First Septic Bank (revisited)
Bank of America did the world a favour by acquiring Merrill Lynch last autumn, at the height of the global financial terror about whether any bulge-bracket Wall Street firm could survive.
So the US government was never going to cut up too rough when the biggest lender in America asked for a bit of additional help in absorbing the losses incurred on Merrill's holding of poisonous assets.
But the overnight announcement on the bailout of B of A would have been viewed as the stuff of public-finance nightmares a year ago. Today, it's almost par for the course that US taxpayers are injecting $20bn of new capital into the bank and promising to absorb most of the future losses on $118bn of radioactive investments.
Those financial commitments are peanuts of course in the context of $14,000bn-and-rising of financial support that taxpayers have provided to banks all over the world. What's gone wrong with our banks is without historical precedent - but then, you knew that.
One manifestation is banks' results for 2008. What till recently was the world's biggest bank, Citigroup, will disclose horrible losses later today. And next month, we'll see unprecedented losses from Royal Bank of Scotland and from HBOS.
At those banks that have managed to remain in the black, profits have collapsed.
But have no fear. They can't collapse - because we as taxpayers are implicitly underwriting the lot of them. Full nationalisation remains the economic insurance policy of last resort (as shown by Ireland's nationalisation of Anglo Irish Bank).
So what are the interim measures that governments can take, to keep banks afloat and stave off full nationalisation?
One element - but only an element - is to take further steps to improve the flow of funding to them.
We'll probably see some of that announced by the Treasury and the Bank of England next week - partly because there's a deadline set by the end-of-January closure of the Bank of England's Special Liquidity Scheme, which allows banks to swap hard-to-sell mortgages for easy-to-sell Treasury bills.
A new scheme will be put in place that is likely to permit banks and other financial institutions - probably to include the finance arms of motor manufacturers - to exchange all manner of loans to homeowners and consumers and businesses for Treasury bills.
In simple terms, you can see it as taxpayers lending to individuals and companies, or taxpayers financing the real economy.
And on top of that, a sovereign wrap is expected to be put around certain categories of bond - including debt issued by certain big companies (see "Taxpayer support for big companies") and bonds created by packaging together mortgages.
You should view that initiative as taxpayers providing an insurance policy to purchasers of those bonds that they won't lose out if the borrowers can't pay or won't pay.
The details should be nailed down in the coming days. But the broad thrust, bankers tell me, is useful.
That said, as we've seen with the Bank of America debacle, there are two other issues confronting all banks.
Have they got enough capital to absorb the losses being incurred on loans that are going bad?
And can they be remotely confident that they can estimate quite how many loans will go bad, and how big the consequential losses will be?
The arrival of a painful recession, of uncertain length and depth, makes that calculation almost impossible.
Guess what? We as taxpayers are going to have to ride to the rescue yet again.
As I've been saying for the past few weeks, one option under consideration is the creation of a state-owned toxic bank, into which our banks would transfer their stinky assets.
As a concept, some City chums and I branded it last autumn as the First Septic Bank.
It was top of the US Treasury Secretary's agenda in September, but was never implemented in the US because the technical obstacles are huge.
As it happens, Obama's team is having another go at creating the First Septic Bank, and a British version - the Royal Septic Bank - is also under consideration.
But the First Septic Bank of America and the Royal Septic Bank of Great Britain may yet fail to be born.
Because there are huge difficulties in valuing the assets to be placed in them and in defining the assets that may be placed in them.
If you put too high a price on the stinky assets, taxpayers end up massively out of pocket.
If you undervalue the assets, banks are mullered.
It's a nightmare.
There are other ways of exploiting taxpayers' deep pockets to achieve the same outcome - such as the guarantee being provided to Bank of America (which had already been given to Citigroup) that taxpayers would underwrite a proportion of losses on toxic assets retained by the bank.
The most creative solution I've come across has been made by Sir Peter Burt, the veteran Scottish banker who was chief executive of Bank of Scotland in its glory days but recently failed in a campaign to keep HBOS out of the clutches of Lloyds TSB.
Burt is proposing a sale-and-leaseback of toxic assets. Which probably sounds like gobbledegook to you. So I'll address it in more detail in a forthcoming note.
Suffice to say for now that a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years.
The Treasury is reviewing the options and I would not expect it to opt for one or t'other for some time.
But the bad news or good news (depending on whether you're a taxpayer or a banker) is that we as taxpayers will end up in some way paying for the stupid loans and investments made by smart bankers.
(Note from BBC blog admin: apologies for the hiccups in publishing this post this morning.)
I'm 
© MMIX~RS~q~RS~~RS~z~RS~48~RS~)
Comments
Sign in or register to comment.
It looks like you're going to to be right on the toxic bank idea Robert. What else do you know?
Complain about this comment
it gets more confusing when you realise
big banks have big shareholdings in all the little banks
Complain about this comment
Let's just nationalise the whole lot now. Whatever we do we shall end up paying for the failed business model of Wall Street and the City. The barons of high finance had a quarter of a century during which time they told us how to run our lives and now expect us to pay their debts. No way.
In the Middle Ages the "over-mighty barons" claimed their liberty to ransack and pillage and expected the peasants to cough up for their ransoms when captured.
Nothing has changed then!
Complain about this comment
a) There must be a point at which the tax payer cannot pay these debts.
b) What will future governments do about taxation policy when we have been saddled with so much debt, so they will have to be a new radical fiscal policy - possible Thatchers policy of kitchen tale economics, only spend what you earn.
c) It looks like a very bleak year(s) are ahead.
d) Why has the stock market ignoring these events?
Complain about this comment
"So what are the interim measures that governments can take, to keep banks afloat and stave off full nationalisation?"
Can someone please explain why full nationalisation should be staved off?
Complain about this comment
I'm not sure whether all this public money being pumped in, to stave off collapse, is a monetarist "expansion of the money supply" or a Keynsian "new deal".
I'm not sure whether it matters. For better or worse, the money is being pumped in almost everywhere. The question is whether it is going to work; and what will have to happen for it to work.
To try to answer this I started to read up on the "new deal" recently. Having been brought up believing that it save the USA from the Depression, I was surprised to find that unemployment in the US did not really start to fall until the war - and that people back then were saying that the new deal had achieved nothing but saddle the Government with debt.
If that is right, then we are in trouble unless and until all this money provokes a, hopefully peaceful, increase in demand. Is there any sign of this?
And is anyone, anywhere in the World, offering an alternative strategy: eg a willingness to maintain a strong currency and let the market sort itself out?
If not then all our money is already on one horse; and there's nothing we can do about it.
The die is cast.
Complain about this comment
Governments promising financial support is not the same as actually handing over the cash to the ailing firms. Governments can promise but can they deliver?
Many pledges of support have been made, but how much cash have governments really handed over to date?
I think they have only stumped up small amounts of real cash, relative to the enormouse size of all the promises.
A bird in the hand is worth two in the bush, and all that......
Complain about this comment
Nearly forgot. A big problem with a 'bad bank'is that the banks'll have to come clean about what dodgy assets they hold. If they've been holding back on us there's more brown stuff to fly.
Complain about this comment
Well here we go again.
It doesn't matter about the technical details of how ie leaseback, loan, toxic bank
indeed do we care any more !!!!
This is not "taxpayer" money, thats far too impersonal, this is my money and your money. May be not today, but tomorrow when all our tax bills go up by a lot. It wont just be the 2.5% back on VAT. It will hurt those who work really hard in the middle range. Kiss your state retirement pension goodbye now, it wont exist in 25 years it will just be a toxic asset/share in a toxic bank worth nothing.
Flash, Mandy and Darling will of course let us know they are saving the WORLD again and that its a GLOBAL CRISIS. How come I havent heard of any Banks failing in Poland or Russia or Spain or China for instance ???
Complain about this comment
"And can they be remotely confident that they can estimate quite how many loans will go bad, and how big the consequential losses will be?"
The other worry is that some will decide as a matter of policy to ensure their loans will never be repaid as we , the good ol' taxpayers, will guarantee the banks the money instead. Why should any pay back outstanding loans, whether they can or not?
This is simply the next logical stage of the original "Moral Hazard" question
Complain about this comment
ENOUGH IS ENOUGH JUST NATIONALISE THEM ALL AND GET IT OVER WITH.
Complain about this comment
There is no doubt that given time a proper formula will be devised to resolve the toxic debt issue.
What does concern me is that the people who caused this disaster seem not to be held to account. Indeed some are trying to establish a reputation as the saviours of the world.
I want a full public enquiry, I want names named and civil and criminal penalties imposed.
At the very least lot of decent, innocent people are going to be ruined by these events and the taxpayers are going to have a burden to carry for decades. Justice cries out!
The bankers, regulators and others responsible for this shambles need to be put before a court of their peers and judged.
It is now time to send in the auditors and gather evidence.
Complain about this comment
"Septic Bank"!
Quite obviously despite all of the talk to the contrary capitalism has collapsed, money is worthless and there is no longer any market mechanism to manage the distribution of capital.
Economic Armageddon has arrived!
A septic bank as a repository for duff 'assets' has one gigantic and insurmountable problem - how on earth do you value the assets that are transferred to the bank? Zero interest rates have made money worthless so I know of know of no mechanism to value the assets.
Put interest rates up and then the cash flows from the debts can be valued and a transfer value can be determined. Zero interest rates have destroyed any market valuation mechanism.
The values are thus only definable by political actions by the the centrally managed state planning bureaucrats - I suggest some retired Soviet era economists could usefully be asked to comment on the efficiency and effectiveness of such a system.
It is almost beyond belief to that should be being contemplated.
Complain about this comment
It is all well and good for the government to bail out the banks, as without the banks the whole ecomony fails. What bothers me is that the very same banks that made stupid childish decisions are still full of the muppets that made the original mistakes. For trust to come back, new management is needed.
Complain about this comment
RBS predicted loss this year ?£28 billion
2007 profits £10 billion.
These bankers are the best in the world, or were until Cyclone Crunch hit town.
So times have been really hard,and the bailouts are necessary.
At least our government are doing what it takes to weather this storm.
Complain about this comment
As you've said before, Robert, there is a lot of blame to go round. Who's the more to blame, the "smart bankers" who made dumb loans, the people (who are also taxpayers) who took out those loans or those of us (also taxpayers) who were quite happy to benefit from the boom in the economy driven by the availability of this borrowed money?
As you've also said, what we have now is a socialist system of a communal mutual guaranteeing of loans. As someone who works in a mutual insurance company, I have to say that I am quite comfortable with that thought.
We have to get the money flowing again, so if we have to have a state owned Sceptic Bank or buy-back system to do so, then so be it.
Complain about this comment
I am concerned what business practice would be in place to achieve this
Suffice to say for now that a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years.
It sounds like an agreement to stave off accountants looking too closely at the books and actually recognising that it will take over 10 years of banking income to come close to wiping out their mistakes.
So technically why should we, the taxpayer, keep these insolvent edifaces alive?
Will the banks be free once to gouge for every penny they can?
Who is going to be held to account for the whole mess?
Who took those decisions to buy those toxic debts?
Who packaged and sold those toxic debts?
I would simply visit the banks and say "we are withdrawing your overdraft next month. You have this time available to yourselves to pay off the overdraft before we foreclose on your business"
Insolvent = Bankrupt
Goodbye
Complain about this comment
So what you are proposing (or reporting somebody is proposing) is that the customers of businesses - who are part of the taxpayer base, and individually provide the income to the businesses and in turn the profit to the businesses - also enable en mass (and involuntarily) the provision of operating cash to the same businesses. Do you not find this a bit odd, and in what way does it allow the marketplace to operate with market forces. In what way does this provoke customer demand. Could you take the time out to explain.
Complain about this comment
Excellent article, but complicated stuff (for me, anyway!).
Can anyone answer these most basic of questions, please. Sorry if they are naive, but I genuinely don't understand:
1. Why is the taxpayer acting as an insurance company? What is wrong with businesses using proper insurance firms for this purpose?
2. Are all these measures permanent, or just temporary until 'normality' resumes.
3. Rather than the Bank of England lending money to banks, to lend to us, why does the BoE not lend directly to us. Why not change all branches of Northern Rock, RBS, HBOS etc into high street branches of BoE. Cut out the middle man.
4.Presumably the government would only consider a 'Royal Sceptic Bank' if it thought it could make money out of the toxic debts. If the govt can, why can't the normal banks.
5. If the whole banking mess turns out not to be as bad as currently thought, will the banks actually sudeenly be sitting pretty and set to make HUGE profits?
6. As unlikely as it is, if the bail-outs fail totally, the consequences to the national economy are simply huge. Do we have a plan for this scenario?
Complain about this comment
I note a separate headline regarding the proposed split up of Citigroup - "Citicorp will handle the company's traditional banking work, while Citi Holdings will take on the firm's riskiest investment assets.".
Why not take this as a model for each of our stressed banks? Each can split into a separate "toxic" bank (that hangs on to the dodgy, hard-to-value stuff) and a "non-toxic" bank that can get on with the day-to-day banking business without being weighed down with all this stuff.
That seems like it would get the banking system working again without the taxpayer ending up being massively out of pocket.
Alternatively, just nationalise them all.
Complain about this comment
As far as I can see, we have only 2 ways out:
1. 40% drop in asset values across the board, followed by business as usual apart from the fact all banks will be nationalised.
or
2. Inflate away those bad loans.
Which will it be ?
Complain about this comment
I think this is the kind of stuff which destroys faith in institutions for generations.
Complain about this comment
For problems that are global (© G.Brown 2008, 2009), what's needed is not so much a septic bank as a septic country to offer itself as a sacrifice.
Iceland ? Zimbabwe ? This septic isle ...?
Complain about this comment
Lets be honest whats going on here, is purely politicos trying to save their jobs now and foist the blowback onto their opponents when they take over.
Im not sure wether its a good idea or not, but it doesnt really matter. Either the politicos do nothing, the banks fail, the economy crashes and i end up with nothing.
Or the politicos buy up all the debt, saddle me with huge tax bills for the next thirty years and i end up with nothing.
Great choice, From a selfish point of view if im gonna suffer id like to see the bankers crash and burn cos my futures probably gone either way.
Complain about this comment
The demerger with Citigroup: Is this just a U.S. ploy to effectively allow the indebted part of the company to go bankrupt. Surely it would make sense, the commercial side could remain and if nessesary receive some (smaller) funding, and the failed investment banking side of the firm could just quietly go into administration as if it had nothing to do with Citi saving the U.S. taxpayer millions just by screwing over a few investors and other banks?
Complain about this comment
Tell me Robert, does anyone still talk about "Moral Hazard" these days?
Complain about this comment
There is a common misconception among bankers, economists and politicians that government debt is guaranteed because it has control of the nation’s tax quotient. What they forget is that although theoretically they can raise taxes as much as they want to pay off the debt, there is a limit that subjects will pay before they rebel on mass.
The utter stupidity of borrowing on top of debt and bailing out the banks regardless of the amount will not probably fall as a burden on the taxpayer as many think. Primarily because the UK will soon realise that there is nobody left that will, can or want to buy up the gilt wrapped kucca and come March most auctions will probably fail.
Where will that leave HMG then with all these guarantees’ and nothing left in the tank to honour them? IMF and the banknote printing press is looking the most likely outcome IMO.
