Taxpayers' short-term loans to business
The government will tomorrow announce three kinds of financial support for small and medium-sized businesses.
And the first thing to point out is that the potential cost to the government of the measures in respect of public spending is just a few hundred million pounds - even though taxpayer guarantees for loans will be at least £10bn. So it would be wrong to get carried away with the significance of all this.
But if the schemes work, they would help small and medium-sized companies to refinance some £20bn of debt that falls due for repayment this year.
They are designed to reduce the risk that large numbers of companies will collapse as a result of the reluctance of banks to extend credit.
The government wants to persuade banks, for as little cost as possible to taxpayers, to keep afloat, through the current recession, those businesses that are fundamentally sound.
Help will be targeted at companies of a middling size, with turnover of up to several hundred million pounds a year: not the very smallest businesses and not those big enough to be able to raise funds directly on capital markets.
And it's all quite technical, involving financial engineering that some may see as too complicated.
Probably the most eye-catching of the measures will be the provision of perhaps £10bn of taxpayer guarantees for short-term corporate loans provided by banks. These loans would cover medium-size companies' working capital requirements, or their day-to-day financing needs.
These loans aren't particularly risky. And although they have become harder for companies to retain, the withdrawal of working-capital finance by banks isn't the biggest problem faced by most businesses.
So some may see it as odd that the government is providing substantial working-capital finance. But here's where the financial engineering comes in.
Taxpayers would guarantee around 50% of these working-capital facilities, so they would support around £20bn of credit to companies.
The tit-for-tat that the Business Department and the Treasury is imposing on banks is that if they take advantage of these taxpayer-backed facilities, they will then be obliged to provide longer-term loans to sound, relevant, needy businesses.
Or, to put it another way: ministers hope that by reducing the requirement of banks to finance companies' working capital, the banks will be prepared to take a few more risks in financing companies' investment and longer-term needs.
We'll see.
Some will argue that the scheme does the opposite of what the public sector should do. They would say that only the public sector and taxpayers have the stomach for taking serious amounts of credit risk right now - so we as taxpayers should do this, rather than providing these relatively risk-free loans.
That said, the Business Department will enlarge a separate scheme, called the Small Firms Enterprise Guarantee, which will involve the public sector taking quite significant risks in financing firms regarded as vital to the long-term needs of the economy.
These would be companies involved in developing products and services with what's known as a high "knowledge" content - or those with the potential to generate significant exports and to underpin the competitiveness of the UK.
Right now, these businesses are having extreme difficulty raising finance. So the government will guarantee up to 80% of loans to them.
These would be riskier loans, which could total several billion pounds in total over time. And therefore the eventual cost to the taxpayers from providing them will run to several hundred million pounds, because some of the loans will go bad.
Finally, the Business Department is making available a few tens of millions of pounds of equity capital to help the survival of strategically important small businesses that foolishly borrowed too much during the years of the debt bubble.
And in the coming few days, there will be an announcement that the government will co-insure trade credit - which is another vital component in companies' financing needs.
Because it's all pretty complicated, there may not be many big headlines out of all this.
It's a lot less easy to understand and possibly less ambitious than the Tory proposal to guarantee up to £50bn of loans to companies. (See also Friday's post, Nationalising Tories.)
But ministers would argue that they are targeting help where it's most needed - and that the Tory plan could result in credit being provided either to big businesses that don't really need it or will generate big losses for taxpayers on loans that companies won't be able to afford.
There is a philosophical difference here, between a Tory Party that would trust the banks to use very substantial taxpayer guarantees wisely and a Labour government that would be much more prescriptive in the deployment of much smaller guarantees.
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And how is all this being monitored and reported to us? Or is this something else that we (as the investors) will never actually see quantified?
Is this something that operates through the Bank of England?
It is essential that the Bank of England keeps reporting its weekly balance sheet so that we know how much is being spent on these schemes and, when the time comes, how much money is being printed.
It is scandalous that the requirement to publish this information is being removed by the government this week.
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More useless and inaccessible packages of measures/pledges/promises from this inept Government. I've just been on Labourlist.org and seen dugouts like Mandelson crowing about how they believe/care/understand.
My takings (eg) are down very significantly since 3rd qtr last year, everyone I speak to is worried sick (and that is an understatement). Every day brings another liquidation, news is so bad I hardly read it now because it makesmy hands shake. The LAST thing on earth I or anyone else in business that I know needs is a loan - from anyone! Unless it's zero interest unsecured and not repayable for 100 years.
You CAN'T borrow your way out of debt, can someone tell these idiots please, it's well-known business sense and you can't survive in business by borrowing to cover 'downturns'.
All this hard on the heels of EU money for business, other govt money for business blah blah.
These guys will say/pledge/promise ANYTHING to grab the headlines and make themselves look good for a few more days, till the next big idea comes along, all cobblers, the whole lot of it.
GC
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Are all these new measures permanent, or "just" whilst we dig ourselves out of this mess (however long that may be)?
