading downturn might be larger.
However, such are the perils of thinking one can be a centre of the financial world when you are not part of a large currency block.
Trying to find the upside of this, though, it probably bodes well for any modestly indebted heavily exporting company in the UK - which anyway is the sort of business that UK plc should have been supporting over the past years rather than the enormous Ponzi scheme being constructed within the Square mile (or these days a bit to the East).
But to digress for a moment.... can we open a book on the FTSE Chief Executive who has destroyed the most shareholder value in the last 25 years?
Could someone commission some research on this?
And could we then arrange for any gongs/handouts and bonuses to be recovered from the prizewinners?
I imagine that some while back a guy called Simpson would have been there or there abouts.
Today (and perhaps for the next 25 years at least?) though, I suspect RBS shareholders will have someone else in mind.
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There is no way we will restore confidence with the media's feast of despair and gloom. We are undoubtedly in a mess, but let's try and have some form of balanced view. I am not saying stick our heads in the sand but who do the media think they are helping?
They will say they are just reporting the facts well Ok let's have some positive ones as well
As for the repayment of the bonuses, I only wish we could get them back since none of those irresponsible and incompetent bankers are suffering in this. I always thought there was some mystyque about the banking world but I can make a bad bet as well as the next person.
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#13, its the regulators that have an "obsession" with Basel 2, which leads onto banks and accountants having an obsession too. Ditto VaR.
Otherwise agree with suspending share trading in financials whilst the market has time to price the information. As it is, everyone thinks the UK gov is going to pull a Northern Rock on LTSB, RBOS and possibly BARCL.
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#5 watriler.
Its not GB's fault - he was lied to by the City. Almost everyone else was taken in by it too - I've been laughed at for years for saying 'this is the way the city works and its a lie and a sham'. Now we can all see its a lie its 'someone elses fault' and not the greedy, the culpable and most of all those who knew it was a lie - the accountants and boards in the city who fooled everyone into beleiving there was some sort of economic miracle going on.
The big mistake is giving tax payers money to these fools parasites. They know that to lend it to anyone would be throwing money away.
We should have just let them rot - we're going to have to soon.
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Westminster should be fenced off, assets seized, declared an independent state and left to rot.
New Government formed in the provinces.
GC
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'There's no future and England's dreaming'
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It is a sure sign the UK economy is in trouble when Burberry cuts jobs !
Even the so called wealthy market is starting to shrink.
But, with no new exports, and Pay rises running below the rise in the real cost of living, our consumer economy will shrink further.
This is a vicious downward spiral, firms make losses, lay off staff, who then cannot spend money, which causes further lay offs, etc, etc.
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#29 anyone who has deposits will have them locked up whilst the bankruptcy works out. Also the mortgages and loans are still due. So people who banked lose their money whilst other who owe still have to pay. Would it be that bad? No idea but LEH bankruptcy was bad but in the end the CDS market worked perfectly.
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I understand full nationalisation was discussed at the weekend for RBS and there are many on this forum who advocate just that. One of the reasons why that is to be avoided is that full nationalisation implies a credit event which means all the insurance (CDO,CDS) that RBS took out against its bad debt needs to be sorted out much as it was with Lehman. This would mean other banks including some of the UK banks would have to make further significant write downs, triggering more banks to collapse. Dominoes comes to mind.
The next problem is that the size of these banks and their risks seem likely to be bigger than even the UK economy can support.Uk tax income per year approaches 700 billion and UK bank assets are in the trillions and although there is not a correlation you get the idea about how big these banks really are. There are strong rumours today that Gilt auctions are going very badly and nobody wants to lend the UK government any more money as Gordon takes on more and more risk.
The government has some very hard choices to make and I expect that they will take the easy option of printing money. The trouble is if they do it too quickly then the weekly shopping bill could double as Ratings agencies downgrade the UK much as they have done to Spain. Unlike Spain and Ireland which have the Euro, Sterling will most probably tank as a result, rising prices, setting in motion a vicious circle of decreasing consumer spending money as inflation goes through the roof. The alternative is to balance the budget and take a leaf out of California's page where pension and state benefit payments have been suspended for the time being. Even Ireland is talking tough to balance their budget with suggestions of benefit cuts and public sector wage cuts.
Despite how much we may think our banks have failed us what many forget is that during the goods times they were paying lots of tax to the government. Estimates suggest tax income has dropped by a third for the UK government. This leaves the UK government with the option of increasing taxes to compensate, printing money to make up the difference, cutting expenditure to match the tax income. There is of course one alternative and perhaps the only escape route for the UK economy and that is to make UK banks international beating profit making banks so that they can be taxed at high levels again. Unfortunately it looks like the UK economy and government is all resting on UK banks continuing to be profitable private entities.
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Errr... shareholders have been getting worried that Gordon knows more about the banks' financial situation than they do.
Does this mean that the banks have come clean in front of the Prime Minister, but not in front of shareholders, financial analysts and the FSA?
Makes bit of a mockery of the fundamental principles of capitalism doesn't it?
Now either the shareholders are (and always have been) incompetent and gullible, or they are telling us that central planning is a better way of knowing what is really going on. I'm very confused.
I can just imagine the voices in Gordon's head at the moment "Just keep pumping confidence into the system, and it will all be fine, lad."
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Why On EARTH would the GOV want to NATIONALISE RBS?
Would it not be FAR BETTER to keep a 70pct stake in a listed bank, which it could offload at a later date bit by bit?
All this talk of nationalisation is so 1970s.
The World has moved on!
THE EXCHANGE rate could have two impacts depending on what the banks have done to offset their currency risk.
BUT as these traders are the same people who buy holiday homes in France and do not bother to exchange their sterling at the time they agree the purchase price so ending up with unnecessary currency risk between the agreed purchase and completion of the purchase.
I would not be surprised to see that the BANKS (run by these currency challenged traders) have not done a thing to cover the currency risks Robert is talking about.
I looks more and more like the UK has been one of the biggest sources of funding for the American credit BUBBLE.
The sheer incompetence of the Management of the banks and the UK regulators AND the British Government is quite UNBELIEVABLE!
We are so lucky we are not a MANUFACTURING economy!
Pitty we are NOT in the EURO!
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no doubt Mr Curzon bought dollars yesterday - wait for it !
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Excellent bog Robert - I think this really gets to the core of the UK's banking problem.
I really don't see how we as a nation can afford to take on £1900bn of RBS's foreign currency liabilities. It's the old question again - what possible consequence of saying "sorry it's RBS's fault, nothing to do with the UK Government" could be worse than saddling ourselves with £1900bn of real foreign currency debt?
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Robert,
I think your use of the quote by Jim "bow tie"Rogers just plays into his hands. He is the first to say that he buys at the bottom and sells at the top. Why help him achieve his objective.?
The only reason America stays afloat is because China and India need it to do so.
All of our current problems relate to British banks following the nefarious ways of the Americans who will never change. With the medias support and less speculative trading our banks can once again become stable institutions. Give them and Gordon Brown a chance.
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Can someone explain one thing to me. If banks are desperate for cash i.e. to reduce their exposure to loans they've given to institutions like RBS, and they know that HMG has guaranteed to cover RBS's position, won't RBS's lenders simply all come knocking on RBS's door (effectively HMG's door) for their money?
Robert hints at this, but says it's an "unlikely event that a mob of overseas lenders to the banks all asked the teller one day for their money back."
I don't understand why it's so unlikely. But then I'm an outsider to this whole business and don't understand a lot of it (dont think i'm alone there). Can someone help me out?
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Talking of Brown's injudicious comments did anyone see News at Ten yesterday where the ITN report had the bottle to ask a question that the BBC would never ask.
Is this not equivalent to writing a blank cheque?
Brown's response at the end was chilling and revealed his totalitarian nature.
It was along the lines of:
Be careful asking questions like you just did.
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On a different subject, & one cleverly picked up by Mr Pirate at the time of RP's blog on the subject, annual food inflation confirmed at 11.9% today, Tesco's annual like for like sales increase 3% - so a drop in actual food sold of c 9%.
So rather than a good December performance actually a shocker in terms of sales quantities.
Their profit is only holding up because their costs will not have gone up anything like their sales values because they continue to screw the suply chain.
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The Question hanging over all the Stockmarkets must surely be:
How much corruption is actually out there ?
This might sound a silly question, but when a man like Madoff can pull a fifty Billion con, where does that leave the rest of the system ?
It is interesting how many UK companies seek Offshore status for their Tax affairs.
It would be interesting to know how much Tax revenue is lost to off shored companies, some of which have entirely UK based services.
So, can public investors trust any of the big companies ?
How can we know if what is reported in their accounts is the truth ?
How many more Madoffs are out there ?
And when will how Housebuilders get Nationalized ?
One man can start an avalanche with a shout. Funny that shouting wont stop it afterwards......
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Capital, and particularly fictitious capital, has to be devalued for capitalism to regain a positive profit rate.
Capitalism only produces for profit.
The system doesn't meet human needs.
People out of work, people in debt, people losing their houses, people unable to feed themselves properly, people unable to keep themselves warm, people needlessly dying.
Why have a system that puts profit before people?
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The bounce in RBS this morning seems to be of the dead cat variety. Also note other bank shares esp Lloyds are down. There is a total lakc of confidence that the Government knows what it is doing and is capable of doing what it wants to do. Meantime Sterling continues to slide...
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Hi all,
Here is a simple idea to get the banks lending again: Instead of the gov backing the lending via the high street banks, simply have customers that are looking for loans go to Northern Rock, since the gov own it outright. Once the banks start loosing more and more business from businesses or mortgages, they will quickly start lending again. Stop bailing them out for creating the mess in the first place.
The existing small firms loan guarantee scheme (SFLGS) does not work for a lot of businesses and adding more money to the guarantees also will not work. Reason: although the SFLGS will cover 75% of the loan, this is not enough for the banks. They want 100% plus, security which for most small or new businesses is not an option. Some banks will not even consider using the SFLGS until you have the other security in place.
The other side to the banks being offered even more guarantees, is that the banks then have little or no risk and will therefore go back to a year or two ago whereby they will lend to anyone for anything. Alot of the loans will fail, and the banks will simply fall back on the guarantee schemes and continue to rip the back side out of what should be a very good scheme.
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Robert,
Alistair Darling said of HMG recapitalisation in November :
"The objective of the recapitalisation scheme is to ensure that each eligible institution has sufficient capital to sustain confidence in the institution. Institutions should therefore have a sufficient buffer of capital above the minimum requirement both to absorb losses that might ensue from a downturn and to continue lending on normal commercial criteria. In assessing any proposals in relation to eligible institutions, HM Treasury will continue to focus on three key objectives:
maintaining financial stability;
safeguarding the interests of taxpayers; and
protecting depositors and consumers.
In providing capital to any eligible institution, HM Treasury, on the advice of the Bank of England and Financial Services Authority, would need to be satisfied that these three objectives were met.
2. There is no automatic right of access to the recapitalisation scheme. At a minimum HM Treasury would expect the following high-level conditions to be met before capital could be offered to any eligible institution:
The institution must have a plan to meet an appropriate level of capitalisation, as determined by the FSA. (Information about the FSA approach is set out in its statement of 14 November 2008). It is a matter for the institutions concerned to disclose to the market their capital requirement;
The institution must have a sustainable business model and delivery plan;
The institution’s funding profile, sources and mix must be clear, broad-based and sustainable; and
The senior management team must be credible, with demonstrable ability to deliver the business plan. "
See my earlier posts on RBS. Sir Peter Burt this morning on Today said that RBS told HMG of its black hole, so yesterday's losses should have come as no surprise. It came as a surprise to me, and the markets by the look of it, aside from the waste of taxpayers' money that's gone down the pan on paper. What has gone wrong so soon after RBS capitalisation?
The money market liabilities were taken care of by way of HMG guarantee for 250 billion / sovereign wrap, were'nt they?
Sterling and equities will be vulnerable if HM Treasury / UK banks do not keep their houses in order.
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If the government want the banks to start lending, why don't they use the nationalised banks to lead the way? The problem now is that there is no competition in the market. If RBS were to say "OK, let's lend again", the other banks would soon get their act together or risk losing market share.
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I wish people would stop referring to RBS as a Scottish bank and that its behaviour is going to have a very negative impact on how people now perceive the Scots and Scottish bankers.
RBS may well have had its oversized HQ in Edinburgh but its largest institutional shareholders were City institutions and it was regulated (alledgedly) by the FSA, the Treasury and the BoE none of which are Scottish.
RBS was therefore a product of City greed and short termism which believe you me did little or nothing to help grow the Scottish economy beyond the direct employment it provided.
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Indeed, it's all about confidence.
That's why Brown and Labour have failed, and continue to fail.
They are associated with the "old-politiek", and have failed to show the integrity that engenders trust.
Change is essential. Before UK society is broken too.
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'Can someone explain to me why it would be so terrible for the RBS to fail?'
If RBS failed, there would be a run on every major bank in the UK the next day. The entire UK financial system would fall apart within 3-5 days and the government would have nothing it could do to stop it.
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I am amazed there is quite so much store put on share prices.
So that a collapse is almost seen as self-fulfilling and leading to nationalisation.
I dont think 100% ownership of, say, RBS achieves very much at all.
The extra 30% isnt worth it for taking all the liabilities on the public debt or decimating pension funds even further.
And seizing more assets is hardly the best way to encourage foreign investment.
There is a multitude of examples of markets getting prices so wrong its embarrassing to the human race.
So ignore the share prices and just look at the fundamentals.
The fundamentals are not pretty, granted, but measures to address the problems do not require nationalisation.
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The government is now putting us all in debt and giving that money to the banks in the hope they can be persuaded to lend it back to us, at interest.
The current financial system is institutionally dishonest and largely parasitical. It needs major overhaul.
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It seems then that the UK is the sick man of Europe. The debt filled boom that evaluated Britain from the problems of the 70's has shown itself to be a smokescreen.
Perhaps if Thatcher and it's Nu Lab reincarnation didn't continually bash the Unions and suppress wages; people wouldn't had needed to borrow the amounts they required in the first place.
The beginning of 20th century saw the Ottoman empire as the sick man of Europe. This century it's the UK!
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Before Jim Rogers puts the £GB down (we can we are Brits), he should look at his $US because when the Chinese Jim Rogers say sell $US there will be no newspapers in the USA as the presses will all be printing $USm notes.
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#19 "Till" is a perfectly acceptable alternative to "until". Look it up!
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#40, yes Mr Brown is a poor victim of the City, but didn't you know that he predicted this in 1998. He is a genius and knows all. He will save the world - again!
Weird there was no complaints about the City "lying" when they were contributing a quarter of corporation tax receipts and 30% of GDP and funding Brown's debt fueled binge...
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I enjoyed Yesterday in Parliament this morning with dear Dobbo, member for Christmas North, ranting on about bailing out Tory bankers. Poor old soul, where has he been the last ten years?
The Tory bankers seem to still have all their money whilst the SNP and Socialist (Champagne Tendency) bankers have posted their money into a deep, dark hole which they expect the taxpayer to fill up with their wealth so they can skim some off for their next bonus.
It is this deep dark hole which is the problem and, quite frankly, I am getting scared. So are the currency markets by all accounts.
I have to revert at this point to an old record I have been playing for some time now.
The government has not got a clue what it is dealing with. Mr. Brown even admitted as such yesterday. As other posters have remarked they have handed their entire strategy over to the market dealers with permission to skim as much off the top as humanly possible.
In short this government is so incompetent it has to go and go soon.
A comment on Teletext last night remarked that Mr. Brown has no mandate for this sort of commitment and called for an election. A very good point.
There are two options: an immediate general election or the PLP dump Brown as leader. If Labour go for an election now they will suffer fewer losses than if they go in six months or a years time. If Labour leaves it until the summer they will be wiped out. it is their choice.
Mr. Brown and his administration is finished. Its culpability in creating this mess is widely recognised and its failure to deal with it effectively is apparent.
It is more than the banks that need confidence, so does the government. It has none, so it must go. The call now belongs to the Parliamentary Labour Party: are they capable of a coup followed by a coalition government or are they just a bunch of stooges. Over to you, Dobbo.
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10:20am, PleaseDoItNow, you should run for Chancellor. Honestly, you took the words right out of my mouth. GBP 50 million pounds yesterday would have gotten a positive close in RBS and saved us all billions in paper losses. More importnantly, they would have achieved the single most important thing required at the moment - confidence in the markets. On top of that, quashing talk of nationalisation would also have a massive impact. Nationalisation of RBS or Lloyds would be cataclysmic for stock market. Shareholders are not gamblers at a casino, they are a very important part of the capital structure. Keep taking away their investments in solvent organisations and equity risk premia will destroy the market and with it pension funds... how long till pension liability issues become the issue? Not long if equity markets are not supported.
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#46, no they are worried that Brown will force them into nationalisation which will screw them a la Northern Rock or force them to lend crazily and so bankrupt them later. Either way, its a sell...
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Gordo, you have done enough messing now, just put the interest rates to 5% to save sterling and drop the value of your new overseas debts.
All existing sensible internal UK borrowing can cope with that.
Then put a zip on it, and go away on holiday for three months and let it all settle.
But before you go, put a call into the Fraud Squad and tell them to have a whole load of guys in pinstripe suits in the chokey by the time you get back.
If you are lucky, there might have been a coup and you can stay away for good.
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#33
Silly chap.
If Scotland had succeeded in gaining independence it would have the benefit of a Norwegian type oil fund and a much more diversified economy that included a greater level of higher tech value adding manufacturing companies because RBS and HBOS would have been properly regulated and would be working in collaboration with the Scottish Govt and industry to develop the Scottish economy.
Nice try though.
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Its time to jump ship.
Two tickets to Reykjavik please.
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From Reuters: statement by Lloyds bank chairman:
"I think we can probably conduct our business better than the government can conduct it for us," Blank said in an interview with Sky News.'
Mmmmmmmmmmm ... methinks he's a tad worried that good old Gordon'll soon be calling the shots.
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Time for an update Robert:
Lloyds Banking Group is tanking! Down 40% this morning.
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The man on the street is enslaved further and further into future tax debt becuase he is forced to pay the debts of the very very rich under the threat of the total collapse of the economy.
It will all completly collapse anyway so let it all come tumbling down rather than this controlled demolition that gives the elite TOTAL CONTROL.
Brown etal are going to get the steaming smelly blame heaped on their heads from a large height while Cameron and co' will no doubt come in and save us with a 'new economy' that will surely no doubt make use of the NuWOLabour RFID ID DATABASE Systems.
now there's a plan
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The lack of confidence isn't in the banking system but more with the banking institutions ability to manage themselves properly, professionally and indeed honestly.
With reference to T A Griffin and the over paid accountants and auditors. This is not the first time that large corporates have shown that they have an unhealthy and some would say illegal hold over those who are performing the audit. I agree they should be named and shamed as it is impossible to miss such an obvious exposure and share holders should have been informed.
As far as the currency is concerned. I have mentioned before that I unfortunately have to pay maintenance in Euros however my children are buying all things from the UK as is my ex wife. The children are then selling the games, clothes etc for considerable profit. Admittedly skiing has been cancelled but the holidays will be here. I can see how the low stirling could boost the economy, if there is one left.
In France while the banking system is more robust due to the stringent lending the cost of living is now astronomical and I can see I much more difficult and longer depression (let's be honest, this not a recession) throughout Europe because of the heavier reliance on the manufacturing base.
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Re 45, brickfielder.
Very interesting. I thought that the UK government funding crisis wouldn't hit until next year, but as back in October, events seem to be moving fast.
Clearly this government don't have the will to make hard choices about spending, and as they've all but announced they're going to start printing money, I expect inflation to take off very soon, today's figures notwithstanding.
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Surely the real stories this morning concern (1) Jim Rogers and (2) reports that a rating agency is going to downgrade UK govt debt. This is why sterling is crashing.
Overseas investors look at countries the way equity players look at companies:
1. What is the outlook for income and spending? (in the current instance, dreadful)
2. Do I believe the balance sheet? (no, because of huge off-balance-sheet liabilities)
3. Do I trust the management? (it is not even worth asking this question until after an election).
The UK may not be "finished" - provided that Labour IS "finished", PDQ.
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England was lumbered with the Scotch 300 years ago when they came begging for Union as they had bankrupted their own country. We in England have provided three centuries of gifts and support, always ungratefully received, and they have now through their Scotch Raj now bankrupted England. Not content with that Brown tells the world how to behave and only the Germans are standing up to the bankruptcy of the whole world. Scotch prudence has been a fallacy over the centuries coupled with a seemingly national incapacity to accept they are wrong. No wonder Alex Sammond is quiet these days as he knows Scotland cannot exist without Union. We can do without them though. The recent report that by 2012 Scotland will be the 3rd largest receiver of public funding support, only just pipped by Cuba, is as damning as it gets.
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At the the time of writing, the moderation queue is about an hour.
The "angst and anger" is understandable.
The sense of betrayal is justified.
This is the biggest 'national' crisis since WW2.
And it was predictable.
Britain did'nt need Europe.
Europe was 'bananas and cucumbers'. Full of REGULATIONS which would have hampered the freedom of the CITY. Meddling in British affairs. Telling our banks how to run their businesses. Merkel warned Brown at G7 Heiligendam. The German press reported that she was laughed at by Bush and Blair.
Europe will suffer a deep recession.
Not because of the banking system (except Ireland ; but Ireland is containable) but because of the insolvency of Europe's customers in the Anglosphere.
The winner will be Eastern Europe. That is where the value creation.. roads railways ie. infrastructure will be as far as the ECB is concerned. Payback in 20 years. No short termism. That's where the 120 million hardworking customers will be. The east europeans are skilling up fast. Poland will have a higher per capita than England by 2020. Because work creates value not speculation.
The East Europeans want decent schools, good hospitals, good roads and good houses and good pensions. They are sick of blackmarket spiv economies.
Britain is not a role model.
The British model has failed big time.
Why?
Basically because you hate each other.
You hate your estate agents, your banks, your councils, your politicians, your 'cowboy builders', your teachers, your police.
Read your yellow Press... Sun, Mirror, News of the World.
You hate your vicars, you hate your students. You hate 'education' and you hate your customers!
'I'm all right jack and scr.w you'
An economic system reflects the values of the society in which it evolves.
You probably hate me too!
Do you really believe it that when an American says 'have a good day!' they really mean it.
Of course not.
They hate each other too.
The fact you can see that means there is hope for you yet.
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People are rightly angry about the current economic situation, the abilout plans being enacted, and the wat it seems to have noe end in sight. People feel powerless. But there is a distinct lack of understanding about how modern monetary systems work (not just here, but in the government, and dare I say it, in the banking "industry" itself. Maybe they just don't want to reveal their lack of understanding to us. I agree with many other posters here that RP has a public service duty to give us that educational understanding... maybe another piece rather like his New Capitalism one?
In the meantime, some may like to look at this link to see some views on what a better monetary system might look like.
http://www.wfhummel.net/reformplan.html
The theories of Hyman Minsky are very relevant here... especially his views on massive debt deflation, which the world is about to embark on. The trouble is, our economy is built on debt, rather than any other "collateral", and in particular economics seems unable to take proper account of the importance and value of human capital, which is vital in service and "knowledge" economies.
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This reaffirms my theory either Brown is one of the stupidest politicians in history or the most devious totalitarian dictator this country has ever witnessed. Peston for once makes some very salient points.
Why lift the ban on short selling before anouncing the next actions on Banks to improve liquidity?
Why undermine investor confidence by suggesting all UK Banks have further toxic debts hidden in their balance sheets?
Why not provide the clarification needed to give investors confidence that this was not going to be wholesale nationalisation in everything but name?
If a government wants to nationalise the banking system it is going to be a lot cheaper if the share prices are demolished.
This is quite a clever way of transfering wealth from the modestly wealthy to the poor of the UK. Banking will become another form of taxation. Total market capitalisation of the banks 18 months ago would probably be about £700Bn, by nationalising for say £50Bn the gov has effectively transferred that wealth from the prudent savers and investors to be spent on the massive requirement for welfare benefits and the huge black hole in the bugdet created by an extended period of reckless gov spending.
The biggest loosers in this mess are the shareholders and private pension holders, a large majority of the country, the beneficiaries people with no investments or savings or private pensions on long term benefits.