Complain about this comment
#12 stanilic,
I think the time for auditors to make an appearance has been and gone. We still haven't heard much of their shortcomings in this farce.
Complain about this comment
I think its about time Mr Peston started to act a bit more responsibility. Everyone knows what the problem is. Perhaps Mr Peston should think of a few solutions rather than banging on ad nauseam about "radioactive investments" "poisonous assets" "stinky assets" etc.
All he does is to talk down which at best does nobody any good and at worst greatly exascerbates the problem.
The main issue confronting everyone is a lack of confidence emanating from loss of jobs etc. The economy needs to be talked up rather than down and people recover the confidence to carry out their business plans and lives generally. This is something that Mr Peston (and other members of the press) do not seem to be very adept at
Perhaps Mr Peston should review what pulled this country out of previous recessions and put some positive points forward
Complain about this comment
This is beginning to sound like the rocket scientists are at it again.
You know the ones whose equations turned all this into rubbish in the first place.
Talk about baffling everyone with science.Only this time they seem to be making it up as they go along.
I think most of us have given up on the idea that there is anyone out there who really knows what they're doing.
Trying to stall the inevitable is only going to make it even more difficult to see clearly when we are at the bottom of all of this.
Sounds like all the toxic debt should be moved to the most dire bank and the whole lot liquidated and wiped off the face of the earth.
They can't save everything there aren't enough taxpayers.
Complain about this comment
Out of all of this, we must ensure the banks do not escape the rotting fruits of their labour.
Its all well and good intervening to prevent a complete monetary collapse in the wider economy.
But The Banks have to eventually face up to the consequences of their folly. else it will be seen as not just bailing out the banks, but robbing the taxpayer to reward the bankers.
I would much rather have seen the government buy market rate shares in the banks when their shares were closely reflecting their worth (ie after all writedowns) and then as a majority shareholder, or 100% owner, supporting the bank until the crisis can ride its course, be that 2, 5 or 10 years.
In the future the government can then sell the now recovered bank and make much profits for the taxpayer, and then reward the taxpayer through lower taxes for the hardship endured during this crisis.
At present it feels like we are suffering ALL the hardship and the bankers are being rewarded by dodging bankruptcy.
Lets hope Northern Rock can be rebuilt from the ashes and sold on for even a small profit to the taxpayer!
Complain about this comment
This is just the beginning. The US dollar will collapse soon because of the bailouts being implemented by Obama and Bush. They've lowered intrest rates so far that the only thing they can now do is print more money. People will run from the dollar and dump their reserves lowering its value even more.
A result will be the UK and the rest of the world being hit even harder by drops in demand of everything. Unemployment will rocket and tax revenues will collapse, leading to a bigger defecit for the UK, resulting in the UK pound becoming worthless and the UK completely bankrupt.
I really hope I'm wrong.
Complain about this comment
"smart bankers", is that Cockney Rhyming Slang Robert? Couldn't resist having a Giraffe :o)
Complain about this comment
The more the fixes don't work, the more bizarre the solutions become. This isn't going to fix anything.
I really think we need to start to look at seriously saying "enough is enough". We cannot risk paying
Can anyone tell me today what the function of a bank is? They don't lend, they don't reward savers, they don't give mortgages and they are a parasite on the country. So what's the point in propping them up anymore? They haven't been honest with their balance sheets, not honest with their due diligence and their scams have been shown to be worthless. Why should they now start being honest?
Let the weak banks collapse and have one bank for the time being. The days of the old style capitalism have gone and the more we keep trying to get back to how things were, the worse it is for everyone. We are NOT going to return to how it was - the model and arguments have been shown to be wrong.
Whether this government likes it or not, eventually there is a line to be drawn around this. I don't have children yet, but I do not want them to pay for the greedy, selfish folly of this filthly lot.
Complain about this comment
same old load of .
they always change the rules whenever
they start to lose
all we are asking for
is a level playing field
and to stop moving the goalposts
Complain about this comment
"If you undervalue the assets, banks are mullered."
I thought this article was really important and really interesting and I really wanted to learn from this post, but all that's running round my brain still is : why does Robert keep using "mullered"?
Does it mean hammered? slaughtered? Any of a host of words meaning "having a good night out on the town of which I will remember nothing"?
What's the epistemology: cockney, German or Tom & Jerry?
I know its been raised before on here but I cannot recall a really good answer? Help!
Complain about this comment
I am guessing that exploiting taxpayers deep pockets is exactly how the government sees it as well. The problem is that taxpayers pockets don't remain deep if unemployment increases significantly as it is forecast to. That of course should really read exploiting future taxpayers deep pockets or just plain stealing our grandchildrens money because as yet no tax increases have been annouced or significant curtailments in government spending.
In yesterdays post Robert talked about bailing out big firms as they struggle to roll over debt. What has become obvious is that the big companies that are in difficulty are the ones who racked up the debt while selling of the assets. Those companies would be far better off being restructured, the debt written off , management kicked out rather than being lumbered with the debt in a downturn. Bad business models need to be purged and supporting debt is not the way to achieve that.
Banks are the exception as they are everyone's go between, and if all the UK banks fail then the amount owed is so large internationally that nobody could sort it out. Lets not forget that british banks are international and probably do trillions in business each year so nationalising them totally would put our tax payments for the next few decades on the line. We should be asking what those toxic assets that the banks have are. Some of it is loans to US house buyers who are allowed to just walk away from debt. Perhaps we should ask our american friends to think a bit about non recourse mortgages.
In every city center across the land new apartment buildings have sprung up and it does not take a genius to work out that the finance for these would all go pearshaped once the market was saturated. It is pretty basic banking sense and it is becoming pretty obvious that many of the lending operators in the UK were not really using a proper banking business model. Criminal loan sharping seems nearer to the mark for some of the foreign lenders.
Making the assumption that taxpayers can afford to pay of these stupid loans is a big assumption after all no tax increases have been annouced yet and every government is trying to borrow to pay their own banks stupid loans.Smart bankers and investments seemed to have been in very short supply recently and about the only smart thing they have done is to sucker us tax payers. I am not against banks being bailed out and the better and quicker we do it the sooner we will come out of recession but as usual plans seem half baked without proper detail and that pretty much applies to the plans from all politicians. Getting a banker who knows a little about banking is perhaps a good start so there are at least one move in the right direction.
Complain about this comment
Preston can you tell me what meaning of the word "Till" you are using in this sentence "What till recently was the world's biggest bank"?
I don't think it is "unstratified soil deposited by a glacier", or "work land as by ploughing, harrowing, and manuring, in order to make it ready for cultivation" or even a "cashbox: a strongbox for holding cash"
You can't possibly mean some sort of slang contraction of "until" as that would be something like 'til, yuck.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
I am being unfair to a degree but Gordon saved the world and New Labour can see little green shoots of recovery.
They are still riding relatively high in the polls - if you believe that they had a significant hand in our doom and the "global problem" that they vaguely blame. Possibly that is because people fear free market Tories more than New Labour.
But nobody believes this could not happen again and there is no new regulatory regime emerging.
But with all of this burdening toxic debt and the probability that this is a crash and not a severe recession (why are people still debating that?) Labour can only spin this out for a few months.
Then it becomes clear that we are heading for a long slump lasting probably years.
But because of the skewed political factors once that becomes clear perhaps a new regulatory regime will emerge (go Barak, go Barak) and then confidence will start to return.
So in my world if we had politicians (including Tories and Lib Dems) who set to identifying all mistakes and rectifying them apolitically we would be ahead of the curve.
Instead there is always the possibility that we get political meltdown and global instability as we head into a climate-changing future.
Excellent. The Iron Chancellor. The man who can't put a book down - sadly its the cheque book and its money wasted on VAT stimulation at the wrong time.
Complain about this comment
“Owners of capital will stimulate working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable.
The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and State will have to take the road which will eventually lead to communism.”
— Karl Marx, 1867
Complain about this comment
The situation now in the Globe is so similar to the 1920s it is worrying.
Replace 1920s Britain with the 2000 US and 1920s America with 2000 China and the parallels are uncanny.
Massive increases in the money supply in 20s US and 00s China, British pound used as a reserve currency and artificially high in value, ditto today's dollar.
In 20s terms Britain had few savings, a large and increasing national debt and was being financed by the rest of the world - primarily America. Not so dissimilar to 00s: America with few savings and high and rising national debt being financed by the rest of the world - primarily China.
Add to this the fact that China money supply has gone through the roof (like 20s America).
China is heading for a mighty fall (Dow fell by 90% in the 30s and GDP by 40%). The trouble is with globalisation an awful lot more countries will be hit by the fallout of this.
Creating bad banks, slashing interest rates and every other fix foistered upon the system will not work. The New Deal didn't work - the US had another recession in '37 and the Dow didn't begin trading above 1929 highs (consistently) until 1954 - 22 years AFTER Roosevelt was elected.
What the governments are doing is akin to stopping a volcano from erupting with the worlds most expensive fire blanket.
$14 trillion of future wealth spent and she's still gonna blow.
Complain about this comment
#11
ENOUGH IS ENOUGH JUST NATIONALISE THEM ALL AND GET IT OVER WITH.
I agree.
The system is now unworkable. It is now clear the level of government intervention in banks once this is over will be at such a level that there will be a 2 tier system.
Government banks
Which will have to act in a morally responsible way or risk getting the governbment of the day thrown out.
Commercial banks
Which will never be able to compete with the government banks on a level playing field after this massive systemic failure.
Free market capitalism in the banking industry HAS FAILED.
Properly regulated it may have had a chance, but human greed will always find a way through eventually to corrupt the system. As has been said before '' capitalism holds within it the seeds of its own destruction'' That goes double free market capitalism in banking.
There is another good reason to nationalise the banks. That way the people may have a chance at seeing some justice being done for thier suffering.
The greedy bankers whom have bestowed this catastrophy upon the people through personal greed (there is a lot of real suffering out there at the moment and much more to come) will have thier salaries slashed thier bonuses revoked (hopefully retrospectively) and thier future salaries worked out on the basis of what VALUE they bring to society.
No doubt they will continue to be paid well but not to the sickening levels of before.
It is not communism, it is just a realisation that for banking, human nature on an individual or an institutional basis can not be trusted to keep greed under control. Only banks responsible to the people via democracy can now do that.
Lets get on with it and have done with it.
Jericoa
Complain about this comment
"So what are the interim measures that governments can take, to keep banks afloat and stave off full nationalisation?"
I'm with blefuscu and 25_and_no_hope.
Robert, you continue to assume that full nationalisation is to be avoided. Why? You never attempt to answer this question. I guess it's fundamentally a religious matter: capitalism itself remains beyond question.
Complain about this comment
Another awfully written and utterly misleading blog from the BBC's resident 'it's all an organic economic cycle' merchant.
This is a manufactured economic crisis, just like every economic crisis since the birth of central banking. Look at who owns the banks where the 'crisis' first started, and who owns the banks that have had their takeovers of failing banks underwritten by the taxpayers. They brought this about for profit and control. Same story, different day. I can't write their names here because there's no way the BBC would publish this post if I did, but they aren't hard to track down.
Financial assets do not become 'radioactive', either literally or metaphorically, but in using naturalistic metaphors Peston upholds this same view of an economy where no one is ultimately in control.
As to starting a sentence with 'Because' - this is elementary stuff Robert, and just because half of this country is illiterate doesn't mean you as a senior journalists can just shrug your shoulders and write whatever you please.
Complain about this comment
Robert
Has anyone addressed the issue of prison for the culpable and reckless bankers who put us in this mess. It is not rocket science to get/subpoena the banks for lists of the idiots who are responsible. No doubt they have salted their assets away or the assets will have declined in value so no way to recover the excessive bonuses/salaries. Therefore prison it is. Even Osama didn't manage to wreck the world financial system at 9/11 and he will end up in prison or dead. What about the bankers?
Complain about this comment
I thought you meant 'septic' as in cockney rhyming slang!
'Septic tank' = yank
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
'Toxic'...'radioactive'...'septic' are terms that stir up emotions almost at visceral level.
....your constant use of hyperbole Mr Peston may make for readable journalism BUT it may also add to a further deterioration of confidence amongst the general public .
The assets are 'compromised'. Many if not most of them are yielding some kind of income are they not ?
Confidence and trust are being eroded by events . Why then try to destroy them completely with awful, unbalanced. almost vindictive vocabulary ?
Complain about this comment
#12
'It is now time to send in the auditors and gather evidence.'
I agree with your need for some 'blame' and pain to be felt by those responsible but its going to be like buying a kitchen from someone who gets subcontractors in to fit it - when something goes wrong the fitters say its not made right and the kitchen maker says it wasn't fitted properly.
Also auditors aren't really very good at pointing fingers anyway - they're best at big bills & cosying up to the people who pay them!
Complain about this comment
I was against the idea of nationalisation but I have now concluded that it is the only way. The alternative is the tax payer being left with the bill whilst the banks continue on their merry way. Ultimately I want the banks to be independent but not at the expense of paying their dues. The impossibility of valuing their dues makes nationalisation inevitable. This will take a decade to play out.
Complain about this comment
I was pointing out all these problems
eight/nine years ago ie:INSOLVENCY.
When will the UK wake up and prosecute those who are responsible.
WILL IT BE WHEN THE CASH
MACHINES PACK UP OR WHEN THERES
NO FOOD IN THE SHOPS?????????????
Complain about this comment
The importance of banks is being blown out of all proportion. For thousands of years businesses thrived without banks. Indeed banks were only created as a safer place to put savings than under the bed.
People and businesses saved before they spent. If a short term cash requirement existed they borrowed from friends. Our current problems have come from people finding it easier to make money from manipulating it or betting than through manufacture or agriculture.
Build an effective real economy and the banks will become unimportant. If we had put the taxpayer funds we spent on the banks into improving our business infrastructure we would now be outcompeting the world and setting foundations for exceptional and sustained future growth.
Gordon - No more wasting of our money on subsidising gambling by our banks!
Complain about this comment
22 spur22
Quite - in what way does this encourage customer demand. Some of these business may even see boycotting.
Complain about this comment
I give up........
I got a bit of money, I was careful... take it all Gordon and buy your votes.........
Then bend me over and finish the job properly!!!!!!!!!!!!!!
Complain about this comment
Robert,
The bad bank will one day become a reality though the extent to which it will be beneficial to the public is debatable. It will however enable banks and building societies to fund the repositioning of liquidity portfolios as they will be required to do under FSA rules, currently under consultation (see CP08/22), from October this year. In short a part of this new section of regulation is to force banks to hold a larger amount of highly liquid, highly rated government debt to enable them to survive a Northern Rock type scenario without the need to approach the Bank of England.
Any thoughts that this cash will stimulate lending to the public is ill-conceived. Rather, it guarantees the government a whole number of willing buyers of its own debt at a time that the government needs them most. The cost of this is such (and the FSA acknowledge as much in the document) that the cost to borrowers will increase and returns on savings decrease as banks and building societies seek to protect margin. It's likely also to be the straw that breaks the camel's back amongst many of our smaller building societies who are already suffering to pay the FSCS levy.
Complain about this comment
theres nothing wrong with superficial spin
it's been going on since the beginning of time
but how will this help the skint tax payers
unless you bribe us with a several grand
Complain about this comment
"4. At 12:14pm on 16 Jan 2009, Steep1 wrote:
a) There must be a point at which the tax payer cannot pay these debts.
d) Why has the stock market ignoring these events?"