Who gets to decide who qualifies, and what exactly are the criteria for deciding?
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We're still heading down the tube Robert. If we're having to do the job of the banks etc. it just shows how useless they've become for the economy at large.
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Dear Robert,
This is solely my opinion, but it seems to me that you can only be being so soft on these Labour Government's radical nationalisation and Quango programme proposals mentioned in your post that you must be affected by your family Labour connections (your father was a Labour Peer).
In this post, you fail to expose and clarify what the government is really going to do, giving a very confusing picture that the average man can in no way understand.
And yet, you must know what it really is !!! And it appears to me (in my opinion only) that you are trying to help the Government slip it through.
Lord help us all.
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All this is just papering over the cracks in the wall. The subsidence of the collapse of the Western financial system is not going to go away with some government borrowing acting as security for short term loans. And anyway, when will any of these "instruments" ever see the light of day? We are still waiting for the nationalised Northern Rock to start acting like it is implementing government policy, so why should we believe that the government will make good on all its promises for assistance?
What we are seeing is the end of the Western economic dominance. It was inevitable once the West became cash poor and saddled with collosal debt it can't pay off without reflation. The cash rich states of the Far East and Middle East now call the shots. It can only be from these sources that the governments of the West are now borrowing.
That's why interest rates are so low. The governments know that the situation for the West is much much worse than anyone has dared hinted at yet. And as I foresaw, we are now seeing evidence that this depression will make the 80s recession look like a minor downturn. We are now seeing the great unwinding of global imbalances, and the big losers are going to be the indebted Western countries. Our way of life will never be the same again.
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Does this mean the end of Tax and Spend , after all we, the taxpayer, will be paying for the credit crunch for years to come. If so, what are they going to replace it with?
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This is all tinkering with micro-economics of the worse type. No one is addressing a major problem and that is we simply do not manufacture anything so almost all our economy has the flimsy foundation of being service based. Supporting existing business is wrong. What we need to do is start manufacturing in this country, divest ourselves of the unsustainable growth model as well as the PLC and private limited company, pay our workers (redistribution of welath) more and stop chasing poverty around the globe so we can have cheap DVD players and £3 t-shirts. And stop buying "stuff". Credit has been supporting our puffed up lifestyle and subsidising private companies appalingly low workers salaries. The model's broken, so build a new one.
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another startlingly pro labour press release pesto, whatever happened to impartiality ?
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Why are ?OUR? banks reluctant to lend, after we told them to?
Since I OWN them, I?m calling RBS today and I?m going to order them to lend me 10 million (@0%)!
Sound fair? Does to me, sod it let?s make it 20 million (just in case inflation sets in :-) )
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An interesting thread re. small businesses and unfamiliar brands that I've been discussing anecdotally with colleagues is the impact of business failures on consumer trust. I.e. people are becoming reluctant to make a purchase because they don't know whether a company will be in existence after the order has been made. If you can't walk away with the goods then there is now an inherent risk in losing your money (or at least a load of hassle in getting it back). This is epecially the case for less familiar on-line brand names without a high street presence, and big ticket items that have an extended delivery time such as a sofa or a kitchen. A viscous spiral ensues....
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Basically its just one big overdraft facility.
IT'S TAKEN THEM OVER 6 MONTHS TO COME UP WITH THIS!
Well it's about 6 months too late for the former employees of Woolworths, JCB, Findus, Zavvi, Adams, Land of Leather, Nissan etc. etc.
Call a General Election NOW!
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Captain Gordy??
Your rudder has fallen OFF!!
Perhaps you would like to refund the
20,000,000 ive lost in the last 10
months as a result of your inept
handling of the ECONOMY??
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As a small business owner, I strongly object to these plans.
I manage my cashflow carefully, and I'm not greedy in the amount of the company's money I take out as remuneration. My business has therefore never had to borrow from the banks.
If I've understood this plan correctly, I shall have to subsidise, through my taxes, those of my competitors who have not run their businesses in a financially prudent manner.
Call me old fashioned or mean spirited if you like, but I don't like subsidising my competitors.
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Can we mix and match ideas and solutions instead of pigeon-holing them Liberal- Labour - Tory (maybe file away as good - bad - unsure)
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Umm, this is stil Labour copying a Tory idea. A good one at that, only without as much confidence.
As such that pretty well sums up the state of the political parties at the moment.
The Government is still not very joined up though is it? it has announced this, hence barclay's and other bansk decimation today - but still wants to stand behind them.
Which is it?
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I predict Peston's blog tomorrow will be about Britain joining the Euro!
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"The government will tomorrow announce three kinds of financial support for small and medium-sized businesses..........
And in the coming few days, there will be an announcement that the government will co-insure trade credit "
It seems to my clearly untrained eyes that Robert himself has just announced these items of news. Is he stealing the Government's thunder to their chagrin or is he (to their glee) actually being allowed to spill certain beans so as to test public opinion and that of the banking and business sectors?