Nice one Gordon you surely are a ......
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Hmmm....this is all a blow to Eck the Fish's (aka Alex Salmond's) desire for Scottish Independence. His much vaunted arc of wealth (Iceland, Ireland and Scotland) has now become the arc of insolvency! At least this may scupper his desire for a local income tax...surely nobody in their right mind would increase taxes at this time?
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From this site:
"A key feature of the government's plan to stimulate lending by our banks is a direct intervention in the mortgage market"
Ho hum. 'Your home is at risk if the economy collapses and there ain't nothing you can do about it'
Repossessions up and they still expected you to take on a mortgage.
GC
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#55, yeah its called communism. You can move to North Korea to enjoy it.
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Come on!
What's happening will generally be seen as 'a good thing' when we look back on this crisis. Why? Because it will be seen as the end of the catastrophic policy of 'self-regulation'. It will also bes seen as a massive 'wake-up' call for politicians.
Successive governments have failed to regulate the financial institutions properly and as a result have had absolutely no idea what was going on. Politicians have failed in their duty to oversee the successful management of this country. Their pathetic bickering and school boy squabbling about such inconsequential matters such as the 'John Lewis list' is too sad to merit comment.
We have a very tired, outmoded and unprofessional version of democracy which delivers glacial change in a time of accelerating change. It no longer serves the needs of our society.
In the general scheme of things, it doesn't matter much whether RBS is nationalised or not. What does matter is political reform!
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Jenatzy @19
No, it's not. "Till" is the oldest form of the word. "'til" is the non-standard form. Check Wiktionary.
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as a shareholder, every year i receive the annual accounts which always include an "independent report" by the appointed auditors... this always says "blah blah blah gives a true and fair view of the state of the groups affairs........"
can someone tell me why all the banks auditors are not now facing charges for misleading the shareholders? My Barclay's report mentioned nothing about all the assets that cannot be valued etc......
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From the Times online:
Jim Rogers, who co-founded the Quantum fund with George Soros, the billionaire investor, told Bloomberg: “I would urge you to sell any sterling you might have. It’s finished. I hate to say it, but I would not put any money in the UK”
Pheeweee! Can it get any gloomier?
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But nobody explains how full nationalisation will help the situation - if anything it will be an admission of failure by the government and further destroy international confidence.
International investors would have to deal with a fully nationalised bank which would be less open about toxic assets etc than currently, casting further doubt on the credit worthiness of the UK Government.
Watch sterling really plumet if RBS is fully nationalised as this would also tell investors that Lloyds would be next in line, and the IMF would undoubtedly have to be called in after a few months.
You're right about short selling though - many long term investors are now dumping simply because they believe the short sellers are driving the prices down, which in effect they are - it only takes a relatively small volume of short sellers to create panic in the current circumstances.
Says something is very seriously amiss about the quality and judgement of our leaders and civil servants that the ban was lifted.
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# 52 GRUD999 said that the ITV asked what the BBC would not i.e. HMG writing blanc chq.
I fairness the Today programme asked Darling at 8.15am yeaterday morning. I forget the answer but it was not in agreement.
#60 WEE-Scamp said RBS is not Scottish.
I have banked with them for 20 years and maybe found 2 English people in that time and they were customers.
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We need a PUBLIC INQUIRY.
This inquiry needs to look for criminal incompetence, criminal negligence and fraud.
It needs to look at the entire industry over the last 7 years.
Ratings agencies, certified published accounts etc.
Why do we have tens of thousands of multi-millionaire bank staff at the same time as broken banks?
Were lottery jackpot bonuses paid at a time of non-existant profits, or when executives knew that their bank was failing?
Of course a public inquiry may be highly critical of the government, but unless we get one, we will never shut up.
The gov can continue to try and save the economy....the enquiry can be held by others.
We know it's "global" Gordon, but our bankers seem to be the worst on the globe, by far.
They have lost the entire annual GDP of the nation.
No other country comes close.
For this small matter of the countrys' banks going bust, we need a PUBLIC INQUIRY now.
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Robert - a few names please, to flesh out:
'Our banks have colossal overseas liabilities; they've borrowed huge sums abroad. According to Bank of England figures, the gross foreign currency liabilities of British banks are around £4,400bn (having quadrupled over a decade).'
Oh, and by the way, just a thought ... in the context of the de facto, possibly soon to become full frontal, bank nationalisations, I've just stumbled across the wording of Clause 4 of the Labour Party Constitution - as dumped on 29 April 1995:
'To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry and service'
Goodness me! - '... common ownership of the means of ... exchange.'
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Is there a wall between the share capital of a bank and its operational finances? I would like to think there should be and that the share price of a bank should not impact its P & L. Any ideas?
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It's obvious what's going to happen here. They won't wholly nationalise RBS because that way if there is a huge liability the government will have to pay and risk default. The government will split RBS, with the quality business (deposits and quality business lending) remaining in government ownership and the rest remaining private. This protects the savers and businesses (voters/economy) while allowing the foreigners to go to the wall without rhaving an official national default. The septic bank is still very much upon us.
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So pumping vast quantities of our money into the banking system isn't working. No suprises there.
But is it lack of confidence in the banks or the British government that is the issue here? Brown's lack of detail in yesterdays announcements left me uncertain that he knew what we, as a country, were signing up to. No doubt others felt the same.
When will it end?
Can't the Tories make a bid for you and Vince Cable on the transfer market?
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I estimate the loss to date to shareholders in the banks is reaching about £500Bn. Shareholders are by far the biggest loosers in this mess. Most of the reckless investment bankers have made their money and probably do not need to work again, the politicians seem to be immune to dismissal on the grounds of gross misconduct, foolishly we give them a mandate to do what they like for a 5 year period without fear of loosing their livelihoods, financial journalists have positively thrived on this debacle(particularily state sposored ones). Perhaps Peston will donate the proceeds of his recent book sale to a shareholder welfare fund.
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Confidence may be 'nebulous' as you say, but it is fundamental to any recovery of our economy let alone to individual investors.
No matter what the mechanics of the latest round of rescue plans announced this week they will not deliver until confidence in the government itself is restored.
Mr Brown and Mr Darling continue to play the blame game.
It is not so many months ago that their mantra was that the UK was better placed than other leading economies to weather the international storms.
It was repeated at every opportunity and is now shown to be what it always was: a hollow boast.
Until they or there successors become believable confidence will remain illusive.
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#25 You've missed the point of RP's blog. The risk is that even the UK cannot withstand the crisis and will go the way of Iceland.
It staggers me that notwithstanding we have had bails out 1 and 2 for the Banks, the Govt does not know the full extent of its exposure. The reality is that whether or not the banks are fully nationalised, the UK government is effectively responsible for their liabilities. These are huge and will bankrupt the UK.
Sterling will devalue further; no one will lend to the UK government with the potential exposure of bank liabilities on its balance sheet and it will have to print money to fund the public deficit. Inflation will take of and interest rate will go sky high. I don't want to sound alarmist but the problem will not be how the bank's meet their liabilities in foreign currencies but that foreign exporters of foods and other essentials to the UK will not accept a worthless sterling. We currently produce a fraction of the food we need as a country. You can imagine the rest for yourselves.
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Can anyone see the irony in Gordon Brown's comments about Iceland last year?
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#8 David_Kilpatrick
Yes - and you'll notice the comment by Robert P which reads:
'the gross foreign currency liabilities of British banks are around £4,400bn (having quadrupled over a decade)'
which co-incides pretty neatly with the arrival of the Tony and Gordon show and the relaxation of the banking regulations in order to keep the city on side.
So it's all somebody else's fault is it Gordon?
No more boom and bust? There is one sure thing that you can bet your house on Gordon, and that is 'the bigger the boom, the bigger the bust'. The only problem is that half the country believed, apparently along with the government, that house prices could rise indefinitely and bet their savings on this instead.
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Cameron should bring back Lamont and Major as well.
Thye knows 'ow to prop up Sterling..
GC
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#36 grumpybob
The collapse of Sterling has closed the escape hatch rout to Europe for a decade or more likely several decades. Ken Clarke was quite firm on this and you could not find a more ardent Europhile.
To join the Euro the UK economy would have to be in good nick. It is not. Public spending as a proportion of GDP would have to be significantly lower; what the EU would make of off balance sheet items is anyone's guess. The Pound Sterling to Euro exchange rate would have to have been stable for at least two years - it is nose diving as I type.
Even if somehow the above conditions were bypassed, I think the UK joining the Euro would quite possibly bring about the downfall of the EU. And our annual contribution to the EU has gone up thanks to clever clogs Brown who agreed that we would pay in Euros instead of Pounds Sterling as we used to.
What is the opposite to having the Midas touch, btw? Cos Brown has it in spades!
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#81 - now is not the time for petty nationalistic squabbles but, when you have the opportunity, you may wish to educate yourself by reading the 1975 report by Gavin McCronme which was buried by the UK government of the time and was only released in 2005 under the Freedom of Information Act.
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There are not many actions that are big enough to restore confidence.
The obvious one is to put up the pension age by 10 years and rewrite the rules on public sector pensions. That could make trillion £ improvements to the national balance sheet. What else can you do ? You can't let huge banks fail or the savers will lose and there will be chaos and you can't escape by £ inflation when most of the problem is in foreign currency.
The second action is to forget about growing lending - it is going to contract. Target the limited available lending to productive industry and away from housing.
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3. At 10:20am on 20 Jan 2009, PleaseDoItNow
Your idea appears to have some value. At least the proposal should have further exploration. Thanks.
26. At 10:45am on 20 Jan 2009, Ubidenmark
What a complete and utter load of c*r*a*p. Please tell me where all of these millions of people are who do not want to work. Like most of the right wing utterances it is without foundation. perhaps the tough love should start with the financiers and capitalists who engineered this mess. they have cost us far more than benefit payments.
27. At 10:45am on 20 Jan 2009, Roadstoruin
As farr as Jim Rogers is concerned, I hope he does not put money in the UK. he had better look to his own position in the US. After today the real bad news comes out over there. Obama's package has alreday been 'factored-in' before it has been implemented. Now just watch the collapse. I hope he's beeting on £/$ parity - he'll loose his shirt.
I agree, the collapse is happening in other countries too.
I feel sorry for Obama. He's landed with YES WE CAN only to find the whole world already knows NO YOU CAN'T
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At 3.25pm yesterday the price of Royal Bank Of Scotland's stock rose dramatically from -67% to +1470.61% This happened in a matter of 2-3 minuets.
At 3.30pm RBS's stock plummeted back down to around - 66%
At 4.06pm The price of RBS's stocks sky-rocketed through the roof again.
At 4.06pm RBS stock rose from around -66% or 11p per share to an astronomical +1456.20% or 540.00 per share
For the second time in one day RBS'S stock had gone from the biggest loser on the FTSE100 index to the biggest winner
Yet in the space of four minuets at 4.15.pm RBS'S stock crashed AGAIN from and astounding +1456.20% 540.00 per share to a devastating -66.57% 11.60 per share.
This came from the BBC,s own market data
I took screen shots to save the data reports as I thought this was a little strange.
Surly this didn't happen as the news never reported it ?
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84. NeedaFilip:
Brilliant post, it needed saying. Everyone should read it.
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#82 good post!
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I am encouraged by the Government's clear desire to increase lending despite the reluctance of the market to do so itself. This will (of course) not work and may even push up interest rates.
Welcome news that RPI has fallen to 0.9% as a bank rate of 1.5% now represents a real interest rate (net of RPI and basic rate tax) of 0.3%.
However some of this fall (in RPI) has been engineered by a 2% cut in VAT and some of the fall simply reflects that the average price of a house has fallen and some that the 'standard variable rate' of lenders has dropped. Most people with mortgages in payment will not see this drop of course. Also for those with a high loan to value debt, the interest rate will not have fallen.
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Why why why did the FSA decide to lift the ban on short selling now, could it not waited a year to let things settle down and books open. Bounce of clowns in making the decisions.
Just the fear of banking shorters has panicked seasoned investors. As well as their negative effect on the price, confidence is eroding. Some people short to hedge bets but this seems to be an all out assault
Its not rocket science, there needs to be an immediate suspension on shorting in the financial sector to get the correct price of these institutions, over the last couple of month confidence was building but last friday knocked it for a six.
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So it'll be The Barclays Banking Corporation (they'l drop the Shanghai bit for fear it'll give HMG ideas, and they'll drop the H too just to give RP nightmares...) versus the Bank of the United Kingdom (by contrast with Kiki's thinking yesterday, that's what you get when you add HBOS, RBOS and BofE) in the final.
Who's the ref?
RP, you've seen enough on here to know we still await a serious answer, WHY? What's there to be confident about? We've suggested a base-level logic, but everyone's still batting about in their castles in the sky on the optimist wing. Unless and until they come back to earth, nobody on the pessimist wing will believe you, particularly whebn you start cartwheeling as reliably and predictably as this. thus far, the optimists are disappointed and the pessimists not yet unhappily surprised. There's a deal further to fall yet.
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Posts back from 28th Oct 2008:
You are at the heart of the problem! The pyramid has finally collapsed. The money that is being paid in now is not to solve the current problem, it's to repay the original debt (those at the top of the pyramid - the elite). Don't expect the bail out to solve the current problem, it wont.... and (UK taxpayer and pension holder) don't be falsely lured into further debt and thus transfer more assets to the elite! Gordy has tranferred enough!
So.... looking forward, what do we do about the provision of housing which started this crisis?
Here's an idea...
How about we create a "not for profit banking system", built on sound principals, highly regulated and in the ownership of all of the citizens of the UK, not the elite! Somewhere where we can safely save and borrow to fund the longer term things in life, like buying houses when we are young and providing for retirement when we are old. A mutual deal, we help each other out. WOW this sounds good!
And! ... it could fund business too!....
It's time to rethink, this system ain't working!
The £5,000bn bailout
3:45pm on 28 Oct 2008
Taken from Wikipedia:
A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered. It has been known to come under many guises. (Sound familar?)
Pyramid schemes are illegal in many countries (Really???), including the United States,[1] the United Kingdom, France, Germany, Canada, Malaysia, Norway, Australia,[2] New Zealand,[3] Japan,[4] Nepal,[citation needed] Sri Lanka,[5] Thailand[6] and Iran.[citation needed] These types of schemes have existed for at least a century.
further in the text - the bottom 3 tiers of the pyramid always lose their money when the scheme finally collapses (Really!!!)
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When the pound approached parity with the Euro, you ran a bunch of stories on how this might make us want to join the Eurozone.
Now we're talking parity with the dollar are we to see stories on joining with the US?
What is more worrying is the EU bias. Lots of stories are running elsewhere about the problems Eurozone countries are having because the Euro doesn't allow them the flexibility they need to support their currency. Not a mention on the BBC, though.
As editor it is your responsibility to cover all the news and present both sides of the argument. You have signally failed to do so here, presenting arguments towards joining the euro with none against.
PS: I'm pro-euro - but more pro balanced journalism/editing.
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Just a little question. What would happen this time if UK plc defaults? Can we go to the IMF again? Would we be the first of many? We are dependant on imports who'd sell to a dead duck? Would we get rid of Crash Man?
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Bobby Bobby Bobby..... - shouldn't a serious journalist for a serious NEWS channel be talking about these things ? - Oh no.. doesn't suit your slanted view of Broon and Darlings incompetence does it...
"Probably the worst deal ever"
Worse than the Conservatives' Black Wednesday
At close of business last Friday, the UK government held £5 billion in preference shares and a 50% of the ordinary shares of RBS. I calculate the market cap of all of the company’s ordinary shares at £8.33 billion, so the total government holding of prefs and ordinaries would have been worth about £9.16 billion.
At the weekend the government cut what it thought was a good deal to exchange the prefs for ordinaries at a price 8.25% below the Friday closing price, giving the government a 70% interest in the ordinaries. Unfortunately the share price fell 67% on the day leaving the market cap of RBS at £4.58 billion, and the UK government’s 70% share at £3.2 billion.
So instead of getting a benefit of a £400m discount on the conversion price, the government took a £5.96 billion loss on the day.
http://alexmasterley.blogspot.com/2009/01/probably-worst-deal-ever-worse-than.html
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Robert,
Cordon here, thought I'd drop you a line to let you know the economy's going to be fine - Mandy's on it.
Fantastic
Cordon
p.s love your show (the news)
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45. Brickfielder
"There are strong rumours today that Gilt auctions are going very badly and nobody wants to lend the UK government any more money as Gordon takes on more and more risk."
Where are these rumours coming from? There was a relatively small issue yesterday that was only 1.3x subscribed (I dare say some bidders were preoccupied). The last big auction was £3bn on the 15th January and was 2.38x subscribed, which compares to the long term average of c2x. Since the end of October (after the first recap.), £34bn has been issued at 1.8x.
(Source: DMO, you can find the results of all gilt auctions on their website).
Don't get me wrong, I am worried about the continued ability to issue gilts at appropriate yileds, but not much evidence of major problems so far.
As for Jim Rogers on sterling, well there are just as many also predicting a collapse in the dollar and the Euro - they can't all collapse together. None of them know.
As another poster pointed out, it is priceless to hear Peston pontificate in a bemused and worried fashion about the loss of faith in UK banks when he has been spreading the poison for well over a year now.
If there is any hope emanating from yesterday, it is that this is now primarily an RBoS problem and that can be isolated and sorted, albeit not without some difficulty. (Contrary to what you may believe there are plenty of valuable and saleable assets within RBoS. For example, the UK insurance business, Citizens in the US - everyone wants a US branch network - and what's left of ABN). I suspect their results announcement will include an internal restructuring as a precursor to an orderly break-up. If that doesn't buy them time then the gov't will take over and do it for them. After all RBS and UKFI now have the same Chairman and may well end up having the same CEO.
Personally I am looking forward to a return to Natwest plc, and ditching the rest.
I am not slitting my wrists yet. Certainly not on the strength of what Rogers and Peston have to say.
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You really should to read this:-
http://alexmasterley.blogspot.com/2009/01/probably-worst-deal-ever-worse-than.html
Also - if UK government debt is downgraded this is a good thing. It is the action everyone should take when a drunk goes to buy another drink - discourage them!
If Brown doesn't realise that the UK can't afford his madcap schemes, then the rest of the world will have to tell him - and this is they way they are doing so...
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And when it all goes wrong for RBS our prudent government can blame it on the 'Global Financial Crisis' so we can be left in no doubt that it's all America's fault - innit? What part of a ludicrously expensive takeover of ABN Ambro,dodgy loans to oligarchs,and buying tranches of American sub prime debt without due diligence is America's fault?
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#97 "The government will split RBS" - isn't that exactly what the US are doing with Citi?
Given that the Government wants to guarantee UK retail depositors, but understandably doesn't want to take on the #1900bn foreign liabilities, then that seems the only way out.
Might not be just one septic bank though - Good RBS, Bad RBS, Good Lloyds, Bad Lloyds, etc.....
The world is in a major recession, and the UK is in a far worse state than other countries (except maybe Ireland/Iceland). I'm sure we can afford to play fair here.
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"And, of course, we all know that the Treasury would honour those liabilities."
Do we really know that?
RBS has, as you said, £1.9trn of assets/liabilities.
According to a figure I heard yesterday, expected income from taxation this year will be £550bn.
So, if just 20% of RBSs investments/loans go south, that's approx 70% of all the money the government will take in this year.
If RBSs portfolio is hit, roughly the same will happen to Lloyds, HBoS... and Barclays & HSBC, who will then be asking for help, too.
And, you're saying we "all know" the government can find all that money?
Why don't you write a blog post that explains how this'll happen... and happen without policies that'll make ALL overseas investors want their money back ASAP.
Robert, you're stuck in the "too big to fail" mentality. I think it's now time to think in terms of "too big to save".
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#101 - you paint a bleak picture indeed.
Does anybody know what conditions ARE like in Iceland (the country not the shop)since their country collapsed financially - I doubt they produce all their own food but maybe I am wrong; perhaps the local seal population is 'taking a battering'?
I haven't heard of thousands of Icelanders starving to death?
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We are in a period of historical importance, live in the moment and understand what's going on around you.
Forget all about the great depressions of the 1930's and the 1860's - this will be so much bigger.
What we are witnessing right now is phase 2 - Phase 1 was the banks with the help of government, shifting contingent liability to UK taxpayers. Phase 2 is all about the system sucking the life out of the UK through the liquidation of UK PLC and devaluation of sterling. How will all this end? Well extreme poverty for all UK souls.
The reality could be national debt at several hundreds or thousands of percentage against GDP, will society simply become modern-day-slaves for future generations to come?
Since the seventies we have squandered our oil revenues, other countries such as Norway has never spent a penny of their oil revenues.
We have built a system reliant on revenues from the City and the asset bubble created through house prices. The loans for financing this bubble have been structurally inadequate. (i.e. the liability is on the balance sheets of the UK banks which the taxpayer now owns).
What is the future for our once great nation? Poverty similar to communist Russia in the 50's - 80's, probably. At best the UK will revert to being a manufacturing base, a country of cheap labour which can compete with China in wage terms. The industrial revolution re-visited.
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#40 madtom1999
You've laughed about it for years, but good old GB was took in............. doesn't really matter to you that the guy in charge of the economy and now the country is a gullible fool does it?
There does seem to be a consensus that confidence is lacking, and as much as I hate the it, too much of what is happening is about perception ..... the only answer is to leave no doubt about the future (short term)
So why not stop dithering GB – you say you are the party of action and the Conservatives are the do nothing party, but doing half a job is not getting us anywhere..... you’re doing stuff just so it looks like you’re doing stuff!
Normal rules are not applying right now so why not grab this thing by the scruff of the neck and Nationalise the Banks!!!!! There I said it – Tory voter since 1979 – yes I nearly choked (I’ll have to go to confession and say my Hail Maggie Thatchers).
Ring fence the bad debt, take control of base rate setting again, set the criteria for lending (both business and personal), then give us a set of rules that we can work to and we will rebuild an economy......... banks are supposed to be facilitators, they aren’t supposed to be THE economy, put them back where they belong...... behind the scenes!
The world doesn’t seem to have much confidence in your current finger in the dam approach so what have we to lose......
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The issue isn't faith in the banks. The issue is faith in the British State to honour its international liabilities. That faith has been severely damaged over the last few months as the government has abandoned all caution and every financial discipline.
They are headed down the same road as Callaghan's Labour government in the 1970s. After all the pain British people suffered in the 1980s to restore the British economy to health, a Labour government has blown it all again.
Wait for the local elections in May. Labour will be wiped out.
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I agree completely with pleasedoitnow. The lifting of the ban on short selling has resulted in a concerted attack on Lloyds new shares, sending them tumbling. As indicated by Robert Peston, the lifting of the short selling ban is unfortunately ill-timed. That's some understatement.
The loss of confidence in the financial sector, as epitomised by RBS, has provided sure-fire targets for the short-sellers again.
Surely, someone must take action to stop short-selling of our major financial institutions. The pound is falling catastrophically and nothing government does seems to have the desired effect.
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an interesting comment piece in today's Guardian from Geroge Monbiot musing on adopting an alternative currency as a means of exchange
http://www.guardian.co.uk/commentisfree/2009/jan/20/george-monbiot-recession-currencies
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#101 I share your anxieties. How do you think this will affect the argument for or against joining the European single currency?
I think the slow drip of comments from European officials and the cabinet will soon turn into a torrent in support, and to an extent I think the timetable for joining the Euro will dictate Brown's timetable for an election.
As Stanilic said, an early election would be the only way for the PLP to avoid total oblivion, but the PLP's problem now is that Brown's interests have diverged from their own.
Brown will be gone after the next election, delaying an election for as long as possible will be better for Brown's personal narrative, and delaying long enough to introduce the Euro will ensure he parachutes into a lavishly rewarded EU post after the debacle.
I have no idea whether the Euro will be good or bad, but it looks increasingly inevitable that it will soon be a practical as opposed to a theoretical issue.
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I have a solution to the problem. Since the amount owed by UK PLC is so huge, we need to sell something big to pay back our debt:
So lets sell Kent. That should about cover it.
I have nothing per-se against Kent, but it's where most of the bankers live, after all ...
