Rescuing the economy, not banks
Our big banks aren't bust. They were recapitalised in the autumn - with £50bn of cash from taxpayers and external investors - and they remain solvent.
And if you wish to ring up the Financial Services Authority, the City watchdog, for assurance on this point, I'm sure you'll be told that the big banks have a sufficient cushion of capital to weather all but the most cataclysmic storms that may lie ahead.
However the impression has somehow been created over the past few days that they are being rescued again.
I'm not sure whether that's the result of media hysteria, bankers' neurosis or government spin.
And Royal Bank of Scotland hasn't exactly soothed nerves this morning with its historic announcement that it will report losses for 2008 of between £7bn and £8bn.
But even Royal Bank has very substantial capital resources - the more so after it converts the government's holding of preference shares into ordinary shares (when taxpayers' stake in the bank rises to 70%).
What's been announced by the Treasury and Bank of England this morning is not a survival plan for the banking system: we've already had that.
If it's anything, it's a survival plan for the British economy.
Now, as it happens, the giant insurance scheme announced today - which would see taxpayers becoming liable for all sorts of ill-judged lending by the banks - would reduce the likelihood that the banks will need rescuing again in a few months time.
It's what it says on the tin: "insurance".
But as of now, the government's primary motive for providing this protection is to stimulate lending.
The logic is that if banks can evaluate how much they'll lose in this painful recession, which is what they'll be able to do when taxpayers have the dubious privilege of insuring away the uncertainties for them, they will be less reluctant to provide new credit.
In fact, in return for providing the insurance, the Treasury will mandate banks to make new loans to households and businesses.
Why all this stress on credit? Well as I've pointed out so often as to send most of you to sleep, the withdrawal of credit from the UK and global economies is what's precipitated these dreadful economic conditions.
That's why the Treasury will guarantee bonds created out of mortgages, car loans, and other assets - to provide funding for the housing market and elsewhere.
That's why the Bank of England will swap corporate loans and other forms of credit for Treasury bills, which can easily be turned into cash (by the way, this new facility is a part of the preparations for quantitative easing, for printing money when Bank Rate is nearer to zero).
That's why Northern Rock, the nationalised bank, is starting to lend again.
All of this represents the last chance saloon for Treasury initiatives to revive lending that fall short of direct government control of lending by banks.
If credit doesn't become more readily available, the recession will deepen - and one consequence will be that bank losses will escalate even beyond the current alarming forecasts.
At that point, a new rescue plan for the banks would have to be launched. And there would be full-scale nationalisation of our biggest banks.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~47~RS~)
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Robert
i would suggest that the recession has already deepened. The Item Club is predicting 3.4m unemployed next year, who knows what the PBR will be.
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Bloomberg quotes: "The bank rescue package increases the government’s grip on consumer and corporate banking and expose taxpayers to hundreds of billions in losses"
With due deference and apologies to others who have posted similarly to RP's blogs recently:
Gave a man a fish, and you feed him for a day
Teach a man to fish, and you feed him for a lifetime
Buy his future fishing rights from him, and you give him a year of party and plenty, followed by a life of slavery to you.
We are borrowing now from overseas (all the funny money for financial rescues now must come from somewhere - we have to pay for all our imports).
And we are enslaving our children for their lifetime, solely for today's comfort of an extra few months saved from crash.
Robert, you keep alluding and hinting in your blogs to this fact, but will not spell it out explicitly !
For every £100 worth of loaves of bread we (through the Government) borrow today, our children will have to pay back that value of loaves of bread to our overseas debt owners plus a huge compound interest in the future.
And in 1 billion, there are millions of £100's. And we (through the Government) are borrowing not 1 billion, but hundreds or thousands of billions. Every additional billion is countless of our children's lives enslaved in this country for an added period in the future.
Until you address this point explicitly in your blog, I and others will continue to demand it from you in our comments.
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Correct me if i'm wrong but this goverment insurance scares the life out of me! how can they offer insurance on toxic assets e.t.c. when they can't be valued - ouch!!!
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But RBS made profits of £10.3 billion in 2007, £8.2 billion in 2006 and £9.2 billion in 2005 where did all these profits go????
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Dear Rob,
Now Plan B is up and running, you ask about a new rescue plan if Plan B fails. Well I think there is a Plan C, but actually I think it is called Plan I, M and F.
Xxxx
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This insurance scheme - does it mean that investors now have the proposition of a riskless investment? If so, what happened to the good old calculation of risk vs reward? The notion of a riskless investment (especially one based on dodgy underlying "assets") surely cuts through the heart of our capitalist system?
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Stop being a mouthpiece for the government Mr Peston
It is clear that the October rescue for the banking sector failed.
Now they are having to revisit it - as they do with most things
You are paid to provide a detailed, independent analysis of the situation not to defend the government line.
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What happens if this credit is made available and very few want to use it?
Then again who wants to lend on a dead loss? No bank - no matter how well capitalised - will want to lend money to a chocolate kettle maker.
That is a problem that has not been addressed - the authorities seem to have come to the conclusion that lending and forcing lending will set the economic blender back to purée and everything will be hunky-dory.
I fear that few will want to borrow and those that can lend will be overly cautious in a falling market - no matter who controls the strings - banks, semi nationalised banks of the government.
In 4 weeks time all the banks will be nationalised and then what?
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Please can someone explain where all this lost subprime money has gone, and is there any possibility of getting it back?
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No mention by Major Brown-Mess or Captain Darling of the impact of this latest "temporary" money-scattering exercise on the budget deficit or total government debt.
Gordon must think it's wonderful. A nationalised banking sector on its way. A vast public sector already in place. More state-funded business bail outs to come. His dream of a socialist state is being handed to him on a plate.
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So in SUMMARY its ROB PETER TO PAY
PAUL MIKE LUKE AND JOHN??
THE WHOLE ECONOMY IS BUST.
NU LABOUR HAVE DONE IT AGAIN.
NO BODY IN THEIR RIGHT MIND
SHOULD BUY ANY GOVERNMENT
PAPER.
UNLESS OF COURSE ITS FISCAL
PRUDENCE LAVATORY PAPER.
WHAT AN UTTER FARCE A TOTAL
CHARADE OF DECEIT & ENDLESS
LIES.
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Why do you repeat without challenge the mantra that the most pressing problem facing the government ‘is how to increase lending’, usually to small businesses?
The current problems arose because of too much lending, not too little. While we may have swung too far the other way, more lending is certainly not the cure. You obviously missed the former Chief Executive of Barclays, Martin Taylor’s, wise words on the World this Weekend yesterday.
The fact that an instant consensus arose among the political parties and commentators like yourself about getting the banks lending again should be a warning sign in itself and that it will just make things worse.
Just because the BCC, CBI and FSB keep trotting out establishment ‘orthodoxies’, without thinking about whether they’re talking sense or not, does not mean you should too.
Of course, many of their members are in trouble so some nice soft government loan seems tempting – but in reality it just delays the day of reckoning, which is the worse for it when it comes.
The real problem faced by small businesses (and hence the economy) is not a lack of credit (though that is a problem for some), but the burden of fixed costs (costs, such as rent, that do not change with the amount of business the firm is doing).
Companies need to move away from fixed costs to variable costs (costs that go up and down with the volume of business, such a sales commission, raw materials, etc.). That way, companies’ costs will better reflect the trade they are doing and allow them to adapt quickly and flexibly to changing market conditions.
That no one in government can see this, not even the sainted Mandelson, nor for that matter the great Vince Cable or anyone on the Tory benches, just proves how little these people understand about business.
I bet very few, if any, of them can put forward an articulate case why lending should be increased – they’re just trotting out some rubbish spouted out about 3 months ago from some economist or academic who’s never run a business either.
There are two things the government really should be doing if it is genuine about supporting business and helping the economy.
First, business rates (a fixed costs which businesses have to pay before they’ve even sold as much as a single cream cracker) should be replaced with a profits tax (a variable cost, paid only after a profit has been made and which is proportional to how well the business is thriving).
Second, employer’s National Insurance contributions should go. This is a tax on employment, and a further cost which has to be paid before a single cent of business has been conducted. At times of rising unemployment, taxing jobs is sheer lunacy. And, it is a poor reflection on humanity that we’ve got so used to this irrationality that we blithely accept it as the way things are.
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Yet again, the government is playing catch-up.
It is so far behind the curve - the trajectory of which started no later than July 2007 - it is absolutely frightening.
Commentators who were on top of the game were predicting this chain of events all through 2008.
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Rescuing the economy, not banks ?
should read
Rescuing Browns Political Carer, not banks
Oh btw, wheres my savings gone ?
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Sometimes it is better to let them fall than try to prop up a failing system!!!!!
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It doesn't matter if the banks have money to lend to households (or have it insured). Nobody in their right mind is going to take out a mortgage at the moment when property prices (the root cause of all the problems) are still ridiculously overpriced and falling rapidly. First-time buyers will not take the leap until prices stop falling for several months - that is some time off yet. When they do, the banks will be happy to lend and ask for smaller deposits. It does not require intervention to happen - the economy will simply not work again until house prices have fallen to their long-term affordability ratios (50% down from peak) and the fools that bought overpriced houses have paid their debt to society (their negative equity).
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Before the usual suspects start their rants,
if there is a viable alternative to what HMG is proposing, let us have details of what it is, who pays and for how long, and who suffers. I for one am tired of all the nay sayers who have 100% hindsight but who are unable to say what should be done. We're in a global mess and how we got here is for the historians (and hysterics). Its how we get out that matters. Yes, we will have to pay, but I'd rather keep my job and pay later than lose it now and have nothing to pay anyone with. As for my "children" paying- they'll be in their 40/50/60's when that time comes and will still be better off if dad has a job now so he can look after them now-are you listening, Mr Cameron?
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I just watched the PM and Chancellor get a rough ride from the media for their latest bailout plan. I think what annoys most is their refusal to acknowledge any fault on their part for this debacle. Instead we're supposed to be grateful to them for rescuing us from dodgy American lending and the failures of Dutch regulators with yet more of our money (not to mention our children's and grand-children's money). Are we really expected to believe that RBS buying ABN Amro was of no concern to UK regulators?
No wonder they are plummeting in the polls again. Dishonest to the end.
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So in other words, the government isn't actually pumping actual money into the banks, it's using some complicated financial trickery involving the packaging up, insuring, and selling on of potentially bad debts.
Oh jolly good. What could possibly go wrong with that?
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I still can't see the economy moving an inch until house prices drop further. You can give the banks money 'till the cows come home, but nothing will get the market going until prices drop. I think they will need to drop by 20% before mortgages become available again
Money is available for house purchases if you can qualify with a 10/20% deposit and a 3.5x salary multiplier. The problem is that houses are still above this figure
The banks will hoard this cash as well, this is what they do when times are hard. I don't fancy insuring bad businesses with tax payers money. If they are not viable then they close - those are the rules
Certain businesses need help (JCB for example) but we can't just keep guaranteeing every single business and loan in the entire UK - we don't have the money
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Robert, surely in the long-term what our economy needs in order to compete internationally is a moderate level of debt, and a sustainable (and affordable) level of house prices.
Doesn't the scale of these proposals, and the mad focus on propping up the housing market rather than the real economy, put us in a terrible position for the eventual global recovery?
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Where is the real wealth the govt wants the banks to lend against? The productive sector in the UK seems to be almost non-existent now that the international demand for financial services has collapsed. Surely this exercise by the govt will at best lead to more pieces of paper being shuffled around by the banks, but will do nothing directly to address the major problem which in the UK is structural rather than a technical failure of the financial system. A run on the pound must be a real possibility now?
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I do think RSB announcement is more catastrophic than historic. It does seem to me you can not blame the banks for not lending, with these loses who is a good bet to lend to now? The government seem to want us to borrow our way bank to the false economy that proved unsastainable.
We have to change, the money should be put to building affordable housing for people, cheap rents will free up more of our income to spend on consumer goods and improving our lifestyles. Being tied to unaffordable mortgages has proved a disaster to the people of this country, let set the next generation free.
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If they raised interest rates and encouraged saving, and a reduction in debt, the banks would have real money to lend and guess what it would cost the taxpayer nothing.
We may get some deflation along the way, but how bad if prices came down, that could offset lower pay which might actually keep some people in work.
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So our children will be repaying this via taxes for years to come.... and one of the most immediate impacts will be that houses cost more!!!!! Genius - they were over-inflated and we are now pumping money in to ensure they remain over-inflated – the story of the economy in general...
Is someone going to tell us HOW MUCH LENDING is the correct amount....... this problem was caused by ridiculous amounts of lending/borrowing so we can't go back to that level...... the current problem is a lack (an overreaction maybe) of lending..... so what is a sensible level and what does that mean for our economy?
The huge investment we are making as tax payers deserves a better explanation than 'its to stimulate lending'
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Could someone explain where all this money has gone (who received payment for the sub prime houses?) and can we get it back?
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OK - there is a shortage of money in the British Economy.
Banks are to be encouraged to boost this money supply by lending.
When they recover the money they lend + interest then there will be EVEN LESS MONEY in the economy.
So we'll be back to the same problem. - unless the banks lend even more, and more, and more - and we now know where that leads!
It seems to me that the Government will have to take steps to prevent this - the only options are:
1) Nationalise all the banks and use the net profit to keep the money circulating in the economy.
2) Make it compulsory for shareholders in British banks to be british - so that all dividends stay in this country.
3) Tax the bank's profits at 100% and ensure that the money does not leave the UK - this no doubt will result in 1)
4) Quantitative easing i.e. the government becomes responsible for the supply of money in the economy based on the wealth of the country as assets backing it. (The UK standard rather than the Gold Standard)
As a capitalist I naturally abhor government interference in the economy however I believe we have reached a stage where we have the chance to get off the debt treadmill - and this should be seized.
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Walking the tight wire, as we’ve never seen it done before.
Gordon’s on the bicycle and Alistair on the unicycle.
Ken Clark below in clown outfit watching and laughing as we the audience watch the circus.
Ho Ho Ho
I do hope we get value for money.
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Good thing we have a government that knows what it is doing. It would be a catastrophe if the Conservative party were in power and tried to "balance the books" (again). It is the legacy of their economic philosophy that got us into this mess.
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Things are now coming into sharper focus ; the losses of limited companies are now increasingly socialised and the taxpayer bears most of the risk.
Through it's good intentions in saving the (current paradigm version of) economy the government has turned the taxpayer into the equivalent of a Lloyd's name i.e an underwriter to the banks with unlimited liability.
The road to hell...............
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It is a little misleading to talk of again bailing out the banks - the government is taking this action to preserve the banking system which is vital to teh operation of the economy.
As a bank shareholder my investments have been decimated - many would say that this is deserved, but I do not feel that I have been bailed out.
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It is time for the word retribution to circulate more widely. Those who have feasted off grossly over-valued salaries and unearned bonuses along with remuneration committees should start to pay pack ill-gotten gains.
One hopes Ian Hamilton QC succeeds with his claim in the Small Courts action in Oban. I too was a subscriber to the £12, rights issue and now feel cheated. If he wins many like me will follow suit.
Eventually some form of class action suit will be generated which, sadly, will line the pockets of the legal world hugely.
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ELEPHANTS AND STRING
“BANKERS, NO ETHICAL GOVERNANCE OR MASTER PLAN”
The major tactical failure of the worldwide central banking structure, is that NOT ONE of these “so-called expert central bank regulators”, ever demanded of their ” financial engineers” developing new financial instruments (products), that such fiscal products be capable of passing the first rule of “Engineering 101? — the ability to successfully dismantle their construct if it became necessary.
Nor did ANY ONE of these Regulators, ensure that all/any new product constructs, meet the necessary risk management standards to protect public interests. A complete worldwide regulatory breakdown and dereliction in their "duty of care" to world money markets.
What they built to gain excessive profits, spreading greed in their trail in the Bond Insurance markets, sanctioned by inept rating institutions, followed blindly by the Financial Accounting Standards Board (FASB), has been useless and deemed uncontrollable financial cobbling.
No “sane person” would ever set sail for the open seas in any one of the devices they built. Nor should the worlds’ citizens ever again, have to endure the pain these charlatans have created and inflicted upon open money markets.
The US “Wall Street” Bernanke-Paulson-Geithner troika is similarly using devices with the general effect to date, of pulling on a string attached to an elephant. The huge infusions of cash equivalents without strict governmental regulatory control may assist to avoid uncomfortable deflation and provide comfortable living for those at the institutions they have so generously assisted. Unfortunately, as inflation comes back on the scene, none has the knowledge or holds a key to any world banking structural plan, to undo the uncontrolled effects they have created.
Governments and their taxpayers must retake control of the issuance of currency, and fully utilise the expertise of professional ethicists i.e. Such as “The Certified Financial Analysts Institute” (CFA) in oversighting all new regulations for any proposed new future worldwide monetary system in protection of their citizens.
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Does anyone else think this bank insurance scheme will be vulnerable to massive fraud?
For example:
Company A sells junk to Bank B.
Bank B insures with the Government.
Company A defaults but keeps the money.
Bank B gets their money back from the Tax Payer.
Company A would probably have to be an off-shore shell, but I'm sure accountants could work out the details.
It seems possible because the banks will be able to insure something at a price lower than that something cost to buy (otherwise there would be no point insuring). You then pay the insurance knowing you will get back the full price you paid for the junk. It is a bit like buying the burnt out shell of a building; insuring it against fire, and then claiming immediately for a new building.
Knowing Brown/Darling, they will not have thought through all the details properly, and consequently, they may have left themselves (us!?) open to massive fraud that will make the carousel VAT fraud or the ERM look like peanuts. (Note: VAT fraud and ERM losses both happened because of flaws in the system.)
Personally, I really hope I'm wrong because if I'm not then this could be what finally bankrupts the UK government rather than saves the economy.
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I think we would all feel a lot HAPPIER if the government was putting into place some BASIC lending RULES.
The RULES of lending would give us all something to focus on.
And
Stop any fear that we are going the way of THE US subprime lending FIASCO.
There is no doubt that ROTTEN BORROWERS and ROTTEN LENDERS are the main cause of the global problems in the Banking system.
Along with the regulation or LACK OF REGULATION.
COME ON lets see some simple rules along with all the talk of lend lend lend.
HOW about THAT MR BROWN?
INSURE US FROM THE rotten borrower please.
Maybe this whould be looked at from the bottom up not the top down.
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Robert
You wrote:
"the big banks have a sufficient cushion of capital to weather all but the most cataclysmic storms that may lie ahead."
and a few sentences later:
"the giant insurance scheme announced today .... would reduce the likelihood that the banks will need rescuing again in a few months time."
So which is it?
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The whole initiative seems to turn on businesses and people wanting to borrow.
The reality of the fickleness of the UK economic substrate having been rammed down everyone's throat, who wants to borrow in this climate? With every chance that they will find themselves unable to cover the debt? Who will underpin them then? I mean the way these banks are being 'underpinned'.
And - What if they don't borrow? A very costly series of measures to do what precisely? Because unless folk start borrowing from them on a gargantuan scale it won't help the particular banks out of the hole they dug for themselves. And let's remember, the toxic debt problem was not a 'home grown' one, they were up to no good far from these shores.
GC
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Instead of Lending we should all see Borrowing. Yet only yesterday there were stories about the need to start 'Quantitative Easing' (print more money), as another means to stem the rot know as the UK economy.
Borrower beware – interest rates may be low today but with Quantitative Easing on the way you should expect a significant rise in interest rates in due course (coupled with hyper inflation).
There was a distinct tone of panic in the Government's comments over the weekend, seems like the situation is a lot worse then they, and the bankers, have been letting on. The problem is that by drip-feeding the bailouts we have well and truly passed the point of no return without drawing too much attention to the fact. I doubt the British public would have tolerated this if the total cost of bailouts were declared up front.
Furthermore, where is this money to be spent? The biggest spend for the average person is on their mortgage. Is the mortgage market intended recipient of all this cash or is it industry and commerce? You can bet there are a lot of people out there working 'legitimate' methods to siphon off a good proportion of this cash for their own good. If it is the mortgage market, then just consider what this really says - long live the feckless.
Based on the Government's track record, I for one do not trust that the money will be put to good use, or best effect. The banks should state the true value of toxic debt when the Government says sorry for its part in this financial crsis.
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As I have asked previously why do we keep returning to the deficiencies of the banks?
I appreciate they underpin the entire functioning of the economy but I was led to believe that what was done last October was sufficient. We saved the world didn't we?
The truth of the situation is that the original bail-out was bodged. Fair enough, it was cobbled together quickly so I can accept that.
But where was the follow through?
Anyone with any commercial or organisational experience knows that change has to be monitored and reviewed to ensure that it has worked and that there are no unforeseen consequences. Clearly this did not happen.
The same applies to the restructuring of the bank supervisory regulations back in 1997. There was no measurement and review until the current mess landed on our collective plate.
(Although John Humphries in talking to George Osbourne on Today this morning seemed to want to kick the blame back to the Big Bang. This put poor George right off his stroke as he was still in nappies then. Poor old John - never got over Equity Life, did he?)
So we keep coming back to the fundamental issue of competent policy making. I am now of the view that the government is quite unable to manage policy, yet it is in charge of possibly the biggest bust since the South Sea Bubble.
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Yes, we do now have to start worrying about rescuing the economy rather than just the banks. The levels of corporate losses and redundancies this early in a recession are frightening.
Stimulating loans to companies is essential, though not I think to all companies. Those (think private equity) that asset stripped their capital and relied on a business model of unsustainable borrowing, should be allowed to go into administration - and then hope the productive parts of the businesses can be sold off and thus continue trading.