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It seems to me that the banks want it both ways - and so does the government
Government tells the banks to re-captililise whilst at the same time wanting them to maintain existing lending (which is sort of what got us into this mess? but I digress ).
Banks take the government money (well most of them do..) and then won't lend in order to protect their capital ratios ..
So if it lending that is the real issue what is stopping the banks running on a reduced capital ratio in the interim? The potential for bad debts on their previous lending I think .. and why should the tax payers rescue them from the consequences of original errors by buying the debt off them ? I think thats where the political consequences will come home to roost because there is no magic bullet for this problem - at least some section of society will pay for this. The governments calculation I think is that if we all do (as taxpayers) then the pain will be spread equally. I think this is a big mistake because the electorate did not forget Black Wednesday at election time and I know that come the next election the question I will want to be sure on is not spending (because in fact then is just a couple of percentage points in it..) but the economic management that got us here - step forward GB and take a bow ..
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It might be useful to substitute "our supposely elected servants" for government.
In 2008, financial institutions have borrowed and taken deposits at interest rates of 6%+ and some at near double-digit interest rate and high costs (eg. Barclay's Middle-Eastern loan). How are they going to cover their costs, and to make some profits, if they do not lend ?
I suspect there are people sitting on £$ millions/billions who are happy, or maybe even scheming to deepen the global recession, so they can buy up UK/global assets and businesses very cheaply.
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The problem with financial industry or political advisors or legal or specialists or public service experts only blogging or having a say about relevant topics or participating in meaningful working party groups is that they are purely interested in promoting their own financial interest industries or livelihood rather than implementing fair play.
More people need to challenge to improve all the systems as the squeaky wheel gets the oil.
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Again, another proposterous measure.
We've now bailed out the banks to the tune of hundreds of billions and yet we, as the taxpayer, are having to do their job.
Out of interest, how long are the banks going to sit on their hands and make money whilst the taxpayer fulfils the their tricky roles?
'Stoop down' Gordon needs to stand up to the banks once and for all. He could try doing the same with his big-business buddies and can this ridiculously wasteful VAT cut.
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Looks like more jobs for Quango's and non elected hangers on.
They will gobble up more than half of any amount they have been "Alloted" in meetings and expenses and if they EVER hand out a loan it will only be to obscure non businesses that cannot obtain loans because thier ideas are crackpot anyway.
This Government are spreading money about like water and it isnt going to do one ounce of good and when its gone as they say ! ITS GONE
If they are allowed to carry on we will never recover from Browns failed Government EVER
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I have just watched you on the 1 O?clock news.
You pedalled your Government spin/leak and at no time did you make people aware that this is a policy that the Conservatives have put forward for the last 2 months.
As always with you output we cannot take it on face value and have to look for the spin.
I believe that you are not as balanced in your output as you should be for a BBC editor and have therefore made a complaint to Newswatch about the piece on the 1 O'clock news today.
Please can we have more balance in future? If you are being fed information please get the opposition parties opinions and include them for balance.
I should not have to tell you how to do your job you should not be in it if you don?t understand how to produce balanced output.
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Unless I've missed something, the banks aren't forced to use this system for all commercial loans. And not all banks have to be involved.
Since there's a cost involved, the banks will surely cherry-pick and cover the safe money themselves, leaving the taxpayer guaranteeing the bad debt. Or the commercial banks will only cover the safe stuff leaving the nationalised banks to pick up the dross.
As I said yesterday, Labour's policies here have some original and good ideas. Unfortunately the good ideas are not original, the original ideas are not good.
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What a mess! This sounds like a sticky web of bureaucracy and government meddling that should keep the capital markets ensnared for years.
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12,
Its not even that!
This is how they are going to pump prime the economy with new notes!!! As many have said (Guy Croft), you can?t borrow yourself out of debt!
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#5 -- Have to agree. This post from Robert and the previous one on small business finance are so disjointed and confusing that most readers won't understand what he is attempting to explain or discuss.
The biggest issue the UK population have is that for the past few years Brown has managed to slip through some pretty draconian laws gnerally hidden in the fine print and not debated in the House of Commons. Now we have it that the Bank of England won't need to present its weekly Balance Sheet but instead monthly. As we all know a week is a long time in politics let alone a month. Next we have Harriet Harman planning to push "social engineering" into the public domain.
What next do these control freaks have planned ?
Any ideas Robert -- you and Nick seem to be pretty close to the chaps in Downing !Street ??
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It seems NuLabour has entered the
FANTASY ACCOUNTING LAND OF BOB
MAXWELL, wasnt he a Labour MP once?
CAPTAIN GORDY??
YOU CANT SPEND MONEY TWICE
YOU SEEM TO BE SPENDING IT
THRICE?
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13,
Fell Off ??? Did he ever have a rudder ???
At least he's been prudent, or so I heard :-0
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You're very loose with your definitions of what are small, medium and large companies Robert.
My concern is that (from your article) it appears that little or nothing is being done for the thousands of SMEs - companies with under 250 employees.
