Mervyn and leverage
The Governor of the Bank of England didn't pull out the stops to cheer us up in his speech last night.
What was particularly striking were his closing remarks, when he said that he was sure an economic recovery would come and that there would certainly be a positive outcome from all those interest rate cuts and the hundreds of billions of taxpayers' cash allocated to pumping up the wilting banking system and stimulating demand.
But - and it's an important qualification - he couldn't be sure when the economy would turn. He said: "No one can know at what point the impact of all this stimulus will have a visible effect on activity; the lags in economy policy are notoriously long and unpredictable".
Oh dear. If the economists we trust to steer us through this mess ever had a torch, the battery appears to be flat.
Nor did I feel particularly reassured by his assessment of when the great cause of our woes will be fixed, the reduction in borrowing and lending by banks and other financial institutions.
To remind those who don't live and breathe bankers' jargon, when Mervyn King talks about "leverage ratios" he means the relationship between a bank's debts and its capital resources. He said that the "leverage ratios of large banks remain at remarkably high levels and the required adjustment will not happen quickly... With fresh capital from the private sector difficult to obtain, banks have opted to reduce their lending and that is why the flow of credit to all parts of the economy, here and abroad, has been heavily disrupted."
It's that stress on the leverage ratios of banks still being "remarkably high" that slightly surprises me. Not because it's wrong. But the Treasury and the Financial Services Authority have frantically been trying to reassure the banks that they have ample capital resources to finance their balance sheets - and Mr King does seem to be saying something different.
Mr King went on to say that "banks are encouraged to run down their capital to enable them to absorb losses while continuing to lend, but in the long run they will need more capital".
Again, this is not quite what the FSA is saying. The City watchdog's message - which it repeated loudly on Monday - is that our banks currently have enough capital to absorb the losses they'll incur as the recession causes increasing difficulties for borrowers. It says that their capital ratios will still be at acceptable levels even after the losses have been absorbed.
But if the Governor is right that banks have inadequate capital for the long term, the markets will price that in today, in the form of lower share prices for banks and much more demanding terms for the credit they require.
Considering the mullering of bank share prices in the past couple of days, it looks as though the Governor is right. But I doubt the Treasury or the FSA will thank him for pointing it out.
It's not all gloomy news, according to King. He says that because so much of banks' excessive lending and borrowing has been with other financial institutions, there is "scope for a reduction in the leverage of banks without restricting lending to the 'real' economy".
There are two things to say about this.
First, as John Gieve, the Deputy Governor of the Bank of England, told me in an interview for my Panorama documentary before Christmas, the Bank of England was too sanguine during the boom years that there was some kind of cordon sanitaire around the debt and asset bubble, such that when the bubble was pricked it wouldn't infect the real economy too much.
That turned out to be spectacularly wrong. It's therefore reasonable to question whether the non-financial sector (that's you and me, and "real" businesses) can be protected from the massive reduction of lending between financial institutions.
Also, the way the Treasury is trying to protect the non-financial sector is by imposing formal quantitative targets for lending to businesses and households on those banks in receipt of financial support from taxpayers. As you've noticed, it's instructing the banks to lend considerably more to all of us.
Which is all very well.
But as I've pointed out before, if all countries forced their banks to concentrate their lending on domestic markets, that would lead to an even sharper fall in cross-border flows of funds and capital than is already taking place.
It would amount to a kind of financial protectionism, a beggar-my-neighbour policy, that could impoverish us a lot more than would otherwise be the case.
So the Treasury should tread a little warily, I think, before forcing all our banks to do nothing but their patriotic duty.
PS: Mervyn King is at pains to point out that he hasn't run out of all tools to revive lending and the economy.
He confirmed that we're probably about to enter the relatively uncharted wilderness of "unconventional measures" to stimulate the flow of credit and money: what's called quantitative easing, or the creation of reserves at commercial banks by the Bank of England buying all manner of financial assets, in the hope that the banks won't just sit on these reserves but will convert them into loans to the private sector.
It's reasonable to see this as the creation of new money. The big question is whether it would circulate and stimulate transactions - which is what the Bank of England would want - or would be hoarded.
In fact, within a matter of weeks, we'll see the Bank take an imaginative first step in that direction, when it starts to buy up corporate debt (not for cash, but in exchange for Treasury Bills), in the hope that the liquidity of the market for corporate debt will be significantly improved and thus make it cheaper and easier for big companies to borrow.
This may sound tediously technical. But it is big stuff. It represents the public sector, us as taxpayers, lending directly to companies (even though the Bank will be buying this stuff on the secondary market).
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"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
- Cicero - 55 B.C.
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So basically. We have a bunch of zombie banks which can't be allowed to fail because it is unthinkable. Sounds like Japan all over again.
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Once again there is the implicit assumption that banks must 'keep lending', that the flow of credit is vital. When are we going to learn that building an economy on credit is like building a house on sand?
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Continued British banking loans? ..computer says:"Nooo.."
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Why call them 'our' banks?
Ian Murray
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It looks to me that the gentle prodding into nationalisation will become a big shove. Banks still do not know the value of their bad assets, yet their credit ratings are improving at the expense of the Treasury. Banks may be too big to fall, but they may be too big to save!
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I suspect not many of Peston blogers have youth on their side, but if they do take this message at least from Mr Mervyn King - no one can ever predict the future and this is the message that is vital to remember - if you have youth on your side things will get better again - everyone is very quick to predict and claim they were right and when all markets go up (its much easier to do going up), the biggest gamblers suddenly become insightful messiahs that we all think are gods - well the lessons is they are no more messiahic than you or I they are just full of ego (and they have a gambling addiction). Lesson for life is listen to everyone but only act on your own advice then you only have yourself to blame.
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How scary is this? Doesn't printing money actually just mean all the rest of the money in the economy (savings etc.) becomes devalued?
Sterling will fall even further.
I think deflation is the least of our problems.
With lower sterling, the cost of imports rises, which causes inflation.... and then they're going to print money... more inflation.
Very frightening.
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If confidence is needed then it should be made public just who (institutions or individuals) are trashing the banks shares?
Share prices dive because of lack of confidence, but someone is still buying and selling those shares and making a killing and the consequence of that (apart from profit for some) is that further confidence is eroded.
This now looks like an enormouse game of bluff between the funds, the banks and the government as to who is 'king' in the market place.
Confidence could be restored if some of the big funds stop trashing the banks.
Perhaps the FSA would care to elaborate?
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We have all tasted the good life, fast cars, extra holidays, etc.. now it is time to pay the bill.
We are all ready for it so lets get it over with.
Pull the plug Gordon go down in history as the guy who started the real change in Britain, let the banks go, be ready to pick up the pieces and start us all on a new adventure.
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I get the impression that this is the mark of someone who is about to leave office and knows so.
Otherwise, why be so open and honest about a situation which he must know will clearly cause issues for the problem he is in charge of clearing up?
The problem I have with the admission of "we don't know" is why are we paying you?
Or is there a third agenda?
The banks are broken, accept that. We must have a different instrument to keep the rest of the economy healthy whilst the banks ring fence the contamination and deal with it or give up the fight.
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#3
I used to work for the Co-op and they forced me to join their bank if I wanted to get paid. I never moved and am now surrounded by a banking crisis. But no-one ever mentions the Co-op. Am I missing something?
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'But such was Minerva's following that his statements were themselves affecting the money markets' - from the BBC's report:
http://news.bbc.co.uk/1/hi/business/7839375.stm
It may have been S. Korea but could it happen here?
Watch out Robert (and perhaps many others)!
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Some analysts believe the western world, or even the whole world, is heading for a great depression. If this happens, it will take many years to shake off, and economic growth will not return in the foreseeable future.
Other analysts believe stock markets will fall further but will reach a bottom in the summer of 2009. For instance, the FTSE is expected to hit a bottom of 3,200 in July.
Once the bottom has been hit, these analysts believe a bull market period will occur lifting the FTSE to around 4,600 by the end of 2009.
I don't know who is correct. At the moment all the pointers are down.
The general rule is that banking and finance crises do cause much deeper recessions, keeping asset prices low for longer periods.
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Mervyn is the marvellous great one in the sky, creator of all things fiscally toilet paper.
He is also the great omnipotent one that (I might add with the benefit of hindsight) was so astute and perceptive that he knew that the debt bubble was dangerous (commenting on the subject over time as he claimed last night) but did nothing to contain it or modify regulation accordingly.
I love all these economic experts like Mervyn who are so good at their job they could miss such a big obstacle. We are not talking a large iceberg ahead of the Titanic binocular deficient watch tower, we are talking the whole north pole ahead of us.
That is the scale of the failure of these so called experts who even when the obvious was plainly in sight, still didn't see the calamity for what it was. A mild correction. No impact on the 'real economy'. Oh dear, why should these people be employed.
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One does wonder how things would be if Brown had won his 2007 and had time to sort things out instead of solely attempting to patch things over for the election in the short term.
Out of interest does anyone know of an economy that did not go the low interest route 2001 through 2007, or are all politicians only interested in short term maintenance of power?
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To 1 & 2 puerileinsult
"Get a better handle if you want to be taken at all seriously"
-Thorntonheathen 2009
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If you look at the FSA and King as if they were a cheque, you would see that the words and figures differ.
That used to be grounds for bouncing it.
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Following the announcement of the proposed merger between Co-op and Britannia, could we have some more detail on the Butterfill bill? Is it the equivalent of the repeal of the Glass Stiegel Act for mutuals?
I hope not, as we're just coming to terms with banks' bad behaviour. I'd like to think building societies weren't getting ready to repeat those mistakes!
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Dissociation of Ideas
Distinguish between wealth, illth, and money
Wealth - changes in environment that are benefit to humanity
(eg bridges)
Illth - changes in the environment that are detrimental to humanity (eg weapons)
Money - is neither wealth nor illth, but merely tickets for the transfer of wealth or illth
Proof : If all the money disappeared overnight, the national standard of living would not change and things would be back to normal as soon as the treasury printed more tickets, But if all the real wealth an illth disappeared - all the industrial plants, roads and real capital etc, we would be plunged back into the Stone Ages.
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#13
Many months ago when I suggested here that the BoE should bypass the banks and lend direct at low rates, Alexander Curzon said that the Co-Op may already served that purpose.
With tax payer ownership of RBS it looks like we now have both options!
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What is all the fuss about deflation?
If a 4 pint bottle of milk costs 1.50 today and .75p tomorrow I will still buy only one bottle and save .75p.
If my employer employs 2 of us with weekly wages of 1.50 each he could cut his wage bill by sacking one, thus saving 1.50. He could alternatively reduce our wages to .75p each.
He again saves 1.50 and my colleague and I are no worse off as we can still afford the bottle of milk, and we both have our jobs.
Must have missed something.
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I first looked at these blogs having been taken for 10k by WWedgwood. Small biz of 750k employing 6.
What on earth is happening to us all??
The dollar rate which we rely on is at 8yr low (crippling!) Inland rev calling at premises to collect! I have a fixed rate mortgage of 5.6%! Have average credit card balances.
I have just managed to pay wages, but not myself. There, vented !!(one more thing-Vat reduction = joke!)
But....... why is the government chucking all this money at the banks. sURELY TO GET THINGS MOVING IT NEEDS TO BE THE PERSON IN THE STREET THAT NEEDS COMFORT TO SPEND.
None of the measures taken so far seen to stop the downward spiral of the economy and nothing to stop unemployment and house repo.
Should not those seemingly never ending government funds (billions/trillions) be delivered straight to the people and not the banks!
I have come to understand that some of you bloggers are running huge companies etc. So, Please tell me if i`m being stupid as a lot of people i know think the same as i do. Are we missing something? Is there a way of getting this money to the people in a sensible way? and if so, why the .... dont they do it!
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just how long will it be before the government/BOE realise that the only way to save the banking industry...and by extension the UK economy...is to attack the cause not the symptoms? They need to create the "bad bank". let the banks dump everything toxic. Then raise interest rates and the money will pour back and the pound will rise.......
Mervyn's method of printing money ("unconventional measures" he says euphemistically) will only devalue the money in circulation, raise inflation and in the end solve nothing!
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Instead of trying to coerce the banks into lending and promising them access to taxpayers cash if they do, the Government should 'cut out the middleman' - the banks - and do the lending itself.
We are familar with governments of national unity when things get tough, so how about a 'National Savings and Loans bank owned and operated by Government whose policies are dictated by national strategic and economic needs and not by outside considerations and shareholder desire for returns.
And in case anyone thinks this would take time to establish, we already have the National Savings side of the equation - taxpayers willingly investing their cash in NSandI - and guess what - we almost have the loan and deposit taking side of the equation in the about-to-be-nationalised by the back door RBS group.
Come on Treasury, nationalise RBS, sell off Coutts and AMB Amro, give the new group access to NSandI deposits and let's have a national savings and loans institution run for the benefit of commercial and domestic borrowers in the UK and for the good of our economy.
Other banks would soon realise that in order to survive they had to compete and I have no doubt that their natural greed would very quickly force them back into the lending market.
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Mervyn has nothing of value to say anymore to the British public, he has been behind the curve at every stage of this crisis and should be shown the door for presiding over the worst banking crisis in the UK history!
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As I understand it, all staff at Northern Rock are to receive a 10% BONUS in their salaries this week. Is this really where we want out tax to go?
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Let RBS die peacefully, without life support machines. Guarantee domestic personal and business deposits up to £100k for any single company/ person by a levy on other banks but base it on total liabilities not deposits (fairer to building societies). Then see what happens and be ready to help if there are unforseen effects.
Oh, and take away its licence to print money in Scotland before RBS banknotes cease to have any value.
Also take away Bank of Scotland's licence to print (or create) money. Threaten to take away the right of other banks to create money from debt if their market capitalisation becomes too small for them to be regarded as worth saving (say £5bn).
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#10
"This now looks like an enormouse game of bluff between the funds, the banks and the government as to who is 'king' in the market place."
I started to wonder that back in November when the TARP bill was initially blocked in the US and the Dow plunged - a case of the market saying "don't you dare not give us the cash!".
I wonder if a similar thing is happening here and those who can rememer "Black Wednesday" (I think it was Weds!) governments cannot beat the markets. They tried to save the pound and ended up not saving the pound and giving George Soros 4 billion into the bargin...
Maybe a final recsue plan should be a Good bank / Bad Bank arrangment so that savings are safe and people can still function - we need banks to make society work currently - and let all of the cr@p stuff go.
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I'm really not certain why any faith is vested in the 'stimulus' plans as described, either here or in the U.S.
Understandably, in the search for an intellectual framework upon which they can hang excessive spending, they seem to be downplaying that Keynes didn't support this Keynesianism.
Keynes had two virtues: he could drape as magnificent theory what financially drained British governments were going to do more in desperation than hope. This was a virtue in the eyes of some, anyway. And his second virtue was his willingness to admit the following under interrogation by a Parliamentary Committee convened on a very similar topic to today: his theory applied only to "a closed system". It did not apply to an open trading economy, certainly not one where cash was draining out via deficits as to an open sewer. In fact, his purported inflationary policy coupled with today's disregard for purchasing parity and the harmonisation of economies being admitted to trading systems has led us to this dreadful pass. Though, I stress, this was his theory, not his policy, and would be disregarding his own exceptions.
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Let's cut to the chase. If we follow the current course we are heading for bankruptcy on a national scale. Hyperinflation will follow as a way of debt default and sterling will collapse.
The problem is too much government not not enough. Governements have no business in business and here we are on the verge of full nationalisation of our major banks.
This is the road to totalitarianism if we are not vigilant.
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24. joeplumber:
"What is all the fuss about deflation?"
Your milk comes in an plastic carton made from imported raw materials which now cost more so your milk is still £1.50. But your wages are lower.
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Yesterday was certainly a good day to bury bad news and the appropriately named Mr. King seems to have not buried it too well.
Perhaps he did not intend to bury this news but The Treasury and the FSA tired to arrange it that way.
I have enjoyed reading Barak Obama's inaugural address. Two passages I particularly enjoy.
`...Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many: and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet...'
`...And those of us who manage the public's dollars will be held to account - to spend wisely, reform bad habits, and do our business in the light of day - because only then can we restore the vital trust between a people and their government...'
I hope when we are required to see the revolting sight of the ghastly and incompetent Mr. Brown fawning before President Obama in the hope of a ten dollar tip that some journalist forces him to acknowledge those words.
After which he can resign and get out of our lives so we can rebuild them with what little resource we will have left to hand.
I think we will be going to the IMF before long and joining Iceland on the naughty step.
Time for change!
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re 24
mortgages would rise from 3 to 5 times salary to 6 to 10 times salary and lead to more repossessions.
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The relationship between the bank's debts and their capital resources remain at unsustainable levels is what he meant.
Just as the relationship between the mortgage and the homeowners salaries
Just like the relationship between the unsecured debt and the salaries
Just like the relationship between the population and the unemployed
Just like relationship between Sterling and most other currencies
The required adjustment will happen quickly, its happening quicker than any other cycle and this adjustment will be massive and hurt many.
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#29
"As I understand it, all staff at Northern Rock are to receive a 10% BONUS in their salaries this week. Is this really where we want out tax to go?"
Northern Rock is owned by the Government but the staff are not employed by the government so they aren't being paid by us. It is a business which is being lent money to keep it going and restructure. I believe that the bonuses are being paid as rewards to staff for reshaping the business in the right direction.
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Why doesn't the BoE use tax payers' money to build up the gold reserves instead of taking on all this bad debt? It might at least stimulate some faith in the sterling.
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If you click on explain you get the following message.
'Messages on our boards are checked by a team of trained moderators.'
How long does it take a team to read three lines, OK sometimes 20, but a team?
How many in the team?
The speed with which they work presumably it is Peston on his own.
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I am sorry to say that we have now reached the end game for the British banks.
The only choice left is to nationalise them whilst we still have got an economy.
It does not matter what bailouts or incentives Crash gives them, banks will hoard money in order to protect what little shareholder value is left. They have no choice as they are private institutions after all.
For once in his life Crash and his MacCabinet have to act decisively and pro-actively rather than piecemeal and retro-spectively. The only way that lending can be guaranteed in the present circumstances is if the banks are controlled 100% by the HMG. Once we have navigated our way out of this mess, then we can think about bringing private investment back into the banking system.
In the meantime, get on with it man and stop dithering.
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Nationalised bank should lead the way with the lending, they should get matters started, ignore the private one, if they want business they will soon get the message.
Yoyoing with banks share seems to me that there are still quite a lot of people ready to play monopoly on the stock market, who has the best interest in all collapsing?
It looks like we are throwing good money after bad, give them some money, wait a few weeks give some more etc etc, dithering is not a way to deal with such an issue, this issue is beyond party politics.
We should pull ourselves together, and get cracking.
As we all seem to be committee/commission crazy, may be we should create one made of ordinary people, like the types who have survived on budgets for years, making end meets come what may a few lessons in common sense seem long overdue.
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Every UK consumer should cut up ALL credit cards, take out no loans for 15 years (not even mortgages), and as soon as the wages hit the bank – Take them out.
Since pensions are failing as are insurance companies, we should avoid these products also.
I wonder where this would leave the banks and the rich?
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Another good article from Mathew Lyn on Bloomberg today. Go to the following link
http://www.bloomberg.com/news/commentary/columnists.html
and click on:
"Obama Will Get One Shot at New Financial System"
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In the days when things were going well, remember them, Merv desperately wanted to see house prices come down. Guess what he got what he wanted plus a lot more besides. Do we really now feel that we can trust this man and his team anymore. Their credibility has been shot to pieces along with that of their chums in Europe. Sure pile the blame on the banks and their insane lending practices. This is disingenuous and overly simplistic and poses the real risk that the BOE is let off the hook. The same can be said of the FSA. Weren't they "stress-testing" the banks post NR? They are not worth the fat salaries they are getting paid nor the fat pensions they'll take into their retirement. At least Cox of the SEC has had to guts to admit his failures and quit.
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#24 What is all the fuss about deflation?
The problem with (severe) deflation is that it stifles the economy even more than it is already as people put off buying things as they see the prices falling. This is happening in the housing market already as people are not buying because they believe they can save thousands by waiting until prices hit bottom, whenever that may be.
People would of course still buy food and other necessities, but sales of big ticket items would probably be affected and this could lead to even more companies going bust.
However, I would agree that a certain amount of deflation is a lot less of an evil than hyperinflation, printing money is folly surely?
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The old adage that 'you can take a horse to water, but you can't make it drink' has never been more apt.
The government has supervised a mass orgy of consumer spending, financed by crazy credit terms. ('Got a pulse? Great, have a loan!'). The economy grew, tax returns went up, whoopee - who cared if it was unsustainable?
Certainly El Gordo didn't, or perhaps he was too short-sighted to realise what was going on. Perhaps he knew but couldn't work out how to slow it down and didn't want to cause a panic? One imagines him as a small child with a packet of matches watching the living room curtains going up in flames and wondering if he should tell anyone or whether they might not notice.
Now the party is over and everyone is wondering what they did the night before, the government is screaming at the banks to lend to unrealistic levels for the national good. In doing this he is only compounding earlier errors. The banks have to be able to rationalise their positions before they can assess what they can lend and to who. Business in the UK as a whole has to go through a period of retrenchment.
It's inevitable that this is going to take a few years, and will be painful for all concerned. It doesn't take a rocket scientist to work this out - anyone who thinks the economy can suddenly turn the corner and the good times will return just because the government backs the banks is deranged.
It will take years for the banks to finally realise what they have lost - the trust of the common man.
Banking, in a word, has to become boring again.
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typical new labour - a poor attempt to re-write history ?
"A weak currency arises from a weak economy,which in turn is the result of a weak government" Gordon Brown, 1992
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The Governor of the Bank of England MUST go.
Reason: Under his watch the whole financial system has been wreaked. He and the MPC are abject and absolute failures. Ditto for the men at the Treasury and the FSA.
Remedies:
It seems to me it is the globalised financial services part of the banking system that is completely broken. So it would make sense to separate the 'foreign' and 'home' banks so that one does not infect the other.
So: Set up a UK National Bank and transfer all UK deposits and UK loans etc. to this bank and A UK Foreign Bank to hold the rest. (These could be within each existing bank or in separate banks) All transactions between these two banking sectors should be subject to exchange control.
This solution allows government (i,e, UK Taxpayer) help to the UK commerce and industry to actually go to that sector - otherwise UK Taxpayer money goes into all sectors and the worst condition sector will absorb most - i.e. the foreign banking / CDO and other synthetic financial instruments sector.
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Quantitative easing is effectively a devaluation of the pound. If you increase the money supply without increasing the value of goods and services produced by the country, you effectively dilute the value of sterling, hence value of sterling drops against all other currencies. So lets stop using this euphamistic term and recognise it for what it is EFFECTIVE DEVALUATION. Nu-lab = old lab, with plenty of experience here!
Also, if Mervyn King has no idea when we'll come out of recession (as I agree no-one else knows) then why are we paying him a king's ransome for simply messing about with BOE interest rate which the market promptly ignores?
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Joeplumber.
The problem with deflation is the sustainability of debt, like mortgages.
Initially, commodity prices fall, which is nice.
Eventully, wages fall as well. not so good.
Accordingly, your ability to service debt in the long term falls.
You may get cheap milk but get to drink it sitting outside a repossessed home.
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37. PetersKitchen:
"The relationship between the bank's debts and their capital resources remain at unsustainable levels ......Just like the relationship between the population and the unemployed"
Yes. And just like the relationship between government spending and national economic output.
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The economy will pick up when house prices have fallen around 50% back to where they should be in terms of long term affordability ratios. When this happens banks will be happy to lend and more importantly first time buyers will be willing to borrow. This crisis was caused by the housing bubble (which went too far because of the unregulated behaviour of the banks lending too much on the back of it for short term gain). It's not rocket science. I pointed out that this was going to happen around 2001-2002 (despite the fact I have only a GCSE in economics) - every second of every day that passed between then and 2007 made the looming crisis even more certain and larger in scale.
The BoE ignored the housing bubble and did not put up base rates when it was necessary to do so (around 2001-2002) to take the heat out of it. The government changed the remit of the BoE MPC in 2003 by taking house price inflation out of the CPI index thus sowing more seeds of our doom and when in 2005 it was obvious that house prices needed to correct, Merv lowered interest rates again and the crazy bubble went on further. Mervyn King is the chief architect of our doom and the scale of the problems we are now facing.
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If the banks are nationalised and we, the tax payers are the shareholders are we allowed to attend the shareholder meetings etc. Can we vote for the board or demand resignations? Before anyone jumps in here and mentions elections, no it isn't the same.
The government wouldn't own the bank the nation would.
So since I would own the bank would I give myself bank charges. Would I allow an appointment to be made under the recommendation of the board that created the mess or indeed the government that didn't stop it.
Would I allow contracts for anything to with my bank go outside the UK including IT, services, building maintenance, transport etc.
Would I allow the managers to get together in expensive hotels when they could use video conferencing.
Well the answer is No.
However the people who will be running our bank will, by and large, be the same people as before. The old principle of lightning not striking twice.... well we've all heard stories to the contrary on that one.
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Robert, please would you make it clear that phrases such as:
the great cause of our woes (will be fixed), the reduction in borrowing and lending by banks and other financial institutions.
are merely in your opinion. I would dispute that reduction in lending is a cause rather than an effect; the underlying cause being an unsustainable inflation of asset prices, which itself was caused by excessive lending. It does not inform the public to present government sponsored falsehood as fact.
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Sorry 27
The government has already committed, spent if you like, all the NSI deposits.
NSI is only a form of government borrowing like gilts.
The government is purely and simply a spending machine, the more you feed it the more it will spend.
NSI rates are some of the most miserly in the market because of their implied safety.
The process of earmarking income for certain expenditure is hypothecation.
We have national insurance and road fund licence which sound and might appear to relate to their names but do nothing of the kind.
Governments are controlled by politicians. Party politicians CANNOT be trusted, even Mr yes we can.
When the politics goes against a politician they will invariably sacrifice (as GB would say, do whatever it takes) the country's interest on the altar of the party interest.
This is an immutable law of party politics.
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With all your savings start to forget interest rates altogether.
If you have cash in sterling pounds you can simply open a current account in dollars or euros or yen.
In doing this I have made 25% on my dollars in six months and about 20% on my euros with even more on the Yen
Yet I have received no interest on any of my cash but my capital has increased
Start thinking outside the box here as sterlibng continues down, encouranged by both the BOE and the Government as they want to raise inflation so as to get interest rates back up and cut their debts by that inflation.