;*)
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Surely the answer to the risk of the collapse of sterling is to announce the intention of joining the Eurozone and arrange a referendum in the spring. Once the rate of exchange had been agreed with our european partners, it would put a firm floor under the pound.
The main rational reason for not joining earlier was the possible effect of low European interest rates on the UK housing market. It no longer applies. When the choice is between sterling which is about to go over a cliff and the euro which has become a reserve currency, even our anti-European media would probably not be able to stop a yes vote. The pro lobby would make much of the possibility that a no vote might cause the immediate complete collapse of sterling.
David Cameron now has in his shadow cabinet those who have said never to the euro and Ken Clarke who said yes right from the start. So a referendum would cause him serious embarrassment. This might appeal to Gordon Brown.
If the changeover was at one euro per pound, it would be very easy. The old coins and notes could even continue in use for a short while. Repricing would be easy for shopkeepers, who would not be able to use it as cover for price increases as some did when the euro was introduced on the continent.
A sad note would be that in 1997 we could have joined at about 1.50 euro per pound. So the weakness of the pound has already lost us about a third of our pensions and savings.
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The reason investor confidence has drained out of the banking system is that the market realises what Brown's real agenda is. He is all too willing to take large stakes in banks and effectively nationalising the profits through penal loan rates. What investor would invest in a company where the majority of it's profits are effectively a tax!
The gov't should never have set this precedent of taking stakes in Banks beginning with Northern Rock if it wanted to maintain investor confidence that there wasn't the possibility of a complete loss of investor's assets by an opportunistic government. It could have used other measures to support banks like Northern Rock who were lets remember solvent but faced a liquidity problem because of the global fear by large institutions of providing credit.
If the liquidity measures and the measures on the insurance of bad debt had been adopted at the outset (pre NR), coupled with a reduction of the capital ratio requirements , then banks would not have needed to obtain direct capital injections from the gov't in exchange for equity share. The dye was cast with Northern Rock there was only one way this was heading with the policies and strategies adopted by this administration, full scale nationalisation.
God help us all.
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RE 106 in response. Another excuse that fails to address the history of financial incompetance that has made us reach this bankrupt point. It is definately the time for pointing out the terrible drag that Scotland has placed upon England for centuries. We, the funders, have had decades of ingrateful spouting from Scotch Nationalists quoting wrong economical figures. The report you referred to did not highlight the cost of the infrastructures subsidised by England (ie gas pipelines, electricity infrastructre, water mains, Post Office telecommunication, etc, etc.... Another piece of inaccurate paperwork produced by another biased Scotch author. i.e McCronmie
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My old bank managers sister predicted two years ago that banks would be in for a tough time and that a couple of them would go to the wall....
RBS shared have tumbled and they seem to be traded while insolvent, which is illegal...
A bank WILL go to the wall because no one has any idea how much the banks have lent and how much won't be paid back.
A friend borrowed £25,000 from the Halifax two years ago, The figure is now £28,000 with interest and he is now repaying £50 per month... It will take him 46 years to repay.
He will be long dead by then, but I fear that the banks will be dead a very lot sooner....
May be the government should let this happen, the never helped out Woolies...
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The last chance for sterling, is a member state exit from the Euro, Ireland or Greece might do it, Spain or Italy would be a definate.
The prospects for this are extremely remote but we have to clutch at straws.
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I fully appreciate the need to assist some of our leading banks, but I can not help thinking that some 'Scottish Politics' are also at play here... To loose 'The Royal Bank of Scotland' & 'The Bank of Scotland', would not just cost thousands of high-end Scottish jobs, it would cost Labour Scotland.
How ironic that the 'prudent' Chancellor cum Prime Minister from Kirkcaldy, could be the architect of the end of the Scottish economy..
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In view of the huge salaries involved, together with the incompetence, negligence and sheer greed displayed by bank executives and shareholders, should the British public not have had some form of quick referendum prior to the Government deciding to bail out RBS and others?
I'm sure I'm not alone in saying "not in my name." Frankly, I don't want the increasing tax burden on my hard earned money to rise further to pay for the rest of my life for the execesses of bank executives and the sheer neglect of this Government.
I haven't heard a persuasive argument from the Government against letting RBS go out of business. Its UK liabilities and account holders would be covered by the tax payer anyhow, but its massive overseas borrowings would not, and any creditors should form an orderly queue outside the liquidator's office, as would be the case in any other business. In addition, remaining UK banks would absorb RBS customers, giving them a boost. It's called survival of the fittest.
From communications with friends and business colleagues I know I'm not alone in this view and I also know that like me, many people with whom I have dealings in business would consider positive action such as withholding Income Tax and National Insurance contributions, in protest until the Government sees sense. Indeed, if every small to medium sized business and the self employed did just this, then Gordon Brown would get the wake up call he needs. And there aren't enough courts in the land to prosecute the protestors!
Supporting the banks in this way is naive and totally irresponsible and if action isn't taken by the public then we shall all repent at our leisure, in a bankrupt state where the only people with wealth will be those senior executives whose lavish lifestyles, obscene salaries and bonus payments are being protected by the Government, to the detriment, and at the expense of, the majority of the tax paying public.
If any readers feel the same way, show your colours and let's bring an end to this madness.
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How telling it is that when Gordon Brown pinned the financial survival of Great Britain to the survival of its banks, the same idiotic financial "experts" around the world, and especially in the United States who created the disaster in the first place hailed it as a model to be admired and copied. It's one thing for a private bank to become insolvent, another for a major economy to go into freefall.
The failure occurring so quickly after the bailout demonstrates that either the government misjudged the size of the problem, its true nature, or more than likely both. Those apologists who will demand another tranche will say that had the first committments not been made, the failure would have been sooner, more complete and far worse. Maybe so but it would more than likely have been contained to the bank itself and its investors. The bailout money could have been far better used for direct lending to creditworthy borrowers that would have kept the larger economy functioning. Now it is gone, the malignancy has spread, and it threatens the existance of the entire financial edifice.
Had Britain converted to the Euro, it is entirely possible that failures of this size would have brought all of Europe to a standstill. It could still happen. Banks on the continent it seems to me have been no less secretive about the skeletons in their own closets than those in the UK and the US. They just haven't for the most part been forced out into the sunlight yet. Why is this likely? Because the same mentality trained in the same financial theories, judged by the same criteria have resulted in the same sort of actions. Furthermore, based on the long standing lack of viability of Europe's economy, its lavish social safety net which it can't afford to support financially and can't afford to relinquish politically, its ludicrous maze of anticompetitive regulations, it is almost certain that their domino will fall too. Nor can anyone rely on the new tyro President of the United States to bail them out. He will have more than enough troubles at home with his own problems to worry about them. He will also for once be forced to consider the interests of the American taxpayer and American citizens first and foremost, in fact exclusively. This is long long overdue. Whatever he does may also be a case of too little too late even though talk is already of spending in the trillions that America's bankrupt government just doesn't have. Where will they get it? Not from China. Certainly not all of it. Probably not even most of it. Then there is only one other place, the one place America has always turned to in this kind of financial crisis. The US Treasury Department's printing presses. There is no limit to how much money they can mint. It's a US exclusive.
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#109
I noticed that too and commented on it yesterday - I think that it was one of those errors when someone said I'll but at £14 when they meant to enter 14p and obviously people will jump on that to sell thier shares for 100 times the current value.
I beleive that this sort of error happens occasionally and they are reversed out and no actual trade takes place.
There used to be a practise called "A Snake in the grass" where dealers would offer shares at 10 and 100 times the current valuation in the hope that someone would make just such and error and they could trap them into paying over the odds but I think it is banned to do this on purpose now.
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I’m far from an expert but it looks to me that all those years ago (circa 11), our chancellor openly invited our banks to borrow heavily from oversees. I believe that this was a slight of hand, a bit of smoke and mirrors as it was very much harder to detect what this government were up to. i.e. folk were looking out for signs of what went on during the 70’s, in fact we have the same result but achieved differently.
Now that we have no oil to pawn, does anyone on here think we should seek the relative sanctuary of the Euro?
The Euro could be under pressure however, they may see the UK joining as a positive.
Safety in numbers so to speak……….
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Re : 123
I agree with your post, apart from the last paragraph, which made me laugh.
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I would read in to everything that has happened that all of our banks are pretty much bankrupt if you take in to account the falling sterling and the fact the toxic debt does not have a nominal value in reality. Add in the credit crissi that is about to occur from the trillions of sterling that people over borrowed on credit card 0% interest schemes and irresponsibly lent mortgages, unemployment soaring and businesses failing all over and i'd say outlook is grim. Prediction - Majority of banks will be nationalised by this time next year.
The big issue is to prdict when the government will finally have to let something fail or risk national insolvency. This sterling plummet is going to accelerate.
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"Inevitably, sterling has fallen - to its lowest level against the Yen since 1971 and to its lowest against the US dollar since March 2002. For what it's worth, Rogers believes sterling will approach parity with the dollar."
= = = = = = = =
So, Robert, you've spotted Gordon's master plan.
He loathed, so much, Tone's desire to join the Euro and his palliness with Bush that he has hatched his own way to outdo it all.
He can dump sterling, join the dollar, get a nice gong from Obama and retire to whichever part of the US that is furthest away from the Blairs.
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With reference to my earlier comments. I would like to give the following observations: -
A) Todays fall to below US$ 1.4 for sterling does on a primary trend basis does signify the start of a bear trend for sterling that could set a new low for the currency.
Sterling now need to recover to US$ 1.50 to send the market back into neutral mode from bear mode.
B) You cannot value the actual capital requirements for the bank whilst the International Bond Markets remain open.
C) Therefore the International Bond Markets should be closed forthwith.
D) All of the bonds owned by the world banks should be valued at zero.
E) The Banks should be forced to write back onto their books all of the loans that they sold to the Bond Market.
F) The worlds banks should then be recapitalised in accordance to their actual loan book.
G) A Fully capitalised bond makret should then be set up for each of the major trade zones (i.e. Europe, Asia, America's etc.), with strict rules that no loans by the banks can be traded outside of the trade zone represented by their bond market area.
I) A Liability agreement should be set up by the words government on what percentage of the worlds bond markets will be underwritten by each country in the case of a market collapse.
J) A limit should then be set on the maximum capital size of an International Bond market based as a precentage of the worlds GDP.
L) A simple financial instrument should then be set up that will allow each of the tradezone bond markets to trade with each other under strict financial supervision.
Only by coming up with a new International Financial Strategy similar to the one outlined above can the current situation be resolved. Everything else is just guess work, economically inept and more likely to fail than succeed.
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#125 The conditions in Iceland are a great deal better than they can realistically be expected to be here following a similar collapse.
One of the main reasons for this is the massive abundance of geothermal energy, which keeps many costs down and enables Iceland to be in the bizarre position of being able to grow enough bananas in green houses to keep its population high in potassium.
Agriculture-wise Iceland is pretty much able to self sustain and still export fish and meat. But there aren't really any electrical or mechanical goods made there so probably won't be too many plasma TVs being sold.
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If the gov't wants to bring confidence back to the banking sector and consequently sterling, why doesn't it put out a robust statement that it has no intention of taking any greater equity stakes in any of the banks. If further capital injections are required and these cannot be funded by private investors then the injection of capital will be in the form of a loan at non penal rates. These loans will only be provided after proper due dilligence.
This would provide some confdence to investors both shareholders and the providers of money from the wholesale markets and hence bring back some confidence to sterling. Which as Peston has eluded to is the number one priority at the moment given the exposure of our banks to foreign liabilities.
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I have just been listening to Radio 4, an article on the bank problem.
The dilemma of the banks lending to one another, again came up, and the answer was yet again put forward as the problem of their reluctance being that they do not know how much each one has or how solvent they are. What the state of the balance sheets is, bank by bank.
Well ha ha.
Yesterday the point was made that RBS had not been honest and open about their balance sheet in the past, but now finally had to be. Banks have not been open and honest for years and years. Not with their account holders, or with government.
Why do we allow them to continue not to be honest, even especially in these times.
They continue to put us all in this dreadful situation by their underhanded practice, They make no change.
They continue to think themselves above all, and with omnipotent power.
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It is fascinating to watch a non-elected Prime Minister crash and burn along with his much vaunted economic policy. And we now live with a British Government where, one assumes, any ideas are worth listening to. So I wonder if, in the light of Manchester City's failed bid for Kaka, our PM might ask the Club if they might, instead, prefer to buy the British economy - they seem to have enough ready cash to do so. I should make it clear, however, that I wasn't thinking that Gordon would play Centre Forward under this new arrangement. Perhaps a free transfer to Raith Rovers?
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For those still banging on about short selling, here's another irritating fact to consider.
The SEC lifted the ban on short selling in November. RBoS (and most other large banks) are quoted on the NYSE. So anyone wanting to short them has been able to do so by shorting the US-listed ADRs for the last two months. Lifting the ban here is an irrelevance, and unlikely to have had any impact yesterday.
Sorry if the facts spoil your nice conspiracy, but I rather think having to write off EUR 20 billion on the ABN investment (ie virtually all the capital injected by HMG recently) does more to explain the fall in RBoS's share price. Nobody wants to own this stock.
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I wonder if all the prophets of doom in the banking sector have really considered whether nationalised banks are really in their own interests?
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Would swapping the present set of incompetents for another set make any difference?
I doubt it.
Cameron and Osbourne can criticise all they like but it was their pals inthe the financial institutions who got as into this mess.
I don't trust any of our politicians to handle the situation - well - maybe one - Vince Cable seems to be the only one who knows what he is doing.
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I think the only thing that will save this country from depression is to adopt the Euro... effectively adding more shoulders to bear the load.
I personally don't care if I pay for good in Sterling, Euros or ickies, and I don't know anyone else that does either.
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18. BasaltRocky
Put simplistically the position is this. A bank starts off by buying a USD-denominated asset (eg a mortgage backed security or "MBS"). They hedge the FX risk by funding this using a USD deposit.
Next, they realise that the MBS is not performing as it should, and therefore make a provision against it. For simplicity, let's assume they now value it at zero. In itself, this does not impact the GBP/USD FX rate, as the loss provision will also be accounted for in USD.
Next, the USD depositor decides they want to take their money out. However, the USD asset is now worthless, therefore cannot be sold in order to raise the cash to pay back the depositor.
So, the bank has to sell something else, eg liquid UK government bonds (gilts), of which it probably has loads. However, this means the bank now has GBP but the depositor expects USD. So the bank now sells GBP and buys USD to return the depositor's funds, at which point GBP falls relative to USD.
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"So it matters, in the first instance, that our banks are perceived as viable, profitable businesses - able to pay their way."
But they cant, as evidenced by the huge amount of loans being given to these banks.
So why are we insisting on lying to the international community? Or honouring business deals made between private business men?
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'Whether we like it or not, the collapse in its value from more than £70bn a couple of years ago to £4.6bn represents unfortunate worldwide advertising about the perceived frailties of our financial system and our economy.'
We are all paying the price for the misguided business strategies of some of the banks as also not properly evaluating the risks. I am sure this does not apply to all financial institutions and perhaps we could compile a list of those banks NOW doing some good things for ordinary British people so that we can see what is going on.
I would put Nationwide BS at the top of my list along with some of the small BS's for doing things a lot better than some of the competitors. Perhaps someone could start a list/ add to this?
The big rogue banks have had (still have?) a cavalier investment strategy as part of their globalisation fever and increased foreign investment in the UK much of this has not been in the interests of Joe Public in the UK.
We all want to come out of this quickly but this is not going to happen as many of the 'the banks' are too messed up but what can be done (besides hanging quite a few bankers and politicians off London Bridge - just for the day, of course).
Otherwise, I think that the only 'quick medicine' that would work would be to:
1) Give the BoE the power to investigate all British financial institutions and send in a financial hit squad to each one and carry out some due diligence and put their initial report to Parliament within 3 months.
2) The BoE should give each individual bank their own monthly lending target together with a priority lending agenda
e.g.
- keeping hardworking families in their homes if first in arrears post Northern Rock
- savers deposits
- sound businesses
- first time buyers
- new UK favoured businesses
- sound UK favoured business
We need a new lending criteria model to ascertain which companies add most value not only to GDP but in consideration of british control, investment in UK, British jobs - the emphasis on buying and adding most value to Britain - not only in economic terms but in social and ethical & green terms also
3) Give the BoE powers to nationalise mortgages and properties for residential owner occupied houses and share or take over the equity with the borrower in debt, due to the circumstances of the case.
4) Account for every penny handed over by G Brown is his so called rescue packages
5) Nationalise and ring fence what needs protecting in the interests of Britain.
6) Stiff fines for banks that will not lend and take their best physical assets of them in payment - Yeeeessss! - Raid their 'assets'!
I don't think it is necessary to nationalise the banks - let some of them and the biggest of them go to the wall if need be - all that matters is that the 'key assets and interests' of Joe Public are protected. In other words I think the government should raid the assets of non-performing banks which do not operate sufficiently in the best interests of Joe Public, UK, Britain.
This approach would mean that there would not be an official stand alone UK toxic bank- there would probably be fewer banks and some new 'green' credit union banks BUT there would be a new bank managed by the BoE assuming management of nationalised houses and assets acquired from the failing non-performing banks.
This I believe would strike the balance between letting the market work
(consolidation of banks for shareholder value) and keeping the reins on taxpayers' debt monies. This approach would see a lot of change in banking - for the better I think, as we would have a better buy, grow, spend, invest British banking focus - when the dust is settled.
The result in 6 - 9 months - CONFIDENCE!
Many people will not agree with this, of course and it is unlikely to be taken up by G Brown who I think who is very comfortable doing nothing but increasing taxes and debt - but if you don't like what I'm saying ... then wait 5 -10 years minimum for things to get back to 'normal'.
Massive Government intervention in UK banking is now clearly necessary - this is the time to get it right and give the BoE and its a governor - a proper job.
However, nationalisation of the banks lock stock and barrel is not the answer as there are too many banks doing too many things - some good and some bad. We also need new ethical banks and credit unions.
Let's not devalue anything - why not instead - 'de-vulturise our banking system' and either put the 'toxic banks' under, break them up and/or kick them out of Britain?
We need to smash up these vulturised banking cartel operations and take from them what rightly belongs and should stay in Britain. Does anyone have the guts to do this? I very much doubt it.
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CruNchedUP
Hate to disappoint you weve only a nominal amount of sterling on hold at
the moment.
SO NO I WONT BRAG ABOUT SELLING
YESTERDAY/TODAY
I BAILED OUT A LITTLE WHILE AGO!!
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#139 Spin Doctor
A tax revolt may be the only option left open to the good people of this country in a few months time, if GB and co do not do the decent thing and call an election very soon.
Remember it was the fact that many people refused to pay the poll tax (not the riots as many like to reminisce) that got Thatcher turfed out.
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George Osborne and Gordon Brown seem to miss the point that the Banks have their final figures audited, their interims audited and probably their quarterly results audited, or at least update the FSA through their returns and correpsondance.
Why to God can't PwC, KPMG, E&Y and Deloitte be slightly tougher with them.
It seems like they tell the acc'y firms what to put down and they believe it.
On a circular point, will the ICAEW be tougher on the acc'y firms???
I am aghast that the banks have got the disassociation between Profit and Cash so startling wrong.
The paid out commission and bonuses for individuals acquiring profit generating instruments, but which ended up not generating any cash.
I look forward to a dual wave of Litigation and Legislation to prevent banks and acc'y firms from getting this all wrong again
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Gordon Brown on the mobile to his wife:
"Look honey, I've managed to locate the whelk stall, but how exactly do I tie on the apron?"
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27. Roadstoruin
Quite agree about Rogers. My first thought when I read his "Britain is finished" piece, was here's a guy well-short of GBP talking up his own book.
I can't actually work out which currencies are going to benefit from the current problems, other than maybe JPY, as the Japanes banks retreated rom the international stage several years ago on the back of Japan's banking and economic crisis of the 90s.
The USA is also in fiscal splurge mode, with ballooning public debt etc. The Euro area has challengespeculiar to its set up, ie sovereign nations which can follow their own fiscal policy regardless of agreements such as the Stability and Growth Pact. There are some real political pressures building there, manifested as widening spreads on Eurozone sovereign debt versus the benchmark of Germany.
GBP's weakness is, as RP implies, down to repatriation of non-GBP deposits which, due to write offs and general market illiquidity, are probably being funded by selling UK governement securities and then selling the proceeds for EUR/USD etc. GBP will bounce later in the year when this process stops, and when investors realise how bad the economic prospects are for the Euro area versus UK (and US).
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Pound = Dollar = Euro (the Eurodollar!)
Does anyone smell a rat here? One World currency agenda??
What exactly was decided behind those closed doors of Bush's summit?
It's time we took control back of this country. GB is trashing the future and we have absolutely no say in the matter. Expect the public to be marching in the streets by March!
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We are often told that a country, unlike a bank or a company, is most unlikely to go bust. The rationale is that government can commit us - the taxpayers - to pay back, eventually, whatever the government needs to borrow now.
But does this work? I am not convinced. First, where debts are denominated in foreign currencies (and no one is about to lend to us for repayment in sterling, would be my guess), then a crash in the value of sterling makes debts (and subsequent interest and repayment) far more expensive in sterling terms.
Second, the future behaviour of taxpayers cannot be predicted with any certainty. Some may decide they are better off on benefits. Some may decide that they do not want to earn above the basic tax band, because higher rates are likely to escalate. Some - probably including those with the most marketable skills - might simply leave.
If these effects occur, welfare spending is likely to rise just as tax revenue slumps and debt service costs escalate. Also, essential imports - not just food nowadays, but energy too - become far more expensive as sterling slides.
There could well come a point at which the numbers simply do not work, and the economy starts to implode. All is not necessarily lost at that point. First, the government (of whichever party) which got a country into this mess has to go. Second, overseas creditors (including suppliers of food and energy) need to be convinced, not just that the taxpayer will repay the debt, but that the taxpayer CAN do so.
This is why, in my opinion, we are nearing a crisis point at which the ONLY way of convincing foreign creditors of taxpayer willingness (and ability) to pay back will be through truly massive cuts in public spending. Only in this way can we free up a convincing proportion of a (reduced) GDP to meet an (escalated) debt service obligation whilst at the same time imposing a realistic (rather than a confiscatory, disincentivising) level of taxation.
Many, watching these economic events from the public sector, may feel that their situation is secure. This, I fear, may be a false comfort. Anyone whose employer gets into real financial trouble has problems, and this is just as true, ultimately, if your employer is a government rather than a company.
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What happens if the Government is unable to sell further debt? Will we be like Argentina was after the Falklands conflict. Will there be food queues?
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People, people what is the purpose of continuing to bang on about politicians? - they can´t do anything for you, even if they wanted to which is doubtful.
Continuing to highlight their incompetencies and nefarious behaviours will not make them any less incompetent or any less nefarious.
Politicians are liars and liars lie - I have no problem with liars I just don´t believe them. Doesn´t strike me as too controversial an idea.
As for the Euro, why on earth would anyone want the basket case that is the UK sharing their currency?
The game is up. Take a look at RBS; In June of last year they raise GBP12 billion through a rights issue, by October they have burnt through that and need another 20 billion or so. By January that is gone and they are back for a further 20 billion or thereabouts. What do you think will happen in March?
If it was just RBS then maybe...but it´s not there a dozens of these basket cases around.
Lloyds were OK until they were introduced to the deeply toxic HBOS. Why did Lloyds shareholders vote for that one? Probably because they did not understand that liars are not people who should be believed.
As I understand it there is (or was) an athiest advertising campaign in London urging people to think rationally and accept that there is no rational basis to faith. Oh the irony to see the BBC running stories entitled "Faith in Banks."
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Maybe it would be cheaper if the Government paid off our mortgages. That way there is more money in the economy and the banks have less dept on their books. A bit tough if you rent though.
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Here's an idea for Barclays and HSBC - move your listing to New York (after all much of your earnings will be non-sterling), or some other major financial centre where the Government has not gone mad by threatening nationalisation, cancel the UK listing, and wind down your UK operations as appropriate.
Announce it now and your share price will rocket.
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@ 105
Situation in Iceland right now... long queues for Red Cross food relief. Homeowners/pensioners losing everything and living in tin shacks.