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Loan guaranteess directly from the government will be extremely complex and will not get the money flowing effectively or quickly enough because they will be bureaucratic and delayed by bank's procedures.
If the major issue is cash flow and bank capitalisation then delay VAT payments for businesses for six months followed by repayment at 25% per quarter for the next year. Money goes directly to firms and is used for normal business requirements, demands on the banks will be significantly reduced for the period while they recapitalise and get lending criteria sorted out, the delayed payments can be qualified if required (No redundancies for the period perhaps). The treasury demonstrates that it is not a permanent addition to National debt and the whole procedure could be implemented extremely quickly which is what is required. The main risk is the number of defaults on the future payments but that will be no greater than the risk from loan guarantees
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"BankSlickerminustheR wrote:
I predict Peston's blog tomorrow will be about Britain joining the Euro!"
Why would Labour announce that - this week they will be mostly borrowing from the Tory party!
We have to wait until a week when they are borrowing ideas from the Lib Dems for them to announce joining the Euro :)
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Why does this ridiculous excuse for a Govt. continue to belive that the answer to everything is to provide more and more credit.
Why should Companies borrow more money to survive. The whole point of borrowing capital is to invest in order to increase productivity, it should not be seen as a way of sustaining an ailing, loss making enterprise. I understand that business' require overdrafts/loans to help them through short term cash flow difficulties, but this should only be done when there is a probability that there is potential for the business to recover. The main problem we face now is that there is no evidence to suggest that there will be any recovery in the economy in the forseeable future. We could well be in for 18 months+ of contraction, and Darlings prediction og growth later this year is pathetic.
The issue that is affecting everyone in Business (in every Industry) is a sudden dramatic fall in demand, and many of us have geared up our enterprises to meet a level of sales (pres 2008) that is simply not going to return. We have to accept this. The only way to survive now is to 'cut your cloth' to suit the new marketplace. If this means job cuts or downsizing then so be it, but further borrowing to sustain, or attempt to sustain, unrealistic levels of productivity is wrong.
The Govt. should be trying to find ways of stimulating demand in the economy i.e. tax cuts or major construction projects. Instead all they seem to want to do is resurrect the cult of lend and spend.
Of course they do practically own the Banks now, so I suppose it will benefit them to get a large amount of Business loans on their mortgage book, as it will allow them even more control over us all.
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It's a hoot the way folk incl Govt talk about SMEs - round here (Lincoln) a firm 30 people is a fairly big company...!!
It's the turnover and balance sheet that counts and esp the profit-turnover ratio, not the number of people. It's clear the firms being hardest hit first (unlike the 90s recession) are the ones with the big (and varied) debt liabilities.
GC
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All these initiatives! Sounds like the Sergeant Jones " don't panic, don't panic" syndrome. For a scheme to be so convoluted it has to be a Gordon Brown fudge. Calm reflection, leadership and a clear vision is what is wanted and not just blind action.
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Robert,
To quote you "and it's all quite technical,involving financial engineering that some may see as too complicated".
Remind me again what 'we' did to actually get it this position in the first place. Was it "all quite technical etc etc". LOL
You know even the dumbest beasts in the animal kingdom know when to stop doing the same thing and expect a different outcome. So much for us being the top of the food chain.
When it is all 'cheap' enough there will be money and there will be buyers/investors and there will be good sustainable businesses. Interfering in this process to the extent that we are trying to does not change the outcome per se,it just means it will be longer before we get there and it will probably have cost more en route shackling the fortunes of the good to the bad.
It's just a shame we seem to have no political mechanism that can quickly isolate and put into limbo a current goverment that places it's survival above that of the people that elect it.
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It is not "complicated" and it is not "beyond" the common man; the government is printing money in order to loan out to companies who will then charge the taxpayer for the privelege in paying it back; the impact is that we are stung on 2 levels.
We shouldn't be printing money, and if we are the bank of England SHOULD BE NATIONALISED - if we are to be in hoc to anyone it should be people we at least have a modicum of control over, not a faceless elite who keep us in bonded slavery
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You can always trust the labour party to make everything more complicated that it need be.
Complicated means it will take much longer to get the money to where it's needed.
We are talking about business customers of the banks who need existing facities to be renewed in the main.
The banks already know these customers and their businesses and are extremely unlikely to practise bad lending if only 50% of the facility is guaranteed by the taxpayer.
This as I understand it was the Tory thinking.
As far as the labour plan is concerned it sounds far too complicated for banks or businesses and by the time they get round to understanding it never mind implementing it it will be far too late for many.
Typical! Make an announcement but throw a spanner in the works at the same time.
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So the taxpayer will have to bale out inefficient businesses that are hovering on the brink of insolvency; will this solve anything,? I suspect it will merely prolong the agony by enabling them to stay in business for a few more weeks. If they cannot sell product now, will they be any better placed to sell product in 6 weeks time, I doubt it. So the taxpayer will pick up another bill for something that delivers nothing. Brown, Darling and their " advisers " are totally bereft of effective solutions to any of the present problems. They must reduce the size of government by an enormous amount over the next year and make a like reduction in the welfare bill or the country will indeed be facing banktrupcy.