By the way, I AM NOT stating any of the above as financial advice only what I am doing, risk assessment is always a matter for each individual
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#17
"Out of interest does anyone know of an economy that did not go the low interest route 2001 through 2007, or are all politicians only interested in short term maintenance of power?"
Australia and NZ had higher interest rates than the UK throughout, I think the current bank rate in NZ is 5% and like us they have cut theirs substantially in recent months.
Although the bank rates were higher down under they still experienced a housing boom, but it wasn't as extreme as our one.
Australia and NZ are feeling the pinch just like every other country, but they are not facing nearly as many difficulties as the UK/US as they don't have to keep their banks on life support.
Interestingly, the outgoing Labour goverment in NZ left a budget surplus, how I wish it was the same in the UK!
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Frightening.
That King is saying what he says is a sure sign that Brown and Labour have well and truly cocked it up.
Confidence built on integrity and trust is the only way to fix things. Mark my words.
Brown must allow the opposition to take over gracefully before the crumbles in UK society go out of control.
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#23 - of course good businesses need credit - it's called investment. They borrow to invest the money in their business in order to create growth by creating efficiencies, developing new products, expanding into new markets etc. This is how new jobs are created, wages are increased, standards of living rise and economic growth occurs. Remove these credit lines and the exact opposite will start to occur, which is already happening and is what the Govt is desperately trying to avoid worsening.
The bad debt needs to be flushed out so this process can return to normal again with much greater controls on the behaviour of the financial institutions and the sooner the better or a lot of people are going to suffer.
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"First, as John Gieve, the Deputy Governor of the Bank of England, told me in an interview for my Panorama documentary before Christmas, the Bank of England was too sanguine during the boom years that there was some kind of cordon sanitaire around the debt and asset bubble, such that when the bubble was pricked it wouldn't infect the real economy too much.
That turned out to be spectacularly wrong.
I appreciate the the Bank of England is not Mervyn King, but my recollection is that Mr King was pretty consistent and tireless in his warnings since 2004 that the house price bubble was dangerous and unsustainable.
For the real instigator and force behind the cloud-cuckoo land thinking that this wasn't the case, one would have to look no further than the great helmsman of Kirkcaldy himself, Gordon Brown.
I wonder why Mr Peston continues, against all the evidence, to hold Mr Brown and the Labour Government to so little account for the entirely avoidable financial collapse that we are currently witnessing?
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ONE PARTICULAR UN CONVENTIONAL
MEASURE??
MASS RESIGNATION PLEASE
DO IT NOW
DO NOT DELAY
PLEASE GO.
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Robert, I very much "enjoy" reading your blog as it helps explain the very real problems we face. Willem Buiter's Mavercon blog is sometimes also very enlightening did you read his entry for the 20th Jan?
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Looks like we are entering the THIRD phase of realisation of HUMAN ERROR.
The panic shown in stock and asset pricing where doom overshoots and pessimism become commonplace.
Human nature is so predictable how is it that governments are so blindly ignorant to this when setting its policy in these tough times.
They make big mistakes every time, last time it was interest rates up to 15% this time its getting BUSY BUSY BUSY before allowing time to see what the impact of what they have done will have. THIS BUSY BUSY approach is causing worry fear and a level of pessimism, which can cause the spiral, which they are attempting to STOP!
NOW all take a DEEP BREATH!
CALM DOWN!
BUNCH of HEADLESS CHICKENS!
FACT the British banks have lent to foreign BAD borrowers.
DO we care about GLOBAL yes but NOT TODAY maybe tomorrow TODAY we need to look after HOME.
SO lets concentrate on UK plc.
I say GORDON now WE own the BANKS do NOT give the Americans a chance NOT to give us back our MONEY!
The exchange rate is key MAYBE we should GET RID of STERLING and MAKE OBAMA EXCHANGE EVERY POUND FOR 2 DOLLARS right now!
NOW that would be FAIR would it NOT!
Other wise THE very least we should EXPECT is CHEAP / SUBSIDISED GOODS FROM THE USA. (Grain oil meat etc etc)
TO keep us SAFE from IMPORTED INFLATION.
WHAT do you THINK GORDON is our SPECIAL relationship WORTH IT ?
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I TOLD YOU ALL LAST YEAR we WILL BE PRINTING MONEY!
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#34 FreeSpeech2
I presumed the milk was held in something other than his bare hands when it was reduced to 75p!
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This financial crisis started with the US property market and the recovery needs to be fuelled by our property market.
Everyone seems to be aware that the banks need to start lending to stimulate this recovery.
On one hand the banks don't seem to be able to do this as they are so over leveraged. The support that the banks are getting is being used to reduce leverage and combat the attacks on them from the stock market. (This is a waste of money)
On the other hand the public WILL NOT change their mortgage or move house until they can get a better deal than the one they have at the moment.
Inter bank competition in my view is the way to start banks lending. Where one bank goes the rest will follow.
The Northern Rock is owned by the government and is used to lending at competitive rates.
The new Northern Rock policy should be lower interest rates to attractive levels, along with higher deposits to secure the mortgages and have the continued support from the BoE to stimulate responsible lending.
Confidence will return once house prices start to go in the right direction.
The loans can then be re paid to the BoE, at a profit I’m sure.
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The Lynn Bloomberg article is interesting and the trench warfare analogy set me thinking.
What we need for financial restoration is a totally radical approach such as the equivalent of a tank.
The working and non working populations will need a different approach; here Marx had a comment, from each according to his means to each according to his needs.
Here is an idea for those in the working population.
Ban bonuses altogether in ALL walks of life.
Let anyone’s pay be contractual and if they do not meet agreed targets, take OFF a predefined amount and those doing better get promotion. Thus, people who exceed agreed targets get a higher rate next year as a base, those meeting targets stay where they are, and those failing to meet targets get a new lower base. Make an allowance of inflation minus a small amount on annual pay rounds.
Ensure EVERYONES pay is in the public domain so people can see where the opportunities are.
All expenses and benefits that are claimed should also be public knowledge.
Yes that includes you, you snout in the trough MPs.
People should only be allowed to borrow against their publically declared incomes and borrowing should also be made public, including mortgage and credit card and personal loans.
Fait accompli
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No matter how painful things get at some point the UK and the World will come out the other side of this mess.
The way Gordon Brown and this Labour Govt are handling things it is inenavible that the UK is going to be left behind by the rest of the leading countries in the world when growth does return. In this regard I would agree with Jim Rogers that "the UK is finished".
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For a perspective on the health of our banks, as perceived by the markets - take a look at RBS preference shares. When Wall Street closed last night they were trading at a yield of nearly 36% - pure junk.
This is how the world views the backing of the UK government for a bank. We've a while to go to recovery, and as Mervyn says: who knows when it'll be ?
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All those folk beyond our shores who wanted to buy British and could not because of the very high pound - thanks to the Govt's much vaunted 'macroeconomic' policy (and I have it in writing from the Treasury) will be laughing their socks off at our shrinking pound because now we will want them to buy from us to shore up our trade deficit.
We gave no mercy to them when the wretched pound was over USD 2 to the pound, what is there to suggest that they will give us any now? None in my view esp as our manufacturing shrinks too, and I'm a manufacturer - of race engine parts. And i depend on xport.
If I'm right - and I've been watching this closely for 7 years - we're stewed, lock stock and barrel, because the UK will have to exist on a rapidly dwindling pot of fiscally-recovered 'internal' money and no amount of persuasion to borrow or borrowing per se is going to pull us out of that exponentially deepening hole. And it's nothing to do with banks or the BOE for that matter, it's just an unremarkable knock-on consequence of it all.
GC
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I would like to pose a question to contributors here.
Imagine that a young person comes to you for advice. He (or she) is single, has marketable skills, has not bought a house, has no debts, and has some modest savings, so he has lots of choices.
He feels no responsibility whatsoever for this mess. He has never:
- Worked for a bank
- Speculated
- Run up debts
- Voted Labour
Yet he feels that, if he stays in the UK, he is going to end up paying for others' profoligacy and mistakes.
Please tell me what advice you would give this person:
1. Stay or go?
2. If go, where?
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#46
'The problem with (severe) deflation is that it stifles the economy even more than it is already as people put off buying things as they see the prices falling. This is happening in the housing market already as people are not buying because they believe they can save thousands by waiting until prices hit bottom, whenever that may be.'
It is sometimes forgotten that housing is a base requirement, everyone needs somewhere to live. It should not be an investment oportunity. Houses will devalue over a period of time, granted a long period, but devalue they will.
There has only been house inflation due to the shortage of housing, If Prescott had built the number of homes he promised, we would not have much of todays problems.
Therefore deflation with housing is desirable in that it may mean people like nurses can actually afford to live and work in London without the need for the NHS having to offer financial inducements, to staff hospitals. The same could be said of teachers, etc.
Instead of pumping billions into banks why not spend some of that building homes both private and council. Lets have a building boom as we did in the 50's and 60's, with Northern Rock lending the construction industry the money, whether printed or real.
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Buying commercial assets does not sound too bad, especially if we can buy it at a good discount. The government is geting something in exchange for the money it prints. "Quantitative easing" is reversed when these assets are eventually repaid to the Treasure.
Hopefully, it will all happen and balanced out in a few months/few short years.
What am I missing ???
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People working in the real economy will save the country from the devastation caused by the reckless, irresponsible, financial dunces, and the minority of crooks and thieves that have been involved working in the world of high finance since the disastrous decision to adopt the poisonous ideology of Neo- Liberalism by Thatcher, Reagon and their cronies.
The most important question now is whether future governments, New Labour or the bankers friends, the Tories, have the guts or the courage to ensure that never again will they be allowed to exercise such influence with its inevitable consequences.
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If the governor IS right and the banks don't have enough capital then I would rather that we knew now. Surely it is better to take the hit and sort the problem, rather than pretending that it is OK and facing yet another nasty surprise further down the line.
If and when we do start to pull out of the current malaise/disaster, it will be interesting to see which sectors of the 'real' economy step up to the plate and show the growth that the UK requires. More discussion on that point at http://thedailycrazy.wordpress.com - someone find some lights at the end of the tunnel!
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We have all tasted the good life, fast cars, extra holidays, etc.. now it is time to pay the bill. Post 11
This is the big myth is it not? Decades of unprecedented prosperity which have benefitted us all. No they haven't. It has been boom and bust since the last Labour government was in power-remember the three day week? No power when you came home from work-if you still had a job.
Where I live there has been growth alright-population growth- more houses, and yes more cars, but no sign at all of increased prosperity-in fact the town is far worse than it was in the 1960s. The only beneficiaries have been the public sector and the big supermarkets which between them have hoovered up the prosperity.
It is very far from the truth to say we have ALL enjoyed the so-called good life. Some have, but they have done so at the expense of others as is now manifestly clear..
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#33
"Governements have no business in business and here we are on the verge of full nationalisation of our major banks.
This is the road to totalitarianism if we are not vigilant"
(From Wikipedia) "Totalitarianism (or totalitarian rule) is a concept used to describe political systems whereby a state regulates nearly every aspect of public and private life. Totalitarian regimes or movements maintain themselves in political power by means of an official all-embracing ideology and propaganda disseminated through the state-controlled mass media, a single party that controls the state, personality cults, control over the economy, regulation and restriction of free discussion and criticism, the use of mass surveillance, and widespread use of terror tactics"
Sounds quite familiar to me.
Seems to me the banks are the last thing to put in place.
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This is all nonsense. The capital ratios will be eroded by actual loan defaults. Given the high capital ratios that the Banks were forced to achieve by the FSA in October the Banks can start to allow some erosion of this capital from loan defaults before they get anywhere near the requirements of the Basel II Accord. So what was reported back in October is true, there would have to be a nuclear war before the banks losses would put them in a position of difficulty with respect to capital ratios. The only thing that would cause Banks to face difficulties is if the FSA reversed their requirements on the reduced capital ratios they announced on Monday (something not widely reported in the press particularly by BBC journalists).
The reason bank shares are being routed is not a fear of them going to the wall, but the fear that they will be nationalised either literally or by the treasury obtaining all profits for the foreseeable future. This fear also means that despite the perceived safety of a government backed institution institutional investors are unlikely to want to invest in a goliath nationalised banking system bringing the obvious problems that shortage of funding brings.
Nationalisation should be an absolute last resort, but now it appears to be the preferred option by almost all politicians and journalists. The reasons nationalisation is a very bad idea are multiple and too lengthy to outline on this bog(go speak to someone who was alive and working during the 70s). Everything possible should have been explored to avoid the need, this is not the case. The gov't should not be taking equity stakes in these banks the BofE should be meeting it's remit of lender of last resort under extraordinary circumstances. It should also have addressed it's obligations to ensure stability in the financial system, this failure alone should warrant the sacking of the Governor and anyone on the monetary policy committee who supported his policies. Every time the Governor of the BofE opens his mouth he damages confidence in the UK economy, he should either be gagged or removed from post or both.
I'm sure all politicians across all nations are telling their electorates that their country is best placed to weather the downstorm. Quite obviously they cannot be trusted, the real indicator of a countries' economic strength is the value of it's currency. Given sterling's unprecedented fall it's clear we are in the biggest mess.
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I used to think that the Daily Mash was OTT satire, but I am not so sure nowadays.
http://www.thedailymash.co.uk/news/business/only-twelve-more-bank-bail%11outs-to-go%2c-promises-darling-200901191519/
Check this out as darling says that the bank bail outs will be limited to 10 or 12 at the most!
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Economics has been proven to be a pseudo science that should not be measured in NVQ’s let alone Degrees.
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What we should fear is fear itself... very little has changed over the last few months. The roads, hospitals, schools, electricity, services, etc still work. We still have over 150,000 manufacturing companies.
OK, the banks have screwed up and have changed credit rules. This needs to be fixed.
One real problem is the hysterical meida reporting; which helped us get into this mess; and is now getting us deeper into it.
Peston is a classic example of a journalist who loves a crisis - as they all do - and talking things down. We are paying for the BBC to damage our economy.
What we need is some positive thinking; buy yourself that nice new car you will never ever be able to afford in the future (if you have the money); but stop living in crdit you can't afford.
Let's accept that the economy will drop a couple of points; house prices will go down; some people will lose thier jobs and some firms will go bust (as they should have done ages ago).
We need to stamp out City greed; and the sooner it gets done the better.
But who should run the country after this I have no idea - Brown has done a poor job; the Tories have no idea (and a cabinet fuill of old Etonians) - so where do we go from here?
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What we should fear is fear itself... very little has changed over the last few months. The roads, hospitals, schools, electricity, services, etc still work. We still have over 150,000 manufacturing companies.
OK, the banks have screwed up and have changed credit rules. This needs to be fixed.
One real problem is the hysterical meida reporting; which helped us get into this mess; and is now getting us deeper into it.
Peston is a classic example of a journalist who loves a crisis - as they all do - and talking things down. We are paying for the BBC to damage our economy.
What we need is some positive thinking; buy yourself that nice new car you will never ever be able to afford in the future (if you have the money); but stop living in crdit you can't afford.
Let's accept that the economy will drop a couple of points; house prices will go down; some people will lose their jobs and some firms will go bust (as they should have done ages ago).
We need to stamp out City greed; and the sooner it gets done the better.
But who should run the country after this I have no idea - Brown has done a poor job; the Tories have no idea (and a cabinet fuill of old Etonians) - so where do we go from here?
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I think it would be preferable for the gov't to Nationalise all the banks now, to enable the shareholders to pursue their legal cases for compensation before this current administration is gone.
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Re: Bank Bailout 2
I think Merv and the Govt are fogging a dead horse here. Looking at it from a purely capitalist point of view I see no alternative other than nationalisation of all the High Street banks with the State only guaranteeing new loans etc and not the old toxic ones.
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@steves_point_of_view
"Confidence will return once house prices start to go in the right direction.
The loans can then be re paid to the BoE, at a profit I?m sure."
Price are going in the right direction. When they have reached where they should be then people will start buying houses again. The whole housing (and mortgage) market is dependent on first-time buyers. These buyers have virtually dissappeared for several years (well before the peak of the bubble) because 1) they couldn't afford it and 2) they new it was a bubble that would burst and were waiting for house prices to correct. That is now happening and FTBs are in no hurry to buy until prices stabilise after the correction.
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Can someone explain why the banking shares are not currently suspended, pending a full audit of them? That would then allow King, Darling and Brown to come up with a proper plan.
Are these three people so incompetent that they don't realise the damage they are doing by leaving banking shares on the market. Are we actually being serious that Barclays is now worth less than its likely annual profit? We are in danger of scaring ourselves into a depression.
And for those 'I'm all right Jack's' who say that banks should go the wall, they seem to overlook the fact that they employ hundreds of thousands of ordinary people in the UK. On top of that are all the pensions and assets of many other ordinary people.
We are a country of morons , run by them. Can someone please sort this out.
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For a better assessment of the economy and the roots of what we need to replace this failed system read this blog by economist Molly Scott Cato: http://gaianeconomics.blogspot.com/2009/01/starting-to-feel-queasey.html
Robert Peston does a decent job at trying to assess things but he is working in an old tired paradigm of adolescent growth and competition - it is over and the quicker it is allowed a quiet death the better. Try reading Green Economics for the way forward we need to aim for - if we don't it is more war, more pain, more ecological disaster.
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66. A thinkb4 wrote:
"#34 FreeSpeech2
I presumed the milk was held in something other than his bare hands when it was reduced to 75p!"
Fair point. But it wont be a simple case of lets halve costs and prices all round.
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This morning I received an email from a lady who has relied on my guidance thru' her divorce and the rescue of her assets from her portfolio prior to the 'credit crunch'. She now has her money sitting in Lloyds TSB and asked me whether she should panic...
Here is my reply:
"Good morning...
If the Governor of the BOE doesn't know (see Peston) how on earth should I know? My hunch is Yes - panic! It's not that your money will be lost if TSB goes bad - it's more a matter of Sterling collapsing and the money that you have on deposit (which is implicitly guaranteed safe by the gov) being devalued when the BOE prints more (which is any time now - if it hasn't already started).
The zeitgeist tells me that somewhere around the time of Sterling, the Euro, and the Dollar reaching parity; the 'Amero'
currency will be introduced, we will re-enter the European financial Union, and the Asian currencies will merge; then an International Gold Standard will inevitably be resumed and our cash will be worth whatever 'they' say it is - which will inevitably be less than its current value.
There's nowhere to move cash to except to gold (and that can be confiscated by governments) so, although it's priced high, it can only go up in value by my reckoning. So buy gold coins (if you can find any), or buy a house
whatever the cost (at least you'll own something other than worthless paper) and sit tight for a thrilling ride... we ain't seen nothing yet!
Of course I'm probably being hysterically wrong about all this; but my guess is as good as anyone elses at the moment it seems.
Have a good day
luvus
xx"
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sLigHtLy oFf ToPic buT WhY dO SoME pEopLE fiNd It nEceSSaRy tO WrITe eVeRyTHIng In CaPItalS?
If YoU HaVE sOMetHinG iMpoRTanT tO sAY YoU CaN TrY uSInG yOUr woRDs witHOuT ResorTInG To eYeCaTChinG gIMMickS tO mAKe yOUr pOiNt.
SoMe PeOPlE maY FInD thE wAy YoU ExPReSs yOUrSElf iRriTaTiNg (aT bESt) & pOsSibLy eVeN ArRoGanT.
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As I have said before he real scare is when all the ATM's say that 'This service is no longer available' and the banks all shut. This what GB etc are desperate to avoid as civil unrest would soon follow. Massive public debt, quantiative easing, nationalizing banks are all better than total financial collapse.
I am probably more self sufficient than most of you but I still rely on my pension every month. The politicians may be floundering and they may look fools but they are staring into the abyss.
Thank you Robert for being frank with us. That is why we hang on your every word. When you get a call from Merfyn to say that the banks are all going to close for a bit while they sought this out please let us know.
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#72 friendlycard
I would advise them to go. Probably go to Australia, New Zealand or Canada in that order. If they are fluent in foreign languages then there are more possibilities.
The Gulf states Dubai and Abu Dhabi should not be discounted, but they would have to be prepared to live a lifestyle with their rules. Even though I am no longer a spring chicken I am considering a move abroad.
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How can Merv the swerve be saying that banking ratios remain at very high levels at the same time as our inglorious leader demands that they lend more? Do these people not speak to each other any more? The logical conclusion of Merv's comments is that lending will continue to fall.
It is time to reverse course. We must cut government expenditure radically ( I favour a 10% cut of all public sector salaries), increase taxes, increase interest rates (to boost savings) and stop guaranteeing hopeless cases such as RBS. This will cut consumption but will give people hope that there is a future. All I see at the moment is national insolvency. The only rational response to current policy is to save funds (not in pounds) and hoard food.
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Post 70. Definitely go.
I would suggest New Zealand and failing that either Canada or Australia.
They will find the following very useful
http://www.immigration.govt.nz/
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82 - perfect statement, so good it deserves to be there at 83 too well done
There will be a time when a long hard look will have to be given to the role of the press in all this
May be some measure instead of rushing for a scoop, a cooling off period before calling all 'breaking news'..
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It's disgraceful how this gov't has spun this sorry saga as the complete fault of the banking industry, and that they need to be punished and the form of that punishment is being promoted as the nationalisation of the banks. A quid pro quo way of getting some return on all that tax payers money being risked to save their skins. This is complete bull but yet again we've swallowed it completely thanks in no small part to the government sponsored financial journalists who for most people are their only source of information on this subject.
This nationalisation frenzy is being driven by the peevish nature of one man. Gordon is angry that he has egg on his face with this re-capitalisation plan, currently this is a £20Bn egg due to the losses from RBS alone. He is being made to look foolish and this is one thing he simply will not tolerate, he is a man of towering intellect you know, written books an everything, but not read many economic ones it appears. He is also annoyed at Barclays not wanting to play ball with him and turning to the private sector in the form of rich Arabs which undermines his cunning plan to fill the black hole in public finances with bank profits. Here's the news Gordon a privatised banking system is not going to make any profits, even with comparatively small industries gov't racks up huge losses in nationalised industries, imagine the losses from a nationalised bank! The assistance for banks should have been provided in the form of loans at not too penal a rate and the underwriting of bad debt, again and not too penal a premium to make the banks completely unprofitable. That way the gov’t avoids being an integral part of the market system. For years we have mocked the French and their flawed model of having government ownership of some parts of industry, and yet today we seem to be calling for full nationalisation of the last industry that should fall under gov’t control. With a fully nationalised banking system this country will be doomed to an economic wilderness for a generation at least. No other country across the planet will follow this model. It needs to reversed now before it is too late.
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A little off the point but still pertinant.
For any economy/government to base it's entire financial system on house prices, loans and taxes it can expect to raise from such things a petrol and the shuffling around of imaginary money, is in my humble opinion sheer stupidity.
It says a lot about the intelligence of those who are apparently in charge or are they as I suspect as 'thick as two short planks'.
As my late grandfather said, 'the day the started paying politicians was a very sad day!'
Sadly changing horses (Tories) I don't think will make one iota of difference. I'm not convinced they are any brighter.
We really need a monumental change in our whole way of thinking both on a personal level as well as political and economic. If we continue like we are and try and hang on to system we have; which we know has failed us then we will not have learnt anything and be doomed to disappointment again and again.
I wish I knew the answer to all of this but I know for sure we have to look at things differently and pretty damn quick.
There should be NO political parties only those who can do the job whichever side of the fence they are on. Political in fighting and point scoring is becoming out of date.
I don't care who has the good ideas.
Don't just blame Brown and Co; the whole system is too blame.
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It's a DEATH SPIRAL!!! Jim Rogers is saying dump all your sterling. Flee the mud island! Flee to the East!
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Private finance? Public debt?
Surely the increased level of public ownership of the banks is now blurring the lines between the two, and therefore bringing the risk transfer issue, so far as PFI and PPP schemes are concerned into question.
Were a PFI/PPP project to get into trouble, then the recourse for the public sector would ordinarily be to the private banking sector. But what if the banks are publicly owned? Is any risk at all being transferred?
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post 91 So wHaT?
YoU dOnT NeEd to rEAD it.
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93. excellentcatblogger:
Thank you, very helpful indeed. I think there must be lots of us thinking about this question.
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Where does money come from? A simple view would be that first the Government "prints" a certain amount and then the banks, through the workings of Fractional Reserve Banking, increase that amount by some multiplier.
The correct response of the banks when faced with a recession and growing defaults is to decrease that multiplier to reduce risk. In order to maintain an adequate money supply, the correct response of the Government should therefore be to "print" more of the initial money, so even though the multiplier is smaller the overall amount is the same.
In other words, when faced with deflation, not only can the Government get away with printing money (and using it to reduce the impact of the recession), it actually needs to do so, and should have started 3-4 months ago.
I'm not convinced the best way of using the additional printed money is just to give it to the banks though. Better to spend on public works or tax cuts and thus help control unemployment? The money would end up in the banks reserves eventually anyway.
Or am I missing something here?
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We need to get the bonuses paid back like they are doing in Switzerland.
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I just wanted to ask Robert if he thinks that there a chance that the decision to re-introduce short trading last friday, which appeared to coincide with a fresh run on bank shares, will go down in history as the most stupid decision ever made by anybody, anywhere, ever?
Can anyone provide an estimate of how many millions/billions the tax payers have already lost to short traders since last Friday, and is there a possibility that we will end up in a few days with nothing to show for the massive government borrowing that even now, will involve people who haven't even been born, as well as their children in repaying it?
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#87
Barclays is worth less than its annual profit if its assets over liabilites are less than that annual profit. Profit is fine, having good assets is fine but if you have large amounts of toxic debt that can be called in at a moments notice (perhaps through another foreign bank or even government going belly up), how will you repay the money almost instantly - especially if your realisable assets are illiquid? That's why Barclays and the other banks are in a (size of jupiters's) spot of bother.
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Instead of giving the banks billions more money why not set up a completely new "government" bank with those billions and lend out money at a sensible rate to UK only businesses and borrowers. Whilst this would certainly mean a number of well known institutions "going to the wall" the fact that the economy would be guaranteed an influx of credit would surely kick-start the housing market again - which is what is required. This in turn should curtail the failure of some of the banks that would not be bailed out.