How much money can the government print?
Ask Zimbabweans...
The stock market is... a device for capturing the inflation caused when governments and banks inflate the supply of money.
Complain about this comment
It occurs to me that if so many businesses are likely to go bust soom and so many of us about to end up unemployed, how come we keep getting told that "taxpayers will fund this, taxpayers will bail-out that, taxpayers will underwrite the other ..."?
Since the few remaining taxpayers left in the UK will almost certainly end up being those employed in Gordon Brown's monstrously bloated and untouchable public sector, doesn't all this end up being funny money? Because those taxpaying, public sector workers are themselves being funded by, er, taxpayers.
This is doing my head in.
Complain about this comment
This is all becoming a pointless waste of time and money. They should have just nationalised all the banking system at the start.
If I were running a bank then I would want to exaggerate my position downwards and over-play how much trouble I'm getting into, because if I can convince enough people then I will get a bailout form the Government - which will turn into a competitive advantage over those banks who did not get funding. I think Citi are about to make the same move - but cleverly offloading the bad debt whilst still getting public assistance.
The reason is because once you have received funding then the Government isn't going to let you fail and loose the money it gave you.
The other banks will not be so lucky.
The moral hazard is upside down at the moment. When you step back and look at it then you can start to see the madness.
This is reflected in both the banking system and the wider economy. Prudent people and prudent banks (like HSBC) will be penalised in the long term - where as the risk takers will be rewarded, thereby encouraging more risk taking in the future (contrary to Government spin about clamping down on the risk takers).
All that clap-trap about the Government taking the lead at the banks is complete nonsense. Look how the rate cuts are not being passed on by banks - even though the Government "has had strong words" on several occassions. The Bankers don't care what the Government say - they never have. The ONLY thing that bankers fear is tighter regulation - which is why you can hear the murmours of "stifling growth" and "restricting profit" already.
If you want a quick and simple explanation - look at Aesop's fable, the hare and the tortoise. This is more true today than it's ever been - and it's now ingrained into our society.
The exception in this case is the Government are trying to cheat to make the Hare win. It failed in trying to boost the Hares chances (with bailouts) - so now it's actions are effectively penalising the Tortoises.
The reality is that the Hare never wins - even though it thinks it's winning for much of the race.
The fable is rooted in our society and applies to most aspects of our lives.
Hare vs Tortoise
Celebrity vs Education
U.S. vs China (until China started becoming a Hare)
Large borrowers vs Prudent Savers
HBOS vs HSBC
Hedge Funds vs Traditional investments
Capitalism vs Communism
...the last one is the fundamental driver for us all being hares.
Once we have a few years of negative Growth - would the boom have been worth it?
Surely it would be better to have steadily grown over the last 10 years and not have to suffer this national devaluation.
Complain about this comment
We are already past the point of no return. INFLATION is the now the only 'solution'. We need to get up to at least 20% in order to evaporate a sizeable proportion of the debt now crippling western economies.
After two or three years of high inflation the problem might become manageable, but certainly the years of western high growth and consumption based on illusory wealth are most assuredly OVER AND OUT.
Complain about this comment
The one thing which is becoming abundantly clear right now is that a putative recovery after June, always highly improbable, is becoming ever more of a pipe-dream.
Just one example comes from the IEA, which has halved its 2009 global growth assumption and slashed its projection for oil consumption. Industries are crashing as we watch.
It was interesting that, when put on the spot by Cameron, GB pointedly refused to repeat an economic forecast issued in the PBR just a few weeks ago. Is the govt likely to recalibrate its financing assumptions based on a more realistic economic scenario, and what would forward borrowing assumptions look like under such a scenario?
My view is that recovery cannot start until asset prices hit bottom, giving people reasonable confidence to go out and buy. For me, this means the FTSE at maybe 3500 and average houses prices at perhaps GBP 110k. The sooner we get there, the sooner we can get on with reconstruction.
Complain about this comment
"Suffice to say for now that a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years."
Robert - why is this even being suggested as a solution.
The taxpayer may as well pick up the toxic debts and absorb them because all the banks will do for thenext 10 years is squeeze us harder and harder to earn the capital to pay off the leases.
Option a - you pay
Option b - you pay.
Either way YOU PAY!
Work it out people, the only place the banks will get the money from to fill the debt holes is from you and me - one way or another.
When I rode past the houses of Parliment this morning my heart skipped a beat as I thought they were on fire - sadly it was just steam created by some works being done there at the moment....
For all those who get repossessed - take yourself down to parliment square and move in with Brian Haws - when there are 60,000 people living on Parliment square then I think the Government wil get the message.
Complain about this comment
46. tonyparksrun:
"Has anyone addressed the issue of prison for the culpable and reckless bankers who put us in this mess".
Good point, but it will not happen, for one very simple reason. You would have to move on to include "culpable and reckless regulators" and, after that, "culpable and reckless government ministers".
The bankers are a sort of "human shield" for regulators and politicians. So it seems pretty unlikely, unfortunately.
Complain about this comment
MAYBE
A better more simple option than a septic bank would be. Set asside that debt and banking to one side in EXISTING Sterling Dollars Euros etc .
And Create new currencies
SterlingX
DollarX
EuroX
Etc
Then run a new parallel global economy with new rules whilst unwinding the old economy with an exchange ration betwee the old and new currency.
NOW that would be an interesting way to go into a NEW global financial world.
It has it has been done before has it Not?
Complain about this comment
Once upon a time in America there was a depression in some ways caused by among other things a banking and stock market crisis.
As part of the recovery process a piece of legislation called the Glass Steagall act was passed. Its purpose, in simple terms, was to prevent retail banks investing in other financial institutions. An investment bank was a type of other financial institution.
Effectively Glass Steagall was repealed and that allowed a real blurring of banking and other financial activities and allowed retail and wholesale bankers to get into bed together. The progeny were truly horrendous and kept secret. What we are now seeing is the progeny let loose.
The derivatives markets were expanded to the point where only a computer could perform the necessary calculations quickly enough and the computer was only as good as the analysts and the programmers working on behalf of the banker Quants.
The opportunity to nip this in the bud came when the Nobel Prize winners of long term capital markets LTCM hedge fund were found to be badly wrong and their fund should have failed. Unfortunately, the fund had such huge positions it was considered too big to fail because of the perceived systemic risk.
If one lesson and one lesson only comes out of this debacle it should be to allow the failures at the outset. If LTCM had failed, I very much doubt the edifice would have fallen and we would certainly have been much better off now.
If the state is to take these assets (I suggest liabilities might be a better term though inaccurate from an accounting perspective) then they should be valued on a fair value rather than a mark to market basis. If a fair value cannot be calculated, then legislation to allow the CDOs to be broken up into their constituent parts on a compulsory purchase basis should be passed. The underlying mortgages can be run off through the nationalised banks and ex building societies and the real horror stories taken into possession and sold to local authorities and housing associations to house the people who should never have been gulled into buying.
Complain about this comment
This is silly. The bad loans should be sold off for whatever can be recovered for them to professional debt collectors.
Complain about this comment
#52 - my bet - when the cash machines stop working.
Nothing like standing in the rain in front of an empty bank to turn dissapointment into anger.
Complain about this comment
FOR ALL THOSE WHO REALISE THE GAME IS UP.
...and that capitalism is dead, you can speed up the process by doign EXACTLY THE OPPOSITE OF WHAT THE GOVERNMENT TELLS YOU.
Don't spend, don't invest and don't worry about it.
The Government wants as many people as possible to sacrifice themselves to generations of slavery in order to keep the economy going.
Don't do it - you will survive, we all will. It will be the ministers, civil servants and bankers that won't be able to handle it in the real world.
The surplus value of the worker is coming back home. The rich have stolen it for centuries but they can never own it, they can never fully control it - it will never be theirs.
Complain about this comment
Create a bank of mum & dad. A real one that competes with the septic banks we all know and hate. Put 50% of the value of fully-owned (paid off) property into the bank and borrow at bank rate (soon to be 0% for the septics). Lend at rates which compete head on with the septics and force them to get rid of their crap rather than going round again with taxpayer's money on the money-go-round.
Complain about this comment
The best solution would be to pass a law that requires all financial institutions trading in the UK to publish their liabilities. People could then see where the risks were, where they weren't, and thus trade reasonably confidently. The problem is they don't know their liabilities - instruments like CDOs were explicitly designed to hide them.
There is a solution at the housing market level, and it nicely punishes the two parties at fault - the mortgager who took out a debt they did not reasonably believe they could repay, and the morgagee who gave them the money recklessly.
When somebody defaults on a mortgage issued to a bank that has taken Gov handouts the property reverts to the Govs possession. The Gov lend the property to the relevant Local Authoritys housing ALMO who promptly evict the previous owner, put them in empty (i.e. unpopular) Council housing, and allow existing Council tenants with good standing to apply to have the repossessed house as their Council house. The rent goes to the LA. It can be ringfenced for housing or supporting local small businesses.
When the house is sold the amount raised would go to Central Gov. Given that you don't get a Right to Buy for a few years it would give house prices time to recover, increasing Govs chances of making some decent money back.
Complain about this comment
This is all a dream RIGHT ?
All this isn't really happening is it ?
This is like the MATRIX only a Banking ONE ?
zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
Complain about this comment
No doubt some or most FT350 deserve some help. How about the masses who are more vulnerable, with less resources, cannot pass on costs, cannot and will not intimidate governments and politicians, do not employ skillful and well networked lobbyists.
In December 2008, Pope Benedict points to estimates that the global fiscal deficit caused by offshore activities could amount to a staggering US $255bn (much higher by other estimates). There msut be many $trillions sitting in tax havens.
Over the years how much of those money were lend to legitimate businesses and people around the globe?
How much of those many $trillions are from ill gotten gains (crime, corruption fraud, Madoff'ed) compounded over the years laundered through and protect by tax havens? These must be returned.
How much of those many $trillions are extra money (bonuses) make by people who put us in such dire situation? These should be contributed into a 30-50 year "financial war-bond", like during the war.
How much of those many $trillions are tax savings enjoyed by ex-doms which makes millions and billions from businesses in this country? Ther is still $1million to be collected from Warren who offered the prize (in 2007?) those in a charity dinner who pays more or equal taxes, in %, than their secretary/secretaries. The differenes should be lend to us in a 50-100 year "Goodwill bond"
It is possible that many countries can pay off their debt in one simple stroke?
"Why should the victims of robbery get victimised again by paying for the luxuries of the robbers?"
Complain about this comment
My comments about auditors seem to have been misunderstood.
I mean those forensic guys who audit for fraud not the children sent out by the big city firms. HMRE also has some auditors who are very tasty at following the money.
Time to kick a few doors in!
Speaking as a taxpayer I want my money back and if I can't have it back I want there to be public humiliations, careers destroyed and the greedy bankrupted.
Cynicism is no longer enough. Justice and integrity must rule.
Complain about this comment
We trusted banks with our money because we thought they at least understood about prudential lending. Was it greed or incompetence that led us to this? Either way we then discovered that regulatory and audit professionals failed big time to blow the whistle on basic and visible failures in governance. Now we are bystanders while governments throw petrol on the flames. Every debt has its price but we seem unable to understand that and as the pack of cards is piled higher, the whole wobbly edifice looks increasingly shaky. Exaggeration? I think not.
Complain about this comment
#43
Greed corrupts so the answer is nationalisation. So there is no greed in our public sector?
Digby Jones put it beautifully yesterday and Public Sector ownership has been totally discredited as a way of running anything - ask your postman!
If we want our banks to not care about commerce, run the thing as a cozy cartel to benefit them and have twice the staff producing half the result then nationalise them - it's only our money, after all!
Complain about this comment
Unpalatable as the concept may be to some the only way to draw a line under this issue is to put all the toxic waste peddled by Merrills, Goldmans etc etc into a special vehicle in order to unblock the system. In doing this we will get an idea of what everybody has been sooooo concerned about. I am sure the old addeage one man's toxic waste is another's treasure will again hold true and the vultures will surely flock to the rotting pile as gulls do to a household waste site. Once it has been picked over, the really toxic stuff might well be left but even in time that too will find a home. The markets will unlock and I still hope that some of the idiotic acccounting principles at the centre of this chaos will be given a proper seeing to. The time for retribution will come so it is probably time to begin lining up some of the culprits such as the remaining investment banks and their erstwhile chums the rating agencies, who classified the very same waste as "investment grade" a necessity for it to be flogged on to our banks, are now busily downgrading countries such as Italy and Spain. Perhaps the BOE and the FSA also need to be overhauled. Going around in circles will get us nowhere. Its time to don the marigolds and get to work
Complain about this comment
43 jericoa
'' capitalism holds within it the seeds of its own destruction''
More K Marx than usual on here today. Am I seeing a gradual concensus that he was in many ways right?
I am not surprised, but he was always better at analysing the nature and working of the nation-state and global capitalism than he was at suggesting how people should organise themselves after the demise of these structures.
Hey ho!
Complain about this comment
It's a real shame this blog isn't searchable and there's no way to follow replies and links from one user to another.
Would make it much more fun.
Come on BBC pull your chequebook out.
Complain about this comment
45. At 1:19pm on 16 Jan 2009, saintgoingmarching3
Yes, these institutions queueing up for aid didn't know anything about their toxicity.
I had thought that Ignorance was no defence in law,
Complain about this comment
First post here, and it may be a silly question, but what did people do with their savings when interest rates were at 2 percent from the 1930s until the 1950s?
Complain about this comment
Following on from #27
In order to raise taxes HMG need to ensure there is enough receipts to be able to increase them to cover their bets over the next forty years.
With the retail sector alone responsible for 40% of the 20+million jobs in the UK at the moment and with only 1 job in every 10 being castaway to save money ( a very big under-estimate) that is just under 2 million lost jobs alone! Is it not time to accept and divulge that unemployment in the UK alone will hit 4 million, maybe 5 as this pans out?
Banks a lot !
Complain about this comment
It's incredible the power some contributors think Robert and other journalists have. If he was only to say, "Everything's fine" it would be. What else could he do with just a few positive words? Create peace in the Middle East? Resolve the economic situation in Zimbabwe? Reverse gravity?
No - like objects fall to Earth because of gravity - debts have to be repaid. We will collectively be repaying them for some time to come. Information is power in these difficult times and I come here to understand more. Robert does a good job of explaining. Hopefully that will enable me (and us educated readers) to avoid the worst of this crisis. And have some money left so that we can be the leaders of the next upturn when it happens.
Complain about this comment
'Bank of America did the world a favour by acquiring Merrill Lynch last autumn'
????
Procrastination is the thief of time.
Complain about this comment
At 12:41pm on 16 Jan 2009, Bell_4_Goalie wrote:
Can anyone answer these most basic of questions, please. Sorry if they are naive, but I genuinely don't understand:
Q1. Why is the taxpayer acting as an insurance company? What is wrong with businesses using proper insurance firms for this purpose?
Answer - Bad loans were mixed up with good loans and sold on by banks to each other. The people who bought the mix don't know how much bad loan is in the asset. This means no-one wants to insure against default on these assets, as they can't quantify the liability. The value of these mixed assets is falling, as more bad debts arise because of the recession, which makes it all worse.