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Can the Government please just stop!
Stop raising taxes. Stop borrowing. Stop increasing spending. Stop passing new laws.
Go away, have a holiday. make it a long one!
Leave us alone and we will sort it out for ourselves. Yes, some companies will go bust, some loans will not get paid, some people will lose their jobs. Bit the more you meddle, the worse you make it.
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This smells of the government's 'picking winners' philosophy.
(I remind those who do not remember that this was not a particularly successful activity!)
I repeat my mantra - "money must be made valuable again"
see
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/01/vulnerable_small_firms.html#comment78
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Re joining the Euro, is this realistic?
Spain?s serious slump and Germany?s isolation on monetary policy could give rise to an end to the Euro could it not?
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There will be many people who will consider this proposal and ask themselves:-
Will a firewall be put in place that will ensure that the deserving, "fundamentally sound", businesses are not subject also to the requirement that they are substantial employers in marginal seats that the Labour Party needs to win at the next General Election?
These people will then look at the probity exhibited by the present Government, and conclude that there's less chance of this happening than there is of Hell freezing over.
Maybe Mr Peston, with his contacts at the highest level, may be able to convince us that our conclusion is wrong.
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@25 EXACTLY! it is only going to work if the banks play ball. Which they will only do if they can see a significant profit.
Also by providing ONLY working capital they are neglecting any manufacturing investment. In effect they are paying for even more bankers, consultants and accountants - just what we need!
Douglas Adams we need that first space ship NOW.
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Just one or two comments:
1) Yes Tesco do squeeze suppliers but they gave me a choice of TWO USB WIFI sticks on Saturday when my nearest big name electrical stockist (which sells lots of computers) didn't sell any. They also make things as CONVENIENT as possible for the consumer (phone top ups and lottery tickets from every checkout) AND long shopping hours AND all under one roof AND free parking... Say what you like, when it comes to convenience why should I be at the shopkeeper's behest and convenience rather than him making things easier for me? If one wants money, one has to work for it. Tesco are constantly working to improve service convenience and meet social trends. When they try to influence trends, THEN I might have doubts.
2) That being said I am not here to totally laud Tesco. What the HECK is their latest ad about ? lots of blue and green shopping baskets with spurious stats that even the lightest of maths lightweights must see as questionable. As echoed previously, methinks Tesco are losing out on the price front.
3) Ref. UK economy, is there an elephant in the room or is it just wishful thinking? When (not if) will house prices FINALLY succumb to reality and the law of gravity? Prices are still WAY over-valued and with unemployment, credit shortage and lack of confidence in houses as cash cows any more, the market must be due for a collapse?
4) As for all those political answers to the huge economic problems that face us all...Sorry but why should our tax money go to prop up thousands of businesses? Markets SHOULD mean businesses come and go. Business should survive on price and quality of goods/services. When these things don't matter is the time businesses don't bother about their customers (the total opposite of Tesco!)
PS Pls read or Google
PPS Bank shares are dropping as I write, looks like things are starting all over again...
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Just one or two comments:
1) Yes Tesco do squeeze suppliers but they gave me a choice of TWO USB WIFI sticks on Saturday when my nearest big name electrical stockist (which sells lots of computers) didn't sell any. They also make things as CONVENIENT as possible for the consumer (phone top ups and lottery tickets from every checkout) AND long shopping hours AND all under one roof AND free parking... Say what you like, when it comes to convenience why should I be at the shopkeeper's behest and convenience rather than him making things easier for me? If one wants money, one has to work for it. Tesco are constantly working to improve service convenience and meet social trends. When they try to influence trends, THEN I might have doubts.
2) That being said I am not here to totally laud Tesco. What the HECK is their latest ad about ? lots of blue and green shopping baskets with spurious stats that even the lightest of maths lightweights must see as questionable. As echoed previously, methinks Tesco are losing out on the price front.
3) Ref. UK economy, is there an elephant in the room or is it just wishful thinking? When (not if) will house prices FINALLY succumb to reality and the law of gravity? Prices are still WAY over-valued and with unemployment, credit shortage and lack of confidence in houses as cash cows any more, the market must be due for a collapse?
4) As for all those political answers to the huge economic problems that face us all...Sorry but why should our tax money go to prop up thousands of businesses? Markets SHOULD mean businesses come and go. Business should survive on price and quality of goods/services. When these things don't matter is the time businesses don't bother about their customers (the total opposite of Tesco!)
PS Pls read or Google ?Atlas Shrugged? soon to be an Angelina Jolie movie. A view of our futures?
PPS Bank shares are dropping as I write, looks like things are starting all over again...
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IT seems that the banks are being encouraged to go back to lending and that the guarantees are another way of sweetening the process for them.