As for stimulating loans to individuals, I'm not so sure. Encouraging people to take out mortgages again while house prices are still in freefall? Lending more to those already maxed out on debt? These actions will just make things worse.
Rather than just stimulating lending to individuals, we need to take the alternative course - cutting taxes on those on low to middle incomes, largely financed by heavy tax increases on the rich, thus reversing the imbalances that are at the root of our current system of debt.
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Lend?
For mortgages, what deposit, what loan to value, what arrangement fee and what salary multiples? Work out 3x plus 1x the average salary, say of 25,000 a year. Total property value of 125,000 on 80 percent LTV. What FTB couple earns 50k a year?!
Or is it for people to get overdrafts so they can pay their bills?
Come on Robert, what are the details? What exactly are the banks loaning money for?
I suspect it's a perpetuation of a debt fuelled economy.
Is that a good thing? I don't think so!
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#1 skynine - just ignore those comments from Ernst and Y Item Club. Remember when oil was due to go upto £200/barrell?The Item "Club" is just an unreal marketing tool for a firm of accountants who are only in it for the publicity and PR profile they can generate.
This is an amazingly optimistic piece by Robo Pesto, or is it realistic? No more conspiracy pieces by rahere, somalipirate, etc., or politico plants such as jericoa please.
Northern Rock have paid off £15.4bn of their £26.9bn loan. Trying to be apolitical, but that sounds like progress. Its taken 12 months to do and everything else will take time.
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The banks are indeed bust. The problem is not one of insufficient capital, but of insuperable bad debts. There is no level of capitalisation that will permit of years of profligate lending.
The U.K. Treasury is bust. It went bust the day Darling Gordon guaranteed virtually all deposits in U.K. banks. The press has yet to dig out a figure for that particular contingent liability. (That day might go down in history, when man on the moon has long since been forgotten).
Governments have no money of their own. They have merely the expectation of a constant cashflow from taxes. Unfortunately the British Government has ALREADY committed the lifetime taxes of my great grandchildren none of whom are yet in the tax net.
If not the dark ages, at least the middle ages, beckon for those poor souls.
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Another party political broadcast for the Treasury and Prime Minister, Mr Peston?
This so called insurance as you call it based on covering around 90% of writedowns of anything above what the banks THINK OR TELL THE INSURERS their current debt is.
So THEY KNOW WHAT THEIR LIABILITIES are, do they?
Thats the point, isnt it? They dont know, SO HOW THE HELL CAN THIS SCHEME WORK?
Shame HMG will not insure my tax on anything above 23% for the next 10 years!!
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If the item club are right and we are going to have 3.4million unemployed plus there will be hose who have lost well paid jobs but taken a less well paid job to keep food on the table. Together with the figures I have seen that average household debt is in excess of £30k it really dosent take a genius to realise that there is likley to be a high level of defaulters rather quickly. Just how much debt is the government about to take on?!
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'Worse than expected' - said it before and will say it again.
These are the three words that will define the next 2-3 years (note to RP - you could use this as a title for Crash Gordon's biography).
If all the banks are to sign up to a giant insurance scheme where they pay money to cover their bad loans, how long will it be before they work out that they can simply write off their bad loans for a fraction of the cost?
I know the govt is saying that shares or cash must be paid to cover the costs of insurance scheme, and are hoping for shares, but what if the banks (Barclays) refuse shares and offer only cash?
Could the government realistically turn such an offer down? What would it mean for the banking system as a whole?
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It is insurance, in this case taking risk others do not feel is worthwhile in order to draw existing capital into play. Ok until the insurance claims come in. Brown is determined to pump up the lending volume across the board. Essentially Brown is wanting to buck the markets because the markets say no thanks. Last time this happened it was Norman Lamont and a disaster. The key issue is he wants to return to previous high and unsustainable levels of lending. Credit does need to return but this looks OTT. Thank god May 2010 is not too far away. Still far enough in view of the fact that Browns bubble was created in a matter of a few years
Albert Einstien - Insanity: doing the same thing over and over again and expecting different results.
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A UK toxic bank is ok for the UK, but global problems require a global solution!
Therefore the next time that you see Mr Brown could you ask him to suggest that a global toxic bank is created when he goes to the next G20 meeting.
I am more than willing to be on any think tank panel as I'm now retired.
Trev Moore
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If banks need more money so that they can lend more money the traditional 'Free Market' way is to compete for savers deposits. This is the ONLY way to get from the disastrous position we are in today to a more stable future.
This means that deposit takers will have to offer very much higher interest rates to savers.
These 'insurance' schemes announced today require a premium is paid by someone either the bank itself or the borrower so this has the same effect as charging a higher rate to borrowers and is exactly the same as can be achieved by paying more to savers, no insurance and higher rates to borrowers.
So in a very real sense the insurance premiums are being taken at the direct cost to savers.
This has the perverse effect of depressing the incentive to save - exactly the opposite of the presently required economic action.
I also reiterate the point I made in "Lend, Lend Lend": how do you set a value on the risk premium for the insurance?
There is no market to set the premium so how do you do it? This is critical and should be understood by everyone as this is a direct and unequivocal move of the UK to a Communist style state planning system of economic management - and look where that got the USSR! It is probably a necessary action but the terrible risks need to be understood.
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My thanks to Robert Peston for explaining logically the otherwise baffling financial episodes the public endue daily from Government and the suicidal news from the Media.
However, Mr Preston states, "That's why the Bank of England will swap corporate loans and other forms of credit for Treasury bills, which can easily be turned into cash (by the way, this new facility is a part of the preparations for quantitative easing, for printing money when Bank Rate is nearer to zero)."
Surely, printing money is the end of our economy as we know it, isn't it?
The tax payer has already loaned institutions by way of the Government, a colossal amount of money in the hope of sorting this awful mess out.
Now, we have the added worry that if all else fails, we will print money, which must surely mean that there is not much confidence in winning the financial fight.
Will printing money mean that we will eventually go the way of Argentina and Zimbabwe where high inflation means a loaf bread costs a fortune?
Will it mean the UK will then be 'bankrupted' with no-where else to turn and it's citizens with no money anywhere?
I am so upset that my beloved country is in such financial ruin and worry as to what will be the outcome for us all financially.
How can we possibly trust anyone anymore?
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Sorry to take issue with Robert, but the banks are broke. The previous bailout failed because it was, in relative terms, a pitiful amount (£50bn) compared to the level of toxic debt, which they are all sitting on. For instance, RBS alone has £2 trillion - yes trillion - of such debts. Indeed, the news yesterday that RBS is writing off (!) a debt of £2.5bn to a Russian Oligarch just bolsters the point.
The situation is exacerbated by the news reported last week that over 80% of their loans are tied up in a deepening quagmire of indeterminate foreign investments - many of which are turning toxic by the day. Thus they cannot say with any conviction what the full extent of their liabilities actually are.
This being the case, Brown's actions are utterly stupid since he is effectively copying the selfsame strategy that got us here in the first place, i.e. of purchasing a whole swathe of credit default swaps. He is gambling that £200bn will cover the entire debts when the likelihood is that this is woefully optimistic and that the position is more like £20 trillion!!! This being the case he will bankrupt the country.
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Surely, this Treasury action will prolong the agony until all the toxic crap is either brought out and defaulted from the books, or transferred to a BadBank for similar winding up procedures.
If the banks involved in 'The Plan' resume lending to unfreeze the economy, then - fine.
But if they just sit on the capital as in the past, what then?
It doesn't look promising.
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Robert,
Always enjoy reading your blog very informative.
Is there really a problem with a lack of credit? Are the banks simply not lending to people who cannot afford to re-pay the money, thereby stifling supply? I certainly believe this is the case with the mortgage sector.
It is my belief that banks are now only lending mortgages to people who can afford to repay them. This seems perfectly acceptable to me as it was lending irresponsibly that got us into this problem!
To increase the supply of mortgages I believe we need to accept the fact that house prices need to fall. When they fall sufficiently the affordability will return and people will be accepted for a mortgage. This is simple demand and supply and reaching an equilibrium.
To stimulate the supply of mortgages now (by encouraging banks to loan, and relaxing the criteria) is simply creating an artificial demand for mortgages by lending to people who are not really worthy.
Is this not how we got into the problem in the 1st place?
Are we not simply going to clock up more debt for the future and a bigger problem?
I believe natural market forces should be allowed to play out.
Matthew
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Robert
I think it is time for the BBC to urn some of its attention to the likely shape of our economy after this is over. How will we spend/save our money. What percentage on housing, leisure, travel, etc. and what will this mean for prices? There is valuable work to be done to describe the relationships that will exist and the BBC as a public service provider is well placed to do it.
How about it?
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*11 Alexander Curzon
What a great idea, 'Fiscal Prudence' loo paper printed with government spin phrases and photos of Gordon and Al.
I can even see the advertising slogans...
'Had an unfortunate Brown moment? You need Fiscal Prudence toilet roll! Super thick and ultra absorbent. Just feel the quality...'
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This plan can't work because the banks have shown though their own actions they can't be trusted by what they say.
Barclays, possibly the biggest player in the UK in derivitive products has chosen to say all is well,. Yet we are unable to establish what is toxic and what is not.
It like so many have a machismo factor that beggars belief, and its management haven't understood investors and customers deserve more than the management are prepated to give i.e clear transparent information.
To assume the same management will secure the long term when they have put the banks credibility at the top of everyones agenda, is sheer folly.
Any one of Barclays or the other clearing bank senior executives could be replaced and no one coudl do a worse job.
Yet for osme insane reason we believe that its better the devil you know than the one you don't.
That's why Obama is the next President of the USA. Our tired and tested 'Old Guard' are not the safe pairs of hands we need now, simply because they have shown how incompetent they really are and teh only thing they have been good at is screwing up and lining their own pockets .
This plan will never work because there is no obligation on transparency so lies of the past will now be brushed under the carpet.
The best thing we can do is hope they fall on their swords and new fresh honest blood is allowed to do what the old guard can't and that is to be upfront and honest.
Paymasters should expect nothing else and if not forthcoming then then let them go under and pick them up for a song.
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It was a bubble. It burst and can't be reinflated, however much of our children's money Brown and Darling spend.
We've had hubris ("No more boom and bust"), and nemesis. What's now needed is catharsis. Let the banks shrink and unsustainable businesses fold. Only then can we build a new economy.
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In an earlier blog, Robert wrote the following:
"In theory, if the two banks (RBS/Lloyds/HBOS) didn't have to pay this dividend they could lend £27bn more every year (because under FSA guidelines, if the £1080m of dividends were retained by the banks as equity capital, the banks would be able to lend a multiple of that core Tier 1 capital)."
How many laypeople really understand what this means?
If these banks retain a pound, then apparently it is fine with the Government/FSA for them to lend twenty-seven pounds.
Presumably, this is how RBS, for example, can end up with two trilllion pounds on its balance sheet.
The mind really is repelled by this but fortunately for us, not all banks operate in this dubious way so we do have a choice as to where we place our deposits.
You'd think that the FSA would like to assist depositors in minimising risk by publishing a list of banks that operate a full reserve system but they do not, as far as I know.
However, I know that the Co-Op Bank does and also the Islamic Bank of Britian (Sharia law forbids the 'fractional' reserve banking system which most of our mainstream banks have been using).
PS. My last blog post on this subject was promptly removed due to a complaint.
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This idea creates a bit of a problem, surely;
stimulating lending to individuals is going to allow people to borrow money again (hurrah, let's buy a house!). Then, what if that person gets made redundant (we are in the middle of a recession, after all; it happens), and suddenly the loan/mortgage cannot be repaid.
Multiply this by only a few thousand examples and we are back at square one and still paying the whole lot back in higher taxes in the future, nothing has been accomplished... Is this not another example of action for action's sake?
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"by the way, this new facility is a part of the preparations for quantitative easing, for printing money when Bank Rate is nearer to zero"
That's the bit that truly scares the living daylights out of me. "Money is debt", as they say.
Surely, this will become the real debt that future generations will be backrupted by .... by printing more and more, increasingly worthless money?
How will we pay back our debts with worthless pieces of paper? Where's the strategy to actually create any REAL wealth.
Building roads and the like will create infrastructure, and thereby, jobs for a time, but it won't generate revenue for anyone. If anything, it'll create more debt liability (maintenance, repairs, etc).
We need to build, make and grow things to sell to others (and ourselves).
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As Liam Halligan (see his Telegraph column) has been advocating for some time, there needs to be a paper-chase backed by law to force the banks to reveal the scale of the toxic debt. But Brown-Mess isn't insisting on this, he's merely throwing trillions of future taxpayers' money at an unquantified black hole.
The rationale for this must be obvious......the sheer scale of the losses must be SO bad it would be unthinkable to reveal them.
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Gordon Brown = born do wrong, wrong or bond
Alistair Darling = trading liar ails, trading ail liras, last raiding liar
Robert Peston = borne spotter, sober portent, probe rents to, rotten probes, beers not port
Robert, I think you are being disingenuous claiming this latest scheme is not for the benfit of the banks.
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Robert, of course the FSA is going to say the banks have plenty of capital and there is nothing to worry about.
It's the same reason the auditors did not qualify the accounts of these banks.
Any hint from the FSA or the banks' auditors that there was something to be concerned about would have caused their immediate demise.
Far more swiftly even than your mutterings in this blog!!
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One factor I think that has been overlooked by many is that part of the cause to the ecomonic problems is "consumption saturation". Fuelled by debt, debt unable to be adequately serviced by household income. THroughout the developed world consumers increasingly recognise they have reached a saturation point. This tipping point will see the progressive reduction debt before easing into savings. It is folly to throw more money at lending. The progressive removal of productive capacity reflects a marked shft in the supply curve realigning it to the step changes in the demand curve.
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There is now and only ever has been plan A,whatever comes after, it is still plan A. Raise the levels of personal debt by encouraging the electorate to borrow more money & artificially prop up housing prices.Regardless of what the gullible economic press reporters tell anyone,there is no plan B.
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A few points to move the debate along (!):
1. "Nationalisation" in the sense of transfer of ownership through shareholding of the banks is not by itself a solution to this problem. If a company is insolvent then its directors are legally required to act in the interests of the company's creditors. Not its shareholders. Make no mistake, the directors of all of the key trading entities in these large UK banking groups are receiving legal advice (specifically "wrongful trading" advice) and will be balancing the risk of being pilloried by Brown, the press et al, against the risk of personal liability and potential imprisonment if they fail to act in the interests of their creditors. Doing what Brown wants, by gearing back up to lend wildly to people who probably can't pay the loans back, for example, is very risky from a personal liability perspective for the directors of these companies that are balance sheet insolvent, which is one of the Insolvency Act 1986 tests of insolvency (aka "ability to pay debts").
Nationalisation of a bank in these circumstances is a bit like transferring the ownership of a house that is on fire. It doesn't matter who owns it. The house is still on fire.
2. The reason for the massive share acquisitions in the banks by HMG was primarily to try to give them the cash oxygen that they needed to continue trading, albeit coupled with a face-saving sense of "ownership" which suggested a level of control for Gordon Brown over the investee bank which has proved to be, in the main, illusory.
However, as we have now had confirmed, this approach has failed once already as a rescue measure. It's a patch at best, not a fix.
3. The fix is to put the fire out properly. In order to put the fire out the banks need to have some sort of stability, during which they can work out (and admit) what they owe, sort out sensible action plans etc. Simply spraying cash into them doesn't achieve this.
4. It appears to me increasingly likely that the "fix" here involves direct legislative intervention to give the banks a moratorium against creditor action, something akin to US Chapter 11 but more tailored to the situation, probably combined with further steps towards partial or total nationalisation.
If HMG don't give the banks this sort of protection, then they will continue to be subject to the creditor pressure which has them frozen in the headlights. The banks aren't honest enough to admit what it is that they're so frightened of - they won't come clean on their balance sheets because admitting the problem would, in the current environment, destroy them. If the banks had legislative protection then it would be much easier for them to come clean and for real solutions to be discussed.
It would also be open to HMG to require the banks to disclose their balance sheets in full - that the initial stage of the statutory moratorium provided to the banks would be a sensible audit (not a full one, that would take decades no doubt, but at least a sensible dig which could continue during the moratorium) against revised accounting standards designed to capture all the CDO liabilities, SIVs, orphan funds, securitised liabilities, JV investments etc that have the banks frozen in fear, combined with, for example, interrogation of key finance personnel on oath (using statutory declarations) as to liabilities.
The quid pro quo for this is that the banks would know that they couldn't be forced into administration and then torn to pieces by their creditors.
5. So, a seismic shock, the banks almost, but not quite, in an insolvency process, but a long-term work out put together combined with the injection of public money into now-stable investee companies with the possibility for long-term gains on the share/debt investment.
6. Needless to say the stabilised banks would end up more or less owned by HMG.
7. Should these stabilised banks then be asked to carry on lending "like it's 2007"?Hell no, the bubble has burst and it's over. Sensible lending to sensibly-run businesses, yes. Insane lending to self-cert no-hopers, no.
A state-funded wholesale debt injection into the economy is only sensible for those nations that saved when times were good. We didn't. Brown spent it all. There's nothing to inject other than promises on future tax revenues. I don't think Brown (or any other prime minister) has the mandate to pledge the future of my children in such an irrevocable direct way unless he has been elected with that policy in his manifesto.
Like most people, I'm aghast at the idea of this enormous cash injection. But if it's the route that's going to be followed, then for goodness' sake let it be accompanied by measures that actually force stability upon the banking market. The ordinary insolvency rules don't work in this situation.
8. Downsides? Sheesh - a lot:
- Uncharted legal waters, with lots of scope for challenge and, for example, horrible knock-on effects for contracts entered into by the banks (although again HMG could legislate that it would be unlawful for any contracts to become automatically terminable as a result of the moratorium, which would work for UK law-governed contracts).
- Sterling slides further against currencies other than the dollar (but then, isn't it going to anyway?)
- The realisation that we really are going to have a long unpleasant time in the UK. Call it recession, call it depression, call it whatever: the party lasted ten years. The banks are in hospital with alcohol poisoning. We've all got to face up to the hangover.
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Bur Barclays is saying it will make over £5b pre tax profit in 2008?
RBS will have thrown the kitchen sink in.
Lloyds clearly think they can weather the storm without the £4b of prefs converted to ordinary shares.
The only excuse for failure now will be further incompetence by the Labour government and the BoE, which sadly on past performance is possible given particularly the idiots at the BoE destroying confidence at every opportunity it seems.
If the banks are fully nationalised call in the IMF because it will be the only way we get international support, because at that point UK government guarantees will be worthless.
As a former Labour voter I am sickened by the massive demonstration of incompetence by Labour, not to mention the dubious behaviour of certain of their politicians eg Mandy being "entertained" by Rothschild. They have largely destroyed what was regarded as the world's best banking sector, through their handling of this crisis. If nationalised it will never recover, and our economy will be decimated for many many years.
I am increasingly convinced that Labour either is full of incompetents or worse.
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One factor I think that has been overlooked by many is that part of the cause to the economic problems is "consumption saturation". Fuelled by debt, debt unable to be adequately serviced by household income. Throughout the developed world consumers increasingly recognise they have reached a saturation point. This tipping point will see the progressive reduction debt before easing into savings. It is folly to throw more money at lending. The progressive removal of productive capacity reflects a marked shift in the supply curve realigning it to the step changes in the demand curve.
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Am I correct in that all the LOST BAD loan MONEY will never ever be paid back?
The insurance on the loans?
We all know the US sub prime was the main cause.
Why does the US government not repay all the defaulted loans back to the foreign banks?
This is just moving losses from one country to another and we have been lumbered with all the US subprime debt defaults.
ZERO sum GAME?
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Why go to all this trouble? if the banks won't lend (and that's about the only thing I don't really blame them for), then bypass them. Its much cheaper and less risky. I am sorry Robert, but I think it IS A BAIL OUT - the money the banks got has most likely been spent repaying all those dodgy CDO's and CDS's in the states. RBS is now 70% govt owned - why do Govt need to say LEND Pretty please - they should simply instruct (on sound lending). If the Govt wants unsound lending (to save their electoral skins) then guaranteeing the loans banks make might be a good idea?
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Will Barclays be nationalized along with RBS & Lloyds Group?
Barclays have ducked and dived for a year trying to avoid disclosing the amount of toxic garbage in their SIVs, but can this continue much longer?
HSBC are probably OK for now, but HMGs plan to replace the wholesale money can onlyend in failure. Its simply born of a wish-fantasy to return to pre-crunch 'boom', 'feel good factor' politics and would be pathetic were it not so serious.
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I'm wondering why the Government doesn't just nationalise RBS, since it owns 70% of it anyway, and RBS owns has a great brand for a nationalised UK Government owned bank. 'National Westminster'..
Seriously if the banks were nationalised, surely that would a) reduce wastful duplication and mean that we could control executive salaries and bonuses, not many Civil Servents get bonuses. And b) allow the FSA to be disbanded, it doesn't seem to have done much anyway. Regulators could be 'outsiders' but working inside the none bank.
Incidentally why has the FSA allowed Short Selling again? There is talk this morning of the Government taking a great gamble, but isn't that what most Share dealing is? May be we should pass law which ensures those who buy shares have to hold them for at least 6 months. That would reduce the chance of people starting a run on a Company, which can bring untold haertache for employees of that company, while some wizkid earns another Porche.
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Summer 2008 -
The International Monetary Fund has estimated bank losses of roughly $400bn (now out of date). A number of hedge funds believe the alleged losses may overstate the likely level of defaults. They are buying the spurned securities for as little as eight cents on the dollar.
If projected losses are anywhere near correct, governments alone have the wherewithal to rescue the system. This would mean the de facto nationalisation of the banking systems in the US, Britain and Europe.
