Taxpayer support for big companies
What would you think about lending a few bob to a giant FTSE-100 company?
And when I say "you", I mean all of us, as taxpayers.
Because the next phase in the government's attempt to stem the contraction of credit - that pernicious trend that's driven us into recession - will probably be to put a "sovereign wrap" around bonds and tradable paper issued by big companies.
It's the unfinished business of the Treasury and the Business Department, likely to be unveiled later this month, following the £11bn package of guarantees for bank loans to smaller businesses unveiled yesterday.
Broadly, taxpayers would be guaranteeing loans made to companies by pension funds, mutual funds, insurers and other financial institutions.
And the idea would be to funnel the cash in these funds to the biggest 350 or so British companies.
One reason for doing this is that we're about to see a big bulge in the maturing of loans to companies. As I pointed out in the post "2009 is payback year", for European companies in aggregate there's a trillion dollars of bonds that have to be repaid or rolled over during the coming 12 months.
And although the corporate bond markets have recovered a bit in the past few weeks (the putative "green shoots" which Shrita Vadera now wishes she hadn't pointed out), we as taxpayers are probably going to have to lease our creditworthiness to companies, in order to persuade big investors to back those companies in sufficient size and at the right price.
Which means that the £600bn of loans, guarantees and capital provided to date by British taxpayers directly to our banks would be augmented by substantial guarantees from us for borrowing by giant businesses.
In this instance, we'd be following where that recent convert to the alleged benefits of massive state intervention, George Bush's America, has been leading. In the US, there's already colossal support from taxpayers for corporate borrowing from investors in the form of commercial paper - with the US central bank, the Federal Reserve, buying the stuff and acting as de facto market maker.
As I noted in "The New Capitalism", the social, cultural, political and economic implications of the growing dependence of the private sector on the state and on taxpayers will be profound.
If you knew that you were lending to the vendor of your knickers, or the provider of your broadband service, would that change your attitude to them?
As swathes of the private sector receive vital financial support from taxpayers, the balance of power between citizen and big business will change. But for better, or for worse?
I'm 
© MMIX~RS~q~RS~~RS~z~RS~38~RS~)
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Robert,
But can't public companies raise capital by issuing bonds and shares on the market? Isn't that what being a public company is all about?
Is it perhaps that the FTSE quoted companies know that they can get less expensive capital from the Taxpayer?
But I forget money is worthless! So nobody will lend you any for the nothing that the Bank of England says you should offer to pay/recieve.
If companies want money they should offer a suitable risk premium and they will probably get it (e.g. Barclays paying 14% last month).
But has the market so deteriorated since last month that even offering to pay say 20 percent plus will not raise any capital? My guess is not. But also my feeling is also that the big companies think that they can raise capital less expensively from the government (i.e. from us the taxpayer!)
The Bank of England needs to raise interest rates (back to 5 percent) now to get the market going again. It is all down to the MPC not comprehending what they have done in destroying the public faith in money. Get the rates up now - this will restore faith in money and also get the economy going again because savers who vastly outnumber borrowers (7 times?) will (may) start spending again. Until the Bank get this though its head the economy will continue nosediving!
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Now don't you think at some point either parliament should have a say in this, or perhaps the people.
This kind of commitment -to large commercial businesses who have 'experienced' and mostly well-rewarded management and boards of directors- is a different kettle of fish to keeping the banks (who hold our savings) afloat.
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Rather humbling for the execs to realise they are in the same boat as those left to struggle on welfare and minimum wage - dependent on the government for social/market welfare!
The captains of market forces expect help in the storm while they were unwilling to help those in a different world struggling in a different storm.
Approach the fate due with dignity. Live by the sword, die by the sword.
They should have the decency to admit, just for once, that they are not and have not been up to the job.
P45s all round should be demanded for those how have been shown to be what they are - entirely incompetent.
They'll be fine. After six months of looking for work, the governement will help them to walk straight into a job in a nearby check-out station.
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Does this mean the proposed Lloyds TSB 13% subordinated bond will be backed by the taxpayer too?
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To use an analogy: this will be like pumping concrete into the foundations of a shaky building when the problem is that the bricks are being held together by defective cement. The building will still fall down.
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Just who decides how British a company is?
Will many of them conveniently be big employers in marginal seats?
Maybe Jaguar Land Rover a wholly owned subsidiary of an Indian company that isn't listed on the Footsie? It conveniently has large number of employees in both Erdington in Birmingham and Solihull both of which are key seats for the conservatives to win if they are to be win the next election.
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If it means that those companies (blue chip companies one hopes) are able to roll over debts it’s a great idea.
It would bring back market confidence in certain corporate debt products/markets.
What is still astonishing is that after the Junk Bond fiasco of the 80s 90s we have ended up with even more junk!
The ratings agency would then be the Government (worrying?)
I for one would be quite happy as long as it brought back real risk knowledge lead lending.
I still believe we need a simple but flexible system for all this lending to give the tax payer (lender) and tax payer (payer) protection and a way or tuning all the future lending.
Lending Linked DIRECTLY to TAX Paid would be a great way.
TAX LINKED RATIO ie you paid 100k tax over the last 3 years so the BOE or Treasury multiple for all your lending would be a multiple of the TAX paid.
The SAME FOR CORPORATE BORROWERS.
The beauty of this system would be the multiple could be adjusted weekly daily even.
And it would tweak rather than
Thump a la interest rate change.
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Better or worse indeed. my children have a wall chart of the top five off shore tax shelters. I think you should put them on the news train Robert.
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At this point we have to conclude that one of three things is happening.
1.) Capitalism has failed.
2.) Our implementation of the capitalist model has failed.
3.) Capitalism works and this is just a normal correction in the workings of capitalist models.
If it is 1. then mass sackings of boards and executives should be the price of failure and replaced by government appointed management teams.
If it is 2. then the authorities need sacking, including the government organisations that allowed a failed implementation of the capitalist model to be built. That means regulators and politicians.
If it is 3. then what is the problem. If you accept booms without batting an eyelid then you must accept downturns or slumps with the same commitment to your beliefs.
Personally I see government and regulation being rejected (a change of government and the pressure to resolve the regulatory regime is likely) and the new government will need to prove to the public that it is getting value for its money. Shareholders should be sidelined because their value has been depleted by the management of the invested companies. If the U.K tax payer is now required to provide support for businesses then they should take a fair stake.
As for pension funds, well it has been plainly clear for over a decade that the fees on pension funds are too high and the returns to fund holders too low. My own private pension is worth less than has been paid in, this is after 10 years of solid investment, suspended the last 3 years due to migration, and yet my mattress was a better investment vehicle (for me not for my provider) since 1995. With profits, don't make me laugh.
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Supporting the c FTSE350 companies is likely to have the same emotional support from the companies who supply them as the tax payer supporting bankers who got us into this mess.
Obviously this, like any one measure in isolation will not solvethe credit crisis but will have a positive impact in this respect which will flow down to ancillary and local companies.
It would be nice however if the quid quo pro for this was that the FTSE 350 companies must pay suppliers within a reasonable time 30 days and not dominate them to supply on unfair margins.
However i suspect protecting only the FTSE350 companies will do the opposite
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John_from_Hendon
If rates were now to go back to 5% as you suggest then we’d be faced with a 1000% increase in insolvencies.
And financial disaster on a scale that would make money truly wothless!
The idea is to make the money work our in the real world not sleeping in the BANK.
1% 5% who cares if it buys half the goods the youre in trouble at the moment it looks like soon you’ll be able to buy twice the goods.
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John_from_Hendon
If rates were now to go back to 5% as you suggest then we’d be faced with a 1000% increase in insolvencies.
And financial disaster on a scale that would make money truly worthless!
The idea is to make the money work out in the real world not sleeping in the BANK.
1% 5% who cares if it buys half the goods the youre in trouble at the moment it looks like soon you’ll be able to buy twice the goods.
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Robert
I'm no expert on this as you will see. Just let me indulge a moment.
So, we're going to gold-plate corporate bonds to gilts - either to enable the roll over or repayment of existing quoted corporate liabilities[?], - as opposed to underwriting debt raised for new corporate investment? So, the idea is that the taxpayer underwrites existing commercial paper by the issue of new Government backed corporate bonds...effectively we stand the liability for huge sums of corporate debt if they lose the ability to pay the coupon and repay on maturity without incentivising any new investment?
Whilst I can see some juicy trades on corporate gilts and the funds breathing easy, what's the aim? Sorry to be boring but who's doing the due diligence on the corporate balance sheets and how much will be charged for taxpayer services, and how much debt could be underwritten?
Tell me, whilst we are busily providing bridging loans to the banks and the big boys to stop them falling over why isnt anyone doing any real thinking on tackling a mortgage debt-induced demand slump and asset deflation crisis.
I hope the UK taxpayer remains good for the money in the eyes of the markets!
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Surely there must be some irony in watching former soviet block countries struggle in the free market as our government takes an increasing stake in private companies and banks, marxism anyone??
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we are hemorrhaging money and blood in the same way as the defunct banks and companies are and we still losing the battle unfortunately
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Funny I always though that if there was a shortage of something then the price went up.
Or if you sold something to somebody who was desperate you held the advantage.
So who is desperate here, because somebody is - FTSE businesses for cash or HMG Treasury for debt. Or is the situation saying that HMG is desperate for FTSE businesses to not downsize, in which case the whole mechanism has broken down because the FTSE businesses can ask and get.
Sorry but this sounds derranged.
This is the same problem as funding the banks, setting a contract boundary, putting criteria in place to protect taxpayer money and at the same time being surprised when the banks go their own way and do not do what HMG wants outside the contract. In what way can HMG make this sort of instruction to a business. It will do what it wants. So just what is the objective. Or are we suddenly to develop a trust for large businesses probably in trouble.
So we appear to have captilalism on the way up, half baked socialism on the way down and capitalism as soon as any uplift comes about. Or is that not the way it is drifting.
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Long lunch at a yacht party Robert?
"If you knew that you were lending to the vendor of your knickers, or the provider of your broadband service, would that change your attitude to them?"
It most certainly would
I would be able to demand much better quality of service and be treated with respect, because it would be my tax money that would be propping them up.
Surely by now though the banks are going to soak up some of these bonds because their regulation requires them to have the AAA stuff for safety
I do wonder, however, who is going to tell them just what is rated as what
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What is going on here?
The government is floating an idea through Peston for:
1 preliminary discussion or
2 inside treachery or
3 Peston is guessing or
4 the country really is on the verge of bankruptcy.
My ultra-right-wing-fascist-BNP (thank you stevenpalmer) opinion is that someone is using the BBC for their own ends.
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Robert you love the BIG numbers.
What was the total amount of sterling in circulation in the global economy 12 months ago and what is it now?
Where is this information to be found?
DO YOU KNOW?
Should we all KNOW?
Will WE all know how much of this debt we are exposed to?
SIMPLE information but hard to find.
THE Financial BLURRRRRRRRRRRRRR
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The little man will end up paying.
Small and Medium and now Big companies are to be helped out.
If they go pear shaped then the government backed loans will be forgiven.
The little man will not be able to get government backed loans. Nor will he be forgiven.
The irony is that it is masses of little men that are keeping the SMB companies going.
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Don't know what to make of it all...
The interventions by the State in the market might be necessary and intrinsically good (cerinly well-intentioned), but there is a history of the original objectives and reasons for Government initiatives and actions being lost somewhat in the mists of time and there is a very real risk that at a later date the Chancellor or the PM will say that what they said in 2008 and 2009 didn't quite mean what we thought it meant at the time (or what they meant at the time).
It is doubtful whether the taxpayer will actually see the Northern Rock and the other bailout money repaid. And it is likely that the true cost to the taxpayer of buying shares in banks such as HBOS/Lloyds and RBS will never be realised if and when that stock is sold in the market.
The Government will argue that the deals, though potentially hugely loss-making for the tax payer, were vital to the interests of the State and, therefore, worth it. In fact, the Government will be prepared to write down virtually any amount of money if in so doing they can ensure the continued viability of the financial system and avoid runs on banks etc. This is not necessarily wrong - but the Government should not assume that we don't notice when they shift the goalposts.
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12 the1beard
Yes message understood, but havent you answered your own statement. The issue is demand.
Consumer demand, by individuals.
It is not apparent to me that providing cash to big businesses that apparently get hold of cash anyway is the solution.
It does not matter what businesses do ultimately the customer always pays, and individual customer confidence has been destroyed by big businesses and HMG.
They will just walk on by until it suits them. Just how many items do you need to live, you can just put most on hold. QED.
It would appear to me to be difficult to 'intervene' and not send the message that something is needing propping up. If you can explain to me how that solves the confidence problem I would be interested.
I am afraid I believe many businesses are fighting downsizing when it would appear inevitable.
I also have to say I believe HMG or HMG agency policy should be released properly, not with all this sliding of announcements out via the backdoor to journalists.
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This is the money printing /quantitative easing exercise! By the time it happens the bank will be able to print without informing the general public, but at some point we won't be able to find the hole in the public finances.
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So - is this to be an indiscriminate 'wrapping in the flag', or are the government going to be picking winners again ?
Whichever: in different ways the moral hazard will be quite grotesque, not to mention the potential for all manner of scams - and (on the scale envisaged) with no practical ability to monitor it all. The Treasury, BoE, FSA, HMRC - and the CPS - will all be completely swamped.
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Call me old fashioned if you like but this is getting out of hand.
How many bankers or highly paid captains of the FTSE350 are going to pay for their mistakes ?
Answer; None of them.
We the great unwashed have had enough.
This is totally fubar.
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Correct me if I am wrong but wasn't Gordon Brown described as the best chancellor ever in the history of the world, well at least the history of the UK, by Tony Blair before he saw this coming and jumped ship. And although there is Darling as chancellor it is clear Brown wants to be in charge of policy. And it was Browns brilliant policy that help create this lot. And wasnt it only about 6 months ago that the BoE committe had only one lonely voice saying major problem ahead, everybody else, supposed best minds available saying oh no not the case, he is just out of step. So opinion not right then, But now suddenly opinion right now. On what basis exactly, quantity of money shifted, or what.
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I've just been on a 3 day business trip to Germany and it was alarming...
1) For those of you who use Manchester Airport you will know you that you have to drive around for ages to find a space in the Long Stay car park T1/T3. It was empty! I found a spot near the entrance.
2) There was no queue at check-in and it took two minutes to go through security.
3) My plane was so empty that we were distributed around the plane to balance out the weight. It was about 20% full.
4) On arrival in Leipzig (Halle), Germany I found a queue of taxis waiting for customers. Normally you queue!
5) The hotel I normally use was dead! Last night there were 3 people in the bar and 4 tables occupied for dinner. This is a four star hotel, second best in Halle, normally you have to search for a table.
6) On the return journey this morning all the package holiday shops at Leipzig airport were closed, bar one. I've never seen that before.
7) The plane back was only about 10% full and there was only one person in business class (not me).
On picking up my emails this evening our company has banned all meetings greater than 15 people (teleconferencing is suggested as the alternative), financial reporting is now weekly instead of monthly, all cancelled orders must be immediately notified to Global HQ and our Annual Global Service Conference has been cancelled (this is unheard of).
We are a cash rich manufacturer and a service provider to the global energy sector and the large industrial sector employing over 120,000 people world-wide.
Very worrying times indeed!
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18 sosraboc
Thought you were a renegade banking type who had failed to take brainwashing programme.
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I agree totally with #25 Poulticehead
When will heads start to roll...when do the prosecutions start?
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monetize the debt..... monetize it all
screw the small businesses though... and the medium businesses
after all who would buy their debt when ftse100 issuesd debt is gilt edged !!!
this is insane.. another insane idea designed to anhialate lending to small/medium companies....
and what about equity... is the government going to guarentee that with my money ? how far down the capital structure will they go...
wait a go improve the credit rating of us all though CDS spreads 200+ here we come...
the mind boggles at the insanity
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Will our so called "Elected MP's " ever get a vote on anything or is Rambo Brown, Judge, Jury and Executioner.
Didnt we once have a democracy in Britain !