What worries me is that they have already shown themselves to be utterly selfish in saving themselves at the cost of mortgage and business customers.
the cost of bailing them out has already run in to tens of billlions, but in December they managed to lend a mere 27million to homebuyers.The loans to business were even less.
If the Government had spent the 60billion on lending DIRECTLY to the public would we really be in this economic mess.
The profit model for the banks was foolish in the extreme. Yet only a few commentators picked this up. What if they are just shoring up their profits whilst expecting further public help if it all goes wrong.
The banks have acted like a bunch of school bullies and now our headmaster is to offer them another incentive to change their ways.
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Claire2009 - oddly - or maybe not so - the legal requirement for the BoE to publish their balance sheets has very recently - and very quietly (what have they got to hide?) been removed. Most reckon the printing presses have been whirling for some time.
http://www.order-order.com/2009/01/growing-unease-about-old-ladys-secrecy.html
3rd world status beckons, as we follow in Mugabe's footsteps.
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The report just been shown on BBC 24 about ben bernanke was good not so much what Bernanke said but the interview with the other man afterwards said. Is words where. We are looking at a deep recession or depression. That all depends on which side the atlantic your on. as he is from the usa they are looking at a deep recession at 20% unemployed , yet here in the uk it should be classed as a depression as unemployment will be nearer 50%
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This is yet another politically motivated scheme.
The final nail in the coffin of this Labour Govt. will be mass unemployment. Mass Unemployment brings hardship, hardship brings unrest and unrest brings change. This cycle has already begun.
Every announcement we are hearing from the Govt. is an attempt to stave off mass unemployment long enough to attempt to win an election. Yesterday they were giving away £2500 to take on the long term unemployed, today it is loans to SME's.
We need an election now so whoever the ruling party is can start actually doing something positive, instead of watching an unpopular leadership attempt to save its own skin at any cost.
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So its the cherry picked MEDIUM businesses that will be offered assistance.
Doesnt the one man band shop on the high st count any more.
You know, the one that will go out of their way to get you, the customer, what you want at the same price as Tescos, the one that gives you that "personal" touch, the one who will listen to an OAP telling you their life story, the one thats always open, no matter what the weather, never takes a day off let alone a holiday, always pays their taxes.
Well, Mr Gordon bloody Brown, we might need help soon. We dont want multi million pound loans. What we want is a level playing field .
Lets start by abolishing Business Rates as it is and introduce a profit tax, at say, 10%.
No concessions, no wiggling out of it. A straight 10%. At least then if you have a bad year, you are not taxed for having a bad year as you are now.
Business Rates account for anything between 12 - 20% of my profit, yet Tescos, say, accounts for as little as 3%.
FAIR??
I think not
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Robert,
There are a few worrying areas in your report which I dare say are all too present it the Government's strategy?
"And it's all quite technical, involving financial engineering that some may see as too complicated."
That's it then, the Government couldn't see that runaway house prices were a problem, so what chance have these measures got?
"Probably the most eye-catching of the measures will be the provision of perhaps £10bn of taxpayer guarantees for short-term corporate loans provided by banks. These loans would cover medium-size companies' working capital requirements, or their day-to-day financing needs."
So the banks that we have bailed out aren't good for the money, I'm glad our money was put to such good use.
"Or, to put it another way: ministers hope that by reducing the requirement of banks to finance companies' working capital, the banks will be prepared to take a few more risks in financing companies' investment and longer-term needs."
There used to be two hopes in this world Bob Hope and no hope. Bob Hope is now dead, so I guess that leaves us with no hope! Words like hope shouldn't be used to describe such measures.
"Finally, the Business Department is making available a few tens of millions of pounds of equity capital to help the survival of strategically important small businesses that foolishly borrowed too much during the years of the debt bubble."
Sorry but 'once a fool always a fool', why save business that can't plan for a rainy day? Mind you the same could be said for people that take on excessive mortgages. How will these individuals learn if we don't let them hurt themselves?
I know I sound very righteous, but the people that will pay for all of this will be the people that least deserve to do so.
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The banks have already received billions from the government.
The guarantee scheme is another sweetener for them to start lending. But so far it seems all they have done is to lock out the businesses and mortgage customers whilst shoring up their own war-chest.
After receiving over 60 billion in November they managed to lend just 27 million to mortgage in December and even less to businesses.
Like the emperors clothes the credit crunch has shown their business model to be foolish at best.
Would it no have been better for the treasury to have lent out the billions of pounds directly for business and mortgages.
I know we have our doubts about their levels of inefficiency but could they really do a worse job than a bunch of bankers who thought that a pyramid scheme was a sound
idea for profit
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#34
"I understand that business' require overdrafts/loans to help them through short term cash flow difficulties, but this should only be done when there is a probability that there is potential for the business to recover"
Yup, that was the old way, sure.
In new Unpredictable World anyone who wanted to predict potential to recover would need a pretty reliable crystal ball, because cashflow forecasts in this environment based on reliable selling to whoever, well, dream about the accuracy of your figures for even the long term. Except maybe unless you are a weapons manufacturers supplying forces in Iraq etc.