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Just think about all this for a minute ... let us look at this from outside of the box ...
Just how has an economy been brought to it's knees by the actions of a few unelected people ?
By this I mean the senior directors of the failing banks, the regulators, auditors and investment advisors.
How is it that the UK economy was not protected from the actions of these people ?
Finanical disasters happen on a regular basis but the over confidence that happens in the boom years mean that the lessons from history are often lost. The cause of every major global financial crisis is different and unpredictable.
This means that it is essential to plan for a crisis during the boom years when such a crisis seems a million miles away. This is called financial prudence.
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The UK economy is actually one of the worst in the whole world. Have a look at this CIA page and you will find UK nicely together with USA at the rock bottom.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html
The collapse of the banking system is very much due to fractional reserve banking. We used to have a gold reserve, but that's long gone now. Instead money can be borrowed at many times the actual reserve in the bank. The truth is that most of the money doesn't exist. We thought it existed as long as things just kept growing. Finally we will see our whole finacnial system break down. It might actually be a good thing!!!
Why is it then that my Schizophrenic patient who steals a sandwich because he hasn't got money, end up in court and jail, when Mr Bernie Madoff who scammed people of £ 50 billions, doesn't even go to jail???? Does it mean that it's ok to steal when you are posh???
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Maybe it also points towards the idea that Public Relations has a role to play and that we need to be doing a better job of convincing the rest of the world that the UK is still a place to do financial business.
While we are convincing them of that, it wouldn't hurt to have a long hard look at our economy and start the slog of building up other sectors that will provide a long-term alternative to the financial sector in terms of jobs, international status and national income for the UK.
Any ideas for the next big UK sector should financial services fail to regain its place? Bounce them around on http://thedailycrazy.wordpress.com - serious and humorous welcome.
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#157 nautonier
Sensible points. But the regulatory authorities already have the powers that say they need. What they lack is either willpower to action these powers or they have been explicitly told to do no such thing under any circumstances.
All the financial bodies are registered with the FSA. The FSA can literally turn up unannounced on a bank's doorstep, demand to speak to the Chief Exec, senior accountants, Actuaries etc. They are also allowed to go through the company's accounts and liaise with the external auditors. The sanctions they could impose range from fines to jail time and ultimately closing the business down.
I remember when the FSA was created by Brown, and the firm I worked for was visited by the FSA. The Actuaries and accountants were quite petrified. But now they are clearly a case of all mouth and no trousers. They could be abolished and no one would notice the difference.
Was their change in attitude government inspired or did the guys in the City ask for more leniency? But that is at odds with Brown claiming to be Stalin i.e. not a pushover. Or perhaps Vince Cable is right again, and Brown really is Mr Bean....
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120. morebalanceplease
Bid to cover ratio's vary depending on the length of the gilt, but the rumour was about yesterdays auction.
Jan 19th 2009 auction is not yet up on the DMO site but results are reputed to be as follows. Not too bad considering the maturity date, but not great either.
The GBP1.25 billion of the 4.25% December 2027 treasury gilt attracted a bid-to-cover ratio of 1.31, the U.K. Debt Management Office said Monday.
The bid-to-cover ratio is below the 1.98 seen at the previous auction of this bond May 3, 2007.
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165. At 1:51pm on 20 Jan 2009, Peter-PoorPensioner
Further reading:
Argentina September 2001
Search video.google.com argentina+financial+crisis+2001
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I give you this
http://uk.youtube.com/watch?v=jf0EiBeBEJ0
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171
Zimbabwe is above us. Could Gordon nipe down to Harare for some tips?
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#107 tom_edinburgh
" put up the pension age by 10 years and rewrite the rules on public sector pensions. "
Good idea: how about making 70 the starting age for collecting a public sector pension? Let them try living like some of the rest of us for a few years first.
# 115 tom_edinburgh
"How about we create a "not for profit banking system", built on sound principals, highly regulated and in the ownership of all ..."
Aren't you describing building societies?
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Banks have caused the problems and should be expected at some point to pay for it. It may well mean nationalising the lot, forcing them to do their jobs even if it means some may have to go down. (I expect they are all being run by Thatcher's generation kids whose motto was walk all over everybody).
Speculators have made the Barclays bank share fall last week so rumours do remain rife in the stock market. They are like a bunch of vultures.
The French banks have also been helped and the French president has made it quite clear he was expecting them to make some efforts too like not paying dividends or bonuses
Property prices are still too high, we need to fall back down to earth, even if it is with a vengeance.
One thing that puzzles me however is the constant urge to remind us that this is the end of the world, the negative side of all is reinforced by the media in a way is having very negative effect.
If you watch news on Continental channels, the English and German channels are obssessed by the topic.
Yesterday a report was published about the scale of the recession with a small end comment 'things are expected to start improving in the second part of the year' how about focussing a bit on this for a change?
Let's also hope for an Obama impact
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What do people believe full nationalisation of banks will achieve. There would be no competition, how would Europe deal with a nationalised UK Bank and all the competition and state aid issues that would raise. It would require a complete upheaval of the economic system, as I stated previously this would be communism by everything but name. I am surprised at Vince Cable's view on this, I had always found his opinions the most rational of all the treasury spokespeople. But full nationalisation is just insane. What other countries in the world have a single nationalised banking system?
This gov't seems hellbent on destroying the last industry this country could claim to have been a world leader in. HSBC has the highest brand value in the world, it was essential that all our leading banks did not become any part of the political system of this country. This will be devastating to the UKs immedaite and medium term prospects, the UK will not recover from this for a generation. The most infuriating aspect is that this could have all been avoided in the UK if the policies and strategies of the governement and it's agencies had not been so divisive and counterproductive! But we must caution against moral hazard mustn't we, in that tired old smug British way!
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173. excellentcatblogger:
"... the regulatory authorities already have the powers that say they need".
True, but the problem is the three-way split between the Treasury, the BoE and the FSA. Each thinks it need not act because one of the others is probably already doing so.
If the FSA had become an all-encompassing, SEC-style regulator, that might have worked. If we had stuck to the previous informal, but long-established, process whereby the governor of the BoE kept an eagle eye on the banks, again, that would have been OK. But the tripartite system was doomed to fail simply through divided responsibilities.
The tripartite system was yet another daft idea from Gordon. Whenever we encounter structural problems and errors like this, it reminds me of the old WWII radio show - ITMA - "it's that man again".............
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Well done Gordon you have managed to demolish the pensions and fortunes of millions of the UK's citizens as well as ruining the confidence of sterling in a single day.
That's some achievement even for you!
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#171
Is this for real? I mean, come on - the CIA actually has a kids section on its website? Too bizarre for words.
I thought they the security services waited until kids got to Cambridge or Oxford before they starting recruiting...
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I’m increasingly concerned about how the crisis is being reported and the lack of incisive questioning of GB and AD. It seems to me that reporters such as yourself have a problem you rely on Government sources and building a rapport with those in government therefore asking either searching or embarrassing questions has the potential of cutting you off from your sources. You could in normal circumstances absolve yourself by arguing that that this is the job of the opposition but in the current situation the opposition are gagged by the problem that can not be seen to be adding fuel to the fire and so have adopted a strategy quite sensibly IMHO of not rocking the boat. This begs the question of how the general publics voice can be heard?
So I will ask the questions again
Was it the greedy bankers that set the regulatory frame work in which the banks and derivative markets operated.
Was it the greedy bankers that set UK and US monetary and Fiscal policies over the past ten years
Why when the Interbank lending markets froze as a result uncertainty over the levels of toxic debts held by counter parties were the banks not required under Stock Exchange & SEC regulations not forced to reveal the level and extent of these toxic assets on their balance sheets. Why has neither the Government or regulators taken action against the CEO’s, CFO’s and the auditors of these Banks on withholding information that has a direct influence on their share price. Despite the convenient( to UK and USA Govs) myth that the problem was/ is US sub prime mortgages a look at the Lehman Brothers balance sheet reveals that commercial property was the real problem. This myth has enabled UK and US governments to side step responsibility for creating the conditions for the asset price bubble by their failure to regulate the derivatives markets and their monetary and fiscal policies which held inflation down but allowed the money supply to get out of control.
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The Scots are already wailing about "oor bank" (HBOS) being taken over by the dastardly English (Lloyds TSB). They'd be beside themselves if RBS was was lost to what they bizarrely consider to be the "English government".
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#178
Yes, they are building societies... but we sold them off along with all our strategic assets.
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This comment was removed because the moderators found it broke the House Rules.
183.
Well Spooks has got a teenage section too!! and we'll be needing quite some spies to track that money ...
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What's causing the freezing up of the banking system is lack of confidence caused by uncertainty. That is uncertainty in the scale of bad debts within the banking system.
The problem with the government's current strategy of trying to fill the hole with our (taxpayers') money is that no-one, especially the government, knows how big the hole is or even if it is possible to fill it.
The best idea I have heard so far is the proposal to set up a 'toxic bank' for all the bad debts. Here the government buys all the banks' bad debts for a fair price (by fair I mean fair for us taxpayers), dumps them in one place and the banks pay a fixed price for this 'service'. The banks will calculate and reveal the extent of the bad debt because it's in their interest to do so.
Why won't the government do this? I suspect one reason is that then everyone will know the true extent of the crisis.
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#178
"Yes, they are building societies... but we sold them off along with all our strategic assets."
Are you sure?. I've been with Britannia for 15 years and we share our profits.
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166:
There are probably a lot of Bank Shareholders who no longer have any Faith !
The Atheists are correct in that there can be no rational basis to Faith, by definition.
And where management, regulators, traders and the Gov't aren't trusted no investor is going to invest.
In addition to a blind faith in Shares, accountants and regulators, British people have blind faith in Houses.
Owning a House is always best, except if you have to borrow to do so !
One has to wonder if there were a God whether he, she or it would actually understand the mess the financial system is actually in, and if so, whether the inclination would be to laugh, cry or consider a biblical punishment ? (though punishing all for the acts of a handful would appear a bit heavy handed).
I suppose the old olympian deity Hermes would be expected to understand such matters ( though would his sphere of influence extend from Trade to the most obscure ends of higher mathematics?).
What would be an appropriate Biblical punishment for a world of serial Debtors and swindlers ?
I vote Ice Age (just to wind up the Global warming lobby)
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#184
Spot on!
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Russian oligarch has 2.5 billion written off and gets to keep his 41 million home in London? Taxpayer money I believe so call in the balliffs
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I am normally one of the bloggers who only complains and points out that I, if I were an international investor, would never lend to the UK. After all, despite some recent falls, we still think that small, shoddy houses that lack insulation are worth a small fortune. Incomprehensible to me, people are still assuming that the property market will 'recover'. And I worry what international investors will do if they realise how poor the quality of the assets is in which they have indirectly invested, when they've lent money to UK banks. According to this blog, they have already started demanding their money back, and that brought down HBOS and is likely to bring down Lloyds as well!
But here is a practical suggestion for how the situation can be improved: Let all those with a high loan-to-value ratio mortgage, say greater than 60%, make extra voluntary payments to bring down the LTV. Many mortgage deals allow this, and I would be surprised if lenders objected if approached by a borrower who wanted to pay down their mortgage with a lump sum. That way those who have overextended themselves can help to correct the perceived weakness of UK banks by bringing down the LTV ratio of their mortgage books. (Instead of those looking to buy for the first time, who are now asked for massive deposits.) And they would be doing themselves a favour and saving many years of interest payments, and avoiding negative equity.
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#139, you got a spare 200bn kicking around? I know HM gov doesn't, thats how much RBOS has in UK deposits. Do you believe HM gov when it says it will be able to underwrite all those deposits?
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Nothing to fear but fear itself. FDR certainly knew what lemmings people are. So someone on Bloomberg says the UK is finished and everyone starts selling even when they clearly did not read what a mess the Euro zone is in and of course BO is yet to announce what will happen in the US and their markets are closed- and you believed them when they said there was little evidence of short selling- that is because they have found out how to hide it except of course someone has already admitted to short selling Barclays last Friday.
I have never read so much tosh- why should HMG pay shareholders in RBS for full nationalisation and then be tied up in the courts for years and the same goes for the other banks - as for the coupon rate on the prefs- look at what the investors got in Barclays- banks are risk investments that require a high premium -as to people saying it was unfair to investors- of course it was they lost their money because the banks made too many dodgy loans for the wrong reasons - ie to respond to unrealistic shareholder pressure (remember HSBC being under the cosh of a militant minority shareholder) and the greed of their executives.
Lending is hard because in 06 and 07 most new money came from abroad including 45% of new mortgages in 2007. Life will be tough for us all but those that think the UK is the basket case are missing the point- every economy is potentially a basket case unless people start looking at how to make what HMG and other governments are doing work rather than sitting their with their arrows especially as they are the same people who only two years ago would be praising the City and probably telling the rest of us what a debt we owed London as a UK economy. If the US $ continues on its upward path, the real problem will be in the US- we need a bit of real economy stuff here - £ is about 1.2 Euro and about 1.5 $ in the real economy- it would be nice if it were 1.3 and 1.65 instead but that is where real value is. The problem is that traders are like journalists- they go for the jugular irrespective of whether when they kill their target they kill themselves as well.
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Why does Peston not report the fact that GB ran a department which was meant to review banks, banks like RBS, how they were run etc during the time he was taking credit for their success? I have been in risk enough to know old GB is trying to put the blame on the banks in isolation. Greedy banks were allowed to get away with this by greedy career driven treasury officials. Case in point, where are all the arrests?
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#163 WakeupBritain
Scarey stuff. We may still have some way to ride the rollercoaster down, but the course has been set and I have a strong feeling that Sterling will not survive.
Whether there is a "one world" conspiracy or not, or we just follow the hyper-inflationary patterns of, for example, Argentina and Brazil, I wonder what our new currency will be called and who's portrait will be on it?
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"The Atheists are correct in that there can be no rational basis to Faith, by definition.
"
Atheists have it more wrong than anyone else, they have FAITH (by definition) that there isnt a higher power as they dont have proof.
So by definition Atheists must define themselves as irrational.
They are in tremendous danger of ending their days in much the way described by Douglas Adams.
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@191 Calmdown
"What would be an appropriate Biblical punishment for a world of serial Debtors and swindlers "
Its already written in the final book of the Bible. Revelation. Its all there, pits of sulphur and the like.
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I agree that investors know that with the banks under state control they will get their money back from the government.
Only because governments are the only ones who can print money.
But where does that leave the rest of us.
Inflation may have come down temporarily but we are ready for the next rise as new imports flow into the country and especially if sterling continues to fall to parity with the dollar.
With this already in the pipeline inflating the economy further by printing money would be a disaster.
The figures you are describing are so vast that to print this sort of money would be leading us into a permanent decline.
How can the taxpayers even contemplate the burden that would be put on them in the future.
As it seems the whole world knows the state we're in there is no longer any point in trying to save face by trying to rescue a sunken ship.
Rescue what is still floating and call it a day on the rest.
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What exactly is GB hoping to achieve by staying in office?. at least if he left quietly now he may recover a little self respect.
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109*
Yes I spotted this yesterday and placed a comment on the blog suggesting it was all a dream to make us feel better. Now it's back to the nightmare.
Perhaps the GB/AD virus is spreading.
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@194 Willfall
"And I worry what international investors will do if they realise how poor the quality of the assets "
Its not to do with quality in this country.
We have limited space and limited supply therefore lower quality has more value than in a country like the USA where they have plenty of free land and no shortage of housing stock
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173 & 181
I'm not sure of the legal regulatory system
(another long story?) but I am also deeply puzzled by the three way split between HM Treasury/ FSA/ Bank of England (per comment - 181) and it looks like that's a major underlying problem area that leads/has led to serious pass the buck and dithering.
I should have mentioned that I understand that the government would probably also need to freeze assets to achieve something like a raid/ asset nationalisation and I think there's also a need for MORE emergency legislation there - and as we write, I can foresee see more £'s billions going down the wire from the UK - overseas - 'to safety'. Perhaps that's 'where all the money has gone' anyway?
I watched some of the BBC Parliament TV debate on banking, at lunchtime, on and it did not inspire any confidence, at all, for me.
Many thanks for your comments.
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Absolutely staggering amounts there Robert.
Where did you get the information? Is it reliable?
It would certainly explain certain elements within this whole process
But if the government has covered all this up until now to try to maintain confidence, surely this drives a coach and horses through everything?
Can you tell me why anyone would want to hold bank shares now? Looming nationalisation means zero value.
On top of that the major effect of Crash and Bankrupt Ali's actions and words yesterday have obviously not received world wide acclaim.
The question then has to be who made Crash prop up the banks? Why should private entities be bailed out for foreign operations? Could it be that someone has pointed at the "failure to regulate"?
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We have just witnessed 3 chinook helicopters leaving the city at speed.
Any takers on this being the Government leaving the country having just seen we're broke and there is no way back?
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#198 How about the Anglo-Zim$ (AZ$) with Mr. Mugabe adorning the front and Mr. Brown the back. Shouldn´t think the Queen would mind being omitted from this one.
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198. fairlopian_tubester:
"I have a strong feeling that Sterling will not survive".
Good point - but if so, what happens next? Rekjavik-on-Thames?
About the new currency, I just hope they do not put Adam Smith on it. With GB and AD making such a mess, it's galling and ironic to go to a cash point machine and receive pictures of a Scottish economist!!
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#198
I suspect a variety of people but with bridges on the back!
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I fear that it's not quite so simple as Mr Brown and Mr Darling try to make out.
Evidently, the original loans made to British banks did not have enough conditions set out to prevent the banks from squandering the money, which now leads to the taxpayer having to bail them out again.
This should never have happened, and had the government had a clue what they were doing, it would not have happened either.
I'm not seeing anything new from Gordon. He has dropped VAT, borrowed even more money, and now he and Darling are considering printing more money - which will only serve to damage the value of the pound even further.
I don't see this as rocket science. We are going to have to bear the brunt of this sooner or later - Gordon can't keep borrowing money - if he does this whole country will go down the pan and God help us if he doesn't realise that already.
Many people will be forced to learn a valuable lesson from living beyond their means, and businesses are going to have to be sensible and not throw their money around.
The sooner we face up to this the better. Borrowing only delays the inevitable, damages our currency and steeps us in even more debt.
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#164. Who has often told you that countries cannot go bankrupt? Are you sure that you have not fallen into the seemingly popular trap of believing liars?
What do you think is happening right now in Zimbabwe?
Why do you think the Soviet Union imploded?
What do you think is meant by the Latin American debt crisis? In 2001 people (albeit not that many) actually starved in Argentina.
Countries can go bankrupt and plenty have.
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211. nervball:
"Gordon can't keep borrowing money - if he does this whole country will go down the pan and God help us if he doesn't realise that already".
True, but I suspect that he really does not understand this. I think he is on record as saying that maths was not his strong suit at school. As if we couldn't guess.....
Actually, I think he is totally out of his depth, floundering, panicking. His messianic self-confidence could disintegrate very rapidly indeed if he looks in the economic mirror and realises what a mess he has made of things.
I think the next election is already lost beyond rescue. His rearguard action now is to avoid going down in history as the worst PM in our history.
I think we need a re-issue of "Brown's Britain". Any suggestions for a cover photo - a pile of rubble?
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UK interest rates were far too high for too long compared to other currencies. If you lent money to institutions in the UK you got a better return than you did elsewhere.
Its one of the reasons that sterling looked strong against the dollar.
Once this changed, money started to move away and sterling fell. What would be the point of putting your money here especially when you lose more on currency movements than you could ever make on the investment.... downward spiral
Some time ago, one of the Nordic countries reduced ticket prices and the volume of travellers increased substantially
So, we need counterintuitive thought. Increase interest rates and the money will flow back into sterling, exchange rate improves, etc.
Virtuous circle........
BTW at some point, someone will think these banks are good value despite the asset book. If I had dollars, I might think so and I'd bet on the dollar weakening sometime over the next three years
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Has the UK government painted itself into a corner neither it nor any other UK leader can get out of? What next, a UKSSR? The dream of the old left come true!
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Robert, some interesting numbers coming from the NYSE this afternoon, or morning for them.
Just 90 minutes to go before the Inauguration and banking and financial shares have plummeted in early trading; by as much as 50% in some cases, Bank of America almost 20%.
So what's tomorrow's headline:
"Brown Blunder torpedoes Obama Bounce"??
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Isn't this more or less what I said yesterday?
Where are all these support funds coming from anyway. Ooh, I've just realised, they're being borrowed from banks.
Er...
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The very last thing that we want to do now is join the Euro. The whole edifice of a Common Currency is under considerable strain and worse is yet to come. When it does capitulate, it will not crack, It will shatter and leave all but the largest members in a far worse state than some on here have predicted for the £. There is absolutely no way that the Euro can continue to meet the differing needs of its member states as they try and cope with the effects of the Great Depression.
In the UK we have been very bad at news gathering on the political, social, commercial and economic activities of our fellow EU members. Few Brits have any clear idea of what the true economic situation is in France and Germany or why Ireland, Greece and Spain are in such a mess. Yet these countries are closer to us geographically and over 50% of our exports go there. If, as appears to be the case, the pace of this calamity is speeding-up, there will be many in Europe who will wish their countries were as well positioned as the UK. I know that sounds stupid but from their perception they will believe that we are at least in control of our own destinies (the grass is always greener).
I really feel very sorry for Obama. He takes over with his shoulders laden with a lot of expectations. However, try as he might, he will not be able to stop the ravaging effects of this depression on the US economy. There is no way that he can soup-up the US economy to repay the foreign debts that he will inherit. There is no way that he can nationally take-up the slack caused by the closure or downgrading of foreign owned companies who re-group in their home markets. He will not be able to stand against a growing call for protectioism. All of this will see a sudden and dramatic fall in the value of the US$.
If we are to survive this holocaust we too will have to become far more nationally focused. The man in the street who loses his job and sees no prospect of employment for years to come will not accept the internationalists arguments. He will not accept that his pain is necessary to ensure that the Chineese don't go back to bowls of rice, that Arab wealth Funds can buy his football club or that the USA needs to police the World. He wants to see some hope that he can work to feed his wife and kids. So we need now to decide what our needs as a state are and how we can best satify them through local activity. If this means telling 'Johnny Foreigner' that his money, like ours, has disappeared into the ether.
Somehow we must return to reality. Take the forecast that the Euro states will actually grow in 2009. They may be very clever people who come up with these statistics but I will bet you that it is based upon unreality. What are you going to sell when your businesses are closed and to whom when other countries find that they have no money?
The financial crisis hasn't worked itself out but it will pail into insignificance when put next to the collapse or real economies around the World. This time the lifeboats will already have left and it will be time for each man to look after himself. We have the chance to do that - just. However we must do it urgently.
This is NOT a message of doom. Rather, it is a call for national survival
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214. mrsbloggs13c2:
The interest rates issue is tricky. My view is that rates should have been raised after (say) 2001, to halt the borrowing binge, private equity and the house price bubble.
I quite like your idea of higher rates now, at least back to where they were in the autumn, to defend sterling.
We would be told that this hits mortgage payers, true; but what about savers? They outnumber borrowers by 7 to 1, their incomes are being pulverized, and demographically they are often elderly, and by definition prudent - so why are we directing most of the economic pain at prudent savers, and elderly people dependent on income from savings? As for mortgage payers, a lot have not benefited from the base rate cuts anyway; putting rates back to autumn levels would just mean no real change; and few businesses can actually obtain borrowings anywhere near base rate anyway.
As you say, this might seem counter-intuitive, but that is often the best way to go.
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#105: What is the opposite to having the Midas touch, btw? Cos Brown has it in spades!
I think the expression you are looking for is "everything he touches turns into sh!t"
It took a global recession for people to realise that, more than the banks and their ratings agencies, the most "creative" accountant for the past decade was HMT. It was all a house of cards...
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Robert
I would appreciate an up to date figure for how much the bailouts have cost us to date. We have invested £20bn in RBS now worth approximately £6bn of which we own 70%. We made similar investments in HBOS/Lloyds which is down over 20% today alone. Where are we now standing on the investment in Northern Rock? This is all happening so quickly it is very hard to keep track but I don't believe our cash losses will be less than £25bn to date or about 5x what was lost on Black Wednesday. Our actual exposure in terms of guarantees etc is huge but it is not clear how much if any of this has crystallised yet.