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Being an employed taxpayer and also having a small business I wanted to throw something completely random into the mix.
Why doesn't the government give us taxpayers £100,000 each with the provision that we pay off any existing debts before spending it.
That way people can pay off mortgages, loans and credit cards - the banks then get their money back quickly and therefore become solvent.
People without debts to pay will start spending this money on cars, houses, holidays etc etc and hopefully in small businesses like mine. Therefore boosting the economy. This could also help first time buyers to get on the market. This group of people might also start saving again and then the banks and building societies benefit again.
With a large injection of cash some people nearing retirement may decide to leave work early and therefore create jobs and apprenticeships for younger people leaving school, college and university. As things like university loans are means tested this will be the end of a culture where graduates come out with debts of up to £24,000.
Is this not an option because it suits a government to keep us in debt and to keep the taxpayers, businesses and savers in our place without any autonomy? Don't they trust us to do the right thing if the decision is put into our hands rather than being told what ours and future generations hard earned cash will be spent on? Would our decisions be anywhere near as bad as the ones the banks have made?
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So let me get this right the Taxpayer is now going to insure the banks against any bad debts they incur during this recession.
So the Govt. wants the banks to resume lending to all and sundry as they did until 2007, however this time their risk will be guaranteed by the tax payer, so we avoid anymore banking collapses.
So the only people who will do well out of this are the Banks themselves and the non-securitised individuals and companies who will obtain loans that will probably become 'toxic'. Are these not the people who started the problem in the first place?
This is getting more and more insane by the day. Can we not organise a coup d'etat?
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Hmm, has there been a time other than this summer the FSA DIDN'T think the banks were adequately capitalised?
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OK so I've already commented, but like most I'm incensed!!!!
So here is round 2:
We are (I use WE as it's our money) trying to stimulate lending - i apreciate there is an amount required buy business.
But to stimulated consumer spending is foolhardy to say the least - retail is a reflection of the economy not the driving force - when the economy does well retail spending is up - when the economy is bad retail is bad... it's the Cart behind the Horse
And I'll ask again.... how much is ENOUGH LENDING and what is our new economy going to look like when lending is sensible...
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Robert Peston
Please explain why the city code on takeovers and mergers does not appear to apply to what is happening to the banks.
Is the Government braeking the law?
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Oh, good - we are not rescuing the banks again? What are we doing about RBS then, apart from being angry and giving them more capital due to toxic losses?
Should not an economics editor give some consequences rather than Nu Labour spin.
Also who pays and at what price? Middle England - not politicians and not fat cats. I trust no one will lose their kighthoods.
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My name is Robert Peston and I give a biased skewed opinion on what this goverment is doing.
I support whatever the Labour party does. One day I hope to be a minister for Gordon.
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Is it not time that those bankers responsible for this mess are identified? The government should be saying that they are investigating the causes of the banking crisis and holding those responsibel to account. Otherwise the Government could just be throwing our money away.
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Robert,
Can you please explain by what mechanism Gordon Brown can just give away and thereby expose the country to the possibilty of billions worth of future debt without having to get the consent of Parliament.
Whoever you wish to listen to, the amounts invovled are quite frightening; but I don`t see how Gordon Brown can get us all into hock for years to come without at least getting the approval of Parliament first.
Nothing he has done has worked so far, so I don`t suppose the country is holding out too much hope that this will either. Savers are not going to benefit until inflation starts rising again, which seems by all forecasters to be 1 to 2 years down the line.
Firms are still going to continue to lay off people and who in their right mind is going to buy a house or make any other big pruchase when house prices are continuing to fall and their jobs are in jeopardy.
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Post 4 the RBS paid it out as dividends to shareholders and bonuses for Fred Goodwin and his mates.
They, and many other banks, announced profits that were in effect illusory as they took the commissions and profits but left nothing to pay for the losses when things went bad.
Posy 11 Alexander I think you will find that Crash is robbing the UK taxpayer to pay sovereign funds in the Middle East and Asia plus a number of very rich foreigners.
I won't write anymore as this all makes me very angry and the mods will no doubt block it.
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With so much taxpayers money being allocated by our government to try and help the economy through the worst of the credit crunch our government seems to be behaving in the same reckless way that the bankers did (with other peoples money) when they created the problem in the first place. Only this time it seems as though the bankers greed has been replaced by polititians vanity and our polititians now believe that they have become the new masters of the universe.
It is becoming increasingly worrying to know if all this financial largesse, however well intentioned, will improve matters or prolong the deepening depression that the country is facing.
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Google Lombard Street Research and follow the FT Alphaville link.
Take particular note of the Japanese aspects.
As poker players say
“read ‘em and weep”
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If the government doesn't trust the people, why doesn't it dissolve them and elect new people? Meanwhile Insolvency Firms are throwing the people out of their homes (not houses, property investments, mortgage backed securities, bonds, products etc).
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We are fortunate we MANUFACTURE V little.
The SERVICE ECONOMY is likely to be more RESILIENT than any manufacturing economy.
ONCE we put the BANK losses behind us we should return to stability and NOT have as much pain as MANUFACTURING economies.
GLOBAL problems fooweee.
We have a great buffer and we are an Island has helped us before will help us again.
Only our reliance on Foreign GAS and OIL could be a problem.
This will be the Island the GLOBAL wealthy will fly to, to lie low and stay safe.
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It's always been about house prices. They fall and we go into recession. Unfortunately this house price boom was a big one and a global one so the effects of the bust are multiplied. I really hope that government efforts to encourage more bank lending don't stop the fall in house prices, they still have a long way to fall before they reach sensible levels again.
If only Gordon Brown had stuck to his declaration in 1997 that he would not 'let house prices get out of control'. It would have been difficult for him to control house prices all around the whole world but he seems to think he has that kind of ability!
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"... if you wish to ring up the Financial Services Authority, the City watchdog, for assurance on this point, I'm sure you'll be told that the big banks have a sufficient cushion of capital to weather all but the most cataclysmic storms that may lie ahead"
Why on earth would I ring up some banking quango to find out what is really going on? Is that what Robert Peston has been doing? Surely we can expect a more penetrating level of journalism than this?
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Now, I'm no economist but predicted years ago that the 'brown stuff would hit the circular motion machine'. There was no way the economies or people of the world could continue like they were; living on 'funny' money.
I don't think we have seen end of the turmoil, rather more likely the beginning. It seems like there is one step forward and two steps backwards.
What we have in Brown and Co (but let's not blame him and New labour for all our ills - it's a world problem) is that they are frantically trying to maintain the status quo because that is really all they know and understand plus they need to look like they are doing something. Like all of us they are in totally in unchartered waters with an out of date map!
Like other writers it looks as if they are trying to encourage lending etc which is just what has got us into this mess in the first place.
The most disturbing thing is to me is they seem to be pulling out of the magician's hat magical figures but in all honesty where is this money coming from. If it as they say, the tax payer, then the government must have a huge 'in the black' bank account. It just doesn't seem plausible that this is the case.
What is more likely the case is that they haven't actually got the cash but are pushing figures around on paper just like what caused this mess in the first place. NO actual cash reserves, just a vain hope that we the public won't actually think too hard and just blindly believe them. Methinks they are quite probably up to and beyond their necks in debt to the seemingly cash/asset rich bods from the Middle East , Russia orChina perhaps? The term 'clutching at straws' comes to mind.
As yet, but maybe I have missed something but has any journalist ( RP perhaps he could as they say - 'probe') actually asked where all this money they keep finding comes from? My bet they wouldn't get a straight answer because Brown et al a 's..t' scared of Joe and Jane Public finding out the truth. We need to know.
Go on journalist 'probe' until you get a plausible answer, you owe it to us.
If as I really fear they are just 're -fudging' the books then God ( of all persuasions male or female) help us.
I believe we are in for a total shakeup of the way mankind operates. Hopefully good will come out of it all but it may take a while longer yet.
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Soon Brown will have to save the world for the third time, assuming he will claim today has been the second.
Banks and the taxpayer will now take on mortgages with the housing market not recovering before say 2015 and loans to fund inventory while comapnies can not sell stock. What a clever plan.
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Hands up all those who want to borrow and spend spend spend - not many I think. My(slightly) poetic summary.....
THE END IS NIGH.
LEND LEND LEND
SPEND SPEND SPEND
BEND BEND BEND
MEND MEND MEND
LEND LEND LEND (AGAIN)
BUT IF NO SPEND SPEND SPEND
DEADEND DEADEND DEADEND
HORREND-US
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Yes. This was caused, largely, by a housing bubble.
House prices in Britain are amongst the highest in the world in terms of the proportion of income required to service the debts.
High house prices are regarded as good in the UK.
Endless TV programmes tell you that they are good.
Newspapers tell you that high house prices are good.
Radio presenters on radio 5 might cut you short unless you agree that high house prices are good.
The government are doing all they can to maintain high house prices because they think that they are good.
But they are BAD.
And everyone but the credit junky, brainwashed Brits think otherwise.
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RBS is a lame duck - its liabilities are now worth more than its assets.
This insurance scheme won't work because it still doesn't provide the market with transparency that it requires. People still have no idea what nasties RBS and now through this scheme (the government through complicity) are attempting to cover up.
The only way the banking sector will recover is via a full scale cleansing of the bank's balance sheets, and this will only be achieved via nationalisation of RBS.
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I've said it before. The key sector now is housebuilding. If government wants to get money moving around the system, it must offer incentives to get houses built, either for sale at realistic prices, or for let through the public sector.
There are thousands of house plots with existing planning consent that could start within a few weeks if finance was available to fund construction and the developers knew that sales were likely to pick up. Offer local councils and housing associations money to pre-purchase developments and if they can't then be sold on, they are leased until values pick up.
The public sector could possibly make money out of such a scheme in due course, but in the meantime, construction sector employment increases and the knock on effects to suppliers, professional services and retail services are obvious.
If the government wants banks to lend, it has to create an environment whereby it creates demand for that credit, and the quickest way to do that is through the housing market.
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So, its to be full scale nationalisation of our biggest banks then.
Might as well get on and do it.
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# 17 gordont10
"Before the usual suspects start their rants,
if there is a viable alternative to what HMG is proposing, let us have details of what it is, who pays and for how long, and who suffers.."
Nationalise them, incorporate all their Uk assets and liabilities into Northern Rock, trade their overseas assets against their liabilities. Change the (discredited) name of nationalised Northern Rock to the the 'Bank of UK', bring in successful top level staff from a bank that's doing well, eg HSBC (I guess because they are never in the 'bad' news) structure all the terms in favour of the taxpayer and business, lend direct from Bank of England to Bank of UK.
Who pays and who suffers? Can't think of anyone at present, guess some will. No point fixing banks that are past the point of no return, like patching a leaky ship.
GC
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'Reckless', 'feckless' - and at its most kind - 'ill judged' - 'cmon Robert, bankers are only human, unfortunately, as we have all seen - not at all Masters of the Universe. If you keep rubbing it in with such abuse, they will only become more and more scared of their own shadows, so concerned about being accused of future carelessness, recklessness, fecklessness etc, etc - that nobody who needs a loan will ever get one again.
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Before the latest bank rate cut I could have borrowed from Lloyds TSB at 7.9%. Today I can borrow from Lloyds Banking Group at 7.9% so I think nothing's been achieved by the recent cut. A bit like the VAT cut - what a waste of time, energy and money that was - only good for printers who have printed millions of sheets of paper and some IT people who had to amend systems but did it make a difference to people's buying habits - I don't think so. Where's the evidence Messers Brown/Darling? You've just poured money down the drain.
Who should the banks lend to? People and businesses who can repay the debt presumably, otherwise the spiral continues and we and our children and their children will be in an even bigger mess in the years to come.
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Robert, Alistair,George,Vince
Sorry to bring money into the issue but can someone help me with the maths on the RBS bail-out.
My information is that we ( taxpayer) underwrote a 22,853,798,818 RBS ordinary share issue last November at 65.5p per ordinary share and paid £14.9 billion. Those current shares are now worth 26.8p, are they? That, on my calculation, makes them worth £6.12 billion today, a loss on paper of £8.09 billion to the taxpayer since last November ? Can this be correct.
The Treasury are now going to underwrite a new £5 billion ordinary share issue to redeem the preference shares they own at 31.75p fixed price. If my figures are correct, the Treasury is taking another hammering for this of over three quarters of a billion pounds based on today's share price.
With the announcement today of the unaudited £8 billion loss by RBS and question of goodwill 'impairment' charges carried to the RBS balance sheet of up to £20 billion ,taxpayers ( us) have just stood an awful beating on RBS....havent we?
Will there be any questions?
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"...if you wish to ring up the Financial Services Authority, the City watchdog, for assurance on this point, I'm sure you'll be told that the big banks have a sufficient cushion of capital"
RP just has to be having a laugh here, I think. Is this the same FSA that assured everyone that Northern Rock was solvent days before it was nationalised? The same FSA that told us there was no reason to withdraw deposits from HBOS even as the Treasury was facilitating a takeover by Lloyds to prevent HBOS's insolvency? The same FSA that assured us Bradford and Bingley was sound just two days before concluding it ws no longer fit to hold a banking licence?
I think everyone by now has worked out that FSA's real purpose is to protect financial services firms and not their customers. The reason for this is (or was prior to said firms' financial demise) the fact that FSA authorised firms contributed 25% of all Corportaion Tax receipts (RBoS was the biggest payer of CT), not to mention GBP 10 billion in income tax from financial services staff bonuses.
The last place you'll get an honest answer on the state of UK banks is the FSA.
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If Mr Brown was Premiership Manager, he would have had the sack ages ago, or, at least done the decent thing and "walked "
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Robert
Can anyone confirm with confidence that the support that we the taxpayer are being forced to provide is not being syphoned offshore?
I get the feeling that Gordon et al may be playing the role "Lady Bountiful" to an international audience now, as well as at a theatre near you!
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Robert,
Maybe it's time the bloggers and others viewing these pages were able to have a convenient place to get a snapshot of some of the main facts and figures describing our economy. Would you be able to put up a single page that would be updated as appropriate. For example:
1) The GNP in local currencies for the US, Japan, Germany, China, UK and France.
2) Figures by country of Govt credit crunch bale-outs by type.
3) UK Banking sector aggregates e.g. book values of shareholders capital and reserves, deposits/liabilities. M4.
4) The latest annual figures for the UK balance of payments, i.e. trade deficit, invisibles, changes in capital account, then the corresponding movement in financing of everything, e.g. IMF etc as applicable.
5) Govt total income and expenditure showing annual deficit past and budgeted. Aggregate public borrowing - not the increase, the total we owe and are passing on to the future.
6) Figures for total employment and unemployment.
7) Any other data you feel relevant
How you table, graph or present this data I leave up to you, but it should prove very handy I think.
Keep up the good work!
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WHO OWNS THE BANKS? OTHER BANKS OF COURSE
Banks are controlled/ by nominee companies which are often super funds or “wealth” management organisations with a controlling say (through “A” class voting share holdings) on how much should be paid for bank shares for instance say for Woolies or Wesfarmers and Westfield Properties shares. It’s not merely share value alone.
Under Australian Law
Normally, wages and salaries are expenses incurred in obtaining taxable income and are therefore deductible to any extent. Share options are probably not expenses, but could be depending on the tax law but in some jurisdictions could be taxable or are to be treated as expenditure for accounting purposes. So long as shareholders believe that the CEO’s and other corporate high flyers including directors are responsible for increases in share values they will be quite willing to share the remuneration payable to their CEO’s with the tax system.
Looking for instance at the annual reports of the big four Australian Banks (you can get them on Google under “Shareholder Information on the ASX”) you’d wonder why they like to pretend that there are four and not in fact only one or say two at the most. Even they are getting tired of the fiction because you often hear of talk of allowing them to merge to match the overseas financial organisations by size.
The reasonable benefit limit comes from the old limitation on superannuation benefits to prevent the same gang of thieves from padding salary with super instead of paying tax on contributions etc.
So the logic is that if shareholders want to reward the animals (I suppose if George Orwell wrote a capitalist version of “Animal Farm” they would be pigs) they should pay for excessive rewards themselves and not be able to share the burden of such rewards with taxpayers.
After all the capital gains tax on increased share value is nowhere near the marginal tax rate.
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A legitimate question to ask the PM is "Where's the beef?"
Lots of words,activity,initiatives etc but not movement towards easing the problem.
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Robert
What will happen if the Banks continue to refuse to lend, despite government pressure? After all there is nothing to force them to.
Apart from 'the economy goes down the pan' and the Government goes to the wall or resigns, that is?
Is this in truth a battle of wills between who rules UK PLC, the Banks PLC or HM Government?
So what does Angela Knight and the BBA or any Banker have to say about this 'destabilisation' of democracy?
I thought bringing down a Government could be classed as a coup or treasonable?
As, Robert, you are privvy to so much inside information, publish the names of the individuals, businesses or governments of these massive dodgy loans that have resulted in the enormous losses in the Banks. You don't have the info? Ask the FSA or GD or AD to confess.
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Incidentally, S and P have just cut Spain's credit rating to AA+ from AAA. Spain is now having to pay 2.6% more than Germany to borrow over 10 years. There are a range of yields opening up in the Eurozone countries (Ireland is paying 1.6% more than Germany, for instance). So what? Well the spreads on Eurozone sovereign debt suggest the market is beginning to bet on a break up of the Euro.
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Some analysts are predicting 40% unemployment to rear its ugly head some time in the future.
With that sort of cataclysm, there really is not hope for the economy.
With less tax money coming in, the Govt won't be able to guarantee or underwrite any loans, and will have to print money the likes of the Weimar Republic never saw.
Scarey, scarey times.
Hope everyone has a stockpile of tinned and dried food to keep them from starvation.
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Am glad that you hit the nail on the head here Robert namely that this is NOT a bank "bailout" or rescue plan. But, a plan by GB and AD to boost Britain's flagging economy.
But spinning it as a bank "bailout" and continuing to blame bankers for doing what bankers do namely lending money is a convenient excuse for GB and AD to divert attention away from their own failings.
Whilst there are elements of this plan that are not bad we should not all think that lending is going to start shooting away. Nobody is going to borrow or lend unless the underlying proposition is a good one. That means confidence in the wider economy ie that asset prices will rise and people will buy things needs to improve
Its not possible to simply short circuit the recession.
Does anyone else also find it bizarre to witness Gb and AD exhorting the banks to lend more money (by getting them to sign up to agreements no less to do this) when the recssion has been caused in part by inflated asset prices brought on by too much lending
And the biggest culprit in borrowing too much has been, wait for it, GB and AD who have presided over such a borrow and spend binge that they are the ones that should be in the dock for wasting UK taxpayers money.
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While the insurance proposal outlined today may, in the short term, keep any exposure on the banks books and off HMG's; there is a reason why traditional commercial insurance is not available for packaged instruments.
Why is it that Gordon Brown thinks he is smarter than, and better able to calculate risk than, insurers?
One thing I am sure about is that the continuing losses will find a way of migrating from the banks' balance sheets to the government's.
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No worries, superhero Brown will save the world.
Actually he did try to get financing from the "Monetary Fund International" but discovered that they were going out of business and when they tried to sell him a flatpack office-desk he decided that he would just have to use more taxpayers' money.
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'If credit doesn't become more readily available, the recession will deepen'
Sorry credit does not mean demand. Demand is the issue. 2009 has to be a bad year.
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With the exception of the special advances clauses they could reinstate the old building act pre 1986.
They could set up a new state building society to take deposits and give loans but ONLY to british nationals secured on british properties.
The government could gurantee depositors savings.
Savings and mortgage rates could be related again and totally transparent.
I would even manage it for you all.
This could release the mortgage market almost overnight
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As there is a prime face case to suggest Sir Fred at RBS and Hornby at HBOS failed miserably to carry out their director duties with responsibility-and did not exercise adequate skill and care regarding RBS and HBOS shareholders, employees etc, can not the appropriate Government department move to disqualfy them as directors for the future?
If the current law is not sufficiently framed in such a way that Goodwin et al be prevented from future directorships, the law requires some amendment.
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Can someone please explain to me why it is of extreme importance that my generation's future (I am 28) should be sold down the river to rescue Gordon Brown's generations past and present?
This is what has fundamentally been missing from every single government announcement on this. Nobody has yet explained why we must prop up the banks, why maintainance of the credit bubble at all costs is necessary. Why should I be paying so that my parents can live in a house with enough room to house not only them, but also my family, when I cannot afford to buy a home big enough to house my own family?
Please, can someone tell me why I am forced to do this?
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Many do not seem to understand this. The problems we have were caused by irresponsible lending- plain stupid lending in fact- and over borrowing. The problem in the last few months has been a drying up of credit- ie factories cannot make stuff even if they have a customer because they cannot get credit from their suppliers- and this is happening throughout the chain. HMG are I think doing the right thing by trying to free up the banks' resources to get them to provide credit again- even though they know that risk is higher at the moment. The do nothing option is that the banks do not give the credit- orders get less- jobs are lost and HMG loses every way- lower tax receipts and higher payments to those who lose their jobs.
The day of reckoning for the bankers has to come but for now they must start helping businesses- this may just stop us going into meltdown- 3.4m unemployed is not meltdown- a very severe recession - but without the intervention we may have been talking about much higher figures and perhaps even more importantly- a reduction is our capacity to get out of it when the time comes- so high unemployment and austerity for a long long time- that is worse than landing our kids with such huge debts.
What HMG are doing may not work but they are right to try. When they quantitatively ease- we are all instantly poorer and we have too many folk who are at the edge who will be tipped over it and that will be a very high cost in human terms. As to the future- like any survival strategy- stay alive is the prime directive and then sort out the future when the threat is eased.