Secondly why can't all the ministers , bank spokespersons et al be told to keep their mouths shut unless they have anything positive to say. We all know the economy and the public's spending is reliant on confidence yet every week another public figure is knocking it with more tales of doom and gloom - what pupose do these tales serve apart from gaining the speaker publicity and air-time?
I work in the asset finance industry trying to broker deals for equipment sellers and purchasers. In terms of clients requiring funding and selling kit my enquiry levels have hardly dropped yet my business levels are down 50-60% because I cannot obtain funding for even clients with good businesses and good credit ratings and those that I can gain approval for are paying rates way in excess of the BOE rate.
Brown and Darling are trying to do the right thing but Brown in particular is falling into the trap of thinking that the bankers he is dealing with have his same level of integrity and lack of self interest. They do not and instead of using the money they are being given for the purpose it was intended are using it to prop up their balance sheets and save their jobs and share options. It reminds me of my student days - asking my parents for money for clothes or books with the sole intention of spending it on booze and betting.
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72. Friendlycard
And which countries of any significance are following policies markedly different to the UK? I'd suggest there are none (though see below). Therefore wherever your mythical paragon of virtue goes, they are going to be paying a proportion of tax to repay the borrowings currently being incurred from the USA to China and all points between on the political and economic spectrum.
The problem with musings such as yours, I'd suggest, is that you're trying to benchmark the UK against some vision of paradise that you have. Unfortunately, you have the choice of several non-paradises on Earth. By way of example, let's consider two. Firstly, the euphoria surrounding the accession to power of Pres Obama. Well his proposed stimulus package amounts to about 3% of US GDP. Compare that to GB in the UK, whom your young person appears to feel is profligate and damaging his future prospects. Well GB's stimulus amounts to about 2% of UK GDP, so the UK is encumbering its young with less of a burden than the US.
Or consider Germany, which appeared to be resisting the trend for fiscal stimulus. It has had to relent and announced a package twice the size (cost) of that forecast though, admittedly, less in GDP terms than that of the UK. And on the subect of Germany, does your young person have a view on the stresses within the Euro system, the potential cost of mitigating these, and how much of the burden would fall on Germany?
In short, you need to stop assuming that the UK's problems are unique. In some ways the UK faces particular challenges, but then so do the US, Germany, China or wherever you look. Overall, however, they all face the same problems of banking contraction, falling asset prices, reduced consumer and investor confidence, and a need for governments to step in to mitigate problems now at the expense of additional debt burdens repayable in the future. There simply isn't a box to tick on the form for anyone to opt out of this process, at least not anywhere in the inhabited world.
The only place I can think of where you can avoid all this is Antarctica. I can confirm that the penguins are still more worried about being eaten by leopard seals than they are about the next move in interest rates. None of them have mortgages outstanding on their modest homes of pebbles above the ice. Like many of us, global warming is a major issue of conversation, as the krill population on which they depend risks being wiped out if water temperatures rise any further. So I guess your young person could join the British Antarctic Survey if staying at home is just too depressing.
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Surely it is now time that Due Dilligence is carried out at all major financial institutions in the United Kingdom.
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All you savers and pension payers, you are currently paying the historic bonuses for the city fat cats who are laughing all the way FROM the bank. Savers and investors have indirectly allowed bankers to pay themselves ridiculously large amounts. Perhaps because the people in control of the pension funds are bankers themselves.
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this week's problem here in the UK is that the politician's and regulators have taken to talking too much and 'thinking out loud' -- which is alway a bad idea if you're an idjit
and they are doing all of this chin-wagging whilst remaining secretive about what is actually going on in the banks etc, either because they don't know (v. likely) or are cooking up various schemes
so we currently have a kind of anti-leadership in a time of crisis when people and institutions and especially the markets are prone to even more hysteria and irrationality than usual (so currently about 110%)
trust has been dashed and needs to be slowly coaxed back; this needs to start with govt and regulators thinking very carefully before making comments and signalling their intentions well ahead of any action so as not to panic the horses any more!
as for all you chaps who are considering moving to Canada I can tell you that it is currently -18C at my bolthole there so you'd better buy lots of thermal underwear before you set off
I prefer the Somali coast at this time of year
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King has got so many things wrong in the past that I give zero credibility, as I suspect many people now do.
He seems intent on undermining the Government, so many of his comments have been contrary to what the Government has been trying to do.
Perhaps he has not forgiven them for criticising him in the past and dithering over his reappointment (his reappointment is another mistake the Government has made)- afterall many academics have huge egos and a "never can be wrong/cleverer than thou" mentality.
He has shown a remarkable ability to shift blame (e.g. the leaks he alledgedly made last year to a respected Sunday Times journalist which he subsequently denied)- even last night taking the opportunity to try to shift blame.
However you can only hide incompetence for so long, and his time is up.
The nickname Merv the Swerv is very appropriate, but he hit bollards some time ago.
He has made the BoE a laughing stock and should resign now before he does even more damage.
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Re 47, I think eddixon is confusing Mr Brown with another Labour politician, Lord "Mike" Watson.
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Gordon Brown has been claiming that many of the problems have been as a result of mortgage lending not being available, and that this is having a wider effect on the economy.
Today figures came out for mortgage lending for 2008.
Whilst it is the lowest figure since 2002, that was in itself a record year.
Mortgage lending has been on a one way path upwards since Labour came to power.
The level of new mortgage debt in 2008, above 2002 levels, should not be a problem, unless the economy is only being sustained by the ever increasing debt.
http://i410.photobucket.com/albums/pp184/egrid1/mortgagelending.jpg
1997 77,228
1998 89,376
1999 114,705
2000 119,798
2001 160,123
2002 220,734
2003 277,338
2004 291,221
2005 287,921
2006 345,119
2007 363,679
2008 256,400
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Gordon Brown put off an election because he 'wanted more time to set out his vision for Britain'.
Is this it or does it get worse/better?
Does he know something we don't?
GC
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I was extremely busy yesterday feeding the goldfish so very sadly I did not have time to watch any of Obama's inauguration-at least I will remember what I was doing according to the BBC.
I was also busy wondering how much each UK household has lost over the last 18 months without perhaps realising it.
A sort of stealth loss brought about largely by the combined incompetence of our Government (incl the FSA), BoE and sacked bankers, whom I noticed Merv the Swerv was blaming for our predicament last night.
Don't waste your breath Merv, we know you carry a large part of the blame.
Take RBS for example - add in the rights issue, placings etc, its valuation based on about 18 months ago would be about ?110 billion, compared with its currrent valuation of ?4b.
I think there are 20m UK households, about 3m of which receive benefits (excluding pensioners).
Our pension funds and our other fund investments were the major shareholders in RBS so let's assume 17m tax-paying households have lost say ?100b of the RBS lost value.
This amounts to a staggering ?6000 lost for each UK household on RBS alone. Of course if it is fully nationalised there will little chance of any of this being recovered.
A similar calculation would amount to about ?4000 per household for Lloyds and of the same order for Barclays say ?2000 to ?3000.
So for those of us who save in pension funds (apart from perhaps politicians and public sector employees such as in the FSA, BoE and Treasury) and who pay tax, we have lost a very large amount (between ?10000 and ?15000 on average on the 3 banks alone) without realising probably just how much.
If these banks are fully nationalised there would be over 100000 job losses from branch closures which will also cost us a lot in increased benefits etc.
There will be very little chance of any of the value we have lost being recovered from a nationalised state bank, let alone the immense damage nationalisation would do to our economy generally.
For those on benefits, if the IMF is called in, which I think is the next step after nationalisation, expect your benefits to be cut by the IMF.
So the question of nationalising the banks is a very serious matter for all.
It is a very great shame that the media in grabbing headlines and trying to out do each other in pessimism, e.g. by shouting nationalisation at every opportunity, are playing a large part in the destruction of our wealth.
Where has that wealth gone?
Much has been destroyed, with little hope of recovery if nationalisation occurs, and a much greater likelihood of recovery for our pension funds (and economy) if the banks are not nationalised.
However billions have also gone to short sellers.
Reuters last night commented on the massive short selling of UK banks by American hedge funds yesterday-they were closed on Monday.
I may not have watched Obama's inauguration yesterday but at least I was doing my bit for the American economy - at list the rich part of it - without realising it.
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#72 Definitely Canada.
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Has anyone discussed introducing differentiated leverage ratios for the 'real' economy and inter-bank lending?
Lowering leverage ratios as a whole would simply be a horrific deepening of our existing problem (the banks didn't keep enough in real assets to cover the risks on their perceived assets in US subprime investments).
What needs to happen is a differentiation of reserve capital for safer investments than for risky ones. Lending money to companies producing real goods in the UK should require less 'hedging' and thus become more attractive to the banks. This should help move money back into the real economy, and leave institutions who are dependent on unsustainable lending to go to the wall.
What I find particularly frustrating about this whole situation is the lack of consistency about the ideology of capitalism and markets. When things were going well, the rich argued that we mustn't intervene in markets, that they magically sort everything out. Now that the markets have failed, they don't have the courage of their convictions to let the markets sort out the mess, but demand to be bailed out by the people they were screwing in the good times.
The government should have taken a strong line and bailed out individuals, but not wealth. In a vain attempt to keep the rich rich, our currency is going to collapse and we risk ending up living in a Weimar Republic or Zimbabwe, with hyperinflation and the inevitable recourse to extremism.
Why oh why can't the politicans see it? It is the people and the real businesses that need saving, not these incompetent and greedy idiots who sold us into debt slavery so they could buy yachts.
'The graph
On the wall
Tells the story
Of it all
Picture it now
See just how
The lies and deceit
Gained a little more power
Confidence
Taken in
By a sun tan
And a grin...'
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The credit crunch has resulted in a reduction in the supply of credit from banks, but at the same time, the onset of recession has resulted in a reduction of demand for credit from business/individuals. Those businesses that are failing are presumably failing because their outgoings exceed their income.
The government's argument appears to be that making additional borrowings available to the business sector will somehow resolve this problem, but surely increased debt means increased outgoings (through additional interest payments), therefore the financial position of the company actually gets worse?
It appears to me that the government needs to boost the demand side of the economy if it wants to make any impact here. Offering incentives to consumers to spend (either by VAT reductions or disincentivising saving) will have little impact so long as individuals are more concerned about whether they will have a pay cheque next month than having an HD ready TV. So government has to step in.
Now buying a TV for every household would no doubt be welcomed by Currys, but since most of the expenditure will end up in Taiwan, it doesn't do much good for the UK economy. The government needs to target expenditure in a way that it will have the maximum benefit for every pound spent and there is a clear and persuasive argument for supporting the housebuilding sector, for a number of reasons.
1. Housebuilding is an indigenous industry. Most housebuilders are UK companies, pay UK corporation tax and reinvest the majority of profits in further UK development.
2. The construction sector is crucial to the ongoing development and improvement of the UK infrastructure, which in turn is crucial to the UK economy as a whole. Construction was one of the first sectors into recession and has been one of the hardest hit to date. A prolonged recession will result in the permanent loss of skilled tradesmen seriously impairing the industry's ability to recover in due course.
3. Done in the right way, government intervention need not be particularly expensive and could, in fact, be tax revenue positive. Let me explain.
The government authorises local auuthorities and housing associations to pre-purchase up to 100,000 new homes at a maximum price equal to 20% below the current national average house price, i.e. cGBP125,000. Total potential outlay GBP12.5bn. Initial public sector outlay is limited to legal and professional fees of 1-2% of end cost, say GBP250m.
With the benefit of these pre-sales, developers will get bank finance for the construction costs, boosting bank profits (which are of course taxable) and the developers set about completing mothballed developments, or starting those that have planning consent but are on hold. Up to GBP10bn is then spent on construction, with significant employment implications and of course feeding the building materials supply chain, again most of which is indigenous to the UK. All of this has so far been achieved, remember, with an initial public sector outlay of a couple of hundred million pounds.
Once the new homes are completed and ready for occupation, the local authorities/housing associations will have a choice: either complete the purchase and offer the new homes for rent, or, if the market value of the home by that date is greater that the agreed purchase price, offer it for sale on the open market. Any amount achieved in excess of the original asking price is split 50/50 with the developer.
In the event that the majority of houses are sold, the actual cost to the public purse will be minimal and quite possibly covered by the overall tax take from the scheme (in terms of corporation and personal taxes). If most end up in the hands of local authorities/housing associations, then, at a reasonable cost, the public housing supply has been increased by 100,000 units and the public sector has real assets for its money, rather than the Bank of England swapping bits of paper for other bits of paper, that simply result in additional costs for business.
If it works, do it again next year but for double the number of houses. If it doesn't, the country at least has something to show for it's GBP12.5bn, as opposed to a VAT scheme that doesn't appear to me to achieve anything.
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#79 NeedAFilip
Agree with non-nationalisation.
If a bank is nationalised, does the Taxpayer then meet all the losses from toxic debts? If so, then we would have to pay higher taxes in order to generate funds to restore the bank to a sounder footing once more.
Instead of nationisation, would an IMF loan not be more appropriate?
If we are as currently, gradually assuming all the risk in bad loans in the banking sector, the pound thereby eroding in credibility and value, soon to be felt as the fire of inflation once we start buying again. This will add more pressure to our deficit on balance of payments, and things start to spiral.
Instead of trying to pull ourselves up by inadequate and non-existent bootstraps, the IMF loan would restabilise our international financial position - albeit at an impaired level - but more reliable - lower sovereign risk. The terms would presumably be strict. We would have to work towards more balanced budgets, the banks would have to forgo reckless lending, the FSA would have to regulate and ensure our internal debt levels were gradually restored to those we can afford.
This would be a period of "fiscal and monetary discipline and the elimination of severe financial distortions in the financial system." (Martin Wolf, pp 195, "Fixing Global Finance", Yale University Press, 2009).
Also included would be the "monitoring and if necessary the regulation of the national balance sheet, thereby precluding the the emergence of currency mismatches" (As above).
By being subjected to rules laid down in the loan conditions, we would avoid trying to do the current financial DIY that we are indulging in. The more appropriate policies would be laid down, and the we and the rest of the world could sleep at night, knowing the patient had been stabilised and was on the way to a staedy recovery.
My question is, would the taxpayer have to contribute via taxation to the IMF loan repayment tranches over the years, or would they come out of the improved liquidity and banks balance sheets?
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#13
"I used to work for the Co-op and they forced me to join their bank if I wanted to get paid. I never moved and am now surrounded by a banking crisis. But no-one ever mentions the Co-op. Am I missing something?"
Maybe. Competition ( Status; King of the castle; Mine's bigger than yours and I take it to the Caribbean 3 times a year) is a big part of what has been driving the global economy over a cliff.
Co-op is still something of a dirty 4 letter word because it has connections with the concept of co-operation, which is an activity resorted to by wimps. Wimps are clearly of a lower order than Masters of the Universe.
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Robert - there are so few people who can possibly have all of the answers! You (and I, or even your average Sun reader) will be able to formulate a reasonable argument for correcting one the current issues (inflation, interest rates, exchange rates, lack of confidence in the market, short selling, over valued housing market, lack of first time buyers, rising unemployment, inflation busting rail fares, nationalisation of banks, the sorry tale of Woolworths to name only a few). But to address all of those simultaneously, or set out a pecking order to deal with them one-by-one is a monumentous task that only a few should get involved in. MPs? Certainly not. Commercial Banks? Even bigger no-no. Foreign experts? Highly unlikely as there could be a hidden agenda? The FSA? They regulate not stimulate recovery? Treasury then? Let them keep taking our taxes and sending it where it needs to go - the Treasury is not there to fix the economy. So who? BoE could and is having a go - and you, nor I, quite rightly, know the ins-and-outs of this. The country is is in uncharetered territory - and you're blogs are held with some reagrd (debating whether they should be is a separate matter) and whilst focussing on the negatives you invariably get more "hits" - but here's something, if you're positive in your assessments, the country will feel a little happier, and that is what's needed. Focus on the neagtive and if you're proved right then what can we look forward to? A wheelbarrow full of cash to buy a loaf of bread! Anarchy? Riots? Then who'll read your blog? Think about being in this for the long haul ... not the sprint!
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joeplumber wrote:
"We have all tasted the good life, fast cars, extra holidays, etc.. now it is time to pay the bill."
Speak for yourself. I haven't, and I don't fancy paying your bill by watching my savings disappearing with my bank, however badly it may have been run.
"We are all ready for it so lets get it over with."
I'm not: don't.
"Pull the plug Gordon go down in history as the guy who started the real change in Britain, let the banks go, be ready to pick up the pieces and start us all on a new adventure."
If you're going to mention 'history', try reading some. Plenty of people lost children to starvation in American squatter camps in the 1930s, after the banks had failed. Read some Steinbeck: for a long time the pieces weren't picked up - they were buried.
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speaking of people who ought to shut up, Charlie Whelan, now back as some kind of spin doctor for GB, was claiming last night at a soiree that Brown NEVER read the papers so has no idea of all the rude things we're saying about him; I've never heard such a load of BS in my life; the trouble with Brown is that he spends all day pouring over the papers etc and considering what he should do from 27 different points of view before decided to apply a 'range' of complex solutions (which all just so happen to cancel one another out, if they ever even get actioned upon)
they need to get back to some Keeping it Simple Stupid rules
RBS, Lloyds and Barclays could do with being totally ignored for a while; benign (or malign) neglect; make it absolutely clear to the markets that they are not going to be formally nationalised and then just wait
as for the currency speculators and their prognostications IGNORE THEM too; everyone one needs to SIT TIGHT and NOT BLINK as our current poker hand is kinda poor but the crisis will soon start to focus on Europe and USA again and forget about poor l'il Britain
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Hmmm! The thought that plastic cards would be refused is a little unsettling. Only a few years ago we had the option of taking a card imprint and signing and the option of writing and signing a cheque, backed by a guarantee card, all of which took place 'off-line' and could not be refused in a 'faceless' way.
It is my view that if you put your card in the slot and enter your PIN number, then you have paid, just as if you had signed the piece of paper.
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The most honourable Gordon Brown reminds us whenever he can that this is a Global problem borne out of America.
If it is 'Global' why has sterling crashed so dramatically against the dollar and euro?
Surely this means that either we overly subsidised American growth under Gordon's watch as Chancellor or Gordon's policies of dealing with the recession are weaker than the rest of the Western World.
Maybe if he had a greater focus on managing the economy in his tenure a Chancellor rather than replacing his boss, he wouldn't have got us into this mess in the first place.
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#60 - muzzwell
"of course good businesses need credit - it's called investment. They borrow to invest the money in their business in order to create growth by creating efficiencies, developing new products, expanding into new markets etc. This is how new jobs are created, wages are increased, standards of living rise and economic growth occurs."
I see where you are coming from, but that's not necessarily true, and not necessarily the problem. It's entirely possible to fund expansion by re-investing profit, which is arguably a more sustainable and lower risk method. It is perfectly viable to borrow to invest, obviously, but a lack of credit in the short term doesn't kill you, just delays your growth plans. It's not the end of the world.
The thing is, not every business owner wants to expand; growth is not necessarily the be-all and end-all for everyone. Many small businesses are quite happy just to carry on as they are - as long as they make enough each month to cover the overheads, pay the wages, and live a comfortable life themselves, they are quite happy. And there is nothing wrong with that.
For example, let's invent a small garage. Deals the odd 2nd hand car, but mostly is a service centre. Employs 3 mechanics plus the owner. Lets say they turnover £20k a month, on average. Overheads and materials of £10k, mechanics cost £1500 each, leaving £5500 for the owner. A nice, comfortable income, which allows him to have a good home, a couple of cars and a foreign holiday, and to socialise with his friends, and put a bit in a pension pot. He is happy - no desire to expand, it's too much hassle.
BUT - the issue with the business is that it has no real reserves of cash. A quiet month will need him to dip into the overdraft. As will needing to buy a new welding machine or something. He can cover the cost in the medium term - just takes a little bit less home himself, but he needs credit in the short term. It is the lack of this kind of credit facility to a perfectly viable small business that will kill that business; credit that facilitates cashflow, not credit that facilitates expansion. An expanding business can wait, a cash strapped but nontheless viable business can't. And there are hundreds of thousands of small businesses like this around the country. These are the ones who will suffer.
Personally, I'm in the other category - I want to borrow to expand. We have enough collateral, and have a loan agreed in principle, but have decided to just wait a while. Credit to us is not life or death. For many businesses it is.
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Protectionism is here whether we like it or not. Governments are now instructing their banks to support domestic economies.
UK is especially vulnerable due to our reliance on overseas investments and the financial sector in general.
RBS is now a state bank - end of story. Lloyds Group will become a state bank soon. Barclays will probably join them as it can't hide toxic garbage in SIVs for much longer.
HMG now guarentees 100% of deposits in all these institutions and is 'on the hook' for the lot - lets not quibble about this.
The 'markets' now have UK PLC by the b***s and no mistake. Thye real question now is when will the full crash-point be reached, and what will be the fallout for everyone.
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Before we enter a period of "uncharted wilderness of unconventional measures" I demand a new captain and crew.
We are not in uncharted waters, this is like a re-enactment of the run up to the Great Depression.
It's time somebody respected and untainted took over to put confidence into any planned stimulus package.
For goodness sake Labour! This may be global problem requiring global solutions, but Britain seems to be in a really bad place and sinking fast.
Britain's problems are All Your Fault, you were so busy thinking up new taxes, directives and legislation, you failed to regulate, read the banks accounts properly or even wonder what British banks were up to as Britain's ballooning credit binge got totally out of hand. The buck stops with YOU! The country needs an Economic Rescue Team consisting of the Best Able and include trusted Vince Cable before the Lemming effect takes an unstoppable hold.
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Robert,
I implore you and others to be part of the solution rather than just report the problem.
The government will start a form of “quantitive easing” in a matter of weeks - this means creating money out of nothing - however, it will still be debt creation not credit creation.
The positive side of this is you expand money supply. The down-side consequences could be; hyper-inflation and a run on Sterling. (Some would argue this is a good thing). There are alternatives out there:
My opinion, is the solution in the first instance, is to print money outside the central banking system (credit creation not debt creation) - create a complimentary currency to sterling, this second-tier currency should be pegged to sterling and be an interest-free instrument. As stability slowly returns to the economy deregulate money altogether and encourage private issuers of interest-free money.
The problem with money (or the “medium of exchange”) is interest, it sucks the life out of the fruits of our labours. There should also be no financial rewards for sitting on money i.e. interest receivable - money needs to “go out and work” to create prosperity.
Interest is the reason that Capitalism's misfortune is the unequal distribution of wealth.
What we need is a debate, a debate on the future of the monetary system, recognise it’s fallibility (accept collective responsibility) - and create a new model to benefit all who strive to create wealth through the fruits of their labours.
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so was it a good idea to make the BoE independant then or was that a fatal mistake ?
Does GB now think he can heap all the blame on the BoE/FSA and City and that
460+ Nulabour MP and the Cabinet partying on the back of the bubble are blameless
why bother with elections then ?
Might as well go back to having the Queen in charge, god bless her then
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I don't pretend to understand the intricate details of financial shenanigans but I'm savvy enough to see that the economy as a whole and the banks in particular are waist deep in the do-do, and its still coming in!!
I'm hoping someone can help me out though. I have a (for me) fairly substantial amount of HSBC shares - ones I was left rather than bought. I've watched them take a bit of a hammering over the last few months and my inclinations are to hang on to them. HSBC have not asked for government help to my knowledge and so seem in a better position to ride out the storm than anyone. I'm not in it for a fast buck and if it takes 5 years for the shares to recover then that's fine by me.
But can those in the know (i.e. anyone not working at the treasury) tell me if this sounds logical or should I just cut and run whilst I can still get some money for my shares?
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Why bother listening to the FSA, or the politicians of all main parties. The olny way out is for the banks to disclose their losses. They are huge, much more the the Goverment can cover. They are insolvent and the sooner we recognise that the better it will be for all of us. We cannot go back to the previous model of easy credit. Do we really want another house price bubble and an increase of personal debt.
Debt needs to be a ina much smaller ratio to GDP. Need to live within our means. At this rate our great, great grandchildren will still be paying for our mistakes. The FSA, Banks, and Government need to be held responsible for this.
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Have a read of this
http://blogs.reuters.com/great-debate/2009/01/20/us-and-uk-on-brink-of-debt-disaster/
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105. Trout Mask Replica
"Can anyone provide an estimate of how many millions/billions the tax payers have already lost to short traders since last Friday"
I'm pretty certain the answer is very close to zero. The UK government has invested in two banks: RBoS and Lloyds. RBoS certainly has a listing in the US, and I think Lloyds does too. The US lifted its ban on short selling in early-November, so anyone wanting to short these stocks has been able to do so via their US listing for over two months. The lapsing of the UK ban on shorting is a non event.
Bank share prices are not falling because short sellers have decided to pick on them for no particular reason. Banks shares are so unloved because of another round of above-expected loan losses and writedowns by the banks that has eaten into their capital. There's a general feeling that banks remain very undercapitalised (Citi and BoA in the US have already had a second injection of taxpayer investment, Pres Sarkozy announced another EUR 10 billion going into French banks today), and two specific reports saying as such. RP has blogged on Mervyn King's comments along these lines, and in the US, a professor at NYU has tried to quantify the problem for US banks. Prof Roubini calculates total writeoffs of US banks may rise to USD 3.6 trillion, whilst total capital of US banks is only USD 1.4 trillion. He reckons Pres Obama needs to inject a further USD 1 trillion into the US banks to avoid a collapse.
Nobody wants to buy bank shares right now. If the only problem we had was a few short sellers, I somehow doubt we'd all be getting so agitated about it all.
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95. Ian_the_chopper:
Thank you, a helpful answer.
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Post 87 I agree re suspending RBS & Lloyds on the grounds that no fair market can exist until the true position is established.
This would alos stop huge swings on unfounded rumours.
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Just watched PMQ and noted DC addressing GB's "staggering lack of detail" in relation to latest bailout package.
His response was staggering! They are now going to conduct audit on banks and will report back - only now? They will "talk" to banks? What? Just talk?
GB stipulates that govt actions are "right thing to do" Well why doesn't he back up his actions with details.
You could tell he was riled when he responded opposition should grow up and refers to opposition as being isolated. Here was a chance for him to clarify matters but no, he is above that.
The conceit is there for all to see. Taking a balanced judgment here, I would reiterate, how can the government possibly think they are doing the right thing when there is no correct way to address our economy until everyone is in possession of the full facts. By bailing out the banks without insisting on full disclosure of their debts they weakened the position of the UK both locally and globally - evidenced by the state of our currency. Frustration is probably the key word to describe the public attitude towards the government at present.