I think emergency action now needs to be taken to keep the country solvent with sharp cuts in government spending and significant increases in taxes. Unless we can persuade people this country has a viable future who will want to borrow or invest here? We need a solid base.
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While people were worrying about parity with the euro i said we should be looking at parity with the dollar,with much much more bad news to come and a huge amount of off balance sheet debt not being added to the present government figures as a long term out look we should be looking at parity with the dollar..........the zimbabwe dollar.
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Is any one else out there concerned about Gordon Brown's threatening behaviour to journalists last night (incident on ITV 'News at Ten')?
'I would be very cautious if I were you about making such allegations about this scheme'
The menace was crystal clear - Stalin rather than Mr.Bean.
We do need to take note of this.
It's very tempting to see GB as a poor dithering politician out of his depth - 'in Gordon we trusted now we are busted' . We all ignore the very nasty side at our peril.
Incidentally the journalists' questions were excellent and very much to the point.
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218. foredeckdave:
A great and focused contribution, thanks. Not sure about the Euro, simply because we may have virtually all currencies falling at once (GBP, Euro and USD), with perhaps the Norwegian krone and maybe the Brazilian real the exceptions. Many EU countries are certainly in big trouble.
I am still waiting for the Next Big Shock, and think it might be China. Their economic message seems to be "we are still growing, but more slowly than before". Can we believe this message? Beijing is not known for its transparency. Maybe China's current "growth" is as real as the girl who "sang" at the Olympics?
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I think I have finally run out of words to describe my utter dis-belief in the short- termism of our Banks, the city and some of our politicians.
I now have to work at least another 4 years beyond retirement age, if I can, to replace the capital squandered by so many that I was supposed to trust.
I want to see some justice applied to the system; people made deliberate choices that I believe were ultra vires with the stated Articles and Memoranda of their companies (short selling may fit into that category I think) that action should be taken.
I seriously think the system is broken. HMG should nationalise RBS and alongwith Northern Rock use the systems and processes in place to start the lending processes themselves. They can set the market conditions and others will follow the competitive lead. In time as confidence returns the other banks will take over the lead in terms of investment and lending and HMG can float the Banks they own.
It is a sad day when Lloyds Bank a well run, carefully managed, profitable bank of considerable assets languishes at 30p.
By the way: raise interest rates a little now, no-one will lend at these levels, they cannot make any money until lending rates exceed borrowing rates, otherwise there is no margin to pay the employees, let alone shareholders and the tax man.
Raising interest rates will reduce inflation further as the £ should appreciate a little?
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No. 25 Jenatzy,
It is not necessarily the case that an independent Scotland would be bankrupt due to the folly of it's banks. If Scotland was independent it would have set up it's own financial regulatory system which may have detected the banks unsustainable practices and prevented the problem occurring in the first place. We'll never know if this would have happened but is difficult to imagine a regulatory system being set up which is as ineffective than that of the UK.
An independent Scotland would also not be burdened with the astronomical costs of the wars in Iraq and Afghanistan and the commitment to massive expenditure on Trident.
It always pays to look at the bigger picture.
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Part of the problem lies in that nobody (especially in the equity market) is listening to the facts anymore, witness:
Fri 16/1 - Barclays announces it will make profits of c 6bn in 2008. Share price continues to fall
Mon 19/1 - Lloyds Banking Group Chairman says on Sky that Lloyds bad debts are in the open and lending increased by 20% in 2008. Share price takes a nosedive
Mon 19/1: HSBC says it doesn't need any government money - share price falls
All the main UK banks (even including RBS) have good capital ratios
GB and AD are doing nothing other than stoking the fires of this hysteria by some of their wilder public pronouncements
Robert - you are correct in stating that the government's actions and words have done nothing but raise doubts about future bank profitability - shareholders are/will continue to be the main losers - hence reflected in the share price. We should ALL worry about that as anyone with a pension will have shares in the banks.
A little less hysteria and a bit more sober thought and considered action required by everyone
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Without wishing to appear smug, there are always two sides to a coin.
Our business is 100% export split equally between US dollar and Euro.
The exchange rates are doing wonders for exporter's profitability.
My advice to British industry - get over to the USA and sell for all your worth. If we can't get an export led recovery now then we had better throw in the towel for industry and concentrate on servicing the mass of tourists that will be heading here to spend their dollars and Euros on a cheap UK holiday.
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#133: A sad note would be that in 1997 we could have joined at about 1.50 euro per pound. So the weakness of the pound has already lost us about a third of our pensions and savings.
How very well said. If only people could swallow their silly pride and see what was so obvious even back then: 12 economies combined would be in a better position to battle global downturn forces and protect the currency than if doing the same separately.
But no. UK can do one better! We have the City!
And UK (and US) masters of the universe somehow thought things only go up and can never come down.
From a brilliant piece on ex-chancellors last Saturday in the Guardian, check this out:
"Thankfully, one surviving ex-chancellor has detailed the obvious connections between out-of-control high finance and the politics that took root in the 80s - and he did so in rather visionary terms, in a memoir titled The Time Of My Life, published no less than 20 years ago. Back then, wrote Denis Healey, "most western governments followed the lead set by President Reagan and Mrs Thatcher in removing the restrictions which had hitherto prevented the various financial institutions... from competing with one another for the same type of business." This, he said, "led to cut-throat competition" between the big financial corporations, who "lent money on paper-thin margins, often in areas they did not understand".
And there was more. "As if this was not enough," he wrote, "the desire to hedge against unpredictable changes in exchange rates and interest rates led to a feverish rash of new financial instruments, starting with swaps, futures, options, and options on futures." One page later, there comes the coup de grâce: "Most of the new activities spawned by the financial revolution... assume that all trees grow up to the sky - that there will never be another recession. If the United States does have a recession, even one as modest as in the Carter years, its whole financial system could collapse like a pack of cards."
Priceless...
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And if anyone thinks that our pathetic attempts to control inflation via interest rates can do anything in the face of the effect of oil prices or commodity prices they are living in a little englander, alice in wonderland world. Everything else we buy is affected by fuel prices - manufacturers, logistics companies, retailers. But no, its all VAT. What simplistic nonsense. Even the price of plastic bags will have fallen - but I don't expect to get them for free again.
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#105: What is the opposite to having the Midas touch, btw? Cos Brown has it in spades!
#220: I think the expression you are looking for is "everything he touches turns into sh!t"
The Brown Touch it is!
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In a dim and distant past, a nicely spoken person from Phillips and Drew (gobbled up by UBS) used to comment regularly about money supply - M3 and M5 and various other measures.
Where did this subject go?
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#153: Vince Cable seems to be the only one who knows what he is doing
He does seem to make sense every time, doesn't he?
My favourite moment of his when he described GB's stumbling shenanigans as "Stalin turning into Mr Bean"
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#160: Why to God can't PwC, KPMG, E&Y and Deloitte be slightly tougher with them. It seems like they tell the acc'y firms what to put down and they believe it.
That is ABSOLUTELY true. I have friends working there who said so. Remember WHO THE CLIENT IS. Who paid the accountant's bill?
Same for rating agencies.
DUH!
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Looking at today's share price slide again, our banks are on the verge of collapse.
It's clear as day.
At time of writing, Lloyds is only 49p a share!!!
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1. One point I've never understood:- Where has all the money gone? IF it didn't disappear, surely someone else gained it? I've noticed a sharp increase in the number of fiancial commentators - is this
co-incidental? Did the previous investors in, for instance, RBS lose all their investment? Surely they must be a bit annoyed that they/us are inspected to invest further to bail the bank out. I feel the whole scenario in UK started with the Northen Rock fiasco; think that the public did the right thing after all to withdraw their money?
2 Chancellor still insists that our economy is strong; so why has the pound rate against the euro dropped so dramatically? Our previous Chancellor (G Brown) said that we would never join the euro until parity was reached with the pound. So?
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#191
We're talking about trust not faith. It may be rational to trust in something even though you can't sure that its true.
Equally it may be rational not to trust in something even though you can't be sure that its false.
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223 mouzel1
The reporter's questions certainly wiped the stupid grin off Gordon Brown's face.
Only endorses the type of person he is as described by those who have worked with him.
Certainly not the image of self control and confidence that we would look for in a PM in times of crisis.
Quite obvious he's lost it so what are his party going to do about it?
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The last time Labour were in power we needed the IMF after a budget deficit of 8% of GDP and a currency slide against the dollar of 25%.
We've now seen a currency slide greater than that and the budget deficit will likely exceed 10% of GDP soon.
Either the IMF will be back with an emergency loan or we will have the printing presses running round the clock before the next election.
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227. Spot on
Everyone seem to get a kick of making this complete hysteria and panic, racing for scoop and get one other the other.
do they all have a worsometer in their office??
Of course all will be very expensive but when eventually we start to get through, and we will, then matters will start taking care of themselves and it will be 2012 with a huge number of visitors to be expected in the UK.
The only point however, will lessons be learned to avoid a repeat in 15-20 years time? not so sure
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#223 - yes I saw that too and was very surprised.
At least we know what the 42 days legislation is for now. Any Journo's asking awkward questions will find themselves labelled as 'terrorists' as they are talking down the economy (not that it's very hard at the moment)
I thought it was extermely threatening - and from a man who increasingly seems to be getting irate at people questioning his decisions.
To be fair to him, we all know he's guessing - but then so would anyone else in his position "uncharted waters" is the key phrase.
No-one knows what they are doing, if they did then they would be questioning the fundamentals that got us into this mess and not trying to bailout banks in a system that's doomed to fail at some point.
PESTON - get off your behind and get an interview with the PM and ask him.
a) "Gordon, have you looked at the fundamental assumptions that were made which got us into this mess".
b) "Why do you think that regulation will stop this happening again - isn't that exactly what was said after 1929 and 1990"?
c) "At what point to you admit defeat and accept that everyone in the country will need to go through a painful devaluation and that the creation of ficticious jobs funded by the tax-payer will NOT stimulate the economy, nor will the credit markets be re-started by tax payer cash, and nor will the confidence return because the Government is throwing money about, in fact the ONLY outcome will be an infuriated (and possibly revolutionary) tax payer"
If those questions don't get you 42 Days Peston then I'll eat my hat. You must know that the angrier he gets - the better job you are doing as a Journalist.
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I am glad I am alive to see it: the whole banking/insurance/Limited liability enterprise culture going down the toilet.
After all, caveat emptor, guys.
Adam Smith RIP
At the risk of going all William Cobbett on you all; once all the publicly-traded shareholders have been finished off, maybe we can return to some decent and proper forms of commercial entities, such as Industrial and Provident Societies, cooperatives, partnerships and sole traders.
Rebuild a decent Britain - from the very bottom up.
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Frankly, the banks have been technically insolvent for years, at least since it was no longer necessary for them to lodge 20% of their cash with the Bank of England. Scrapping that requirement was a bad political decision, though it could be reintroduced. Since then, as now appears, the banks have been practising their own form of reckless fiscal anarchy. Democracy, or whatever we have (since some institutions are definitely more equal than others) is government by consent and the banks sweem to be withholding their consent, for whatever reason. Consequently, it doesn't need much imagination to see fiscal anarchy extending by way of business failings and mass unemployment to the streets in a different form of anarchy. I don't see social, as opposed to economic, implications being discussed anywhere. Is there a Plan B to cover it? It's not just assets that are being pawned, it's lives.
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Just to make life interesting....
When it comes to currencies, the free market is bound to lead to the opposite of what is helpful:
(i) Importers will see their currencies fall. Making it more expensive for importers to buy from exporters.
(ii) Exporters will see their currencies rise,
Making it more expensive for importers to buy from exporters.
That way, exporters will sell less, and their economies decline. Meanwhile, importers will struggle to afford the imported necessities of life.
So, everyone will feel the pain together.
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#229 - When the Labour party said "There's a financial crisis - bring in the eyebrows"
...Some monkey mis-understood and brought in Darling (with his odd colour) and not Healy - who would have clearly been useful..
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Three cheers for the moderators!
Well, someone has to praise you when you are this quick!
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it is really hard to value anything at the moment as there is a catch 22 of lack of funds so it is no surprise that they have avoided doing so.
the problem stemmed ( largely)form the withdrawl of mortgage availablilty on property. Northern Rock had a tiny proportion of bad debts .Now these mortgages are much more affordable costing say 1/3 rd of the amount on an interest only basis .
the banks have some appauling bad debts but surely have more than written off what they need to by now provided everything does not spiral downwards which is something nobody can deal with and must ultimatley relate to confidence.
confidence i suspect can only come from hitting rock bottom and bouncing back .
how far are we away from that, say 3 to 6 months.People do want to be confident but a lot will happen in that time ?
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Robert i would like you or some other contributors to answer me something, where excactly is the trillions of dollars/pounds/euros gone?. So i buy something of you for 1billion lent to me by the bank,this asset is in fact only worth 1m so myself and the bank are in trouble i accept that but where has the 1billion gone i paid you? even if you spent that 1billion buying 5 billion of assets 4 of which was borrowed from a bank and these assets are only worth 1billion both the bank and you have a problem but what about the person who got the 5billion,my point here Robert is surely at the end of the day somebody somewhere is laughing all the way to paradise,is this true or asm i missing something?
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#187 Alexander Curson
I tend to agree that Mr Curson's comments are sound logic in that if all savers AND deposit holders, including foreign deposits were guarranteed, the both Lloyds and RBS/Nat West should be placed in administration.
In this way, all toxic debt and bad loans could be fully identified, inc CDS swops whatever, derivatives etc could be marked and written off by bankruptcy and clear identification of all responsible
Those Directors should be taken to Court for mal practice or mal administration and the Government should call an immediate General Election on this matter
Brown and Darling would lose their deposits and not be seen again, except possibly in Court. They KNOW that these huge hedges and sub prime toxic debt could bankrupt Britain if declared now so they continue to play for time, time we have not got as sterling falls further to a forty year low against the Yen and an weight year low against the Dollar.
By the way Alexander, thanks for stopping the SHOUTING AT THE REST OF US. You clearly have a good business head on your shoulders
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247 madoff:
"confidence i suspect can only come from hitting rock bottom and bouncing back "
Spot on - we have to hit bottom before anyone will resume buying assets. Until then we are just prolonging the agony.
My guesses are an average house price GBP 110k and FTSE at 3300..............
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OK - this is obviously too complicated for me to fully understand, but...
On the NYSE (http://www.nyse.com), displaying top declines for the day so far shows that as at 1123 ET on 20th January there are eleven listings for RBS showing last traded values of between $3.06 and $7.50.
And AIB showing a 73% fall on the day so far.
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248. giantirishrover wrote:
It's trickey, this one, but essentially the lost money hasn't gone anywhere, because it never existed in the first place - it was notional. The fatal error was lending to the hilt against notional asset values.
For instance, if you tot up the total value of all the houses in Britain in, say, September 2007, you come up with a very big number. Do it now and you come up with a rather smaller number. But if, in September 2007, you had tried to sell every one of those houses, you could not of course have done so, so you would not have realised the theoretical value. These were values "assuming willing buyers" which, of course, would cease to be the case if everyone tried to sell at once.
What bankers (and government) ought to do is to look at downside exposure against notional values, and not lend above that downside margin. Lenders were lulled (by the long rise in asset values) into thinking that notional values were real values, so they lent 100% (or more, in really dumb cases). This wasn't helped by a certain idiot claiming to have abolished boom and bust (which meant there was no need to allow for downside).
Bottom line is that we have (a) lost notional value that was never real anyway, and (b) lost real money by lending to the hilt against notional value.
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Robert
Yes.
How many 'pointed heads' were keeping themselves busy counting paperclips, instead of properly assessing the Real Risk and making Valued Judgements?
Not enough CAMPARI and ICE perhaps, chaps?
It's all a bit late now...
And an apology...? Where's the Risk in that...?
Errr, precisely... That would be like admitting culpability for something that just 'wasn't me...'
It's the same the whole world over
Isn't it a bloomin shame
It's the rich wot get the pickins
Its the poor wot get the blame
And that is why we'll never get anyone in authority to be Man enough to step forward, methinks...
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Surely shares in Lloyds TSB are being shorted to the max....
They look good to fold at this rate.
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Post 226.
OK an independent Scotland may not be paying for Iraq and Afghanistan but what is not to say that the Scottish born Tony Blair or Gordon Brown if they were PM of an independent Scotland wouldn't have made exactly the same decision that they made as PM of the UK and signed Scotland up to George Bush's wars.
Re the point on Trident I assume then that if Scotland would be independent the subs wouldn't have been based or maintained at Rosyth and neither would any of the other naval works that has been or will be undertaken in Scottish yards. How much money would that have lost in lost jobs and contracts?
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155 JayPee28bpr wrote:
(in reply to 18. BasaltRocky)
"Put simplistically the position is this. A bank starts off by buying a USD-denominated asset (eg a mortgage backed security or "MBS"). They hedge the FX risk by funding this using a USD deposit."
Your post was really helpful, but could you also explain (simplisticly) how the "hedge" transaction, mentioned in the last sentence above, actually works, and how it's intended to help the bank if there's a change in the exchange rate? I've tried to understand the basic idea of "hedging" but when I come to a specific example, I can't apply it!
Thanks in advance.
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242 ThorntonHeathen
By all means go all William Cobbett: he was a thoroughly excellent fellow who knew his turnips from a stand of wheat.
Who are the tax-eaters now? Discuss.
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On March 24th 2007 I wrote the following on my Blog.
You can check at http://sagedeveloper.blogspot.com/ to make sure I'm no fibbing.
"After another day of being annoyed by idiot politicians I thought I'd set out my own manifesto.....
Make voting compulsory
Ban Postal Votes
Set MP's wages at twice the national average wage. Ministers get 3 times. If they think they can do better elsewhere then so be it. Couldn't do much worse.
Similarly cap Civil Servants and senior council empoyees wages.
Prospective MP's must have held non political paid employment before being eligible to stand. i.e. no career politicians.
Remove all perks for MPs and require invoices for all expense claims.
Make all government employees pensions based on contributions effective immediately.
Make all government employees retirement age in line with the rest of the population.
Renationalisation of essential services i.e. Power and Water.
Renationalisation of the railways.
Make the Office of National Statistics independent.
Reintroduce the 11 Plus. Discard all other testing other than the equivalent of O and A Levels. Project work is not to be counted towards exam results.
Flat Car Tax.
Car Insurance must be displayed in vehicle.
Road and Fuel Tax to be spent on roads.
Parking charges capped at the cost of provision.
Remove all speed bumps and traffic calming other than outside schools. Presumption is to be based on the free flow of traffic.
Remove all speed cameras other than outside schools or proven blackspots.
Speed cameras must be visible and have speed limit displayed on the rear of the camera and painted on the road.
Scrap Road Pricing.
Restrict Mortgage lending to proven multiple of earnings.
Abolish inheritance tax.
All outsourcing of NHS services, particularly cleaning, to be abolished. NHS managers to be criminally responsible.
Bins to be emptied weekly.
All Political funding to be transparent. Obvious scams such as Loans to be a criminal offence.
Chief Constables to be elected.
Require return of local police stations and beat officers.
Council Cabinets to be abolished.
No re-evaluation of Council tax.
Council Tax frozen.
Loan Interest rates to be capped. Usurious rates to be legally unenforceable.
Scrap ID card Project.
Government IT projects to be scrutinised by independant review body (not appointed by the goverment)
Reinstate the Lords
Remove the hunting ban.
Automatic assumption of guilt for any intruder in your property. Onus on criminal to prove otherwise.
Postpone any decision on Trident for as long as possible
No increase in TV license for 5 years.
Scrap turn off of Analogue TV signal.
Restore Capital punishment for Treason.
Try Blair as a war criminal.
Withdraw all troops from the Middle East.
All taxation to be transparent and not for social engineering.
Start building nuclear reactors now. We already have the cost of disposing of the waste and a bit more isn't going to make any difference.
Single parenting to be discouraged as a life style option but supported for those that need it.
Make unemployment benefit actually worth something to the real workers.
Apply common sense to all policies.
And for those that say how are you going to pay for this the answer should be "honestly". No stealth taxes, no huge waste, just common sense and an explanation of what the taxes are being used for. If it can't be afforded if can't be done or the tax required and what it will be spent on should be clearly laid out, not just throwing money at a problem."
Can I be PrimeMinister now?
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"He's not the man to hold your trust
Everything he touches turns to dust
In his hands
Nothing he can do is right
He'd even like to sleep at night
But he can't".
These are lyrics taken from the Hollies' song "King Midas in reverse".
It could apply to either Brown or Darling.
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#207
Are you sure the armed forces have three working chinooks?
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#252 - a good clear explanation.....
Sadly many businesses, jobs and markets were created off the back of this 'notional value'.
Now that's gone, so do all those businesses, jobs and markets have to follow.
All the houses bought in the last 10 years were also valued off this notional value - which is why there is a spiral in value - i.e. the boom.
The next question will be.......
"Who is supposed to make sure this doesn't happen"
The answer is a selection of bodies, the Bank of England, the FSA, the Banks themselves and of course the Government.
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Can someone at RBS please tell their staff what is going on. There must be one person who can look at the balance sheet and work out how many staff they are going to have to offload to the job centres.
Planning for the future just doesn't stop with the company, it affects everyone
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I seem to remember a product that helped freshen your toilet bowl as you flushed it - it was called Gordon Blue.
Any thoughts on a product to be called Gordon Brown, which features this country, pans, investments, pensions, economy, jobs, flushing?
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Jimmy Rogers always talked a lot of sense. And he's right about recessions - recessions come and recessions go, they serve a useful purpose and in many respects the right thing to do in a recession is nothing. You can't stop a recession, you can't make a recession "user-friendly" and if you try to - like the desperate Golem at No 10 is trying to - you just end up pouring money (which we don't have) down the drain.
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#190
Building Societies used to be funded by 100% by their depositors.
Brittania is not... the society has a relatively high level of wholesale funding at 34%: that's funding sourced from the money-markets and not members.
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261. TheresOnly1Soupey:
Thanks. The big mistake was confusing real with notional value. For the public to make this mistake is understandable - for bankers, regulators and ministers to make the same mistake is unforgiveable, in my book. Historically, houses trade at 3 to 3.5x incomes. Once we got over 4.5x - and we went much higher - warning bells should have been ringing. For some reason, this failed to happen.
Ultimately, I would say that government, via the BoE and the regulators, should prevent this happening. They didn't do this because they wanted the political benefit of the "feel good factor" which rising houses prices are supposed to create.
Soaring house prices were always one-sided - tough on young people and first-time buyers, who ended up with huge debts even if they could "get on the housing ladder" in the first place. I fear for some of those people now.
Anyway, gains were "notional" too. Say my house price went up - fine, but if I moved, the house I was buying would have gone up as well, so again it is not a "real" gain - it is another example of "notional value".
Brown's big mistake (well, one of them) was that, having given the BoE independence (a good move) he did not trust it (hence he created the tripartite system). In the old days, the BoE would have had a quiet word with the banks, telling them to ration credit if the housing market started to overheat.
The old guidelines used to be "3x income, 10% deposit". If we had stuck to that, we would not be in the present mess. That is why I think house prices need to fall back to, say a maximum of 3.2x earnings - which means there's still a fair way to go. I think we go part of the way through falling nominal house prices, and part through inflation (which lifts nominal earnings). It's going to hurt.
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Scenario (this time NEXT WEEK)
Joe Blog decides since long term interest rates will go up significantly anyway (and he may lose his house via redundancy, even though he’s on a 3x multiplier and has 30% equity)
Joey Boy : Awe right mate, looking to top the mortgage up to do some ‘improvements’
NRK bank manager : Certainly Joe, how much you want?
Joe : I’ll release as much equity as I can please.
NRK bank manager : Tell you what joe, why not have 125% or even 150% and spend some in the economy too.
Joe : Cheers
Further 2 weeks later at heathrow
Joe : a 1 way ticket to costa del sol please……
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Pat Robertson will be laughing today[all the way to another bank] ,how the mighty are fallen ,at the parting of their ways it was RBS that IN FACT walked the plank ,pulling down the BOE in the process.