More good money after bad and the gravy train rolls on and on and on, except for the poor taxpayer who picks up every bill
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the black market is set for massive expansion cash is king
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NOTES FOR FORM 3 HISTORY SYLLABUS
ST. CUCKOOLAND PRIMARY
MICHAELMAS TERM 2020:
First the king and his barons ran trade
Then the king retired and merchants ran trade
Then traders got so rich they paid for welfare providers
Then welfare providers got so rich they bought out the merchants
Then the people all went to heaven
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This is just what Lehman's et al were doing for sub prime mortgages on a bigger scale. Take something that is quite probably rubbish 'bless it' and sell it on as AAA.
Was the 10Billion in guarantees for SMEs today just a token so there is less resistance for what they really want to do which is to hand the big guys a few 100Billion tomorrow and and another bail out for the banks.
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For worse.
First, who guarantees the taxpayer guarantee of that debt? What if the taxpayer (us - including those very companies) fails to deliver the goods? There are numerous plausible ways, through reduced spending, earnings, or increased demands on the state (ie losing jobs and then claiming benefits). Then we have a sovereign, not a private sector default. The problem with removing the boundary between the private and public sector is that insolvency becomes free to cross it. How do you ante up from there?
The issue of exactly what tax receipts are actually available to back the government's guarantees will become all too clear next year, as Ireland is already discovering. Remember - taxable income is finite. This is a crucial area of weakness in the government's handling of this crisis. What income is available and what leverage is acceptable is what defines the quantity of public credit available for market intervention. Where is the study? Where are the journalists' questions? Is necessity being considered to the exclusion of resources?
Second, what part of the budget will see spending cuts to make way for interest payments on all that extra public debt when the unfunded liability crystallises and demands funding?
Third, what portion of those bonds has currency risk? Is there a hint of a positive feedback loop here?
Fourth, what entitlement do companies feel they have to the public's money which they have not earned in the marketplace? Companies do not fail simply because they could not roll their debt. They fail because the revenue and profits were not there to justify rolling it or buying the whole thing, and that happens when people choose not to give them their custom. Who is the government to reverse consumer choice? What message will successful competitors receive when they see their best efforts made void?
Fifth:
"If you knew that you were lending to the vendor of your knickers, or the provider of your broadband service, would that change your attitude to them?"
Yes. Do not give them the same money twice.
Any company that takes public money is a company I believe the public will be happy to boycott in favour of its competitors. Brown thinks the public will not get to vote on his policies for another year, but the public votes with its wallet every day.
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"...a "sovereign wrap" around bonds and tradable paper issued by big companies."
That reminds me of monoline AAA wrap. We all know how that turned out. Insufficient income to pay claims.
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28
Yep, wanna join the Che quera sera?
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They have discovered the 'UK taxpayers credit card'' and like a couple of WAGs in a jewelry shop...they know how to use it.
''What about this one labelled FTSE100 companies..looks expensive.. can we afford that as well?''
''Shhhh we are nearly maxed out of the real stuff so dont tell anyone but we can buy that with money we just printed to keep up with minimum payments''
''What about the markets, wont they be worried we dont actually make anything of substance anymore and are not self sufficient in anything so it will be difficult to pay it back with anything real, is there an international market for the services of 2,500,000 red tape driven elf n safety killjoys or paper backed by nothing but thin air''?
'' Dont worry about it we are all in this together..repeat after me GLOOOOBAL, one goes down, we all go down they would not dare, WE ARE TOO BIG TO FAIL.. use it''
''Oh mandy your so clever''
'' Just keep practising , repeat after me when you see a camera or a journalist say ...Gloooobal.........do nothing party.....hard working families''
Jericoa
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27 wakeupbritain
What you may be seeing is a slump. What you are describing as a new work regime could presumably have been introduced before this but there was not the imperative. Not the desire or need. Seen it before, and that sort of transition.
So what it really says is that there is a new mentality on the control of resource, whether time or money or travelling to meetings. Amongst big companies who were or are still okay for cash. And what is going to happen if ok or not after this slump. Do you think they will say ok go back to the way things were. No they will say stay tight.
So there will be a drop in the sort of previously acceptable behaviour and the associated businesses living off it will have to accept there is going to be less business.
So as usual there are two or more things going on. Drop in activity initiates change of behaviour, irreversable change. So even if it all goes back to the previous level there still will be a drop. New solutions will be found to do the business. Scrapping travel will be green.
This is why HMG startegy, whilst not disclosed to any extent, probably is weak. It will be focusing on the restoration of the previous. A resurrectionist movement. It was a major mistake to make the decision not to invest public money into new technology such as the internet next generation infrastructure to support new working methods. Unlike the US where Obama has made it central to his recovery plan.
I am afraid it is inevitable that the economy shrinks, even if the cash availability suddenly returned to 2007 levels, a government wish I am sure, new behaviour would still demand a smaller economy.
That is why this desire to go around propping up is next to impossible to assess for implementation purposes. The landscape is changing, any assessment is likely to be wrong.
If you wanted to be unkind you would say they probably do not have the capability to make any such assessment so it will definately be wrong.
This is without then looking at individual behaviour changes ie at a domestic level.
So it really is best to think in terms of a drop in demand and a smaller economy, smaller tax income to HMG and the associated implications on the public sector and finances.
If you see what I mean.
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My father's modest investment income has gone up in the past 3 months. Turns out he invested in bonds in funds that lend money to corporates. They now pay more interest so he gets a better return - currently 6-7%
Now, if we taxpayers get the same kind of return on loans to companies instead of the paltry returns on offer on the high street, then it seems like good business to me.
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It's a worry
All this extra regulation,power and control being handed to government.
The government is really the Civil Service of course. The politicians are just the front men.
Then Lord Digby Jones tells us that there are far too many of them,they are practically moribund, a significant proportion of them should be sacked, but the word is not in the Civil Service dictionary.
It's a worry
(They get nice pensions though)
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27 and 35
Scariest posts for a long time,
I think we are looking up the fundamental orifice and if we are not quick we may not get out of the way of the output in time.
Brownian motion I believe it is called.
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To answer Bob's question there are a fair few FTSE 100 companies which I personally wouldn't mind lending a few quid to.
Unfortunately I very much doubt it would be these that will be on offer.
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#35 So true and so obvious. For anyone with savings one of the most rational things to do is convert to gold.
Maybe gold will fall - but not as fast as the currency. Maybe there is some risk, but a lot less than rushing out to buy more tat that you easily do without.
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35 werringtonsilent
.... "If you knew that you were lending to the vendor of your knickers, or the provider of your broadband service, would that change your attitude to them?"
Yes. Do not give them the same money twice....
lol
Or - dont do it you'll get your knickers in a twist.
Or - Have they been caught with their knickers down.
Or - dont look at me I go commando.
The possibilities are endless, just like finding people to loan money too. Err isnt that how this started.
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'......"sovereign wrap" around bonds and tradable paper issued by big companies.........'
if you didn't know any better, you would say that sounds awfully like an, .. er.. sub-prime collateralised debt obligation.
Our Government is going to buy up a whole load of crap and worthless paper, and that's going to get us out of the problem?
Well cut off mah legs and call me Shorty!
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So why Robert did it take you until 6:50 pm to post this ?
Perhaps becuse if you'd posted this at 6:50am there would now be about 1000 post all rageing against this incompetant government who are in league with the bankers and big business ?
Instead you slip it out so no one gets time to reply - complain.
And where exactly did I sign up to this ? Where did I agree for my money to be used to bail out failed businesses ?
Where did I sign on the dotted line to make this legal ?
Can some one please state what legal recourse I have to STOP my money being taken from me and used in this way - against my will ?
Molotov cocktail anyone ?
I'll have mine with an olive in please.
Shaken to the foundations - cause the disempowered masses are goinging to start stirring...
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This comment was removed because the moderators found it broke the House Rules.
So Boots Tescos and so on are suggested for getting a bailout? What about big construction companies and BP etc?
Yesterday we're told that they enforce late invoice payment with a discount to boot because they want to ease their cashflow, without a whit of concern for the farmers and other small suppliers.
And now we're expected to swallow bailing them out as meekly as lambs to the slaughter?
IF THEY HAVE CASHFLOW PROBLEM, THEY DON'T DESERVE A BAILOUT.
Give the money to the suppliers as a subsidy to offset the financial bullying of these giants. Then offset the cost of these small supplier subsidies by fining any giant plc paying their bills later than 30 days and/or imposing a settlement discount.
They play dirty and are guilty of the same arrogance and greed of the banks.
Level the playing field now and stuff them!
Then fund any new start up business which fit into a local economy infrastructure. Even bring back local post offices.
Money well spent I'd say.
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Robert,
This is all good stuff, but I'd like you to post details, or at least links to details, of the "real" features of these bailouts. Right now I'm just getting numbers like £12bn thrown at me. No-one can comprehend that amount, it's just a number. We need more details about how it will work! All the little stuff, even if it's just an aside in your blog of "if you're really interested look here!"
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32. metallicinglewood
'the black market is set for massive expansion cash is king'
That is a worry for them, further drop in income to treasury. Have to cut back on the MPs expenses accounts, that would save. Every little helps.
There is a barter capability a LETS scheme. Local groups can get together and tax free trade services, they accrue credit 'tokens' they can trade within their group. They usually fail because of the limitations of services on offer. It would be interesting if one was set up big time, it may then work effectively. One town has already floated its own currency. Bit of a gimmick but intended to keep money in the town traders.
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The sky is falling on my head and I am NOT Chicken Licken.
Buy a manky cabbage because it's been re-covered? Hell, no.
Have we learnt nothing from the demise of the masters of the universe?
To (mis)quote Gordon, I'm all for apprenticeships but this is no time for recycling.
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Robert:
Thanks for this...
I feel sure that the time is drawing near when we as tax-payers must consider standing up and calling 'No more...'
Are our Captains of Industry really no more than mere Donkeys, leading our once great nation down the path to ruin? What are they playing at? Has this crisis not been looming for some little time now? What have they been doing... Reviewing Executive Pay?
If the suggestion is that, having seen my share portfolio - nest-egged for the past 25 years in 'safe' Bank shares... more than decimated - I should accept that my pension, and all my savings be handed over to The Great Gordo for one last 'hurrah' at the roulette wheel; then I say no - now.
We have over-indulged. We tacitly permitted our once staid Bankers to lay waste to Prudence. She can no longer stand our ravishing.
It's pay back time - however uncomfortable...
If we are lead to provide support, then it must be conditional. The risk profile of these companies must be considerably more fragile than those of our Nationalised Banks where a Risk Premium of 12% has been negotiated. If these businesses are worth saving then they must be prepared to be 'squeezed' until every last pip squeeks.... Full apologies for failure a prerequisite. Resignations. No pay-offs. No bonuses for 5 years... No reward for failure...
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#11. the1beard wrote:
"If rates were now to go back to 5% as you suggest then we?d be faced with a 1000% increase in insolvencies."
Look, if companies can only survive if the can get access to free money the are no longer in business. Interest rates will go up - that is the natural order of things, that is if money can recover any value.
The longer we try to keep money as a worthless commodity the longer the problem will continue. What is the point of an economy that can only run on worthless money? Is it really an economy any more? Is it an economy that is worth running?
Insolvency is the markets way of recycling the value of a business at it proper value. Doing what we are attempting to do:
1. will not work,
2. is not a medium term solution
and
3 delays fixing the problem which prolongs the depression.
Whilst I do not agree that insolvencies will rise by ten time as you assert - even if it did then the economy could start to recover - propping up the living dead cripples the economy and that is all that will happen if good money chases the bad.
I repeat money need to be valuable to run a stable functioning economy. It has to cost to use it and it need to be beneficial to own it.
The dear oold Bank of England is destroying the whole concept of money - what it is doing is undoing 315 years of more rational economic management. It is a disgrace, nay an economically unsound and insane disgrace.
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And aren't Tescos a bank as well? If they need a bailout out...? Need I say anymore!
If GB thinks this is a good idea he can't possibly have a finger on the pulse of our nation!
Does he want to drive us all to become revolting? Or is he so struck with the USA and being the saviour of the world that he's forgotten something really, really important-
We don't have a Federal Reserve!
Oh 'Woops! Apocalypse!'-missed that one, didn't you dear?
Never mind, I'm sure you have another 'absolutely fabulous' ready to 'leak' tomorrow!
Instead of Raiders Of The Lost Ark, we'll be watching Raiders Of Her Majesty's Coffers (as in the Bank of England). Bet poor ole Mervyn has put a double night shift on to keep the printing up with the daily initiatives being announced!
I can just see him getting a midnight text saying 'you're not going to believe this, but we'll need ANOTHER 600 bn tomorrow. Shall I order double coffee and energy drinks in the morning?'!!!
If all this madness wasn't so serious, I'd be having hysterics! It would surely win a British comedy award!
(ps -dear moderators, this isn't defamatory,as you claimed one of my posts a few days ago was, merely a regurgitation of what's been said by others. So I would be pleased if you didn't pull this one!)
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37 sosraboc
No not at present - busy in darkest wales for mo. Somewhere sunny later in due course if endless wet dont stop and elsewhere not desertification. Who knows might be costa here yet.
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This is really a no brainer.
the debts racked up by FTSE-100 companies are their responsibility not the taxpayers.
1 We have no way of knowing which of these companies is likely to survive the global downturn. We are therefore exposing the taxpayer to even further risk that cannot be quantified.
2 Most of these organisations have already denuded the British economy by moving supply and manufacturing to Asian countries thereby reducing our ability to protect ourselves from the coming onslaught.
3 How do we define which of these companies are actually British?
4 What assurances do we get in return? e.g. continued levels of employment, R&D spend, etc. etc.
There is also the unanswerable question - why should we support corporate executives to continue in their roles when they have put those organisations in jeapordy?
The City will find the finance for those firms who they believe are worthy of the risk - at a cost.
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further to #54
The Japanese economy shows us what happens when a zero interest rate policy is pursued. But for the rest of the World buying Japanese goods virtually no growth would have taken in Japan for a decade - indeed much of the growth has been achieved by outsourcing manufacture to low wage rate economies.
Unfortunately the whole world is contracting and no country that lives by exports has much hope of an export led recover any time soon as the Germans' and finding.
The UK is particularly vulnerable and in a desperate situation as it has virtually no manufacturing capacity and relied on financial services as it engine of growth, but the is precisely the area that is predicted to shrink the most rapidly. Add this to hugely overvalues assets scattered through the economy (e.g houses, but not exclusively) We can be expected to enter a crippling and devastating depression.
Further this depression can only be recovered from if the old overvalued asset, be that FTSE business of houses are very rapidly depreciated to reflect their true worth. It is no solution of any kind to prop up the living dead. The longer we do so the longer and deeper the depression will be.
Safeguard people - provide soup kitchens and shelters for the dispossessed homeless, but do not on any account interfere with the market's self regulatory system of bankruptcy.
If a business can only survive on free money it is not a business and must go bust.
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44 armagediontimes
So there you go. You have declared your school of thought. Old school. The type that rarely get in trouble, occassionally some do, but that can happen to anybody. Not a Brown bubble type methinks. So you say I'll walk on by. Sit tight. Sound judgement, well in my opinion. But not what HMG wants you to do. So it is simple. What circumstances encourage you to spend. Not a lot at present at the risk of putting words in your mouth. So the bubble brains are bust. Old School quiet. Business must hibernate or downsize, has to downsize anyway. Economic growth when Old School says so, they rule, or housing market recovers. Not 2009 it would seem. HMG missed the boat. Not quick enough. Problem is housing forcast to fall 2009 so it will, simple as that. If Old School spend 2010 too late for Brown at GE.
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It's time to leave the country.
It's the only way to opt-out as far as I can tell.
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This comment was removed because the moderators found it broke the House Rules.
Over recent years we have been administered countless doses of anti terror sedative...now the critical, paralysing dose of financial meltdown is being fed introveniously.. we lie immobile in a force-fed state of self percieved helplessness....
Does anyone else out there feel that this 'global economic disaster' is just another chapter in a ultra-high-level move to this supposed New World Order, recently coined by our illustrious Premier Comrade Brown himself? The new global monetary system will inevitably rise in time to ensure 'financial stability for us all'
From George Orwells Animal Farm
"All animals are equal, but some are more equal than others"...
..in his book 1984, Britain is no more than Airstrip 1 for State Europa...
Of course....the new runway for Heathrow, it all makes sense now!
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As WillPegg quotes just meaningless words and figures. The devil is in the detail. These are interesting times indeed.