The other thing we should do is stop Will Hutton wittering on about the euro- I happen to believe we should have gone into the euro but being outside it is not a disaster and the euro zone will probably have a much tougher time than the UK given the huge issues with newer economies and Greece/Spain and Italy in very parlous states indeed- and Germany with 25% of its people dependent on cars for their jobs. Ireland just went to show what happens if you overstretch within what you think is a safety net and the Irish economy has always depended on Britain and it always will.
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It's fairly simple Robert
My wife and I are both support staff in different comprehensive schools, both under threat of redundancy.
The equity in our house has reduced from 60% at the beginning of last year to 40% now and then what in 2009/10/11?
No matter the availability of credit, we are not going to buy a new car this year, we are not going on a holiday this year, we are not going to eat out at all this year or go to the pub, nor put in the new kitchen; we are going to reduce our debt on cards and loans as fast as possible, make and mend on everything else.
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You hit the nail on the head in the article: "The logic is that if banks can evaluate how much they'll lose in this painful recession."
Firstly, bank forecasts of what they'll lose relies on accurate forecasts of the UK economy as well as many other major and minor national economies. Even the UK Treasury's current figures are so far from reality that banks are lost.
Secondly, they never can evaluate how much they will lose since the game works on percentages. And they don't know how percentages work in the current environment.
A deeply flawed idea.
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It is not directly related to todays bank loan announcement, but I just wanted to inject a little good news. I run a small manufacturing company, and yes back in November times were really grim, but because of the weak pound we are now seeing a massive growth in export orders. December was up 20% year on year and the trend is continuing.
I would guess we are not the only exporter doing well.
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Dear bankers and MP's. Surely much of the trouble the world has been well documented todate - bankers and corporate directors are greedy so long as someone else pays their excessive wages, they are not interested in their customers.
All was rapped up in 'one stop shop'. As a result everything became so complicated and they lost sight of what they were surposed to do, and found that the only thing they could see was their own bonus's.
Rather than loan more cash to the banks, HMG should pour funds for morgages into the banks they own (Rock) and sensible Building Soc. It is these that should service the morgage market. The reason banks got involved in the 80's is that they saw an opportunity to 'diversify' into others traditional markets to sell insurance, pensions, estate agents etc. They bought viable companies, giving golden good byes to the outgoing management who understood their business only to run it on the banking model.
Stick to the knitting! B Soc's make loans to service the housing markets where their management are accountable to the investors, and the banks loan to the business's.
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Robert
Most if not all UK and Western banks are insolvent and have been for years.
Central Banks operate under a fractional reserve system. Put simply, they can lend a significant amount more than they have on deposit. Should a bank run occur where depositors rush to the bank demanding return of their cash, the banks would not have the resources to meet their liabilities.
It seems rules of corporate governance do not apply to banks. Greed, the old boy network and bad management bordering on the criminal seems the norm in this industry. The purchasing power of our Fiat currency is devaluing by the day. Prudent savers are being penalised more than they realise.
The government should do the correct thing and immediately stop meddling with the economy. The insolvent banks should be allowed to go bust. Bad business should be allowed to go bust. Government should give up its monopoly on controlling and printing money. Re-examine some form of gold standard. Public spending (wasting) should be dramatically reduced.
Small government is the answer. Cut taxes and leave the business of running a successful economy to the law of free market forces.
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27 weejonnie
'OK - there is a shortage of money in the British Economy.'
But is there. The trad banks say they are lending more than before. So the 'problem' is the banks like NR B and B etc etc. But they were the problem. That is why they are in trouble.
Actually my take is that there is plenty of credit around. I'm fed up of being offered it. What is the problem is that there are not the people who want to borrow or those that want to borrow do not have the credibility with the banks. So how does this solve the problem.
How does the issuing of credit change peoples credit rating or change the demand situation other than as an aside.
The housing market has to cointinue to slide because it has been forecast to. Recovery cannot start until the housing market bottoms. Credit availability to get people off the fence is part of that but nobody in their right mind would by a house with the possibility of a 22 percent loss over the next 18 months.
Stopping businesses failing is a matter of months. They cannot live on fresh air. At present and for the next few months, and possibly most of 2009 - There is nothing to encourage people with high debt to spend. There is nothing to encourage people with a bad credit rating
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NO, NO, NO, NO !!!
This has got to stop!
This capitalist system is DEAD! No more propping it up please, let it die quickly rather than prolonging the agony then we can set about building a new way of life!
WE ARE BUST!
WAKE UP BRITAIN !!! YOUR FUTURE IS BEING TRADED AND YOU DON'T HAVE A SAY IN IT!
You are now the payer of last resort.
Does anyone know how much we all now owe per head, that would be an enlightening number to put this whole sorry story in perspective?
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To anyone questioning where the money for all this is coming from. I'll give you a simple answer. The banks themselves. There is a new regulatory liquidity regime that is starting to filter through to the banking sector that will require banks and building societies to hold a certain level of AAA, or AA3 rated liquidity on their balance sheets. This generally comes in the form of government debt (Gilts and T-Bills). Previously there was no requirement for this, however when this comes into force you could see the likes of Nationwide being required to hold £bns of Gilts on their balance sheets at all times. At a time when government debt is projected to, at a minimum, double in the near term, the cynic says that this is a government ploy to find bidders for the debt they're having to issue.
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Most of what I may have said today has already been covered by other bloggers.
TWO comments from my weekend to share with everyone.
1) From someone speaking as a private individual but who works in the TREASURY and is, in my view, balanced, afffable, and capable: 'I hate Robert Peston'.
This was the only contribution said person made in a wide ranging discussion of the crisis.
2) A friend said of a much older friend said :
'She has no pension..neither private, nor state; owned Bank Share because she thought them pedestrian and safe as the Banks were monitored by State Machinery. Now she has virtually NO income.'
WHAT a thing to happen to someone in their seventies !
We live in even sadder times, now. Do we not, Mr Peston ?
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A complicated way of saying that basically, someone is picking up the tab of those bad bank loans / toxic assets and YES, it's the taxpayers rather than the banks that created them.
A total and complete failure of our current capitalist financial model and a full heartless betrayal of those millions of hard working people whose hard earned wealth and security have been poured down the drain.
Economic rescue package it might be, but who created the disaster in the first place?
SHAME on our financial industry.
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BBC Breaking News!!
Yes - More help for banks!!
Later in the programme!
I'm not a dugout says Clarke!
Nothing matters except the banking system says Guv't!
International community will pay for Israeli damage!
Another soldier killed - his family have been informed.
Repossessions and liquidations and redundancies foreclosures up and nobody came.
GC
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"If credit doesn't become more readily available, the recession will deepen - and one consequence will be that bank losses will escalate even beyond the current alarming forecasts."
On the basis of the above it is surprising that the banks are having to be 'forced' to lend, when their failure to do so is only worsening their own predicament! If we are all agreed making limited credit available again will soften the landing of an inevitable reduction in credit and spending, then it is in the banks' own interest to contribute to this process (http://thedailycrazy.wordpress.com). Do they not agree? Are they all just waiting for someone else to do it first? Or are they just holding out for the best deal from the government?
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Dear Robert,
I could feel your apprehensions when I heard you on TV last night that we are all sliding down the wrong path.
I have sent a submission to te Bank Crisis Committee- ensured it was sent to Vadera and all on out of the box solutions to move the society from debt driven to savings driven..oblivating the need for deposit insuarnce and removing trillion of pounds of cntingent liability..but sadto say no response.
I have sent the copy of my submissions to my MP who has agreed to help. I am happy to send to you if you could drop me an email to [Personal details removed by Moderator]
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I don't understand why we have to now insure the banks from their own bad deals. The business of lending is an art that the banks are supposed to be good at. They NEED to lend in order to generate interest income.
There must be another underlying, undisclosed reason why they are not lending. Are they running scared?
They seem to have made borrowing much more difficult by first INCREASING!! interest rates, then also reducing clients' borrowing limits, then raising the hoops that a new prospective borrower has to jump through in order to qualify for a loan, and then also at higher rates. Don't they want to make money out of lending anymore?
So somehow the figures are so apalling that the Govt has to be called in, or maybe they have just conned the Govt into the corner they have had to resort to?
However, if their shareholders' capital and reserves are insufficient to conduct the business, then they need to call for a rights issue or a public share offering. They have done the first and did not get much joy.
How about the second? If the shares were offered at a bargain basement price, we with zilch interest on our savings may see that as an attractive investment. It would massively dilute the existing shareholders holdings, but it's a rescue which they sorely need. Also, they need to bear the consequences of running a risky highly-geared enterprise in which the chickens came home to roost. They now need friends with proper money!!
It worries me that the Govt (us) are now venturing into an industry we don't know anything about. Why can't a consortium of banks achieve this? Oh! I forgot they are all bankrupt - maybe if we add the muscle of a consortium of insurers as well, do we then have something big enough?
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Hello Robert
Now let me get this right - if we the tax payer dont lend, insure what ever to the banks they will lose more money and everything will get worse.
But if we now lend, insure them and they lend lots of money and some/all the people/firms cannot pay it back they still lose lots on money and we pick up the bill which ever way it goes!!
Rob
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Her majesty's government goes into the monoline insurance business which as we know ended in tears for the monoliners after their business model collapsed. The hope is that this will jump start securitisation of debt which we all know was at the root of our current problems since it obscures risk and promotes unwarranted risk taking. The hope is that the banks will use this insurance to lend to all those customers and businesses which were too dodgy to lend to before.
Rescue packages are all well and good but the economy needs to adjust to the new fundamentals and get their business models in line with the new thinking. This is happening and will continue to happen despite the governments actions as business and consumer adjust their debt to more realistic levels. Most of the businesses and consumers who could lend are choosing to protect themselves and not take on more debt. Those that are zombie companies and insolvent will be lining up for bank debt guaranteed by us tax payers. All of these solutions look like mirror images of the banking financial wizardry that got us into this mess.
Trying to turn back the clock will not work and will be very costly to the tax payer. Look at AIG if you want to know what kind of black hole we are putting our money into.
@12 Myobpod
Very good argument about fixed costs and one which government should note ,I tend to agree about profits tax too. Not sure I agree about national insurance though as it ought to fund pensions.
@16 StevieYorkshire
You are right, buying a house now unless you have to would be financially unwise. You cannot force people to borrow until they are ready and with the futures market pricing in a total fall in house prices of 50 percent we have a long way to go.
@26 esherme
That sub prime money got written off when Joe no job in America decided he could not afford the payments on his Mcmansion. Once house prices dipped and he could no longer pay his mortgage with equity withdrawals then he need to walk away owing lots to the banks. The money was given to some Americans to live in big houses they could not really afford. With mortgages there being non recourse in many states, your debt automatically gets written off and you are free to go buy a cheaper house.
@34 simonmw3
It seems pretty inevitable that the packages will be scammed at the expense of the tax payer, but that is the whole point. How else will some of the companies survive without legally stealing some of the tax payers money.
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so the goverment is insuring the losses of bad assets that nobody can calulate.
i wonder if i could get car insurance if i told them i didn't know what car i drove or how much it was worth or had an mot........
better still we'll take a bigger stake in a bank that is in effect bankrupt. can someone please explain this all to me???
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Robert,
The staunching of credit did not cause the crisis, it merely served to switch the lights on and expose the mess that had been created during months of darkness.
The October "bail-out" was intended to re-opening the sclerotic arteries of borrowing, rather than saving the banks. However, the Government failed to attach the right terms and, banks being banks, the money was diverted where they (the banks) thought best - hence the need to throw more good money after bad.
This is our children's money that is being squandered and, as has been pointed out already, it is our children who are being sold into slavery to satisfy the short-term political aspirations of a desparate few.
(I've mentioned before, it's the analogy of the old Russian woman pursued by wolves, who kept throwing her children off the sled to keep the pack at bay.)
The quality of responses here demonstrates the collective wisdom of our great nation, when unfettered by greed or political ambition. Why must we continue to suffer those of inferior ability taking decisions that lead us deeper and deeper into debt bondage?
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Unemployment is not a disease; so it has no "cure"
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The country has had one almighty slap with regard to debt and people learn quickly when slapped!
People, in general, will save now rather than borrow - until the next band wagon comes along... we've seen it time and time again. Post the last housing bubble, post the dot com bubble.... give us all 5yrs and we'll have forgotten.... maybe
..... but until then don't expect the spending to return, no matter what GB & AD do!
#29 goodthinkinggeorge
So Labour have been in power for 10yrs and this mess it due to the Conservatives..... God I hope you were joking,,, if not - Bad Thinking George!!!!
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I've said it before and I'll say it again. Some on here have already alluded to it. Things ARE much worse than we are being told. What is happening before our eyes and over a few months is the collapse of the Western economies and the end of Western economic dominance. It is now the turn of the cash rich countries of the Far and Middle East to dominate (although given the latter only know how to get oil out of the ground and can't even add value to that they are screwed too once the oil dries up).
What people aren't getting is that the West has no "god given" right to be the dominant force and to have the world's highest living standards. Every epoch has an end, and what we are seeing now is the end of century or more of Western dominance, ending with a huge implosion after 2 final decades of hubris and gargantuan arrogance (and stupidity).
Anyone who knows anything about complexity and non-linear systems will tell us that things can just suddenly and catastrophically permanently change, almost overnight. That is what we are seeing now.
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Cannot understand why the government does not develop it's own loan book with the added benefit of knowing exactly to whom it has lent and on what terms.
The system is very simple:
1) Appoint each of the banks as a lending agent for the government 'lending fund' issuing strict criteria of underwriting.
2) Each lending 'agent' carries the first 10% of the risk so as to ensure that the banks exercise prudence and consistency.
3) The 'agent' is entitled to 50% of the arrangement fees and lending margin as it's reward for providing the service.
4) The government then is in direct control of terms, volumes, etc but at the same time gains excess to the 'agent's' credit skills/workforce/documentation/procedures, etc.
5) The banks can start lending again and start earning some revenue.
6) The taxpayer is protected from any toxic debt that it is being expected to inherit. That should be a problem that needs sorting out by the banks and their shareholders.
7) Credit starts to flow to the very people the government wants it to.
8) In a few years these new loans are repaid (hopefully) and 'each man to his own'.
7)
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I am afraid you are incorrect when you state that The Rock is now lending again, period: that's only new mortgage business, not to customers who have an unblemished 6 yr record....very strange.
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41. TigerJayJ
Robert won't reply, so maybe I can help a bit.
The net result of reduced interest rates and the measures outlined above (including the Northern Rock rebirth) will mean that mortgage finance is likely to become available to FTBs at 3-4%, on LTVs of 90%+.
Does that change your view at all?
Also I would expect the securitisation market guarantees to re-open the buy to let markets for the more responsible lenders (i.e.; Paragon Mortgages) who have largely escaped the damage of the last few years.
Finally, the starting salary for trainee accountants in London is £28k. I think it would surprise you how many £50k+ would be FTB couples there are, bearing in mind that would include many couples, particularly graduates, who have been in employment for 5 years+ without being able/willing to climb on the property ladder.
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When do the banks pay for this money they are 'borrowing'?
I hear all the chat about the taxpayers paying but none about the banks .
If we have too many banks let some go to the wall and only protect the savers in those banks, only the necessary few banks should remain.
Let the justice department start to bring to account those people who played fast and loose with 'our' money.
All assets should go to protect savers and give them a return on their money.
The banks are benefiting and they must repay the loans.
Gordon Brown has already lost the next election.
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The media's absurd posturing at this morning's press conference to me is symptomatic of at least some of the problems we are facing today. Ever since the NR scoop every hack is looking for his own so that he or she too can afford to eat at the River Cafe. I think Robert is right when he says that capital is adequate in the banks to deal with what lies ahead. I also feel that we need to see what the toxic waste actually comprises off rather than rely on some ill-resourced media second guessing. Barclays have just come out to say that they will make £6bn, Looyds say they are doing ok and RBS says they can put humpty dumpty back together again given some more gaffa tape glue and string yet the shares are getting trashed yet again. Yep you guessed it the great intellect at FSA has put the fox back in the hen house on the assurances from the fox that he had gone off chicken. What a bunch clowns.
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Hi Rob,
This government continues to flounder hopelessly in the dark. They have neither the humility to admit their mistakes or the nouse or competence to fix the problems. (Mostly because they have no idea what caused the current problems.)
They will continue to flounder and come up with soundbite news flashes which do nothing for us except costing the British public very dearly in the future.
That's why I advocate an election as soon as possible, so that we can rid this country of the jokes we have in government at the moment.
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Doesn't a bankrupt bank, being given money by a bankrupt country's government, still mean we're bankrupt? I'm sure it can be covered up in one way or another for so long, but the hard facts will always show themselves in the end. The UK cannot survive without foreign creditors, once they refuse to by anymore of our government debt, it will show all of these government promises to be what they really are, one big confidence trick.
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Article 61 of the Magna Charta
( Lawful rebellion)stands for? you have sovereignty, realize it, and use it.
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Why do so many people already on the property ladder talk of unaffordable mortgage payments? Many of these are the same people that spend money on shopping, expensive holidays and leisure activities as if they’re suffering from a terminal illness. After which…surprise surprise…they find it hard to pay their mortgages.
I know countless people like this - in mortgage arrears but off their “annual ski holiday”. The truth is that mortgages aren’t that unaffordable. It’s just a case of too many people, who’ve had it good for so long now, not being prepared to curtail their lifestyle.
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Robert:
I bumped my car this weekend, would the Gov consider setting up an insurance company to cover this sort of incident....
I called a couple of companies but they only wanted to cover me before I damaged it, now it's done thay aren't interested....
Post Accident Retrospective Car Insurance - Could be another winner!
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It's very reassuring to read so many sensible contributions to this blog. It goes a long way to restoring my faith in human nature. What a shame the people posting here aren't running the country: it seems that most contributors here can clearly see the massive flaws in the plan that GB and his cronies seem to have missed.
BTW, is there ANYONE who thinks this plan is a good idea?
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I dont think it matters what the government do now.
Ill try and reason why:
Firstly, we keep hearing this is a global problem, so how does the British government, with its very finite resources hope to stem the tide? ( unless Gordo is actually King Canute).
Secondly, we have been misinformed so often in the last 18months that i and many other people do not believe anything that any finincial "expert" says. Nor do i believe Alistair "help me" Darling and gordon "no boom and bust" Brown.
If the above is correct it leads us to assume, (correctly in my view), that the people in charge have'nt a clue about the current situation.
If we cant trust our leaders then we have to rely on ourselves and that leads us to pull in our horns. We reduce spending and cut back on borrowing to finance the spending.
This leads to a vicious circle, a negative feedback loop, whose effects, we are just beginning to feel.
I believe, ( and my view is as valid as any so called expert) that we are going to enter the worst financial crisis since the South Sea Bubble. We cant trust the banks, the government is proving inept in dealing with the situation, (either through lack of skill or more probably, because the weight of gravitation is against them), and is perhaps making the situation worse. What are we left with? where do we turn when the natural order of things is turned upside down? why "the flame of the West" of course. Who will be our generations Adolf Hitler or Bennito Mussolini?
Will he/she be British, American, god forbid German?
He or she will come and then we will be cooked.
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If you are a bank with £10 capital and you are allowed to run a balance sheet of 30x that i.e. £300 and 1% of the loans go bad i.e. £3 you only have £7 in capital left. This means you can only run a balance sheet of £7x30=£210. So you need to get rid of £90 of loans from your balance sheet to stay legal because you have lost £3 in capital.
If you actually have a $2.5trillion balance sheet this reverse gearing gets scary, 1% loss would be $25Bn and require a $750Bn reduction in lending.
Seems to me that if international agreements stop you changing the ratio of capital to max balance sheet you need to chuck an awful lot of money at this problem just to keep standing still never mind grow lending.
Also, why would a prudent banker ever lend up to the full 30x permitted in the boom, rather than limit themselves to say 20x and have some margin to grow the ratio if things turned down?
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The future repayment of any loans will be minimised by raging inflation within the next 2 years. Thus 500 billion of taxpayer money now, will be at least 20% less by 2011 and with very low interest rates the repayment cost will be reduced too.
So, Treasury and Government go ahead and borrow it now to stimulate the economy, but beware savers and pensioners who will want value from their personal declining money. Help them quickly or get thrown out of power. And no "means tested" help either, the same deal for everyone.
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If the government nationalises the bank will we pay the employees inflation proof pensions? Not a whisper about the state of their pension funds. Never fear what's another couple of billion on the PSBR.
I find it difficult to understand that the banks are all PLC's when in reality they seem to have a greater hold on the economy than any other company.
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Let's try and remember that three aspects of current government policy are conspiring to DISCOURAGE bank lending:
1. Lower interest rates, which discourage bank deposits and reduce bank profits from lending.
2. Greater reserve requirements being demanded of the banks.
3. Massive government borrowing, which soaks up available capital in the economy as people choose to buy gilts rather than investing in the private sector.
The government is completely confused about what it is trying to achieve. Move over Gordon, you've made enough of a mess of things. Time for the professionals to take over.
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Chinese Banking Industry profits were up 18% in 2008.So much for burnt out Brown saying its a global problem.
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What is the point. No posting have been published for nearly 2 hours!
Good job I'm not sceptical about the beeb's relationship with government policy!!!!!!!!!!
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Congratulations Mr. Moderator. You're now taking two hours to clear posts. Rather than have a modern interweb blog thingy, why not just go back to asking for comments on the back of a postcard?
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Well, making it easier for Banks to lend to viable or borderline businesses may be a good thing.
It may protect jobs.
But the Consumer side of our economy will remain depressed (and sinking) unless people receive pay rises that actually match or better the rises in their Bills.