LOL! And just when one thinks it couldnt get funnier .
In the second world war Londoners used to sit on their rooftops to enjoy the Blitz ,which mightily upset Ghoering at the time ,now they sit out and watch the banking blitz warming themselves by it as they watch their overdraft charges go up in flames .
Banks cynicaly separated fools from their money not realizing that they were to be counted ammongst them
He who laughs first laughs last
He who laughs last laughs hardest
If my sides split i shall sue the R
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262.
Can someone at RBS please tell their staff what is going on. There must be one person who can look at the balance sheet and work out how many staff they are going to have to offload to the job centres.
Planning for the future just doesn't stop with the company, it affects everyone...
Sorry to say that with the benefit of hindsight, looking at the last 3 years Accounts, they look a little like a version of Alice In Wonderland.
There is currently insufficient Capital to continue trading (unless Nationalised) - Agree? Insuring Debt will be withdrawn as a 'non runner' before it reaches the post... Think about it...! Not a chance - who is capable of making a start, and there is no time left...
The natural position is to my mind, 'sell off' anything and everything worth anything...
Reduction of costs (all costs to be achieved 20% so I hear tell...) That would mean aprox staffing of 70,000 world-wide - you know how many staff there are currently...
A 'terrible' waste....
Politically unacceptable...
Look forward to being a Post Office clerk before the end of Q1...
Distressing? Sorry, thats how I see it...
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#156:
""So it matters, in the first instance, that our banks are perceived as viable, profitable businesses - able to pay their way."
But they cant, as evidenced by the huge amount of loans being given to these banks.
So why are we insisting on lying to the international community?"
Leaving aside that very moral question, here's one that might be even more important:
"Why do we assume the international community is so stupid they might actually believe our pretence?"
If our banking system is dependent on "you can fool some of the people all of the time", we're up the creek.
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Why oh why can short selling not be banned.? I cannot understand what the Government has to lose from imposing a ban. I cannot believe-well may be I can-that the people who have the power to do something about this dangerous and self serving practice, do not see it for what it is.
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"And, of course, we all know that the Treasury would honour those liabilities." - Robert Peston.
They would TRY to honour those liabilities. Does the Treasury have £1,900bn in cash AND the necessary forex? We all know what happened to Iceland. In the spring of 2008 they had some fine words and in the autumn not the capital to back them.
Confidence matters when in fact you are leveraged. But what is the best means of shoring it up? Since the issue is overseas borrowing, a reporter who speaks for domestic consumption cannot assist. Reintroducing professional accountability in the financial industry on the other hand...
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To those asking about regulators.
Click on my name above and run back in my posts to the end of last week to see my explanation why.
Focus on the team responsible and imagine what AC and I are starting to think about this not being accidental at all.
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Lets get back to some basics. A bank is an intermediary, its sits between those with surplus cash and those without but whom want to spend. To lend it takes from those with surplus cash by accepting deposits or by borrowing from other banks in the wholesale markets. Because generally speaking the time frame and interest terms upon which people want to borrow differ from those who want to deposit, banks have to manage what is commonly referred to as their asset/liability gap. Critical to this and to the abilty to cope with situations in whic borrowers default, banks have to keep a cushion, in other words capital.
The nub of the problem as illustrated by the RBS lossess is that the banks totally failed at the most basic level, to properly manage their asset/liabilty gap position in that they
failed to recognise that:-
i) much of their lending was poor , e.g sub prime; and
ii) that borrowing in the wholesale markets to finance that poor lending was hugely unstable.
iii) the moment the problems with lending became apparent the wholesale funders would want their money back and the capital carried was insufficent to cover the "gap".
Governement talk about restoring lending levels frankly pie in the sky until the toxic debt is ring fenced and taken out of the asset/liability gap equation. Until then banks will have to keep seeking and hording capital just to survive.
Unfortunately the only way of doing this is for the governments of the worlds leading financial centres to come together and set up a central bank to take on the toxic debt.
Lets hope with a new president in the White House, the US, (the author of so much of this crisis), and world leaders collectively have the vision and more basically the guts to grasp the nettle and take the steps necessary. Ultimately its in all their and our interests that they do so. It will be painful, vey painful, but better alot of pain now than the slow and inevitable strangulation of the global economy which is the likely alternative.
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Post 255 - Ian-the-chopper
If we follow your luddite argument about jobs at Rosyth to its logical conclusion we should still be manufacturing muskets, claymores and other obsolete weapons just to keep people in jobs . Money spent on weapons we will never conceivably use is money wasted. The British Government wants a nuclear capacity (I won't call it independent as we would never use it without american approval) in a desparate attempt to maintain an influence in international affairs out of all proportion to our current status in the world. A Scottish government would have no such illusions.
However, this thread is about economics - the simple fact is in the current financial climate we cannot afford Trident and, given the ever-increasing national debt, this situation is not likely to change in the forseeable future.
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Robert,
I've been waiting to hear about some serious RBS and others jobcuts since October...and I mean serious not just a couple of thousand.How much longer are these city types going to keep going in,doing little and getting paid while they wait.As an RBS shareholder whose lost approx £80 k of value in this sorry decline I'm amazed that unprofitable banks seem to keep hanging on to such staff who have been collectively irresponsible.
KPMG - RBS's auditors.Why are they not being held to some account?I believe the government has tried it's best to give the city a freedom to expand over the years but it's regulation framework (FSA) has been incredibly weak. Now it's time the city people should pay.Oh...The government owns 70% of RBS does that mean they're politically unable now to enforce staff reductions for such incompetence?
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@ Post 258:
Go for it you have my vote. I couldn't agree more with your list.
Bring on the Election ..... can you give as good a speech as Obama , if so you are made for the job.
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It would be an irrational decision for overseas investors to invest in Sterling.
a) every time Brown loads up on the National Debt, the value of Sterling can only decline
b) every time Brown and Co hint at 'printing money', the value of Sterling can only decline - it produces inflation making the original Sterling investment worth less.
b) Interest rate returns from investing in Sterling or Gilts is virtually zilch - ie not attractive
c) Sterling investment as a total return of capital and interest, produces a negative outcome. Nobody intentionally seeks a negative return
Therefore Sterling investment is an irrational decision thanks to Brown's myopic outlook
So, if Brown wants a stronger Pound ...
- which is doubtful if he does and he might be intentionally engineering for a busted Pound and busted savings -
....then interest rates have to rise to get the overseas cash moving back into Sterling
But unfortunately, Brown and Darling pull their monetary levers like drunken men in a demolition crane.
The swinging demolition ball might hit the target, but it probably won't and hence their drunken lunges tend to cause major collateral damage to the overall UK economy.
Irrational Politicians acting irrationally can only expect irrational results
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256. papanca
Using a USD deposit to fund the USD asset is, itself, the hedge. Think of it this way. I'm a UK bank, looking to maximise GBP profits. However, I realise I need to be international if I'm to be of any significant size. So I look, for instance, for US investments.
OK, let's assume when I invest the USD 100 that the GBP/USD rate is GBP 1 = USD 1. Therefore my USD 100 asset is worth GBP 100. My USD 100 deposit is also worth GBP 100. Hence my balance sheet (in GBP) balances.
Now assume GBP appreciates versus USD, and GBP 1 = USD 2. My USD asset decreases in value to GBP 50, but the deposit also decreases to GBP 50, so my GBP balance sheet still balances, and I have no FX gain or loss.
Now assume I originally financed my asset purchase in GBP. At the original rate of GBP1 = USD 1, I needed a deposit of GBP 100 in orfer to buy USD 100 to fund the purchase.
What happens in this case when GBP rises to GBP 1 = USD 2? The USD asset falls in value to GBP 50, but I still have a GBP deposit (liability) of GBP 100. So I now have an FX loss of GBP 50, and I also have a potential liquidity problem if my depositor withdraws the GBP 100 when I only have assets of GBP 50.
Using foreign currency borrowings (deposits) to match foreign currency investments is pretty simple in terms of hedging. It gets more complicated when you can't match currencies like this. For instance, my background is fund management where, typically, a UK pension scheme (for instance) will invest in a diversified portfolio, including a good chunk of overseas assets. However, all their funding (ie contributions etc) will be GBP. There are plenty of ways to hedge the currency exposure even in this type of example, the simplest being to use forward FX contracts which locks in the FX rate for the life of the contract.
Hope that helps.
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If Lloyds and RBS were placed into administration and thus would only pay (say) 20p in the pound on their foreign liabilities would it count as Britain renaging on its sovereign debt? Domestic savers would be OK as deposits are protected and this could be extended to domestic business customers.
What if RBS was 75% owned by HMG? 95%?
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An auditor refusing to sign off on the books unequivocally is one very plausible catalyst for the nationalisation of a bank or forced takeover of a building society.
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What happens if RBS' share price falls to zero? Can it go negative?
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The time has come for the Establishment to move on with the rest of the world.
New Labour began their Government with a tiny but significant change to the way that they convinced the electorate to believe in them. Every previous election that I had seen, the politicians promised us all that tomorrow would be better with them. Labour changed that, they began the spin of "tomorrow will not be as bad if you believe in us".
You write about confidence Robert, yet confidence cannot exist with fear of the unknown. In this respect, the Banks and Government have wasted over 18 months. Wasted real time and our money whilst they should have been coming clean, with each other at the very least.
Last weeks Banking Select Committee was just another display.
If Brown cannot read the feelings of the populace, then that is his responsibility, but I for one am not going to sit and waste my life whilst his mistakes and idiocy create despair and fear. Every single individual who has taken their money out of the UK's Banking Institutions deserve respect, not contempt. The contempt in Parliament, as well as some of the force fed press reporting is a huge part of the problem.
If the UK wants confidence, then that arrives with positivity, truth and faith in the future. I left London in 1999 as a result of this same dumbing down..... down to the lowest common denominator. Tell us all something we don't know Robert. Ask the hard questions of the Establishment. What did Basle 11 achieve last year? Why aren't all these Bankers pushing for support in explaining their problems to the public?
You know why......... it has to be a smokescreen. The greedy and selfish no longer deserve to be hidden in society. The market is our collective response. Fear and ignorance need to end, from the top first!
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#273 Rahere
I think you're again making reference to an allusion you made in response to one of my posts on "Robinson's blog for juniors" last week.
I've a good idea what you may be on about, but I still can't find the meat in the sandwich. Any chance of a few more clues, within moderation?
Pity we cannot PM on this site.
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#108 I could give you loads of names and
addresses of those tha tdo not want to work will not work etc whom are living on a package that would be equall to £25K if you had a job without all the trouble of going for it.
.. but that would be quite rightly sensored ?
there is also that lot on the back benches behind GB that cannot work will not work
soon hopefuly they will NOT be on the same kind of package but then they have vote to have massive perks when they fail at the next election strange that they get reared for failure to.
How many donations from top city types have gone in to the labour party ?
just follow the trail of the money that why they are bailing out the banks to keep the labour party a float
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In the US today, Bank of America is down 20%, extending falls of 45% last week. Other banks (Citi, JPMorgan Chase) are also down. State Street, the biggest custodian bank in the world, is down 55% (its biggest fall in nearly 25 years) on news of much worse than expected losses.
There's also a report out from Prof. Nouriel Roubini of NYU, saying that asset writedowns of US banks could reach USD 3.6 billion. The capital base of the entire US banking system is only USD 1.4 trillion, so even if Roubini overstates the problem by two-thirds it still leaves the whole US banking system insolvent. There's a story out that Obama will have to inject another USD 1 trillion of US taxpayer money to maintain the banks' solvency.
So, sorry to disappoint the Little Englanders on here who think problems at RBoS and Lloyds are all down to a combination of GB, Ally D and short sellers who picked on the banks for no particular reason. GB and Ally D haven't exactly covered themselves in glory in recent months, but the problems they confront really aren't of their making and are as bad or actually even worse in other countries.
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279 JayPee28bpr
". . .
Hope that helps."
Thanks very much for taking the time to explain this so clearly. It helped a lot, and I only got lost again in the last sentence when you mention other ways to hedge against currency exposure -- for that I'll have to read up (again) on "futures contracts" and the like! When you've never worked with this stuff it's hard to grasp conceptually (for me anyway).
Cheers,
papanca
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Picking up on the confidence issue, the paradox of overseas liabilities and the fall in Sterling against the USD; how does the fact that the UK is according to data released on 16th Jan 09 by the US Treasury Reserve board the third largest holder of US treasury securities (360 billion USD in holdings in november 08) after Japan and China affect confidence?? - Isn't this yet another side to the coin?
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Anyone on this blog who doubts whether Jim Rogers knows what he is talking hasn't a clue. He is a legendary investor who along with Peter Schiff called the recession and the iminent collapse in the dollar way before anyone else. His money is in commodities and Asia. He would not touch the US or UK as they are bankrupt. Hyperinflation is on its way.
Go onto youtube and see their appearances on TV. Educate yourself - you will see nothing like it on UK state TV, or read in the controlled press.
He who has ears let him hear.
Buy physical gold and silver to protect your wealth.
To paraphrase GWBush "this sucker is going down"
Ron Paul 2012 - the only global politician with any grip on what is going on and how to solve it. The truth is out there.
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Post 275 I think the points he was trying to make were as follows.
1) Some Scottish bloggers seem to believe that all of the fault with the economy is down to Wesminster and Scotland not being independent. Also that had Scotland have had independence that the World North of the border would be full of milk and honey.
They seem to forget that the architect of the current position is one G Brown who when I last checked was a Scotsman rather than English. he is being aided by one A darling who, as luck would have it, also seems to be Scottish.
2) They also believe that if an independent Scotland was in place that there would be no nuclear weapons in Scotland and that Scotland would not have got involved in Iraq or Afghanistan.
3) Finally that Scotland would be a World economic power with a market leading banking and financial services sector.
He may correct me, and he probably will, but I imagine the point Ian The Chopper was trying to make was that if an independent Scotland was against nuclear weapons no doubt by now that the Nuclear Power stations in Scotland would have been shut as would Rosyth.
England would probably still be a nuclear power but the weapons submarines would be in Plymouth or Portsmouth rather than an independent foreign country. This loss of jobs at Rosyth wouldn't be insignificant or would Scotland be still running a major navy?
If Scotland was an oil power who is to say it would be like Norway and not like Nigeria or Russia?
If Scotland was independent who is not to say that the last Prime Minister and his current Primer Minister, who didn't object to either Iraq or Afghanistan by the way, as both being born and educated Scotsmen could have ended up being the Scottish PM rather than Alex Salmond? Also why wouldn't they have signed up Scotland to the wars like the did Britain?
If Scotland was independent would the Bank of Scotland has been taken over by Halifax?
It could well be that 5 million Scots could now be required to bail out or rescue both of its major banks. Whilst in England we wouldn't be.
I believe that the Act of Union was forced by the English bailing out the Scots after reckless speculation abroad.
RBS & ABN Amro? Plus sa change.
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Wee Scamp - 60
I think you will find that it was the Board that ran RBS and that is filled with Scots and Americans.
Yes the various regulators could have done a better job in supervision but they were not running the strategy of this bank.
Its not just the lavis 'World HQ' that is based in Edinburgh but also their Data centres and many of the back office functions. The UK customer base of this bank is heavily dominated in England and Wales. This is as a result of the takeover of the much larger NatWest business. So why was it that opperations moved to Edinburgh and all data centres closed in England?
How about all the sponsorship paid to Scottish events, income generated by scottish businesses as a result of English and Welsh based RBS Group staff having to travel up to Scotland.
The ABN Amro deal was a bad deal. One that I voted against as a RBS shareholder. The institutional investors backed the RBS Boards recommendation and the rest is history.
A whole lot of jobs are now going to have to be shed in RBS this year. Perhaps if the Board had been made up of the best from all the geograhical locations where their business was from rather than just Scots life would be different.
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280. svrsig
Shares can't go into a negative amount because the shareholder can return them free to the company. But one thing that a lot of people don't know is that just as a shareholder is entitled to a share of the profits for every share they hold, they are also liable for a share of any loss for every share they hold particularly in a bankruptcy. Don't know if that has ever actually been acted on and persued. Does anyone know?
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This is madness. There is no way that HMG could fund 1.9 trillion of RBS liabilities without printing colossal amounts of money - then £1 may be worth 10 cents if we are lucky The fact that some overseas investors already see HMG as contaminated by RBS is no reason to take the whole thing on. When you are up to your neck in the water, it is best to stop wading any further in. RBS -a nd HBOS - should have been put into Adminidstration months ago - is it too late to do this now?
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#115 wrote
"How about we create a "not for profit banking system", built on sound principals, highly regulated and in the ownership of all of the citizens of the UK"
I bank with the Co-op, your description above sounds very much like my bank.
It also did not invest in dodgy securities and so is in good nick.
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As one who worked for Natwest for 25 year Ive seen it all before. In the early 80s Chief Execs of Natwest & Midland got illusions of grandeur and tried to take on the US banking system by setting up banks over there. It all failed miserably.
Roll on to this decade and Goodwin, flush from taking over and moribund Natwest ( one that was going through a huge change programme that denuded its capital and meant it couldnt fight back) decides to take on the world with huge and over ambitious expansion plans - yet again it went wrong.
Will these people ever klearn and why don't governments reign them in - at the end of the day its government and us that foot the bill
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I have a friend who had RBS shares which she sold last year. She got more than she paid and her money is cash in the bank. She tells me she will not be investing in any shares again just yet but that she thinks many shares are tremendous value
Anyway, where is the money. On deposit or gilts or tbills
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Robert,
Explain why a set of audited accounts for each bank will not quantify toxicity? Suspect that none of the big Four audit firms will touch the task for fear of being sued to death a la Arthur Anderson/Enron.
Darling Brown should demand audited accounts of the banks as a condition of continuing to trade.
Nope. Not enough bottle.
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Is not the UK now insolvent, or at least heading inexorably that way?
What will be the market signals that indicate traders and others concluding that our country is indeed unable to pay its debts as they fall due?
If I ran my business like Brown runs the country, how long would it before I was in court opposite my creditors?
How do politicians get away with this?
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279 jaypee
Thank you for your posts which I found interesting. Being a bit simple I cannot see what the who-haw is about the currency movements. Things are in transition. As the problem moves around then the impact moves around. If there is flutter in the system it has to be expected.
I cannot see why the statements of a 'well known investor, Jim Rogers' are given such importance by the BBC. This investor is hardly an uninterested party as he is known to more than dabble in currency.
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Robert,
just to remind foreign investors, as well as local residents, a British government has defaulted on its debt before. Remember War Loan which was due to be redeemed in 1928/9 but was made irredeemable, that is it is undated. I say that it is about time that the British government met its liabilities, repay War Loan.
Oh, and just to show you how bad things were may I suggest that people look-up the Invergordon mutiny, one of the ships involved being the Hood, and we all know what happened to her, don't we!
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#227 MarkL64 said:
"Part of the problem lies in that nobody (especially in the equity market) is listening to the facts anymore, witness: ....."
I agree that the facts have nothing to do with the price of bank shares. You only have to look at the share price history over the day for Barclay's and Lloyds (www.lse.co.uk). At 11:20, I think you can see the short traders making their cash, just in time for lunch.
Remember, short selling is a legitimate market strategy. Hector Sants, the head of the FSA, says so, and it must be true.
Messrs Brown, Darling and Sants need to provide some explanations as to exactly who would benefit from a resumption of short trading.
All I know is that it's not me.
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224 friendlycard
I too do not believe all is quite hunkydorey in China. No figs but how can it be. I would have thought the projections where horrendous and for them the question has to be when will exports lift. Could be they have peaked. Many were not of good quality and saturation may have occurred, let alone a backlash. Domestic growth has to bring social tensions and imbalances.
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When will there be review of the RBS financial results?
RBS assets includes £1.5trillion of debts,loans andderivatives.
A provision of £26billion [1.5%] has been
made by RBS against these loans!!
Call me a cynic but i find it impossible to
believe that a provision of1.5% is in anyway
sufficient.
A provision of 10% would be a minimum requirement but of course this would equate
to a further loss of £150billion!!
Robert,could you not commision a BBC programme to review the finances of RBS and other banks?
I would be more than happy to assist in such a review.
The public should be tod the truth
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I have spent many years doing research, and applying that research, into "trust and control" in business to business relationships.
Applying the "trust and control" model shows that this financial crisis is a failure of trust, not a failure of control.
The remedy however is likely to be a predictable flight to controls. It will not solve the problem.
The real problem lies in resolving attitudes around each of the major trust factors in play.
Once this is understood it will be possible to determine and improve the level of confidence in the industry.
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The Irish Banks are down deep in trouble; the French government is looking to give another six billion Euros to their car industry and Spain has lost its AAA rating so maybe we aren't alone in the doo doo in Europe.
As the Dow is down nearly 4% with the Nasdaq down nearly 5% today there isn't much sign of an Obama bounce in the States either.
I know we are depp in trouble but maybe just maybe the rest of the World isn't far behind us.
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Perhaps Mr Preston could ask Mr Brown , when appropriate the following
1 Who sold a large ammount of our gold reserves when the price was low. If we had those reserves now the UK situation would be considerably better.
2 Who wrecked the UK pensions industry with tax changes designed to support his "Prudent Policies"
3 Who imposed a 10% tax change without due "Prudent?" thought.
Plus many other back door taxes!.
How can he now critisize the Britsh Banks given his history as Chancellor
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#273 Rahere
All this allusion to some type of conspiracy theory is quite intriguing, I feel like I am living the financial version of the Da Vinci code except the last chapter has been torn out.
My gut tells me its some over excitement on your part driven by what must be a once in three generational event unfolding before your eyes in the sector you clearly have a deep understanding on.
If you are not materially affected by it (like me) I could see how it could be quite a trip and could lead to a bit of 'over analysis' lets say....
Your knowlege as expressed through your posts says otherwise..no ill informed nutter, lots of detail yet broad conclusions at the end..always a good sign.
Counter to that you seem to be mates with ac so you must have a bit of the drama queen in you (sorry ac), im the same.....you may have noted.
Where is all this leading?
INSTEAD OF COMPLAINING ABOUT THE MODERATORS STOP MESSING ABOUT AND OPEN UP A SEPERATE DEBATING FORUM AS SUGGESTED LAST WEEK. YOU CLEARLY HAVE THE MEANS AND YOU CAN SPELL IT OUT IN BLACK AND WHITE FOR ALL TO SEE WITHOUT ALL THESE CRYPTIC CLUES.
Who knows we could all meet up for a beer in London sometime. We would have to keep an eye on ac at the bar though or the next thing we know we will be picketing the streets outside No.10...hey is it me or does that sound like fun? (it is allowed y'know even in a depression)
At that point I will make the final call on whether I think you two are just a couple of geecky teenagers with conections on a ride..
Fair play to you both I wont be upset either way.
I'm waiting......
Jericoa
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For the past 10 years we have all (including bankers) been told that we are not having a boom.
As the saying goes:- You can fool some of the people all of the time !
When the treasury was raking in the tax from the bankers and promptly spending it, did they not wonder how the profits were being made when we were not having a boom?
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Irony doesn't even cover the audacity of the bank that uses taxpayers money to advertise on the television that their staff are available to advise taxpayers on how to save money. Suggestions are made such as "shopping around for bills/insurance" etc.
How condescending! We bail them out twice. We are suffering the consequences of their non regulated actions and they lecture us on managing money? Does anyone else see the utter insult here?
I wouldn't mind but with terms bandied about such as "negative interest" and with the current status of rates, savings are dwindling for those who bothered to create a rainy day fund
Lets face it, who could possibly have faith in our banks when they create this mess and then spend more money advertising how they can advise us to make ends meet.
Maybe if they spent money on an advertisement expressing an apology to all those who have lost jobs, pensions, homes then just maybe some faith may be restored.
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As i have posted before . What is the scarier thought.....?
That this mess we find the UK in is manufactured.
Or that the government really are that incompatant.
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#286 - No doubt hordes of people will be pointing out that Roubini estimates $3.6 trillion of losses NOT $3.6 billion.
BoA is principally screwed because it was the chosen receptical for Merrills. In the UK Lloyds is principally screwed because it was the chosen receptical for HBOS
Funny how great minds think alike - but oh wait it was these same 2 governments that alone amongst the population of the world believed that Iraq had weapons of mass destruction.