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#60.
Disagree (even though my use of language seems to have offended the moderators) with you.
A good business does not need to borrow to invest. It is an acceptable practice but in the end is elevating risk as any investment is doing. By lending you are risking future earnings. By investing current earnings you are risking none.
Businesses do not need to borrow as a standard part of their operating model.
Paying for your inventory with cash means that if the value of your inventory is reduced (due to a slump in demand and prices), then all you are doing is lowering your asset values.
Paying for your inventory with credit means that if the value of your inventory is reduced (see above) then you have the same debt to support but with lower assets to back them up. Lower turnover means you have less money to support your debt repayments and as a consequence your viability is threatened.
I repeat ... Why is it standard operating practise to operate with credit ... Even 30 day trading terms are not needed when times are tough .. You don't let your assets out of your sight until the money to pay for them is at hand. All that happens in recessions is that bigger (usually over leveraged companies) push out their settlement on their trading credit to the smaller companies, therebye pushing leverage down the supply chain and threatening the foundations of the supply chain. OK .. so small companies fold with creditors who settle on pence in the pound.
It just appears to me that the Business world as designed credit into the economy in order to inflate activity where no real growth was made.
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trouble is when people like rogers make a comment it is a self fulfilling prophecy; He shorts the pound, then publishes an article that the pound is finished...pound falls...he makes a killing! Just another reason to ban shorting.
ps robert i am sure you have GB's email....can you send him this link
http://blogs.ft.com/maverecon/2009/01/can-the-uk-government-stop-the-uk-banking-system-going-down-the-snyrting-without-risking-a-sovereign-debt-crisis/#more-419
thanks
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Having been born in the era of Keynes just as the US were pulling the plug on the UK economy I hope that Obama, Brown et al will work from a global perspective and not become protectionist.
Yes we need to remove the stupid reliance on funding based on massive debt but we cannot remove this in an instant. As debt Junkies we need to be weaned off gradually because if we just ditch the banks and leave them to free market forces we will go into terminal decline. Why? because it was free market forces that got us into this mess in the first place.
It is important to recognise that we are now in the transition period (which may last several years) to a new economic era as the old capitalism is dead.
What is interesting is that this new form of economic management (part government part market forces) has strong overtones of Keynes but yet again we cannot rely on Keynes as the answer because world economics are not as they where in 1945. This new economics is not underpinned by any ideology and we are writing the textbook/manual as we go along. Just listen to and read the economists who are in total disagreement and you recognise the oft used phrase uncharted waters is true.
We cannot expect Mervyn King to have all the answers or to necessarily agree with the Treasury. If a whole group of people are writing the new economics textbook (and they are) the differing opinions (even contradictory ones) that lead eventually to a new consensus are essential.
Certainty is no longer available (and never really was!) but rather than destructively criticising those working towards the solutions, bemoaning the past (which many of us helped to create), pessimistically writing the UK off or looking for scapegoats we should concentrate on contributing towards those same solutions.
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I would like to concentrate on the overt positive message of Mervyn King rather that to try and find hidden code.
It would be gross political nievity to predict an exact date for a turn around as he is likely to be asked to update this prediction on a daily basis.
The differnce with the FSA message seems to be one of semantics rather than a contridiction.
I do take the point on that the bank of england may have been too sanguine, but as my mother used to say to me when i was an irresponsible child " if he told you to jump of a cliff would you do it."
Personally i don't want to see any blame passed from the greedy banks to the BofE
It is still not too late to bring those who showed irresponsibility to account
on maybe a more sensible note the B of E's major role has always been a lender of last resort rather than an enforcer of business practice.
to reiterate what a few others have said, there is no point in blindly blaming Gordon etc for a worldwide crisis and historic free enterprise culture
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Re: 91 101
¸,ø¤°`°¤ø,¸¸,© JuSt SpReAd ThE ViBeS ©,¸¸,ø¤°`°¤ø,¸
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The other approach to saving banks is compulsory debt to equity swap for the depositors.
1. Put the bank in administration.
2. Administrator decides how much new capital is required to make it safe to trade.
3. All savers with deposits in the bank have money seized from their accounts pro-rata to provide this new capital and are given shares in the bank in exchange.
4. Existing shareholders are wiped out since the bank is deemed insolvent. Similarly since the bank is insolvent all employment contracts are cancelled and subject to renegotiation.
5. Administrator fires the directors and senior managers with no compensation.
So savers lose maybe 5% of their deposits instead of potentially being completely wiped out. They also end up owning the bank - so the bank stays in the private sector. The people with most to gain from saving the bank i.e. the savers who could have their funds wiped out if it failed pay for the rescue, not the UK taxpayer. This means overseas depositors are not baled out by UK taxes and UK taxpayers with no savings don't pay to protect the money of richer people.
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PRINTING MONEY is an EXCELLENT idea.
Punish all hoarders of cash under the matress with lower real purchasing power. HOARDERS with cash balances should be forced to SPEND.
Money flows should 'counter' equal but 'opposite flows ' of goods and services. (Read that somewhere..maybe the Treasury's website.)
Stand by technicians ! Have your grease guns at the ready..and start those Presses ROLLING.
Rather have 20 per cent illusory inflation than 10 per cent real unemployment. In the short run at least ...up to the next GENERAL ELECTION.
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The problem with printing money is not so much that the banks might hoard it, but that they might use it to buy euros or dollars to pay off their foreign debts or invest abroad. With the pound looking as if it might take another nosedive at any moment, this would be very sensible from their point of view. Indeed maybe they have done this with the capital that has already been made available to them. The effect on the pound would be catastrophic.
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PS If Credit has died ...where and when will the funeral be held ?
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The Tories have been well and truly suckered into promoting a plan Gordon wanted to pursue all along, Nationalisation of the banks. Nice one George when you stated that full Nationalisation should be considered as an option you gave him the mandate to do exactly what he is doing now.
Gordon will pick up RBS for something like £25 Bn, it was valued at about £200Bn 18 months ago. If he forces Barclays into Nationalisation he will pick it up for at most £5Bn at today's share price, valued at £63Bn 18 months ago. Now you might argue that if these companies went into administration the shareholders would loose all value. But this is effectively enforced administration by the gov't, Barclays is a more than viable business, the problem is that it may have to reduce it's lending in the downturn to ensure continued viability, it would probably be looking to do more business overseas in more stable and viable economies(Dubai?). This is the problem for the gov't, to stand any chance of being re-elected there needs to be some green shoots of recovery before the election, if the banks adopt a more conservative approach to lending the recovery will be delayed (Gordon's logic). If he really had the best interests of the country in mind and not a personal crusade to prove he his a worthy leader and in fact a world saviour, then he would allow the downturn to some degree run it's course. But he his panicking, looking for scapegoats, making reckless decisions with public finances and trying to bully institutions to undertaking his will. In the long term lending does need to return to more sensible and conservative terms, there are enough tools available to gov't to mitigate the effects of a downturn in the short term without resorting to the opportunistic measures of trying to seize the assets and wealth of viable businesses to cover your own failures. Monetary policy changes take a while to have an effect, we are just going to have to ride out the storm until these measures take effect. In the meantime where possible we need to ensure we provide the necessary support and liquidity to the banking system and business to survive. Nationalisation of the banking system is not the solution, moreover it will lead to an economic wilderness for the UK for decades to come. Gordon needs to stick his ego in a box and introduce strategies that ease lending by the banks without the wholesale destruction of viable businesses.
If this was one reckless bank there could be an argument for taking that institution to task and using the appropriate measures. But this is a systemic problem and not just national but global. In the national interest we need to stop vilifying 'the banks' and do more to support a critical part of our economy, this needs to start from the top, as a start a statement should be made clearly and succinctly that the gov't does not intend to nationalise the banking system further and that other means will be sort to increase lending if it remains a problem. That should go someway to restoring investor confidence in our banks and hence confidence in the UK as a free, democratic and liberal environment to do business.
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108. JayPee28bpr:
Thank you, a very detailed comment.
I don't think of my mythical paragon as an unrealistic or overly-selfish person - he/she expects to pay reasonable taxes, but not to pick up a huge, never-ending tab for the mistakes of an older generation, and/or idiot financiers, and/or an inept government. It is certainly true that the UK does not have a monopoly of these problems.
The US intervention package is indeed bigger than ours, though the USD might look a better bet than the GBP. This said, my mythical young person might be more inspired by the can-do Obama than by the blame-shifting Brown.
Re. Germany, I think my young person is broadly pro-Euro and, being young and progressive, likes the European project. But he/she is aware of some of the structural problems in the Eurozone.
I think - trying to see things as my mythical paragon might - that he or she is a bit fed up on non-economic grounds, too.
Being young, this person is probably (a) concerned about the environment, and (b) unforgiving of hypocrisy.
Therefore, he/she might be turned off by a government which, in the space of a week, both (i) banned 100 watt lightbulbs (in the interests of the environment) and (ii) approved the demolition of 700 homes to build a new airport runway (in the interests of......?)
Again, thanks for a helpful and thought-provoking reply.
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The Faustian contract is now being called. If you sell your soul (read national treasure) for twenty years of the illusion of wealth and prosperity, Mephistopheles will one day come a knocking and drag you to where you don't want go.
Metaphor perhaps, but think about it. Faust isn't just a "play", an"entertainment" but a distilation of insight which our forebears had learnt through bitter experience. But each generation is doomed to repeat the history if it refuses to acknowledge these deep forces.
The Greeks had identified hubris followed by nemesis.; blind inexorable punishment. It sweeps away the innocent together with the guilty. The Polis suffered through the criminal folly of its leaders.
It has ever been so.
Those the "Gods" wish to destroy they first make blind.
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117. eddixon:
"#72 Definitely Canada".
Thanks. Canada would certainly be high on the young person's list.
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Robert, why are you referring to the 'bubble' as a separate financial phenomenon and 'the real economy' as something unrelated, as if it would be shielded?
Let's look at some of our real non-financial economy, the wages from which should, as per your article, be sources of 'real' demand, not 'bubble' demand:
1) Retail - imported stuff from the east
2) Commercial and residential property - and the plethora of middlemen and agents making their living
3) Construction - needless new shopping malls and housing, not to mention movers, painters/decorators, furniture sales, you name it
4) HMG - another unsustainable source of demand
5) The car industry including used cars
I could go on. Now take the inflated financial wages out of the economy as well, and demand for everything plummets- restaurants, theaters, petrol, holidays, credit, nannys, schooling, etc. etc.
Government tax revenues plummet, hitting the benefits system and further reducing demand.
The 'real' economy IS the 'bubble' economy....agree?
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88 eartheart
good link and good post, I'm with you 100% on that
91 - three fingered nob
I sympathise but 101 ac is right, you don't have to read it. I have, however, foolishly read yours and now you've given me eye strain, where should I send my bill?
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Whilst nationalisation of banks such as RBS is attractive please note that would mean UK plc bearing the brunt of ALL of its writedowns and losses. Whilst this might happen we don't really want to take this in one hit or need to have to be very open (at the current time when confidence in banks / finance is so low) about the extent of such losses. The more losses RBS takes the more the government needs to borrow and thus the more sterling will drop...
Increased lending should not be to businesses whose demand has significantly dropped and will stay below the level of last year etc AND remain so for a number of years. There is no magic pill here - such companies will need to reduce costs and unfortunately that means reducing jobs..
Stabilising the housing market is going to very difficult. I think a better course of action is helping stay in their current homes by local housing associations taking a share of their homes ( the government will need to make cash available to help with this activity). For the people who borrowed way over their means their is no solution ; they will need to lose their homes or trade down to a smaller more manageable home.
Bolstering manufacturing is a great idea but unless we want to produce expensive clothing etc it will be hard with our resourcing costs (labour, land , rent etc ) to have a future in anything other than hi-tech related industries. Its too late now but why couldn’t we have led the world on automatic train braking systems
Investment projects areas where the UK could lead other countries should be considered. Why not support the rollout of the next generation internet access / infrastructure; maybe we can lead the way for services such as download films etc.
Why not also take steps to provide secure electronic signage of contracts / legal agreements etc (to replace a physical signed pieces of paper) ? It’s going to happen to why not try to lead the way ?
I don't believe the financial system itself is completely flawed beyond redemption but it has taken an almost cataclysmic jolt and needs to be tightened up. Every government now realises that they need to much much much much more closely monitor the risks and liabilities of domestic banks. They will also need to keep constantly reviewing the stability of foreign banks on whom they rely on for foreign investment as well.
To date the resources the government has devoted to regulation of the banks and the finance industry has been woeful. There are some very smart people -though maybe not as smart as they or anyone else thought- working in finance. Therefore we also need to attract world class people to the regulation side. That will mean paying some eye watering salaries (to attract top class people) but in general the regulation side will need more people ; so it can react very quickly to changing circumstances.
I think the banks etc will need to be forced to divulge much more information on their activities to the Bank of England (provided it remains 'independent' (such information could be used for political gain by the party in power at the time).
The Bank of England also needs more power to be able to turn round to a bank and potentially prevent a course of action that is too leveraged / risky ; normally issuing a short statement to the press concerning a specific warning would do the trick
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Common sense will prevail.
There is little danger of hyperinflation in such a stagnant economy and you can be sure that any signs of overexuberance will be firmly clamped down.
Let the Bank of England get on with the job which they do well, and enough of this Toxic Panic nonsense that has been planted by Tory trolls.
Inflation is nearly back on track which is no mean feat, despite the shorters,the media wolves, the Tory doomsayers and UK's horrid allies the Germans trying to talk us down(Why are Tories sounding like Germans and even worse, nutty pre-war Germans?....even bloggers referring to the Illuminati and their OTT conspiracy paranoia is getting a bit ridiculous!)
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The likes of the BOE and the politicians do not live in a real world. No amount of pleading and offerings can force people to spend when they have no confidence in the financial system or the likelehood of long term job prospects. My own business is suffering a massive loss not because of the fall in orders, but the sheer volatility of exchange rates. So I'm getting out while I still can. I have no intentions of buying another car, house or even take a holiday I'm gonna do what millions more are doing hunkering down. That is where the bankers have taken us. I hope they rot in hell together with the crummy so called political leaders who allowed this catastrophe to happen.
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The government is borrowing more than £150 billion this year, by selling gilts. The money people are investing in gilts would otherwise be lent to the private sector.
Meanwhile, their central banks are cutting interest rates, reducing the incentive to deposit money with the banks.
In the US, the government is following the same brainless policies only in even bigger quantities.
The current policy of the UK and US governments amounts to destroying the private sector, and taking State control under cover of the "crisis" that results.
What a shame that supposedly "heavyweight" journalists like Mr Peston are completely taken in by it and never ask any awkward questions. Perhaps they're scared of the consequences to themselves?
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No. 132. "helrobalex"
You are right that HSBC has held up better than the rest of the banking sector.
In the good old days, bank shares paid good dividends, and were held more for that purpose than capital growth.
My personal feeling is, the stock market will fall further. The market hasn't hit the bottom yet. Also, it's unlikely HSBC will be paying large dividends in the future.
Therefore, my advice is to limit your potential losses by selling the shares now. You can always buy them back at a lower price when the market hits the low.
If you don't like the idea of selling them, then sell 50% of your holding, therefore
hedging through diversification.
The stock market is very dangerous at the moment. Amateur investors tend to be left holding their shares all the way to the bottom during a market crash.
Trouble is, where do you invest your money in the meantime? You should aim to protect the current value of your investments, rather than trying to make money. Look for index linked investments to protect your money from inflation, as the fall in the value of sterling will lead to higher consumer prices towards the end of 2009.
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#58 jarebu
Thank you very much for your answer.
I can imagine it must have been very difficult for any leader to resist following Greenspan's psychotic interest rate cut in the US, though as you say a Labour NZ and Conservative Australia managed just that to some degree.
It became socially acceptable to run interest rates at below inflation since everyone on the block was doing it including the big cheese, USA.
It is never mathematically acceptable to run interest rates at below inflation since it allows investors to make a guaranteed return and it is then a question borrowing as much as possible to make as much money as possible.
So the likelihood is Brown et al knew what they were doing 2001-2007 but Teflon Tony was smart enough to get out before the crash and hand Gordy a 'Pup'.
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108. JayPee28bpr
Thanks for yet another calm analysis, this time dashing the hopes of a young nation!
You are way too calm to be amongst the Screamers and Dreamers on this blog.
I'm 75% Dreamer I reckon and 25% smug bar steward, having sold my house late last year.
Concerning running away : My daughter set out on Jan 2nd "a la Dick Whittington" to Paris, taking a little money, a little less French, but bags of bottle and a good mate for mutual support for when things are rough. Hopefully they will find enough luck to get a job before the money evaporates and she's back to her mum's on the overnight bus.
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In response to 72
Let me know if you find the answer
I have a small business and a family, I have not contributed to the mess, I have never turned my back on anything but begin to wonder whether to abandon this fast sinking ship and try my luck elsewhere. I'd rather be poor in the warm sun!
My fear is that all those incharge look weak and to eager to please the wrong people, shifting the blame and taking the working community for mugs, insulting intelligence and crippling honest citizens.
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Well there we have it in black and white.
We have lost 20Bn from the share value on the shares that Brown bought in the first bail out.
It would have been cheaper and far more effective to have let them go to the wall.
The government would have paid out on the deposits(liabilities) and the banks that were left would have picked up Mortgages and loans (Assets). like what happpened with the Bradford and Bingley(remember them)
Some would have lost their jobs true, but overall the same number of depositors and borrowers would have had to be serviced so the staffing reductions would have been small in absolute terms.
B and B were allowed to go that way and the world didnt end. It would have been the same for whoever else would have fallen. The world wouldnt end and the strong would pick up the pieces.
We shouldnt be trying to buck the market on the way down anymore than Brown should have bucked the market on the way up like he did.
Call an Election
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I do not understand all the talk of nationalisation - how can that happen? In addition to the enormous RBS debts that would have to be taken onto "UK PLC"'s books, what would the effect on Pension Funds be if RBS shares became worthless at a stroke? - over 90% of RBS sharesd are presently held by institutional shareholders.
Surely it would be pension fund armageddon - or am I missing something?
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# 91 three_fingered_bob
Only 'Slightly off topic'.........
Some people might find being picky about capitalisation in a business blog, when the country is facing one of the worst recessions in its history slightly irritating if not arrogant or maybe even PRETENTIOUS
# 82 Andywr and for good measure # 83 Andywr the repeat... and every other blogger complaining about the press coverage and bloody CONFIDENCE
This crisis is NOT due to reporting and positive thinking isn’t going to solve it... it is to do with reality.....
I never heard the flip of this ridiculous theme prior to the crash... where were the bloggers complaining that the BBC were reporting house price rises and the countless programmes on how to make money from property, weren't these winding up the market? And where were the jibes about over confidence in the economy.
Thinking positively only works if there is an element of reality involved...... we've all been thinking positively for years - but the reality of what the banks were doing and the consequences of it were kept from us!
For all those that want a change in reporting tell us what it should be...... should we be kept in the dark about the banks because we are too stupid to understand it? Should RP be spinning his reports so that 100s of billions the Gov is spending brings a smile to our faces? Or is it just the masses that don’t need to know, because for all the moaning you do YOU are still reading this blog.... why, because you understand it and the plebs don’t?
Life isn’t about buying the nice new car because you can, it’s about whether you need it..... just like it was for 100s of years before we ALL started to act stupid (replace car with cart if going back more than 100 years please).......
And I do mean ALL of us – I feel I acted sensibly over the past decade, I finished paying my mortgage, I saved a bit and my business is on a sound footing....... all this credit nonsense is nothing to do with me.......
But I have benefitted indirectly like lots of others, when I look back life has been easier that it used to be, my salary slightly higher, my spending has been a little more of the I want than the I need.... in many areas I was better off. I now realise that even though I didn’t contribute to the debt problem I somehow managed to benefit (albeit indirectly) from, what I considered, other peoples feckless borrowing and spending.......
Can I now complain if I am expected to suffer a little to put it right....... NO
PS – But I will ;)
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"A weak currency arises from a weak economy, which in turn is the result of a weak government" Gordon Brown, 1992
The above entry was post number 1. It was moderated and removed. Why? Is it libelous? Did it offend? Is it inaccurate? Having read the message board ‘House Rules’ I can see no reason to pull this message.
Personally I think it’s a fantastic statement and I am unhappy such comments are being removed with no recourse to detail or explanation.
Moderator: It’s all well and good having a “Moderation explained” page but I put it to you…
WHY BOTHER? We learn NOTHING because you never say WHICH RULE WAS BROKEN….!!!
And now I must get back ‘On topic’ to give me a fighting chance of actually being heard by the British public in the British state media…!!
I think this financial crisis is going to hit the BBC hard during 2009, with swathes of middle management and moderators being cast into the abyss of unemployment and degredation.
I’ll lay a £20 bet with EVERY moderator that my message doesn’t get published!
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I still remain mystified as to what was done with the monthly reporting of large exposures done by all banks. This should have revealed a trend in debt, particularly in syndicated large exposures. What has happened here and why is no-one pursuing the FSA and B of E for numbers - they do exist and comments that noone knows the level of assets, liabilities and potential toxic debt is rubbish. Or, God help us, if true, we are really in the doo doos!!
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TOXIC SWAMPS
The debt time bomb is ticking
And quickening
Bank stocks are melting,
Melting away
With each passing day
Into double digit declines
Despite treasury lifelines
Lloyds at 33.4 p
- where will the floor be ?
Sinking further and further
On fears of being nationalized
Burdening the nation with debt
But at what size ?
For this toxic bog
Is enveloped in fog
It Bubbles away
Bloated with toxic gases
Debt in the billions
Or in the trillions of masses ?
Complicated calculations
Nobody can understand
Shares melting into quicksand, sifted
With the help of the short selling ban, lifted
The rivers of credit
Have stopped flowing
‘Bad Banks’ are reaping
What they have been sowing
The economy is stagnating
The House of commons is debating
Shareholders anticipating -
- which bank is next
With a noose around its neck ?
Shareholders find the door
Bank stocks hit the floor
With bank debt a bottomless hole
Investors won’t touch them
Not even with a bargepole
Lifelines
And rafts of blank cheques
From an empty treasury
And new bills quickly drafted
The footsie is dragging
Lower and lower, floored
As toxic debt from here and abroad
Spreads further inland
Swamping the economy
Clipping its wings
While sterling clings
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It is blatantly obvious what Brown has been trying to do with Barclays. Because they did not accept gov’t capital at the moment he has no power over Barclays on the amount of lending and risk they are willing to make. This causes him immense problems, he cannot dictate their terms of lending or force them to make loans that they would otherwise not make under the current environment. Look at what he is trying to do, force the banks into doing the things(reckless lending) that is widely believed to be the root cause of the current woes?
If I remember, Peston was highly critical of Barclays not taking the gov’t capital at the expense of more penal terms from the Abu Dhabi wealth fund, claiming it wasn’t in the best interests of the shareholders and was for the benefit of the board members being allowed to pay themselves huge bonuses(which they have since declined). It was quite obviously a strategy to keep Gordon’s grubby little hands off the shareholders assets. It may not work, it looks like they will have a real battle on their hands to remain an independent business, but they are better placed than Lloyds who look unable to resist the corporate raid being undertaken by Gordon. They must really feel shafted after taking on the basket case that is HBOS after Gordon’s coercion, he’s about to stab them in the back and steal all their assets for a bargain basement price.
It’s a shame Vince Cable has now resorted to type and is playing the political game instead of rational objective analysis.
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"Nor did I feel particularly reassured by his assessment of when the great cause of our woes will be fixed, the reduction in borrowing and lending by banks and other financial institutions."
A bit misleading. I would go with...
The *cause* of our woes was reckless lending and reckless borrowing, an economy built on debt rather than producing goods of value, all overseen by a regulator and government who were happy to "let the good times roll". The *effect* of all this (i.e. a debt fuelled boom) is the state we now find ourselves in.
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I'm a little confused here. Can anyone explain to me why it makes good economic sense to force banks to lend money to people who may not be able to pay it back or to businesses that have a high potential of going bankrupt anyway?
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Robert,
What I find rather strange about all the news items relating to the Credit Crunch is that nobody seems too keen to mention 2 words when talking about the root cause:
Roberta Achtenberg
Whilst I wouldn't blame any one person or institution for the current troubles, it would appear that her "meddling" with bank lending and an almost enforced regime of subprime lending by otherwise careful banks laid the seed for todays problems. That reckless lending, pushed for by Achtenberg in the '90's evolved into remortgaging against the same loans in this century.
A careful analysis of history won't blame the banks and borrowers. I think it will blame the actions of Achtenberg.
Please can you bring her story to light so the rest of us get an insight into her world during the Clinton years?
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The impotence of the government is one of the features of this recession, as is the Conservatives' quite extraordinary ability to make no political capital whatsoever out of a crisis that is at least in part a result of the government's tacit approval of the All-You-Can-Eat credit Zeitgeist. Only Vince Cable appears to have a sound understanding of the issues, but he is not in a position of influence. When the dust has settled politicians from all sides will emerge as diminished figures in the eyes of the electorate, because when the crunch has come they have exposed the fact that they are unable to truly influence events. They are powerless.
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What's your answer to it all then 'notsosmug', drag this out forever then have the crash.
You must be able to see it coming, gradually more and more are seeing the light.
Lets get on with it, pull it all down and start again.
Who knows we might find a better way.
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#84 - What are you on about in referring to 'shareholders pursuing their claims for compensation'?
The banks haven't done anything illegal - they have simply been inept, greedy and incompetant.
I should add that it is largely their shareholders that have allowed them to do it but collectively voting for the various courses of action they have taken. During the good times - shareholders were well up for this highly leveraged, highly "profitable" postion the banks took. As long as your dividends came through and the share price went up... did you care a jot?
Investing in the stock market is not a one way bet. If it was then every single person would shove every single spare penny they have into the markets.
"Shares can go down as well as up" - remember that line when you signed the form?
If you've lost money then tough luck. The fact someone is in a position to buy shares in the firstplace suggets they probably aren't that badly off anyway.
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Is it possible that we are seeing a gradual shift of economic paradigms? From credit-based economic systems to systems which do not include institutional credit. I know nothing about economics but it seems to me that everything the Government does has the effect of both delaying the change and making it more inevitable.