Q2. Are all these measures permanent, or just temporary until 'normality' resumes.
Answer - They are designed to be temporary, to bridge the gap caused by falling asset values. However, the problem is so serious that the measures could end up being permanent.
Q3. Rather than the Bank of England lending money to banks, to lend to us, why does the BoE not lend directly to us. Why not change all branches of Northern Rock, RBS, HBOS etc into high street branches of BoE. Cut out the middle man.
Answer - A State Bank is one idea, but it would involve moving all the deposits and good assets out of the banks you mention. The banks mentioned would be left with only toxic assets, and would then be declared bankrupt. This would upset their creditors and shareholders, who would lose vast amounts of money.
Q4. Presumably the government would only consider a 'Royal Sceptic Bank' if it thought it could make money out of the toxic debts. If the govt can, why can't the normal banks.
Answer - the government will lose money by underwriting bad debts. The idea is the banks would eventually pay these losses back to the government out of the profits the banks make in the future.
Q5. If the whole banking mess turns out not to be as bad as currently thought, will the banks actually sudeenly be sitting pretty and set to make HUGE profits?
Answer - the banks you mention would be bankrupt but for the government propping them up with taxpayers' money. Therefore, the crisis is real. The hope is the banks will make profits in the future and then repay the government.
Q6. As unlikely as it is, if the bail-outs fail totally, the consequences to the national economy are simply huge. Do we have a plan for this scenario?
Answer - if the bail-outs fail, the outcome will be another great depression, as experienced by America in the 1930s. This time it will affect the whole world. Britain was able to survive in the 1930s because the British empire kept our trade open. I read somewhere that the USA's economy shrank by 30% in the 1930s, but Britain's only shrank by 5%. This time round the whole world economy is at stake.
Complain about this comment
Advice please. I have a few thousand I want to invest. My bank thinks I should put it into one of their schemes. Would this be sensible?
Complain about this comment
One of the big problems was that commercial debt raters, like Standard and Poor , were classifying what should have been rubbish which was packaged and repackaged ,as AAA ,and when the loans defaulted, a total loss of faith ensued and the debt was unsellable.
What if there was a new quango which rated debts independently , for a fee, and covered with it an insurance premium for a rating giving as near-accurate default rate maximum?
Then if that quango's insurance could be underwritten by the government, which would pay out if the default rate exceeded the predicted rate?
Would this not allow the loans to be sold on?
Is this what the government are trying to do already?
Complain about this comment
#81
I think they were worrying more about being bombed than the performance of their savings.
Complain about this comment
Over the last 4 months, huge amounts of capital flew into 3 month t-bills. 'Investors' were prepared to accept virtually no yield to ring fence the capital. Additonal capital flew into longer term bills and notes where the yield is higher.
Why, because these types of 'investment' are amongst the few where you can guarantee that you will get bigs sums of money back.
Some of this capital was cash that corporations had at hand. For example, there is a small technology company that raised $30m in the markets in September. Where did they deposit this capital, do you think. Any sound treasury management team would have an investment ladder in t-bills that will release capital as required. This outfit has a strong order book by the way.
Where do you think the 7bn that crossed the Atlantic in the week before Lehman's collapsed went? Under the bed?
When sterling went into freefall against the dollar, when interest rates here were slashed, what do you think happened to capital moved to the UK. It got moved. Why because the losses on currency movements were bigger than the loss of selling up
Anyway, it is one of the reasons the dollar strengthened.
Some of this capital will become available again. Some investors might consider that the risks of depositing elsewhere have diminished (joke) or that the rewards from buying corporate bonds or shares outweighs the risk. Some business might not be considered viable enough so why would more cash be poured down a black hole
You could consider it fortunate that, so much government debt is going to be issued across the world that the yields will be neglible and just maybe those with a job to do will seek other vehicles the tbills, tnotes and gilts to make a return.
Complain about this comment
With due deference and apologies to others who have posted similarly to RP's blogs recently:
Gave a man a fish, and you feed him for a day
Teach a man to fish, and you feed him for a lifetime
Buy his future fishing rights from him, and you give him a year of party and plenty, followed by a lifetime of slavery to you.
We are borrowing now from overseas (all the funny money must come from somewhere - we have to pay for all our imports).
And we are enslaving our children for their lifetime, solely for today's comfort of an extra few months saved from crash.
Complain about this comment
I am getting really, really bored with this now.
Finance & economics have always been of great interest to me but I'm tired of the shimmy-shammying and the steaming pile we're being force fed. ‘FUBAR’: What a great definition for the current situation.
We're transfixed by each and every development, every collapsing business, every Government statement and every comment written. There are oh-so-many experts but 99.99% of people have absolutely no idea what they're talking about. On top of that, most if not all of the politicians and financial experts are fumbling around in the dark, plainly and obviously guessing what to do next: £12b here, £20b there, £6b to bail out the UK’s jelly-makers, £10t for this type of gobble-de-gook financial investment, £14t for A.N.Other gobble-de-gook finance structure.
If anyone actually KNEW the true solution, then it would have been actioned long ago. Instead we get a drip-drip-drip of mini-catastrophes’ reported to us daily and the boundaries of what we are being told must be done are being widened at about the same rate.
I have been concerned about the reality of long-term, full-blown capitalism for about 15 years now but couldn’t see anything happening on a big enough scale to encourage real and honest change at a global level.
The system we have is rotten and it NEEDS to collapse so that it can be replaced. The practical and sustainable national/global system we should have will probably necessitate a total collapse of the old and impractical system currently in operation. Whether that system includes what we know as ‘Money’ remains to be seen. Without doubt, an enormous number of successful firms, business people, individuals and families would survive the journey quite happily.
Now I am not, for one minute, suggesting that I know exactly what system we should use - But I am suggesting that the one we have is wrong and no amount of glue or silly-putty is going to make it right.
I’ve recently come to think that this should be a great opportunity to make things so much better but I’m not seeing the brave first step that needs to be taken. There’s no real initiative to improve the system and we’re just going to keep feeding the beast with more cash.
So…that is why I’m now bored with this ‘Story’.
Shame really.
Complain about this comment
My concern and judging by the turnout figures for local and general elections is that the people have only apathy for our elected leaders- to my eye there is little difference between the 2 parties today-whereas in the eighties there were polar differences .Unfortunately there were no Choice- Red or Blue.
A case for proportional representation?
What is startling however is the lack of leadership in the opposition- can you imagine maggie not spitting fire at the opposition with the ammunition available- calling for explanations/elections etc.
The current government are out of their depth and I suggest the opposition would be as well.
Labour came into power by virtue of a bored electorate and were lucky to have the finances relatively in shape- they then spent the following years spending the proceeds on increasing the public sector- not addressing the wages/pension time bomb/adopting the canadian tax credit/working family tax credit scheme(if you want a laugh go to the web site and see how much a single person with 2 kids gets who is working 21 hours gets with an income of 8,000- an incentive to a) live apart and b) not work any more than 21 hours)
The point being that even if the financial crisis had not reared its head the country would still be up XXXX Street and that the crisis is a welcome diversion to labour.
The Tories without any credible leaders are not making hay cos they inturn would not have a clue what to do and if pushed into an election would make an even bigger balls up than labour.
I suggest that the collective minds on this blog pool any real ideas/working plans and see what can be done to resolve the mess we are in- regardless of political standing
This crisis will not go away without some radical thinking.
Complain about this comment
Why not just buy folks homes (who are in trouble) then rent them back to them?
Am I missing something?
Its the problem with asset price falls that causing all the trouble, stop this and the folk who are left WILL spend!
Complain about this comment
Regardless of what many others might say about Robert Preston's style and content when reporting on the credit crunch I believe he has and still is, doing a good job. He was one of the first reporters to raise the publics awareness about the turmoil that is now affecting global finacial markets and how this would damage economies around the world.
Since then his updates on how the situation has steadidly deteriorated and his prdictions on how things might deteriorate even further, have been surprisingly accurate and well founded (sometimes worryingly so) and that clearly demonstrates that his sources of information are particuarly well connected.
So to those of you who don't like what he espouses I can only say, don't shoot the messenger because you don't like the message.
It is now becoming increasingly evident, to us lesser mortals, that this situation is far more serious than we could ever have imagined and were initially led to believe by our government. Also because the level of deciet (some might more kindly say denial) in the finacial markets went undetected for so many years the problem of trying to establish which banks and businesses are truly creditworthy will take many years for us to find out, if we ever do.
In the meantime the best that all governments around the world can to is try and keep the wheels turning by whatever means they have available at their disposal, until they can establish where the bottom line, in this matter, might be. The only worry that I have with such an approach is that politicians can be as reckless as greedy bankers when it comes spending taxpayer's money.
Unfortunately because there is no one size fits all soultions to this matter individual governments and central banks will modify their approaches accordingly. There does however seem to be a broad concensus between the various governments as to the best way forward and all we can now do is to be more patient and wait to see what happens.
On the subject of a National Septic Bank (should that read sceptic) it would be neat and tidy if we could put all the nastiness in one box but for a whole number of reasons Ithat might just not be possible.
Complain about this comment
79. At 2:22pm on 16 Jan 2009, the1beard wrote:
It's a real shame this blog isn't searchable
---
Try Alt+E+F on your keyboard - just a suggestion, it works for me.
There are always certain people on here that I look out for - the usual suspects, such as AlexCurzon, Rahere, MorayMint, VirtualSilverLady, WakeUpBritain, GuyCroft, GrimUpNorth... to name but a few.
Speaking of usual suspects, has that SomaliPirate gone back to work? Haven't seen him around these parts for a couple of days
PS: I agree with your other point about following certain 'discussions' between posters - would be a useful feature
Complain about this comment
15. At 12:35pm on 16 Jan 2009, onward-ho wrote:
At least our government are doing what it takes to weather this storm.
---
Please, please, please tell me you are being sarcastic with that last sentence!!!!!!!!
Complain about this comment
"Digby Jones put it beautifully yesterday and Public Sector ownership has been totally discredited as a way of running anything - ask your postman!" - PewterJ42
Digby Jones came out with the usual business-bilge about the public sector, and your postman will likely point out that the Post Office's problems are mostly down to allowing the private sector to cherry-pick the profitable parts of the business while the PO does the actual delivery for them at knock-down prices.
Complain about this comment
Maybe the Treasury bills in the swap for motgages shouldn't be called "easy to sell" but "not as easy to sell as they were"---after Germany failed to get it's debt away.... once we push the debt out onto the market we'll see whether it's "easy to sell".. "not as easy to sell" or ...hopefully not.... "really quite hard to sell"
Or is our debt just so much more attractive than German Govt Debt???
Complain about this comment
86. At 2:53pm on 16 Jan 2009, credit-crunchy wrote:
Advice please. I have a few thousand I want to invest. My bank thinks I should put it into one of their schemes. Would this be sensible?
Since your tongue is firmly in your cheek, I would invest in some cosmetic dentistry. No, seriously. I reckon that decorative gold fillings are a proper portable pension....
Complain about this comment
86. credit-crunchy:
"Advice please. I have a few thousand I want to invest. My bank thinks I should put it into one of their schemes. Would this be sensible?"
Depends which bank it is.
Complain about this comment
#88 - not before 1939 or after 1945!
Complain about this comment
All the Queen’s Horses and all…
U.S. & UK unemployment at a 14-year high…
Consumer spending — two-thirds of the U.S. economy — taking a beating…
The auto industry sucking on toxic fumes…
Technology companies starving for product sales...
Plunging bond prices…
Like any other investment, when the supply of bonds rises, bond prices fall.
Given the mind-boggling size of US/UK borrowing binge, we're now staring down the barrel of one of the most devastating bond market crashes ever.
Yet, there are so-called idiotic Guru’s who are seeing Green Shoots”…
Moody’s Warns:
Massive Epidemic of Company Bankruptcies Ahead!
That includes UK/EU countries…
Moody's rocked Wall Street and Main Street alike, warning that — because consumer spending has now stalled — 14% of ALL major U.S. companies are on the verge of - BANKRUPTCY.
That’s an all-time high — the greatest number of endangered firms since Moody’s began keeping records!!!
As we all know, ratings agencies are infamous for their overly optimistic reports.
So when Moody’s says you should brace yourself for an epidemic of corporate bankruptcies, you’d better hang onto your hat!!!
The question is - Can Washington or London prevent a GREAT DEPRESSION 11?
Here ARE a few reasons they can’t:
The Debt Crisis is the Primary Catalyst…
The World Economy's Decline - Is Far Too Big for Governments to Control...
The facts:
1. Based on the Federal Reserve's Flow of Funds report, there are now $52 trillion in interest-bearing debts in the U.S alone.
2. Based on estimates provided by the U.S. Government Accountability Office and other sources, it's safe to assume that there are also at least $60 trillion in contingency debts and obligations now starting to kick in — from Social Security, Medicare and other pensions.
3. Separately, the Bank of International Settlements reports that the total value of debts and bets placed worldwide (derivatives) is $596 trillion, or more than a half quadrillion!
In contrast, even after the most reckless outpouring of government bailouts in recent months, the total rescue money announced in the U.S. so far is $2.7 trillion — a huge, unwieldy amount, but still minuscule in comparison to the massive debt build-up.
Have I got your attention YET???
Prior to the 1930s, the total debt in the U.S. was between 150% and 160% of GDP. Now it's close to 350% of GDP.
The Cost of the Bailouts Is Too Much and Too Soon for Those Who Must Finance It – The so-called Taxpayer!!!
Goldman Sachs estimated that the upcoming borrowing needs of the U.S. Treasury will be a shocking $2 trillion — to finance the bailouts, to finance the existing deficit and to refund debts coming due. That's four times the size of the entire US deficit.
This means you can expect an avalanche of new Treasury bond supplies, crowding out private borrowers and putting severe upward pressure on interest rates.
And, needless to say, higher interest rates cannot end the debt crisis; they can only make it worse.
So don’t be fooled by ZERO interest rate as we are now seeing!!!
London and Washington bureaucrats are rushing about (like headless chickens), waving their arms frantically in the air, and shouting: "No! Don't do that! We want you to lend and borrow more — so we can keep this economy going."
But their pleas fall on deaf ears:
No matter what the government says, it is the natural survival instinct of billions of people and businesses around the world that will determine the outcome:Depression and deflation.
Powerful Vicious Cycles of Debts and Deflation
We are witnessing powerful vicious cycles in which deflation brings down debts and debts help accelerate the deflation.
For example...
In the U.S. housing market, widespread mortgage delinquencies and foreclosures precipitate massive selling of real estate; massive real estate selling causes severe price declines; and the price declines, in turn, cause more delinquencies and foreclosures.
On Wall Street, corporate bankruptcies — and the fear of more to come — precipitate the liquidation of common stocks, corporate bonds and virtually every kind of asset; the selling drives markets lower; and falling markets, in turn, cause more corporate bankruptcies.
Consumers, small and medium-sized businesses, city and state governments, hospitals and schools, even entire countries are caught up in a similar downward spiral; slashing their spending, laying off workers, dumping assets, losing revenues, and slashing their spending still more.
Let us not forget, that we are fighting wars in GAZA, AFGHANISTAN and IRAQ and in other strategic and mineral rich areas of the world which is meant to produce long-term wealth for the elites.