Whilst Pay is frozen or raised by less than Inflation or indeed in some cases, cut, then most people will be hanging on to whatever money they can put aside, and won't be inclined to borrow.
In fact is it not true that Consumers have made Net repayments of personal debt this last year ?
The Gov't is mistaken if it believes British Consumers will borrow their way to another economic surge.
At the minute it is all down hill.
Of course giving the Public Sector a big rise would boost the Consumer economy and thusly the Private Sector.
But it does not seem likely that any significant pay rise will come thro.
And so the situation will worsen.
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66 inthewabe
Great post.
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RP qouated
Why all this stress on credit? Well as I've pointed out so often as to send most of you to sleep, the withdrawal of credit from the UK and global economies is what's precipitated these dreadful economic conditions.
wrong wrong wrong and wrong again.
The problem was profigate lending, The lending rate at around Year 2000 ot before
is probably the level that is sustainable, NOT the 2007 level. As a Buy to let person 2000 was when I stopped buying for sound economic reasons.
RP you should be holding GB to account. Not towing the GB line. GB is a figures man so why did he ignore ALL the signs of rapid and unsustainable money growth ? It show you how good the economy was in 1997 to have suvived this long with GB meddling at the helm.
What were all these very highly paid people actually doing with the figure infornt of them ?
Until the real cause of the problem is reconginse then we are not going to get out of this.
Please can I have £2million that I do not have to pay back.
hard work , prudence and reward along with accountability have all been distroyed by GB.
Wake up and smell the Coffee UK PLC
Also it show's too that the BBC are far to close to the governement they have become
TASS and PRAVDA, East european stalinist media outlets.
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Robert.
How are the guarantees given on loans going to be priced?
Or, if the loans are going to be used to back bonds or other securities, how are the bonds going to be priced? Maybe a market will develop in these loan-backed securities which is where we came into this mess as pointed out by Stephanie Flanders before she went on maternity leave over fifteen months ago. Where is she now? We need her !
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The reporting on this is not balanced. Before anyone can understand potential solutions it is key to understand what the real problem is and what were the underlying causes of those problems.
Due to excessive lending the banks were over leveraged - sometimes up to 45 times their capital base. This means that if only 2.2% of their loans go bad it places the bank on jepeordy of going bust. This is what the analysts could see at the start of the credit crunch and has caused the run on Northern Rock, HBOS, RBS etc.. Of cause, a reduction in the share price has the same problem - it increases the loan ratio to capital base even further.
Therefore, before we can return to a "normal" situation the banks have to repair their balance sheets by reducing the amount of lending in order to return this ratio back to the historically prudent 20:1 ratio. Now this might take 2-3 years - maybe a little longer - but it is a pre-requisite of the solution.
This is a key understanding - the problems were caused by too much lending and we are now seeing a correction to that. The fact that the correction is so severe illustrates how big the problem is.
The government has a few options it can use. Firstly it can try to encourage the banks to lend more money. In the scale of things, this is relatively small.
This is one of the reasons why the Governemnt takes action and then decides a few weeks /months later the action has not worked and it needs to do more.
My fear is that the only real cure is for the Government to introduce high inflation. This would reduce the current value of money and speed up the banks ability to repair balance sheets and reduce the real cost of the excessive borrowing.
And so we see what Robert should have been picking up. A Government saying one thing (more loans for small businesses and othes, tax cuts for all) to what is actually happening ( exchange rate dropped by 30% + and a government considering printing money to solve short term issues.
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Lmao - Ring the FSA for reassurance?! Ok Robert will do, after all they've always had their finger on the pulse haven't they....!
Surely everyone now recognises that the FSA is yet another waste of space job creation exercise?
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Please correct me if I'm wrong:
Banks were capitalised by the world's richest people (whose bad debts we seem happy to write off) and the Chinese etc. governments & banks to prevent hyper-inflation in their growth economies. The money came because of our vestigial world power, even though we carried big deficits.
They then took their money elsewhere (where?) when our system's toxicity threatened them.
Now we as taxpayers are forced by our Government to capitalise the banks on the basis of previously unthkable levels of public debt and a wafer thin 'please behave' mantra which the banks, in their oarallel universe, have so far arrogantly ignored.
Result: Our (and America's) economy is a house of cards, and power has shifted to other countries, leaving us in the proverbial -with the burden of having to pay for the bankers' scandalous irresponsibility, and our all too willing collaboration (booming house prices and eagerness for easy credit) left as our children's legacy.
That's the Brown legacy. The Cameron legacy would be even bigger unemployment and huge cuts to education, health care and housing.
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#65 - are you sure there was ever even a Plan A ? To suggest there was a plan is to suggest that somebody sat down and thought through all the problems and rational solutions before choosing what he considered the best option. From what I've seen of "Plan A" so far, no rational solutions were ever found.
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Simple Simon met a pieman going to the fair;
Said Simple Simon to the pieman "Let me taste your ware"
Said the pieman to Simple Simon "Show me first your penny"
Said Simple Simon to the pieman "Sir, I have not any.
Said the pieman ''Do not worry I have credit
It does not matter Simple Simon that you do not merit'
Because I know a man to whom has taken the risk
So take a pie and we will all go and get mullered.''
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Bank analysts acroos the globe seem uniformly disappointed in the banks suggestions and Bruce Packard at Evolution Securities made me laugh when he said.
We expect the UK Govt to try to solve the obesity crisis next week, by nationalising the supermarkets, so that they can then resume the supply of cheap doughnuts to fat people.
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As Herr Braun has grown to look less and less like a human being and more like some hideous Golem (certainly not the super-being of his loathsome imagination), he seems to have lost touch with reality.
People don't want to borrow now, they want to save. They want some cushion for the day of reckoning that Braun is making inevitable with his "splash the cash and damn the future" policies.
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In short we're nationalising the debt of numerous private companies, including the banks who as plcs were issuing huge dividends in the good times because of the billions of profit. A cycnic would argue this is the culmination of the 'selfish-capitalist' paradigm. Having successfully transferred public (tax payer) money into private hands for the last 20 odd years now the private sector can shift its debt onto said taxpayers. They take our taxes we get their debts! Not a fair deal, not a just deal, and not a deal we should accept.
If we are determined to keep the capitalist paradigm viable (which apparently we are...) we have to let all these businesses fail, tha banks included. After all it is just a series of market corrections, inflated house prices, the inflated financial sector (in both ego and importance to the overall economic picture), and poorly run businesses.
It is a simple choice, do we still believe in capitalism? if we do the market will correct, if we don't, intervene, then natioanlise the banks, and every other privatised utility/public service cos they're all failing to deliver as well and if we no-longer believe the markets will do the job we should intervene...
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Now that the banks are taking regular handouts from the Government - does this mean we can now treat them as badly as we do with our other 'state reliants'?
As with the jobseekers I expect there to be:
a) Back to market training
b) Simple mathematics courses so they can understand why all their "brilliant formulas" are worthless.
c) Compulsury sessions on understanding how the world and markets REALLY work.
d) Vocational re-training so we can change all our failed banks into something more useful (like wine bars)
e) A re-start interview every 6 weeks to see how their getting on.
f) Offers of unsuitable alternatives to banking (like grocery) - and stopping the bailout money if they refuse to apply.
g) Require the banks to have to sign on every 2 weeks at the treasury in order to keep receiving their bailout.
Failure to complete any of these courses will result in your benefits / bailouts being stopped.
In addition to this, any bank caught undertaking work other than 'simple savings and loans transactions' will be reported and prosecuted by the DSS and all the money will need to be paid back.
You see - the whole of our society is based on Hypocrisy.
All of the above are what a jobseeker has to face in this country for his / her £100 a fortnight. The banks have got £30 billion and no such restrictions.
....of course the banks have the 'promise to pay it back' - and yet isn't that exactly where all this started? - The failure of confidence in the promise to pay.
In these times it more and more obvious the stink of hypocrisy and I think the people of the country are starting to open their eyes....
See you on parliment square in June when things will really hot up!
There is no justice shown by the government to it's people and therefore the same hospitality will be returned when the time comes.
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RE 41 TigerjayJ
I absolutely agree. I raised a petition regarding this very matter. I can't post a link or my entry will be moderated. It's only got 54 signatures so I guess this point is not of interest to many.
If you're interested the petition is titled: LendingReform.
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Many of the posts to this blog seem to take great delight in predicting doom for our banks. This seems to be motivated by anger at perceived excessive salaries and bonuses previously paid to some bank staff.
As someone who works for a bank I can say that this general public perception on bank pay is largely false. Many bank workers earn less or certainly not much above the national average wage. Many thousands of these same workers have spent years investing their savings in the shares of their employers only to see their life savings wiped out. To compound this many of these people now face unemployment as the banks try to cut costs.
I am not suggesting that mistakes were not made. However, these mistakes were largely the preserve of a few hundred individuals at the top of the big banks, and to a degree by regulators and government, not the many thousand of bank staff who the public see when they visit their local branch.
Making unfounded assertions that banks will fail based on a desire to blame someone for the mess we are in is unhelpful when market sentiment is so volatile. UK banks were recently re-capitalised to have sufficient reserves to cope with the bad debts that are now emerging. The only way any UK banks could fail is if there is a serious loss of confidence and short term liquidity problems. If such a situation arose then I have no doubt that the government would step in as it did with Northern Rock.
Much as we do not like the taxpayer becoming liable for bailing out banks we all have to recognise that the government (alongside the other political parties) are trying to find solutions to difficult problems. The steps that they are taking are in the best interests of all of us so instead of focussing on past mistakes we should be scrutinising the detail of what is being proposed to try to ensure that it works.
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Re 171
Here's the link:
http://petitions.number10.gov.uk:80/LendingReform/
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All bank shares are down this morning - doesn't seem the new announcements were well received by the City. Hey ho.
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today's blog is currently 80 posts and nearly 2 hours behind which is defeating its purpose as a forum for the discussion and exchange of views; at this rate you won't see this comment until mid-afternoon! come on BBC, you are underinvesting in the blogosphere; get some more moderating help and while you're at it you could improve this site with extra buttons etc
Anyway, on the topic, and earlier comments:
# 42 slowleft I'm not normally into conspiracy theories at all, but can usually spot a crook or a liar at a fair distance and there have been plenty to see during the so-called credit crunch: at the banks, in govt, at the regulators etc; are you one of the guys who believed there were WMDs? economics and politics are interesting as a study of human behaviour and its frailties, mate .... you need to think through the motivations of the main players and things will become clearer, though no more right or acceptable
when you posted all the usual bloggers were still bashing away on Peston's earlier post BTW, along with the moderators! I'm not part of their conspiracy as suspect they've conspired to leave me out; just paranoid me
Today is Blue Monday and that's why Peston has tried to be upbeat as the BBC have said on their own website that Paxman et al are to try to be more positive today to counteract the gloom
However the stock market is not playing. At the time I write RBS is 41% down; Lloyds about 20% and Barclay's quiet.
RBS definitely look to be FUBAR BUNDY now.
I agree with #51 xcanderson that the autumn 'bail-out' of £37bn was actually quite small and came with a lot of strings; and I doubt much of that money has even gone out to the banks yet ... not that they deserved to get it; and in any case these initiatives will have little impact, because:
the banks will be very reluctant to take money from govt unless it is absolutely no-strings-attached
the banks have no clear audit knowledge of how much toxic stuff they have; they may hand their worst cards over for insurance but will keep the rest of their hand hidden! meaning that there will definitely be a 3rd 'bail-out' later on - perhaps as soon as the Spring
in any case things the govt have left these initiatives late and are reacting / trying to catch up; but at this point demand is dropping fast and very few sensible individuals or companies want to borrow unless they have to; the extreme pain is well underway
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Aren't we going round in circle because of the con trick that is banking. Depositor puts money in Bank. Bank advances the same money - it has none of its own - to Borrower. That's fine so long as Borrower repays as scheduled and Depositor doesn't come for his money back. But if every Depositor with every Bank came for his money back simultaneously the Bank would not be able to pay. Banking crash ensues.
To prevent, or at least reduce the risk of this occurring, the FSA places limits on the loans to deposits ratio so that the Bank has cash to give you when you want it.
The trouble is that this limit means nothing when the loans become bad. A prudent Bank will reduce its lending to cover this situation and so credit dries up. Now the government wants the Banks to be imprudent by lending more, so there'll be more bad debt and the Banks will reduce their lending again and so on and so on.
The right way to put money in the system is for the government to spend it directly. That increases economic activity and tax revenues and encourages people to spend. Lending to the lenders makes no sense it seems to me. Prudent lenders will save at the moment.
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In response to: where has all the wealth gone?
Remember wealth is current assets plus future expectations.
The future expectations bit is very variable.
Consider you own a piece of land worth £100.
Then someone says that there is Oil in your land and then it is worth £1m.
Then somebody says actually the oil was improperly surveyed and you actually have none. Back to £100.
There we have it wealth goes from 0 to 1million and back again in however long it takes.
In physics energy cannot be created or destroyed.
In economics wealth can be created or given to Gordon Brown.
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The Scrooges in Hard Times
It is the banks
That are the scrooges
This Christmas past
Tightening the screws
On credit fast
Customers squeezed
Businesses strangled and seized
Starved of credit, entangled
In this credit crunch pain and unease
Homeowners who face repossession
Retail chains facing a tough recession
Yet these Hard Times are the hauntings
From the Spirit of Greed Past
Billions of pounds in bonuses vast
And short-term profit nets recklessly cast
Unregulated, unchecked
Bouncing to a taxpayer bail-out cheque
And now it’s all hands on deck
As the shrinking sinking ship of the economy
Bound, anchored and drowning in debt
Is fast in danger of becoming
A wreck
Ps I blame the government as well as the banks.
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Just to deviate slightly from the topic in hand, is there really a recession at all?
I went out for dinner on Saturday, and didn't bother booking a table figuring that restaurants would be half empty given that we are supposedly in the middle of the Worst Economic Crisis in Living Memory.
Couldn't get into the first restaurant at all, and got the last available table in the second restaurant.
What's going on?
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#17 gordont10
Your argument regarding the debt your children will have to pay is the same thoughtless and selfish argument people use against conserving current resources.
"Why should I care if there is no food / fuel / atmosphere left in the future as I will be dead by then".
Sadly some people don't have the ability to see beyond their own self interest and can't see beyond their lifetime and into the next generations.
In the same way we still admire the Victorians for their beautifully constructed houses, bridges, tunnels etc, this generation will be infamously remembered for it's selfishness, greed and excess and attitiudes like yours.
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If you get the opportunity, can you ask the Chancellor what he going to do to stop the greed of the finance industry, which along with his own policies is destroying the very fabric of society? All I see is taxpayer’s money going into the banks and then the banks taking even more out of me. They are having their cake and eating it big time. Why should I have to pay for their poor monetary risk management?
I run a small rural pub, which is also our home. It is a free house with no ties and in awards-terms; we are very successful (our awards are not industry awards but through public vote). We have reduced costs so much that there is nowhere else to go. Staff hours have been reduced so much that my wife and I have had to increase our working week from 70-80 hours each to over 100 hours each. There is nowhere else to go except to close, then I loose my house, job and my son who is doing A-Level’s is likely to have them considerably disrupted, destroying his future too!
We have a commercial mortgage with the Skipton and loans with HSBC our bankers. Over the last 12 months the Skipton have increased our LIBOR-tied mortgage rate from 6.69% to 7.62% in May 2008 and then to 7.660% in November 2008 while the Bank of England continues to reduce their rates (I know it's different to LIBOR). My HSBC loan rate is at 9% and between the two finance houses will force me to close, especially if the Skipton rate doesn’t reduce during their normal review in February. My other woes are with Business Rates, VAT and Duty but that is another matter.
These government insured loans will be out of reach for me as I'll not have the upfront funds for surveys, EPCs and such like for new replacement loans.
I know I am not on my own in this predicament, many businesses of varying sizes are being hit by the banks and this seems to go unnoticed by the public. It is the public who will eventually loose their livelihoods and wonder why. After the battering we are facing in my industry with 39 pubs closing a week, the public will have nowhere to drown their sorrows, me and my family with them!
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Come On Robert! when will you and all your mates realise that this is a cataclysm.
We have a situation where, under the notorious special invesment vehicles, the same money has been lent around the world on a daily basis countless times, without any real attempt to determine that the assets upon which borrowing was made even exist.
Rather like the Llloyds insurance scandal of the 80s, debt upon debt upon debt has been webbed around the world. I reckon the real losses are in the trillions. Putting in even 200 billion is probably only plugging a small part of the black hole.
Tony Blair and Gordon Brown presided over a phoney boom for 10 years, the bank chiefs used the last 5 years to line their own pockets by taking fees for assuming debt. The UK is bust, it's far worse than Iceland. Far worse.
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102. At 11:41am on 19 Jan 2009, caslad63 wrote:
If Mr Brown was Premiership Manager, he would have had the sack ages ago, or, at least done the decent thing and "walked "
and the crowd was chanting "sack the board" or "you don't know what you are doing" !!
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#100 Shireblogger
Very astute analysis. It puts the situation into unquestionable figures. You should be a financial journalist.
Robert, watch out you have a rival!
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#100
Good point - the latest figure I've just seen is 20p per share - down 42% on the day, and it's only 1.30pm. So that tells you what the market thinks of the government's plans and RBS's current plight then.
What would technically happen to the government's shareholding if the bank was deemed insolvent?
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Don't blame Robert, he's where he is because he will think and say certain things which are acceptable to those running this mess.
He wasn't going to get the job, or indeed stay in it, if he said anything too unacceptable.
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Analysis of Latest Brown Darling Initiative 19-01-09
I have just sat listening to the PM and Chancellor defending their latest attempt to save the nation’s future. In a nutshell, they have a single objective to provide a dramatic increase in lending to businesses, which will allow them to continue to be able to invest to support future expansion, and to allow the “hard working British public” to take out mortgages for house purchase to alleviate the pressure for new house building.
This is being described as a “temporary measure”, but when asked how long they expected temporary to last, the answer was “as long as it takes”. I seriously wonder what planet they are living on if they cannot at least see that the implications of their actions will be felt for decades.
I can understand their perceived need to be seen to be doing something to help in the short term, but I am appalled by the fact that they either have no understanding of the simple mathematics of continued year-on-year growth, or that they cannot bear to face up to the dire consequences which will inevitably follow from the economic model we, and the rest of the developed world, seem to want to pursue. Put very simply, any system which allows year on year growth in a finite world will eventually become too big for its boots and either run out of steam, or end in disaster. For example even if the population of the world is allowed to grow at relatively modest annual rates, there will come a time when the human race will no longer be able to feed itself and we would have a global Lemmings problem, which ends in a huge reduction of population. It is no good saying that this situation is so far away in the future that we don’t need to think about it just yet. It might be closer than you think! Surely, if we know about the inevitability, we would be better off planning to prevent it arising, in this case by trying to reach a steady state with zero net growth.
The world population example is only one of many and the most immediate one we are faced with is the economic model, which uses growth in GDP as a yardstick of success. If GDP is negative for more than two successive quarters we are in recession. If GDP remains positive year on year we consider that this is a desirable state to be in, and pat ourselves on the back, and give ourselves generous bonuses. The truth is that the growth we have been used to in recent times has been fuelled by borrowing to expand businesses, each of which is driven by the need for increased turnover. A good example of where this has lead is the car industry, which has produced more and more, better, more long lasting products, to the point where there is obviously an excess supply, relative to the demand.
The saviour of the car industry, short of half of them going out of business, would be a large increase in the car buying population of the world. The alternative approach will be to trim production to match demand, even if it means a drop in the size of the business sector as a whole.
Gordon Brown used an example of how things have changed in the last two years, when he stated that the consideration for financing a producer of luxury yachts must be quite different now, although he did not make his views clear as to whether he wanted to try to maintain the level of lending to such a company, or to advise them to reduce their ambitions for expansion.
My conclusion about how to deal with the future is that we should recognise that sustained growth across the world is a nonsensical ambition and we should plan for a serious change in the way we live, with an ultimate ambition to achieve steady state conditions with respect to population, energy use, food production etc. This does not mean that everything has to stagnate, which GB would probably conclude from the suggestion. What would be required is a global epidemic of applied common sense, which could pose a problem for Gordon Brown.” Sensible planned contraction” in specific areas is a phrase which he would find impossible to utter. He would be much more interested in the idea of new green businesses which should be encouraged to grow from modest beginnings. What we must avoid in the future is going back to a repeat of the worst excesses of consumerism, where everybody is encouraged to have at least one of every new thing that comes on the market, whether they need it or not, and fashion dictates that anything older than a year needs to be replaced.
I have no complaint with the desire of the PM to try to help, and that he is sincere in this, and that the other political parties are equally concerned. My big problem is that none of them seem to be interested in looking beyond the steering wheel and simply want to get wherever they think they are going as fast as possible, without upsetting the electorate. The sad thing is that if and when they get there, they will realise they have been on the wrong road!
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The ONLY competitive export this country has left is the export of LIES.
The Government lies to keep the people confused.
The media lie to keep the Government confused
The people lie to make themselves feel secure
The bankers lie to make themselves look clever.
The Auditors lie to make the banks look clever.
The regulators lie to keep their jobs
The Economists lie because they have finally realised that all pricing and economic theories are about as useful as a fart in a spacesuit.
Unfortunately the market for lies has dipped recently as it's also the main export of the majority of 'first world nations'.
It's also been dramatically devalued in countries like Iraq, Iran, Afghanistan, Palestine etc.
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This is the SECOND drop of multiple billions of pounds to the banks. It's claimed to be for the purpose of trying to get the banks to lend.
If this is really so, then surely the simple question would be "If we give you this money, will you lend?"