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#53 The economy will pick up when house prices have fallen by around 50%.
I think it is true that the housing market will stabilise when the real cost of housing falls to its long term average. There may be an argument that you need to overshoot this to a degree to create an incentive to buy.
However, the real cost of housing is determined by mortgage costs. The higher are mortgage rates the further house prices need to fall.
If mortgage rates fall then house prices may not need to fall much further. The real difficulty is creating the conditions where banks can afford and more importantly have an incentive to lend at close (+1-2%) to base rate rather than the current +3-4% rates on offer.
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OMG?
JUST PUT THE STATE SUBSIDISED
INSTITUTIONS INTO ADMINISTRATION
GET IT OVER WITH
AT LEAST THEN WE CAN ALL SEE THE
REAL MESS AND THE DIRECTORS CAN
BE DEALT WITH.
Gordy ?
JUST GO.
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Am I right in thinking the general rule is that Labour usually spins its way into power, spends until the money runs out, moves the country to near-bankruptcy and then gets turfed out? Labour must have some sort of Manual that explains the procedures.
The difference this time is that with Gordon Brown at the helm - probably the UK's most dangerous politican ever (an arrogant, conceited, machiavellian, megalomaniac) - we're now steamrollering to the mother of all economic collapses.
It also amazes me that "democracy" is failing so spectacularly at the moment. The Government's behaviour is little short of fascism with virtually no accountability to Parliament or the people for its increasingly reckless, almost unbelieveable actions; how on earth are they getting away with trashing our economy (and, therefore, our society) in this way?
Whilst I'm incandescent that Brown has conceived, planned and led us into this absolutely unprecendented and hitherto unimaginable mess, I'm equally as furious with the remainder of our supine political class - of all persuasions.
Supreme Leader Brown is getting away with political and economic murder; is anyone going to stop him?
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Of course the 'nuclear' option with respect to RBS is to let it go into administration (but pre-arrange most parts to be taken over by other banks).
If the net share worth is 4.5 billion (not sure what value woud be placed on the bondholders and other instruments, loans etc) but if potential losesses to the end of 2010 are in the region of 40 billion+ then it looks atractive on the surface (to the taxpayer);
However even if deposit accounts (both retail and business coporate) were protected what would be the knock on effect on bond/loan holders ? e.g pension funds/ investment funds/hedge funds/ foriegn governments ???
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"He says that because so much of banks' excessive lending and borrowing has been with other financial institutions, there is "scope for a reduction in the leverage of banks without restricting lending to the 'real' economy"."
There is a major problem though whenever the "real" economy is a phantom operation,...... http://cryptogon.com/?p=6348 .... which the Banks and the Markets are complicit in supporting with either their Ignorance of the Structured Investment Vehicles being traded or their Arrogance in their being Allowed .... which does raise a question as to why short selling has again been permitted.
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In September, there was time to sort out a National Bank. Now there isn't, at least not from scratch, and so we'd have to consider patching together what's there now. OK, Merv's covered the "doing our best" scenario, but what about the other option he doesn't have the courage to address, meltdown?
My thoughts in this period of calm before the storm are that this is the moment to sow the seeds for recovery afterwards.
I'm torn between a tech solution, going fully electronic on the spines laid down by the existing electronic systems, which is risky if power supply becomes a problem, and the exact opposite, returning to local systems backed up by a bicycle generator and decentralised, hard-printed documentation, which is risky in control terms.
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GORDY
5,856,000 on OUT OF WORK BENEFIT
ARE YOU PLEASED?
YOU SOUND PLEASED!
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One day in the Place of Learning,Westminster; Educator King asks the class 'How long will the recession be? One learner puts his hand up. Yes you Darling 'Short and Sharp sir!' 'Was that the right answer?' enquires experienced learner Brown. 'I have no idea myself!' says Teacher King.'I'm afraid we will have to ask the experts'. 'Do you mean experts like the Prime Minister,the Chancellor and the Governor of the Bank of England?' asked learner Clegg. 'No' pipes novice learner Cameron 'They don't know,I ask them once a week on a Wednesday and they still can't answer a question directly.' 'I've got it!! pipes learner Osbourne ' Just google Peston's bloggers',they're smart they will know! 'Finally some sanity in this place' sighs learner Cable.
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It is unsustainable for the UK to sustain its banks for the losses they brought on themselves by expanding into areas without due consideration.
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re : post 155 : onward-ho
"Common sense will prevail..."
Hopefully it certainly will ; at the next general election.
Though people who have their heads firmly stuck in the sand right now will probaly miss it.....
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"Oh dear. If the economists we trust to steer us through this mess ever had a torch, the battery appears to be flat."
Well my shining light, you could always tell us!!
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All of this is a bit like me getting the lawnmower going again in spring.
It won`t start on the first, second or third pull. You take the darn thing apart and strip it down. You clean the plug, put in fresh petrol, give it a tinker here and there - finally you resort to giving it a good kick and hey presto it works.
You don`t know how you did it; but you feel rather pleased with yourself in getting it going again.
Gordon Brown, whose everyother sentence starts with, "I believe." and I think he is now the only one who does - and who incidentally gave an appalling performance at PMQs today - seems to be having the same approach as I do every year to my lawnmower.
This isn`t working so we will try this and this, until something eventually happens.
Unfortunately he is spending our current wealth and our future well being in his tinkering about and is impressing no one, let alone the electorate.
Like all things that don`t work, bring in someone with a fresh approach and it usually starts first time. The problem why it didn`t start originally was very simple and was usually staring you right in the face.
In this case its Brown`s ego! He believes he is the master of the universe and everyone else can go and hang themselves.
The way he is handling matters unfortunately is that this country is fast becoming a joke around the globe and Obama if he has got any sense will steer well clear of Brown as his fresh start will be tainted by Brown`s bagage of the past decade.
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# 154 AfroyInt
You and Angie Merkel think alike. German industry (of which there is a lot) is being made storm proof as we speak. To keep it and the supply chains ticking over almost on standby if necessary. The cost of resurrection would be enormous if action not taken now. If you close a mine and leave it, reopening it is financially and technically unaffordable. Same goes for cars. Expect to see electric Mercs in 3 or 4 years.
Just out of interest. FIAT has been given 35% of Chrysler for nothing. FIAT has more innovation and technical knowledge than the whole of Detroit put together say US commentators.
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I think some folk on here are incorrect with regard to house prices. I expect them to RISE, the reason for this is the currency devaluation. Historically in the UK house prices have risen on the back of currency devaluation.
Please note, I’m not advocating that printing money is good – This is just an observation.
I will also admit to not being an expert.
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ragjunkie69
Its the pro labour lobby.
THEY are always complaining over mine.
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This comment was removed because the moderators found it broke the House Rules.
For those who may not know.....when a high street store has a SALE, it simply means that they are selling things. The general population of the UK have become tired of being ripped off. Shops will mark an item for sale at 200% of what they actually would like for it, for 30 days (the law), and not expect to sell a single item. That way, they can tell us "Save 50%", and still be getting 100% of the money it should have been all along. Do you really think you saved £650 on your new sofa? You didn't.
We (as in the UK) will not be spending any more of our extremely hard to find money with any "company" for a very long time.
Telling us that we can "SAVE 70%" simply leaves us with the thought "Crickey, how much was a being robbed before!".
And as for the banks, well, reap as you sow fatty kitty!
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Could Robert Peston please explain why Russian billionaires who default on huge loans from RBS and other banks and who live in multi-million pound houses in this country do not have their houses re-possessed as Joe Blogs who misses a couple of mortgage payments would?
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#25
because Brown does not trust anyone but the state to know how to look after and spend YOUR money.
His whole philosophy is based around the state taking all then distributing back out as HE best judges the most diserving.
We have seen what a bloated public sector that helps perpetuate and just what a mess it creates - just look at the pensions credit system for example. It probably costs 5 times as much to distribute the money (and still get it wrong) as it would do to just let people have the money via the tax system.
you are right, let US have the money and we can spend or save it as is our wish/ need
If I had failed my business shareholders as badly as he has the uk tax payer, I would not only be out of a job but would probably be the subject of a class action
For goodness sake, (un-elected) Brown, do the decent thing, admit this has happened on your watch and resign
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It seems everyone now has a different view depending on their own agenda.
This is hardly likely to inspire confidence which has been so badly corroded in the past few months.
So much so that it seems the country as a whole could lose it's AAA rating. Costing potential lenders four times as much to insure against the country defaulting on its loans.
Who would want to lend in those circumstances. No wonder sterling is starting its collapse.
Gordon Brown standing in parliament today is becoming an increasingly worrying figure.
Won't or can't answer vital questions and a one track mind that thinks he is the one with the right answers and the rest of the world will have to follow. Dream on!
Leaving Brown well out of the equation we are desperate to hear an honest evaluation of the country's state as a whole how bad it could get and what can be done when the full fallout is known.
Not everything will be lost but it would be nice to know what companies we still have that will help the economy to recover. That is if they don't take fright and pull out of this country altogether.
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161. OCNewsjunkie:
"In response to 72
Let me know if you find the answer"
I'm getting some really useful and interesting replies on this question, which I see as a part-moral, part-practical issue. Several posters have recommended Canada, Australia or New Zealand.
Your comment reminds me of a remark by novelist Patrick O'Brian, who once said that it was "easier being poor in a warm country".
I can relate very much to your concern about "shifting the blame and taking the working community for mugs". That's one of my concerns too.
In my thinking on this subject, I'm assuming that the issue is partly economic, but not entirely so. Labour are by no means alone in having messed up the economy - it is a worldwide problem - but the way Brown et al keep on insisting on 'global' factors, and denying any culpability whatsoever, is rather sickening. Interest rates were too low for too long, and an asset bubble was allowed to develop even though many informed observers (including the BoE) seem to have warned them about this. The UK seems to be rather a sad place nowadays.
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"A weak currency arises from a weak economy,which in turn is the result of a weak government"
Gordon Brown, 1992
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Mansion House. Blackties, flunkeys and salmon cutlets. A figure rises.
The speaker congratulates the foregathered.
He thanks the throng for the the contribution to the British economy by their bold use of financial innovation.
When?
Less than two years ago.
Iceberg!, What iceberg?
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165. At 12:57pm on 21 Jan 2009, RagJunkie69 wrote:
"A weak currency arises from a weak economy, which in turn is the result of a weak government" Gordon Brown, 1992
"The above entry was post number 1. It was moderated and removed. Why?"
Don't know but it re-entered the charts at number 48 (see above). Another conspiracy bites the dust.....
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Ahem...Looks like I owe every moderator a score.
OK guys...
..Send me the list of names and I'll send you the cash.
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165 rag junkie
Anybody can throw a post by clicking on it. It then goes off into orbit until checked which is a different queue. Quite often posts reappear a couple of days later but the thread has moved on. The rules for what you can post are so general almost anything can be blocked and some try to as suits their outlook. I do not think anything should be removed unless very offensive but the BBC makes the rules it is their site. I am not surprised that the moderation slows on occassion. I must be a mind numbing job. However I did read somewhere that recently it was judged that the responsibility for the management of offensive posts lay with site management, there is a responsibility to maintain protocols, hence more not less concern I would imagine.
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170. echoteco wrote:
"Can anyone explain to me why it makes good economic sense to force banks to lend money to people who may not be able to pay it back or to businesses that have a high potential of going bankrupt anyway?"
Quite right, it makes no sense in absolute terms, but I think it's a matter of trying to manage a soft landing (probably a forlorn hope).
Even if the surviving UK banks continued to lend at pre-crunch levels, the lending total would still be way down because of the number of former lenders who are no longer active here (US banks, for example).
I think of our debt-fuelled economy as an addiction. Going totally cold-turkey might be too disruptive and painful, so a gradual weaning off from the debt drug might be preferable.
I also think there is an important distinction between:
1. Willingness to lend; and
2. Actual lending.
Banks will tell you that they are just as keen to provide mortgages now as they ever were. In principle, this is true. But their criteria have tightened drastically - 3x earnings rather than 5x, 80% LTV instead of 125%. This is a move back towards sound lending principles.
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Just a quick note on the RBS and banks in general. Firstly I'm a commercial mortgage broker (Joy!) and the banks ARE still lending at the "retail" level - but boy are they are clawing back. Secondly, and this seems to have been missed when discussing the banks. Clearly the top brass of the banks deserve all the abuse they are getting for this mess - those of us in the industry (I worked in banks for 12 years) could see this happening mid 2007 at least. However, people need to realise that the troops on the ground within the banks are suffering through no fault of their own - in many ways. Ignoring the threat to jobs that is clear most of the staff in the banking sector have, in the last few years been encouraged to save, have bonuses and even salary paid in company shares. I would liek to wager for example that the bulk of the remaining 30% of RBS publicly owned shares are owned by their own staff. So many of the innocent cashiers etc will have had their savings based on bank shares wiped out. May be worth a look at Mr Peston?!
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The problem of new money being hoarded by the banks goes away of BoE money goes to new banks. We need regional commercial banks and new mutual building societies. There will be many good banking people losing their jobs who would have the expertise. We have the FSA and BoE to set a framework. We have sufficient law and accountancy firms to sink the continent. We have regional development agencies charged with looking after their businesses and regional economies. So prop up the big banks so that the infra-structure remains and they don't fail, but put new money from 'quantitative easing' into new institutions. This is not rocket science, but the current situation does begin to look like the result of a lot of special pleading and vested interest, and simple muddle from HMG, which is not serving UK PLC too well.
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Robert, we keep hearing you say "tax payers money" as if there was something sacrasanct about those funds and as if we should object that they are being used to support a mal-administered banking system.
Well, you can say that as often as you like but just think how many billions of pounds have been poured aimlessly into the wars in Iraq and Afghanistan including the terrible loss of life.
Has anybody been shouting " Heh, you're using taxpayers' money"
Let's drop the term taxpayers' money and stick to Government funds. It is simple and honest. After all we were forced to give it to them by way of taxes and if we don't like it we can always kick this lot out at the next General Election.
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Some very excellent comments here following another interesting RP interpretation of the latest happenings - I'm learning a lot.
I particularly liked:
a. 108 JayPee28bpr - the concept of penguins in Antarctica being worried about interest rates (although, come to think of it, if a cat can choose a portfolio of stocks that performs better than an ace fund manager, maybe penguins should not be underestimated either - one would imagine that their charges are pretty low, which I certainly know is absolutely key to long term performance).
b. 121 CycleMike2 - the definition of competition being "yes, I take it to the Caribbean 3 times a year". I speak as an owner of a small business, but with a private equity friend, who as it happens has had absolutely nothing to do for the last year but spend his entire time in the Caribbean sailing 'it' around.
But to get back to the point which is the banks....
Bad news never comes out of any company in one go - we all know that. And it's clear the banks so far have been lying through their teeth (or if you prefer, a bit shy in coming clean) and that there is a lot worse to come.
We could leave them alone if they were 'normal' companies operating in a 'normal' market, where it would be possible for new investors who saw the existing players completely saddled with debt and unable to invest and expand their businesses, to enter the market, start up from scratch and supply more 'product' to the market.
But that is not possible, which means the market is frozen.
So we do need to use the infrastructure of the existing banks, and, if the market deems them to be worth nothing, then go ahead and fully nationalise them.
We'll then be in a very good position to:
a. sort out those ridiculous bonus and salary packages
b. create brand new banking regulations based not on a whole raft of new detailed regulations from the FSA, but based on higher capital adequacy and hugely increased disclosure requirements
c. sell them off in many years time to recover to the government (and the people!) some value from the whole exercise.
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#27 - Pestoncritic
"Come on Treasury, nationalise RBS, sell off Coutts and AMB Amro, give the new group access to NSandI deposits and let's have a national savings and loans institution run for the benefit of commercial and domestic borrowers in the UK and for the good of our economy".
- do not part privatise the Post Office but merge the whole operation so that people in remoter communities have access to the full range of banking services. Hive off mail delivery to Parcel Force and throw in Northern Rock. Rationalise staffing levels and offload excess real estate. Then tell the other banks to compete or die.
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178 moraymint
What you say is true but best to try and stay calm. If you find that is no longer possible and you head off to the high forests and glens with your bivouac, shotgun etc, don't forget your solar-powered laptop!
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mods - please go back to 157 through 160 and do your stuff.
thanks :-)
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174. At 1:07pm on 21 Jan 2009, Loftgroov wrote:
#84 - What are you on about in referring to 'shareholders pursuing their claims for compensation
(... and then) If you've lost money then tough luck. The fact someone is in a position to buy shares in the firstplace suggets they probably aren't that badly off anyway.
*******************************
If I recall correctly when I discussed this last with RBS...it had around 220,000 shareholders. Many small shareholders, many pension funds, and many Insurance Cos......the overwhelming majority of shares were NOT in the hands of very wealthy private shareholders.
The damage to many, many older (40+) people's pension and reitrement prospects have been severely damaged. PLEASE do not make light of their suffering by glib remarks that imply they can easily afford losses.
If one bank fails then that might be down to 'bad' management. If two or three banks are in trouble 'bad' management/'bad' luck may be to blame.
BUT if virtually the whole banking system has become systemically frail that is the fault of the Supervisory Authorities.
Via the FSA and the BOE , the final responsibilty for Supervising of UK Banking plc rests with Govt and Parliament. And how remiss they have been !
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I notice in the commons that Brown is no longer claiming to be the global leader and the man who saved the banks (and I wonder what they would say about this when they look at the plummeting share prices) but just to be following what all the other counties in the world are doing.
Just a short step from this to 'I was just following orders'.
HMG are the maters of spin but haven't realised that the only people convinced by the rhetoric are themselves. Personally I'd call it delusional.
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Post 163. Of RBS the UK government owns 70% and even if all the other 30% was owned by UK pension funds, which it isn't by the way, the UK pension loss would be only GBP 1.35 billion (at cureent stock price)
At the end of 2007 the UK Pension Insurance Industry had GBP 1,600 billion invested in shares and in addition had much more in property; cash, bonds and other forms of investments.
Letting RBS go to the wall won't ruin your pension or anyone else's.
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Has anyone noticed that user U13726275's Gordon Brown quote has been deleted by the moderators?
Hmm... this all seems a bit 1984 to me. Now they are even trying to rewrite history.
Congratulations BBC on your independence but who you really work for is poorly disguised in the ancronym of your institution.
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Whilst it is undoubted that we do need to sort out our financial structures and systems they are not the real reason why UKplc looks so bad today.
We are in a jam. We are exposed to the market vultures through no reason of our own. The vultures are not really tearing into us - they are practicing and sharpening their knives for the bigger feast that is yet to come. They are waiting for the big situations to arise in the USA and Europe.
In the USA everything has been on hold waiting for the Obama innaugeration. The outline of his recovery plan is already known and has been 'factored-in' by the analysits. The chances of its working are probably less than 50-50. Look what Wall Street did on his Big Day! The Republicans may be out of power but led by The Good Old Boys there will be strong resistance to Big Government - an essential element to Obama's plan. When he tries to stimulate the economy where will the benefit go? It sure won't be to the US! When people buy goods there, they will either be imports or made locally by foreign owned firms. These 2 elements together will provide a feast for the scavengers and a massive drop in the value of the $.
In Europe, the really big downturn is yet to arrive and already the Euro is under immense pressure. With France and Germany still without clear plans and Ireland, Greece and Spain really suffering the future for the Euro does not look good. If the Euro cracks/fails then watch the feeding frenzy.
The £ may not actually increase in real value but it's decline will look slow in comparison with the Euro and $. This will happen in weeks and not months - this thing is accelerating more rapidly than we like to think.
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#212
In a way the pensions have already been hit - that 30% was worth GBP 40Billion about 18 months ago. What you are doing by nationalisation is removing the chance of them getting any of than value back by possible future share price rises.
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My quote of the week comes from the German finance minister, Peer Steinbrück. When it was put to the canny socialist that he should do what almost every other government in the EU is doing, and buy up his banks' toxic debt to the tune of €200 million, he replied:
for sensible questioning see :
http://blogs.telegraph.co.uk/daniel_hannan/blog/2009/01/20/why_cant_we_be_more_like_the_germans
"How could I take such a proposal to the federal parliament? The nation would think we'd gone crazy."
Indeed. So how did other leaders get this inane idea past their legislatures? How did Gordon Brown squeeze a far larger sum out of the House of Commons? Oh yes, that's right: he didn't. Parliament once fought a war to establish the principle that it alone should be allowed to raise revenue through taxation. Now, unconcerned and perhaps uncomprehending, MPs have granted the Executive powers which it has not enjoyed since the Stuarts. If MPs, who are supposed to represent taxpayers, are not needed to authorise these monstrous sums, what the hell are they for?
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#31 we have three choices
first, Toxic Bank PLC takes all the bad debt in UK PLC and is run by the existing heads of the big five banks with a directive to turn the debts into their own salaries over a suitable timescale. The big five Banks will benefit from new, better qualified executives and no longer be saddled by bad debt.
second, we do nothing and UK plc becomes a third world country that can only trade internally. few will want our currency when and if we can afford to travel. shades of Zimbabwe.
final choice is for HMG to stop whimpering and close the markets for a week. Banks will continue without interference from the big fund investors who think they know best and the fund managers can focus on lost profits and reduced salaries and the impact it has on them, let alone the bank staff they punish by their actions.
HMG may have Ed Balls, but some of us wish they had 'more' in the right places!
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Hi Robert I enjoy your blog and your reporting. I might have missed it but have you calculated how much money the UK banks have taken as profits in the last twenty years?
Would it be fair to say that they have taken billions of pounds out of the system as profits? Would it be fair to say that they should have saved some money for a rainy day? Is it fair that they have taken so much money as profit and now expect the tax payer to bail them out?
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#52 Friendlycard
37. PetersKitchen:
"The relationship between the bank's debts and their capital resources remain at unsustainable levels ......Just like the relationship between the population and the unemployed"
+
Does the above statement mean that the debts are now known?
I though the 'bank's debts' were presently unquantifiable as some of it is toxic and nobody has sounded the depth of the hole yet?
Until the hole is plumbed or filled in there will be a lack of trust in everthing.
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Folks,..
If you think we’ve got problems here in the UK take a look at the graph of JP Morgan's share price,..
Whilst it is becoming increasingly apparent that the majority of the large UK Banks are insolvent and are likely to become an increasing burden around an already over stretched tax payer,.. Our problems are tiddlers compared to the blue whale that appears to be rolling out from beneath the surf across the pond!..
In the last 3 trading sessions alone it’s share price has fallen by some 35%!.. Something is alarmingly wrong. With a market capital value of $67.53 billion, it is estimated to have a derivatives book of some $100 Trillion dollars (that’s trillion not billion), which dwarfs any of it’s competitors by a colossal magnitude. The consequences to counterparty failure on the collapse of JP Morgan are beyond any government or Central Bank control. JP Morgan is to all intents and purposes – The System -,..
The irony is that only last week, the FT wrote a number of articles talking up the strength and merits of JP Morgan. Either this was naive reporting or as likely a promotional ad from within the JP Morgan machine to keep the boat from listing!.. Whatever the reason, it was off the ball park!.. Away from main street broadsheet, I've read rumours suggesting that behind the scenes the US Government/Federal Reserve is manning all pumps to keep the Morgan boat afloat,.. The consequences of failure are beyond comprehension,.. But like all things, everything has it’s limits,.. Whilst in theory this institution may be considered Too Big To Fail, the reality maybe closer to Too Big To Bail,..
The bull market in precious metals has not even begun yet!?!
Best aye,..
SilverRich
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#174
It's not a question of accepting risk on investment, it's a question of the gov't using policies to steal the assets of millions of people(shareholders/pension funds etc). If you understood the way financial regulation worked you would understand what I am talking about. The banks weren't bailed out they were enforced to raise their capital ratios by the FSA supposedely to bring confidence to the wholesale markets and free up interbank lending and institutional investment and consequently lending to the public/business. Some banks got this capital from the gov't some from private sources. Because of the increased requirement on capital ratios this money could never have been used to increase lending and this was never it's intended use. However all the banks have increased lending despite the capital ratio constraint but not enough to make up for the gap in funding from overseas banks and not at a rate to avoid a downturn in the real economy. If this reduction in lending was by just one bank then you could argue that they had a flawed business model (like Northern Rock), but this is quite clearly a systemic problem. There are better ways to overcome this problem that do not involve nationalisation and the consequent loss of billions of pounds in the wealth of the prudent. These were not penny shares with large risks these were meant to be blue chip companies and in the main still are. The problems with the financial system is global yet I do not see any other country proposing the full nationalisation of it's banking system. Forget the loss of money to the shareholders this will ruin the wealth of every man woman and child in this country for a generation it is that big!
The nationalisation of the banks is like a perfectly viable company having it's electricity switched off for fear of it not being able to pay it's bill, then the government steps in to supply the electricity but only under the terms that it gets 100% of the equity.
The governemnt already has a nationalised bank if it thinks that there is capacity for more lending then why doesn't it increase the amount of lending this bank provides instead of doing exactly the opposite.
This is not just about shareholders loosing their investments, it's about a gov't about to embark on a policy that will ruin the British economy for a generation, causing mass unemployment and hyper-inflation.
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Major problem - getting the banks to lend. They need to lend in order to earn money but they can't for a number of reasons amongst which are the FSA rules on Capital ratios. Their "assets"have been so depleted due to write downs (and possible future write downs) that this now restricts their ability to lend and still comply with the FSA rules.
Can I ask why, if the Government is effectively underwriting all the UK banks loans in any case, the FSA rules need to be implemented now. The rule book has been thrown out of the window in any case and this duplication of resources is contributing to the reluctance of Banks and therefore restricting the URGENT supply of credit when it is most needed.
The rules can be relaxed without any cost to either the banks of the government
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170. echoteco
'I'm a little confused here. Can anyone explain to me why it makes good economic sense to force banks to lend money to people who may not be able to pay it back or to businesses that have a high potential of going bankrupt anyway?'
Well yes it is a heart sinking scenario.
However my feeling is that is not the intention. At least I hope not. If it is then the markets will sort the matter forthwith as Lamont found out in the early 90s. The idea is to replaced the short term loan money in the system which has been repatriated to overseas sources. That money was lent on to form long term loans. Hence the fall in lending and problems. The trad High street banks say thay are lending more than before. It is the NR and B and B types that represented a big share of the market that have been hit. El Gordo is playing it two ways at present. He is saying BoE rates low, but access to low rates is limited as people are finding. So he is not delivering low rates. The banks were told take rescue money at 12 percent, they cannot lend it at low rates without loss. Hence the next play at swopping 12 percent coupons for shares. The key thing is to have funds in the system for when the housing market unfreezes. Otherwise the slide is relentless. The current projected falls put housing back in the region of better affordability.