All of these quoted "companies" who have been mentioned will require various degrees of actions. Many will require downsizing, many will require loan support some will be unsalvageable some will require nothing. The wise comments so far are speculation only. The results of the proposals will only become clear as the plans are put into practice and the results will be totally dependant on the assessments and plans of the executives of the companies and whoever conducts the due diligence.
As taxpayers we are all going to be clobbered either way.
The best bet is to put up the shutters and support your local producers in the hope that if they still have a few quid they will spend/invest it your way.
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This comment was removed because the moderators found it broke the House Rules.
This move is overdue-a problem arises if the government then nationalises the banks- there will be even less confidence in the government/UK economy with these guarantees becoming ineffective, and the government will be into printing money as no one will want to buy its bonds.
The government also needs to reduce capital ratios and buy asset backed securities.
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And Im free, free fallin
Yeah Im free, free fallin
Free fallin, now Im free fallin, now im
Free fallin, now Im free fallin, now im
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# 42
You think thats scary, I have got a meeting with my Director tomorrow, I have got 8 staff and enough solid order book for about 3 of them starting next week yet a potential order book for about 15 people.
How do we guage in the current climate what potential work will come good or not? How long can we wait to take a more informed view when the whole nation is waiting for something? What exactly? Noboddy seems to know! A kind of economic psychological paralysis is growing in momentum.
My team are good, well balanced hard working highley skilled people who work for each other in a very effective team with a very good reputation in a real industry. I think they are all great individuals selected very carefully and a credit to what this nation can produce.
After the meeting with the Director I will be meeting them. They are young dynamic and have sensible mortgages secured on a solid career in an area which has had a skill shortage for as long as i can remember because it requires both solid analytical skills and intuitive skills to do well.
Now that my friend is scary.
Jericoa
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The rating agency and bond insurer experience of last year has already showed that if the underlying credit quality is say BB, an AAA wrap does not do much to change the price at which it trades and therefore the yield and borrowing cost. It might influence the trajectory at most.
Investors perform their due diligence and if the fundamentals say 20% yield, that is probably the bid. If someone is stupid enough to wrap it with higher credit quality, they may just say "mmm... free yield." Look what happened to US agency debt. Instead of sending yields lower, the immediate effect was to send Treasury yields higher, towards where agency paper was trading. The bond bubble has since undone that, but the risk is clear. The government would not be lending its credit rating, it would be diluting it. That is unavoidable as soon as anyone backs someone else's debt.
The government will have received lots of sophisticated advice on this, if they are actively considering it. I do not see the upside. Would they care to explain?
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what have I done now?!
One post referred and another totally disappeared!
What a shame-they were so funny-and on topic too!
Obviously I'm not even allowed to share the opinions of others and have fun at the same time!
I'm hardly a revolutionary, nor a threat to national security!
Big businesses should be able to sort themselves out-is there such a thing as a loan-a-holic?
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Robert
I have seen you speak in person recently, and have read your blogs.
I think you are blagging, but i suggest you make the most of it because there is something else going on here that you haven't spotted yet.
All the best.
rgds
ronan
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Post #27 most worthy of everyone's attention.
What I don't see discussed by Mr. Peston, or many others is the simple concept of Moral Hazard.
With that much money, and that much power, vested in that few hands, the temptation to corruption becomes nearly overwhelming.
We cannot simply trust that all people are well-intentioned in both business and government.
Additionally, there comes a point at which the citizenry becomes literally 'de-moralized', concluding that their lives and work are being consumed in a 'fixed-game', in which the honest and prudent are certain to lose.
At that point, the Hazard becomes more than Moral, it becomes Social, and the veneer of civility begins to wear terribly thin.
I do not advocate that--in fact I pray daily that we are all spared that outcome.
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"And when I say "you", I mean all of us, as taxpayers."
Up to a point Lord Copper: tax receipts are falling. So this money will not really be "lent" by you and I. Money is created and destroyed by sleight of hand. Regard money as what it really is, not a commodity but an entitlemet to consume goods and services. The question then becomes where does the bulk of this entitlement to consume lie; is it being used, and, if so, for what?
The government's plan is to enable creation money that will be spent now. If this is used to invest in the productive capacity of the economy, fair enough. If it is used to fuel unnecessary imports, then not so good. But is this "new" spending power really being used to bolster the powerful and parasitic against the productive?
It seems to me that the free market is dead. What is emerging at the moment is a sort of corporate state capitalism without the Nazi party - or perhaps a new industrial feudalism: patronage dispensed in return for fealty. It appears that under the new order, rewards are going to the new corporate state elite and their friends. These will be exempt from what used to be called "the discipline of the market", whereas others will be allowed to be destroyed by the economic storm. There seems to be no plan to cater for society's needs, only a plan by some to keep hold of their ill-gotten gains.
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Government is stepping in because of market failure. Business needs access to credit and the whole point is that the market is failing to provide it. Unless we want to see an increase of unemployment to 30% the government has to be willing to play some role in ensuring that lending continues, either by providing support for the banks so that they can continue to lend or as now by direct lending.
Europe now appears to be in a worse mess than either the UK or the US having cut interest rates to 2% today. I suspect that governments will continue to have to make loans and stimulate the economy through fiscal measures and even lower interest rates over the next year. The alternative is much, much worse - massive and sustained unemployment and lower economic activity.
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This is ridiculous.
This is where the government is starting to go badly wrong.
These big companies have been borrowing money over the last 5 years or so not to invest in new products and services for their customers, but for just one reason alone..... to return money to their shareholders, financially engineer so called better returns for them, and ultimately pay their executives better bonuses.
We need a kind of Chapter 11 here in the UK so that a company that is basically bust can reform in an orderly manner (the pre pack deals that have started happening are a step in this direction) so that new managements who can manage the assets better can take over.
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ha ha, we guarantee FTSE listed international organisations. They then close even more of their UK subsidiaries (cost saving of course) and use their new found capital overseas!
What a away to run a country!!!!!!!!!!!!!
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One final thought. I wouldn't lend to the vendor of my knickers. I might well lend to their manufacturer though: there are too many vendors who grow fat on the backs of the manufacturers.
Fair trade was thought of as a way to help the third world. We need a new fair trade standard to protect our home manufacturers/producers from the middlemen.
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#54 & #58:
Agreed, if free money is a prerequisite to survival than what is at hand is a classic "fair weather" business that has no prospects in a recession, let alone a depression. Recycling is a great analogy, bankruptcy really does give someone else a chance to pick up equipment and staff which they could never afford otherwise and have a shot at doing something more productive with them than the original owner could.
Unfortunately the government is quite happy to let the wheels of the economy spin in the mud and not take us anywhere, rather than ask the passengers to get their hands dirty and risk unpopularity. But when the fuel in the tank runs out, the wheels will stop.
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#69 Tigerjayj "I'm hardly a revolutionary, nor a threat to national security!"
I don't know - you do think for yourself! I have an old T shirt with a silhouette of the Rodin sculpture and the slogan "I think, therefore I'm dangerous". Perhaps we blogsters should commission a bulk supply?
Good night all!
;-)
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#73 stevenpalmer wrote:
"Government is stepping in because of market failure. Business needs access to credit and the whole point is that the market is failing to provide it. Unless we want to see an increase of unemployment to 30%..."
The market is working. Its conclusions about the number of businesses that are insolvent are unwelcome.
The market is failing to provide credit to businesses that are already insolvent or have no reasonable expectation of surviving the necessary deleveraging - as it should.
A depression is baked in, we only get to choose whether the currency survives. The present course says no.
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Another Angle
Gordon Brown is a flawed man
Last Year he has been humiliated and crucified in Parliament by Cameron and the Conservatives
He hates the English too
This Voodoo economics and crazy Billions of guarrantees by Taxpayers is simply his REVENGE
Gordon is going out with a Bang!!!!
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#73 stevenpalmer.
There is a limit to support. A full blown guarantee given to FTSE listed firms goes well beyond an acceptable level of risk for the whole state.
We are at the beginning of a long depression (more like a slump). If we are to use our national resources then we have to cherry pick those organisations that we are going to support. I'm sure you will find that the same will happen in both the Euro countries and the US.
Unemployemnt may well reach 30% levels. If we have used our resources in a vain attempt to prop-up firms then we realloy will be a basket case.
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Well one thing is for certain - the UK economy is totally ruined.
Instead of doing the decent thing Brown is determined to take us down with him. The taxpayer cannot possibly take on all these liabilities.
Labour call the Tories the do-nothing party. But sometimes it really is better to just let nature takes it's course, rather than try to keep the show on the road and in the process make the currency worthless and the public bankrupt.
Like it or not we are heading back to a subsistence economy, so better get used to it. Anyone with any sense is putting their money into gold and thinking about how they can grow enough food to survive.
I just wish I had a chance to show Labour what I think of them via the ballot box.
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Do "we the people" get shares in companies that are given loans from our hard earned monies?
Do "we the people" get any return of any sort on these support measures?
No. Didn't think so.
Instead of bailing out companies with our money the government want to be looking at why merchant bankers are raking it and call in the taxes that have been unpaid by the rich in this country that haven't taken measures to put their finances off-shore.
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Aha Sasha!
That must be it then!
There have been an inordinate amount of posts referred and removed in the last couple of days...I'm seriously thinking it's because the referred posts are way too close to the truth of the situation, and we wouldn't want to inform or scare anyone, now would we?!
Should I expect a loud knock on the door in the middle of the night?!
Regarding the 'knocker' comment, Robert, I would probably ask if they were made in England!
Where money should me spent. As a previous poster suggested-give these corporate and retail behemoths the money and they are going to spend it ion another global economy and not the homeland.
A question for anyone:
Global economy
Global credit crunch
Global recession
Global depression
Global debt in the trillions
If no country can service their debt, and there was global default on global loans, what would be the outcome?
Of every country had to write of the debt of another, all the debt would be gone, the credit rating agencies wouldn't be needed and we could all start from a clean sheet.
What a nice dream!
No doubt I'll wake up soon!
Night night.
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The West moves east and the East moves West. Former staunch communicsts and KGB agents turn capitalist billionaire. Tory suggesting state-ownership. Invest banks goes carpet beggar for $billions or tax-payer handouts ...
At the rate we are going, in a few years, the former communist countries will become semi-capitalist with market economics while the Europe/UK/US will anything but capitalistic. It would be ironic and unthinkable only 6 month ago, but now probable.
No, capitalism has not failed per se. It's biggest mistake is to trust those who are followers and worshippers of G.O.D.
(Gold. Oil. Dollars) to whom all *isms are only means to an end.
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It all comes down to there being two ways to enter a depression - with a solvent government and a viable currency, and without.
Or, sailing into a storm with bulkhead doors shut, or open.
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# 85
Sorry all.
On this stupid darned phone with it's weird predictive text so previous post seems a little odd.
Night!
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An analogy for these times is the pictures you see of houses near the crumbling coastline of the UK.
It must be heart breaking for those who have lost houses as the coast has fallen into the sea, and very painful for those who have had to leave as the foundations are no longer safe.
The cost of fighting against the inevitable would be massive. Although technically it would be possible to pile drive some sort of new foundations, there would be risk of making the problem worse, and anyway, it will not stop the sea continuing its course of action.
Anyone not emotionally attached would say the sensible course of action is to rebuild in a new location.
Applying to the financial crisis...Unfortunately it seems impossible for modern politicians of all parties to state the obvious course of actions. We have built the last 5 years on debt that will take a generation to repay; we are entering the next 30 years where oil will become increasingly short (as we have past peak oil), and so the very foundation of modern prosperity will become eroded.
So PLEASE Mr Brown, open your eyes to see that we need to lay new foundations for a prosperity built on a simpler life, where we use technology to do more without needing to physically move by car/plane, where we have rich lives based on relationships not materialism.
Only when you have a vision for the future can you wisely invest in things that get you there.
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#79
The man from Stoke has hit the nail on the head!
Do we really want to transfer the insolvency of companies to the insolvency of the UK.
That is where we are heading if we carry on down this route!!!
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Look at all the posts here....they are all so negative and downbeat.
People are very angry and hurt and in shock.
There is of course understandable concern about this necessary corporate lending but there is also evidence of a major problem in economic and self-confidence.
One possible explanation for such pessimism is that I think a lot of the people posting here ,and people in Britain as a whole, have sustained big losses, many of them now seeming irrecoverable.These losses have occurred in their pensions ,shares or share options, investment funds, endowments, savings funds or savings interest,or else they may be disadvantaged by having a now high fixed rate in their mortgages, or their bonuses have fallen.
There is a profound sense of loss.
In effect ,there is a bereavement reaction and with it come various patterns....anger, blame,despair, depression, denial, displacement ,guilt, acceptance, and hopefully recovery .
Those losses were people's pensions and nest eggs, their future plans, their ability to pass on moneys for their children's education, weddings, holidays and the little extras that remove life's drudgery.
These are the people who had denied themselves things in order to have a better future.
Most of us believed in the ever-rising property market , but at the moment it looks like it was too good to be true.
And so the anger and disappointment is real and someone has to be blamed for it. And for these people the government are the ones to blame though in reality the government has no control over the price of shares or property nor is it the cause of the global financial sector downturn and its devastating aftermath.
Government can tinker about with a few percent of GDP here and there but really it has limited power.
What it can do is to inform and to lead , to mitigate and to plan.
These victims feel that the people who caused this problem, the bankers and corporate splurgers, are getting off with what they have done.
Their anger and hurt is real and Gordon Brown has to make it plain that he understands people's pain, and why they are angry, and to think long and hard about how people, not just companies ,might be helped to recover from these losses.
Labour has traditionally always helped those who have never had assets, who have made no provision for their futures, out of a genuine humane impulse.
But those who sacrificed themselves for their futures feel hurt that they are unprotected and their efforts were in vain, and that there is no support for them. And these people are a huge percentage of the population.
Words of cheer, news of greenshoots will not restore their fortunes, and so whenever the government try to convey how hard they are trying it does not placate those who have lost so much.
If Labour are to be re-elected,which is looking like a longshot, Gordon Brown needs to convince these people who have lost in the crunch that Labour are on their side and will help them to recover.
The Tories are the natural party for these people, who switched to Labour in the last 3 elections.. And Cameron has been adept at seizing the opportunity this presented.
Labour have to think outside the box about how to win middle-Britain back.
Now Gordon brought Mandy back, and though he is the one every one loves to hate, he is a super -strategist and is doing really well batting for Britain.But he is not a leader.And we cannot go through another leader change in the Labour Party.
An election now ,or another change of leader would not help Labour.
No , we need ........
The Return of The Jedi!
Desperate measures are called for....and that means Tony Blair.....not as leader, but as a crisis manager and spokesperson to help Brown, a Blair newly chastened and insightful about Iraq and Afghanistan and Gaza ....he could say all the things that need to be said that Gordon cannot say. Tony is a natural middle-Englander ,and it is interesting that the anti-Scottish backlash is now a major force against Gordon Brown.
Gordon could be seen to eat humble-pie and Tony could speak up for Middle Britain (which now means 80% of Britain)... and sweep in some changes which might include.....
1Making London and the major cities and suburbs enterprise zones with tax windows for five years for developers and new businesses.
2Possibly reintroducing MIRAS to get the property market on its feet..
3As a newly retired person Tony could head a new Greypower initiative by the government.
4Help with tax for the retired who want or need to work
5 or who employ carers.
6 Taxbreaks for employers taking on older workers.
7Looking at university fees and taxbreaks for parents of students.
8Imaginative schemes to allow advance payment of inheritance tax and cgt in order to reduce future tax liability.This would bring money into the coffers of the government without any interest.....borrowing against the future but a different government's worry.
9Taxbreaks for grandchildren's education and even schoolfees.....it saves a state- funded schoolplace.
10A hard look at how incentives to work are being lost by high taxes, limitation on working hours, and high childcare costs....
11could there be taxbreaks on childcare 12and domestic help
13 and second jobs?
14A lot of childcare is done unpaid by grandparents, if this was tax-deductible it might help.
15partial amnesties for "black economy" workers to get back into the system.
16 A more public drive to enforce tax payment by black economy workers.
17And borrow or steal anything useful the Tories and Libdems have come up with....remember these are desperate measures! And admitting it would be a surprise tactic too.