But according to the U.S. Comptroller of the Currency (OCC), on June 30, 2008, U.S. commercial banks held $182.1 trillion in notional value (face value) derivatives.
And, according to the Bank of International Settlements (BIS), which produced a tally six months earlier for the entire world, the global pile-up of derivatives, including institutions in the U.S., Europe and Asia, was more than three times larger — $596 trillion.
That was ten times the gross domestic product of the entire planet ... more than 40 times the total amount of mortgages outstanding in the United States ... nearly 60 times greater than the already-huge U.S. national debt.
Here’s the key:
For the most part, the global derivatives market has no brokerage, no exchange, and no equivalent enforcement mechanism.
In fact, among the $181.2 trillion in derivative bets held by U.S. banks at mid-year 2008, only $8.2 trillion, or 4.5%, was regulated by an exchange.
The balance — $173.9 trillion, or 95.5% — was bets placed directly between buyer and seller (called “over the counter”).
And among the $596 trillion in global derivatives tracked by the BIS at year-end 2007, 100% were over the counter.
No exchanges.
No overarching enforcement mechanism.
This is not just a matter of weak or non-existent regulation.
It’s far worse.
It’s the equivalent of an undisciplined conglomeration of players gambling on the streets without even a casino to maintain order.
Moreover, the data compiled by the OCC and BIS showed that the bets were so large and the gambling so far beyond the reach of regulators, all it would take was the bankruptcy of one of the lesser derivatives players — such as Lehman Brothers — to throw the world’s credit markets into paralysis.
Citibank N.A., (currently breaking up into smaller entities as of today) the primary banking unit of Citigroup, held $37.1 trillion in derivative bets.
Bank of America was a somewhat bigger player, holding $39.7 trillion in derivative bets, with 93.4% traded outside of any exchange.
JPMorgan Chase was, by far, the biggest of them all, towering over the U.S. derivatives market with more than double BofA’s book of bets — $91.3 trillion worth.
Lehman Brothers - one bank by comparison held only $7.1 trillion and experienced such a seismic rift which threw the world financial markets into a tailspin.
Now, here are the urgent questions that, as of today, remain largely unanswered - (Maybe Robert Peston has answers)?
#1. What happens if there is a further unexpected collapse?
#2. What happens if that collapse is so severe it drives some of the key mentioned players into bankruptcy?
#3. Most important, what happens if these players can’t pay up on their gambling debts?
The Ultimate Power of Markets
The power of the market is stronger than any politician or government bureaucrat.
It is more powerful than any law.
It is even more powerful than the gold standard.
Bottom line:
It's preposterous to believe that Washington or London can save every failing individual, company, country and government on this planet.
It's naive to believe that government gimmicks or tricks — manipulating the currency, writing new laws, changing the banking structure — will be a match for billions of consumers in revolt, millions of investors desperate to sell and thousands of banks pulling in their horns.
The government cannot repeal the law of gravity or stop investors from dumping their assets.
It cannot turn back the clock or reverse decades of financial sins.
It cannot win the battle against depression.
It cannot stop the Dow or S&P from losing half their value from current levels, if not more.
It cannot stop the collapse in real estate, commodities, and corporate bonds.
So act promptly now to liquidate or hedge your holdings, build cash and make sure the cash is safe.
Be inspired!!!
Complain about this comment
Quantative easing:
Zimbabwe’s central bank has introduced a 100 trillion dollar note in the face of a hyperinflation that has paralyzed the economy.
State media announced the plans for the new 100,000,000,000,000 Zim-dollar bill on Friday
http://www.prisonplanet.com/zimbabwe-prints-100-trillion-notes.html
Complain about this comment
#79
You can search this blogg on mozilla firefox simply by pressing ctrl + f and entering the phrase you want. You can do the same on ie8
Similarly you can click on a name and find out what other information they have posted recently.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
It seems to me that we are constantly throwing taxpayer's money into knackered banks. Perhaps the simple answer is for us taxpayers to ensure that we don't have any assets in these banks by converting our cash assets into commodities and then let the banks sink under the toxic debt that they have accumulated for themselves. Oh but that destroys our pension funds! Perhaps we may then have to live without these funds, which from all current indications are looking pretty dodgy anyway. Whatever we do it does rather seem that we have got a tiger by the tail and that we really don't know what do do next.
Complain about this comment
After some thought I'm off to the hills!
Complain about this comment
Comments previously made re giving everyone in the country 20,000 sounded mad at first- but the more you think about it- seems as sane as HMG throwing billions at a problem they have no idea how big it is.
This of course would be a massive vote winner and has the advantage of A)helping people re adjust their finances,B) stimulate the economy C) Give money to those not affected by the crises and compensate them for loss of interest.
This would get my vote.
The lunatics have taken over the asylum
Complain about this comment
We must remember that world saviour Brown talked the USA out of creating a septic bank way back last year when the first banks started wobbling.
In true Harry Enfield style Brown said "Only Me, You dont want to do that, you want to do it like this"
well "like this" has failed and now as per form he is off stealing others ideas and bandying them about as an idea that he just thought up.
When will the media hound him into resignation by calling all these gaff, U-turns and policy thefts for what they are
Complain about this comment
@97 Gotts
You might have been credible in what you said apart frrom one small fact.
Digby Jones was in the public sector, put there by Brown. He is talking from a position of real first hand experience
Complain about this comment
#26: Dear Digusted: I keep posting about 'Moral Hazard', the words no one seems to be willing to utter.
It is one of a number of BIG elephants in the room that all wish to ignore.
I propose a project: Let's gather a few like minded hardy souls, and at least once a week, let's keep mentioning it. No obnoxious behaviour or language, mind you, just a constant and respectful reminder to all who visit here that this big question remains unaddressed.
Maybe, eventually, Mr. Peston (whom I admire tremendously) may address it as well.
Complain about this comment
''The most creative solution I've come across has been made by Sir Peter Burt, the veteran Scottish banker who was chief executive of Bank of Scotland in its glory days''
A creative solution from a banker. Just what we need. Does he play a financial instrument too.
''If you undervalue the assets, banks are mullered.'' In what way is that a problem for the taxpayer.
Complain about this comment
Money and debt explained
;-)
ed
Complain about this comment
#85 Thanks Mr Tweedy
1. So, the taxpayer is almost certain to lose money, but (perhaps) less than he might otherwise if no action was taken?
2. Cheery news.
3. Why do I care if the creditors and shareholders lose money? That is the risk of investing in the stockmarket - even I know that ;-) (okay, my pension fund would probably be affected, but c'est la vie)
4. Thanks.
5. I'm sure the crisis is real, but it seems to me that ALL sub-prime debt is being written off as worthless. In reality, that surely is grossly pessimistic, and banks losses won't be as big as a feared? I can't help thinking that whilst the fear of problems has indeed led to problems, the fundamental problems are not as big as feared. Geddit?
6. So Plan B is WW3? At least I work for a defence manufacturer!
Complain about this comment
I agree, we all know that the price of posting letters to non-urban areas will rocket if Royal Mail is privatised.
Train fares, gas bills, electricity prices, water charges.....all rocketed after privatisation ,and I thought that the UTTER FAILURE OF PRIVATISATION was the one lesson we had learnt from the disastrous Tory years.
Complain about this comment
115 was about 97
Complain about this comment
Unfortunately the amount we pay as taxpayers is much higher due to the destruction of confidence in the banks and economy by the BoE and media, aided and abetted by an incompetent government and treasury.
Perhaps if the career civil servants and others in the Treasury and BoE had some experience of real business decisions and some worry over their pension schemes and jobs, we might have seen a little competence.
Many assets are "toxic" and undervalued not because they are bad but because there is now no market for them due to this destruction in confidence.
The taxpayer is very much paying for the mistakes of the government and BoE, who encouraged the banks to lend prior to August 2007 and do so now.
Complain about this comment
The lunatics have wrecked the asylum, killed the carers and are now governing the country
Complain about this comment
102 dreamstaragents
thanks for cheering us all up on a Friday afternoon, mate.
So to sum up : Eat drink and be merry, for tomorrow, who knows?
Complain about this comment
This is all well and good on the face of it, but it will not prevent a Depression.
People cannot ;ive solely on Credit, they need Salaries that will pay their Bills AND give them some surplus to spend or save.
At the moment Pay rises are running behind the rises in the Cost of Living (the real one!) and People are spending less causing knock on effects of falling sales and closing businesses.
All of this prevents any kind of recovery until People have paid off their debts or seen a significant rise in their Incomes.
As Pay rises do not seem likely, Consumer Economic Collapse seems fairly imminent.
Good luck everybody !
Complain about this comment
...is there now yet another story developing, with Barclays shares diving more than 20% this past hour?
Complain about this comment
Robert - Debt is debt is debt. It doesnt matter what you do with it it remains debt. Debt is the problem of the debtor. With one exception. If lending has been fraudulent then it is the problem of the lender. It does not mater what you do with it, it remains debt. Next time you see one of these financial genii could you get them to explain how they are turning debt into something else. Or are we talking about a reworking of debt into one affordable repayment package under government rules, er bit like an IVA. Usually this means dicussion with creditor not introducing another lender.
Complain about this comment
Why don't the government stop trying to save banks? Why don't they just get on and do what the banks were supposed to do for the economy. It is surely throwing good money after bad continually giving more money to the banks, who don't appear to know what they're supposed to do with it.
Or is it that the government doesn't know either, so is just copying others (who don't know!).
I don't think I voted for a government to selectively save businesses from their own folly - or did I?
Complain about this comment
Gordy.....You've really done it now.
You have made the taxpayers INSOLVENT!
Not even the IMF will be able to sort this mess out.
Complain about this comment
This is getting ridiculous!!!
Wouldn't it be better to write off all of these bonds and force the banks to write back on to their books and thus take responsibility for all of the original loans that they sold to bond market.
That way the goverments and central banks can provide bad loan insurance and proper capital reinstatements in all of the worlds major financial institutions.
I know that it is a massive logistical excercise but not all the loans tied up in bonds are bad and in fact it is quite logical to assume that the majority of them are good.
It is just that the system has got so complicated that nobody can guage what percentage of loans mixed up in bonds is good or bad and thus dumping all of these loans back to the instituions that created them in the first place is the only sensible way of sorting this mess out.
For only when the banks have confidence in their own balance sheets, can even start to come out of this mess in an orderly fashion.
It is time for the world central bankers to really take control of the situation and defactor everything down to its base components, rather than the current strategy of propping up a system that is obviously in almost terminal decline and should never have been set up in the first place.
Complain about this comment
afternoon all
# 95 screamingdonkey thanks for asking after me; I've been out on the high seas but it's slim pickings at the moment as hardly any container ships passing by; the world economy is indeed in dire straits!
has anyone noticed the following story on the BBC news site? knowing that HMG like to test things out secretly before a general launch, I suspect this might be a little try-out of quantitave easing:
'Crowds queued at a cash machine in Manchester which gave double the amount of cash requested. Word spread quickly about the error at the machine at the BP garage on Barton Road in Stretford on Thursday. The giveaway went on for about six hours before the fault was reported to Nationwide building society.
The firm said it was "disappointing" that no-one reported it earlier. The machine gave £60 every time it was asked for £30, but also gave away more cash in different multiples depending on the money requested.
The Nationwide said it appeared the employee of a firm they use to top up the machine had loaded the notes in the wrong way.'
I think the last para says it all and local reports are that the 'employee' was rather odd looking, with white hair and prominent dark eyebrows
Complain about this comment
Guy fawkes had the right idea!
Complain about this comment
103:
Inflation is a given, however,whether the ordinary working peoples Salaries keep up with Inflaion is a different matter.
Probably be a good idea to watch MP's Salaries.
Thats usually a good rule of thumb for the actual rate of Inflation !
If that is unrealistic then why do they need more money?
Of course Postage stamps will be up by eight percent in April.
That is either Inflation of costs or fattening the business before it is sold to a series of Pension Funds and other Investors.
Groovy.
The time when a significant Public Sector Pay rise could have made a difference has past.
People are so nervous about their Jobs now that they would probably save (pay off debt) any Pay rise at this point.
Especially if they believed that they would receive nothing or next to nothing over the following five years.
Complain about this comment
@115 Downward
Just think how much more efficiently privitisation is failing than Public sector failing.
2 million non jobs being paid for by the taxpayers money.
Of course that probably doesnt affect trolls though does it as they are some of the non jobs
Keep on Ho'ing yourself to the man
Complain about this comment
When we were young, for me the early 1950's , we were taught about right and wrong and that the truth was important. It seems this was incorrect.
I have watched the liars and crooks prosper and gain positions of great power.
I have watched my pension evaporate just as I was hoping to take it. I have seen my savings income slashed.
I have been made redundant, my small pension, far less than half average wage, means I cannot get unemployment pay and my limited savings mean no benefits.
I apply for jobs and I'm too experienced, the politically correct and litigation avoiding expression for too old.
I watch the feckless prosper, the villians glorified, (watch most soaps) and lottery winnings being more acceptable as a source of wealth than hard work.
My children and grandchildren will be expected to pay the debts GB is accumulating
and the feather bedding the public sector now seems to get.
Only one thing Gordon.
My children have recognised what you have done and like many of the brightest and hardest working, they are looking to leave these shores.
Who is going to pay it all back? Certainly not the millions on state support nor the millions of minimum wage workers and certainly not the wealth creators; they will all have gone.
Complain about this comment
Does anyone remember the good ol'days when taxes paid for Roads, Schools, Hospitals......
........But im sure we will get much better value out of financing bad debt and wars.
All you can do is laugh really.
Complain about this comment
The house of cards grows ever bigger and more complicated.
One simple change would entice money markets to lend to banks and banks to lend to customers.
Increase interest rates.
So long as interest rates are too low to reward the riskiness of banks perceived by money markets and of customers perceived by banks, the credit crunch will continue.
Until interest rates go up, governments will be forced to fund banks, to find ways of getting banks to lend to customers - and to deal with all the unintended consequences that will arise.
Interest rates should have been higher in recent years. If they had been, customers would have borrowed less and banks would have earned an adequate return to cover the true risksof lending. Low interest rates also inflated asset values and made poor lending propositions appear to be economically viable.
If interest rates had been higher in recent years, we probably would not have had a credit crunch - and if we had, it would be much less severe.
Complain about this comment
86: Candles, Matches and Tinned Foods.
They may not pay Dividends, however, neither will an awful lot of companies over the next few years ( the surviving companies will have to pay down debt and save such profits they can make to meet their own needs).
Complain about this comment
So, if your analogy is right, the digging of the hole(s) begins.
But are the hole(s) secure/safe/manageable ??
Traceable ??
Enviromentally friendly ??
Easy to reopen ??
The matter; organic/non-organic ??
Counted in/counted out ??
and so on....
Complain about this comment
121. rammie1962:
"...is there now yet another story developing, with Barclays shares diving more than 20% this past hour?"
There is a particularly nasty rumour doing the rounds this afternoon.
Complain about this comment
Do we need a toxic bank, or do we have a toxic government?
Is Gordon Brown a comedian?
Clearly, his latest joke surrounding the small business loan guarantee scheme hits the spot!