There appear to be several games going on at once and some are longerterm than others. BoE interest rates can be moved up and down easily. Getting money back into the system is slower. I cannot see that money is the problem it is demand and that cannot be provoked or nurtured easily.
In the meantime the businesses that rode the bubble are now uncomfortable and volumes will not return for some. El Gordo and Comical Ali would like lending to return to the good old days but it cannot as the access point to the loan is via the banks who will be more careful, as requested and who will be reluctan to lend to the bubble brains, if any are left standing. Many face a decade or more of debt to try and get straight.
The dynamic due would like the housing market to get going because it is viewed as the key to economic recovery. Whether anybody likes it or not it will be used as such. But no matter what funds are available not many will rush when everybody is convince prices will fall this year. Negative equity is apparently restricting property coming onto the market as a property cannot be sold without mortgage redemption. further High LTV mortgages are not likely when price falls are likely (buffer against falls). When the market bottoms then higher LTV mortgages should become available making access to the market easier. Like it or not there is a distinct possibility of the whole loop starting again, all be it more constrained by 1/ more control over lending, 2/ fewer houses on the market due to negative equity, maybe a couple of million, who knows, 3/ fear of volatility in interest rates making downstream positions dangerous. 4/ reduction in building volumes.
2009 looks gridlocked with confidence low. Businesses have to hibernate and or downsize or be in an area where trade is continuing, there are some.
If you take th bubble away then the economy has to shrink. It is difficult to see a scenario where there is a reurn to the bubble economic activity other than by very slow growth, Hence the comments comingout about some sectors due to see reduced demand or equivalent words. The current unemployment being generated is due to be very difficult to shift. Many will end up in limbo or in low grade jobs. Considerable anger and resentment is likely.
If the dynamic duo overegg the access to debt and the banks go along with it then things simply get much worse.
Anybody doubting the attraction of energising the housing market to save a governments bacon should look at the 1930 US housing initiative and consider that when anybody buys a house they buy other stuff, servcies and goods. That money brought from the future ie debt makes you wealthier today.
Incidentally a major US hedge fund said as far ago as last summer that with the banking debt likely to unfold that the only logical conclusion was the nationalisation of US and European banks because only governments have access to the funds to stop the system collapsing. So bank shares being in trouble is hardly surprising.
I doubt it makes any difference who is in charge of the UK government for a very considerable period. The problems are great, the social welfare demand very significant and the available spare money slender. Underneath all the overindebted big business dross the residual economy goes on. No help to those in peril on the sea of debt. A new type of financial serfdom beckons for some.
Some UK banks are being ingenious in allowing people (via disinformation) to think their debt problem is all UK. They are multinationals and are effectively piping debt back here from their stupidity abroad. Of course they can always post here and educate to the contary. Some figures would be most welcome but even the PM pushing enormous sums of money their way cannot get answers it would appear.
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Post #212
Letting RBS go to the wall will affect many thousands of people, most of all the people who work for them and also their pensions. What is it with all you 'I'm all right Jack' types? Let the directors of banks go to jail, but lets support the workers whose only apparent crime is to have worked for a bank to earn a living.
The way some people talk about this situation you would think it is a virtual reality game, with pretend money and pretend people.
One thing is confusing me though. When Enron went down so did AA. So can anyone explaing why the audit firms aren't being hung out to dry over missing these 'toxic assets' in the banks?
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After reading most of this blog, I'm more and more reminded of fraser in Dads Army.
We aren't doomed, we'll come out of the other end, as we always do. The trouble is that people are reluctant to forsake their 'I want everything, and I want it now' lifestyles. A good bit of advise is 'spend what's necessary' - and there isn't a great deal that's necessary.
The pundits and journalists have a vested interest in spreading alarm and despondency, irrespective of the rest of us. I was once advised to keep away from negative people, it's a good idea. I stopped buying newspapers a long time ago; now I'll keep away from this blog. I don't need it. I have a life to get on with.
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196 friendly card
You want a country with natural resources. Tells you which ones.
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Is this like an Airline-Price-War trick where everyone deliberately loses money in order to drive smaller competitors out of business?
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# 208 thorntonheathen
Don't jest! The extent of emergency planning in the moraymint household is reaching fever pitch LOL: gold coins (honest), cash (for what it's worth), water, food, generator, fuel (for car and generator), coal, wood, hens, seed beds, shotgun (I really do shoot ducks and pheasant), ammo etc etc.
I'm not a raving survivalist, by the way, but I do believe in insurance. All of the above is my insurance arrangements for the day when, rather like the dumper truck unloading sand, the steady flow tips suddenly and unexpectedly into an unstoppable dump.
Gordon Brown is driving the dumper truck, frantically pulling all the levers and the sand is pouring out. My guess is that it's a matter of time before the whole lot tips uncontrollably into ....???
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#194
Thanks Shakinup
Help thru Income tax is the idea ! Reduce this by the amount that they want to throw at banks.
Open a UK Bank - using Post Offices instead of closing them (i think someone has touched on that one already)
From the banking staff there are sure to be enough to allocate this huge amount of money through those post offices/UK Banks to those (public) that qualify for having their lives saved.
Everyone talks about getting the banks to lend money. To Who!!?? Wedgwood, Jag,JCB,Nissan,Vauxhall,RBS!,staff/workers ?
I don`t think so.
I better stop now, as i feel like getting in my car (before its repo`d) and going down to No 10 and throwing em out personally.
I`d rather have the Country run by a bunch of bloggers, at least theres some decent real concern for a solution rather than just floundering around
When is HMG going to realise how bad it is getting - For Gods sake do something!!!!!
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RP,
If you or one of your servants are reading these responses, I'd just like to suggest another (related) topic for you to deal with.
Can you do a blog on how the government would deal with any bank pension scheme deficits in the event of nationalisation? I know all of them (RBoS, Lloyds, and Barclays) have huge pension schemes and I suspect they all have considerable deficits now. What's the Treasury plan for dealing with these if and when any of these organisations are nationalised? Covering the deficits would add another multi-billion Pound commitment to public spending in the short term, and it would not be repayable by the schemes in the event that their funding position improved.
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RBS is no longer a commercial organization.
As a state bank it is the first to come under HMG direction. The political cycle is now key to its future.
Under Brown's management its lending policy will be in accordance with NuLabour requirements. If the Tories win in May, then its future is unclear.
The sign of total collapse will be the de-coupling of Coutts (the Queen's accounts cannot be allowed to fail). At that point EVERYBODY should get their money out ASAP.
The only way to go for the forseeable future is actual (not paper) gold, silver, diamonds and other similar, in a good quality safe.
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# 216 bongiemonkeyking wrote:
My quote of the week comes from the German finance minister, Peer Steinbr?ck.
When it was put to the canny socialist that he should do what almost every other government in the EU is doing, and buy up his banks' toxic debt to the tune of Euro 200 million, he replied:
"How could I take such a proposal to the federal parliament? The nation would think we'd gone crazy."
+
Euro 200m is a mere bagatelle compared with our bale out figures.
Wonder if it is billions they mean?
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The Bank of Ineternational Settlements has tables with numbers like 600 TRILLION in Derivatives.
Can anyone tell me if these are good, toxic or what the UK liabilities are from these tables?
http://www.bis.org/
Thanks
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But is it too little too late to save the highly leveraged Housebuilders ?
Not to mention any company that requires Finance.
For example Car Hire firms, Railway companies, etc, etc.
With Pay deteriorating in the economy, unemployment rising, it is bleak for everyone.
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226. glanafon:
"You want a country with natural resources."
Absolutely right - the world's population is increasing by 1.3 million or so per week, but our resource base is finite.
I don't fancy the Middle East, or Russia, personally. Norway might be a bit cold. Canada sounds good. Brazil, with its vast energy, mineral, agri and water resources, might be even better. For a way-out choice, I've heard good reports of Kazakhstan.
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UK sovereign default by the end of March?
Brown will try to prevent this before a May election, but can he succeed?
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Robert, Alistair, George and Vince,
Back to the money thing again, I wonder if anyone can confirm my 'fag-packet' figures on the taxpayer paper losses on the RBS,Lloyds and HBOS November/December recapitalisation. George thought it was 17 billion GBP ( 19 January HoC).
Using the November placement documents at Lloyds, HM Treasury underwrote on Lloyds 4.5 billion GBP's worth of new ordinary shares at 173.3p per share plus took 1 billion GBP preference shares. In HBOS, HM Treasury underwrote on HBOS 8.5 billion GBP's worth of their ordinary shares with ( I think) an equivalent value in Lloyds shares of 187.77p each ( HBOS December announcements). There might be a query here as the HBOS share equivalent was 113.6p per share. HM Treasury took 3 billion GBP' of preference shares in HBOS.
Checked the Lloyds share price earlier, being 39.6p. I estimate the losses on ordinary share capital, based on this, are 3.5 billion GBP on Lloyds and 6.7 billion GBP on HBOS ( assuming the equivalent value in Lloyds is correct). So, ignoring the preference debt outstanding , this totals 10.2 billion GBP loss on paper on the Lloyds/HBOS recapitalisation. My previous posts identify losses on ordinary shares in RBS at somewhere near 12.25 billion GBP - can anyone confirm actuals?
If I am right ( please hope I am not) the total paper loss on ordinary share capital underwritten by HM Treasuryl ( excluding the RBS preference conversion) might stand at 22.45 billion GBP as against the 27.9 billion GBP orinary capital invested.
One might reasonably wonder whether ( even if its argued that over several years HMG will recover its money fingers crossed) HM Treasury has overvalued the businesses and received too little capital in return, at the taxpayers' expense.
Interestingly, Alistair told Mr Duncan Smith on 19 January ( HoC) :-
" Mr. Darling: In relation to RBS, the Government acquired their shareholding about five weeks ago. A new management team was put in, and a new chief executive, and one of their jobs was to go through the books and find out what their liabilities were. Until that time we did not have the power to go in and conduct that examination, because it was a privately owned bank; it was not owned by the state. That has been possible only since we got that shareholding and put in the different team. Of course, the reporting requirements of the markets mean that these things are reported to the stock market rather than to the House of Commons. I entirely agree with the right hon. Gentleman that very many people in this country are justifiably angry about what has happened. We need to sort the matter out, and we need to ensure that we can sort out the particular problems in the banks that we own, but above all we need to ensure that we can get credit flowing again. "
Is it being suggested that the RBS black hole was only spotted after the Government took shares? Didnt anyone ask or get disclosures before underwriting the capitalisation ?
Is this what Mervyn means by the Banks being ' encourged to run down their [ our] capital to absorb losses'?
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224:
Personally I think the Bank Shareholders and staff are victims here.
Their Directorshaving been playing funny games with the money, tacitly approved of by Gov't and Regulators both here and over the pond, which has resulted in the Shareholders being defrauded out of their Capital.
If anyone is to blame it is the Directors, their financial whizzkids, and their Accountants.
Not the Shareholders, or the Staff, who quite honestly did not stand a chance.
But when a man like Madoff can get away with a 50 billion dollar scam for so long, who does stand a chance ?
Back to packing the notes under mattreses.
Oh wait, Inflation is just around the corner after Depression !
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Governor of BANK of ENGLAND Warns 2009 Will be difficult YEAR for BRITISH economy.
Brilliant
If he KNOWs that WHY didn’t he say
2008 WAS going to be A DIFFICULT YEAR.
BECAUSE
THEY DON’T KNOW
HE SHOULD SHUT UP!
AND DO HIS JOB
MAKING SURE WE ARE financialy SAFE !
JOKERS.
MERVIN just DO YOUR JOB AND STOP trying to GUESS what will happen!
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baldrych 225
GUESS YOU WILL VOTE FOR GORDY
GO STICK YOUR HEAD IN THE SAND!
HAVE YOU NOT NOTICED THERES A
BIT OF A CRISIS??
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Why doesn't the gov't pump more capital into Northern Rock so increasing it's capacity to lend instead of looking to pump more capital into the other banks in return for an equity stake?
Answer, stealing the other banks at well below market value from a contrived strategy to do so makes a lot more business sense for an underhand opportunist. No better than the spivs and chancers that got us into this mess.
Lifting the short selling ban.
Spinning the possibility banks have considerably bigger write-downs to come.
Increasing equity stake in RBS.
Blaming the UK banks for restrictive lending practices when the real problem is the loss from overseas players.
A cynic might suggest this is not a coincidental series of events.
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And now we get some AMERICAN gambler sorry investor WHO.
Says UK economy is finished!!!!
WELL BUDDY thanks to you AMERICANS YES we may well be finished.
BY the WAY buddy WHERE is all OUR MONEY all the MONEY our BANKS lent YOUR citizens to buy cars property plasma tellies etc etc which they couldn’t afford.
WHEN do OUR BANKS get the money BACK from YOU Americans ???
As I’ve said before we need GORDON to MAKE a DEAL for OIL etc with US.
THE US put the UK in the DUDU!
Yes we were heading for disaster but not on the scale they have driven us into.
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212
Unfortunately most of the pensionfunds bought into the Banks over the years.
RBS used to be over five pounds a share.
SO the Pension Funds have already taken heavy losses, on the Banks , too late.
Millions of People in the UK will have poorer retirements (me included) because of the Bank fraud, with American sub prime mortgages.
And FRAUD is what we are talking about.
Our Banks and Europes were missold (irony) Bonds at false ratings by American Investment Banks.
Now these Bonds are defaulting our whole economy is up the chute.
Spare any change Guv ?
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parboldfornewburgh @ 13
You are correct - the Co-Op Bank is not mentioned for a very good reason - it has no problems whatsoever.
Which is why I have opened an account and transfered my funds from two of the 'those that should die' banks.
I am not a financial whizz but as far as I can tell, the Co-Op has not indulged in any of the excessive leveraged (fractional reserve) banking that has been the downfall of others.
This is how the market should work, badly run businesses should see customers migrating away to sounder enterprises.
At that theorectical level, it is very hard to see why banks should be treated any differently.
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227:
No its more like an Avalanche, once started, cannot be stopped.
I think some of the Banks may have seen it as a price war to begin with , but now they are all collapsing it is rather bad news for them all.
Certainly some of the Hedgefund people saw it as a way to try to make a quick killing, at everyone else's expense.
Many of them have now been closed down by the troubles.
I am still amused by the handful of people trying to talk down the housing market so they can buy a cheap house to rent out with their cash stockpile.
With our falling exchange rates, and poor medium term prospects, any Pounds in rent eventually received won't buy much Champagne in Spain.
House prices will continue to fall for the next five to ten years.
The reason is very simple, low salaries.
Without proper Pay Rises that keep up with Inflation there will not be enough people able to buy, and so the prices will slowly drift downwards to what the market can pay.
Housing cannot be seen as a short to medium term investment.
If you are going to hold onto a House for the next twenty years or so , then fine, it's the best option.
If you only want somewhere to live for a few years, you are better off renting.
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#210 – I’m certainly not making light of people’s financial plight. I too have an equity-linked pension which has probably lost a colossal amount in value since its inception. The real point I was alluding to in my post is that many people seem almost beside themselves with shock and disbelief that their investments in the stock market have not provided a return and have lost them money.
By its very nature the stock market is speculative and open to rises and falls. This has always been the case and therefore anyone with a pension fund linked to stocks is open to this happening. The other key point I made, that you and another respondent basically ignored, is that nobody who invested in stocks cared when they were raking it in. Nobody said – “hang on a minute, this investment is making ME too much money…and MY pension fund is doing too well, so now I’LL enjoy a lovely retirement soon”.
Only when it all goes wrong do people cry foul, start questioning the system, and talk of legal proceedings. Just human nature I guess – we only get all upset, moral and ethical when it goes against us.
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Just joined this Blog. Firstly well done Robert for your continued in depth coverage of the financial crisis.
Mervyn King doesn't paint a pretty picture but I would go along with his ' quantative easing' as next step if necessary .
There seems to be a lobby to fully nationalise RBS- why? The Govt effectively 'owns ' the Coy now.I would agree with Sir George Mathewson a former RBS Chairman and CEO, RBS has a good underlying business model and some strong franchises with some 'bad stuff' - which they have now declared. Stephen Hester the new CEO is trying to turn the RBS 'ship' around and is tackling the debt issues. I understand Lloyds Bank lost all it capital in South Americain the 1980's but successfuly traded out of the position over a number of years- RBS should be allowed to do likewise. For financial stability as mooted by Sir George the Govt should immediatly guarantee all deposits at RBS and other Banks to steady the market. RBS has already agreed to lend an additional £6b in exchange for the potential transfer of the £5b Govt Preference shares to ordinary shares. This is not a new injection of capital as many ' 'Banking Experts' are pointing out. These are to be offered to existing shareholders/the private sector first at circa 31p. If the Govt could steady the ship as Iv'e mentioned then perhaps we would see a rally in the share price to this level and some of these taken by the private sector thus reducing the Govt's share.
It has been estimated that RBS has liabilities of £2 trillion which if the Bank were nationalised would add 300% to GDP!!. The Govt should spell this out and indicate nationaliastion is not on the cards for RBS.
RBS ordinary shareholders have suffered enormous losses in their holdings over the last 2 years - many of these are pensioners who have spent their working life with the Bank- they have lost their dividends but no one seems to care about this or if they lose all their shareholdings through nationalisation!
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If the gov't puts out a statement that it will pursue every other option before it nationalises the banking system further it would give investors confidence the investments were not going to be stolen by them. It would also no doubt lift the share price of RBS which is clearly in their interest. It has gone on record to say that it does not wish to be a part of the banking system in the UK, so why not put out a clear statement to remove the fear of full scale nationalisation?
Why? Because that is exactly what it is looking to do and the market has finally cottoned on to the deception.
Alternatively it could put out a statement to say that if a bank is nationalised under current circumstances when it comes to a re-privatisation the ownership will be returned to the shareholders so long as the government has recieved all the money back it injected along with a reasonable risk premium. That would remove the suspicion that the gov't is being oportunist in seeing a way to make a huge amount of revenue at the expense of the shareholders and private pension holders. Before anyone else bleats on about 'tax payers' money, these shareholders and private pension holders are tax payers and make a significantly larger contribution to the coffers of the treasury than the people most likely to benefit from this policy (i.e. those dependent on welfare with little savings and investments).
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What this mess has shown is that the FSA really hasn't had a clue since day one.
Bringing them into the loop when they have neither the experience or foresight was just another metioric failure of the present Prime Minister.
When the stewards enquiries eventually start it will become undeniably clear the FSA got too cosy to the banks and took their words without asking sufficient questions.
What this situation has shown us is that those who should know better know little to nothing and anyone aware of what really goes on ateth FSA would realise they are singularly incapable of getting their own house in order let alone any banks!
Perhaps we need someone to regulate the Regulator so that we can have some confidence where none exists.
Hopefully the various Parliamentary Committees will bring them to task properly and expose fully to the taxpaying public the continuous level of incompetence that comes from their Canary Wharf offices.
I hope this note gets published as the damage they as the Regulator have caused cannot continue any more and a major clearout there is the only way to secure order over errant banks.
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210. Amused2Death
'The damage to many, many older (40+) people's pension and reitrement prospects have been severely damaged. PLEASE do not make light of their suffering by glib remarks that imply they can easily afford losses.'
Fair enough. However in the middle of 2008, when RBS shares were I believe over 2 quid a major US hedge fund advised that in their opinion that with the US and European banks as a sector faced such levels of debt unravelling that the likely outcome was the nationalisation of them, ie they would be bust. As RBS was very heavily indebted it is obvious that they would be vulnerable. That information was readily available in the public domain. That was somewhat late in the day. Therefore do you not think it would be sensible for professional fund managers to at least sell at that point rather than wait until the shares are worth next to nothing which is effecively your claim. Anybody holding those share privately has to act as their own fund manger and keep an eye on things. I am sorry but it comes back to people wanting the profits of taking risks but refusing to accept risk exists. That is the root problem of the recent culture, including house ownership. It would look like your complaint shoud be directed towards fund managers as well as other systematic failures. Too many people have been coasting. How much warning do you think is appropriate.
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235. Friendlycard
If you're really serious about finding a better place to live, then I'd suggest you check Mercer's quality of living index. This is put together in a rather more objective way than bloggers' speculation and bias. A summary of the latest version (for 2008) can be found at:
http://www.mercer.com/qualityofliving
Switzerland and Austria show well in this. In fact, Europe overall shows well with 7 out of the top 10 cities being European (Vancouver, Auckland, and Sydney are the exceptions which vindicates those suggesting Aus, NZ, and Canada as locations). London is the top ranked UK city at 38th.
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the1beard
I AM BEGINING TO HAVE an IDENTITY
CRISIS!!
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230. JayPee28bpr:
"... how the government would deal with any bank pension scheme deficits in the event of nationalisation...."
I think the answer is that nationalisation would make the employees (and former employees) public sector workers.
UK public sector pensions are unfunded - they are paid out of current income. So the government would pocket the pension fund assets and add the employees to the public sector unfunded (and undisclosed) pension obligation.
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I wish Robert Peston would stop writing this blog and stop appearing on the news. He is a miserable, inarticulate bore, and all he seems to want to do is scare people about the situation. We know it's bad! We don't need Peston to make us feel worse!
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108 JayPee28bpr
". . .
The only place I can think of where you can avoid all this is Antarctica. I can confirm that the penguins are still more worried about being eaten by leopard seals than they are about the next move in interest rates. None of them have mortgages outstanding on their modest homes of pebbles above the ice. Like many of us, global warming is a major issue of conversation, as the krill population on which they depend risks being wiped out if water temperatures rise any further. So I guess your young person could join the British Antarctic Survey if staying at home is just too depressing."
Yes, we can only hope we don't take the penguins down with us as we abandon carbon emission reduction in a short-term quest for energy self-sufficiency. At least New Zealand is tapping into geothermal energy ( and its central bank is state owned -- Any relation? I wonder).
P.S. Thanks for your reply (post #388) on yesterday's blog with further explanation of fx markets -- much appreciated!
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252. At 4:18pm on 21 Jan 2009, alexandercurzon wrote:
the1beard
I AM BEGINING TO HAVE an IDENTITY
CRISIS!!
ME 2
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Does anybody KNOW why its defamatory to suggest RBSNATwest
should be put into administration?
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Presumably we'll now have all the banks and building societies wanting to be nationalised
How does a bank of Northern Rock's proportions allow a 10% bonus to occur at a time of one of the biggest fiscal failures the world has ever known?
I wonder if Crash will give all taxpayers a 10% bonus, or presumably we'll just be asked to stump up the money for it?
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MK's might as well save his breath - he does not have a clue what will happen next so why does he waffle on about " things will get better but I don't know when " what is that all about ? Our country is shafted - our GBP is worth ZIP - no one will touch us with the proverbial - is this all down to Freddie Goodwin and his hedge fund mates & Russian Oligarchs or GB / AD and the Labour dolts - whoever caused this should be up at the Old Bailey
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Re 225 : baldrych
Yes we will come out of it the other end ; if we can survive the second world war then we can survive the current admittedly horrendous financial crisis.
The key point is is what state will the UK economy be in 5 years down the road ? near the top of the European economies ? or near the bottom crippled by high interest rates, tiny growth rate and failing back against other countries all the time ? How valued will the pound be as a currency ? What will the prospects for private pensions be ?
The UK needs to find new key areas of industries / services with which to sustain our economy in the future…… not all such investments will succeed and all will require capital to start them up…. Or we could become the sole European Airport Hub – let’s get as many flights as possible to come to the density populated small island of the UK and save our European friends from having all that useful pollution and noise etc - sorted
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Just remember when nothing has been achieved, they can always say 'we tried'
So it appears, in the end game which we do not know, the general publics money of up to £1000 billion worthless pounds, will have been lent to the nationalised banks (remember we own them) but we will have to pay to the HMG another £1000 billion pounds as they will be bankrupt.
Of course they are bankrupt now, we wouldnt get away with it, we would be in jail, lock stock and barrow with the key thrown away. GB looks like Nixon every day that goes past and believe me that is really scary.
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251. JayPee28bpr
re mercer
Those are useful but historic. NZ Oz n Cananda have natural resources particularly Oz. English spoken. Need to fit criteria for welcome. Offspring looking hard as have sought after skills, not accidental - medics and others skills wanted. Only one answer is not choice, you need more than one for choice. Oz probably has best long term strength. range of temps, big, offshore fisheries sustainable with management and trades with Asia. Just an opinion. PS have bumped into a few NZ Oz Canada expats and domestic job markets at home can be restrictive due to relatively small populations.
Actually yet to be proved here will be disasterous. It is all about if you are near the storm. See saws n roundabouts
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glanafon 250
Your miss the point that Amused2Death 210 was making. What he was saying is if the banking system had been properly regulated the banking crisis would never have happened. This is down to Brown who changed regulation in 1997.
Flymogram 254
Lots of people enjoy reading Peston's blog, they want to be informed to make decisions about their own finances. I would hardly say Peston is inarticulate. If you want to bury your head in the sand, then do it.
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robertdmarshall @ 249
I did smile when reading your post as although I agree with you that the basic level of competence at the FSA has now been shown to be somewhat lacking, you displayed a breath-taking ignorance of the political aspects.
That is, Gordon Brown set up the tripartite system which has now, stress-tested by NR and subsequent banking issues, been demonstrated to be totally inadequate, crucially Brown removed the direct oversight role from the BoE.
Politicians have their pride you know and I'm sure that Gordon Brown would rather suck lemons than dismantle the FSA.
Brown has actually addressed this tripartite issue a few months back as follows '... all systems require minor adjustment from time-to-time'.
I am essentially a systems engineer, and if a system I designed failed as badly as this one has, then I would probably never work again.
But as we can see, the rules are very different for the elite, where there is, in effect, no concept of failure.
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AC n 1beard
Are you undercover, really just 1 PERSON
- the russian who recently tried to
patent emoticons : )
OR are YOU hEading For a
'LOOK AND FEEL' dispute
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let RBS go under.Stop this mad waste of money in supporting banks. Use the regulatory powers to force banks to lend; just remove authorised status from enough senior staff until they start to lend; when they see their careers ending, they'll change their minds.
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# 250 glanafon wrote:
"210. Amused2Death
failures.