18Could there be transferable taxbreaks within families on big losses in pensions,savings accounts, and share values to give some value to the losses people have sustained?
If some drastic action is not taken by the government to bring middle-Britain back on board it is game-over for Gordon.
Now I actually believe that the economy is going to turn soon, that not everyone has lost, that Labour are trying hard, but it is going to take more than cash to companies to change public sentiment.
Remember, Gordon , it is real people who have real votes who matter.
You are big enough to do it Gordon, and Tony, you are dying to get back on stage.
And you had both better act quick or you are both history!
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#88
I couldn't agree more!
Shaky pyramids built on sand.
Come on leaders, give an honest appraisal of how bad things are, what the short term future holds and then a vision of the future and what we need to do.
I for one will be glad to see the back of materialism and welcome local communities.
Think local, not global.
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#90, you're right, with loss comes realisation. I think many people feel they have been conned, cheated because they believed in a system that now appears false, fundamentally flawed, that was doomed to failure all the way along. We have run out of resources to continue fuelling the pyramid sell.
A change of government won't cure this. We need to re-evaluate our beliefs, our values, our own lives and communities, our personal contribution, or responsibility to each other and those yet to come. This is serious stuff. This is the stuff that brings down Empires, ends eras etc.
Our whole system of government, leadership, democracy, representation, law, trade, recompense, duty, individual responsibility are all now in question. And rightly so...
The Industrial Revolution has come to and end; wealth and prosperity only made possible by exploiting oil that has past it's peak.
We have to fundamentally challenge the last 130 years of "progress". This will not happen until we get to the "acceptance" phase of the change cycle. That acceptance will be "My name is ..... and I'm a materialist, hooked on retail therapy and keeping up with the Jones's". Politicians will be the last people to get there! To do so will be to admit failure and relinquish their power. In their anger/denial phases they will only make matters worse, which is what we are seeing now (and worse to come, I wouldn't rule out war).
The most worrying thing for me is the US, it's evident to me that they are no longer an economic superpower. They will struggle to comprehend this, even dare contemplate it.
So... Hats off to the first world leader to say "this isn't working, we need a new way to live!"
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Under this New Labour Govt everything seems the wrong way around, Public services (Fuel,Water) put up their prices to pay for new equipment, they no longer use their stockholders for funds, I suppose us taking on Company debts is just more of the same.
Socialist Govts are all the same, remember the USSR? The people pay for everything and own nothing....
I suppose they could sell eveything off to non-domestic owners and then take everything back into public ownership for a song??
But do we have anything left to sell???
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re #90
"though in reality the government has no control over the price of shares or property nor is it the cause of the global financial sector downturn and its devastating aftermath.
Government can tinker about with a few percent of GDP here and there but really it has limited power"
"Desperate measures are called for....and that means Tony Blair.....not as leader, but as a crisis manager and spokesperson to help Brown"
So what is the point. If Government is so powerless and not responsible, how is bringing Tony Blair back, in a "Mandelson-esque" stunt, going to do anything?
I mean really. By your own logic.
You suggest that Gordon Brown and Government has no "real power". So what is the point of having a Government, Bank of England, regulators etc if they are so powerless?
You go on to contradict yourself at the end - "If some drastic action is not taken by the government" and you suggest loads of things that Government should do to sort things out, so it's not so powerless after all.
You cannot excuse the current administration for the mess that has occurred on their watch; that's the point of leaders. They have all the power, but when it all goes belly up, they take the wrap for it. This is the reason we are a Democracy (supposedly), so that the leaders who have the ultimate power in this country take the hit when the people see things going wrong. This is because the system recognises that the people rule and we are now taking the hit for re-electing Labour, again.
The markets are not and should not be an autonomous entity that dictates national policy, that is what we have Government for.
People are upset with the Government and Gordon Brown in particular, because he was arrogant enough to take all the plaudits for the boom (recall "no more boom and bust") and has thus far distanced himself from ANY responsibility for where the boom lead and the situation we are all now in.
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Robert,
What's the point of all these taxpayer guarantees when there are no customers?
Is there really a lack of credit for "viable" businesses? I think not!
As I see it, yes there is a lack of credit - a lack of credit for the majority of firms in the UK which are now "unviable" due to the depth of this recession
Can one really blame the banks for not lending when there are no customers? We the taxpayers are just prolonging the inevitable or virtually nationalising British Industry.
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This is ridiculous
Which banks lent the money in the first place? RBS? HBOS? Some other bank?
If its RBS or HBOS isn't this just a mechanism for letting these tax payer supported banks continue to prop up businesses that borrowed too much money to make overvalued acquisitions that couldn't pay for the debt through revenue?
Let the businesses go into administration. If they are viable or parts are there will be interest just as there has been interest in Wedgewood and Whittards etc. If there ain't interest why should the great british taxpayer prop these outfits up. The money would be better saved.
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btw
just look at some of the companies in the ftse 100
Shell, BP, HSBC, GSK, Astrazeneca, Antofagasta, Unilever, SABMiller, Rio Tinto, Invensys, Kazahkmys, Imperial Tobacco, Centrica, Cable and Wireless, Standard Life, Tate and Lyle, Serco, Capita, Tesco, Vodafone, Whitbread, TUI, Standard Life, Barclays
Is anyone in the FTSE 100 asking for this?
Who? Why?
Who is their current lender?
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I say nay!
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What is going on? Gordy is faffing and failing! Why aren't the British Press holding the big man in charge responsible? If anyone had no excuses right now it is the past Chancellor of the Exchequer and current Prime Minister (oops, same chap surprise, surprise)....honestly, it's time to be truthful and Flash has nowhere to hide if only our journalists would do us the service of pointing this out.
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Living in the US, priorities remain about positive action, improvements (and inaugeration day). But the lack of negative press in a similar situation to the UK has a calming effect. Are the 'UK has gone to the dogs' reports helping? Maybe now is a time for support and positive reporting. Each day I compare British and US headlines online. The UK headlines have been so incredibly depressing, the US focus on other news. Neither country is in great shape economically as we know.....but I think we should stop talking ourselves down - it really isn't helping!
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mrsbloggs13c2
Yes there are definately companies in the FTSE 100 that will be asking for this money, and a lot of it...
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Robert, you ask:
"As swathes of the private sector receive vital financial support from taxpayers, the balance of power between citizen and big business will change. But for better, or for worse?"
Surely we could be entering a massive and very different economic "experiment", one that could have numerous unintended (and disastrous) consequences in the long term.
It seems the Gvt is embarking on privatisation of profit and socialisation of risk.
Billions and billions of pounds our money - the stakes just keep getting higher.
More worrying is no proper debate in the house. Perhaps nothing short of a full public enquiry is required immediately.
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#100 cvmarter
perhaps some of the difference is that in the US you already had a year of talk about the fall of the housing market before we over here had even heared of sub-prime.
Just wait. When it quickly becomes apparent that Obama actually can't then you will see the US press quickly identify just how bad things are. You can only live on hope for a very short time. Just look at your unemployment rates and trends and your confidence levels are already in the toilet (sorry to offend US sensibilities - bathroom)
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thank you moderators for returning my post #55 - hardly dangerous stuff!
Wonder what today's initiative and big announcement will be?
Come on Gordy and co-lend the money where it's most needed AND useful. It's no good trying to keep friends happy-and you can't get much more unpopular than you already seem to be.
Alternatively, if you can't stand the heat get out of the kitchen!
We urgently need a new cook (or is that an unfortunate analogy?!
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The world has been partying for five years on credit, now is the time to pay the price and emerge stronger for it.
This lunacy of propping businesses up at all costs has to stop.
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As I have said many times on this blog, a new sociopolitical order will emerge from all this upheaval but it WILL keep the Status quo.
The people who control will continue to do so and the those who are controlled will not even blink. They are and will always continue to be assets milked for there labour and tax. The labour because it is needed to create the added value to make the profit, and taxed to keep the non working non capitalists in power.
Now Roberts question at the end there about the balance of power changing for the better or worse is, in my view, not aimed at the poor working Joe but rather the politician and the capitalist. Obviously the balance will change in favour of the politician as he now has his hands on all the cash, our cash. However, capitalists will seek to regain the upper hand that they have enjoyed since WWII.
So the outcome of this battle could be Social Capitalism under a Labour Gov or Capitalist Socialism under a Tory Gov. Whichever party is in power they will be up against big biz looking to use their power, thats us the working Joe to bring about political change via unrest at working conditions or lack of them.
So the weapons of choice are known, the battle field well trod, it is now time for the show.
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Any such loan needs to be secured against solit collateral (e.g. commercial property, directors' houses) which cannot be moved offshore, and it has to be quite sure that in the event of liquidation the treasury has first call any and all assets, should this collateral prove insufficient.
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Companies have to borrow, some banks just get given money. What the heck is going on 'up there'?
GC
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#100 cvmarter
Well said. Half of the problem we have with recovery is that we don't want it! Well the press don't they thrive on bad news. "We the people" only believe bad news. Along comes a politician who had the audacity to say something positive which was the truth (DUH) and she gets slaughtered for it. I listened to what she actually said (not what the press said she said, big difference) and it matched exactly to level of recovery she was referring.
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One aspect of all these initiatives that appears to have been overlooked is the potential for some to cancel each other out, or worse.
New proposals and edicts are issued daily, no time has been allowed to see if the previous ones have been effective. Brown et al will argue there is no time to wait.
The government is like a quack apothecary, grabbing whatever is on the shelf in the hope something might work but ignoring the possibility one of the substances applied may combine with another to kill the patient.
Please please please apply occam's razor before we are ruined.
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#97
The Association of Corporate Treasurers.
The Company Treasurer in a business attends to the cashflow, depositing and borrowing funds in the short, medium and long term, managing exchange and interest risk, and usually also heads the Corporate taxation and acquisitions and mergers teams.
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If the Bristish government spends more than it can raise in taxes, the value of sterling will eventually collapse.
Governments around the world are attempting to plug the gaps in their economies by lending money to the private sector over the short to medium term. The hope is that real economic growth will return in a year or two. If growth returns, government debt can start to be paid down, through tax revenues.
However, governments cannot take the place of the real economy. If real organic growth from the private sector does not return, then governments around the world will be left with large fiscal deficits they will not be able to pay off.
Unfortunately, you cannot spend yourself richer.
The British government must recognise the need to balance the nation's finances. You cannot spend more than you earn, without eventually going bankrupt. There are not many cash rich investors left in the world, which means Britain cannot be bailed out by foreign loans. Hence, we cannot escape the need to keep the UK government debt at realistic levels. If the government gets it wrong, the value of sterling will collapse.....
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According to the Telegraph Citigroup is about to pay out $11Bn in bonuses to 100,000 staff i.e. an average bonus of $110K.
Last quarter Citigroup made a loss of $9.83Bn.
What planet do these guys live on?
If bankers got paid a bit less maybe it would be cost effective to spend some of their precious time on case by case due diligence before approving loans rather than the current approach of approve everything in good times and approve nothing in bad.
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I read recently in one of the accounting magazines that the average compensation package for the FCO's of the top 100 Uk companies was in excess of £1 million per annum. If as it seems, we the Tax payers, are going to have to under right their corporate bonds before doing so should we not as tax payers demand either said FCO's dismissal or at least a significant cut in their pay.
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And we're free, free fallin
Yeah we're f r e e,
f r e e
f
a
l
l
i
n
g
----
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Gordon Brown blames America for this financial crisis - his excuse for following American policies in a lamb-like fashion.
Once again, he's proposing that we just copy the US and everything will be alright - at least it will be with his prospective empoyers anyway.
I wonder whether Digby Jones thinks about the boards of our great banks and businesses? If he thinks that civil servants need to be sacked for working hard then surely he must have an opinion on his mates in business.
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#90 (bring back Tony Blair) ??
What on earth makes you think that Teflon Tone wasn't just as guilty as Brown in letting this juggernaut get out of control?
I mistrust all left & right politicians with a vengence, however if you take an objective look at labour's record over the past 12 or whatever years, they made loads of tempting promises, and delivered absolutely diddly squat. Home Office, taxation, immigration, red-tape, foreign wars, energy plan, pollution, education, healthcare, transport, benefits sector, balance of payments, inflation, true consultation with electorate .... list is endless.
The only success they really had was to doctor the figures. No-one knows any more what unemployment levels are, what RPI inflation truly is, even how many foreign workers came in in the past three years or so..
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#90 (bring back Tony Blair) ??
Our kind of government as an idea doesn't really work. All governments are incompetent, the less power they have the better. I wouldn't trust one civil servant or govt minister (or worse the legion of consultants who are going to spring out of the woodwork and offer 'advice' for a healthy slice of the pie) to know a single thing about the FTSE 350 companies who are going to steal our money.
It would be nice to see a schedule showing these companies UK employment figures, UK taxation figures, UK R+D investment etc. etc. I suspect they don't contribute anything like the hundreds & thousands of SME operations that actual drive our economy.
And dont give me any of that twaddle about their 'supply chain's dependence'.In that case pay the supply chain, they are lean and mean and need the help more than the head office monster.
Less government please, allow the market and their customers and shareholders to work out survival of the fittest companies.
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#1 #54 #58 John_from_Hendon ref #11
What you are saying is that the income from money is more important than the money itself?
You have completely missed the true value of money.
If the BOE print more sterling (which it would need to otherwise there would be no money flowing as it would be stuck on deposit) due to the higher interest rates you suggest then what would happen to the value of the money?
IT WOULD FALL we’d most likely have out of control inflation.
Low interest rates as happened in Japan and some sensible fiscal policies and controlled lending and bank support and we have a reasonable chance of recovery.
Is growth at more than quarter 1/4 % to one 1% good?
I think not it’s why we are here now!
The compound growth at 1% or less would be fine the 2.5% target was and is too high.
The value of cash falls year on year due to inflation.
So in those high interest rate times you go ahead stick your devaluing money in the bank at a rate of 5% when it’s real value is falling by 8%. BASIC maths.
Now the value of money cash in increasing due to deflation it has a higher buying power.
Robert
We are all so IGNORANT to the mechanics of finance and the balance that is required to make the economy and society work.
We are IGNORANT of the basic facts and numbers.
I am saddened when I read so many idiotic comments PLEASE report the numbers the FACTS and the MECHANICS.
As you can see many of us are struggling with the BASICS!
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#108
Nothing, that's the problem.
The Chancellor's being totally ignored in the City as a lightweight who'll be gone in less than eighteen months.
In the long run, they're right. In the short term, he's playing the Sirens on Scylla to the Economic Charybdis, the banks are trying to steer a course between the rocks of Government support and the whirlpool of bankruptcy. They deserve the latter, having caused it to start churning in the first place.
Stand back a bit and notice that his new set of policies openly recognises that his earlier ones of supporting the banks have failed utterly, yet are forced to recognise them by reserving the committed funds.
The objective of the banking underwriting program was to ensure banks could offer credit to the non-banking sector. Instead, it was used to cover their losses, replacing external debt with government debt. That program should now be withdrawn and the banks forced to fall on their swords, as they failed to honour their commitments under the lifeline they were offered and a dishonourable bank is uncreditworthy.
The Chancellor can easily do so because these credit lines were only ever offered as a temporary measure, about the only wise action in the entire history of this embroglio.
Needless to say, he'll fail to do so because he believes the City's contribution to invisibles is the salvation of the economy. That's likely to be history now that Frankfurt seems to be the rock everyone's clinging to. This is why the balance of trade's going down the swanee, that particular economic Gulf Stream's stopped. Dead. Never to Go Again. Now the Old Lady's died.
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A general but very serious point point on the Moderation here.
The Moderator edited out from my replies yesterday a link to a December 2008 National Statistics Office paper on the economic demographics of income, linked to from their website. As such, it is official, current and relevant to the current discussion. None the less, the Moderator chose to remove it. That is grossly insulting to all of us, a complete and utter breach of his mandate, and is completely inadequate in a reply which already drew his attention to the fact that an Economic blog must present hard facts. Unless such practices cease, then RP has no right to pronounce on economics, having become a Government Sooty.
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If FTSE 100 companies need money firstly cut all their top salaries so that they are 10% less than the Prime minister until the loans are repaid.
If these people are so brilliant they will have no difficulty in moving on if they don't like the medicine and I can be certain that there are people within those companies who can readily take up the reins and perform as well if not better.