Then when it's crunch time again wait for the right-royal shafting and blame/finger pointing (irresponsible borrowing blah blah) as they foreclose on you.
Sound familiar? Oh, that's right where we are now isn't it?
Nope this one's a whole new ball game being played out under rules that suddenly became obsolete 3 months ago. Bit like the 1st World War when the French cavalry (hey ho) suddenly discovered the Germans had machine guns and lances weren't actually much use against them..
Repossessions up 12% and nobody came.
GC
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Stop, Stop, Stop guys
You're getting mixed up, it's all a game... no one has the slightest interest in sorting this out properly
... Gordo & Cameroon are fighting for the PM's job next time round... MP's are fighting for their jobs... journo's are wanting headlines........ us ordinary people think recession - they all think opportunity for promotion!!!
Never think anyone with a career that has a rank structure and pay scales has in his list of objectives someone else?s wellbeing....
No one with the opportunity to sort this mess out will do so if it is in anyway unpopular, we live in a land of opinion polls and focus groups now ? everything is road tested against voters first.... irrespective as to whether it makes sense .....
If Cameroon wants in then, take a leaf out of Thatch?s book... tell it how it is and do what has to be done so we don?t pass this on from generation to generation........... if the medicine is bad trust the country to understand.......... (obviously trendy wealthy celebrities excluded)
On the other hand, maybe the Conservatives don?t want to win...... leave GB in situ and the likelihood is you?ll be in for 20 years next time round.....
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Call me sceptical, but has any government actually spent their way out of a recession before on their own terms?
I know there are those who claim that the massive government expenditure of the 1940s was the factor that actually turned the corner after the 1930s, but strip away the effects of the war and is the case conclusive? Has anyone actually done it in the way the Brown thinks he can - from a comparable position?
I can't help but think spending more and more and creating money out of nothing is what got us into this position in the first place - and doing the same on a much bigger scale could make things worse.
After all, if you were a doctor treating a compulsive over-eater, who had serious health problems and was massively over-weight, would you:
a) address the weight problems first, creating a diet that satisfied the craving for eating and restored some semblance of health.
b) recommend extensive phsychiatric counselling to get to the root of the compulsion.
c) Give him the keys to a chocolate cake factory and tell him to get stuck in.
Bon appetit, Gordon...
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Re joining the Euro..
purpleDogzzz wrote yesterday...
'The elite families that still run the global central banks and highest level policy think-tanks have a goal of a single global government. They want a single global currency and have been creating "shocks" in the system (problem) that create a public backlash (reaction) that ratchet up in pitch until these elites can impose their policies that tip-toe us, step-by tiny step, to their solution. The EU is a stepping stone towards this, as is the North American Union, the Asian union and African Union.'
'Many more people are calling for a global solution to the global crisis. Well to my way of thinking. If globalisation is the reason why this crisis spread globally so fast, then more globalisation is not the answer.'
We know Mandy has already started to test the waters on this one!
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This isn't rocket science.
* The government has lent the banks money at upto 12%.
* The Basel II rules correctly require the banks to increase capital during down times to cover bad loans (the alternative is for banks to again risk failure when business go under or house prices fall further)
* The housing market is a burst bubble with prices falling because people (correctly) can no longer get and in fact no longer want 7xsalary loans for 100%+ of the value of properties.
* Business are struggling because people can no longer spend the money they didn't really have in the first place.
=> Therefore, the bank correctly don't want to lend at low interest rates to individuals or many business.
Whatever people think, you can't borrow your way out of a debt fueled recession. Ultimately you have to tighten your belt and payback what's owed, along with improved productivity by working harder for less.
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afternoon all; 2 blogs in a day Robert but can you keep up to the HMG's accelerating rate of announcements of important initiatives, which is already up to at least 3 a day?
'the road to hell is paved with good intentions' is an excellent multi-purpose proverb, but in the case of GB and the current govt perhaps we should rephrase it as THE ROAD TO HELL IS PAVED WITH ANNOUNCEMENTS OF INITIATIVES
Some of these proposed initiatives might be worthwhile but at this point nearly everyone will give up trying to keep track of them. Which is presumably the intention.
A bit like the FOG OF WAR that the Israeli spokespeople use as an excuse for the unfortunate killing of 100s of Palestinian kids, GB is creating a FOG OF ANNOUNCEMENTS to throw us all off the track.
It is interesting to look at a list of previous government announcements on an issue - take your pick: environment, health, education, knife crime ......... and see how many have achieved anything or even been implemented; you'll find that most haven't; they are mostly hot-air
You might have seen that a new study claims to correlate the success of stockmarket traders in the 'good times' with the length of their index fingers (not another part of their anatomy that you might have expected they would be measuring)
It seems that our politicians, especially GB, measure their success by how many *%$£ announcements they can make per day.
Abetted by the media who want to measure their column inches of course.