Too many people have been coasting. How much warning do you think is appropriate."
+++
We all had fair warning.
BBC 4th March 2003
http://news.bbc.co.uk/2/hi/business/2817995.stm
The rapidly growing trade in derivatives poses a "mega-catastrophic risk" for the economy and most shares are still "too expensive", legendary investor Warren Buffett has warned.
"Derivatives generate reported earnings that are often wildly overstated and based on estimates whose inaccuracy may not be exposed for many years"
Boy, was he ever right on that one but on we went like Lemmings.
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236. TheNewPonzi:
"UK sovereign default by the end of March?.........Brown will try to prevent this before a May election, but can he succeed?"
You raise two vitally important issues here.
First, a May election seems unlikely. My feeling is that the political landscape has changed decisively in the last few weeks. Brown couldn't win a raffle right now, let alone an election. He's been rumbled by the electorate. The Brown Bounce has gone the way of Prudence. I think an election is unlikely, simply because Brown couldn't expect to win it. This means the long slog to May 2010.
If I'm wrong, and GB does go to the country this spring, it will be the most important election in decades, decisive for the future of the country.
Second, sovereign default. Given that HMG can commit future taxpayers to incredible, almost bottomless obligations, this might appear improbable - until you look at likely funding requirements, when the whole default idea begins to look chillingly possible.
In the PBR, AD predicted new borrowings of GBP 118bn this year, but that was a net figure - maybe GBP 150bn gross after adjusting for redemptions. The PBR was based on the assumption of resumed growth in 2H 09, which few believed at the time and surely no-one believes now. A gross number of GBP 200bn looks by no means improbable.
Now, pension funds have assets of circa GBP 4 trillion. If the rules governing how much of this has to be held in gilts were altered, they could become, de facto, forced buyers of gilts. That is how - maybe, perhaps - sovereign default can be avoided, or at least staved off. This might be why gilts prices have thus far held up quite well, despite the known scale of future issuances.
Of course, doing this drains funds from other investments (notably equities), and funding the deficit from domestic sources pulls money out of the economy - not much option on this, because I see little chance of raising much new govt debt from foreigners, and nil chance of raising it in sterling.
Over time, we are probably going to convert the private sector pension provision into a source of government funding. That's not good, though it's better than default.
If, after seeing much of the banking sector taken into state ownership, this is followed by the quasi-conversion of private sector pensions into a source of govt funds, where we are heading looks to be - in the immortal words of John Lennon - "Back in the USSR".
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251. JayPee28bpr:
"If you're really serious about finding a better place to live, then I'd suggest you check Mercer's quality of living index".
Many thanks, this is a really helpful link. Lisbon fares very badly!
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Good post #148
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#254 Flymogram wrote:
"I wish Robert Peston would stop writing this blog and stop appearing on the news. He is a miserable, inarticulate bore, and all he seems to want to do is scare people about the situation. We know it's bad! We don't need Peston to make us feel worse!"
You're not secretly Peston are you? Touting for compliments?!!
GC
RP fan
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253. friendlycard
230 JayPee28bpr
Nationalisation etc.
Current thing seems to be trying to avoid nationalisation, (dont think any political party seeks it). Ringfence and control indirectly. Quite clever if it works. Have them by the wotnots and control policy, leave debt to fester and work its way through, time really. Trouble is anything El Gordo and Comical Ali in da House go near seems to fall apart. Could be they are just in the area of course M' Lord. Think that is Conservative strategy - let the dynamic duo have the scenery fall down and surf in on wave of the public singing 'Rescue Me'. Could be wrong.
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#127 Unusual_example
In your example, the garage would not have been able to start in the first place without a loan. Otherwise I think we're in agreement. Yes, there are small businesses that don't necessarily need to grow, but the for economic growth to occur you need a significant proportion of existing companies to grow and a constant influx of new businesses entering the economy, which will nearly always require some kind of investment or loan.
#139 Soapboxjoe
You seem to want to live in business world devoid of risk, a bit like a medieval bartering system, which is a bit out of date I think. Credit is the oil of the economy and just because the banks dramatically underestimated (to be kind to them) their risk exposure, it doesn't mean that credit per se is a bad thing.
A company borrows money to invest and grow, it's revenues grow and it pays back the loan, they have a larger turnover, and hopefully profit, and the lender earns their interest. Thy employ more staff who pay tax and buy things etc etc. It's a win-win-win situation as long as lenders risk manage their portfolios correctly, which is where we need to get back to.
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253. Friendlycard
No, there's no chance of the government taking the pension scheme assets. The pension schemes are legally separate from the sponsoring companies. The assets cannot be removed under a wide variety of legislation. The government has to clear the deficit somehow, though not necessarily immediately.
The reason I raised the issue is that the deficits for these schemes combined will be a big number. I know Barclays' scheme value is over GBP 20 billion (or was pre-market crash), and I suspect Lloyds and RBoS are both GBP 20-30 billion. The total deficit could well be over GBP 10 billion, so not a trivial amount to put right. I think we need to know what GB will do about this if he does intend to take the banks into full public ownership.
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Post 258 I imagine the 10% bonus to Northern Rock staff was on the following basis. If you stay working here for a certain period then we will reward you with a bonus of a fixed percentage of your annual salary.
10% of salary compared to the uncertainty and stress NR staff have had doesn't strike me as too bad. If you have a call centre worker earning GBP 15,000 that relates to GBP 1,500 or just over GBP 1,000 after tax and National Insurance. This is a standard practice in organisations in crisis or shutting businesses down.
For NR it has been crucial to keep experienced staff to try to keep the organisation functioning over a crucial period of time. If experienced staff walked out then the mess that could have happened would dwarf the staff bonus many thousands of times.
NR has around 4,000 staff earming. Let us say they earn on average of GBP 20,000. This makes a total bonus payment of GBP 8,000,000 of which nearly 1/3 will come back in income tax and NI. This isn't much compared to a GBP 24,000,000,000 bail out.
By the way I don't work for either NR or Crash.
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What do you have to do to get arrested in this country?
a. overfill your bin and refuse to pay the fine.
b. crash a trillion £ company and cost the taxpayer £10 billions while making millions in bonuses and salary.
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Any comment on the 10% bonus's across the board for Northen Rock staff?
My company has MADE money this year but I have had my bonus cut.
Perhaps I should move into banking where failure is rewarded.... and this government give you tax payer guarantees.
Disgusting if you ask me.
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After Morgan Stanley and, I think, Citigroup allowed their analysts to have a dig at HSBC recently, I am horrified to read 220: SilverRich comment about JPM.
The apparently two most resilient Banks of the Anglo world under sentence of being trashed too. or should that have read as trashy?
P.S. Why do not punctuation marks such as apostrophes and quotation marks show up correctly on this blog?
I find I am overusing this blog: is there a dedicated rehab for this?
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re 252 256
IDENTITY IS THE CRISIS CAN'T YOU SEE
IDENTITY IDENTITY
WHEN YOU LOOK IN THE MIRROR
DO YOU SEE YOURSELF
DO YOU SEE YOURSELF
ON THE T.V. SCREEN
DO YOU SEE YOURSELF IN THE MAGAZINE
WHEN YOU SEE YOURSELF
DOES IT MAKE YOU SCREAM
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272. glanafon:
Yes, I think you're probably right. The only slogan the Tories need right now is "we're not Labour".
Contrary to what is often assumed, elections are not decided on policy. They are decided on perceived competence. That is how the Tories lost in 97, despite a strong economy and no obvious policy hostages. GB and co would surely fail any electoral competence test right now.
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274. JayPee28bpr:
"No, there's no chance of the government taking the pension scheme assets. The pension schemes are legally separate from the sponsoring companies".
True. Presumably the govt could fill the gaps by issuing gilts and handing them to the trusts?
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269. Friendlycard wrote:
"Many thanks, this is a really helpful link. Lisbon fares very badly!"
No probs. I'm doing a similar exercise to you, though I'm not young! Incidentally, I don't live in the UK now. I'm one of the many recent immigrants in Ireland (Dublin - #25 on the Mercer list) from London. However, Ireland's in a worse mess than UK, so looking for alternatives.
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GBP now $1.363................
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FriendlyCard #268:
Your scenario of private pension funds being forcibly converted to gilts seems all too plausible. After all, Gordon Brown's first act was to raid the (then well funded) private pensions.
Sadly, there seems no wasy way out of this mess, for any of us. Perhaps the best advice is that that can be found by Googling "Closing the Collapse Gap".
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On Inflation and Sterling for Mr King
A certain large catalogue company has just produced its latest catalogue (with the reduced VAT prices!) - trouble is that is seems to my review of it that the vast majority of the products are imported and as Sterling is now almost worthless and without a friend - most of the prices are quite a bit higher! (And this is before Sterling's latest weakness.)
But I guess the compilers of the CPI (ONS) will find some slight of hand to say that inflation is still going down!
We need some stability, and it MUST be made worthwhile to hold Sterling again - Only way this can be done is to put up interest rates to a reasonable level!!!!
There seems to nobody in the whole World who will now willingly hold Sterling and we hear some half-truths from the pundits - that a worthless currency will help exporters (as if we now made anything!)
However I am also left wondering what a plummeting Sterling does to the foreign denominated non-sterling assets and liabilities of our oh-so-wonderfully-managed banks! I fear that it will break many of them!
Yet another reason to support my ideas in #49 above.
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#260 I see no connection in surviving WW2 and surviving this. Check out the number of nuclear weapons, and their availability in 1945 compared to now.
The financial system is in the process of systemic collapse. The principal cause of this collapse is the actions or inactions of the rich and the powerful. Just because you are rich and powerful does not mean you cannot be greedy and stupid.
Meanwhile you trust these same people with control of the most destructive weaponary imaginable.
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263 Susan croft
We have already been around that loop. Brown failed, the FSA under the Brown Effect also failed, the BoE was not allowed to put house inflation into the inflation, interest rate loop etc. Last summer 1 lonely voice on the BoE committee saying big problem coming. We know all of that. The banks also failed, not all of them, but a lot of them. They did not have to lend. Nobody forced them to lend unsound ratios on house to unsound borrowers in a overheated property market. Where is the statue saying Mr Banker you must, just must, act stupidly. Or do you not think they were stupid. Wait and read the history books.
Our business bank manager, with the better of the banks, said he had lots of people coming in and asking for a mortgage, then walk out saying we can get much more down the road (big multinational) and we only have to sign a form saying we can afford it, one signature on a form filled out for them. Why do you keep banging on to the effect that the banks were not part of the problem. They clearly were. Incidentally some the people who walked out are amongst ones now in trouble. They said they had been in and walked out.
If you persist in driving a car along a country road which is not capable of being driven along at 60mph, when a sign is up saying 60mph MAX whose fault is it when you end in the hedge. The sign provider or the driver who did not act sensibly. Principly the car driver I would say. Brown is a related issue and is negligent, unlucky or stupid.
I do not know which bank you where with - it may have been one of the better ones. You cannot defend the stupidity shown by some of the banks. RBS 20+b loss. Not all banks are in RBSs position, or NRs or B and Bs or others. Say no more.
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#20 The Co-op voice discussing the merger of Britannia and Co-op ended his remarks to Radio Scotland @ 9am GMT today saying "....(with laughter)... Coop is owned by the Government already...."
Unclear of its import but sounds unwelcome
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246 loftgroov and 250 glanafon, plus CycleMike and many others:
I think we all agree that any involvement with the Stock market (even unwittingly via your pension pot) is a gamble and there's been a hell of a losing run just of late.
If you lose the bet there's little point in expecting the Banker (and that is a joke BTW) to give you your stake back plus some of your past winnings that you effectively reinvested.
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267. At 4:43pm on 21 Jan 2009, Toldyouitwould wrote:
# 250 glanafon wrote:
"210. Amused2Death
failures.
Presumably the wise advice from Warren Buffet was also available to the Treasury and the Govt ?
Susan Croft is correct : Supervision from 1997 has been inadequate. Plain and sinful.
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252. alexandercurzon
agreed, I keep expecting you and find it's the1beard, who seems even angrier than you do!
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#167
Terrible!
I can't believe you wrote a poem 48 lines long about bankers and missed the obvious rhyme!
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#117 eddixon wrote:
#72 Definitely Canada.
Don't necessarily disagree, but as a Canadian, I would be interested in knowing your reasons (and where you hail from).
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JUST HEARD JIM RODGERS:
Hate to say it but he is right!
IMF GORDY?
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#254 flymogram why not blame the Archers for the Great Recession? yesterday when asked where the Borchester Land equity had gone to, Chalkie said 'I'm driving it and the wife's wearing it'
well it made me laugh
by the way just heard the currency speculator Jim Rogers interviewed at length on BBC R4 5 o'clock news, telling us to sell sterling etc
why on earth are they interviewing this self-publicist? absolutely bonkers
as a Canuck this is the sort of arrogrant Yankee BS that really bugs me
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#275
Plenty of people are working under “stress” due to the current situation. My own company has just laid of 70 people in November, and those of us remaining were rewarded with a 0% pay rise at year end and a 0% bonus. Our line of business is linked to private development and we worked like absolute demons all year just to do the corporate equivalent of making ends meet.
What makes NR staff so special? It was their senior executives that led to a run on the bank anyway through their irresponsible lending practices. As such, how is rewarding employees of that firm justified? They should be grateful they are still employed, no matter how much “stress” they may have had for a period.
A 10% bonus?? That'd be like a gift from God for many people and not as bog standard and run of the mill as you seem to suggest.
What’s more, Northern Rock have only managed to meet these targets by keeping interest rates high on existing mortgage deals. They have been amongst the very worst for not passing on the BoE base rate cuts to customers and I know – because I am one!
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267 toldyou
Well Warren B has made his mistakes but he gets it right most of the time. I have watched the Brown Delerium with bemusement. But whenever I said this is derranged and has to fallover I was as welcome as somebody trying to sell the Cannibal Cookbook at a Vegan Convention.
Evertime one of my offspring went into the bank he was offered 250k mortgage. I kept saying do you realise just how long it takes to pay off. Fortunately they then ducked.
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#277
I agree. How on earth that firm is paying out any bonuses to any staff is beyond me. My current idea of a “bonus” is not being told I’m about to be made redundant. I’m quite sure NR staff have worked hard – and so they should – but what do they think is the situation elsewhere? Half of them would be on Prozac after the end of a month with my firm.
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282. JayPee28bpr wrote:
"No probs. I'm doing a similar exercise to you, though I'm not young!"
I'm not particularly young either. Initially I posed the question as if a person in, say, his/her 20s had asked it of me, and how would I reply - but I really am thinking about getting out. In some ways this is heartbreaking, and the fact that I am even considering it is indicative of quite how worried and dismayed I have become about what has been happening to our country. I would add that this is not just economics. Spy chips in bins, 42 days, ID cards, banning hunting, banning smoking, banning 100w lightbulbs (for goodness sake!) - our tradition of liberty seems to be going the same way as our currency.
Anyway, good luck with your plans.
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From the Northern Rock bonus story
Asked whether Mr Brown approved of the bonuses, the prime minister's spokesman said: "Northern Rock, as I think is well known, has repaid its debts to the government at a rate faster than originally planned for.
So it is now debt free?
I thought the idea was to turn it around and put it back out into the public domain?
Should be good as the only profitable British bank. But how many other people have paid for the Rock's performance?
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284. David_Kilpatrick:
"Your scenario of private pension funds being forcibly converted to gilts seems all too plausible. After all, Gordon Brown's first act was to raid the (then well funded) private pensions".
Absolutely. That raid was outrageous, and laid down a marker in terms of penalising the prudent and discouraging saving.
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@254
With respect, the fact that Robert Peston writes this blog gives us an outlet for our views, be it frustration, anger or despair and thanks to fellow posters, an education. There is always the small possibility that someone in government or opposition reads these posts, and we are ever hopeful they carry a degree of empathy so when they get some idea of public point of view they may act (ok I will take off the rose coloured glasses now)
In terms of TV appearances, I for one am grateful for the information, however bad. Between Robert Peston and Paul Mason, information is forthcoming in layman's terms allowing ordinary members of the public to make judgments (and sometimes act) on their own economic situation.
Just my point of view but in light of your comments, I feel that the balance required addressing.
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I still note some posters suggesting that Mr. Brown has a plan.
He doesn't. He is clueless.
He has no understanding of economics, no knowledge of commerce and has a grotesquely swollen ego. This is the man who has been running our economy for the past eleven years and our country for the last year.
Isn't it any wonder we are in this mess?
I have no idea how this is all going to pan out. I have confessed to being fearful and remain so.
What is needed is a route map out of this shambles and this cannot be achieved so long as Mr. Brown remains in power. He must go and go soon. He is the obstacle to the government admitting it has been wrong, made mistakes and needs to move on.
Now at the expense of sounding like a tired old record either the Parliamentary Labour Party kicks him out now and seeks a true coalition government of all the talents or they can forget they have a future as a political party. This bust will be hung round their neck for far longer than the Groundnut Scheme ever did and that was twenty years. Either they act now or they are finished.
I don't care either way as when the election does come, I will break my own political tradition and vote for the party most likely to kick them out.
I for one will be looking to any new government to seize the personal assets of both individual bankers and politicians who reduced our country and our people to this dreadful state. I will even learn knitting so I can smell their sweat as they meet their judgement.
Time for change!
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#264 John Constable
#249 Robert Marshall
One of the problems in any analysis of the FSA is that we would like to see them (and therefore judge them) as an independent body - on a par with the judiciary - when they are a political creation and have always been limited in their powers by their political creator.
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134 hardtoswallow
Very good article -- though some comments posted there point out things it did not discuss, like balance of trade; they're worth reading too.
Thanks for posting the link.
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ThorntonHeath
MY ANGER is just UTTER CONTEMPT
FOR THE ESTABLISHMENT.
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Dear Moderators, these posts have waited 5 hours to be moderated. Is this a record??
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As we approach Burns Night, this little parody of the great man's song 'The De'il's Awa' Wi' Th' Exciseman' may amuse readers:
1. The bankers fiddled in London Toon
An' danced betimes wi' Gordon Broon
Who watched them tak' the public's cash
Tae invest it all in worthless trash
Chorus:
The bankers ha'e wuggered auld Gordon Broon
The bankers ha'e wuggered auld Gordon Broon
The fool was caught wi' his troosers doon
The bankers ha'e wuggered auld Gordon Broon
2. 'De'il tak' ye all' the public cried
An' - Bless ma Soul! - the De'il obliged
He danced the bankers off tae Hell
An' wi' them Gordon Broon as well
Chorus (as above)
3. Puir Gordon cried tae distant Heaven
'Twas Ed Balls' fault - Ah didn'ae ken'
The Laird looked doon wi' thund'rous broo
An' shooted 'Well ye ken the noo!'
Chorus (as above)
'Wuggered' is a Scots dialect word meaning 'duped' - or perhaps it isn't.
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269 friendlycard
Have you considered Hawaii.
Its not all tourist. Bit of a penalty due to importing everything but property not that bad, USD moves will have made more pricey at present. You need a visa. Good weather and beaches.
EU no problems right to move about plus access (at present) to healthcare.
Property cheaper fruit n veg cheaper almost anywhere other than here.
I looked quite hard a couple of years ago but put on hlod. last summer almost reversed decision for me.
Chile interesting also, underdeveloped. Farms cheap.
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I am repeating a common sentiment, but you said it, Robert. Mervyn King knows the banks' true leverage and the Treasury either does not, or has a poor grasp of the implications. The poor FSA must be falling under political pressure as it relaxes Tier One Capital guidance to enable more lending (piece in Independent). This phase of failure is purely government-driven as it pursues a "hair of the dog" strategy in the face of all available advice.
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echoteco 170
glanafon 223, gave you the long answer I will give you the short one.
No it makes no sense whatsoever to try to force banks to lend to businesses and individuals who will default on their loans. You are in effect propping up more debt to come. There is no point in this approach because if the demand for proper loans is not there eg companies wanting to expand, people wanting houses etc you are in effect just keeping bad loans going. The banks cannot recover under these circumstances.
The way forward is the toxic bank, a bad bank, and interest rates to go up. In this way investment will start to return into banks and the toxic debt can be sorted out separately.
The only possible reason I can see for doing what the Government is doing is to keep votes, it certainly is not to stablise the banks.
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# 304 fairlopian_tubester
"FSA ... are a political creation"
The Auditors are not.
They failed.
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285 re CPI stability sleight of hand
The trick is put something fairly new that consumers are buying AND that can be pretty much guaranteed to fall in price over a few years, e.g. flat screen TVs
These fall as expected and this outweighs other rises elsewhere.
Also try to exclude anything where there is clear underlying inflation, e.g. house prices, council tax.
Et voila a fixed index
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#225 Baldrych
Yes, there'll be bluebirds over the White Cliffs..."
Perhaps you're sitting in a nice little public sector sinecure, looking forward to drawing your gold-plated index-linked final salary pension. If so, good luck to you, sir.
(And, in the best Hughie Green tradition, I mean that most sincerely).
For those of us in the private sector, the prospects are not at all bright. Forget the minor raid on pensions by the then Chancellor - we're facing:
- absolute devaluation of sterling
- absolute devaluation of the shares in which our pension funds have invested
- lower annuity rates
- higher taxation
- higher costs of meeting the public sector pension provisions
- a bigger and more aggressive state to extract those higher taxes from us
- meltdown of our own savings and investments (and reduced liquidity of our devalued assets)
- reduced opportunities/greater propects of unemployment
(I could go on and on, but you get my drift).
If anything, I judge that Robert Peston has been quite moderate in his analysis.
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glanafon 223
Again you are making the assumption that I am making excuses for the banks, I am not.
What I am saying is if the tight regulation had been in place that was in place before 1997 and Gordon Brown changed, this bank crisis could not have happened because it would not have been allowed to happen. So you tell me how G. Brown is not culpable.
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GORDY TONY ETC
IN SUMMARY
REPOS AT 75,000 p a
RECORD BALANCE OF PAYMENTS DEFICIT
LIES RE WMD
DAVID KELLY
THOUSANDS KILLED IN IRAQ ETC
NUMEROUS POLITICAL SCANDALS
5,800,000 plus ON OUT OF WORK
BENEFITS
TRASHED ECONOMY/ FINANCES
TRASHED STERLING VALUE
TRASHED BANKING SYSTEM
LOW EDUCATIONAL STANDARDS
WHAY A FANTASTIC LEGACY??
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290 amused2death
Nobody is saying that the regulation was sound. But I fail to see how the banks can be excused.
If you go to the bank to get a mortgage you are assessed to see if you can meet the repayment criteria. The bank sets the criteria, not the customer. If the bank, which has a great deal more data, experience and specialists than a naive borrower, says you cannot reasonably meet the forecast repayments then you do not get the loan. The bank has responsibilities. If the bank knows that the property market was overheating and due to have problems then to loan under those circumstances is unethical, let alone unsound business. If the bank also has cause to think the multiples of salary are not good then they should not lend. In any case where are these losses coming from. The UK householder may suffer repo but the bank claims any losses against the householders insurance policy, unless the bank was fraudulent. So these 'losses' are not UK housing related are they. A great many seem to have been shipped in due to bad decisions overseas. Or they have made a great number of bad unsecured loans havent they. Their decisions.
The fact Brown is not up to the job does not excuse poor banking practise. The fact banks are in varying trouble and the trouble is directly related to the standards set by the banks individually tells you that. otherwise they would all be in the same boat and wrecked on the Northen Rocks wouldnt they.
Further if you as a bank go overseas and ship in money on short term arrangements and then sell it on as longterm loans and have to pay the short term loans off and cannot that is a business decision taken by the bank.
No some of these banks deserve what is coming and this government deserves what is coming. It is the individuals not at the top who desrve some sympathy.
Incidently I cannot think of any business in manufacturing in trouble which would pay bonuses in the way NR is doing. Can you find a current example of wholesale bonuses. I would be most interested. Doubt it.
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Unemployment 1.92 m
What are the odds that was fixed to keep it below 2m for another month?
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Until the tail end of the 'seventies, when central banks commenced upon pushing banks to increase capital, my generation ran the banks very successfully and extremely safely on around 4% capital to assets. This was possible for two reasons - we had very little in the way of unrecognised duff assets and we had appropriately diversified deposit funding.
Mr. King is neither old enough nor well read enough to understand the problem.
This recession is no different to any other except in its cause; the zero qualification of personnel running banks and central banks. Take Fred the Shred as an example. He is not a banker. He is an accountant by trade whose only experience of banking before taking the helm at RBS was administering the liquidation of another ponzi scheme; BCCI. His learning from that experience in its relevance to running a proper bank would have been absolutely zero. In the manner which it was run a 50% capital ratio would not have stopped RBS going bust.
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" Owners of capital will stimulate the 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, 1897.
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Message 308 reallywildeman
Very good indeed!.
My compliments.
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308. At 5:46pm on 21 Jan 2009, reallywildeman wrote:
As we approach Burns Night, this little parody of the great man's song 'The De'il's Awa' Wi' Th' Exciseman' may amuse readers:
1. The bankers fiddled in London Toon
An' danced betimes wi' Gordon Broon
We are really amused. My pen name became my true nature whilst reading this.
And remember the great FRIENDSHIP between Scot G Brown and fellow Scot Fred Goodwin. How many times have they met since 1997 ? Perhaps the Diary Secretaries at No 11 an No 10 could let us know.
How many quangos/ public committees did Sir Frederick serve on ? Maybe Mr Peston would let us know. Investigative journalism first Roberto...and then a wee dram of the hard stuff !
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Re: 260
You are right we did survive a second world war - however we would not survive a third one and this extreme economic situation makes the world a much more dangerous place.
Depending on how bad things get it could lead to increased protectionism and increased extremism - neither too good in a nuclear age.
This is a really interesting discussion on here but is seems to me we are all of us bogged down (me included) in the 'micro' elements of this (should we shouldnt we nationalize the banks etc) or (who is to blame thatcher or brown). Perhaps we need someone, somewhere (Obama - nope probably not!) to start a much broader discussion regarding the way we organize our societies. Marx predicted of all this is you read him in full. He thought that capitalism was a canabilistic system - it eats itself and can only survive via increasingly regular crises. I dont know what the answer is and do not pretend to but maybe we should start asking ourselves whether the system itself has ever really worked. In the last one hundred and fifty years we have had two world wars, a major crash and depression (possibly two now) and hundreds of crises in between. Great way to organize human societies eh?