This should also apply to bailed out banks and ALL areas of the civil service and local authorities who are supported by taxpayer or ratepayer money.
It is a scandal that the Town Clerk, oh silly silly me, the Chief Executive Officer should be paid a kings ransom.
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If the governement are going to second guess there way through this then they might as well fully nationalise all the banks while doing so.
Citigroup paying out 11billion in bonuses?
More chance of landing a plane in the Hudson.
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Robert, you are being mischievous again - as usual. Yes we have got ourselves into a mess and although the next tranche of tax-payers funds may well be into the corporate sector other than banks it is not all bad news. Your writings always seem to suggest that all loans are bad loans and all loans go bad.
The truth is the complete opposite.
Most loans run to maturity perfectly normally and if a loan is to be replaced and there are insufficient funds from the normal sources then natuarlly in the circumstances the government may well feel they should step in. Whether one agrees with that is another matter but most of the loans will pay well and complete to maturity without any problems producing a revenue stream for the taxpayer. Banks do this day in day out in the normal course of events.
Come on now. You are on your scaremongering horse again. You remind me of the person who ordered the sounding of all the air raid sirens in England immediately after war had been declared on Germany just because one enemy aircarft had been sighted somewhere near our coast.
Are well, you are a journalist after all and good news is no news and bad news sells papers and makes you money.
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Will these FTSE 100 listed plc's that require Tax payer finance support, still be paying substantial dividends to their executives/shareholders?
I hope not.
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The quicker Flash gets on with the inevitable and nationalises the banks write off all personal debt, fill his banks with newly printed money; the quicker we can all get back to 2007 normal.
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Well at least this will please the lawyers.
A coach and horses is being driven through the Enterprise Act 2002.
No doubt the government will plead necessity.
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Will the interest on these loans be tax deductable?
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#102:
Quite right - this is not something (probably) that even the majority of those who voted Labour last time would want. And still there is no proper debate. Still, developments like this should make it even more obvious that politics has nothing to do with democracy.
If we are going to live within the kind of economic system we have got, then don't let governments distort it with bailouts of dead and dying businesses. They should be planning a new vision for the future, and a new economic order, that takes better account of the unintended consequences of "action" that we have seen so far, i.e. learn from mistakes.... not repeat the same ones.
Money is just a human invention - not a god-given resource. Of course, in a global economy it's necessaray to agree with the rest of your potential trading partners how you might want to change the system.
But you need to look to the motivations - just whom does it suit best to do what ever it is that they are doing? And why? If the power base means there is no motivation for change, then change will not happen until something happens to change the power base.
#119 - quite agree with your plea to RP: more about the basics! More real facts and figures. What is the value of money? How and against what "collateral" do we create it now? What effects does that have on our economic system?
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It's a simple choice. We either have a free market in which interest rates are determined by supply and demand, or else the government battles endlessly to ration what little credit it can muster at artificially low rates for "strategically important" companies while everybody else goes to the wall.
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I have no problem with us lending for growth and the creation of assets for tomorrow's child .
The real problem is with this grubby little Government who have cynically spent the kids inheritance for the sake of power at all costs and I mean all costs
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#124: a good observation. Most loans do get repaid. But there is a fear now that with the world economy falling off a cliff, it is much more difficult to predict which loans might survive, and which would go bad.
I still do not see why in this scenario tax-payers (and savers) should be forced to become the lender of last resort, and stump up loan capital at the cheapest rates?
Under normal economics, when you take on a higher risk, you expect a higher reward.
As others have observed, there are perfectly good bond and equity mechanisms for companies to raise money in a correctly functioning market system, even when banks won't lend. Bonds at 12%+ then?
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Which companies will the government support? Will it be based on the number of UK based employees and/or other criteria? Presumably the Government won't be guaranteeing bonds issued by those companies who have moved their HQs to Ireland and elsewhere overseas to avoid paying UK tax.
In any case, it is complete madness.
In simplistic terms, it seems to me that we have a couple of options. Stop the bail outs, cut public expenditure and live within our means. This will undoubtedly result in a large amount of the population suffering as a result of job losses and cuts in the NHS etc. The alternative option is the one which the Labour government seem to be opting for - quantitative easing - their hope is that this will lead to inflation and therefore reduce the real value of private, corporate and public debt. This will mean that everyone with net assets will suffer as the real value of these assets will be eroded by inflation (pensioners with no mortgage and savings is a good example). There is also a risk that we end up with hyperinflation.
I for one favour the first option but none of the politicians (labour or otherwise) has the guts to propose this. I think that the Tories would prefer this route but they back off every time a Labour politician argues that the Tories abandoned large sections of the country in the early 80s.
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ALL THIS TALK OF LOANS, LOANS, LOANS!
I've two very small businesses - swimming pools and business IT software.
WHAT BOTH BUSINESSES NEED NOW IS CUSTOMERS NOT LOANS!
It may be true that some businesses are finding it hard to breathe without more credit, but WHAT WILL SURELY STRANGLE THEM TO DEATH is a lack of CUSTOMERS!
If you want to solve this crisis it's no good getting your jacket off and digging for victory - DO YOUR DUTY - get your jacket on, get out there, and BECOME A CUSTOMER!! (and tell your family and friends to do the same)
YOUR COUNTRY NEEDS YOU!
Spend and others will follow but who’s brave enough to be first over the top eh?
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Re: Thursday's post. Nothing would change my attitude to the vendor of my knickers. That vendor used to
sell me high quality knickers made
in the UK and admired world wide. Today all its
knickers are second rate, made in foreign
parts, mostly in China. I wouldn't be seen dead in them. And foreign visitors to London no longer make a beeline to that vendor so as to stock up on its much admired knickers .
Carry on with the good work Robert. We need you to inject a little sanity into the madhouse.
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If there is less demand on the high street then either.
1) There has to be fewer suppliers of goods OR
2) the cost of the goods supplied has to fall.
basic economics 101.
Both these are happening with largish retailers no longer supplying goods (other retailers should gain with Woolie's demise for instance) and others reducing the price of their products.
To coin a phrase - if you have money then you have never had it so good - your money is going a LOT further now than a year ago (until higher priced goods (caused by devaluation of the pound) enter the market).
So the capitalist answer is: let those who cannot save themselves go tot he wall - the ones with correct business models will survive through provision of a better service and overall the consumer benefits.
What the Government is doing today is reminiscent of subsidising British Layoff in the 1970s. The corollory is that eventually they will get sick of doing so and the subsidised/ nationalised firms will either fail or be sold off.
Until then next recession of course . . .
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The spectre of things to come?
http://news.bbc.co.uk/1/hi/world/africa/7832601.stm
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Many of the comments here seem to come from the standpoint of "let the markets sort it out themselves".
It is this thinking which created this mess.
To my mind, the government has to do something to soften the recession, reduce job losses and stem the credit shutdown.
Everyone seems to think the Tories will do better, but so far their alternative seems to be "let the markets sort it out themselves" again, or "give businesses a VAT holiday", which is no better than the governments stupid idea of reducing VAT.
The measures Brown is putting in place now are indeed unprecedented, and as Robert correctly points out means there will be a new relationship between large corporations, the state and the individual. This is likely to happen regardless of whether Cameron becomes PM. There are larger forces than the Eton old boy networks' steadfast belief in Adam Smith economics at work here.
If this means the individual , through the state owning shares in businesses and thereby having some form of democratic right over their behaviour (subject to the vagaries of our voting system), then I for one am all in favour.
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So money created by small businesses (I run one) gets sent via government to big business. Screwed yet again!
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Anything to keep the ponzi scheme going eh?
The gig is up, I can’t see that there is a way out. Depression is upon us and the best way out of this is to give every uk taxpayer 50k right into their bank accounts. Some will save, some will spend recapitalisation occurs and the economy recovers.
We might as well give ourselves our own money as opposed to giving it to ‘big’ companies, what a disaster!
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# 17 StrongholdBarricades
"I would be able to demand much better quality of service and be treated with respect, because it would be my tax money that would be propping them up"
I don't believe it would work like this. Once you reduce this monumental mess to one-on-one transactions, nothing will change. Do you really think that as as single customer looking to exchange a pair of knickers with the stitching falling apart, or get your dodgy broadband service fixed you would get any better service by reminding the person on the other side of the counter/telephone that you are a shareholder?
I doubt it.
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Listened to some bloke called Peter Montagnon on Radio 4 this morning who was trying to justify fat cat bonuses....he is, with doubt, the most pompous idiot I have ever had the misfortune to listen to.
I am not quite sure just how he's going to extract his head from his rectum.
He just about sums up why we are in the state we are in.
John Humphreys you were far too lenient with him IMHO.
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119. At 09:22am on 16 Jan 2009, the1beard wrote:
#1 #54 #58 John_from_Hendon ref #11
What do you think happens to the money on deposit?
It gets lent, now there’s a surprise!
If the deposit pays a fair rate of interest, say RPI plus a little risk premium, the interest gets spent or if put back on deposit it gets lent to those who think they can increase value or satisfy wants.
The printing of money, quantitative easing to give it a fancy name, is what will certainly kindle inflation.
I think our problem is the value of sterling; low interest rates and an economy completely in a tail spin are hitting the value of our money.
Japan has a strong currency due to innovation and exports and low inflation. (As well as past artificial demand due to the carry trade beloved of our masters of the universe).
Japan is being hit hard by the recession, fortunately for them the Japanese still save, even with low interest rates. If there was no such Japan plc mentality and they had spent as we have, they would be in a ghastly mess. They are in the position they are because they suffered a similar asset bubble in the late 1980s. I recall being told the site of the emperor’s palace in Tokyo was more valuable than the whole of Australia.
We need to encourage not damage our savers before we can properly have low rates.
Low rates encourage borrowing to buy inflated assets, and that is why we are where we are. Your recipe seems to me to be one for more not less inflation in the long term. Hyper inflation occurs when the fear of loss in the value of money results in people rushing to convert it into goods. Governments print more money, the supply goes up and more cash is chasing the same goods or worse, diminishing goods as people anticipate price rises and do not release goods into the market.
Deflation is essentially waiting for the next fire sale. If you don’t have the income, because rates are low, you will wait longer.
As you stated: ‘As you can see many of us are struggling with the BASICS!’
I suspect you are one of us.
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the big problem here is the Banks and institutions are using their protected funds to shore up their balance sheets and the markets as ever are either driven by fear or greed or both (as in the Corporate Bond markets right now). Over the last 50 years, the extra cost of a "blue chip Company" whatever they are now, of raising funds in the markets (not something new driven by the lending bubble something that has happened for the last 50 years) was between 0.25% and 0.5% above that paid by the Government ie Gilts. Currently the companies that we all see as the most secure, Shell, BP, Tesco (whatever you think of them, they are secure) are seeing their Corporate Bond yields at around 8 to 9%, whilst the benchmark Gilt is around 2%...that is the current level of return that an investor can expect to maturity of their loan. this is the market either saying these Companies are about to go bust (irrational fear and therefore an unwillingness for any investor including pension schemes that desperately need these levels of income to invest) or something called a dislocation which could be called an artificial market being created to make someone somewhere money (greed).
If it takes a government to step in and force the issue good. If we dont the cost of borrowing for the most secureCompanies could be seen as at least 7% over base rate...where does that put the riskier ones and those that have had to be bailed out such as the Banks who are currently paying 14% on a small proportion of the bail out that will be repaid as quick as they can.
those who want the world to go back to the caves keep complaining, those who want the world to get out of recession with some semblance of normality (being able to get food, have heating, water, medicines etc etc) should say do whatever is needed. This is a guarantee nothing more and if confidence returns to any market we may actually have to see at some point a recovery and if this allows big companies to refinance themselves through pre credit rush methods, then they may be able to start some sort of confidence coming back to markets and that is what has to happen before the recession that we have been in for 10 months or so begins to turn
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This comment was removed because the moderators found it broke the House Rules.
1) #62 Jericoa - hope meeting went okay - if it makes you feel any better we're in same boat and I'm sure most other co's too.
2) The managment of this is just out of control. Yesterday announcements about help to SME's; today large businesses (so that's all businesses in two days but not at the same time as some sort of coordinated policy. Virtually every day help to bail out the banks. Its just a hotch potch of announcements and leaks (you have to think these are deliberate so effectively announcements).
And the numbers involved - I actually heard £20 billion this morning and in my head thought of it as a small number!
3) Finally with all these leaks and a lack of really IMO insightful and detailed reporting by the BBC I have concern that they are not really an independent TV channel but a state run outfit that we would view rather critically elsewhere in the world. Posters on this blog have been able to provide facts and figures much more detailed and thoughtful than any of the 'gloss' and sensationalism I have seen on BBC news - why don't you get some clever people round a table and have a programme maybe 1hr a night for a week (not live so you could edit out long squabbles) focussing on the crisis and looking at different scenarios of it and discussing possible solutions and what might happen if each one was implemented. Write it all down on a white board and email it to GB. This would not get huge viewing figures but I'd certainly watch it.
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#25:
No, I wouldn't dream of calling you old fashioned. I'll just call you perceptive, and someone who tells it like it is.
The Emperor really does have no clothes.
Oh, and talking of Emperors, that reminds me of an old joke:
Great Emperors rule Great Empires
Great Kings rule Great Kingdoms
Gordon Brown rules a Great Country.
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#120 rahere
thanks for your post in reply!
Now it makes some kindof sense...
GC
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Economics is everything we all really know, but explained in a language we don't understand.
For those posters who want to know how the economy actually works, all I can advise is to try to ignore the daily "micro" economic news about profits at M&S/Tesco, and a government guarantee to someone or other.
Instead, try to look at the "macro" trends. These will tell you in which direction the economy is generally moving.
The basic trends are:
(i) All asset prices are going down (stock markets, house prices, etc).
(ii) Demand within the economy is going down - companies and individuals are buying less goods and services than before.
(iii) Corporate profits are falling.
(iv) Employement is going down.
Therefore, there is less money around than before, and economic output is falling.
In other words, the world economy is falling towards an equilibrium where people only buy what they actually need. This means that those countries who are able to produce what people really need will perform better than those countries who rely on making goods which are not necessary for daily life.
The pound sterling is an improtant guage for the health of the British economy because we import much more than we export. Britain tends to import too many of its necessities, instead of relying on home grown. When sterling weakens it makes all our imports more expensive, which makes the necessities of British life more expensive.
The necessities are food, clothing, energy, etc.
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Call me stupid if you must, but surely all this debt is a sign of companies which have over-expanded on cheap credit and now should really be downsizing to live within their means? As the global demand for goods and services has fallen through the floor, then surely any sensible business will have saved cash during the good years and be reducing capacity and cutting costs anyway.
What HMG seems to be doing is carrying the can for over-ambitious businesses in the hope that they will not collapse. The fact that these same businesses either cannot get a commercial loan or is not willing to pay the price speaks volumes as to their percieved credit worthiness and/or their contempt for the tax payer.
This is just another nail in the coffin of Sterling. One trillion pound note anyone?
http://news.bbc.co.uk/2/hi/africa/7832601.stm
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has capitalism failed ?
well, it doesn't seem to be working.
is there an alternative ?
yes, but it would mean many having to live on lower salaries, or some pay more in tax, as the readjustment happens.
salaries for financial whizz-kids are very large but do they truly earn this money ?
after a car accident, who would help you more ? a nurse or a lawyer ?
in the UK, your status in society is down to what you earn, not how much you help others !
perhaps in the months to come, the new unemployed will find out what it was like for those thrown on the scrapheap in the 80's !
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Re: #140
Of course by dropping 50k into every person's account you'd stipulate that those who owe the banks xk of debt must clear said monies first.
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#11 the1beard
Isn't the idea to get ourselves and business away from the over reliance on borrowing - and to get banks on a more sure footing -
"The idea is to make the money work out in the real world not sleeping in the BANK." it's not sleeping money it's liquidity, something they should have had in the first place....