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This is my first ever post and my first ever foray into the financial world, so I apologise if my questions/comments are of a naive schoolboy nature.
Having just lost 30% of very modest savings and more significantly suffered a divorce where my ex wife's portion of the equity in the family home remained at that it was valued at 1 year ago, effectively leaving me in negative equity. I have been interested in the whys and wherefores of the current economic climate.
I have read and tried to understand your posts with great interest. Thankyou.
My question, which doesn't seem to have been covered and it may be because it is so basic, is:
With the Government taking higher stakes in the banks and more importantly taking on their risks, why are these banks not being urged by the government to free up lending to UK based businesses and potential home owners? I have heard stories of Northern Rock turning custom away.
Is this not a way for the use of freshly printed money to remove banks risk as long as the lending is kept within the UK.
I understand that we cannot simply print a load of money and pump it into the economy for overseas use but if it is done in the form of simply securing banks risks and it is kept internal. The banks can lend, the people can buy, confidence grows.
Is this not silent nationalisation and perhaps less damaging to our overseas financial reputation.
I know it's a lot more complicated than this, but I thank you in advance if you take the trouble to reply.
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287. papanca
Forward FX contracts are pretty simple really, and obvious once you've heard how they work.
Basically say the spot GBP/USD rate is GBP 1 = USD 1, and assume interest rates are 5% in GB and 3% in USA.
If I have GBP 100 and I lend to the bank for the year, then I have GBP 105 at the end. If I have USD 100 and I put that in the bank for the year, I have USD 103. So, today GBP 100 = USD 100. In one year, GBP 105 must equal USD 103, or USD 1 = GBP 1.0194 (ie 105/103). So that's what the forward FX rate for a one year forward must be, or it would be possible to make a profit by selling one currency now for the other and investing the higher yielding currency for a year and making more interest.
Now this is great for hedging purposes, because we can now effectively fix the current FX rate of GBP 1 = USD 1 by taking out a forward. If I have a USD asset funded in GBP, I sell the GBP spot and buy it 1 year forward (at the 1.0194 rate above). The rate difference simply reflects the different interest rates that I'd suffer/enjoy anyway by funding the asset purchase in USD not GBP.
Other hedging techniques, such as currency futures or swaps, do pretty much the same thing.
Hope that's clear.
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"I cannot see why the statements of a 'well known investor, Jim Rogers' are given such importance by the BBC. This investor is hardly an uninterested party as he is known to more than dabble in currency."
----- ----- ----- -----
Perhaps because it's people like Jimmy Rogers - investors - that buy government bonds and Gordon the Golem has around £5 billion worth of bonds to flog in the next few years in order to satiate his profligate and insane spending addiction?
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This is all a terrible mess and ordinary people will pay. Gordon like Blair can retire on a fat pension and do the lecture tour. Investors can make enough to ride this out but normal families will be hit the most.
One person here shocked me by suggesting that the UK stop pensions and benefits payments. I dont know if they were serious but apparently california have done so.
So the big players get us in a mess - they escape unscathed but the most vulnerable - pensioners and the sick get their money cut off?
Does this poster really think that is ok? I mean should these people just be allowed to starve?
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Ultimately, confidence will be the key but how can it be achieved among global players, the city and consumers in the UK? One major problem in a democracy is that we have a govt desperately trying to cling to office by making comments addressed to the electorate ( we will do anything it takes etc ) against the economic need to have actions and statements addressed to the global investor community. Many have said on this site that GB/AD have left themselves completely vulnerable to exploitation by their words and action. I see nothing which will change this which means that things can only get worse. Nothing except a different regime which will have the backing of the electorate and can address the global players with greater commitment and clarity however difficult the times for the populace. Could the Tories do this under Cameron - not sure? Is there anyone else in the govt who would have the credibilty? Surely a govt of national unity is a step too far? So what is the alternative because we desperately need one - Brown and Darling are busted flushes and have no credibility.
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Have a read of this little gem - not that it`s anything we don`t already know!
Interesting how the story has been supressed.
http://http://www.marketoracle.co.uk/Article8352.html
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Faith in banks from the point of view of the public is (I'm afraid) going to take years to recover from this! They will still retain their deposits in the high street banks because they have no other option (after all money under the mattress doesn't make any interest), but whether they really trust banks in their heart, sorry that will take a long time to repair!
I used to think that the traditionally conservative view of finance-namely that it was the main engine of economic growth in the country-was naive. Now I can see there's virtue in it, governmental departments don't generate profits like private industries do. But the Nu-Labour policy of soft-touch regulation was a disaster too! If investment banking really is like gambling then it needs some over-sight and regulation, a a gambler can meet his/her demise in one of two ways: (a) they fail instantly and lose a little or (b) they initially win driving them on to even bigger further gambles, and on and on and then eventually/inevitably they lose. Option (b) is probably worse as the sums involved have grown bigger by then! Sadly for the UK option (b) was pursued for about 10-15 years, the sums grew enormous and nobody questioned whilst the spell was working! I'm not proposing socialism, nor unregulated capitalism, but a compulsive gambler needs an externally applied conscience! If not we will end up in this situation again in a few years time!
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Once again GB and his poodle AD are trying to save our whole economy.
Will they not get it into their empty heads that as a nation we are now in retreat when it comes to borrowing.
You will never ever make me, as a prudent saver, borrow money to buy things that I do not need.
Therefore, who are NR, RBS etc. going to lend to, surely only those who cannot afford it.
If HMG lived in the real world and frequented pubs, local restaurants, and the like, they would learn a lot more about how ordinary people lived and spent their hard earned money.
But no, they live in complete isolation to us and have no idea what is like to bring up a family in the real world.
Until HMG recognise that a lot of the British people are already up to their eyes in debt then surely recovery is a long way away.
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I continue to be apalled by the actvites in the financial and banking sectors. It seems no-one is taking responsiblity for what has happened in the past few months (? years). Those we suspect of being culpable seem to be able to walk away with huge salaries & bonuses. those of us who are real accountants- as opposed to the grossly overpaid year-end "tickers" have been, and continue to be held responsible for our actions. How on earth the auditing " profession- really?" dare warn the Treasury that it may not be able to sign off the accounts of our major banks as going concerns begars belief. What on earth have they been doing in their so-called audits for the past few years? Obviously not checking the alleged assets that is certain. The accounts should be re-stated in the light of these post-balance sheet events, bonusesetc re-assesed- and paid back etc. More work for the Auditors- but keep the fees down- and at least some of the losses would be recouped, and due penalties made. However this will never happen, the auditors merry-go round continues- errors in accounts, another firm investigates, etc...
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#284
I'll take my research notes and you can follow where I went.
1. Sir Philip Hampton wrote the Hampton Report at the behest of GB. Go find it and carefully note the thank-yous at the end of the introduction.
Explanatory note to the Moderators: The Hampton Report was on Regulation, the failure of which was a major contribution to these economic quandries.
2. Go read Section 4 of the Regulatory Enforcement and Sanctions Act 2008, on the StatuteLaw website. This Act was the result of the Hampton Report.
Explanatory note to the Moderators: it removed all responsibility for Regulation, leaving it to the discretion of the Regulator how far he would investigate before he felt he became burdonsome to the body he was supposed to regulate. As asking any question is a use of the body's time, all Regulation can therefore be construed as burdonsome., and is therefore excused. No regulation appears to have been in place for some time in the Financial Markets. Oddly enough, it just might let you off the hook too.
3. Consider whether there may or may not be a link between the last name on the list you discovered in 1. above and the offspring of the Minister responsible for 2. above.
Explanatory note to the Moderators: data from 2 economically-relevant sources is economically-relevant.
4. Now examine the other posts Sir Philip Hampton holds, and the new post he is taking up, and how that relates to the above.
Explanatory note to the moderators: this relates to RP's post Hampton for RBS 16 Jan 09, 04:09 PM. You can hardly stop bloggers researching your own subject.
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#282 truths33k3r
So Rogers keeps his money in commodities. And you expect us to appreciate the words of yet another parasite who uses their money just to make more money! He doesn't invest for the long term wellbeing of companies, or to improve the product, or to increase availability. It's paraites like hi that led us into this mess you numpty!!!!!!!!!!!!!!!
And I bet you enjoy Celebrity Bi Brother as well
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Sorry should have read #289
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224: Friendly Card
I really appreciate the irony of the comment about Beijing's transparency at the Olympics, on a page in which people are discussing RBS losses and the banking sector.
How "real" were the profits that mortgage traders made at RBS and other banks?
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Nouriel Roubini "Dr Doom" (look him up on wiki and the leads) got it right. Only the timing was off by about 10 months.
The key to understanding the problem is to realise that there is not one bubble but a series of interconnected bubbles which have burst and caused the financial underpinning to unravel (ongoing). He points out clearly and succinctly that the Global Anglo-American Banks are insolvent. Their assets insufficient to meet their liabilities due to massive asset overvaluation on a systemic scale.
A few months ago the cheerful chappies were predicting a V recession - sharp recession and out again by late-spring/early summer this year.
That will not happen.
Others suggested a U recession longer but still fairly time-limited.
Roubini fears an L ie. down along way followed by years of stagnation.
A gloomy scenario.
The British government was actually quite prudent in its expenditure if somewhat inconsistent about its scope. I really believe they wanted better schools and hospitals but, like the British finance establishment were mesmerised by the USA. Whenever the US president visits an 'ally' he always emphasises the special relationship and the historical bonds. He does in France, Germany, Israel and in Upper Volta by all accounts. America has German American, Swedish Americans, Israeli Americans and the historical bonds addresses a lobby at home.Only Britain rather sweetly takes him at his word. "Thank you for your leadership Mr Blair".
America is a law unto itself. It plays hardball with power and that will not change.
Wall Street is the engine that keeps the carrier groups at sea and post collapse USSR it has been busy trying to organise the world to its own liking. In order to do that it needed masses of finance to maintain all theater dominance and that does not come cheap. It needs a global financial system on its model to pay for it. Britain was fully incorporated and willingly participated. Not only in troops but in treasure. As we all see now Britain is snookered because it became an annex to the finance engine that we describe in shorthand terms as Wall Street.
Who was going to pay the 350trillion for Iraq? Not the US Taxpayer.
As long as cheap labour could be accessed all was well ( capital owns it but doesn't make) . McJobs at home for an underclass. A very US and British phenomenon. China for cheapies, India for call centres - you know what I mean. Cheap goods from the far east kept goods affordable in Walmart for the Mcjobbers.
The source of the problem for UKplc was the British banks which acted as proxies for Wall Street. In fact they were Wall Street on Thames in their philosophy and business practice.
They are not even British majority owned in terms of shareholding. Look at the boards.
The problem is these crashing banks have sucked in the UK economy; our savings, our mortgages, our councils money, our businesses money so the government is trying its damndest to salvage what it can.
In 1929 the governments did nothing and the stockmarket declined 80% over four years and remained that way until they had recovered by 1958.
The Second World War (not Roosevelt and the New Deal) broke the stagnation when UK orders for war material flooded in and Britain sold all its american assets for the second time in the century to make downpayment. We bought on lendlease and paid for every last bullet. (Paid until 1992). US didn't help us in our darkest hour but raked in the orders and ended having a good war with minimal casualties and no enemy damage.
This crash of 2008 is different. The governments are flooding the banks with liquidity in the hope that the can stave off a catastrophe. Remember 1933 25% unemployment in USA.
The crisis is the failure of the US financial model. Britain is effectively a US financial colony. Some of you might like that. I, clearly don't. I am not an American and I can't vote there. I'm British and wish my country well. I get cross, I have even left Britain (three years ago - hated all those security cameras) because Britain has a lot to offer if we get it right. Don't forget it was American policy to destroy Britain as a economic competitor from the 1880s and congress speeches prove it.
Thats Realpolitik.
End of diatribe. But I am really upset.
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#305 Economicallyliterate wrote: "I know we are depp in trouble but maybe just maybe the rest of the World isn't far behind us."
Arbitrage is a difficult thing when everyone is in the same depression simultaneously. No engine of recovery to milk, just self-reliance.
Jericoa, what is the problem with AC? People on the internet do not owe people on the internet anything.
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Come on Peston write something to drive the final nail in the coffin of UK Plc, don't stop now, you're nearly there!
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#304 With respect you do not need to undertake substantive research to understand why there has been a loss of trust.
Take 2 examples - there are hundreds to choose from.
Politicians assured the masses that Iraq contained weapons of mass destruction. It did not.
In June 2008 RBS proceeded with a GBP 12 billion rights issue and led shareholders to believe that this would repair the balance sheet. It did not.
It is very simple liars lie. You cannot regulate this away. The problem comes when the mass of the population no longer believes the lies that they are habitually told. Again you cannot force people to believe lies - although I accept that the PR industry has done exceptional work in seeking to disprove this truism, and for a time they were seemingly successful.
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At their current share price does anyone know whether the banks will still qualify to be Footsie 100 companies? There must come a time when their share price drops so much that they don't which has serious implications for them and the pension funds many of which are required to keep bank shares in their portfolio.
Incidently President Obama seems to be planning to carry out a programme very similar to that of the UK. Could it be that our gov't are fundementally correct in their approach to dealing with the economic crisis and that they should be given some credit for their actions? Obviously not a thought that occurs to too many on this blog.
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224
I don't believe the China growth story either. Growth depends on exports to the US and the US is buying much less and may soon get tough on balancing trade.
As was pointed out in the book 'The world is curved' in China communist party members are in charge of the banks, the regulators, the police and the largest companies. The numbers are whatever the government decides they should be.
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312. INoNuffin wrote:
"...so I apologise if my questions/comments are of a naive schoolboy nature".
No need, your questions/comments are good ones.
Some of us here think that Labour are trying to nationalise banks on the cheap, for ideological reasons. They help banks to screw up; highlight it when they do so; cover up their own regulatory failures; and buy banks as penny stocks. And re-opening short-selling, whilst it didn't necessarily undermine bank shares, didn't exactly help bank shares either, did it?
Trouble is, every time bank credibilty gets trashed, so does the credibility of UK plc and sterling. To quote a C19th politician, Britain "has won a shameful victory over herself".
So yes, it IS silent nationalisation, and on the cheap - a good way of describing it.
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Jeroica, follow the clues given by Alexander C-I don't know about about Rahere, but I know AC is not a nutty teenager!
He is what he says he is, a self made, successful business man who works extremely hard in his business ventures.
His sense of humour is very dry, but I sincerely believe he is honest and knows what he is talking about.
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There is simple solution to getting the banks to declare all of their toxic assets- give the senior management teams of all the banks 1 week to declare the level of bad debt or face having all of their personal assets frozen whilst they undergo a criminal investigation; If found guilty of negligence they should be made bankrupt and serve a prison sentence determined by the length of the recession. (I think they call it having some skin in the game)
Let’s get these peoples minds focused, let their wives and husbands have some fear factor. The thought living with the subprime set might just be enough to get the heads of Barclays, RBS, LTSB, HBOS, and NR to tell the truth.
The next time you’re on the central line and it’s delayed because of an incident instead of thinking about the inconvenience think why.
If we think we have problems in society now what will it be like after long hard recession
Having fun where the sun shines in stripes!!!
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Make house repossession illegal, repossession serves no benefit to society
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Robert,
when will somebody say something about the people who have retired to Spain and Portugal with their modest pensions who are now suffering from the devaluation of the pound.
When will the price of petrol at the pumps come down. Oh yes, the government reduced VAT but then put a special increase through for petrol, thus negating the decrease.
As for the price of petrol, I do know that part of the reason why the price has not come down is because of the devaluation of the pound against the dollar but not that much.
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King tonight:
"The bank (BOE) would consider a range of unconventional measures to boost the amount of credit firms could access and the amount of reserves held by commercial banks."
In other words, buying up the crap from banks and depositing it in the taxpayers lap.
He is unelected, answerable to nobody yet able to leave me/us with the debt. I hope he enjoyed his fancy meal in his dickie bow while we all worry how the hell we are going to survive 2009.
This is so infuriating!
NO, NO, NO !!! No more money to be pumped into this phoney economy please.
Let the banks fail, we'll then get to see the numbers, then we can decide how to sort it out. We are ratcheting up a debt that will take at least 30 years to pay off.
I honestly believe we are bankrupt but are not being told the truth!
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#317
Excellent link! Hyper-inflation here we go!
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A swift resolution of the Northern Rock compensation problem would help alleviate the share pressure on RBS, Lloyds, and Barclays banks.
These shares are being currently driven down to penny share levels, in a stock market which believes there is no floor for banking shares.
Setting a price, and compensating Northern Rock shareholders would mean immediate expense for the taxpayer.
However, it would send a strong signal to the markets, that bank shares will not be made worthless, or appropriated (without compensation) by government.
Such a signal would at least stabilise the market (albeit at a low level) and might, therefore, save the taxpayer much greater expense in the near future.
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299. glanafon
Quite agree on the currency movements. Everyone has conveniently forgotten that GBP has been overvalued for at least 5 years. Why was it? Well we had interest rates much higher than everyone else, so everyone bought GBP sold any other currency you care to name (but especially JPY). We've seen this unwind very quickly as GBP rates have plunged. UK is also burdened by its very international banking industry, and therefore has high exposure to non-domestic deposits and currencies. Clearly these are vulnerable at times like this, and hence so is GBP.
At some point, probably within 3-6 months, attention will begin to focus on underlying economic prospects, and who will pull out of recession fastest. At this point, UK will begin to look better than, for instance, the Euro area, which still has interest rates that are too high to fight a non-existent inflation. At this point GBP will strengthen, but hopefully back towards a sustainable value in the EUR 1.20 and USD 1.50 range, not 25-35% higher as it was until recently.
As for Rogers, no doubt he's talking his own book. He'll be running a big GBP short position and looking to hit his profit target asap.
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305. Economicallyliterate wrote:
"The Irish Banks are down deep in trouble...[and] the Dow is down nearly 4%"
And the US markets have banks down 20% across the board (Citi, BoA etc). No doubt there are still people on this blog who will blame it on GB, Ally D and the lifting of the shorting ban in Britain but, unfortunately, the fact is that banks look to STILL be undercapitalised. All of them are shocking, by a considerable margin, on the downside with announcements of higher than expected loss provisions.
A well-respected professor at NYU, Prof Roubini, reckons the entire US banking system could be insolvent, and that Obama needs to inject a further USD 1 trillion into US banks. The UK's problems are pretty minor in this context.
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OH Dear Robert, WHAT NOW? 150MILLION FOR OBHAMA? Hmmmm
what happends to the meek?
now lets think.
scottrade?
diaego
bloombreg?
tuc?
goverment.
[Personal details removed by Moderator]
SEARCH IN LIVE MAPS AND YOU WILL SEE
6 POSTCODES.
WHY IS THE GOVERMENT ROBING FROM THE PEOPLE. AND WHY ID SCOTTRADE STILL ALLOWED TO SHORT SELL? BLOOMBREG?
YOUR TIME HAS COME AS WE THR PEOPLE HAVE RIGHTS. THE magna carta
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#309 Jericoa
1. I've got other priorities. My involvement isn't entirely altruistic, AC just delivered an enlightenment which influences my main research focus, aspects of the history of eschatology. If you want to read ahead, investigate the Victorines and Jan van Ruusbroec (at least, that's the way he spelt it). At least it'll take your minds off this mess.
2. The missing chapter may collapse the system, so it needs very careful management. Wait and all may be revealed in good time, just get Dan Brown out of your head, the man's an entertaining idiot.
3. Can you deliver just a little clue as to the rationale of your own avatar, in passing? I don't want to pry into personal details, but it's saying something.
4. Allow me my quirks - after you've spent five hours checking facts in depth, to see some spotty youth junk the lot because he thinks it's dodgy when he doesn't know his subject and is way, way outside his remit is unprintable. They were warned, now they must be sorted if this blog is to do what it looks like may be its function, doing the thinking and reflecting the common man in a way the academics have all but forgotten. Thank the Lord Bob's dad was at long last heard from yesterday, people like him and Ken George, now sadly retired, have a flame to pass on which Maggie and Tony have done their best top snuff out.
5. RP has a decent-sized staff dedicated to this work. We've got livings to earn. We just need to find a way round the blockages.
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#276
The independent auditor of RBS is Deloitte and not KPMG. Coincidentally, Sir Fred Goodwin started his career at Deloitte and rose to become one of its youngest partner at that time.
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Sorry Robert i forgot about the NEDs, you know what THEY are dont you? oh yes robert tower BRIGDE is looking good for all .And for those at the BBC.
But dont try blame it on someone else now will you.
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#307 Jericoa
I do agree that some kind of mystery clandestine plot seems to be continually mentioned by Rahere and Mr Curson
Perhaps they could clearly and transparently enlighten the rest of us?
Just a gut feeling but I feel in thier naive arrogance, supported by the Bank of England, Brown and his crony chancellor feel that a sliding sterling devaluation is somehow in our interests, whilst they continue to politically destroy any vestage left of credibility in our Banks
In other words Old Labour instincts want to Nationalise the Banking system at the cheapest cost. Conterol freak Brown then has ity in mind to "Save Britain" then the World for his own posterity.
If they allowed the short selling which has brought both RBS and also Lloyds HBOS to their knees, not only do they succeed in getting serious control of the banks, our savings and taxes, they also control loans and investment in tight Labour seats at rthe next Election.
The demise of RBS and HBOS of course destroys the credibility of the Nationalists in Scotland under Alex Salmon and I am sure Mandelson is telling Brown that if Labour can wimn back Scotland, then Labour has a chance to hold power in the next election.
Brown, Darling and Mandelson are the Fat Controllers of this terrible game with our money our future and our savings. They look only to personal political and Party advantage, then the way they have handled this crisis starts to make sence.
We are not dealing with "honourable" members of Parliament here, but ruthless men who hate their enemies, using our lives and hopes and aspirations simply as cannon fodder to feed their ends. Brown was humiliated, joked about in Parliament, the Stalin to "Mr Bean" analogy and this has encouraged his true emotions of hatred and resentment to surface.
Brown said yesterday "He is angry with rthe Banks" yet takes not one ounce of blame for ten years as Chancellor of this mess. Emotion in a Prime Minsiter towards an Institution which only exists on paper is madness. I can get angry with people but not with a meta physical abstraction.
Come on AC and Rahere, take up the challenge and let us all know of your conspiracy theory, or does the above sound rather like it? Brown had the chance of a life time as a Marxist Socialist to take real power, our money and our banks. He has already and had already decided to push Lloyds into the HBOS deal knowning the weaknesses and toxic debt, yet also pushed RBS towards his goal at the lowest price, by simply allowing short selling on the very day RBS declared huge losses. What did Brown and Daling expect the markets to do, except tank?
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One thing dawned on me. If the Government aims to be a smart investor in the banks, where is the hedging? What is it using to hedge its bet on toxic debt? If the debt is far worse than expected, what position has it taken to mitigate the risk? And then it came to me, devaluation. We can afford to lose billions and billions of pounds if those pounds are worthless against other currencies. No wonder the currency strategists are calling against sterling. And so am I.
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Had all the regulators (FSA, FRC, Auditors, Bank of England, Treasury, Chancellor) been acting independently, they would have intervened.
Instead they believed that they had achieved the Holy Grail of perpetual growth and they paid themselves billions.
Now, they are trying to make out that we are all in this together and that this is effectively an "act of god".
The opposition cannot mount a significant attack as they had agreed with the policies first started by Saint Margaret.
Why are any of these incompetents still in their positions is a mystery to me.
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#229, Given Healey represented a previous low point in UK economic history I guess it is appropriate that he feels free to comment on the man who looks like breaking the record that Healey previously held as the worse chancellor in history.
The current crisis has absolutely nothing to do with "financial innovation" - that was simple the transmission vehicle. The cause was an asset bubble fueled by artificially low interest rates coupled with regulation that simply begged to be gamed. One would also note that the growth of credit derivatives didn't happen under Thatcher or Reagan but rather under Brown.
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324. poppyjonnieg:
"How "real" were the profits that mortgage traders made at RBS and other banks?"
Totally unreal, would be my guess. We live in a global economy of smoke and mirrors.