Why stimulate growth with ill thought out schemes that bribe our lenders to lend. Banks have to take deposits and lend them. That is their main purpose in life. Why subsidise them to do their job. I get no subsidy to do mine. Fair day's work for a fair day's pay.
For example, we have a perfectly robust, tried and tested and reviewed Small Firms Loan Guarantee Scheme run for many years. The Graham Review in 2004 led to an easing in the manner which SFLG lenders, including the main banks, could make funds available to the 98% of UK businesses, that are SME's. Remember Only 2% of UK Businesses are Large, including our inglorious banks.
SFLG Lenders were given greater powers to take on commercial risk in return for ease of access and speed of decision making with web based automated underwriting and SFLG loan application technology. The Government (pre crisis) even increased the pot of "guarantee insurance funds" to around £530m to help. This "insurance" pot would, with good commercial underwriting create billions of pounds of loans to young and growing SME businesses. On a gearing of £1 of insurance, banks could lend £10 or more (the more lent = less bad debt claims on the insurance fund from HMG).
However, banks SFLG lending record was poor - 60% failure rate a few years ago. The Graham review prompted a more robust approach, and the signs are this WAS working. Down to under 30% in 2007 (last reported figures) and improving.
However, credit crunch = blind panic and economic meltdown risk. Government reacts by CLOSING SFLG DOWN after today for new applications and replacing it with the Small Business Loan Guarantee Scheme.
Who benefits. Why, the banks of course!!!. Here's how.
SFLG Old scheme - HMG guarantees 75% of the total advance - the bank takes a 25% lending risk. There are no personal guarantees to support this, (although charges on unencumbered assets could be allowed). By the way, the US SFLG equivalent scheme DOES ALLOW PERSONAL GUARANTEES and is MUCH MORE SUCCESSFUL. At least the bank gets 75% of its money back, gilt edged in the UK. Bank takes 25% risk but no other personal security. Hence reducing levels of take up over the past few years.
NEW Small Business Loan Guarantee Scheme - limited to 9% of the total advance risk covered by HMG - but allowing banks to KEEP their remaining SECURITY. This is good for banks, enabling them to improve their bad debt recovery by 9%, and call in all their security. Overdraft facilities will convert to this scheme in their droves. Smaller businesses will be forced to switch to longer term, inflexible and expensive debt so banks can get extra HMG cover, for no extra risk on their part. This is BAD for SME businesses, especially new and emerging ones, as they are the worst affected for credit availability (i.e. NOTHING AROUND) right now.
Oh, and did I forget to mention that SME's are taxed at 21% (22% from 1.4.08) Corporation Tax, after HMG abolished the 10% initial band a couple of years back. Another kick in the teeth for small businesses.
Government is good on strap lines and totally hypocritical when it comes to action. The small business community that underpins the UK, including the welter of suppliers to large organisations like Tesco, M & S, Ford, etc, is being hit for six by tax, buracracy and yet more tax. Then when it asks for credit help, hey guess what, let's help the banks, that created the environment we are in today, and have been rewarded with the silver taxpayer pound. Without small businesses, big ones don't function as well, or in some cases, at all.
I am not saying any future government will fare or do any better. Politicians in general make me sick. They only care about themselves, and not the electorate, and frankly, every one of us has been robbed blind in tax, had our future SQUANDERED and our children's future imperiled by misguided decisions. If our present crop of Westminster cronies had some experience in the REAL World e.g. Ken Clarke, Vince Cable, Shaun Woodward, Michael Heseltine (the two latter are multi millionaires self made) perhaps we would be better off as a nation.
Banana republic is now becoming a fast approaching reality if the UK is not very careful.
Complain about this comment
121
BRIEF-Barclays, RBS shares tumble on capital, writedown worries, short-selling
* Barclays shares down nearly 25% now as worries on bank capital, outlook, write downs return; short selling ban expiry also hurts -dealers
How low can you go?
Tax stock lending income at 200% except for market makers, who are forced short on their books on buying because of two way quote requirements
Complain about this comment
Peston should be dismissed as a danger to the British Economy ~ absolute doom and gloom merchant!
Complain about this comment
# 36 thorntonheath
I always thought that mullered could mean either soused/sozzled/very drunk or thrashed; clearly connected and Peston presumably means it as trashed and thrashed or so drunk as to be disoriented; but didn't know where the term muller came from; turns out there are lots of theories; English and its slang are fascinating
according to the urban dictionary, muller is:
To be absolutely off your face on drink and drugs; derived from the yoghurt manufacturer Muller, after people (mostly gimps) used to go round sayin creamed; creamed turned to Mullered
'I was so mullered on friday night in the club that I started using cockney words like Mullered'
beats me (no pun intended) why Peston uses the term mullered so much; are you claiming some working-class Cockney roots Robert or just ingratiating yourself with some of the spotty boys who hang out around Walbrook in the City?
I think I prefer the US/military FUBAR, which we dare not explain here; suffice to say that it is rather similar to being mullered
And this afternoon the market seems to have decided that Barclays are
FUBAR BUNDY
(But Unfortunately Not Dead Yet)
Complain about this comment
More trillions for other sweeping guarantees.
In earlier market manias, the bubble was generally confined primarily to one debt sector.
Not this time around!
Beyond the $14.8 trillion in residential and commercial mortgages in America, there are another $20.4 trillion in consumer and corporate debts.
This meant that mortgages represent only 42% of the private-sector debt problem in the country.
» Banks Continue to Crumble:
Credit LOSSES and write-offs at financial firms around the world are nearing the $1 TRILLION but the carnage for equity investors is much worse ...
» Stocks Continue to Tumble:
The Dow Jones Industrial Average stumbled another 2,355 points — on pace for its worst yearly decline since 1907 — 101 years ago!
Stock markets worldwide have lost ANOTHER $14 TRILLION in market value in just the past two-months…
» Throwing Good Money After Bad:
The Federal Reserve Bank's balance sheet ballooned to a massive $2 TRILLION in reserve bank credit extended to FAILING banks and financial firms.
» A Year Later and Deeper in Debt:
Just over one-year since the credit crunch began, American taxpayers are now on the hook for an estimated $8 TRILLION in total spending and "commitments" by the government in its desperate attempt to prevent a total meltdown of the financial system — yet stocks continue to tumble, banks refuse to lend, and the economy keeps tanking.
By my count the U.S. government has loaned, invested or committed...
$200 billion to nationalize the world's two largest mortgage companies, Fannie Mae and Freddie Mac;
$25 billion for the Big Three auto manufacturers;
$29 billion for Bear Stearns;
$150 billion for AIG;
$350 billion for Citigroup;
$300 billion for the Federal Housing Administration rescue bill to refinance bad mortgages;
$87 billion to pay back JPMorgan Chase for bad Lehman Brothers trades;
$200 billion in loans to banks under the Fed's Reserve Term Auction Facility (TAF);
$50 billion to support short-term corporate IOUs held by money market mutual funds;
$500 billion to rescue various credit markets;
$620 billion for industrial nations, including the Bank of Canada, Bank of England, Bank of Japan, National Bank of Denmark, European Central Bank, Bank of Norway, Reserve Bank of Australia, Bank of Sweden, and Swiss National Bank;
$120 billion in aid for emerging markets, including the central banks of Brazil, Mexico, South Korea and Singapore;
Trillions to guarantee the FDIC's new, expanded bank deposit insurance coverage from $100,000 to $250,000; plus ...
The grand total?
A mind-blowing $7.8 trillion and counting!
How much is that?
So far, the U.S. government has loaned, invested or committed a staggering $25,507 for every single man, woman, and child in the United States.
That's half the yearly output of the entire U.S. economy.
In the more than 200 years the U.S. has been a nation, it has racked up almost $10.7 trillion in public debt.
Now, in just a matter of months, policymakers have added contingent and direct obligations equal to almost three-fourths of that amount.
Just look at the loans, investments and commitments that the government has ALREADY made – this is pretty much a FULL, COMPREHENSIVE LIST:-
$700 billion to the Troubled Asset Relief Program (TARP) rushed into law in September...
$200 billion to nationalize Fannie Mae and Freddie Mac...
$25 billion for the Big Three auto manufacturers, $29 billion for Bear Stearns, and $123 billion for AIG...
$144 billion to buy mortgage-backed securities (Part of which is included in the item above)...
$300 billion for the Federal Housing Administration Rescue Bill to refinance bad mortgages...
$87 billion to pay back JPMorgan Chase for financing bad trades made by Lehman Brothers...
$200 billion in loans to banks under the Fed's Reserve Term Auction Facility (TAF)...
$50 billion to support the commercial paper held by money market mutual funds — so far. (By the way, approximately $1.3 trillion worth of commercial paper would qualify, adding a huge unquantifiable liability to the U.S. government.) ...
$620 billion in currency swaps with industrial nations, including aid to the Bank of Canada, Bank of England, Bank of Japan, National Bank of Denmark, European Central Bank, Bank of Norway, Reserve Bank of Australia, Bank of Sweden, and Swiss National Bank ...
$120 billion in swaps for emerging markets, including the central banks of Brazil, Mexico, South Korea and Singapore...
Unquantifiable new liabilities to cover FDIC's new, expanded bank deposit insurance coverage from $100,000 to $250,000...
And that has nothing to do with the UPCOMING STIMULUS PACKAGE from the Obama Administration…
Not including the unquantifiable liabilities, that adds up to nearly $2.7 trillion or about SEVENTEEN TIMES the size of this year's entire economic stimulus package!
Assets Collapse, Markets Crumble and Capital Flow Shifts as We Enter an FINANCIAL Ice Age At the End of the First Decade of the 20th Century…
The New Concern Is Toxic Economies!!!
Europe Is the Most Vulnerable to Emerging Market Defaults-
When it comes to emerging markets, Eastern and Central Europe account for $1.6 trillion in loans from G10 countries' banks.
Asia and Latin America are next on the list — recipients of $1.5 trillion and $1 trillion, respectively, according to Morgan Stanley's Global Economic Forum.
And if you break down the loan originators, Western Europe and the United Kingdom are where roughly 45% of these emerging market loans came from.
In contrast, only 9% originated from U.S. or Japanese banks.
European and U.K. banks are more exposed to emerging economies in Eastern Europe, Asia and Latin America!
Take Ecuador, for example.
They recently revealed they're at risk of defaulting on $4 billion worth of debt.
And this is just the tip of the iceberg.
Plenty more defaults will likely follow from countries who failed to invest sufficiently in anything but the hope that the global economy would never stop speeding along.
For those who see light at the end of the tunnel, do not be conned!!!
It is gonna get a lot worse before it gets better.
Be inspired!!!
Complain about this comment
For,Government, Politicians, Banks, Companies, Men, Woman Children, Everyone.
The Moral of the story is quite simple.
WHAT YOU BORROW YOU MUST BE ABLE TO PAY BACK
Complain about this comment
No. 114 "Bell-4-Goalie"
I hope you are right, and that "we have nothing to fear but fear itself".
A chain reaction was set in motion when Lehman Bros. went bust. The economy is now like a plane falling in a flat spin - the air has been sucked from the wings and it just won't stop falling. It's very difficult to regain control in these circumstances.
Anyway let's hope the experts find a way......
Complain about this comment
PROBLEM:
Financial meltdown in the UK (and US).
REACTION:
Lots of hand wringing and bowel movements and apocolyptic messages (Peston!) to the enlightened few.
SOLUTION:
(That the peasants will be crying out for)....joining the Euro (/Amero)!
...and so it came to pass.....it's has all been engineered. It was Crash Gordon's sole remit tasked to him by his bosses....the so called 'Masters of the Universe'.
Well....It may just explain those megolomanical grins of his.
COME ON THEN ROBBO...YOU'RE STILL TEASING US!......WHEN ARE YOU GOING TO SLIP IN THE BLOG ABOUT JOINING THE EURO?
It must be soon. You can share the timetable with us.
Complain about this comment
130. sosraboc:
"Who is going to pay it all back? Certainly not the millions on state support nor the millions of minimum wage workers and certainly not the wealth creators; they will all have gone".
Quite so. With all the fuss about immigration, no-one seems to reflect on the mass emigration of our potential value-creators. If the ratio of tax-payers to tax-recyclers and tax-recipients gets any worse, the system could well implode.
Complain about this comment
It's funny how sometimes you don't know which Robert is speaking. The mouthpiece of his government cronies, his entourage of other business and city blatherers, or Robert himself.
On this, however, it is clearly Robert. And he doesn't like the bad bank idea. (The clue is how he lapses into the Peston vernacular; "toxic", "mullered", "radioactive", "stinky" etc.).
Just in case Gordon or Alastair are reading, however;
I THINK IT IS A VERY GOOD IDEA
and the only one likely to have a material impact and get banks lending sensibly on normal commercial terms in the foreseeable future. Yes there are some practical difficulties on valuation, but these can be overcome. (If it is done in partnership with private sector asset managers, for example, with private sector money).
RBS needs to be thoroughly cleansed, shrunk and returned to full private ownership in due course. Full privatisation would dramatically increase the chances of RBS throwing good money after bad and being stigmatised as a subsidised, inefficient government organisation, thus ensuring that we would not get good value on its eventual re-privatisiation.
Complain about this comment
Sorry ThorntonHeathen Mate...
But no need for us to bury our heads in the sands...
Politicians are lying...
Economists are clueless...
The news media does want to create as one Blogger puts it - MORAL HAZARD!!!
So everyone worth anything is pretending to ignore the obvious...
The end result will be the following:-
Major social and political unrest in EUROPE and a possible war within the next year...
Unrest and turmoil in China and in the ASIATIC Basin with major manufacturing countries tanking and millions losing jobs will result in the germination of the seeds of war and international strife...
America, weakened by financial meltdown will be impotent to offset the rigors of the dark forces at work in our world...
My best prediction is a possible World War 3 within the first term of an Obama Administration...
A Black President being the perfect candidate to be the modern version of Julius Caesar...
Be inspired!!!
Complain about this comment
"But have no fear. They can't collapse - because we as taxpayers are implicitly underwriting the lot of them." - Robert Peston
I hope I detect sarcasm.
"But the broad thrust, bankers tell me, is useful." - Robert Peston
But is it?
"...there are huge difficulties in valuing the assets to be placed in them and in defining the assets that may be placed in them." - Robert Peston
I am sure the banks will err on the side of caution this time!
"...we as taxpayers will end up in some way paying for the stupid loans and investments made by smart bankers." - Robert Peston
Around £30bn was spent on public debt service last year.
With the outstanding debt expected to rise by £100bn per year and tens of billions of pounds of inheritance and capital gains taxes and stamp duty gone (not to mention VAT cut and falling receipts of business taxes esp North Sea), what do you think will be squeezed out of the budget to make that happen?
Complain about this comment
we're also paying for the irresponsibility of Gordon in riding the Brown Bubble for all he was worth!
Complain about this comment
Enough Already!!!
Complain about this comment
What is the loss now on the share holding held by the government based on the current share price.
Complain about this comment
How can Barclays shares fall 25% in a hour? The stated reason seems to boil down to nothing more than the speculation of city analysts who have been shown to be totally wrong so many times over the last 6 months - the whole thing is an absolute disgrace. These same people were saying oil prices were rising last summer because of supply issues in 2013...
We are all having to bail out the banks while the short sellers have a field day....these companies and people's employment, pensions and savings are at stake - the FSA should name and shame these people publicly and stop it immediately.