..... this is all starting to sound like the great 'releasing equity' scam, where you were considered a bit of an idiot if you had money 'tied' up in your house – it was BORROWING dressed up as something cleverer
#22 glanafon is right – people do learn (albeit temporarily). Despite us all believing we are individuals with limitless options, the reality is there are usually only ever 2 or 3 sensible decisions to be made at any one time and so, like sheep, we make a decision based on a set of circumstances unique to ourselves but find another 2 million people have made the same decision! This makes predicting trends slightly easier that it would seem – the skill is forecasting how many millions! One of the inevitable consequences of the past year is that one of the decisions people now have is whether to move from a borrower to a saver – and many will (far more than saver to borrower to counter balance) – certainly by the 100s of thousands and probably by the millions.......
We can throw as much public money as we want at this situation but the public are not going to buy in the quantities they have over the past 5yrs and have learnt that house prices aren’t going to increase at 10% per year for ever........
The Gov can save as many companies as it wants to... but it can’t force people to spend......... and for the foreseeable future they won’t - as banks have become more risk averse so will the public - until the next time of course!
1,000,000 people save 10GBP per week rather than spend and thats over half a billion less for the high street...
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I am currently in the process of trying to raise capital for a businesses and prospective offers generally include the following provisions:-
1. An interest rate of 15%
2. A double digit share in the business
3. Representative(s) on the Board.
4. Monthly Management Accounts
5. Exit Some, but not all, require Director lock-ins and PG's.
As the Treasury has the added bonus of recovering lending and Taxes (Corporation and PAYE) tihese arrangements should be a good deal for UK PLC if it mirrors pre-existing standards as set out above
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Browns "bad bank" idea stinks of election planning.
Swallowing up as much of the bad debt as possible to allow the banks to borrow again then after the election we will see massive tax rises everywhere and spending cuts.
The man and his party can't seem to accept that it's over for them.
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Hi
I seriously dont agree with the idea of bailing banks out. These continuous recessions which at the current rate we will see atleast twice in our lives point out a fatal flaw in Capitalism itself and bailing it out every time it goes under and calling it the new capitalism is just not sustainable. For a system to work it is very important that the people have the right attitude towards it. The reason it worked for generations before ours is because they had the right attitude. They were more patient, responsible and less complicated than our generation. They didnt look for shorcuts to success and they worked hard to earn their money. Our generation has a totally different attitude towards life. An attitude which says every thing is affordable creates a habitat in which Capitalism just cannot survive. So in my view bailing out banks is jsut like slapping the responsible people, who saved all their lives, in the face and agreeing with the irresponsible ones and their approach. Therefore in my view instead of bailing out the banks and saving capitalism, I think its time to start thinking in the direction of a New system which is more suited to our way of life than our fore fathers.
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There is just one word for the state of the economy (caused by this Gov't).....FUBAR!
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News today of more tumbling banks
New scaffolding being erected to prop up the facade
When will we actually get the truth about what is happening without having to revert to innuendo and speculation?
Can Brown actually ring fence the amount of toxic debt out there?
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uurrgghh I give up.
more blind lending to all corps will not curb CEO behaviour - Lehmans will be a foggy distant memory
govt and these big corps have to accept that not all bonds will be rolled this year, and some will go under as a result. there simply isnt the market cap on the investor side, or appetite, or trust. will we suddenly see massive cash injections in all corps across all industries?
and as per above comments, no input from electorate if they are happy to wear this
I guess I always did talk of selling up and moving to New Zealand - maybe 2009 is the year for that
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Simple solution to any listed company wanting to borrow money from the UK public.
There are three simple rules if you want the money.
1) No dividends or executive bonuses shall be paid until the debt is repaid in full. If shareholders don't like this well they can put up the money via new shares instead. If they won't put their money in why should we allow them to continue getting dividends.
2) The Chief Executive's salary will be limited to no more than Crash's.
3) The Finance directors salary shall not exceed Alistair Darling's and any other Directors salary shall not exceed the Ministerial salary.
If they don't like it tough! They can go bust or if they are that great a leader of people then find another job, Its very simple.
If they don't like the terms then they can raise the capital elsewhere. If they can't raise the capital well then beggars can't be choosers.
If they are such superstars someone will offer them more money. If no one else will wll then they aren't worth it and will have to stick with our terms.
Perhaps companies can scrap dividends and repay their debts. Novel idea I know.
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#124 Your conclusion that "most loans will pay well and complete to maturity without problems" is demonstrably not shared by traditional providers of finance.
As for your analogy of air raid sirens in 1939 - Well it may have been early but it certainly presaged some momentous events.
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120 rahere
I am simply an observer from a great distance as far as the city goes. I do not know a great deal about it. I am not bothered what people are paid, that is up to management and shareholders, as long as the activity is entirely commercial and operates within sound regulation. Neither appear to be the case at present. I do not believe anything has permanence in the City, as you appear to also consider. The whole thing has been built up in a matter of a few decades and can disappear equally quickly or quicker. The capital appears to be in China, so how long before the Chinese Government say we are going to target that sector. Let alone Frankfurt. You want money it comes in over wire. The wire can come form anywhere. A deal is a deal is a deal it doesnt demand a location, hence the deals moving to London in the first place. I would love to believe the City will remain and provide income. However I will wait and see.
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119 the1beard
please read 120 rahere (one amongst many others I could mention)
then you will appreciate that your actually very BASIC MATHS cannot help you.
Mathematics has a certain beauty all of its very own, but the real world is an ugly place where history, geography and the rest are at play.
Personally I'm with Disraeli most of the time
concerning trusting statistics of any sort.
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BBC Breaking News!
!!Man refuses to drive No God bus!!
Other TOP Stories this Friday Lunchtime!!
Sport still unaffected by recession miracle!
Pilot hailed for river crash miracle!
Brown hailed for economic miracle!
Bank of America bailout miracle!
Doncaster mum's triplets miracle!
Pirate music download miracle!
No Marines killed in Afghanistan miracle!
And later in the programme
'if manufacturing survives it'll be a miracle!!!!
and Ross is back if he's not booed it'll be a miracle!!
Repossessions, foreclosures, liquidations, court orders, seizures, warrants of execution, unemployment, borrowing, suicides, depression all up and nobody came...
GC
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So let me get this straight, as a taxpayer I've bailed out the banks and basically have to pay as much as it takes to keep the big ones in business even if most of this is their fault.
On the flip side I'm also going to take all the risks of the really big corporate sector even though I haven't bought any of their shares.
And during the whole process Virgin won't give me a credit card even though I personally have a spotless credit rating and my total debt amounts to 5.7% of my annual salary.
Remind me again how I, as a person, am benefiting from this? No one gets to tell me to be glad I still have a job, I was clever enough to choose a recession proof career.
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Radical times call for radical thinking, Robert.
Step 1. Remove Brown, very bad for confidence.
Step 2. Allow the opposition to set up some more representative/democratic bodies for distributing some of the funding DIRECTLY. Most of it to go to community funding, small businesses, local housing and development projects etc.
A much better society will be had by all. Trust me.
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#157 "There is just one word for the state of the economy (caused by this Gov't)...."
I'm sorry, but I think that collectively, we have the government we deserve. The global crisis is worse in Britain because of corporate and collective personal greed. The government did not cause this, it just rode the wave, rather than taking a reality check.
Collectively, our culture has been one which expects something for nothing via magically rising house prices, or shares. Then turn the capital into income. Or - don't work, become a "celebrity" instead. Or, don't study boring old engineering - take a media studies course instead. Whatever you do: spend spend spend on imparted goods, and never mind who makes them and under what conditions. Show the brand names - you are what you consume! Corporately, make money not things has been the dominant philosophy.
Now, like a primiitive society, we are probably going to sacrifice our king, in the hope that it appeases the anger of the Gods. I shall shed no tears from Gordon Brown, but unless the attitude of British society changes, our politicians will get no better, because, broadly speaking, they reflect who we are.
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Hi All,
Long time reader, first contribution!
Roberts question about knickers is a thought provoking one, but it is the wrong question.
What he (and the government) should be asking is:
How will hardworking taxpayers feel when they are made redundant by the same companies they have been propping up with their taxes, as the inevitable 'downsizing' takes place?
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#119. the1beard wrote:
disagreeing with my view of the nature of money as expressed in #1, #54 and #58
and
#143. sosraboc wrote: disagreeing with the1beard in #119
I am agreeing with sosraboc in #143.
Both capital and labour need to have a positive cost for capitalism to work, indeed for almost all possible systems of economic management to work.
The whole system collapses if either element is worthless. The very nature of a market fails and that is where the unwise and incorrect actions of the Bank of England and others have taken us. They are destroying the nature of the very basics of any economy.
Consider: If the cost of money is zero, why be efficient in its use? What method of market economic distribution is capable of managing such an economy? I know of none and I do not believe there is any conceivable method of the market to manage the distribution of capital. The key word here is "market".
Then it must logically follow that the1beard believes that he does not want a 'market' mechanism - but the only known alternative is a centrally planned system of state managed production quotas and artificial prices. What he is proposing is the right way to achieve such a situation. I don't, not for any doctrinaire reasons, but from the experience of the recent collapses of such systems (e.g. USSR) through gross and unmanageable inefficiencies.
I repeat, to have a functioning "market" economy it is, I believe, an absolute priority and prerequisite that capital must cost something. Capital (money) at present is priced at zero or indeed negative. This is insane and for as long as the situation is allowed to continue the longer the economy will get more and more inefficient and will spiral downwards and ever downwards. This is why interest rates must rise and rise sharply and do so now.
All of my comments in #1, #54 and #58 etc. follow from this.
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160 see 122
Great minds think alike or fools seldom differ?
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64 Jericoa
Promises and indications from others.
Any activity decision uses relevent history, conversion rates seen in the past. If history is seem as less reliable for current situation then usually decisions become more tentative. Usually it is hold position and consider consolidation. That can move like a mexican wave throughout the population that sees the same attributes presented to them. You need a critical mass for a mexican wave. Small populations cannot give it. Been studied.
Decisions are all about confidence which is why those that believe they have destiny on their side can make the most striking achievements, eg Alexander the Great. They can make the most howling mistakes but on the whole they create an optimism in the population that helps acheivement.
So decisions based on promises and indications will be founded on confidence - which is a variable - nothing else. Can you see a mexican wave.
As an aside. I know a highly skilled professional who works in London. Not finance, short term contract worker. Laid off recently. Back in his old activity now. Sometimes the decisions to downsize prove problematic, reality says some services have to continue, and surprise surprise there are limited people with the credentials, skills, knowhow.
I personally remain optomistic, I keep hearing positive things but that is within my environment not yours. I always consider, and consider is the word, not necessarily undertake, the implemention of the opposite to what others are doing as the delay in the feedback loop can mean the situation has moved on. Obviously if the situation is on a very long transition that policy can fail dramatically but it can provide a bit of fun and give new perspectives. It is not a matter of nothing to fear but fear its self, it is I have observed I make poorer decisions when emotional.
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Moderator banished my last post......try again with more subtle admonishments of corporate leadership
Firstly I do (grudgingly) agree with the need to prop the banks up....no point panicking the man in the street. Thus I hope to distinguish myself from some of the ultra-free market zealots
However. Propping up bloated corporates that have geared-up against optimistic asset valuations and now find themselves over geared?
My view is that the good firms so affected will succeed in re-financing through rights issues or new loans (albeit at higher interest rates) and bad firms are bad for a reason........daft management usually.
There I got that off my chest without having to call the bad management what I really wanted to call it......bunch of *****
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FDRs new deal effectively printed money, by raising the price of gold. It did not work, because the banks were too afraid to lend and companies too afraid of foreclosure to borrow. What did work, was putting money into ordinary peoples pockets via public works projects, and eventually production to support the Allies in WWII.
We can't just put money in peoples pockets in Britain, as too much will go on imports. What we could do though, is give every household a time limited spendable tax credit. Then give British manufacturers a spendable tax rebate based on a percentage of turnover. Put rules into place to make sure that supermarkets can't use this to mug their suppliers and pocket the profits instead. If necessary break up big supermarket chains - some at least have become a cancer in the British body economic.
Accept that free trade and globalisation has failed, in that it stops us providing for our own basic needs. Accept that we need some protection to rebuild our industry, and that that will result in a lower "standard of living" - though not necessarily a lower quality of life.
OR, eat humble pie and join the Euro, if they'll have us, and then it will be part of a collective European problem. The result will still be a lower standard of living, as prices will rise. But there might be collective security. Can we trust the collective sanity of Europe?
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Post 72 SashaClarkson is bang on, a two tear society is emereging here. Ok if you are a public sector ‘worker’ though. Not long til the revolution now El Gordo / comical Ali.
I see Zimbabwe are about to release a 100Trn dollar note, hope your watching Gordo!
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Completley off topic, but is anyone else concerned by the fact many of the Supermarkets are looking to expand during this recession (with reference to announcements from Waitrose and Morrison recently, and also Tesco who are building a huge non-food outlet near us).
Im all for job creation, but what will the long term effects be? If these companies are allowed to continue to increase Market share they will have even more domination once the recovery begins. In the future will the majority of us be employed by supermarkets? If thats the case lets hope the minimum wage is drastically increased.
Rather than finding ways to fund ailing business' the Govt should be seriously looking at the competition implications of the above, particularly for non food items.
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#160:
Couldn't agree more!
Sadly, it'll never happen. GB and his cronies are way too much in bed with their chums in big business for them to even contemplate anything that might hurt them.
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#167
Everything I saw re:
'magically rising house prices'
was that ESTATE AGENTS drove up the prices. The public went along with that because they had just too. The whole thing was urged on by endless CH4 'do up your house' shows sponsored by INSURANCE COMPANIES. Everyone knows estate agents did that, their offices exploded all over the country - anywhere demand might be seen as highest. They alone determined the market values. If you disagreed and wanted more - they wouldn't take it on. Which is by way of saying they certainly gave homeowners who were selling a great deal (and themselves). I've never heard of any seller complaining to an agent that the sale price was much too high.
Estate agents are now driving up rents, same as they did in the 90s recession, all urged on by TV too and media too telling the dispossessed what a great thing renting is and how fluffy all the landlords are.
There was a time, sure when just hard work and saving could bring you to a position where you could buy a house - but those days vanishedin the Thatcher era. If you're old enough to have been in work in those days you know that's true.
My own feeling about life in the UK was that costs of so many things and taxes went up so much so often that most reasonable folk (who would otherwise have worked, saved and waited their turn) got into buying and selling houses because it was the ONLY way they could raise money in relatively large amounts quickly.
And I speak as one who could no way afford to own a house rith thru 1990 to 2002 and I'm no spring chicken. I lived in some really awful rented accomodation. When I married 9 years ago, getting into the housing ratrace enabled my small family to move from a rented flat to a decent detached bungalow in the country. I saw this as an absolute priority. Are you saying that was a bad thing?
GC
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The market is great at sorting out short term things - whether humans want to do trade in food, building materials, medicines or spend their money on botox, fashion accessories, or football, or not spend their money at all. Let it do its job.
What it is not good at is long term stuff - infrastructure, energy networks - and dealing with the economics of sustainability. Lots of this needs skills to make it happen. We must find a way to preserve and retain those skills. What's being proposed so far isn't ideal, and ought to do more of what Obama appears to be planning for - focusing on strategically important infrastructure.
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It appears to me that there are no safeguards built into the Government loan/bond system.
The people who engineered the collapse while lining their own pockets are still in power ,sitting safely in their offices.
No one has been fired,no one has been arrested the dance goes on as usual.
The ordinary man in the street is losing his job daily because of some other person's(at the top.) continued incompetence,
when if ever will we see heads rolling at the correct level?
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Anyone complaining about how taxpayers are used/treated - the Guv't doesn't give a Four X about taxpayers.
They laugh at use behind our backs, have done for decades. They consider tax revenue as their OWN money to do with as they wish. Same at council tax level and same with every tax. I've spoken to enough people in the know to know that for sure.
Did you not know that?
You have NO influence as a taxpayer at any level - unless we all stop paying our tax of course - which is a splendid way of sticking two fingers up at them all.
We're just looked on as a Milch-Cow and thrown on the dump heap of life when we can't supply tax money any more, ask any pensioner.
GC
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167 sasha
I can take your point but I consider that the clear majority of blame lies (what an appropriate word) with the government. In what way has anybody voted for some of the policies put in place or being put in place. There is a responsibility in governance which has been abdicated. Undertakings made have been broken. Public opinion has been ingnored. In what way is the aspirations of the public misguided or otherwise responsible for this. As for the superficiality of contempary culture, a bit of education as to the rules of the game from the top would help. Individuals need to consider their actions more carefully but many are paying for them, in fact many are paying for others actions.