Re. my question about China, it was just an objective economics question; I'm simply trying to guess where the next big shock might come from, because, to be sure, there will be one. China is my best guess.
The economic data published by a one-party state doesn't exactly fill me with confidence. Not that UK economic data is exactly convincing, either. The Chinese singer might have faked it, but Brown's "end of boom and bust" was equally fake.
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how many Tory activists put their bile here ?
those of us old enough to remember the Tory years laugh inside at the re-writing of history making Lord Rushcliffe a better Chancellor than GB.
he inherited the Lamont mess, reversed the Tory policy they won the election on 5 months earlier yet try now to claim they a wonderful legacy !
did they call an election to ask for an endorsement of this new policy ?
no, not on your nelly !
yet now they castigate GB as squandering a legacy, not their original their Manifesto policy, changed by the ERM debacle, which they failed to seek a new electoral authority.
Lisbon treaty referendum ? not as nearly as relevant.
I expect the usual diatribe of class war rhetoric but not all the contributors are under 25 !
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So we have managed to suck in 4,400bn sterling value of foreign money.
They have given us real yuan, dollars, euros, magic beans etc. and we have given them promissary notes in uk pounds.
Is that the distant thunder of rolling presses I hear...
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Morning Robert,
I'm bored so I'll post some facts (valid at 20/1/09)
Market Cap
Royal Bank Scotland 4Billion
Barclays 6Billion
Lloyds Banking Gp 7Billion
HSBC 58Billion
So, as Vince Cable asked.....
what happened to the 37Billion invested by HMG in the financial sector? (Did someone have a bl**dy good Christmas)?
I note that in USA the financial regulator is asking the same question of the banks about what happened to the 350Billion that they invested. They have to produce a report about what the recipient banks did with their money BY 31 JANUARY 2009!
Thereafter they must produce a report monthly.
Shouldn't our Treasury be requesting the same or is that not a done thing amongst Gentlemen and Honourable Members?
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Does UK has nay leverages? Quite a few.
- It is too big to be allowed to fail or perceived to fail.
- Economic depression will lead to political chaos and soon lawlessness, resulting in anarchy. UK is a nuclear power with nuclear weapons, pwoer stations and radioative wastes. 60 million angry and mindless mobs include military staff .... Scary thought.
- EU may be soon be in a worse condition. Starting with Ireland, Greece and Portugal followed by Eastern Europe, Spain, Netherlands? How long can Germany and France hold it all together? Not long.
- The bond bubble may be ready to burst. A credit draught can turn into a credit tsunami in a few days.
- Islands are easier to isolate and defend from civil unrest on the Continent and perhaps MiddleEast.
- UK probably has quite a few favours to call in (eg. Iraq invasion, ex-doms, gold merchants who got our gold cheaply).
- We can become totally disinterested and neutral on foreign affairs, shut our doors, and pull back all our troops, observers, aids ...
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Rats, I posted this comment on yesterday’s blog. Still, I can correct my typos!
Dear Robert,
It may be that this post is only tenuously related to your blog.
The currency levels with respect to the Pound have been affected by yesterday’s Bank ‘insurance’ proposals and today’s [200109] Bank share declines in the UK.
Strange, Bank shares declined in the US too today.
I thought I heard the Midnight news on R4 say that Sterling closed at 1.43 to the USD. Really? The currency markets are 24 hour officially apart from Friday Midnight GMT until Sunday Midnight GMT [I may be incorrect on the GMT]. No doubt there are unofficial trades happening in that gap such as the futures markets.
Live rates show GPB/USD at 1.3880 nearly with a low of 1.3806 as I write and intend to press the send button.
Incidentally, I am typing this direct into your Comments Box. Normally, I use a word processor to collect my thoughts and then spell and grammar check before re-reading for meaning before submission. I apologize to you and your readers if I have let typos slip through. These do detract from the potentially serious [whether factual, humourous, witty or sardonic] contributions to your blog. Did I spell ‘humourous’ correctly?
A wise and experienced man told me that no one knows what the market will do. He was referring to a Stock Market; I doubt if anyone alive, even with 1984 Big Brother computer monitoring as of 2009, can count the World’s markets, let alone understand their interaction.
I have never been a fan of our Premier particularly not within his last political incarnation, however, whilst he is the Guv. no unelected [and certainly inexperienced] blog commentator can dictate what needs to be done. Neither I, nor they, have the back-up of our county’s analytical resources to match his; hopefully the elected opposition has access to this.
Remember all, this similar situation is beyond the memory of most people alive and those who did experience their time’s situation may not retain their memories fully.
One hopeful thought. Just as the global digital communications network may have helped contribute to the mess so quickly, it may be a contributor to a speedy solution.
I hope this long contribution is viewed as being consequential.
Best Regards.
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Dear Sir
Yesterday, I heard the first bank rescue of spring. Is this a record?
Yours
Jestersong
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250. At 4:31pm on 20 Jan 2009, Friendlycard wrote:
'My guesses are an average house price GBP 110k and FTSE at 3300....'
I'll take your 110k and 3300 and lower it to 93.5k and 3050.
258. At 4:51pm on 20 Jan 2009, StephenBlencowe wrote:
'Can I be PrimeMinister now?'
That would be a NO then.
mostly unworkable and probably discriminatory, next.
292. At 7:29pm on 20 Jan 2009, Red Lenin wrote:
'they are also liable for a share of any loss for every share they hold'
Limited liability, limited to the capital invested. so no then.
312. At 9:16pm on 20 Jan 2009, INoNuffin wrote:315. At 9:25pm
None of the people blogging on here know the truth of what is really going on or is going to happen in the near or distant future. (hope that helps) some of the people may know techinical answers to specifics but as to the general, it's a kind of suck it and see. Your viewpoint is as valid as anybody elses.Dont be offended if your viewpoint is shotdown in flames or get all bigheaded if it is applauded, think of it more like a moderated discussion down the pub. (without the drink and fighting:)
on 20 Jan 2009, princesschipchop wrote:304.
So the big players get us in a mess - they escape unscathed but the most vulnerable - pensioners and the sick get their money cut off?
Does this poster really think that is ok? I mean should these people just be allowed to starve?
That would be a very big NO
At 8:32pm on 20 Jan 2009, Rogercox wrote:
I like that, very thoughtful
325. At 10:41pm on 20 Jan 2009, blefuscu wrote:
End of diatribe. But I am really upset.
(that kind of sums it up really)
Moderators, 3 hrs to moderate comments is unacceptable.
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In order to control this trough, the next stage of recession and prevent further erosion of consumers, radical steps should now be taken. We are at a much better point in our house repossession cycle than the US with lower number and should learn from their failures.
The maths of the problem are compelling. Falling property values in a spiral described in Robert Peston's excellent analysis of 8th December, should be targetted for a different outcome. Specifically, this is not to deal with one problem at a time, but go straight to desired result and take the best action to go straight there.
Ruthlessly calculating the floor of property values at today's values can be achieved by taking action to restore the borrowers of toxic loans to the economy as consumers.
The first step was lower interest rates, but this only deals with the repayment element. The downward spiral only exists as people are removed as consumers, so this is the problem, not the banks any more. Specifically, the loan spike of the last decade was created by loans based on repayment ability rather than asset value. Interest rate reductions only address the repayment side of the double entry.
The asset value fall of 30% or so thus far has created toxicity that is not merited as most people are able to meet their new repayments. The problem is they cannot sell if they get into trouble - say losing their job - because the lender - who most now agree caused the problem - will only release the deeds if the mortage is cleared completely or the lender repossesses. In life I have learnt that both sides of a deal should win. This situation clearly does not create a "Win Win" for lender and borrower. This is the roadblock to the whole economy.
As these are not normal circumstances letting borrowers off their loans is not giving them an advantage. The lender's obligation in making the loans now without adequate asset cover was their professional misjudgement outside reasonable regulatory obligations and borrowers sharing in the write down, where their property value has fallen below the outstanding loan value is the roadblock that must be removed.
If lenders take a write down they should pass it on to the borrower. Any profit on the property value above its revaluation date can be shared later on disposal. If a debt is sold, the purchaser should be bound by regulation to reduce borrower indebtedness as hey will surely pay less than debt - as a Lehmans customer I am very concerned their failure to have plan for disposals that was expressed by the US Administrators makes them liable for this whole sorry fiasco.
The maths says otherwise slow failure of borrowers will add to the number of people outside the economy; they will not be contributing to it, nor consuming in it as they try to bring their debt down and organisations fail needlessly for want of custom. Organisational failure sees reduction in capacity, assets failing to support their borrowing and a further spiral as Robert Peston warns.
By taking the toxic loans that already exist and immediately jumping on new ones as they become toxic by insisting that losses taken by banks are passed on in reduction to indebtedness to borrowers, we accept a new future valuation of assets at a floor and create a stable platform for valuation. This will allow low interest rates for property purchase long term.
In the gentler economic future preventing losers getting hurt is the imperative to recovery. People on the streets is harking back centuries to the undeserving poor.
By contrast, in Japan a whole community has gone into supporting one another with lower incomes. Lower bonuses are now here and fewer repossessions should be the next target.
Savers will benefit as stable asset values will allow banks to take perhaps a couple of bad years and return to profit. Banks shouldn't worry about a loss year or two - the rest of business will tell you - life's like that from time to time. What you can't do is put money away when you should be losing it to sustain your customers. FSA please take note - give banks more time to get inside liquidity rules, set asset values to fixed levels and defend them instead.
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The Fat Cats who thought up these wizz's that would have put a Con Man inside for years are saved, all I am waiting for now is FLASH or PANDA to come out with the old Socialist manta 'The pound in your pocket....'
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313 JayPee28bpr
You wrote in reply to my earlier admission of ignorance:
"Forward FX contracts are pretty simple really, and obvious once you've heard how they work.
. . .
"Now this is great for hedging purposes, because we can now effectively fix the current FX rate of GBP 1 = USD 1 by taking out a forward. If I have a USD asset funded in GBP, I sell the GBP spot and buy it 1 year forward (at the 1.0194 rate above). The rate difference simply reflects the different interest rates that I'd suffer/enjoy anyway by funding the asset purchase in USD not GBP.
. . .
Hope that's clear."
I'm sure it's clearly explained, but . . . You may have spotted the fact that I didn't really understand the distinction between a "futures contract" and a "forward contract" but I've done a little homework and think I'm beginning to understand the difference (in how they work and that the former is exchange-traded and the latter isn't).
I don't want to go further off topic (what was the topic?) but if you could just answer one more simple question: When there is great volatility in currency exchange rates who wants to commit to a forward contract that fixes the rate a year down the line? In other words, where, or with whom does one "take out a forward"? (This may betray such gross ignorance of foreign exchange it would require a whole book to explain it. If so, don't try to further enlighten me here, but I do appreciate your efforts to help. I try reading the Wikipedia entries and my head spins. )
papanca
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Do our leading politicians read these blogs?
Do they have any idea of the extent to which they are generally held in contempt by what seems to me to be the majority of bloggers?
Do they care? I guess not. Making MPs expenses a state secret probably says it all.
And to think - we've got guys dying in Afghanistan, partly to defend our Mother of all Parliaments - and presumably the pigs who feed at its trough.
Tallk about decline and fall, eh?
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A much clearer, balanced article today. What is evidently clear is that confidence needs to be restored and there is no place for unbalanced leaks and other unbalanced activities - surely short selling falls into this latter category. I want to see our people with some power & influence - BofE and FSA doing more, not just leaving everything to the Treasury to solve.
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South coast and Ulster dole queues double
Article:
http://www.ft.com/cms/s/0/a5a13650-e71b-11dd-8407-0000779fd2ac.html?nclick_check=1
Graph:
http://media.ft.com/cms/91b50d9e-e723-11dd-aef2-0000779fd2ac.gif
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Robert, is it deja vu or are you saying what I said in this very blog three months ago ??
The confidence that the international lenders have in Britain is based on the perceived ability of Britain to pay back its loans. If the government continues its suicidal policies to borrow more and more to "spend our way out of the recession", Britain will do a Zimbabwe in the near future when no one will want to lend any more to Britain and the current lenders will want their money back as soon as possible when their loan terms are up !!
Furthermore, if the government continues to "print more money", as some foolish people have demanded, then the perception hardens into *certainty* that Britain will no longer be able to pay back the *value* of its loans that it had borrowed and is, therefore, a bad risk !! Consequently, the credit rating of Britain will be lowered to that of "junk" (an indignity only suffered by Third World Banana republics) !!
No one will want to trade with Britain unless the goods are paid for up front and in hard cash, *NOT* in devaluing pounds Sterling !!
Even as I write this from Bordeaux, trying to earn a (hopefully thick) Euro crust that will help my family back home in London in particular and my local economy in general, I cannot but despair at the antics of the politicians back home.
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re 322 foredeckdave
no need to get personal, I have only ever seen 1 clip of celeb BB and that was a prominent politician behaving like a cat.
investors react to the market, they don't drive it. short sellers have made money because the banks have bankrupted themselves with the assistance on our Government.
we all expect our money to make money - why do you think that so many people are upset that they are not receiving much interest on their savings?
the main point I was making was that people called this situation 2 years ago and were treated like cranks by mainstream media.
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The people with most to gain from recapitalising banks are the savers. It is really a saver bailout because if banks fail and need to realise their assets quickly they cant achieve full value and unless the state compensates them savers get hardly anything.
Since the savers have most to gain they should pay for the recapitalisation. Its not fair for taxpayers who may have no savings to pay to protect the money of the rich and corporations. The people with the most at risk should pay for the bailout whether or not they are UK taxpayers.
So a fairer way to recapitalise the banks would be a compulsory rights issue funded by savers. The state should seize say 5% of the money in every bank account. This money would then be used to purchase shares in the bank that held the deposit which would then be given to the saver. Result is that assuming the bank had 1/20 of its balance sheet as its own capital it now has 2/20 so it is very well capitalised and might even be able to safely increase lending.
The savers are not going to be happy - but they have traded the risk of losing everything for the certainty of losing 5% and some bank shares which they may or may not be able to sell. This seems reasonable since the only way the state could compensate savers if really large banks went bust would be to print money which would reduce the value of their deposit anyway.
The banks are recapitalised and still in private hands.
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This comment was removed because the moderators found it broke the House Rules.
#357 jedsideas
A well argued proposal. However, the argument has now gone far beyond fixing the housing market. Even if we did as you propose it would make very little difference to the disaster that is overtaking us.
Fixes for the housing market will not return us to some nirvana. We now need to find fixes for the national economy.
However, the outburst by Rogers does give me hope. Here, is clearly displayed the strategy of the greedy who make a position purely to make money from it. He forgets the basics of economics. Britain is not finished because it occupies a geographical space in which it has resources - both human and physical. It is NOT just a financial entity.
I wonder where he is going to find a new home in the next few weeks as the USA suffers an even more spectacular collapse at the same time as Europe.
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#364 truths33k3r
Apologies for the personal attack.
The thinking of Rogers is very short term and does not take account of the basic economic resources that exist in the country.
To my mind it has been the concentration upon money since 1980 that has caused this problem.
Once again apologies for the personal nature of the attack - blame it on a few pints of cider!!
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Illuminati Interoffice Memo's
The State, fissioning society into separate classes of privileged and deprived, created poverty.
Paper money becomes the bio-survival imprint in capitalist society.
The American, deprived of money, lurches about like a frenzied lunatic.
Each decade, fewer will have jobs and more will be on welfare benefits.
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Further to 191
This idea of punishing everyone associated with the Banks is a bit silly.
If someone committed Fraud, the other business partners would usually be seen as victims (so long as not involved in the fraud).
SO surely the Shareholders are actually innocent victims of the fraud of the ratings agencies and hard sell loan merchants in america (who missold mortgages and resold the worthless instruments to Europe).
And slightly off topic, reading the Bible doesn't seem to offer much hope !
Sodom and Gomorha (have I spelt that right?) were laid waste for far less than what goes on daily in most cities of the UK !
I guess nothing Biblical is on the way....
It does look frosty though.
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AIG will no longer be sponsoring Manchester United. Long time coming.
Lloyds down to 33.7
Barclays tank today.
Unemployment up.
Value of the pound down.
TV channels to close
UK and US bank shares fall.
Looking for some green shoots.
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Should(n't) we feel braced and excited about the problems we confront and our ability to deal with them. Solving problems is one of the highest and most sensual of all our brain functions.
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#366 AC - I think you must mean 'a price' not 'the price' - unless the bankers got a few trillion in bonuses.
Not sure even the US govt can afford to pay 'the price' for all this havoc!
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I was extremely busy yesterday feeding the goldfish so very sadly I did not have time to watch any of Obama's inauguration-at least I will remember what I was doing according to the BBC.
I was also busy wondering how much each UK household has lost over the last 18 months without perhaps realising it.
A sort of stealth loss brought about largely by the combined incompetence of our Government (incl the FSA), BoE and sacked bankers, whom I noticed Merv the Swerv was blaming for our predicament last night.
Don't waste your breath Merv, we know you carry a large part of the blame.
Take RBS for example - add in the rights issue, placings etc, its valuation based on about 18 months ago would be about £110 billion, compared with its currrent valuation of £4b.
I think there are 20m UK households, about 3m of which receive benefits (excluding pensioners).
Our pension funds and our other fund investments were the major shareholders in RBS so let's assume 17m tax-paying households have lost say £100b of the RBS lost value.
This amounts to a staggering £6000 lost for each UK household on RBS alone. Of course if it is fully nationalised there will little chance of any of this being recovered.
A similar calculation would amount to about £4000 per household for Lloyds and of the same order for Barclays say £2000 to £3000.
So for those of us who save in pension funds (apart from perhaps politicians and public sector employees such as in the FSA, BoE and Treasury) and who pay tax, we have lost a very large amount (between £10000 and £15000 on average on the 3 banks alone) without realising probably just how much.
If these banks are fully nationalised there would be over 100000 job losses from branch closures which will also cost us a lot in increased benefits etc.
There will be very little chance of any of the value we have lost being recovered from a nationalised state bank, let alone the immense damage nationalisation would do to our economy generally.
For those on benefits, if the IMF is called in, which I think is the next step after nationalisation, expect your benefits to be cut by the IMF.
So the question of nationalising the banks is a very serious matter for all.
It is a very great shame that the media in grabbing headlines and trying to out do each other in pessimism, e.g. by shouting nationalisation at every opportunity, are playing a large part in the destruction of our wealth.
Where has that wealth gone?
Much has been destroyed, with little hope of recovery if nationalisation occurs, and a much greater likelihood of recovery for our pension funds (and economy) if the banks are not nationalised.
However billions have also gone to short sellers.
Reuters last night commented on the massive short selling of UK banks by American hedge funds yesterday-they were closed on Monday.
I may not have watched Obama's inauguration yesterday but at least I was doing my bit for the American economy - at list the rich part of it - without realising it.
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I listened to BO's speech last night - he's a good speaker and he also spoke a lot of sense about hard work - short term I don't think anything anyone can do is going to save us from this mess but no more blogging for me - today I'm head down and focussed on what I can do to 'make things happen' - recommend everyone else does the same coz posting on here isn't gonna change anything - although it has been very informative.
Thanks for giving me a lot of interesting reading over the last month or so and good luck to you all.......
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Given that RBS still have the right to print their own money, can't they just print their way out of the mess they're in - after all, that's pretty much what Gordon is proposing to do (without telling anyone of course)
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I posted last week that the £ was over priced, and a run on it and gilts likely, and that the govt could default. Now I find Jim Rogers agrees with me.
I directed readers to the CIA World Factbook and I do so again. Just take a look at GDP and debt owed in foreign currencies.
Just like the preposterous rise in house prices set against wage inflation from 1997 to 2007, the basic figures on GDP to debts owed in foreign currencies don't add up.
So here is the remedy.
1/ Legislate to limit mortgages to 3x one income in a household. That makes them a secure investment for MBS.
2/ Investigate and prosecute those who over stated income on the mortgages they took out, those in the banks who processed obviously fake incomes as parties to the mortgage fraud, the bankers who sold on the resulting MBSs as AAA securities and the staff at the rating agencies who granted fraudulent AAA ratings. The crooks have to be removed from banking to restore confidence.
3/ Under the proceeds of crime act, take possession of the homes bought with fraudulent mortgages and sell them creating a big drop in prices allowing the millions who have waited for sanity to return to buy a realistically priced house.
Thus confidence is restored to new mortgage business and foreign capital will start to pour in to our banking system.
The fly in the ointment is govt debt. It was and is unwise to underwrite the debts of failed banks. Those are loses the investors should have carried. Thats the point of them charging interest on their loans. The govt could have taken over the infrastructure to keep the current accounts functioning.
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Is it true that if RBS went bust it could call upon shareholders for further funds up to the par value of the shares they held?
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OK OK Gordon, I am prepared to accept this is a global problem.
But were'nt you (UK Banking/Regulation) one of the main instigators?
Is this not something akin to Hitler defending his invlovement by saying 'ah yes....but this was a World War?'
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re 377
put this in context - losing 10k to 15k from a pension pot is no big deal. A pension pot needs to be about £400k to £500k before it is any use (at this level it will generate about £16k income which is about the minimum to keep above means tested income levels). So a loss of this size is about 4% - one year's inflation.
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Following the announcement of the proposed merger between Co-op and Britannia, could we have some more detail on the Butterfill bill? Is it the equivalent of the repeal of the Glass Stiegel Act for mutuals?
I hope not, as we're just coming to terms with banks' bad behaviour. I'd like to think building societies weren't getting ready to repeat those mistakes!
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mervyn king looked a bit hard up at the dinner last night ha ha...also the problem with uk is people have been paid to much ,houses are vastly overpriced,a very large amount of high earners dont actually do anything usefull.we should sack king ,, the fsa ,the mpc, the treasury, and brown,and all the other people with guilt in this fiasco.educate the young people to do proper jobs, producing things. the problem is economics is not an exact science,people in economics are there because they arnt all that good at real work, and they earn far to much.
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With all the hype about Obama now out of the way, will today be the day that Crash and bankrupt Ali run up the white flag in a vein attempt to stem the flow of capital triggered by the "money men".
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#331 Friendlycard.
If the nationalisation of banks on the cheap was a scheme of this Government, how did they manage to influence Thatcher to bring in the Free Market Economics of Friedman over 20 years ago - which was where this mess actually started.
Thatcher (along with Reagan) removed the regulation that stopped short selling following a price fall (uptick rule), allowed retail banks to dabble in investment banking and without her and her Government there could never have been a CDO or a CDS and none of our pensions or Mortgages would have been linked to the Stock market.
Without all those changes there wouldn't have been a crash of this magnitude (although there would have been one). All the current Government has done is follow the norm and bowed to the rich who dictate what is right for this country.
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Post 335 the reason petrol hasn't come down much is that two thrids of the price relates to Government duty and taxes. Can't see Crash reducing those!
Talking of faith in Banks. Robert, what are your thoughts on the merger of the Co-op and Britannia to make an ethically run mutual bank?
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#348 - laughingblacksheep wrote
"The cause was an asset bubble fueled by artificially low interest rates coupled with regulation that simply begged to be gamed. One would also note that the growth of credit derivatives didn't happen under Thatcher or Reagan but rather under Brown"
Absolute rubbish - obviously your history books only go back a couple of years.
It's like saying that the second world war was solely due to the rise of Hitler. The truth is a multitude of historical reasons.
Without WWI there would have been no power vacumn in which Hitler could operate - hence no rise, hence no second world war.
Your lie is along the same lines as
"This is a global problem swept in from America" - America may have been the first to see the storm on the horizon, but we were just as much a part of it as they are.
If you want to find the true cause, you need to start going backwards and analysing the classical economists and they assumptions and how those assumptions were ecompassed as truth in modern Economics.
The current situation is evidence of those assumptions now coming out.
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Re Post 376. Have read an article on the BBC website that informs us that a private member's bill is to be introduced so that people south of the border will be forced into accepting bank notes issued by the three Scots issuers.
"A private member's bill is being launched in the Commons by Shadow Scottish Secretary David Mundell.
It would require all providers of goods or services in the UK which accept Bank of England notes to take Scottish banknotes on an equal basis."
Perhaps your post is not so far fetched.
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359. papanca
"When there is great volatility in currency exchang