If this question was asked the first time and an affirmative answer was received. Then the banks fooled the government once.
If it's asked the second time, receives an affirmative answer and the banks still don't lend, will the government be fooled twice?
It's not just the populace that's being beggared here, it's also belief.
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To my way of thinking why not let these banks battle their own way out of this mess, and the government initiate a new 'Bank of Britain' say, dealing with the public and businesses at large -- a national bank. Surely, this must be a more economic way of doing things!!
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So in essence, the whole of the UK tax paying public are now in the business of banking, insurance and the provision of public sector pensions.
So the banks can operate lending with no down side (only potential profit), the insurance premiums paid for the loans will be retained by the government and not passed to people actually providing the 'assets' to underwrite the risks and if it all goes horribly wrong the government employees can retire on final salary pensions paid and guaranteed by - you go it the tax paying public.
So as a tax payer we now provide investments for no return, guarantees for no premium and secure retirement for civil servants whilst watching our savings and investment decline day by day and all of this for a small payment of , income tax, VAT, capital gains tax, inheritance tax, import tax, business taxes national insurance, etc etc etc etc - and more to come.
Seems fair to me!!!!!
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Post 11,
AlexCurzon, hits the nail right on the head!
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What was very illuminating is that G. Brown keeps saying this is Global, yet when asked this morning which other countries are having to take the same action as us he could not give one.
Its time for the media to point out that these are very desperate measures indeed and we are being pulled further into debt for the future.
Whether Brown likes it or not his first bank bail out did not work, and there will be more losses still to come. That is why to understand the scale of the losses toxic debt should have identified from the beginning.
A business is either solvent or not as is an individual, if you lend to prop up more debt, which will in this case fall on the tax payer, your just adding to the problem.
What we should be encouraging is for people to save and investors to invest, to help re-balance the banks books. Interest rates should go up. Encouraging people to spend is just repeating the cycle which got us into this and will eventually lead to more debt as they default on repayment.
Brown has took all the wrong decisions, and the lack of regulation happened on his watch, he continues to damage our economy further with these kind of measures.
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I'm going to take out a 200% NRK mortgage then convert to Euros and its off to the casta del sol,
Please write and let me know how its all going chaps, talley Ho
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The share prices of the banks continue to collapse, despite the Barclays and HSBC annoucements.
The senior managers who advised/decided upon lifting the short selling ban should be sacked, as they are costing the taxpayers about as much as the former managers of RBS.
What madness to lift the ban at a time like this.
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#123 glenafon
''There is nothing to encourage people with high debt to spend. There is nothing to encourage people with a bad credit rating ''
A cap on interest rates at, say 8% would be a good start and would be in proportion to the base rate drop... It would also , chop out the loan sharks, reduce minimum payments, put a bit of cash in the indebteds pockets and those with bad credit ratings, millions fall into this category. they are the ones likely to spend if interest rates on credit cards and other similar loans comes down in proportion to the base rate.
No use sucking them dry and charging them high interest rates now to reflect the risk...government underrights it all anyway.
just a suggestion....
Jericoa
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Robert,
Q.What is all this nonsense about the Banks blaming Foreign Investement Consortiums for this lack of ability to lend?
Hearing the bad results of the RBS takover of a Dutch firm, and it's impact upon the Bank, surely the problem lies with inept Bankers (or at least their incompetent Financila Advisers)?
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Has anyone done the calculations on how much of our money Crash has lost buying up bank shares in a plummeting market? Would be fascinated to know the true cost of his financial genius*
*relative to the intelligence of a pot plant
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Good lord No. 29, did you really just try to blame the Tories for this? You are either delusional or the most cynical party hack ever.
Tell me, how many years in power do you have before blaming the opposition is a non-starter? Gordon Brown has run this economy for almost 12 years, if he did not like what the Tories had done he had a funny way of showing it.
The distressing thing is you clearly know your view is ridiculous yet your hackery takes priority. How odd it must be to be able to be publicly dishonest like this and not care.
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What we need now is a "Bankers Anonymous" helpline where bankers can call a freephone telephone number to talk to someone who can record the extent of the caller's debts in complete confidence.
These guys are gamblers. Stephen Hester said he could "fess up" to £28 billion losses at RBS, yeah right, multiply by 10 more like. He seems a straight enough guy sent in to sort things out, but where does he get the information from? Right, the gamblers.
What about all the other banks, and those hedge funds and VCs who just 12 months ago said they had £32 billion ready to spend on M&As?
Gamblers never admit their losses, not even to themselves. That's the problem. The head gamblers have been allowed to walk away from their mess so far. We need the SFO knocking on their doors and fast. The economic terrorists (we know who they are) must be brought to justice.
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Why are my comments disappearing into the ether?
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Robert, you are employed by the BBC, and your salary is paid from the license fee; on what authority do you act as chief apologist for the Government's economic policy?
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I haven't seen mention of any financial institutions reducing their Credit Card interest rates which still range mainly from 14% to 23% and in some cases higher . This , despite interest rates dropping to their current level ! Surely a significant cut in their rates would encourage people to spend more ( if thats what the Government want ? )
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The Post Office have witten to Depositors to say that the savings held via them with the Bank of Ireland will no longer be covered by the UK FSCS.
The FSCS have washed their hands, what if the Irish Republic government goes bust, guarantees will I assume be reneged on and FSCS will not be a backstop. Surely this will cause depositors to withdraw and therefore create a situation that no one wants?
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NUlabour have taken our SOCIETY to
the BRINK of the DARK AGES.
WHEN
theres no food in the shops the cash
machines dont work it will just take a
few weeks for MASSIVE SOCIAL
UNREST and STARVATION.
ZIMBABWE HERE WE COME!!!
GORDY MANDY ALLY D YOU MUST BE
SO PROUD??
YOUVE TRASHED THE UK FOR 30 to
40 YEARS.
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As some have pointed out, the economy won’t start moving until house prices settle. The thing is, the government are increasing the money supply whilst that new money is not going into the economy. The 600bln bailout was money that was already in the economy, to sort this economy the following is required…
1. Government buy repossessions from folk, and rent them back (they will have to do this via benefits anyway so government i.e. tax payer can actually win here!)
2. Reduce taxes
3. Increase Interest rates to circa 5% (As the banks aint passing on anyway, so this increases sterling’s value which will allow the gov to sell bonds / gilts)
The underpinning of the housing market is the key to the whole problem, by doing this bank write downs should decelerate and settle – allowing for new growth to appear.
Personally I’d change the whole system buy as the gov are intent on keeping the great ponzi going they may as well use these measures.
They have made an @rse of it!
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Domesticated primates are not optimistic about solving their problems. It is easier to blame somebody. Emotional games (soap-opera and grand-opera) keep life exciting.
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Calling it insurance is pure spin. Its an agreement for tax payers to take loses above a threshold level. In exchange for this risk taxpayers get next to nothing. If Brown et al are so sure of this they should put there own money into the insurance scheme then they would have some skin in the game.
The fair solution is to wipe out the equity holders, force a debt for equity swap on the bond holders and then for tax payers to top up the bank with equity. This would ensure that all parties take some pain and that tax payers get to benefit for the money that they put into the business.
There is no reason for taxpayers to get a worse deal than anyone else who steps in to save a failed bank. All these current efforts are a direct transfer of money from tax payers to execs in banks in the form of salary and bonuses.
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@74 TT
I pointed this out the other day when some asked why we werent all given cash by the government
100k each would cost the government 4 trillion quid
Do you seriously think our squaderous government has that much to spend?
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mmmmmmmm....... seems the city doesn't like this mornings GB & AD show... banking shares are still in freefall, RBS down over 60% alone
How much more can they take?
Tis indeed a Blue Monday! when does Cameron/Clarke move in for the kill?
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how come in all this mess that the banks created we are in that we have heard hardly a word from any of the major banks as to how they would get us out of this.
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My problems with this new scheme are these.
1. The insurance fee paid by the banks is just a fig leaf to cover the fact that the banks are now able to lend risk free, so they earn all the profit while we take all the risk. How is this supposed to lead to responsable lending?
2. With all this money being thrown at the banks and the fact that banks no longer have to maintain solvent levels of capital anymore an admission by the government that our economy is so dependant on credit to function that the banks can no longer function as going concerns? What does this say about the long term viability of the economy, and are we not in danger of underwriting some of the misstakes that got us into this mess in the first place. Where is OUR guarantee this money will be lent wisely?
3. Any use of taxpayers money to underwrite mortgage lending is just plane crazy. I live in the south east and a 1 bedroom flat that could be bought for £45,000 9 years ago costs £110,000 to £120,000 today. This means that back in 2000 a person earning £15,000 could get onto the property ladder with a mortgage of 3 times their annual salary and still have plenty of disposable income left to spend in the high street on goods and services. Today that only applies to someone earning £40,000 a year. Even in the south east there are not that many people earning £40,000 a year to justify the average one bed flat costing that much. Everyone I know who has bought a home for the first time in the last 6 years has done so with a mortgage of between 6 and 9 times their annual salary, they can pay their mortgages and their bills but have no disposable income to spend in the high street, so they are effectivly not consumers in the way they would have been in the past. If the government starts to underwrite mortgage lending with taxpayers money in an effort to prop up house prices and stimulate the housing market then in 10 years time when the majority of people will be paying mortgages of 7 to 9 times their salary the economy will grind to a halt because of the lack of cash money flowing around. More poeople need to be saying this to the government as with the poke and hope style of economic managment they go in for these days they seem to grasp the idea that its good to lower interest rates to give people more diposable income, but at the same time can see nothing wrong in proping up house prices with our money which in the long run will make more of us poorer and our economy weaker.
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Bloomberg carries this quote today: “In return for access to any government support, there will have to be an increase in lending, and that will be legally
binding,” Brown said at a press conference in London today.
Yes, come on banks, lend money to those:
-car manufacturers and dealers to keep those 2008/9 cars on their books (never mind what happens in 2012 when nimble operators put their 2013 models on display);
-retailers to keep 2008/9 stock in their shops and warehouses (never mind what happens in 2012 when nimble operators put their 2013 models on display);
-house buyers or even owners (never mind what happens in 2012 when house prices will certainly be lower than today).
We are going from an economy in which many consumers will switch from buying a car with borrowed money every 4 years to an economy in which consumers will buy a new car every 6 years with saved money. The switch from one state to the other implies a draught of considerable length. Wakey, wakey, this is the coin that needs to drop!
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Say that in 1997 a property is worth £100,000.
Ten years later, in 2007, the same property has inflated in value by 180% so, now it is 'worth' £280,000.
Average house price inflation from 1945 until around 1996 averaged 3.2% pa.
So, our nominal property, purchased in 1997 for £100,000 should now be worth around £132,000 or so, if house price inflation had been kept under control.
Therefore, as the housing futures market is currently predicting a fall of 50% in house prices, then this reverts us nicely to the mean i.e. our 2007 price of £280,000 returns to a much more realistic £140,000.
(I have ignored last years 15% fall for the purposes of this blog post).
Alls well that ends well, except that the 'unwinding' journey is proving to be rather bumpy.
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150
Remove accident and emergency and rearrange the result and you have GB
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I detect an increasing level of desperation in the behaviour of this government. People are quickly losing what little confidence there is that they will be able to turn this catastrophe around.
The biggest problem is the lack of openness by for example admitting their mistakes. The problem for politicians of all hues of course is that they only have one motive - survival. They don't care who or what gets damaged along the way.
I feel now that we need to find urgently some people with big enough brains to find a sustainable long-term way out of this on a global scale. It is obvious that they don't exist in the Treasury or in the banks.
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THE TURNING POINT.
....will come when Russia throws away it's Free market economy and the state takes control of all the assets again.
They will be the first and it will start a snowball that nobody can stop.
Since the fall of Communism in Russia the majority of people have seen a decline in their standard of living and eductation.
Only a few Oligarths have become much better off (as highlighted by Moscow being the most expensive city in Europe)
The Ruskie's will be the first to break - and like 1917 they will expect the rest of the world to follow.
This time the rest of the world will follow for 2 reasons.
a) 1 in 10 will be unemployed by 2010
b) The Russians have all the GAS
Welcome to the future comrades
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If you lot stopped your sub-standard political sketching and tin-pot, dressing gown economic theorising, and do some work instead of borrowing your money, we may not be in this situation in the first place.
Just a thought.
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In this democratic society, am I allowed to opt out of my tax money being used to insure this bad debt, that I had nothing to do with? The government has made decisions, but I did not vote for this prime minister and I would like to opportunity to be able to voice whether I agree with his governments decisions or not.
Because of this "credit crunch" as the government insists on calling it (it is a recession!) Many people are getting 0% pay increases (or less) and many sadly no longer get a salary - but the local authorities see fit to increase the council tax, which is the 2nd largest monthly payment many of us have to make.
Call for an election Mr Brown, let the public have the ability to make a democratic decision.
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SO WE CONTINUE ON THE HELTER
SKELTER OF FISCAL PRUDENCE
WITH LUNATICS AT THE CONTROLS.
THE LAUGHING STOCK OF THE WORLD
BANKRUPT SHAMED AND DEFUNCT.
CHEERS GORDY SEE YOU ON THE PIER
I WILL BE BEHIND TO GIVE THAT LAST
BIG PUSH.
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Right, lets get down to the nitty gritty.
All this is done for one reason ...huge levels of unemployment make the existing government un-electable when it comes to the next vote. They are more in tune with taking action to save their own position, not being in power makes them worthless.
I'm also pleased someone earlier challenged Vince Cable too despite all his sabre rattling headlines, his knowledge of even the simple money cycle from previous comments about how spending lubricates the economy shows a total lack of understanding of a real working economy.
Why just ask, are the Government turning the heat on bankers as easy targets for our ills...well it's just to deflect away from their failed policies of the last ten years or so, when spend spend spend, borrow , borrow ,borrow was their mantra and a blind eye to their role of responsibility in regulation.
They blame banks for excessive and poor lending and are now demanding the banks to lend more, all to fuel a level of economic activity only their previous level of spending and borrowing would support and is unsustainable in the real world.
Man in street 1
I'm off down the bank ...they are giving money away at 0% interest - I got to get some .
Man in street 2
Wish I could join you...0% may be cheap but I've just gone on to short time, redundancy is threatened and if I'm thinking sensibly I wouldn't even be able to repay the capital once out of a job. No way should I be borrowing, my bank has been telling me for years not to borrow beyond my capabilities.
Man in bank to man I
How much do you want, just tell me ,unless I get to my lending target today set by the government Gordon Brown will come in and take us over - just have as much as you need - After all, Gordon's guaranteeing everything I do.
Sadly in this present economic situation, there will be winners and losers, but things must be allowed to find their natural level and solid ground before the economy can be rebuilt once again. Who was it said "bankruptcy is just a redistribution of wealth?" good for some bad for others agreed.
For every action there is an opposite reaction and the government have overlooked this simple canon. In everything they have done in terms of interest rates and now are thinking of doing more to balance the other side of the equation for savers ....well um...didn't they see that one coming from the savers of this world?
Business is now in the best position ever for growth, cheap finance, help everywhere they look and if they can't get their own business plans in place to support this golden time, then they never will and we will be deeply in recession well beyond the time of the next election.
Gordon do bring in legislation quickly to ensure businesses to do more business, take on more employees, pay them more, get them to borrow more and more and more and perhaps you'll be regarded as a saviour.... sadly for you the won't happen in the lifetime of this parliament.
OK perhaps this is all a bit tongue in cheek
but a bit closer to the truth than some of the headlines we read from the so called "informed" headline writers
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Mr. Peston
Interesting hearing you on the news last night again blaming the bankers for their stupidity in making all those poor loan decisions- hm-don't remember you criticising the banks when things were really appearing to be' going so well.'
Hindsight reviews are worthwhile providing the knowledge gained is put to good purpose. However, what we need is a way of plotting ourselves forward and these 'lifelines' announced today have a hollow clanging sound to them as the stable door is bolted.
As an example of how central policy and intervention has consistently failed to protect the economy, I note massive slumps in the share prices of our major banks today. Anything to do with the fact that the FSA last week withdrew the prohibition on 'short selling'- thereby enabling a free for all' to develop in bank shares? Would you care to comment or at least bring this to Gordon's attention -after all you do seem to be very close to them.
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As I write, RBS shares have dipped to 14p. Bradford and Bingley was nationalised at 20p. I sold at 19.9p just 2 hours ago.
RBS will therefore have to be nationalised as soon as possible.
Robert, you should be calling for the SFO to call upon RBS executives as a result of what is happening. Clearly they must have been economical with the truth about the "£10bn profit" declared last Spring, and as for the prospectus for the 1£2Bn rights issue, surely that contains serious financial misdirection in light of today's losses.
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Barclays must be bricking it, they rang me today out of the blue, first time ever that I can remember, under the disguise of "we want to make your money work for you" and then tried to sell me mortgage protection!! They must be very desperate. I declined their offer as I could remember at the time I took out my mortgage there were so many exceptions to them paying out it was not worth the cost.
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101. JayPee28bpr
Yes, RP is having a laugh. Though maybe it's actually a suggestion suitable to a Shakespearian tragedy of the "Brutus is an honourable man" sort, I reckon.
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re #4 / #83 - the profits may have gone out in dividends but they have not gone out in bonuses - bonuses would be shown as part of the accounts - ie the profits are stated after bonuses but before dividends.
A lot of dividends will have been paid into UK pension funds so we've all benefitted a bit from the last few years - but for the general masses this has been completely wiped out and more in the last twelve months - the comforting thing for the general masses is a lot of the banks' bigwigs will also have owned/had options over a large number of shares in their own banks - they will have lost millions in value in the last twelve months.
So they've still got their bonuses & divis but their shares are massively devalued.
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I'm always intrigued by the term 'taxpayers money'.
If it's ours can we have some back please!
Let's face the truth, there isn't any. As I said before, all this talk about injecting money is fantasy. This is all just shuffling make believe figures around, it looks good on paper until the government opens it's wallet and finds the moths have been there. We may pay taxes but I'm sure they go no way to really covering what the government actually spends on health, welfare, education, public service pay packets etc. I bet the government itself has racked up debts it cannot really pay and actually pays for services etc from 'on paper' loans from banks and other sources.
Lets face it, the capitalist system we had is well and truly broke.
We cannot continue like we have in the past. We are in very, very scary waters. For too long we have been fed lies by successive governments, authorities, businesses, banks etc.
We (or some of us) have believed that the only thing that mattered was money and profits; both ever increasing. People forget we are part of nature and as such nothing grows forever however much we wish it could.
In a sense the whole of the western capitalist society is to blame for the mess we are in. If people had thought about things a bit more and said, ' Do I really need all this money, this new car, this expensive house etc?' then maybe things would be different who knows. As the saying goes, 'you reap what you sow' and sadly the money crop we planted has withered at the roots.
Good luck and all who sail in her.
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Bond markets bring down governments, wait and see.... How a govt can give a guarantee for an undecided sum ('no limit on scheme'), for an assett that is almost impossible to value (technically) and which has virtually no market value and expect to retain the confidence of the bond markets is (to use a Preston favourite:) 'breathtaking'.
It will unravel.
And where is the personal responsibility from the banks? They should all hang their collective head in shame, except it appears to be empty or at best devoid of any integrity: A word I imagine few bankers can spell.
At some point there has to be a 'day of reckoning' for those responsible. I have included a definition and a link for those bankers who have no idea of the meaning of integrity.
see http://en.wikipedia.org/wiki/Integrity
Integrity may be seen as the quality of having a sense of honesty and truthfulness in regard to the motivations for one's actions.
Or http://www.askoxford.com/concise_oed/integrity?view=uk
integrity
/integriti/
• noun 1 the quality of being honest and morally upright. 2 the state of being whole or unified. 3 soundness of construction.
— ORIGIN Latin integritas, from integer ‘intact, whole’.
A simple apology would be a good place to start for an industry not only morally bankrupt but now (almost)actually bankrupt.
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Aren't we putting the cart before the horse and just carrying on without fixing the problems?
I might be simple but here is how it looks to me :-
1. Banks get in a big mess due to artificial boom and irresponsible lending.
2. Tax payers bail banks out.
3. Government wants to stimulate artificial boom and continue lending!
4. Go to 1.
Shouldn't we suffer some hard times get some better rules in place and rebuild?
Am I just stupid? Naive?
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BinLaden and his GANG must be laughing all the way back to the
CAVE.
WAR ON TERROR??
WHEN ALL ALONG THE TERROR WAS
THE BANKERS.
A TRUE TROJAN HORSE.
SEEMS THE F.S.INDUSTRY WERE THE
TERRORISTS AIDED AND ASSISTED BY
GUESS WHO ? ? ? ? ? ? ? !!!
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So here is the new easy guide to making a million.
Set up Company A, B and possibly C.
Company A sells grossly overpriced asset to company B (preferably something like software / IPR which is difficult to value).
Company B borrows money from Bank which doesn't care too much about the detail since their risk is covered by the taxpayer. Bank gets fees etc.
Company B defaults on loan, Bank gets money from taxpayer.
If the asset has any real value do deal with administrator and sell it to Company C.
Repeat as required.
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With RBS share price at 12 p and still dropping when will they suspend trading on the stock market on this bank.
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Let's face it. This is going to get much much worse. There will be a respite, and people will think we are coming out of this. But then the real reality of what's going on will hit.
I remember e-mailing Tony Blair in 2005 saying that children knew better about the Iraqi invasion. I also mentioned the woes to come with the economy. He told me to join the army!
So what's the problem, the REAL problem. Self preservation dictates we do whatever is in our own interests. This just promotes greed, selfishness etc. We need a cultural change. Almost by default: and this permeates through business, government in fact all organisations.......we are encouraged to serve self interest before we serve the common good. A politician just wants power, a businessman wants a big bonus etc. Sometimes following the idea of selfish individualism for the greater good...and doing the right thing, is not the right thing to do.