Complain about this comment
If smart bankers made stupid loans, how much worse will it be when our dumb government forces the banks to lend to those who the banks are not currently lending to?
When will this government and you Mr Peston realise that the solution is not further borrowing but more saving even if this will be painful to rectify the mistakes of government promoting borrowing that caused this crisis once people became maxed out on their loans.
Complain about this comment
Nationalisation of the entire banking sector is beginning to look like the only option. If the taxpayer is to take the hit on the losses then the taxpayer must be the only beneficiary if there are any returns. Shareholders will simply have to accept they have failed to control the bank managements and reap what they sow. Hard on private shareholders and will no doubt devalue further the pension funds but there is no option.
On the bright side, once banking is under government control, perhaps we can start moving away from debt money towards value money and never again leave ourselves open to the kind of debt bubble that has just exploded in our faces.
The first political party to propose full nationalisation, a clean sweep of bank boardrooms and senior management and a full public enquiry on how we got here and who is to blame, gets my, and I suspect a few others', vote.
Complain about this comment
There seems to be an excess of thoughts going around whereby spending tax payers money or nationalising the banks will solve the problems. Basically, tax payers bailing themselves out.
Really, the idea of a bad bank makes sense. After all, if lending is curtailed because of bad assets, then simply removing them and placing them in an SPV, Special Purpose Vehicle (I know, I'm sorry) and running them down will be a start. The running down process removes the need for valuation because they are valued on sale or just held to maturity. The SPV can be owned by the banks and the government together. The banks and government can place some capital in there to help cover some losses. Since the losses or gains will be over a long period, the institutions involved can smooth out the effects of these so called toxic assets.
There need not be any further large spending here. No need for us to place a heavy burden on society for bankers/speculators failings.
We can and will get through this. The sooner the right things are done the quicker we get through.
Complain about this comment
Surely it makes sense to use the Northern Rock bank as the Natioanlised Bank.
Give competative mortages and loans to people and businessses when the other banks wont.
Eventually the other banks will go bust.
The MD of Barclays, HBOS, RBS etc can then be given cashier jobs at the Nationalised Northern Rock because that is all they are good for.
Complain about this comment
#151
The attack was carefully coordinated to include all the financials at exactly the same time 1000's of tiny extremly rapid bot trades. (Just look at the charts.) They know full well that the FSA is completely impotent. Last thing I heard was that people doing work experience were responsible for spotting anything untoward. Welcome to Dodge City - I am sorry but Sherriff Sands is out of town at the moment. LOL
Complain about this comment
The big question is how long can governments keep pumping cash into the banking system and keep the existing and failing structure alive? Surely there is a limit to the extent they are able to shore up what is fast collapsing system before it really impacts the liquidity available to government treasury and have an even greater impact on the taxpayer. Governments are fighting actions on two fronts by pumping money into the banking system and also making concessions to the taxpayers and business by relaxing thresholds hence reducing their own income stream and increasing govt borrowing. Can this be indefinite? The faster cash is pumped in to rescue the financial institutions the faster their capital value is seemingly eroded. What fundamentally needs to change is the banking and financial mechanisms that are causing the spiral into oblivian. There needs to be a huge shift and fast, government just making money available is clearly not working.
Complain about this comment
Right, enough is enough. We need to think this through, and plan for our future, throwing money at the problem has never achieved anything.
We need some vision for the future, a future which has some balance, its irrelevant what an asset is worth if you cant eat.
Our welfare state needs a complete overhaul. We need to target 100% employment.
We need to produce goods that people need, we must do this now! Hoover at Merthyr must not close, buy it out and keep people working. Make quality products at least for the home market, exports can come from the quality end.
We must make clothes shoes and all other products needed to sustain a good quality of life, plant for victory and smile. Now we are talking economics. Don't confuse economics with creative accountancy which is what the banks have subjected us to for the past couple of decades.
Tax for roads education health defence etc, but make this accountable, (ring fenced) and UK co must put a bit aside for these rainy days.
A balanced public /privae sector economy with its focus on people not the pound, money is as money does, it oils the economic actuivity, it is not or never was intended to be 'the' economic activity.
Back to basics all, before its too late.
Complain about this comment
Am I guilty of not really understanding what's really going on or are we really in such an enormous mess that some, if not all of the UK banks won't survive?
As the wonderful Patrick Moore says, "We just don't know".
We don't, do we.
Complain about this comment
I have a simple belief, and on the whole it has stood me in good stead.
Rich parents who keep on rescuing their children from imminent financial collapse end up as paupers....as do their children.
The whole Bourse, remote shareholder, remote banker model of propping up globalist hubris is a crock.
I am a retired entrepreneurial capitalist - not a hairy G20 runway digger. And I am here to tell you, the only way forward (on this, our one and only planet) is small enterprise, small carbon footprint, small involved shareholder - and community banks.
Ask Alan Sugar - he'll tell you the same thing. Globalist bankers: you're fired.
www.notbornyesterday.org
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
# 52 alexandercurzon
I know you can be somewhat rhetorical at times Alexander, but your throwaway lines about ATMs running out of cash and supermarkets running out of food are not beyond the realms of possibility in the forthcoming 12 - 18 months.
Our politicians are desparate to understand what's going on at the moment, let alone figure out how to fix the problem(s). They simply cannot grasp the enormity of the underlying fundamentals here. Our political elite (ha!) are in fact ordinary and relatively dimwitted, short-sighted, self-serving individuals: they are not to be revered in any way.
The developed world has overcooked it and will now drag themselves (ie you and me) and the rest of the world down as banks and companies unravel. By "unravel", I mean revert to living within their means within the normal laws of supply and demand, lending and borrowing, asset values and, above all, resource contraints.
The absolute root causes of this mess relate primarily to two things: human overpopulation and the end of mankind's era of cheap energy. We've had a party for 100 years and we went positively nuts for the past 10 years.
We've risen to unprecedented heights of gratuitous consumption and procreation. Now the whole edifice is starting to collapse. Our politicians simply can't get their heads around this and so fight the last war, so to speak. Hence all the exhortations for banks to lend again like they always did, for us to borrow to the hilt and spend like there's no tomorrow: that should do the trick, according to our political masters. They're idiots.
Running out of cash in ATMs and food in our shops may sound outrageous today, but I'll wager that both of these prophecies could well be fulfilled sooner than most people might imagine.
Like I've said many times on this blog and others, we badly need a politician or two that understands what's really going on in the world right now and has the skills, knowledge and attributes to lead us through the forthcoming dark age. Literally dark if you just look at Russia's behaviour lately vis-a-vis gas supplies. Truly, the shape of things to come.
Complain about this comment
Here's a "creative solution": higher interest rates to encourage savers to put their money into banks instead of elsewhere.
Here's another: lower government spending and borrowing, to leave more room for the private sector to borrow the money that is available.
But of course we'll get the opposite of both from Tweedledum at 10 Downing Street and Tweedledee in the White House.
Complain about this comment
# 95 screamingdonkey
Many thanks for your support. I also can't resist posting on Nick Robinson's blog too. Oh, and on Eddie Mair's. Damn, Eddie was even so kind to read out one of my posts on the PM Programme the other day. What a great chap he is; makes me larf.
Complain about this comment
#162 murraymint
I only disagree with 1 aspect
''Our politicians are desparate to understand what's going on at the moment, let alone figure out how to fix the problem(s). They simply cannot grasp the enormity of the underlying fundamentals here''
I dont think they are desperate to know what is going on, they are desperate to get re-elected or perhaps more realistically avoid utter anihilation at the next election to emerge as the 3rd party in British Politics. I think that in itself is the reason why they are incapable of grasping the enormity of the situation. It is too late in their term of office for them to think rationaly.
They are blinded by thier ambition to be re-elected.
The really bizarre thing is that the popular policies likely to get someone in with a big majority are quite left wing in this emerging scenario. That is nationalising the banks and some kind of punitive regime for those who caused this (bankers getting stripped of assests and hauled through the courts type thing).
Labour has abandoned that territory and can not re-occupy it sensibly now having overseen this crisis emerging.. although they may cynically try and blame it on the GLOOOBAL economy (nothing to do with them or their leader).
They could make ground by ditching Gordon and adopting someone more left wing not associated with him bizarely. I would like to see them try though in the middle of a national crisis and with Gordon leaving his fingernail marks all the way out the door, hardly inspiring to vote for that scene !!!
Those likely popular left wing policies can hardly be adopted by the conservatives either can they!!!
For the first time in a century if they play their cards right in the coming months wher tings will change extremely fast there may be an opportunity for someone else.
The two main parties are paralysed in this situation to come up with popular policies due to either their history or their current standing.
Quite facinating!!!!
and sad at the same time
I hope someone inspiring will emerge to sort this out..cometh the hour and all that.
Jericoa.
Complain about this comment
Gordo for the high jump?.....
When you first become leader, especially if 'its all about you', you make sure you don't ever set up your successor too ahead of time.
If you look through the current hand-picked cabinet, there is no-one standing in the wings to mount a bid for the top job. What a motley crew.
I reckon you have a choice of just two.
Diamond Al believe it or not, and ..... Margaret Beckett... ! Someone with no stupid agenda and an obsession with her place in history.
............. one despairs, just give us a general election plizzzzzzzz.
Complain about this comment
It must now be clear that not only have the supposed economic achievements of the past year simply evaporated, but the 'solutions' put forward 10 or 12 weeks ago are demonstrably useless. I don'y see any realoistic alternative now to hunkering down to grin abnd bear it - the recession will pass in due course and then we can begin again. We don't need any more blizzard of initiatives which prove to have less to them than meet the eye but simply increase the natuinal debt.
Complain about this comment
It must now be clear that not only have the supposed economic achievements of the past 10 years simply evaporated, but the 'solutions' put forward 10 or 12 weeks ago are demonstrably useless and overtaken by events. I don'y see any realoistic alternative now to hunkering down to grin abnd bear it - the recession will pass in due course and then we can begin again. We don't need any more blizzard of initiatives which prove to have less to them than meet the eye but simply increase the natuinal debt.
Complain about this comment
#4 d)
The Stock Market ignores ALL events unless they bite it in the bum directly for up to eight months, while the effect works its way through the dinosaurs neural network and they decide something happened they should take into account. As far as the market's concerned, they have the ex-div diary and that's about it. What'll happen is that companies they were expecting to declare a dividend will not do so, and they'll be fed soporific Chairmens Reports until then, when there'll be a sudden realisation that UK PLC has become uk plc and another slide will happen.
#5 & #44
Nationalisation should not have been put off, but unlike pass-the-parcel, nobody wants to be on watch when that bomb happens. Now, however, i fear it's too late, as it'll take some time to arrange. The one possible shortcut would be to nationalise BACS and VISA and merge the retail sector upwards into those monopolies. After all, these are already cartels so imploding them would be both legally simple and administratively uncomplicated.
#6 The ECB?
#8 Of course they have. The only thing they've been doing is quietly clearing short-term debt into long-term government debt.
Complain about this comment
#9
Latvia Bank's Russian operations brought it down on 8.11, Poland had an effective Banky Fundusz Gwarancynjny in place since 1995 amd it was reviewed in 2004 with exactly the kind of problems we've experienced in mind (Ref: Adam Pawlikowski, "The Polish deposit insurance scheme compared to arrangements adopted in other EU contries", Warsaw June 2005. Pawlikowski is an economist in the Polish National Bank's Financial System Department), China nationalised its banking in 1947 and has never let it escape from government control since. However else do you think they managed to fix the exchange rate in their favour since forever?
The hyper-message is that they were proactive in their activity.
#10
You should go further. The fact the banks plugged the losses with the HMG subsidies rather than distributing them as they were supposed to shows not only appalling accounting practices, but also very low expectation ever to have to account for them. The fact the Chancellor's written these so-called loans off as expenditure not only gave them the hint, it even gave them the chutzpah to come back for more and take over the FSA and Mandy's empire.
#11
The time to send the auditors in was 31.12.08 overnight.
#19
1. Why is the taxpayer acting as the insurance company? The insurance market simply spread the risk across the entire nation, and charges a margin in the premium for it. HMG can do the same without the added profit markup.
2. The Chancellor thinks these are temporary, but indicated they were permanent. See my answer to #10 above.
3. See my answer to #5 above.
4. Owning half of America could be interesting in the longer term.
5. If ifs and ands were pots and pans, then beggars would be tinkers.
6. We have been discussing that subject here, there's no hard evidence HMG has the faintest or they wouldn't have done what they just did.
Complain about this comment
#21
Both.
#23 & RP
You remind me of one of the more radical suggestions about what to do with the Neopolitan rubbish mountain - shove it all into the natural incinerator behind the town. The trouble is, what happens when it erupts?
#25
The trouble with septic banks is you have to have them emptied occasionally. The normal route of formal bankruptcy destroys the reputations of those responsible, and we can't do that to all those boyos who're going to bankroll the next election campain for us out of sheer gratefulness for sparing their blushes now, can we?
#26
The comparison with the Dukes of Hazard came up a while back. Trouble is, we have Flash the basset-hound and Enos in charge, while Two-Jags Hogg has now retired to the Boar's Nest.
#34
The function of a bank is to remind you you won't take it with you - they'll have had it first. They behave as if your deposits are theirs, limiting how much you can take "because of fraud", regardless of the fact they're suggesting you're defrauding yourself.
Complain about this comment
#36
Mullered: per Wiktionary, Possibly derived from Gerd Muller, German footballer, who was known for his blistering shots on goal, sometimes blasting the ball out of the ground, as in "He absolutely mullered it!".
Slang: drunk. As in skagged out of their minds on Krystal.
#38
Till as in Eulenspiegel. The US version's obscene, the European version snubs the political establishment at every turn.
#49
The assets are yielding less than inflation. That means they are yielding nothing in real terms. Confidence in such markets as these, when no accurate data is published and RP's Moderator even bans references to NSO studies as irrelevant, is the kind suffixed by "Man". Those in denial tend to end up Sectioned when they're eventually forced to face reality. Something like 5000 people a day are losing their jobs, or 25000 a week, or 1.3 million a year, and it's only just starting. You're obviously a "green shoots and leaves" person.
At least GB's doing us all a favour, putting the worst of the bankrupt bankers in the House of Lords and FSA. The answer is to lock the door and fill with Liberal Peers.
Complain about this comment
Yes, the system is dead. You can keep on pumping and looking for signs of life but you are really just wasting time and effort. Worse still you are using what energy still remains to do so!
The finance sharks of the City and Wall Street showed their teeth again today. They have fed yet again on a rotting carcass. Did it do any good for the economies of the UK or US? No it just fed their hunger.
Now we can just keep pumping more and more trillions into the corpse until the blood bank is dry or we can decide to follow another course.
In this bloodbath it is now time to protect ourselves as citizens of a nation state. We are the only true resource that we have.
I once thought that we would be safer by combining even more closely with Europe. However that opportunity has passed. We cannot be too closely linked with the Euro. I believe now that the Euro will collapse as the global situation worsens and more and more memeber states pressure to leave it for their own wellbeing!
Complain about this comment
#165 jeroica
what a load of c*r*a*p! it's gone beyond re-election it's now a question of blind panic!