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311 Susan croft
'The only possible reason I can see for doing what the Government is doing is to keep votes, it certainly is not to stablise the banks'
I agree with that. Its called looking after themselves, and trying to rewrite history. The question is can the banks be stablised. Some clearly doubt it. The US has at least got rid of their resident disaster which is why they are more perkier, for now.
I cant see how you can value the so called toxic stuff and to be honest cannot see that it is the taxpayers responsibility. The taxpayer should only be interested in what is required for the infrastructure to function. I am not in a position to judge that. But by creating a toxic bank you are asking the taxpayer to buy duff stuff and the only way that works if for it to be sold at absolute rock bottom prices - it is a buyers market - and I would be surprised if the banks would let it go that cheap. Basically they want their cake and to eat it and they are, let us not forget, apparently bust. This is apparently new ground for the banks. However perhaps they should consider how they behave with customers in trouble. It may be correctly some times but in others it is dubious to say the least. Look at the ombudsman queue.
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25 jon3434
Spending !
We all have everything we need! How many flat screen TV's, new cars, ovens, mobiles, fridges, laptops can we buy? My house seems to have one of everything in every room.
11 joeplumber
I agree then we can all get on with it...
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#299 Friendlycard.
You need to be careful - lots of people get out and then either hate where they are or find that they still have assets or income in sterling, and have a lifestyle that fluctuates with exchange rates.
If you close down all your sterling positions then if things move against you, you could find that you can never afford to go back.
People get used to things - and inevitably there are some things that are not available elsewhere. If cricket and warm beer are your thing then there are not many places where that is on offer.
I walked into a bar in Australia a few years back, place was covered with photos of George Best and a load of people moaning that they missed the rain.
Everyone is different - some people would never go back and others can´t wait to go back.
The only reason I go to the UK is work (or I did when London had money) or to see my Mother. I´ve seen people in British hospitals and I´ve seen people in other hospitals. If I was ill I would nail myself to the floor to avoid going anywhere near the UK.
You can find a much better, more laid back lifestyle outside of the UK - but wherever it is it will be different to the UK.
For something a bit different South America sounds good to me. It´s cheap, in general they seem to like the British, and there is always a demand for native English speakers to teach English. It´s not all cocaine barons, the FARC and Sentido luminoso.
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307. ThorntonHeathen
'these posts have waited 5 hours to be moderated'
My post 165 says can be couple of days if kicked into touch. moderators can also kick into touch.
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#295 somali_pirate_SP500
As far as Rogers is concerned I couldn't agree more. At least on radio 5 they gave it a 'health' warning before playing it.
If we can survive the next few weeks then see the whole thing change
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91 three fingered bob
y u get x bout small thing?
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310 WerringtonSilent
The Brown Delirium is becoming the Tremors.
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Lucid contributions from JayPee28bpr and glanafon, as usual.
Personally, I am struggling to reconcile the apparent trillions of overseas liabilities that the banks have with the previous blogs where RP has stated UK banks have £600m overseas liabilities.
Nonetheless, if most of RBS' liabilities are overseas, might it not be in the national interest to do a Lehman Bros put the bank into liquidation. National good name etc is all very well but is it worth a trillion? I think not. First, we could put the everyday commercial banking operation and UK deposits into a spin off called perhaps Westminster National - bit old, bit new and clearly showing where the power is.
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This may be off topic or not but I am absolutely furious to hear that staff at Northern Rock are getting millions of pounds in bonuses for just doing their job.
Especially when this is now a nationalised bank funded by the taxpayers.
Just who is taking us all for a ride.
Just this government.
On another day when thousands would love to have their jobs and are probably better qualified to do them this government is putting up two fingers once again to the British people.
How can they be so stupid and out of touch.
Bully boy tactics have been used to make people homeless by Northern Rock employees and they are getting bonuses for doing so.
If this is nationalisation forget it.
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Robert,
Not having the privilege of seeing you on the TV, and having been quite narrow in my choice of websites i've viewed i'm rapidly coming to the conclusion that the licence payer deserves better than this 'tabloid' analysis trying to cover all bases but generally painting a picture of doom. Admittedly it's a blog and that a good number of people need simplicity, but as 134 HardtoSwallow pointed out by enlightening us to the Reuters blog, there are far superior journalistic analysts out there giving us a richer fuller, factual picture. BBC citizens deserve a bit better analysis, (some of your early stuff was good btw) - is that too little to expect from a BBC Business Editor?
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'
#308
Lovely LoL
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317. At 6:14pm on 21 Jan 2009, glanafon wrote:
290 amused2death
Nobody is saying that the regulation was sound. But I fail to see how the banks can be excused.
Oh no, glanafon. Perhaps you haven't read my other blogs.The banks are culpable too...the real question is one of degree.
One bank in trouble... down maybe just to the bank itself.
Two, three , even four banks in difficulty perhaps could be down to greed of Top Bankers and various self-intereested parties.
VIRTUALLY THE WHOLE banking structure of the UK in trouble ? ....well that is the fault of the overarching Regualtory System -set up by the Treasury and the Govt Treasury Team.
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Sorry to post again so soon moderators but cannot believe what I have just heard! Off topic I know!
My friend has just come over to tell me that he has received a three page letter today telling him that next week he will receive £25 extra for cold weather allowance! The letter is if he wishes to disagree with the allowance and if so please complete the attached! How much has this letter and all the rest cost!
He was made jobless last October and when he signed on the first question was. Are you fit for work?
Yes he replied.
Oh! how old are you?
60 he replied.
Are you can then go on Pension Credit she said.
This means he receives £25 extra a week and is not part of the unemployment figures!
Robert
How many are not fit for work?
How many are on Pension Credit nage range 60 - 65?
How many other boxes are there?
I have always known that the figures have been a joke!
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I've just heared on the other channel that NR are paying their employees a 10% bonus. Is this true or are they pulling my leg?
Is it April 1st or what?
Someones left the asylum door open.......
Hells teeth, where are we going, what on earth is going on here.
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319. KenHarvey
"Until the tail end of the 'seventies my generation ran the banks very successfully and extremely safely"
Until the 80s, banks were restricted as to what they could do, eg not allowed to offer mortgages which was the preserve of Building Societies. There were also exchange controls in place, so far less foreign business as well. The Stock Exchange was a closed gentlemans' (literally - no women) club and therefore very little share ownership either directly or through mutual funds. Essentially, banks did little more than hoover up deposits, laud it over the local business community who wanted an overdraft, and invest the rest in gilts. There were the "Big 4" banks and nobody else: essentially a cozy oligopoly.
Despite the much easier working conditions, the banking sector still almost managed to bankrupt itself in the mid-70s, ironically as a result of excess exposure to financing commercial property development. NatWest had to put out a statement one day in 1973 (I think) assuring people it wasn't going bust. The governement of the day had to pile in huge amounts of liquidity (sound familiar?) to keep the banks solvent, and this was a key factor in Britain's worse inflation record in the 1970s than its competitors (ie it resulted in monetary expansion).
So don't make me laugh about how well "your generation" ran the banks. They were uncompetitive domestically, faced no external opposition due to exchange controls, and still managed to bankrupt themselves.
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post 336
1,200.000 approx
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309. glanafon:
"Have you considered Hawaii".
I hadn't, but it sounds very well worth considering. Thank you!
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I love the references to mortgage indemnity policies.
The borrower pays. The bank claims against the policy and gets the shortfall. (this will not cover all of it in such a falling market as now).
The real punch line is that the insurance company now chases the borrower for the loss.
So you pay, they win AND you pay their winnings as WELL as their bet.
Everything is rigged and NEVER forget it.
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326. armagediontimes:
Thank you for a really insightful and helpful contribution.
Friendlycard
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242
It is called friendly fire. The Yanks are famous for it.
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315. Susan-Croft wrote:
'glanafon 223
So you tell me how G. Brown is not culpable.'
I cannot post my opinion on G Brown it would never see the light of day, or dark of night. I would say Blair Brown et al have done more to damage labour and the UK than any other political party could have. Just like Bush appears to have done more to damage the US than bin Laden. I thought my opinion was easy to deduce.
Does that help : )
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post 336
So we are on the doors of 7,000,000
in total inc incapacity at 2,780,000
WHO WAS WHO SAID LABOUR ISNT
WORKING?
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338
At the time of the secondary banking crisis (Slater Walker Julian Hodge et al) NatWest shares were yielding far more than NW deposit accounts. Some brave souls took all their deposits out and bought the shares. They made an absolute killing.
As they say on TV do not try this at home in the current environment unless you are fully prepared to lose the lot; however, the opportunity is there, but I would avoid NW this time round.
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342 friendlycard
armagediontimes is correct. Those that wish to have england in the middle of a foreign land often have a problem. I have spend a lot of time aboard, but not recently. I cannot see how anybody can miss the rain, as long as there is sufficient to grow stuff. If you want to look at S America you need to check the climate change implications. Large inland areas are predicted to have desertifcation problems. Mind you predictions dont always mean a lot.
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220. SilverRich:
Re: JP Morgan. And it's possible collapse.
If it goes, does that mean war criminal Tony Blair would finally lose his £2.5 million a year part time job there?
I think I could stand to watch the entire world economy implode, dragging us all back into the dark ages, as long as that smug twit finally gets it.
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If the rumours about Northern Rock are true, the employees of RBS are probably lobbying the govt for nationalisation! Who on earth sanctioned this?
Those bonuses could have saved jobs.
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re unemployment
Rules, I believe, mean that if you are made redundant and recieve holiday pay you cannot sign on until you have completed the 'holiday'. What a joke. I suspect that if you are let go early, quite common I believe, that you have to serve your 90 days notice. The legistlation stands so 4 ft high, 1.2 M and most of it is intended to stop you getting something. As you get nowt if you have capital, quite a small amout, then may do not sign up until it has reduced and job hunt seperately from the system.
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347. glanafon:
Thanks. I think this does indeed need to be thought out and researched very carefully indeed. I must say I like the Hawaii idea.
I started this topic wondering what answer I would give if a young person asked me for advice on this, but as the discussion has developed - during a day of horrible economic news - I have been wondering whether it applies to myself. It's certainly tempting, and not just for purely economic reasons. There must be many people saying the same thing.
I'm a little surprised that no-one has mentioned either the "traditional" destinations - such as France, Spain or Portugal, I suppose - or maybe somewhere like Tunisia. Friends of mine have gone to Tanzania and love it.
Thanks again.
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341 sosraboc
mortgage ins.
Yes they have it stitched up. But you try telling a rookie FTB about it, they say surely not. Its is a dodgey game and the downside is never presented at the point of sale to the FTB.
It is actually worse than face value because if the householder is broke and cannot redeem the mortgage by a fiver the bank insists that repo occurs so they can claim on the insurance, usually with the house dumped at auction. So a small problem becomes a big one. 2 million probably due to see neg equity locking them in from moving.
In the UK the ins co then can pursue the householder for any losses following payout to bank. In US they are v worried because the householder can throw keys over counter and walk, written off, not pursued. 1930s laws. And they are throwing keys in, saying why try to pay off 100k neg equity.
This whole area need consumer law reform. When the commision for selling subprime has been posted as x2 prime it tells you everything.
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If we need to get money into people's pockets why doesn't the gov just pay off everyone's mortgage? About £15 billion?
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#320 #323 etc
Yes, Marx did seem to predict all of this. Remarkably well really.
I remember years ago being taught that the reason that Marx's predictions didn't come to pass earlier was because of "Social Democracy" - or to be more precise progressive tax regimes which recycled money back from the rich to the poor. Then of course from the 1980s onwards Governments here and abroad stopped the idea of progressive tax regimes and relied on the nonsense of "trickledown" instead. So Marx is back on track again...
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# 236 thenewponzi
Is that a film advertisement?
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345
Thanks some good news then, better than i thought
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#353 deebee1000
So what do you propose to do for those of us who have worked all of our lives and paid off our mortgages?
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Post 349 & many others. Yes NR are paying a 10% bonus of salary to staff and this is why, in my opinion.
1) The Senior Management really messed things up so badly that the UK taxpayer had to bail the bank out.
2) I believe that the effective amount of loans required was in the order of GBP 24 billion to stabilise things. That is GBP 400 for every man woman and child in the UK, if anyone was wondering.
3) In order to minimise potential losses and to ensure that the situation didn't get worse the new manaement had to ensure that the good staff stayed rather than left.
4) The first thing that happens when a company looks like dieing a slow lingering death is that the good employees start to leave. The reason for this is simple is that they have marketable skills and are good at their jobs and so can get other jobs. So you need to keep the good staff. A loyalty bonus is one means of doing this.
5) If you are in a hole to the tune of GBP 24 billion then even a 1 percent improvement in managing the returns made actually relates to GBP 240 million. Put it another way if all your good staff leave and your returns drop by 10% then you lose GBP 2.4 billion (GBP 2,400,000,000 for those who like real figures).
6) The staff at NR have met their targets and got the UK taxpayers money back more quickly and more efficiently than expected. In other words their actions have probably saved us hundreds of millions if not billions of losses that we would have to pay for.
7) If the average wage at NR is GBP 20,000 then the bonus fund is actually GBP 8 million (or 13p per member of the UK population). Of this GBP 8 million approximately 30% will go straight back to the UK government in income tax and National Insurance. Call centre workers are paid PAYE and generally aren't tax exiles, unlike their previous Finance boss brought in by Crash and Alistair Darling at great expense.
So the bonus has probably cost us, the UK tax payer around GBP 5.5 million. The NR staff have probably saved the UK tax payer at least 100 times that amount.
GBP 5.5 millioon doesn't sound much when you consider how much our RBS share puchase over the weekend lost us in just one day!
Before people moan about the bonus what would they rather have had
a) another GBP 1 billion or more loss at NR or
b) a payment of GBP 5.5 million to taff who got our money back more efficiently and promptly than we expected.
Work the maths!
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#315 Susan Croft
What is being witnessed is a systemic collapse of the system. Brown is neither important enough nor smart enough to be responsible for this.
That is not to say he is without culpability, but he is just a "system manager" albeit a particularly inept one.
For him to be responsible you need to explain the collapse in the US banking system, and the spreading contagion throughout Europe. How much money for example has Hypo Real Estate lost? Why are UBS and Credit Suisse requiring central government funding? The Swiss and the Germans are not renowned for playing fast and loose and yet still they cannot avoid the contagion.
The real charge against Brown is that so slavishly does he follow his masters orders that he is prepared to destroy the entire country in a vain and futile attempt to rescue that which is beyond rescue.
His every action betrays his contempt for the general population and for democratic principals. He has succeeded in destroying for ever the last vestiges of the original aims and ideals that underpinned the labour movement, and has ensured that in future the UK will more closely come to represent the US - in that electors are invited to choose between 2 parties both of whom represent the interests of business.
It is illogical to suggest that regulation is responsible for this as, as others have pointed out, you are not compelled to engage in any given activity just because it is legal. For example assisted suicide is legal in Switzerland - that does not mean that all visitors to Switzerland commit suicide.
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299. Friendlycard
Interesting thinking about the UK. We left 3 years ago, primarily because I was offered a job in Dublin. We saw it as a 3-5 year project then return to UK. However, we soon came to appreciate how much better the quality of life is here. In short, I agree that the UK has become a very nasty place to live. The attack on civil liberties is much more obvious when you move away.
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353
Interesting figure. There is one company alone in the FTSE 100 that owes 4.5b in mortgage payments... Is 15b a little low...
Just off to quiz night to help try & support what is left of another industry that our Darling is also helping to destroy...
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glanafon 32
Banks use a "bad bank" to put toxic debt in. An assessment is made of anything that is put in it, either its workable or not. If not you get what ever you can for it immediately. In this way you at least start to re-coup some losses. This, in my opinion will in no way cause the amount of problems you will incur if you leave toxic debt in a bank. A bank that is forced to prop up this debt even though it is not workable will continue to incur losses. The removal of bad debt from a bank gives it more ability to lend and recapitlise itself. Otherwise it is continually putting any gains towards the debt it holds. The use of higher interest rates further weeds out the bad debt because what cannot be afforded at low rates certainly won't be afforded when interest rates go up. Furthermore investors would return, people would start to save, pensioners would have more income from their savings to spend and so on.
In my opinion this is much less of a risk to the tax payer than what is proposed at the moment. To expect the banks to lend to businesses that may fail; prop up individuals on mortgages which are unaffordable; pay back the Government at 12%, and alienate savers and investors with low rates of return is a recipe for disaster.
If this process had begun at the time of N. Rock I do not think all this tax payers money would have been needed for bail outs.
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309. glanafon wrote:
"Chile interesting also"
We were there at New Year. Fantastic place, totally loved it. Visited a few wineries south of Santiago, which also gave us the chance to see the countryside. Not sure I'd describe it as under-developed, though not sure of just what you mean by that.
Santiago was fabulous. Pretty affluent, interesting history, no hassle from locals trying to sell us stuff or beg (ie less hassle than experienced in any major UK urban area), good bars/restaurants.
Bit far away from "home" (ie family), and not that well-served for flights would be my only negative about Chile.
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#303 comrade stalinic
Yes, your analysis of Gordon Brown lacking a plan is quite scary.
I'll tell you something more scary - pure fabrication - that Gordon Brown might actually be following a plan. Scarier yet, is that - deliberately or unwittingly - it might even be someone else's plan.
One thing is clear: Brown, and those on-side "economists" that seek to apply crude solutions in the name of Keynes, are clearly not acting in the interests of "ordinary" people (as in "hard working families", undeciphered).
The measures being taken are making things far worse than better - except for a privileged few - and will continue to do so, until someone has the courage to tackle the fundamental causes.
On the one hand we face the ruin of our economy. On the other the growing power of the state.
See you in the gulag, tovarich.
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320. At 6:16pm on 21 Jan 2009, supermum1958 wrote:
"Snip fake quotation"
Karl Marx, 1897.
Sorry. Rubbish. He didn't say it.
However... Ludwig von Mises on the other hand in "The Theory of Money and Credit". (1911) Did predict The Depression... well, basically that any boom must end in a bust.
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I don’t understand big finance, so my question may be a little stupid. All a read and hear is that all financial institutions struggle to pay their debts. But if they pay it means that someone is being paid. Why don’t we read about complementary huge profits? Where is this money going?
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345 AC - very witty.
It's a very sad shame that a lot of the labour market isn't going to be working as a result of all this.
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SINCE 1997
Over 3600 extra Criminal Offenses
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Robert
Your quote:
'The Governor of the Bank of England didn't pull out the stops to cheer us up in his speech last night'.
You can say that again!
I hope someone is able to ask Mervyn King and find something out about what is really going on behind the scenes and whether he has enough power and remit to apply 'strong medicine'.
We'll have to wait and see?
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363. JayPee28bpr
Chile - re undeveloped. Sorry I meant scope for develoment. Evidently plenty of opportunity. Loads of open space. Evidently a western friendly outlook. I havent been there yet only research. Your ahead of me on that. Do you not think that the family in Blighty in the winter would not think the trip was worth it. : ) Rural Portugal also nice.
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Reading the blog backwards I note that some bloggers are defending the bonus payment to NR staff, with logical well presented arguments.
Thank you for that, but it makes me feel not a jot easier about the basic banality of paying this bonus at this time.
Ideas that the employees were about to jump ship hold no water, where were they going in this depression?
Poor PR at best, utterly conemptable in in my view.
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Robert:
[The Governor of the Bank of England didn't pull out the stops to cheer us up in his speech last night.]
That is very important news, Mervyn King did not sugar-coated the news he was delivering to the people regarding the continuing problems with the banking and financial systems in the United Kingdom.....
~Dennis Junior~
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335. Amused2Death wrote:
"VIRTUALLY THE WHOLE banking structure of the UK in trouble ? ....well that is the fault of the overarching Regualtory System -set up by the Treasury and the Govt Treasury Team"
And what about if "virtually the whole banking structure" globally is in trouble? Is that the fault of GB as Chancellor and then PM? I somehow doubt it. There are undoubtedly weaknesses and conflicts of interest in the UK regulatory system, but in no way do they explain what's happened to UK-regulated banks, never mind the many other non-UK banks experiencing the same problems.
I actually feel sorry for GB. He's not afraid to try a variety of options to try and resolve the mess. His problem is one of character. He's too detailed-oriented, and so responds to every new crisis, though really we have one crisis with many significant events related to it (a bit like an earthquake followed by lots of after shocks). Brown's character leads him to seek a solution to each new event, whereas what we need is someone with a more strategic vision who will identify the 1-2 real systemic shortcomings and deal with them, then leaving the banks to heal naturally.
I've come to the conclusion that the near-daily announcement of new initiatives and leaking of policy discussions via RP and others is now adding to the problem. It simply unsettles people and leaves them more fearful and hence unwilling to behave normally, eg spend at a normal level.
Personally, I'd prefer to see the banks offered more government capital injections of amounts so large that they could write down virtually all their non-government exposures to zero. BoE should also stand ready to swap virtually any assets for cash/UK T-Bills so as to minimise liquidity risk. Then the banks will get on with the job of lending prudently, secure in the knowledge that they have enough capital and access to liquidity irrespective of what happens anywhere else.
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I can already see the green shoots of wreckovary of the British humpity dumbpity economy that sat on the wall st golden bull waiting for Kings men to save its sorry egoshell from its declining AAA'sets,the yoke is on them all now.
The next generation of douible dutch tulip bulbs are potted and will soon be ready for market [but i should not tell you this ,for its a secret so great were it to get out.........]
The bank of England should tripple the reserve requirements of the major high street banks ..... 10 pounds sterling should just about do it do it.
Britains eekonomy is developing fool blown Automaticaly Induced Debt Sindrome for pumping up its AAA's holes in an insatiable manner and is in denial ,wanting Doc to hold its hand and say its only a conmans cold .
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351. Friendlycard wrote:
"I'm a little surprised that no-one has mentioned either the "traditional" destinations - such as France, Spain or Portugal"
Spain is where were researching. Very cheap property right now (to rent or buy). Their property collapse makes the UK look like it's experiencing a boom right now.
Portugal looks more expensive in terms of property, at least looking at the types of area we'd be interested in going to.
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So many posts blaming the banks and the government - whatever happened to personal responsibility?
Businesses are finding it hard to borrow because they didn't put something aside for a rainy day, don't have sufficient unencumbered assets to offer as security, and no longer have the cash flows to give banks confidence that they can repay both interest and loan. Well, perhaps they should have thought about that before building overpriced houses that none of us can afford or investing in new cars - or plasma TVs - that the consumer doesn't want to buy at the over inflated price they are being offered at.
As to the individuals who have saddled themselves with £250K mortgages with no downpayment, and now find they are jobless and can't pay, why is this solely the bank's fault?
Then there are those who invest in shares, not because the dividend represents a better return than a bank deposit, nor because they do sufficient research to make sure the company is a good investment but because they hope to "make money in a rising market". That's called betting, not investing.
#250 glenafon, it's worse than refusing to accept risk exists. It's more like being so greedy as to not even bothering to think through what the risk might be, let alone work out how to manage the risk.
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357,
So let me get you right!
Not right to bail out families with kids etc (who bought houses for a place to stay i.e. a HUMAN right!!!), but ok to bail out bankers and bankrupt companies?
Your posts really are getting pathetic!
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#38 "Northern Rock is owned by the government but the staff are not employed by the government so not paid by us."
So who do you suggest is paying the NR bonuses if not the taxpayer, given that we own 100% of the bank?
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358,
What a ludicrous post!
NRK staff saved the taxpayer money? Your having a giraffe, for every family they made HOMELESS they added significant cost to the taxpayer in the form of benefits all the while ADDING to the downturn (Other banks capitalisation reducing because of the overspill, and the sudden LACK of finance). NOW we are giving them a bonus?
It was comical ali and merv the swerve that caused the run, which resulted in the bailout!!! 14BILLION in withdrawals due to the leak.
I do wonder about the standard of education in this country but some of the logic on this blog defies belief. Its no wonder Labour got into power in the first place!
I’m out of this backward country it’s a complete disaster!
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370. glanafon wrote:
"Do you not think that the family in Blighty in the winter would not think the trip was worth it. : ) "
Definitely worth the 12 hours plus on the plane!
A couple of your posts suggest you have something to do with farming. If so, get yourself over there! They appear to be very progressive to me. From an economic perspective I mean. I don't know anything about farming. Doesn't meat grow shrink-wrapped? ;-)
Anyway, Chile has a high value-add agricultural sector. They grow a lot of stuff purely for export, eg I think they export over 90% of their exotic fruits crops. From what we saw on our drive out of Santiago, the sector looked well-capitalised (new equipment etc) and is clearly a big export earner for them.
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JavaMan
Did you check out D notice
Dunblane
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#373 "It simply unsettles people and leaves them more fearful and hence unwilling to behave normally, eg spend at a normal level."
We haven't been spending at a "normal level" for years. Normal level is surely when you live within your means. Most of us have been drawing down the equity in our houses and running up credit cards like there was no tomorrow.
So from now on, we will all have to spend at a normal level, whether we like it or not.
Given banks now lend 3x earnings for a mortgage, if you have a 20pc or more deposit, I predict the average price of houses should fall to around £105K, in line with the current average income of £28K per annum.
#127 unusual-example
If your garage owner doesn't have enough to cover his working capital requirements even for one month during a downturn, then he shouldn't be in business.
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@358
Thanks for the comprehensive clarification but is it my imagination or have there been a glux of redundancies in the banking sector. If staff want to walk from NR, which is unlikely as it is now state owned and probably the safest bank in the sector, there are plenty more equally talented recently made redundant banking staff out there that would gladly take up employment and probably for less wages just to make ends meet. In this climate where everyone is clinging to employment by their fingertips, it is sheer madness that the now state owned Northern Rock should buck the trend in this way.
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358 Economicallyliterate
It is a fact that targets are usually set to be acheivable. That those targets were set in a short time scale and inevitably have to be questioned as possibly skewed. Particularly as progress is likely to be recieved well and delay not.
As an aside an observer from a distance has to also question if such success has in fact been gained by a hardline with borrowers, as such has been reported in the media I believe. Furthermore that such action is apparently in contrast to the politically presented ethos, whether that be intended to be implemented or not.
It is difficult to argue that all staff are due to jump ship particularly when a sector is shrinking. Further that all staff are critical to the process. Just how many navigators do you need on this particular ship. A more normal procedure would I suggest be to identify key staff. By definition not all staff are