My own experience in this matter. People will use any excuse to help themselves at the expense of others. Excuses however in this case does not lend itself to reason!
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Dear Robert
I am flumuxed by the Government's new 'rescue plan' to kick start the economy!!
Is it not going to recreate the same economic pattern that we are currently going through, its like pooring good money after bad and doesn't create a solution to a sustainable economy, which is surely what we are striving to achieve?
If we are to create a robust, sustainable economic structure where the wellfare and wellbeing of the nation is the primary goal then I think we start to look at basics.
The first basic is that the current fortune of the strongest economies in the World has been derived from Industrial bases, the very fact that India and China have prospered in recent years is testament to this. We had the Industrial revolution in the Uk which created the base for us to prosper and create social wellfare and wellbeing. We are now operating within an immature market whereby we don't recycle money back into the structure, we or a few are hell bent on taking as much out as possible leaving crumbs for the mass's. The banks and Government should START SUPPORTING BRITISH INDUSTRY and encouraging growth within our own ranks, put sanctions on Imports from countries which don't abide by our working practices and Human rights for a start.
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This comment was removed because the moderators found it broke the House Rules.
If RBS market Cap is now approx £7bn, how much did we as taxpayers pump into RBS last Autumn? Unless nationalised this looks like a bottomless pit. Will RBS still be sponsoring the Williams Formula 1 racing team at great expense to all of us taxpayers?
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74. TTWORKINGMUM wrote:
"Why doesn't the government give us taxpayers ?100,000 each with the provision that we pay off any existing debts before spending it".
Neat idea. I particularly like the idea that those with debts would have to pay them off first, whereas prudent, debt-free people could spend the whole lot. Your idea differs from government policy in that it does not penalise the prudent in order to help the imprudent.
The trouble with this, though, would be inflation. It would destroy existing savings and destroy any overseas investor confidence in sterling. Granted, we are going to have inflation anyway, but I think the govt wants to be a bit more subtle about it.
But there is another version of this idea which I would like to float here:
In my approach, houses are revalued; mortgages are reduced pro-rata to the decline in each person's house value; and the govt gives the banks the difference.
It rewards past profligacy, admittedly, but that is going to happen anyway. But it would be less inflationary than giving everyone 100k; it would restore consumer confidence; and it would prevent a further tidal-wave of repos.
It involves handing the banks a lot of cash, but we are doing that anyway; at least by the revaluation route, that cash goes straight to the person in the street, with none left in the hands of the banks.
Worth considering, I think?
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This is probably very naiive but don't we live in a parliamentary democracy?
Can Crash just promise all these funds without a debate and vote in parliament?
Sorry but this has been troubling me.
Surely it time for a vote of confidence in Zanulabour in parliament because if Crash is allowed to get away with this for another 15 months then not only us but our children and probably their children will all be ruined over one mans vanity.
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Help. As a pensioner holding Barlays shares, can somebody please take out a private action case against FSA for allowing shorting of banks to start again. Any class action lawyers out there?
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You keep hinting at the effects on the economy were the banks to collapse but never spell out what would actually happen. The banks would stop lending?...how is that different to things now. Nowhere for savers to invest?...ditto. A collapse in the currency?... and the effect of today's fall in bonds is??
In fact, the collapse of the banks would result, as in any (relatively) free market system, with a new and better (could it be any worse!) mechanism for moving money. Indeed, with the inevitable "quantitative easing", it is not the existence of liquidity which is an issue, merely its availability. OK then, put in place different structures that get funds to those who need them.
If the banks cannot see that their reluctance to lend sows the seeds of the economy's demise and hence their own really is a case of the in-mates running the asylum.
IT'S NOT THE BANK'S ASSETS THAT ARE TOXIC - ITS THE BANKS THEMSELVES.
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198. At 1:37pm on 19 Jan 2009, I_Despise_Labour wrote:
Has anyone done the calculations on how much of our money Crash has lost buying up bank shares in a plummeting market? Would be fascinated to know the true cost of his financial genius*
The answer is nothing yet, not 1 penny.
A loss only occurs when the shares are sold at less than was paid. Until then it is just a notional paper loss.
As there is no prospect of these shares being sold for the forseeable future there is no loss.
All there is is a difference in the money paid and the current notional value which is a very big number and makes good headlines.
The most it is costing is the interest on the nominal debt required to buy the shares in the first place which is a small number and not so good for headlines.
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#123
There is a shortage of money in the economy in that.
1) £50 billion went abroad last year
2) Inflation has been much higher than officially declared so that people's margins have been eroded so they don't have spare cash. - This reduces spending.
3) People are repaying loans - there was a £28 billion reduction in money in the economy last quarter due to the fact that debt repayment was £14 billion compared to an increase in debt of £14 billion in 2007.
4) Banks aren't lending as they deleverage their FRB ratios down to something simple - as they call in their business loans - and remember that personal loans are in reality small fry - businesses are failing.
5) Every loan repaid to a bank decreases the money supply.
6) Companies with large debt are in real trouble
7) RBS has declared losses of £28 billion at an FRB of, say 10:1 this reduces their lending ability by £280 billion.
An increase in the funding/ capitalisation of the banks may increase their ability to lend in the short term HOWEVER when the loans are paid off the banks take MORE out of the economy than they lent (interest you know). The only way for the money supply to recover is (you've guessed it) for the banks to lend it out again - a self perpetuating unstable system governed by positive feedback.
If we are LUCKY this may just be a severe warning.
To show you how bad it is "Put another way, private households and businesses in Britain now owe the banks 39% more in debt than actually exists in cash, bank savings and near-cash equivalents added together (August data).
So there is no way that the UK can actually pay back the loans made by the banks. - a simple way of saying that the UK is bankrupt. The only way out would be for the Government to print the 39% extra in banknotes.
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In case I missed it. Are the people responsible for the sad collapse of our financial world being sacked?
As a pensioner cheated out of life's savings and sacrafices made in order to save for old ageit is sad enough but what about all the poor young people facing loss of homes and jobs?
These responsible must be put to the sword surley.
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Of course the big banks are all insolvent. They have so much debt they dare not disclose it that is why they cannot lend any money. They need all the money they can get to attempt to balance there books. Their assets have dropped 90% in value. They will do this for as long as they can. If a bank cannot lend money there has to be a very serious problem.
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Dear Robert
Please read #113, who correctly says there is currently "no demand" for anything loans/expensive goods etc. Or if there is, very little, we are all cutting back not spending more.
Also #116 has just my attitude.
Finally why are we bothered with Banks anyway, I'm thinking about taking all my business to a nice safe building society !!!!!!!!!
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Can someone please explain to me why the following has not happened?
Let the insolvent banks go bust.
Pursue the 'financiers' who have carried out crooked deals.
Let other financial institutions buy up their mortgages & debts in an auction.
Let house prices drift down to sustainable levels.
It seems to me that there will be no end of supplicants for government cash as the government seems to want keep giving it away.
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242. weejonnie:
"So there is no way that the UK can actually pay back the loans made by the banks. - a simple way of saying that the UK is bankrupt. The only way out would be for the Government to print the 39% extra in banknotes".
Agree entirely; so how do we sell GBP 150bn of gilts this year?
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We are in a recession in the UK and the worst thing that can happen is government inaction because there is no automatic recovery to pull us out. Brown and Darling do recognise this and despite popular opinion being increasingly against those two, their choices are probably the most realistic course of action to allow normal service to resume.
However - why don't we be brave and try to use these events, unprecedented in a generation, to reshape our country's economy for the better? In 1935 JM Keynes (with tongue firmly in cheek) suggested that the US government take USD20m, stuff it in a variety of bottles, and bury it across the country of disused coal mines, before filling in the shafts above, and leaving it alone. "Private enterprise" would immediately getting some shovels and dig it out. In a stroke, the government has solved unemployment and real incomes will increase for all as they dig to find the cash, and businesses grow around those doing the digging.
Here in 2009:
a) Everybody needs cars
b) Everybody would like them to be greener
c) Lots of people work, at least until recently, in car manufacturing plants in the UK in the last 50 years
d) The UK has some excellent car designers and engineers
e) The transportation systems of Britain require updating on all fronts (rail, bus, airports, roads)
f) 99% of the cars we make here, let alone the ones we drive, aren't actually British
Therefore I propose we invest all the taxpayers money into projects to design and build British cars which do 100 miles to the gallon, are reliable, are speedy, please Jeremy Clarkson etc etc.
I think you will find plenty of people in the West Midlands (and the rest of the country!!!) looking for a new job. The car industry is hugely complicated and will support thousands of spin off jobs i.e. sales, financing, repairs.
People would know that buying British would support the economy - and you never know, we might just make one that's not too bad which we can export and make a bit of money out of. Worst case scenario - all the cars are useless and we just scrap them. Well, how was my plan different to handing out GBPbillions of pounds in benefits to a lot of unemployed people? At least we had a go at doing something and it kept us busy.
On another note, would it not encourage thousands to go into engineering at college, or to learn dying subjects like maths and sciences?
P.S. Re-reading this I am aware that it sounds extremely "socialist" - but I would describe myself as a lefty. I think I am just advocating an idea for the times, namely to solve unemployment in 2009. Wouldn't it be great if 3 years on, a load of spin-offs broke away from the big government backed car-giants, and outperformed them, thus putting entrepreneurs back on top!
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242. At 2:50pm on 19 Jan 2009, weejonnie wrote
" .... private households and businesses in Britain now owe the banks 39% more in debt than actually exists in cash, bank savings and near-cash equivalents added together (August data).
So there is no way that the UK can actually pay back the loans made by the banks. - a simple way of saying that the UK is bankrupt. The only way out would be for the Government to print the 39% extra in banknotes."
This comment requires scrutinity - Just because the debt exceeds the cash by 39% surely does not mean the UK cannot pay back the loans.
Real wealth has in the past been created and will likely be created in the future to help pay off the debt.
As far as most of the Directors/accountants of most of the banks -
All of the accounts and trading statements produced by most of the banks over the years are turning out to be pure fiction to allow the bonuses to be paid.
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245. At 2:56pm on 19 Jan 2009, goforit99 wrote:
"Finally why are we bothered with Banks anyway, I'm thinking about taking all my business to a nice safe building society !!!!!!!!!"
Are any of the financial firms SAFE ??
Look closely and you will find GB and AD have screwed even the most prudent of Building Societies by getting them to help to pay for the losses of Bradford and Bingley.
So the careful individuals and the careful Firms which have not over borrowed excess monies, if any, and have put money aside for a rainy day are being screwed by a Labour Government to support the banks - you wouldn't have dreamt such a scenario a few years ago before NuLab came along !!!
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The banks got us it to this mess. It is about time we ditched the banks. All the rescue money going to the banks should be redirected to British business's.
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239 neo
If you think Barclays shares a so underpriced why dont you buy some more. If you are right they have to go up.
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You say "the withdrawal of credit from the UK and global economies is what's precipitated these dreadful economic conditions". I'm not so sure.
Think back: the withdrawal of credit was caused by banks going bust. This was caused by banks stoking a credit explosion funded by securitised debt and then themselves holding the bulk of the sub-prime securitised mortgages from the US. That going bad was triggered by US interest rates rising in response to sudden increases in inflation linked to a bubble in commodity prices. There is the smoking gun!
All of this was caused by 16 years of stable growth fuelled by a shift in manufacturing production globally to the Far East, especially China, and by the growth of domestic demand in those countries as they became more prosperous finally manifesting in extra demand for raw materials.
All of which begs the question: while we think WE are suffering - what is happening in China? If Chinese export manufacturers, which were largely funded by Western investment and operate on very small margins, start to go bust - then what will happen? Economically and politically I think China is the place to watch and the banks are a sideshow.
This may not be 1929 again, but is the operative word "yet" and are we looking at the right continent?
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I think I have the idea, I as a tax payer give the banks money at 0%, so they can lend it back to me at 10%. Sorry that will be a No.
I wish I was a Bank, I could then play lotto, and if I don't win, I can ask for my money back!
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#98
....and that's a bad thing because....?
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Too many chiefs not enough indians
I also find it crazy that Northern Rock still sponser a football team, so I in effect pay footballers wages, lord help us
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#116
The answer my friend is because "they are all friends of the Government"
If you're a small business and you go bust it's written up a 'free market efficiency in action".
- i.e. you were weak, uncompetitive and deserved to go.
However if you're a bank you 'cannot be allowed to fail'
REALLY? - says who?
Oh that would be the same people who thought up this system in the first place.
So we have a game of differing rules - even within the banking industry. If you're big, you'll get a bailout, if you're not then you won't.
The result will be the only survivors are the massive banks - all small lenders will go out of business.
...and then we get the worlwide monopoly on the single universal commodity (money).
So what sort of Economic system are we running here?
It's not nationally controlled - and yet it's not a free market.
Anyone who has played Monopoly and decided to fiddle with the rules half way through will know where this will end.
As we keep going back to the bank and borrowing money to fund our hotels on Mayfair the value of money decreases rapidly.
Go home tonight and play the game with your family with 'Government rules' and then come back tomorrow and tell me how it went - because I think you will be very concerned.....
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We have a substancial amount of cash with
the Allied Irish bank. This is in a company account we have reduced the fixed term from 3 months to 1 month.
At what point should you advise us to consider withdrawing our money, as the share prices has dropped dramatically today.If they suspended shares,does that mean the Bank would close and would we have to wait for the Irish goverment to pay us.Or would the bank still be able to keep the doors open for trading, to enable us to withdraw our money.
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Antonio59 @ 249 is unfortunately correct.
Responsible Building Society bosses must be very angry that they are having to put their members funds into the Governments financial compensation scheme, which is heavily in deficit due to some banks appalling behaviour.
It is completely wrong that that businesses that are responsibly run are having to bail out the feckless.
A similar situation is also occuring with the lifeboat pension fund, in that well run profitable companies are being forced to put money into this fund to bail out the pension schemes of companies with pension deficits/gone bust.
Again and gaain, Andy 'the Bulgar' Grove ex-Intel CEO, has been proved correct - only the paraniod survive.
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Robert i will quote your opening sentence so you dont have to scroll all the way up!
"Our big banks aren't bust. They were recapitalised in the autumn - with £50bn of cash from taxpayers and external investors - and they remain solvent...."
ok solvent means having more assets than liabilities and bust means having more liabilities than assets.....
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to continue from #260
lets just take one bank RBS that the UK taxpayer now owns over 70% of.......they have more liabilities than assets, so they are bust. The RBS balance sheet (including off balance sheet items!) is bigger than the UK GDP, so god help the UK economy when it tries to "insure" that lot....even the IMF would not have enough money to bail us out!
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This is a copy of a post made on the previous thread. It is a summary of comment made by a major fund in the US.
Summer 2008 -
''The International Monetary Fund has estimated bank losses of roughly $400bn (now out of date, 2009). A number of hedge funds believe the alleged losses may overstate the likely level of defaults. They are buying the spurned securities for as little as eight cents on the dollar.
If projected losses are anywhere near correct, governments alone have the wherewithal to rescue the system. This would mean the de facto nationalisation of the banking systems in the US, Britain and Europe.''
Brown is trying to take on the world and the markets like Lamont. The principle objective has to be to put a floor under the housing market but he has probably gone too soon. Nobody will rush for a house which is forecast to fall. The likelyhood is that high LTV mortgages cannot result from this when banks expect housing to fall.FTB will sit in rented waiting for a bottom to the market to be in sight.
It would be good to see something work but.
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#118
"No matter the availability of credit, we are not going to buy a new car this year, we are not going on a holiday this year, we are not going to eat out at all this year or go to the pub, nor put in the new kitchen; we are going to reduce our debt on cards and loans as fast as possible, make and mend on everything else."
...what and you haven't been living your life like this anyway????
This statement is the Epitomy of this bubble, to many people think holidays, new cars and home improvements are a god-given right.
Aristotle said true happiness is achieved by those who live the mean (median) life. Simply surrounding yourself with luxuries does not make a man happy.
A lot of people have been trying to achieve happiness with new cars and bigger houses.
My household brings in over £100k per year - and we still live in a flat, I haven't been on holiday for 3 years and I still own the same car I bought 9 years ago and for the last 5 years I have been riding my bike to work (9 miles each way)
It's called moderation and it's been in short supply for over 10 years now.
However it's about to make a big comeback!
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#184
Just hacked off that in the panic they're chucking our money down the pan to bail out RBS and their mistakes - dont quite buy the ' its all for the economy ' stuff.
#185
Shares suspended / game over / nationalisation presumably, cos the sovereign wrap is on - which is where this is probably going
Cheers
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the best way. is divide the large sum of money figure say £300 bn divide it between everyone who currently pays tax. They then have to use it to do one of the following:-
Spend in the shops.
Savings, or pay towards mortgage
Invest
Either way its our money, and this way we get the benefits, and it helps grease the credit wheels.
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#230 - Curzon you're right mate.
If there was ever an effective campaign for the fundamentalist fight then the bankers just gave it them on a plate.
Islam itself opposes the fundamentally flawed fractional reserve lending - it also does not allow usuary.
Oh how Bin Laden must be laughing his head off - his only regret is that if he had just sat around and waited (and gone short) then he could have destroyed all we infidels without firing a shot.
The irony is that we spent money and sent people to be killed to protect something which was being destroyed by the excessive greed.
Maybe if Tony Blair hadn't have had his head so far up Bush's @rse then he might have seen this coming. Unfortunately he was too busy warmongering with his thick buddy.
How does that man sleep at night (with his £500k JPM salary)?
Still - lets add him to the list......first against the wall in July.
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Truly a piece from an earlier age, when reporters with received pronunciation speaking over grainy newsreel footage said what the government needed to be said, heard and believed. But it does have one redeeming feature.
Cast your minds back a few days.
First Septic Bank (revisited)
Robert Peston
16 Jan 09, 10:40 AM
"...the Royal Septic Bank of Great Britain may yet fail to be born. Because there are huge difficulties in valuing the assets to be placed in them and in defining the assets that may be placed in them. If you put too high a price on the stinky assets, taxpayers end up massively out of pocket. If you undervalue the assets, banks are mullered. It's a nightmare."
But is it?
Rescuing the economy, not banks
Robert Peston
19 Jan 09, 09:33 AM
"That's why the Bank of England will swap corporate loans and other forms of credit for Treasury bills, which can easily be turned into cash (by the way, this new facility is a part of the preparations for quantitative easing, for printing money when Bank Rate is nearer to zero)."
Indeed this is possible, as having a central bank overpay for assets is one of a number of ways of conducting QE or "printing money".
Here is the problem. The blog post of the 16th says an overpricing error would be one of two possible incidental results of an unfortunate dilemma. The blog post of the 19th hints this would be deliberate policy. So which is it? I think we can guess.
As ever, thank you Robert for the insights you provide, intentionally or not. It looks like "taxpayers end up massively out of pocket".
On to the debunking of the rest.
Losses are an ongoing process, so the recapitalisation of last autumn is of no more significance than any other one-off cash injection. It will last until it runs out, then Round 2, whenever that may be. With loans made to overseas businesses, some probably with heavy commodities or outsourced services exposure, anyone's guess is as good as anyone else's.
That the FSA offers messages of reassurance is to be expected, so is nothing special either.
The impression that more rescue capital may be injected as the need arises is common sense. We were being told so only a few weeks ago.
The conversion of the government's preference shares to equity at the bottom of the capital structure turns the taxpayer loans of last autumn into a gift.
The survival plan for the British economy is just a rebranding of bitter medicine, and although New Labour excels in this department, it cannot mask the taste. The taxpayer will bear the losses.
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For the past many years we have had 'Social democracy'. Under this system, to gain power politicians make promises to the electorate to protect the electorate from the vagaries of life and the electorates own mistakes.
These promises are paid for by the electorate through extra taxes or borrowing.
Eventualy a limit is reached and politicians cannot protect the electorate, even if they claim they can.
So in due course the system must collapse.
Perhaps we have reached that stage. If so, we are at a time equivalent to the collapse of the Soviet Union.
The Soviet system purported to do much the same as our system. It failed. Our system appears to be going the same way.
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Why the government is wasting billions in bailing out the banks. We probably won't see any returns for this huge sum. Instead of giving it to the banks, would it be much more sensible to give it to the people, help them to decrease their borrowings, in this way, with less debts, people bound to feel more positive about themselves and the economy. This would give more goods than wasting tax payer's cash in the banks.
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259. At 4:42pm on 19 Jan 2009, JohnConstable wrote:
"A similar situation is also occuring with the lifeboat pension fund, in that well run profitable companies are being forced to put money into this fund to bail out the pension schemes of companies with pension deficits/gone bust."
This Nulabour Government and it's monstrous creations such as the FSA, the Financial Services Compensation Scheme (FSCS), and the 'Pension lifeboat scheme' were all created to be 'self financing' paid for solely by the remaining 'members'. These are quangos set up to supposedly protect/benefit everyone but GB gets the members to pay for it without any tax payers funds.
What happens if there are not enough companies to pay the compensations and how will those remaining companies pay for the over inflated salaries that the quangos pay out to their staff ?
The whole system is rotten to the core - Here is an example - the Chief of the Financial Services Compensation Scheme paid her self last year - £237,000 salary package per annum – a 32% rise since the previous year - more than the Prime Minister !! Can anyone explain how a person who oversees the administration of a local council or a person who oversees the payment of compensation can be paid more than the Prime Minister ??!! How many life or death decisions do these people have to make ??!!