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#167, 173
You speak wise words today Sasha......not sure about the little kicker at the end though.
EURO???????????
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#167
brilliant summary of the basic root cause.
We took the iron pointer out of our moral compass and replaced it with a gold one.
The compass no longer works.
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Yes, this amounts to the replacsement of the vanished wholesale 'AAA' CDOs with HMG 'AAA' CDOs. This demonstrates serious lack of imagination in Jonah's team.
Its in-line with the absurd '2007' promise in the October bail-out plan and reflects a very simple-minded wish to return to the 'boom' times in credit. It is as if they have learned nothing.
What is being proposed is colossal debt as SOLUTION rather than PROBLEM. It wont work, the western economies are maxed-out on debt. The mid-70s is the nearest comparison and Jonah Broawn will soon be doing a Dennis Healey to the IMF.
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I’m only a thick JOE I can just about add up net assets net borrowings and net outgoings to arrive at what I believe is average low or high-risk position for myself. Unlike the wiz kids if the banking industry and the FSA GOV and BOE etc…
I can’t figure out how the global economy is going to get out of this mess unlike a few on here who think banks going belly up will fit the problem OMG.
It looks to me that what we’ve done so far just seems to be causing a rollercoaster ride in our financial system with big swings driven by short-term political vision.
I put forward the idea that lending should be linked to the amount of TAX which an individual or corporation has paid …so some sort of tool for the BOE etc to use in keeping borrowing at reasonable levels as the banks appear to be only to eager to lend on ANY basis as long as the profits are there for the next few months.
So X paid 50k tax over last 3 years X can borrow up to a total limit of a multiple of that amount say 4.777 times or whatever …
Maybe that would give long term stability it's not about the interest rate it's about the lending.! LOOK around you we are seeing that right now are we not?
At the moment in order to get the money out and working it’s better to have low interest rates who cares about spending the little extra interest earned on the savings as suggested by some that’ll do zip, it will force existing borrowers into insolvency.
The fact is low interest rates will make cash work harder to find better returns.
Yes Japan has a big manufacturing base but as has been pointed out above Japan was allowed to get into a far far far more ridiculous situation with it’s borrowing than we has here in the UK.
Japan had the Generation mortgage which was passed down from parent to child to child and on and on which drove property prices up to multiples of 100 times earnings in some cases. So the comparisons are not the same.
Here in the UK property prices remained affordable even at their peak in 2007.
I wish I had the answer but due to a lack of information political spin and my own ignorance about how it all comes together I along with the FSA BOE GOV and the general population will not be able to find the solution.
The Solution will work its way through.
Often the cure found in the cause. As in a snakes bite.
We just have to hope there can be a formula for stopping us getting bitten again by the snake, if we don’t die from this bite by following the path of killing off the possible cure.
143. At 10:26am on 16 Jan 2009, sosraboc wrote:
119. At 09:22am on 16 Jan 2009, the1beard wrote:
#1 #54 #58 John_from_Hendon ref #11
153. At 10:51am on 16 Jan 2009, thinkb4 wrote:
#11 the1beard
169. At 12:08pm on 16 Jan 2009, John_from_Hendon wrote:
#119. the1beard wrote:
#143. sosraboc wrote: disagreeing with the1beard in #119
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174. JavaMan1984
Two tear society?? There will be many more tears than that before this "thing" (slump) is through.
Joking apart, I am having trouble settling on a word for a downwards movement in the global economy (urrghh!) that didn't also imply some sort of corresponding upwards motion at some later point in time. I suppose slump will do for now.
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Hold on I see what some are suggesting
House is worth 10 quid
You have a million in the bank earning you interest of 50k a year.
RIGHT I get it
Upside down world !
Very good it might work
SO What we’ve done over the last 200 years was completely unworkable.
This is about SILLY lending practice not due diligence on the part of the banks borrowers and regulators.
And the expectation that we need to get 10% growth every year from every investment.
Especially cash in the bank.
Robert what do you think ?
errrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
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#167 sashaclarkson
I studied 'boring old engineering'....however, my job satisfaction is second to none. My company makes great high tech products with high nett value that are developed to specifically improve the environment. No two days are the same in my job (it's great!). I'm off to Hong Kong on Sunday (business) for the week; business class fights and 5 star hotels to boot!
India and SE Asia are where most of my companys customers are these days.
btw...I have never voted for Labour....and Labour never voted for GB.
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#167
Brilliant analysis of the UK's problem
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GC 180,
Excellent post!
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186,
two tier obviously, Pedantic sod :-)
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Just don't ask me to bail-out the erstwhile vendor of my knickers.
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185 and similar
I am starting to realise why my father always said never trust a man with a beard
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187 the1beard
...crazy world...
Nothing new, visit Box Hill near Dorking. fellow buried there best part of hundred years ago. Asked to be buried upside down, and wrong way around head to toe. Said the world was topsyturvy and if he was buried like that it would all come right one day. He's still waiting I guess.
A lot of heavily indebted big business is in trouble. A lot of credit is in short supply. A lot of people who like to spend credit are in trouble. A lot of people who could spend now are sitting tight. It is bound to cause problems. It does not mean that there is not still busness or opportunity in the future. Or that the spending hibernating will not awake in time. It is about survival. Everybody keeps quoting Gt Depression stats. The one that interests me is that evidently 85percent of businesses in the US kept trading throughout the event.
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#167 - I don't that is a 'brilliant' post..
The global crisis is worse in Britain because of corporate and collective personal greed.
Yeah? On what do you base 'personal greed'?
Maybe I'm mixing in all the wrong circles but most I know - by an overwhelming percentage - are just regular people working harder than ever for less and less and just, honestly and decently trying to do their best.
As if the guv't needed any help to absolve themselves of ANY responsibility for this economic mess you're playing right into their hands blaming the population as a whole in that insulting way. Do you work for them? You should.
GC
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What would you think about lending a few bob to a giant FTSE-100 company?
I am totally fed-up of lending money to the Country and the work-shy.
I am fed-up of hearing how the Government will help families, pensioneers and those who are receiving benefits (the poor in our communities).
Someone, somewhere should consider the single amongst us whose bills, mortgages and cost of living is no less and in fact on a percentage is more expensive. Most of us have worked for years, have never claimed any benefits, paid our taxes and still pay our bills and mortgages - living hand to mouth and with a real fear that when our mortgage deals come to an end we will be unable to get a new mortgage because the value of our properties have fallen and because our greedy banks/government NEVER want to help those who have always paid their way and never asked or expected anything.
Wouldn't it be nice once in a while to be rewarded for being honest, law abiding, tax paying citizens? Wouldn't it be comforting to know that the Banks/Building Society's would look upon those of us who have never missed a payment and say "ok, you're living within your means, you always pay your mortgage and you go without in order to achieve this - so we'll give you a good deal to keep you on as you are the sort of customer we like".
Fat chance! Well I hope you are grateful for your Fat bonuses and sleep well at night.
I earn £17,560 a year and live within my means!
Thank you for reading.
Ann
North Wales
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#185. the1beard wrote:
"Here in the UK property prices remained affordable even at their peak in 2007"
WRONG - the Bank of England now admits that it set too low interest rates during this period. The only way mortgages were affordable was at wrong and too low interest rates.
The crunch had already started its inevitable downfall.
Multiples of earning should NEVER have been allowed to exceed the long term average. It is an absolute myth that at proper interest rates the mortgages lent during the most of this decade were affordable - if they had been, we would not be in the appalling situation we are in NOW!
By continuing to state this error you are compounding the error.
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Isn't it time for bankers and PLC directors to be forced to take pay cuts??? After all, they are, or will soon be, civil servants now that the tax payer "owns" them.
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194. At 2:39pm on 16 Jan 2009, glanafon wrote:
...The one that interests me is that evidently 85percent of businesses in the US kept trading throughout the event.....
This is quite different though.
The world economy is far far bigger who knows if the impact will be more or less severe.
One thing is for sure though and that is today the speed of change is far far faster than it ever has been.
Ever the optimist
I think
Today we should see faster recovery time.
Bigger Global economy will = less severe impact.
The stall will not end in a crash but maybe a belly landing into water where we will survive but the vehicle will be a write-off.
I fear
WAR
DISEASE
And
Incompetence at the helm.
After all it’s only money we’re talking about at the moment!
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#196 Ann - could not agree more with:
"Wouldn't it be nice once in a while to be rewarded for being honest, law abiding, tax paying citizens? Wouldn't it be comforting to know that the Banks/Building Society's would look upon those of us who have never missed a payment and say "ok, you're living within your means, you always pay your mortgage and you go without in order to achieve this - so we'll give you a good deal to keep you on as you are the sort of customer we like"
Well said indeed. Same might well be said of the tireless Inland Revenue, VAT individuals who seem to think everyone's on the take or worse and struggle to be er, 'cordial' as if they'd earned the tax themselves, plus council tax collectors, DVLA, BBC licence fee collectors et alia, never mind the supermarkets and filling stations and all the others who gain so much from us every week yet whose staff can't even remember your name or don't care to.
Can't be expected to learn your name because you're too big? I hear you that all the time. Get smaller and re-learn some courtesy and good manners if you ever knew any is my strong advice. I can recall the name of virtually every client I ever had, what they do and where they live and what their cars and engines are and it's called 'PUTTING PEOPLE BEFORE PROFIT' and it opens doors, you bet it does.
GC
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There's been a lot of posts discussing the value of money. This is one of the major reasons why we are in the mess that we are presently and why we will be even deeper in the mire as this depression/slump escalates.
Money is merely an exchange mechanism nothing more and nothing less. However, both here and in the US, we have made it into an entity in its own right - almost a god! The clever shysters in The City and Wall Street created more and more complex money making schemes. Their sophistry led to both their and our downfall. Suddenly profit was a dirty word and lines of credit became the goals. Debt was no longer a thing to be avoided but, in fact, 'valued' as a sign of strength (just look at how much debt I can service!).
We are focusing upon totally the wrong thing.
many have pointed out that one of our major problems is our imbalance between imports and exports. Our focus should firstly be on that gap and how to fill it.
In the short to medium term, we are not going to be able to increase exports sufficiently to bridge the gap for 2 major reasons: (a) we do not have the firms under our control to produce the goods and services that are required by the rest of the World. and (b) the rest of the World is also in the grip of a depression and therefore demand is greatly reduced. Therefore our concentration must be upon domestic satisfaction of our needs. If taxpayers money has to be used, this is the area that should have first call upon those resources.
We will never get to a position in which we are truly self-sufficient. However, with creative input we can make a major dent in the import levels. In so doing we may aslo develop firms and technologies that have goods and services that are demanded by other countries thereby gaining a competitive advantage.
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When we were young, for me the early 1950's , we were taught about right and wrong and that the truth was important. It seems this was incorrect.
I have watched the liars and crooks prosper and gain positions of great power.
I have watched my pension evaporate just as I was hoping to take it. I have seen my savings income slashed.
I have been made redundant, my small pension, far less than half average wage, means I cannot get unemployment pay and my limited savings mean no benefits.
I apply for jobs and I'm too experienced, the politically correct and litigation avoiding expression for too old.
I watch the feckless prosper, the villians glorified, (watch most soaps) and lottery winnings being more acceptable as a source of wealth than hard work.
My children and grandchildren will be expected to pay the debts GB is accumulating
and the feather bedding the public sector now seems to get.
Only one thing Gordon.
My children have recognised what you have done and like many of the brightest and hardest working, they are looking to leave these shores.
Who is going to pay it all back? Certainly not the millions on state support nor the millions of minimum wage workers and certainly not the wealth creators; they will all have gone.
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197
Multiples of earnings did rise for the good reason that interest rates were less than half of their 1980sand 1990s equivalents, and when yolu look at the interest cost of the mortgages they were just right.I would much rather go back to those days which were not as unsustainable as you make out.
For the first time people were able to make substantial inroads into their mortgages , or buy 2nd properties.
It was not all mass consumption, a lot of it was buying flats for students, helping people to buy their council houses ,people downsizing to live the good life.
Why should we all be interest rate slaves, for goodness sake Gordon has done a fantastic thing keeping interest rates down.
The TORIES WOULD HAVE US ALL REPOSESSED!
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Debt is only of value to the economy so long as you have income to support it, and that income is not diverted from more productive uses. Once that changes, it becomes an albatross that only compounds exponentially as time passes. Moving on the liability to someone else also lacking the income to support it, changes nothing. Nonperforming assets do not perform. Recovery for the creditor may be close to zero in a "knowledge economy", with no business assets to pawn and JIT stock inventories. The bottom will fall out of the secondhand server market and that's about it.
Saving jobs is often given as the only reason anyone has to hear to support a bailout to save a company. It is as though it justifies everything in and of itself. But what is the value of a job? Are some jobs net costs to the economy, creating credit-funded distractions for consumers and misappropriating wealth from the present and with interest, the future? We might ask whether in this environment a holiday or hospitality firm would be worth saving with taxpayer debt. I am certain that before long, we will be asking.
A year is a long time between budgets. We can fancifully imagine quarterly budgets once defaults peak, but a failed bond auction or two and it's over.
I do not understand people who say such measures will help. As pointed out above, credit guarantees do not ensure customers walk through the door and buy. They do not guarantee cash flow. They do not instill confidence either. In the event of default, the taxpayer assumes the loss. Then what? Who would do business with a company whose debt the government was forced to cover? What about next time, they will be thinking, and they can read the public balance sheet too.
The only thing such measures do guarantee is contagion.
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#203. onward-ho wrote:
"I would much rather go back to those days"
Ahh, the good old days of cheap money, but I am afraid that it was all illusory. It was a bubble economy, just like the Tulip and the South Sea, Tea Pot Dome etc., etc..
The point is that the affordability was a fraud and fake. No matter how much you would rather go back to it.
PS I have no time for the Tories either.
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#201. foredeckdave wrote:
I agree about the need to make things and export them, however without a stable currency exporters get slaughtered by currency movements. This is why we have a better chance of recovering by being inside the Euro, our major market, than outside - it eliminates the uncertainty of a floating currency.
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The banks should have borrowed money themselves, as Barclays did, and not from the taxpayer.
Robert could you get it through to Gordon Brown that it is taxpayers money and not government money that he is spending. It really does grate when he keeps saying government money is funding the many "initiatives" he keeps announcing.
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197. At 3:19pm on 16 Jan 2009, John_from_Hendon wrote:
#185. the1beard wrote:
"Here in the UK property prices remained affordable even at their peak in 2007"
By continuing to state this error you are compounding the error.
Ok maybe. Who knows in this the land of the numerically challenged and the human mushroom (kept in the dark and fed you know what)?
Here in the UK we have had 100% plus coverage mortgage costs on yields.
In mainland Europe prime rental has historically a negative yield or cost of carry.
So mortgage 1000euros and rent 600euros is common if you don’t believe me go and see for your self Paris Berlin Rome etc etc.
They build into the cost the appreciation in the property value.
So here in the London prime property has been relatively cheap.
It is has and if history tells us anything will be the best possible investment anyone can put his or her money into.
Work out the cost of carry on stock in a warehouse. If you view property as stock then the tenants pay for the storage and the cost of carry.
Maybe affordable maybe not you work it out and get back to me.
I’m totally open minded on a 10-20 year view that is not this 12-month nonsense the UK and the US appear to be obsessed with.
BUT THEN WHAT DO ANY OF US KNOW in this upside down dumb world.
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197. At 3:19pm on 16 Jan 2009, John_from_Hendon wrote:
#185. the1beard wrote:
"Here in the UK property prices remained affordable even at their peak in 2007"
WRONG - the Bank of England now admits that it set too low interest rates during this period. The only way mortgages were affordable was at wrong and too low interest rates.
NO NO NO NO
WRONG – the bank of England the Treasury the FSA the GOV
Allowed the banks to land in a very easy manner which went unchecked
Until we now find ourselves in a situation where the borrowers are unable to pay back the loans.
Nothing to do with the cost of borrowing!
Derrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
They are still the thick ones in all of this are they not ??????????
Robert Please EXPLAIN THIS TO US THICK ONE ME INCLUDED it’s probably more complicated????