Complain about this comment
More news from the US that it's not just the banks, but the Credit Card companies too that are suffering big time - and it's going to get much much worse!
http://www.creditcarddebtbook.com/cr...r-capital-one/
Maybe the tide really is turning? Are these guys finally getting what they deserve?
Napoleon Jones
Caveat Creditor!
www.creditcarddebtbook.com
Complain about this comment
why is anyone surprised at this latest revelation?
How many people said last year after the first bail out 'it won't be enough'?
Food shortages have already started-look more carefully in your local supermarket at persistently empty areas of shelving.
Energy shortages have started-Russia and Ukraine. (funnily enough, our local carbonatef water business can't get CO2-not the same gas, I know, just a curious coincidence)
Cash machines closing-didn't I reason here a few weeks back that RBS were hours away from just that last year?
Drip feeding us toxic nuggets of info-we all know the whole truth has yet to be told-it's just that no country wants to jump over that precipice first cos of the effect it will have-not on it's own people but how they are perceived by other countries.
Short selling ban lifts at the same time as news of another banking bailout possibility, then bank shares crash? How predictable!
More crazy cover up schemes to postpone the inevitable? (toxic banks, sale and lease back etc)
We are not stupid! We could see all this coming and know the rhetoric covers up that even the banks have no idea just how toxic their debt bundles are!
What will happen when the IMF runs out of money-can't be long now! And if any government is thinking if all else fails they can tap them up for a loan, they'd better think again!
Won't be long before stock markets are closed for a while, just to get a breathing space!
Really Robert, turn the tables and ask the right questions-you are too good a journalist to fluff around the issues like this. Get some plain talking done!
At the moment, knee jerk, headless chickens, startled rabbits and other similar phrases come to mind.
Time to keep our cash in the drawer and pay our workers with it in little brown envelopes.
I can see the G20 round the table soon all looking at each other, saying:
"can't pay the loans back, can't get a loan either. What can we do now?" then they'll all look at Gordon Brown for the answer as he's the saviour of the world!
Totally ridiculous.
Arrest the lot, vote of no confidence in the government, and get someone in to steer us through this instead of trying to look and sound good.
Now is not the time for political point scoring.
Complain about this comment
Moraymint 162
I know i tend to CHUCK in:
But the cash machine network was 2/3
days from collapse last October hence
the Bank bail out.
Food shortages as a real problem are very close all retailers are having difficulty with credit its the combination of a tight rope and a ball and chain.
Many producer/manufactures are insisting on NO CREDIT TERMS.
Complain about this comment
surely banks like lloyds tsb now have nobody saving with them ...their interest rates are 0 for savers.Ive certainly withdrawn all my internet savings with them....surely this is a problem for all banks.....and brown says the banks should come clean about septic debts...how about brown coming clean about some of his disasters. that bloke is a disgrace.
Complain about this comment
"and a British version - the Royal Septic Bank ...."
Surely the name of the bank should be "Royal Bank of Sepsis" (aka RBS) !!
#177 "Many producer/manufactures are insisting on NO CREDIT TERMS"
As the Americans say, "In God we trust. All others pay cash !!"
Complain about this comment
#15 you make me feel so happy...our wonderfull government is at hand to steer us through difficult times...yes if we all pull together (you pull a fraction harder please) we can see it through......oh please do me a favour ive lived long enough to know ive been bitten up the arxx by this joke of a government.
Complain about this comment
Ive been sharing the knowlegde of food shortages with friends for a while, knowing full well the implications of coming across like a nut job. If only i were...
Lloyds have made several errors. I for one will be looking at switchng next week, but to who? Any suggestions welcome.
#94 Godfrey. Name always reminds me of the rosy faced bloke from Dads Army. If you think Peston is the saviour of us through the BBC blog site and a pioneer in the latter, you arent using your internet connection to its full capabilities.
Try Peter Schiff or Max Keiser for some REAL hard hitting truths!
#96
There is actually fact in that statement. They are doing what they need to for THEMSELVES to weather the storm.
#143
Youve been doing your homework recently.
Amero is coming into to the public domain. Or, it could be repackaged and renamed on a global scale and destined to become a currency for us all.
I posted this some time ago and it still is a sorely missed point today:
http://economicapocalypse.blogspot.com/2008_10_01_archive.html
Complain about this comment
I meant to reply earlier but someone on here stated..
Come on Gordy, bend me over a barrel and finish the job.
Thanks for the laugh!
Complain about this comment
#182 the mind boggles.....has anybody noticed how fat browns getting? also he is just so boring...maybe if he smiled a bit and cracked a joke the bankers(being such a clever lot) may say "hay everythings ok..lets party" its only money who cares..what youve never had you never miss....
Complain about this comment
post 182
Ive alway wondered re:
GORDY MANDY TONY??
Other than that its time they were held
to ACCOUNT!
Complain about this comment
barclays bank..the bank thats the benefactor of the barclays premier league..where a team,man city, are reputed to have offered 120m(thats euros i believe) to ac milan for kaka....120 m to pay for a bloke to kick a bag of wind around for 90 mins once a week....are we really living in the real world or have we all died and are in hell!!! I sometimes wonder.
Complain about this comment
#184 Agreed. Surely there are some legal eagles out there who do not adhere to the corrupt party line?
There is enough evidence brought about on here by some people to hold them to account..surely.
Just seen this that may interest you, but is has a pretty sick graphic image so if your having your brekkie, leave it until later.
http://www.prisonplanet.com/uk-jewish-member-of-parliament-likens-israel-to-nazis.html
Complain about this comment
Bad use of words, if I used pretty graphic above which I think did I apologise.
Outright sickening would be a better way of expressing it.
Complain about this comment
peace and unity
Not shocked ive seen it first hand.
I WOULD LIKE TO FORCE A FEW TO SEE IT SMELL IT AND FEEL IT FOR
REAL!!
Complain about this comment
I dont envy you seeing that in a real life scenario. Disturbing and an explanation to your views. Now if only the armchair critics could see it from another perspective.
Was the attack on the UN building in Gaza an attempt to push public opinion in agreeing with this organisation? Like a sympathy vote to further its credentials? To gain support for it where we succumb to its views? I think so...
Complain about this comment
The government is apparently shocked at the bad debts on the books of British banks. Why did they effectively nationalise the banks without carrying out any due diligence. But then knowing this shower I don't know why I am surprised.
Auditors have also signed off the accounts for the last 3 years without any knowledge of the bad debts that they have been carrying. What is going on?
Complain about this comment
190 skynine
UTTER DERELICTION OF DUTY BY THE
"I GET OUT OF IT WHAT I CAN"
BRIGADE.
THERE NEEDS TO BE FULL
ACCOUNTABILTY FOR THIS AND
CRIMINAL PROSECUTIONS.
I WANT TO SET UP A NEW BANK
THE LEVY FOR DEPOSIT PROTECTION
IS SO HIGH NOW THAT WE COULDNT
OFFER BANKING AT AN "AFFORDABLE"
PRICE TO POTENTIAL CUSTOMERS.
Complain about this comment
What about the impact of short-selling which I understand is now ppermitted again. The banks are technically bankrupt, probably more will be nationalised. Stop the raiders and financial parasites NOW. Name and shame these people and reclaim their assets. If there are looopholes so their trade is "legal" then put in emergency measures to stop this financial bleeding otherwise more good companies will go to the wall.
Complain about this comment
What about the impact of short-selling which I understand is now permitted again. The banks are technically bankrupt, probably more will be nationalised. Stop the raiders and financial parasites NOW. Name and shame these people and reclaim their assets. If there are looopholes so their trade is "legal" then put in emergency measures to stop this financial bleeding otherwise more good companies will go to the wall.
Complain about this comment
"Gordon Brown told the Financial Times the banks had to "come clean" about these bad debts so people could trust them again."
excuse me but i presume that Gordon did due diligence before committing billions of taxpayers money to the banks, so he must know the value of the toxic assets, so why doesnt he just publish them? unless of course due diligence was not carried out, but no, nobody would be that stupid......would they?
Complain about this comment
#190 skynine
Auditors NEVER do the job that we believe that they are employed for.
2 issues come into play:
1 They are, or pretend to be (see 3), accountants. Therefore they should know all of the financial rules but they have little or no knowledge of how business actually work.
2 If you consider bank auditing in particular. Some of the paper that they were holding was so complicated that they didn't understand them. So what chance did an auditor have?
3 Many auditing teams are made up of trainees. They follow systems and formulas pre-set for them. the chance of them actually uncovering a well hidden scam is very remote.
Like alllegal regulations of this type, the law looks good but the actuality does not match the intent.
Complain about this comment
Has anyone read a certain satircal magazine's stories on the NAO and it's chair?
Gives you an indication why the auditors have failed.
Complain about this comment
The banks have played fast and loose, got pregnant and gave birth to a baby that they can't look after. Now we, the tax paying public, are supposed to take it off their hands so they can play fast and loose again.
I feel we are underwriting incredibly bad behaviour and encouraging it to continue. Somewhere along the line the banks have to take resonsibility for this almighty mess and make fundamental changes to their moral makeup. The parents of this wayward child need to help it see what it has done and keep an eye on it in the future so it cannot get in the same mess again - government and regulatory authorities, wake up.
We can't affort to let our banks continue to behave like untouchable teenagers - and we cannot let the parents carry on shutting their eyes to their wayward offspring's behaviour, thinking that some other poor mug will always be there to pick up the bill.
Complain about this comment
#185
Agreed. It shocked me to hear two news items spoken almost together this week. The aformentioned £100 million for a footballer and the government to put £200 million to help save 6,000 people from losing their homes. Perhaps we should be looking towards the football clubs to help save the world.
I have to admit, if I begin to hear about "hard pressed" football clubs going to the wall because of the credit crunch, I will not be shedding any tears.
Complain about this comment
Are there any banks in the UK that don't carry these undisclosed assets (otherwise known as liabilities)? If so the answer is for UK residents and companies to withdraw their accounts from the "sub prime" banks and allow them to wither.
I'm thinking along the lines of Standard Chartered, HSBC Co-op bank etc. Any thaoughts?
Complain about this comment
How come nobody has gone to prison yet?
These banks have deliberately devalued my money and country in a property pyramid.
Nationalise and merge any that are insolvent.
Complain about this comment
brown is a dead man walking, he knows it we all know it...there should be a mechanism where by we can rid of this imbecile before to much more damage is done. why does he go on about israel and gaza as though anybody in the uk cares?why not go on about the gulf in rich and poor which brown has perpectuated, and is far more serious to every day life in the uk.
Complain about this comment
#200 plenty of people have gone to prison........little old ladies owing 70p on the tv licence.....ex raf pilots from ww2 , going 2.50 behind on their council tax. loads of people are going to prison....brown ?no hes exempt he just goes on and on and on....
Complain about this comment
The spin doctors are at it again. Expressions such as "credit crunch", "toxic debt" etc., etc., are, as far as I'm concerned ways of trying to soften the horrendous plight that those greedy pigs who caused the problem, placed most of the world in.
Brown and co., gave our money to the banks, and now the banks won't do what they were asked to do; lend OUR money back to US.
Didn't Browns advisors make it a condition of the bail-out? Were there no guarantees undertaken by the banks to honour the agreement - or else?
I know that if I wanted to be bailed out a humongous debt, the bank would tie me up in so much red tape, I couldn't move without their approval, much less refuse to honour the agreement!!
So please, lets hear less about struggling banks, and more about fundamental greed and dishonesty. Less about bail-outs, and more of criminals being given bail - or not.
Complain about this comment
172 rahere
'#36 Mullered: per Wiktionary etc'
Err can you get a Muller Lite. Is that what the banks are wanting. A Muller Lite, not the full Muller.
Complain about this comment
Why are we ignoring the financial Jumbo in the room - you've seen the advert on TV debt loves to be ignored (and it won't simply disappear or go away) ... it is true - someone sometime HAS to pay it BACK on DEMAND. So all this talk of toxic/radioactive/septic implies that it can be flushed/reprocessed/dumped which is simply a merchant bankers fantasy - every single penny whether hard earned, hoarded, squandered, snorted or gambled is accountable. The big question is whowill pay, how much and when ... think of it like Catch if we 'win' (nationalise) we 'lose' (the banks corporate shareholders will want compensation since they haven't gone 'bust' and everyone in trouble will want 'saved') OR we 'lose' by sacrificing our money/jobs/homes, (and those of our children) to save the banks ...
I don't think we can do anything to 'save' the banks, since if their was such a plan the American govt. would have announced it and implemented it IMMEDIATELY.
What is happening is that the BIG money is trying to buy time - by spreading the idea that the markets are stabalising and there are 'green shoots appearing' ... this false dawn in the FTSE will allow them to 'mask/dress-up' share sales allowing them to liquidise what are worthless assets in 'zombie' companies. Banks can't tell which assets are worthless and which are OK because the truth would set off a financial 'firestorm'. So Gordon Brown (who has supported and enjoyed the support of banks, financial institutions and corporate business) is going to save us? Everytime he has made an announcement it has been 'a dollar short and a day late' - always reacting slowly to rapid changes which require well thought out and fully developed strategies.
If Plan A fails then resort to Plan B, Plan B is simply more of Plan A only louder, and grasp on to the slightest glimmer of hope and suggest 'shoots/signs of recovery'.
Nationalise the banks and put Lord Mandelson in charge (toxic politician for toxic job) it'll give something to do apart from scowling at committees members and biting the heads off political whimps.
What will happen if we don't nationalise the banks and plan realistically for the future? Take a long hard look at Argentina, it is not pretty ... We lack leadership, time courage and planning - just when it is required most.
Complain about this comment
#141 - theoldvic....
That rule does not apply to the rich.
That is why Madoff will get away with his scam, and the banks will be back to their old tricks in 8 years time.
as long as the BBC don't delete this blog then I can refer back to this in future years and point out that I was right.
Leopards do not change their spots - bankers do not change their greed and faulty mathematics.
Complain about this comment
I worked at one time under the Fsa many years ago , and reading todays report just cements my views that they were not in touch with the situations then and nothing has changed much today , It appears that the investment experts (I use the term very loosely) are not just content to have almost single handedly ruined the fabric of our manufacturing and financial structure , but are seeking to continue to do this now .
the banks are also incapable of controlling their incompetence and it appears the government is impotent as far as sorting out the mess ,
There must be someone out there who is honest and trustworthy , and not intimidated by second rate bankers incapable of ethical decisions
Complain about this comment
What about that 'duty of care' should the US, UK governments and shareholders not go after each director for their failure to safeguard the SHAREHOLDERS assets ? Surely there must be implications for not unholding a duty of care ? Whilst ING may have involved a fraud, have banks not been 'motivated' by the same vice, namely greed ? If the directors were incompetent then that is no defence in the eyes if the law.
“Directors are placed in positions of trust by the bank’s shareholders, and both statute and common law place responsibility for the management of a bank firmly and squarely on the board of directors. The directors of a national bank may delegate the day-to-day routine of conducting the bank’s business to their officers and employees, but they cannot delegate their responsibility for the consequences of unsound or imprudent policies and practices whether it involves lending, investing, protecting against internal fraud, or any other banking activity. The directorate is responsible to its depositors and shareholders for safeguarding their interests through the lawful, informed, efficient, and able administration of the institution.”
[Unsuitable/Broken URL removed by Moderator]
Complain about this comment
View these comments in RSS