PS. as for the person who mentioned Monopoly - maybe it needs updating to a 'Super Monopoly' which includes all of the wierd and wonderful gambling schemes these banks and financial firms have been using - it's all just smoke and mirrors.
Angry does not begin to describe how I feel how the whole system is going to drag us all under - overseen by a NuLabour Government totally corrupt in thought and action.
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you think Robert and the BBC are the governments mouthpiece.....think again i just heard this on SKY News...
"The government has saved the banking industry and is now using the banking industry to save the economy"..... for once i am speechless!
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268. At 5:44pm on 19 Jan 2009, jrharmer wrote:
"For the past many years we have had 'Social democracy'. Under this system, to gain power politicians make promises to the electorate to protect the electorate from the vagaries of life and the electorates own mistakes."
Exactly GB - the 'saviour of the world' believes his own hype - I am just waiitng to see him on the beach stopping the tide coming in because he is the only one who can protect us from ourselves !!!
Nulabour - 12 years of lies and spin but always just a wolf in sheeps clothing !
Every time someone mentions GB - the 'saviour' of the world no less !! -- all I can think of is him in his superman outfit running alongside Delboy and Rodney as Batman and Robin !!!!
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It is easy to look back but now, surely, HBOS should have been put into liquidation and RBS into Administration at least.
Meanwhile, the BoE is now following the Fed, at a few months delay - what price GBs leadership now?
Exchanging gilts for commercial debt is quantitative easing in all but name and paying out on the toxic 'insurance' will surely be quantitative easing in actuality - the Govt can't possibly borrow this amount - it is already crowding out commercial bonds.
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Robert
There are Capital Adequacy Rules to be met...
Write-off's at these levels provide a self imposed limit on the availability of future Credit to Joe & UK PLC. For every £1 deposited £10 are 'on-lent'... So, when £1 appears as a bad debt £10 less is available for Bank Lending...
When the sum is £1Bn, there is £10Bn less available for lending...
And when it's £25Bn (!) then the figure (broadly) is £250Bn...
I heard that £4 in every £5 lent by RBSG is lent overseas... If this is the case, then for every £1 Bad debt incurred overseas then we must see £10 reduction in domestic lending...
In the case of Russian oligarcs say there is a loss of £5Bn, then for this alone reduces available Credit to the extent of £50Bn!!! (It was unclear from the Press briefing that these were accounted for...)
If what I appear to be saying is correct, then RBSG will not be taking a lead in the creation of new Credit for some considerable time...
Incidently, on Radio 4 this morning the RBSG CEO (I think) said something along the lines that it was time that the Bank 'fessed up'... I nearly choked on my porridge... A 'fess' according to my Collins 100,000 Reference Dictionary, is 'a horizontal band across the middle of an escutcheon... '
Now, no doubt RH was using 'Modern NuLabur English' and meant something totally different, but given that the share price took a dive quicker than Didier Drogba after his comments, perhaps he really was aware...
Certainly a 'red line' was marked through the Royal shares by close...
I'm not so sure his staff, and Shareholders will be comforted by his choice of language!!!
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Robert...I can't help thinking..
Could the Goverment not of done the following a good few months back before the banking bailouts took place
1. Take 2% of the Bank of England base rate for 12 months and stipulate to the banks that they must pass on 1.25% onto it's mortgage customers .
2. With the above NOT reduce saving rates for 14 months by more than 0.75% to encourage savers to stay within the system.
3.Reduce the fuel price escalator by 10p for 12 months , to help all business reduce their fuel bills.
4. Scrap the reduction in VAT in favour of the above ....
All the solutions cost money but would they cost more than what has been spent already.
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JOKE:
Man walks into a bank,
He gives the bank all his money.
The Banker gives him a reciept.
Balance reads £0
Man says;
"What have you done with my money?"
Banker says;
"None of your business"
Man leaves.
The rotten remains have been thrown into the public pit of global plc and we are all being left to see who survives.
No time for sheep...
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Its all very well to keep going on about the "reckless lending by banks" and how the taxpayer has to foot the bill. Can we expect to see a more balanced view in the article.
Banks have to be bailed out because taxpayers like you and others have not repaid them. Not all of the losses are in the institutional space.
So at best you could describe it as one taxpayer paying for the other's recklessness or perhaps blame it on the economy.
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As other commentators have noted, quantitative easing involves exchanging government bonds for toxic assets held by banks. Presumably these toxic assets are effectively worthless. So QE is a mechanism of printing money with no added value. Isn't this what Amin did in the 70's or the Weimar republic did in the early 30's, i.e. we risk hyperinflation?
Hyperinflation would wipe out debts held in sterling so future generations would benefit. But it would have a disastrous effect on the savings / pensions etc of the current generation. Chris Martenson's Crash Course predicts dollar hyperinflation within 4 years, and where the US leads, the UK follows. Can Robert Peston comment on the claims made in the Crash Course?
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74 TT
Not random, just balancing the equation of supply and demand, all this money into the supply side, we need some money on the demand side, obviously mother knows best......
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#277 kkartik:
How many of those delinquent taxpayers are UK taxpayers? Our high street mortgage lenders have been playing with the big boys in emerging markets and are losing. What do we do about that? Do we have humble pie to eat over ABN Amro? Letting foreign tycoons play on margin? In a globalised world, there is no one class of borrower to burden with the blame.
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We should ask "why is the economy in this mess" and understand the answers. One problem may be that the vast majority of "experts" and "commentators" taking decisions or reporting on the decisions are not really affected at all by the crisis and therefore do not fully comprehend just how serious the matter is to the majority of the public. After all, a city "expert" with even a £60k+ salary is not going to be affected when the Banks reduce their interest rate to savers or even to borrowers. Another cause of the problem is that nowadays top posts tend to get filled with very intelligent degree level people who have very little experience of business life. In the old days before a Bank Manager was appointed he had been a teller, a chief teller, a chief cashier and an Assistant Manager. Degrees demonstrate a persons potential to learn and develop, but they should not replace hard earned experince that is gained "on the job"
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#278:
I doubt Robert Peston will comment on someone else's work, but he could clarify the discrepancy in his own comments of 16 and 19 January on the direction of error in asset valuations by the government / Bank of England under future liquidity schemes. On Friday he said accurate pricing of assets for a "Bad Bank" would be difficult as there would be an error to the upside or downside, with negative consequences for taxpayers or banks as the case may be. Fair enough - such is the risk that comes with genuine uncertainty. Today he suggests there will be deliberate overvaluation of securities exchanged for treasuries in order to increase the monetary base, which his earlier comments would imply would place the burden squarely on taxpayers. Telegraph readers already know the answer, but will Robert leave that comment hanging in its brackets?
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277 kkartic comment;
"Banks have to be bailed out because taxpayers like you and others have not repaid them. Not all of the losses are in the institutional space.
So at best you could describe it as one taxpayer paying for the other's recklessness or perhaps blame it on the economy".
====
...sorry, are you a banker then?
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I am a tax payer with a mortgage - like many other people in this country. May I suggest that instead of lending our money to the banks so that they can make ridiculous investments and lose it all and then have the government write it off, why not give some money back to the tax payers?
I personally would use the money to pay off some of my mortgage (so the money would go back to the bank) and then I would have much more money to spend on the high street (contributing again to the economy!).
To me this is common sense - and I'm sure that a lot of people would agree. Sometimes the simple ideas just work...
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Look out everyone, Alistair Darling is online...
see 277.
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I thought the X-billions (and rising) that was initially lent to the banks was so that they'd stay afloat and... keep lending to people/businesses/each other?
So what was the money lent to them for?
Tell you what. Tell the banks that they've reneged on their side of the deal and ask for the X-billions back!
Let's see how quick they'd suddenly find that "financial conditions had improved significantly enough" for them to start lending again when there's the threat of pulling the rug from under their feet.
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Earlier posts talked of signing off a bank audit? Think ENRON, Remember Arthur Anderson? No auditor will sign off the debts of the banking majors in trouble. The end game is HMG will have to give an open ended undertaking to accept whatever RBS, etc. say and excuse the the audut profession from litigation and suicide. The Accountancy profession should rename itself Dignitas
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probably a stupid question, but why doesn't the government use all this money just to lend to people themselves ie like a National bank, by-pass the banks who have shown themselves to be inept. Also if these inept institutions fail, well use the cash to help the little guy who suffers as a result ??
In addition if the government is so committed to saving the banks why don't they tell the general public the types of regulations and conditions under which these institutions will have to operate, when they release the information of the latest astronomical amount of tax payers' money at stake ??
I do hope any comments help to reduce my blood pressure.
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How are you able to say the banks aren't bust? They are unable to determine their liabilities on CDOs until the bad debts crystalise. Likewise their liabilities on credit default swaps. Consider the amounts paid out on Lehmans swaps alone. I don't believe the banks have the faintest idea of the extent of their liabilities. The directors don't understand the products their wiz kids were trading. Ask John Moulton. Isn't it time we had a State bank so that HMG can call the shots? Barings all over again only 100o times worse.
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Total Injustice-
thanks for the link-I've signed up!
Morebalanceplease-
Please tell me you're joking?! I sincerely hope so-otherwise you must think the entire British employed live and work in London! If so, they're all accountants and post-grads earning £28k plus. AND then, they'd still never be able to afford the mortgage they need to buy in London!
But you were joking, right?!
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the incisiveness of your blog continues.
i have to ask however if there is an elephant in the room.
Bailout after bailout, how many more can we do?
An American empire destroyed by its own complacency, Britain following closely behind, spurred onby a government i truly believe history will see as one of the most inept, and dishonest this country has seen since the country reformed parliament.
FACT: people who shouldn't ever been allowed to borrow money are being bankrupted by the excess of money that has been available....as it is too late to turn the clock back, is it now time for this government to take it's finger out of the dike, accept the inevitable, stop trying to postpone the pain that has to come. It has to happen, and the sooner we face it, the sooner we start to get better.
Mr Brown should have the balls that Mrs T had to make difficult decisions that will bear fruit tomorrow.
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Pound is down to $1.42812
Rbs + Barclays share hit profoundly.
Are we facing another serious meltdown ?
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Are we heading into the perfect economic storm.
A GOVERNMENT ON THE RUN
I do believe the banks, as they always seem to do and aided and abetted by conflicting information from city's self confessed experts, now have the government and BOE on the run. The banks and government are both suspicious of each other mainly because they have different agendas.
It would help if the government forcasts and banks/city forecasts for the economy could be better reconciled. The government's figures seem to be too optimistic whilst the banks/city forecasts are generally too pessimistic.
PAYING OFF A £600bn TRADE DEFICIT
Earlier on in the credit crunch I read somewhere that over the past decade the UK had run up a £600bn trade deficit and much of it funded by overseas money. Now that the illusionary money being created by the banks/city has largely gone up in smoke, I wonder if the overseas money tap will remain turned off until much of this debt has been repaid and the UK is better able to balance its trade figures.
TOO MANY OVER-PRICED ACQUISITIONS
Over the past decade a number of our leading businessmen showed they could be just as reckless as the bankers were when they decided to expand their businesses by going down the acqusition trail and paying grossly over-inflated prices to do so. These companies are now up to their eyeballs in debt and struggling to borrow the money to service those debts. Sadly many small businesses that have not been particularly well managed might struggle to continue as they once did with their borrowings.
FAST TRACK THE CONSTRUCTION INDUSTRY
Many people are suggesting that the quickest way to get the economy moving again would be to start pumping money into the various housing and construction projects that are already planned and awaiting the release of funds from the banks. That sadly presents the banks and government with a number of problems. Throwing money, which is in short supply, at the construction industry would divert money away from the wealth creating exporting industries. Using the housing and construction industries as a quick fix method for employment is one of the reasons why the UK keeps going from boom to bust.
WELCOME TO SEVERAL YEARS OF AUSTERITY
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We people of the real world have been trying to point out that wealth is created my actually producing things; make, mine or farm. We have been ridiculed as being dinosaurs as the country is now post-industrial with all but a few working in service and financial sectors, providing what used to be called invisible earnings.
Now that these earnings are truly invisible can we return to real industry with real people, not greedy parasites? Sorry we can’t because we do not have enough power in the grid to turn the motors.
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The problem is not that banks are failing to lend it's that there are not enough solvent borrowers now. The government should offer to buy properties from householders who would rather not be in debt by owning property. These could then be leased back. This would directly improve the nation's solvency and liquidity - it would free people's purses again - and also rescue house prices.
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#295:
Buy properties with what? If on government debt, then it would not improve the nation's solvency and liquidity. It would shift the same debt from one part of the economy to another (in the accounts, from household series to public). Playing balance transfer games on credit cards only buys time, and not much of it. Borrowers should take responsibility for their personal finances, either repaying or knowing when to call it quits.
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THE CREDIT CRUNCH & STERLING
Government addresses the consequences, not the cause
It would be a great reform in politics if wisdom could be made to spread as easily and rapidly as folly
Sir Winston Churchill.
'We must pick ourselves up and dust ourselves down'
President Barrack Obama's inaugural speech 20 January 2008
Major changes to the UK Financial Institutions are necessary to facilitate the UK’s recovery from the ‘Credit Crunch’.
I see the Sterling exchange rate with the Dollar and the Euro as the international measure of the relative extent of our financial difficulties*,
The Sterling exchange rate has fallen again today
It means that a very substantial volume of imports are rising by about 40% or more in Sterling terms -
Improving the exchange rate is urgent and critically important.
Meanwhile those Financial Institutions have been bailed out at great expense leaving those responsible in post, retaining their undeserved bonuses, taking maximum advantage of interest rate cuts without providing the loans to business so urgently required that should have been the prime condition for the bailout.
I believe that addressing the structure, management processes and appointments of and to, our Financial Institutions would be seen internationally as an important step towards improving our exchange rate.
It has been reported that Board members were also unaware of the risks their dealers were taking in acquiring sub-prime mortgage packages
.
Recent personal experiences with UK financial institutions has shown that they all have Complaints and/or Service departments whose duties require/allow them to divert any letter of a complaining nature addressed to senior management. It also seems that few, if any, Financial Institution Board Member monitors the extent or nature of the substantial number complaints they seem to receive. That is to say that the Board Members are generally unaware of the problems it was their duty to control.
I have an example that shows the Financial Services Authority and the Financial Services Ombudsman have similar structures.
That the Financial Services Authority, HM Treasury and the Bank of England - and the Government failed to regulate the Financial Institutions is also a very serious concern and may well have added to the International assessment of the U.K.'s ability to recover - and thus to the weakness of the exchange rate.
We cannot expect the organisations and senior staff who allowed the current financial disasters to occur, to be capable of recovering the situation.
' I knew from my experience that when it came down to detail, that no senior managers actually wanted to get their hands dirty and Investigate the numbers. They always felt they were above that….. Nicholas Leeson “Rogue Trader”
The current problem is not just a matter of investigating the numbers - far more a case of the Board Members being unaware of the risks their staffs were taking on their behalf.
Then, having been rescued and left in their posts by the large injection of taxpayer’s money it would appear that those Board Members were faced by undeclared Conflicts of Interest. They could have loaned some of the money in the way the Government expected but they chose to use it to improve the share prices. It seems reasonable to expect that Board Members would have shareholdings of their own. If this proves to be correct, it would be a further strong reason why they should be discharged.
The Government has now provided still further Public Finance apparently again without introducing appropriate management controls. I believe it will do little to improve our exchange rate problems and may well be the cause of increasing them.
There is still likelihood that the rating of Sterling will be reduced - to be followed by a further fall against other currencies
There follows suggested actions that I believe will not only lead to rectifying the failures of the present banking system and improve the exchange rate but could transform it to becoming a world leader.
Suggested Actions
Appoint a panel of three leading UK entrepreneurs/business leaders to organise, program, overview and receive the reports of the tasks outlined below with all possible speed for each
Bank that has received financial support from the UK taxpayers.
The tasks to be undertaken by groups of well proven specialist management consultants, accountants, auditors and HR specialists with a possible help of professional bodies and the universities(The Consultants).
Structure review
The scale purpose and value of branches, departments, subsidiaries, regional offices and head office
Overall business plan –
Objectives- obtaining funds, lending policy, risk assessment, delegations, management controls, reporting lines, responsibilities and accountabilities
Staffing
Establish optimum structure
Job descriptions for each level
Reward policies
Implementation
Existing Bank Board members and senior staff should be given the opportunity to apply for posts in the new structures on the understanding that they must have given every assistance to the reviewers and that they are the best person available for the post.
The results for each bank having been compared and contrasted, establishing the optimum arrangements and acceptable variants should not take long -a matter of a few weeks at the outside. The Consultants should be invited to work together to coordinate the results and propose implementation timetables appropriate to each bank and the resources available for the approval of the Panel whereupon they should be implemented by Government.
'The challenge will be met'
President Barrack Obama's inaugural speech 20 January 2008
Will it be here?
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Can RP explain please explain (to a non-economist) what would be the worst thing that could happen if the government chose not to intervene at present? If market forces prevailed, bad banks would go to the wall and well-run banks would be left standing. What's more, bankers would be clear for generations that recklessness does not pay. No doubt there would be some pain, but how much worse would this be than having to paying off Brown's debt for the next few decades?
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#298
The knock on effects would be catastrophic, but perhaps not quite as catastrophic as our present course.
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'But RBS made profits of ?10.3 billion in 2007, ?8.2 billion in 2006 and ?9.2 billion in 2005 where did all these profits go????'
'Invested' into inflated assets that are now worth considerably less (if anything at all)?
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Dear Robert,
There is one major aspect of the economic crisis which still confuses me and I hope you are able to explain it. I am not financially trained, but try to get by with common sense and basic mathematics. If only the financial elite had done the same, but then I suppose greed is difficult to resist when there is such an imbalance of self-opinion and self-control.
The question is this: where has all the money gone?
The banks may have made ill-advised loans, the public have bought over-priced houses, investors have been suckered into worthless deals. With every deal someone walked away with the cash. Where do they bank? What taxes do they pay? Why aren't they being encouraged to spend and lend instead of taxpayers?
I hope you can offer some insight into this apparent evaporation of global wealth.
Many thanks,
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I am afraid the approach being put forward is wrong to much money and credit was the course of the crunch and the move into depression. The banks lent to much as in a similar way the Government borrowed too much. The big hope is the falling pound will help exports that would have been fine 15 years ago but today most of our manufactures have all or part of their products made overseas so the net result is squeezed margins.
Pumping money into the system will not stop the depression just delay it we need to change how we live and that is you don’t spend or lend money unless you have it.
One last thought the Government are happy to pump money into the banks but Hampshire police are laying off staff (some front line) because their budget has been cut by £8 million
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An idea has been promulgated recently that the huge amounts of public money being ploughed into the banks should be used directly (or indirectly via the banks/building societies) to redeem the loans and mortgages of the mass of the people in UK, (and around the world?) either in part or in full. This, it is said, would reduce the level of personal debt/monthly mortgage payments, put money in peoples pockets thus stimulating spending and demand, reduce the drag of bad debt being faced by banks and provide them with funds to relend. Indeed, lending would have to be resumed in order for the banks to replace their cash flow and rebuild their shattered businesses. Can Robert/anyone else please comment on this idea, which whilst being simplistic and therefore probably flawed, has an attraction in logic.
We can see that it would in some measure be divisive as it would benefit only a proportion, albeit a large one, of the populace, and there would need to be a way of funding this write-off in the long term, just as there is with the current initiatives being followed. However, that seems to be an inevitable downstream price we are going to have to pay anyway, there being no such thing as a free lunch, so why not do it this way and in the process restore a feel-good factor to the people. Politically, it would guarentee an election victory next time round!!
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Global economics :
Does anyone remember what 'stagflation' is ?
Banks :
Does anyone remember Glass-Steagal ?
Life !
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Dear All,
I am not an economist but have had some uneasy feelings for a while now, that we are not getting the full picture of tis crisis by a long way. My 'gut feeling' is that in reality most of the banks in the UK, US and western Europe are technically insolvent. This obviously has 'knock on effects for business. Is it not illegal to carry on trading when you know your business is insolvent? Perhaps the implications are so horrific no politicians want to even hint at this possibility. No doubt you or some of your readers etc. will be able to allay my fears.
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Why is no one asking Gordon Brown and the chancellor what happend to the funds raised from the sale of the gold reserves? It is my understanding that this gold was sold for EURO's and if so, why aren't they selling these EURO's for pounds. Does this money still exist or has this been squandered.
Gold reserves historically were held for times such as these
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Dear Robert,
I think the government is putting money into the wrong end (top) of the financial system (banks). If the money is given to the taxpayer at the bottom of the heap (me), debts can be recovered by the banks (so the banks get the money), mortgages can be paid off or part-paid (so the banks/building societies get the money) and reposessions can be stopped enabling people to stay in their homes. Those with "new cash" to spare might consider moving house or buying a new car or if they can't think of anything to SPEND it on to stimulate the economy, they can save it in the BANK. There would then be money to lend to businesses who are closing down because they cannot get credit etc. etc.
p.s. as a bank shareholder I am of course expecting my million pound bonus any day
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We all appreciate that globally, financial institutions created this mess, selling what are now coined "toxic" products to each other, whilst regulators were seemingly "out to lunch" for a number of a years (well done FSA - a rip-roaring success you turned out to be).
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To continue my point, we all know where the fault lies, but do you not think that the media are in danger of creating a firestorm of pessimism (Pestonmism anyone ?). Don't get me wrong, I am not supporting GB here, but I do think there is a case to be made for talking up the economy - we all know the importance of 'expectations'. For journalists, the 'credit crunch' is the biggest story since 'global terrorism' - a boon for all hacks looking to easily fill column inches or air time in a world saturated by media. We live in times where events in the real world are adversely distorted by the media and not just reflected by it.
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