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Thank you guycroft for agreeing.
I am totally in agreement "people before profit"! To try and increase my chances of getting a new mortgage deal - I set up a business in my 'spare time' - I put my members first and seem to be doing something right for the business is ticking over nicely and slowly growing and guess what I didn't 'borrow' any money for this venture either. Will I be rewarded, I doubt it, for the value of my home is still falling and I am very concerned about the mortgage situation.
Walking up Snowdwon 2 years ago, I, an ordinary citizen(!) during a conversation with my fellow walker predicted this unholy mess we find ourselves in, without choice, I don't have a degree in economics, I don't have a degree in mathematics and I'm not a statistician! Maybe I'm just psychic?!
Let's get back to basics - it seems that everyone is always concerned with a larger picture when actually the answers are there in front of our noses or maybe I have a particularly good nose?!
Ann
North Wales
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Seems strange that having told us that debt is bad and it was this that caused the whole issue in the first place, we now seemingly are being told 'OK so debt is not good, but our economy depends on it - go spend'
As Mr Peston said some days ago' the spending boom has come to an end' hence people are being more realistic and spending less. Problem is, the economy and all big industries are geared to the previous easy credit level of spending. Logic therefore pours water on the fire by making the undeniable statement that;
Less demand = need for less capacity
I'm all for the idea of protecting jobs but only when the above equation does not apply. If demand for any product falls, then we make less of it. To use taxpayer money to maintain over-capacity until 'demand picks up again' defies all the principles of being in business.
I do understand WHY Gordon Brown feels the need to do this - businesses are there to make profits for shareholders and will not allow losses. Businesses like Tata are not charities and will not keep pumping money into JLR with no return on the horizon, they have and will continue to downsize. Hence with the imminant collapse of the economy, Gordon B is faced with having a qeue of businesses asking for 'support to see them through this difficult time'
Thus we return to the first point - now demand has receeded what exactly are we hoping to acheive? Demand for JLR products has not dropped purely because credit is harder, a big factor is that people are taking more care with their money and spending more within their means. So all we do by supporting businesses in this way with taxpayers money is postpone the inevitable.
As I have said many times on here, we are just at the beginning of this downturn and things will get far worse before they get better, this thing has to take its course. Ask yourself this, can you spend your way out of debt? can you borrow your way out of bankruptcy? from my chair, this is what the government appears to be doing.
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Correct me if I'm wrong, Tax once paid to the government is no longer ours. We have no or very little input as to where it goes or what is done with it. I don't belive for one minute, if all the recent loans from the treasury were paid back plus the interest that we as taxpayers would receive any sort of dividend from it, regardless of which political party were in control at the time. In view of this I think lower income earners (70k) or less should receive a substantial tax rebate to either pay of debts or spend thus providing a kickstart to the econemy.
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What I find DISGUSTING is that we, the taxpayers bail out these businesses... Then the greedy swines continue to rip us off more than ever.
Im talking credit cards whose rates havent dropped despite BaseRate being lowest in history
Bank Charges havent reduced: I had 98 pounds of charges slapped on this month for going ONLY 7 UKP overdrawn. Sickening.
Mortgage products with a 795- 2000 UKP fee JUST to keep paying your mortgage with the SAME lender.
Cannot now get a mortgage deal because the rules have changed to 25% equity in your house so only option is SVR. (usually a rip off as doesnt follow base fairly)
Banks Instanly reduce savings interest but take MONTHS to pass savings on to us.
Hmm all down to greedy banks.
I hope they go bankrupt and someone starts up a credit society that actually benefits both parties rather than pays bonuses the size of my entire mortgage each year to fatcats.
Its such a rubbish life for the honest.
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Robert, in the end it does not matter a hoot. If the business cannot find customers the money is wasted. If customers cannot obtain unsecured credit or are unwilling to buy then the business will collapse anyway.
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One has to suppose there is no easy, quick fix answers to the mess in which we find ourselves, and when I say 'we' I mean 'we' all over the world. This situation has been brought about by the egocentric megalomaniacs who have run the world banking, finance and economic systems at least for the past 30 years and whose limit of vision has been, and still is, their own greedy, avaricious rewards, irrespective of the wider impacts of those actions.
The situation has been exacerbated by the 'export' from industrialised countries of our production of goods and, in many cases, intellectual property, not for the greater good of the majority but only to line the pockets of the 'chosen' few who have syphoned off the swollen profit margins gained from using low cast production methods in the far east especially. In that respect, I was quite incensed a few days back when the 'top dog' from Unipart advised us that what we needed was a balanced economy which, in round figures, must be 50% manufacturing and which is the only way of real adding value to finished products. The audacity and crassness of that person almost beggars belief. It has been the likes of him that has systematically dismantled our industries and enhanced their bottom lines for the benefit of the few with low cost goods from overseas. One has to wonder just what percentage of Unipart's sales actually originate in the UK.
Returning to banking and financial services, am no advocate of state ownership, but if we continue to allow a laissez faire situation to prevail in the running of especially banking and finance, society shall permanently reap the rewards it is presently suffering. It is self evident that the charlatans and megalomaniacs who run these enterprises cannot be trusted to be left to their own devices. They have demonstrated their dishonesty, greed, avarice and ego-centrism beyond all reasonable doubt and now is the time to curb their excesses, which they are so evidently incapable of controlling for themselves, by appropriate legislation.
Let those charlatans moan and groan that they will not do the job for less than they consider they deserve. I am sure there are a great many other far more than capable people on the outside of their cosy club who will be most willing to take up the reins with much more self restraint and responsibility and for considerably more modest rewards.
To conclude, why is it that these common criminals who have brought about such misery and distress for millions have not been apprehended, punished and stripped of their assets for their antisocial actions and misdemeanours? Had they been just ordinary folk committing some petty crime of little impact, the various states would have been throwing every means of punishment at their disposal at such poor unfortunates.
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#209. the1beard wrote:
"On house price affordability in the 2007"
Let me have a go at explaining to you why Sir John Gieve (late Deputy Governor) admitted that the Bank of England knew it should have raised interest rates in the early 2000's. This was essentially because of the huge level of unsustainable inflation in house prices.
Now the BoE/MPC has responsibility for formulating monetary policy. As set out in the 1998 Bank of England Act, the monetary policy objectives of the Bank of England are:
(a) to maintain price stability, and (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.
Price stability is defined by the Government’s inflation target, of 2 per cent measured the Consumer Price Index. The BoE/MPC is responsible for setting policy to meet the inflation target.
So if, let us say, I fiddle the CPI I can get the bank to be 'forced' to set the wrong low interest rates to create an unsustainable economic boom based on under priced unsustainable borrowing. (The CPI excludes the cost of housing and also includes other dubious adjustments.)
This is precisely what happened. But to paraphrase Sir John Gieve's words "the country would not have understood" if we had set interest rates at the proper (far higher) level to put a cap on house prices.
The Bank did not have the intestinal fortitude to stand up and do what it knew it should have been doing!
So in summary interest rates should have been substantially higher, and that destroys any from of affordability argument.
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I must stress the difference between regulation and ownership for everyone's benefit here.
Many readers point the finger of blame at the "markets" or the banks, and conclude that public ownership is the answer. Unfortunately with that comes a multiple of GDP in liabilities, including those denominated in foreign currencies, as Iceland discovered and Ireland will shortly. Let us hope we pull back from the brink.
It is possible and preferable to have public oversight without public ownership. This can be achieved through effective regulation and law enforcement. This has failed. Not the market. Not the private ownership model. Only the part where professional negligence and criminality went undetected or ignored. Some reform is required, I have previously made several specific suggestions, but a lot of what happened could have been stopped, if only existing laws and regulations had been enforced.
Maybe for the sake of confidence, investigations are better late than never? It sounds cheaper than owning the garbage and less of a red herring.
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Simple
Give money to the public to spend via paying a percentage of their mortgage or any other loan they may have -the funds will eventually filter through to the banks- or even the gov to pay directly on our behalf-that the economy starts again- ig I wanted to buy a new car which I cannot afford let the government help me out and not the institutions. we would all be better off
rgds
Tony
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If the helicopter solution is called for, the best way of doing it is to give everybody an income tax refund for the last year.
The poor are helped already, those in the middle who suffer the most will be helped the most; the tax-free fat cats will get nothing.
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Here's the basic conumdrum.........
How can we trust a person who history will show has made a series of catastropic economic decisions over the last 12 years to make the rigth decisions now to get us out of the mess that they are part-architect to?
It's like getting a bad hair cut and then asking the same barber to perfect the cut. The fact they couldn't do it in the first place proves their inability to deliver second time round!
We have been marched by this man to the top of the cliff for 12 years and now like leemings we are going to let him push us over the edge with his obvious inability to avoid a Depression.
How much more sleepwalking does the British electorate intend to do?
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216. At 10:41pm on 16 Jan 2009, John_from_Hendon wrote:
#209. the1beard wrote:
"On house price affordability in the 2007"
SORRY I obviously haven’t made myself clear.
I believe that the FSA GOV Treasury BANKS et all have failed to grasp a fundamental issue here.
IT is NOT about the interest rate level IT IS about the amount of borrowing which is ALLOWED!
They can’t see the wood for the TREES?
Sir John Gieve (late Deputy Governor) etc etc
They have all missed this fundamental point.
The reason we are where we are now is not due to low interest rates it is due to lending to those I call (MONGERS don’t know why?) who don’t deserve to be lent a penny because when they borrow they have no concept of the fact that they will need one day to repay the borrowed money!
Now these MONGERS UK MONGERS are bad but US MONGERS have been unbelievable.
The Sir John Gieve’s of this world have failed to stop the onward march of the MONGER as they are using the wrong tool they are trying to make the borrowing expensive rather and not allowing the borrowing!
IF you do NOT understand this then you are like the clever clever maths grads and the bankers and the regulators and the ratings agencies that cannot see the wood for the trees.
Go down to your local shopping Mall and look at all the MONGERS buying 12 thousand pound Plasma TV’s on 22% credit cards, they don’t care what the interest rate it they don’t care about paying the debt they are such thick MONGERS they just care about getting the 12000 pound telly.
Now we can’t get more fundamental than that.
For get about the minutiae of 1 or 2 percent here or there it about idiots MONGERS being given the loans and the IDIOTS who lend them the money.
Pleaseeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
WORK IT OUT AND SPREAD THE KNOWLEDGE not THE misinformation
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MONGER? Maybe my subconscious equates the name with UGLY BORROWERS?
There needs to be a way of judging the borrower and at the moment there is little in the banking system which regulates who and how much we all are allowed to borrow in total.
IF anything the system works in an upside down way allowing lending to high risk MONGERS at higher rates effectively forcing the MONGERS to pay more in interest rates than the LOW risk borrower.
It’s madness that lenders are prepared to lend to high-risk individuals at a more expensive rate that a low risk individual.
The reason for all this NONSENSE is political.
How can the GOV stop MONGERS from borrowing and how can the GOV stop the MONGERS getting the same cars TV houses etc etc as the rest of the hard working population?
ONE DAY the MONGER is going to go POP
mongers are going pop at the moment.
I think the banks have realised it’s time to stop lending to the MONGER.
So they are going to see how many MONGERS go POP.
The trouble is that the MONGER affects all of us because the banks have regarded the MONGER as a non-MONGER the banks have underestimated!
This is a POLITICAL minefield
Because the MONGER is Gordon Browns best friend he does the majority of the spending and voting.
GORDON wants to save the MONGER.
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This puppet poodle Peston reminds me of the old Sovet Union joke about Pravda and Izvestia which respectively contained no truth or news.
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143. At 10:26am on 16 Jan 2009, sosraboc wrote: to the1beard
What do you think happens to the money on deposit?
Well sosraboc
You amaze me it has been left in the banks as you can see no one is investing or lending it at the moment.
I agree from here…………..
Deflation is essentially waiting for the next fire sale. If you don’t have the income, because rates are low, you will wait longer.
As you stated: ?As you can see many of us are struggling with the BASICS!?
I suspect you are one of us.
……………………to here
I’ve already said I’m one.
Deflation is indeed waiting for the next fire sale, what I’m suggesting is that money is not kept on deposit but used to invest and fund the investment and work at adding VALUE rather than sitting in a bank deposit account to MAYBE be lent out by the manager of the deposit account banker look where that has got us.
It is obviously counterintuitive to you and many others, but blindingly obvious to others IT is blinding me.
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Robert,
Could I please ask a very basic and naive question, as one who is boggled by all this economic stuff ..
Government borrowing - where does the money come from? Where was the money before it was borrowed? Whose is it? How much will it cost to pay back?
To my simple brain, money cannot be "created" without causing inflation; neither does money disappear - it merely moves.
So where is all the money this country has "lost"?
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Robert,
Whilst you appear to sound as though you've a grasp on what's actually happening - as much as anyone seems to, at least - I think you have single-handedly made a very bad situation, significantly worse. The media are culpable, but you sit at the very nadir of the hysteria that has dominated the coverage for the past 4 months.
The initial mess was one of irresponsible, largely unregulated (or manipulation of such regulations as actually exist) gambling with money and money markets - much of which never even existed, by bankers and associated industries with, at best, dubious morals.
Few of us could deny an element of glee at the theoretical price of our houses continuing to increase to evermore ridiculously unsustainable heights. The likes of Northern Rock and many other banks fuelling the fire by lending to people who they knew would be unable to keep afloat on properties which were never worth the mortgage is beyond doubt and I am certain that those responsible for this immoral mis-selling should face criminal charges. I'm sure they will in the US, but we'll pussyfoot around and fudge the issue.
However, a situation that should and could have been contained and confined to those unfortunate people who conned themselves into believing they could have a piece of the pie and one or two banks deservedly sinking as a result, has now spread like a plague - indisputably as a result of your daily screaming.
You fan the flames of a self-fulfilling prophesy that has brought this country almost to its knees. Most people were not worse off as a result of banking's self-made crisis, but the doom and real depression that afflicts the majority of those people I come across - people who don't even have mortgages or businesses and whose food, petrol and other day-to-day expenses continue to fall - is palpable and their listening to your apparently unbiased reporting of so-called facts is talking them out of a job.
You need to either change the record or take a period of enforced rest until this blows over - and you need to take the feckless, dour Brown and hapless Darling with you, where you can't continue to hurt us.
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I have been off work since Tuesday which, for once, means I have been able to do some long overdue tasks.... e.g. doing my bit to help the economy along like ordering a new door (the old one has had a broken lock and been leaking like a sieve for the last 2 years); and today buying a new bed - the first in over 20 years. So, no, I'm not wealthy, in fact earn substantially less than the average income (is that still £24K?) but recognize that these bargains aren't going to last for ever and I am replacing essentials at never to be repeated prices.
So having been out and about for the last few days I've been noticing just how hard the economy has been hit: the gaps in the shopping streets; the desperation on the faces of some of the salesmen etc. etc.
Then, bumping into an old friend I haven't seen for some time, we went back to his house for a chat and turned on the TV to look for any news on Allied Irish Bank. His bank, currently giving him a hard time and which has lost 97% of its former value. Billy was rather hoping it would go bust to give him a few months lea way. I suspected that was a rather optimistic proposition and sure enough it has been rescued by the Irish Government which has also helicoptered in a former deputy Tiasoch as a non executive director and provided 2 million euros of capital in return for 8% annual return on investment.
The news didn't mention AIB but featured a man about to lose his home, and showed a (97% i think) increase in repossessions for the last quarter in comparison with the year before. My friend who own six properties commented that his mortgage payments have reduced so much that he is now in receipt of above the average income in terms of rental but the bank is still trying to squeeze him. In addition, banks and building societies are putting people on the street but instead of selling at auction are letting out the repossessed properties:
1 This provides an ongoing income line
2 Allows them to wait for prices to rise
3 Enables them to still pursue the poor people whom they have made homeless at further cost to the tax payer.
We ended up SCREAMING at the tv. How immoral, outrageous and disgraceful is this behaviour by corporate bodies when WE tax payers, without any opportunity to vote or debate the issue, are lumbered with paying the bill to keep them in business. The (expletive deleted) people who are causing all this misery are no doubt still employed and driving round in expensive cars. They must be laughing their socks off at our expense. What is wrong with the govenment that it can't bring in measures to prevent them from further exploiting the very situation they brought about.
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