A smaller number of actual policies that were clearly explained and seen through to delivery would be nice.
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These proposals are not developmental in any way.
Short term loans are exactly that - short term. By the time that such schemes become effective it will be too late to save firms that are already over-burdened with debt.
As many contributors have already said you cannot borrow your way out of debt. All this will do is give failing firms another bucket with which to bail out the boat without addressing the real problem - fixing the leak!
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There's far too many "OMG, LOL, Gordy Broon is soooo useless" comments here by half. Can we keep to the subject?
The billions handed to the banks was, if I'm correct, not designed as an impetus to get them lending, but to stop them crashing, in a flaming wreck, to the ground. The government might tut and moan that the wheels weren't oiled for loans to business, but they knew the real use for the money.
Lots is being said about the governement supporting loans, or "it's lending so much that got us into this mess". It seems pretty clear to me that none of the main parties is advocating a return to the levels of borrowing previously seen, but all recognise that cold turkey would kill many of the patients; and with the death of the company, a loss of skills, materials, value and quality of life.
The question is one of balance, surely? Balancing a reduction in the reliance on credit, whilst not taking out otherwise healthy industry. And a question of not making these tools unworkably complicated, whilst not handing out cash to companies that simply could not work in a future with reduced credit. These two balancing acts are where the parties differ - you pays yer money.
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18. At 1:32pm on 13 Jan 2009, ThorntonHeathen wrote:
Peston's been the government's mouthpiece for a while now. Given that the BBC is the propaganda arm of New Labour, I guess that is not too surprising.
And that is why ... as the Prime Mentalist likes to preface his daily annoucements ... we no longer pay our license fee.
Come and get us!
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I've read down the comments on this one and I can't see "Joetheplumber"......
Looking forward to Flash saving the Universe (and Britain) at the 25th attempt tomorrow morning.
Also looking forward to receiving my personal invitation from Flash thro the post tomorrow to be a civil servant along with 99.999 deserving others.......
Perhaps I can announce some BIG projects for him like the resurfacing of Downing Street, a G10 summit in London with all the trimmings and the queen doing lunch at the palace...........Did some mention help for small and medium sized businesses??? Perhaps we could just cut Corporation tax and save on my new civil service job??? It would be really easy and might even attract back some of those companies who have been going to Eire and other places. Which would Flash more income in general etc etc
Flash Ahaaaaaa!!!!!!!!
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Another stunt by Labour that will make no difference. They see big numbers equalling problem solved.
They know nothing as we always suspected!!
If the taxpayer is taking so much risk why do we have banks. I would like to cherry pick who I deal with and find my company protected if the payee pushes off leaving me in a mess.
The State under Messrs Brown, Darling and Mandleson just don't seem to understanmd the State can't buck natural economics.
Why should my hard working employees in my small company battle on whilst contemporary companies who never invested in their staff and had dire management get support?
A strong economy requires business to be ultimately self sufficient, this proposal will extend the Social Services nanny state to business and decimate what is little is left of what we call an economy.
The weak must go to the wall so the strong can survive otherwise we get a scenario where teh good can't improve because they are up against inept contemporaries who survive through bloodsucking the taxpayer.
This is not Social Economics but the economics of the Lunatic Asylum and inmates appear to be running the show!!
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I saw this suuposed quote from Cicero in 55 BC. I hope that it is genuine, though I'm sure someone will tell me if it is not.
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt.
People must again learn to work, instead of living on public assistance."
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# 14 & 28 Couldn't agree more.
"Finally, the Business Department is making available a few tens of millions of pounds of equity capital to help the survival of strategically important small businesses that foolishly borrowed too much during the years of the debt bubble."
I run a small business, have cash in the bank and always have had. No not prudent, just sensible. What is the rationale for bailing out those who "foolishly" borrowed. Be interested to see how competent UK govt is at spotting those worth saving. Presumably those "politically" worth saving.
A further point, "strategically important" implies that there is some sort of strategy at work here. To suggest that is the case is laughable.
Finally, how ironic that 12 months ago the govt saw fit to increase taxes for small companies, whilst cutting it for large corporates. It's not going to be the large global businesses that generate a recovery in the UK, it will be small businesses and start ups. How about some joined up, medium term (never mind long term) strategic thinking for once from the govt - how about introducing in the next budget measures to encourage entrepreneurial spirit. Or perhaps that simply doesn't fit in with Gordon Clown's personal agenda over the next 12 months.
I expect more tinkering, and more stubborn lecturing to come from the govt.
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Bert
think you should have pointed out to a few weirdos on here that this was actually an original idea of the tories
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#66 Verlugio.
I wish I had said that.
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Robert
Please check the actual bank lending figures published by the Bank of England.
The latest published figures showed lending to non financial businesses still growing at a double digit percentage
Also I suspect that businesses complaining about bank interest margin increases are those whose margin is set relative to Bank Rate rather than LIBOR.
Banks can not borrow at anywhere near Bank Rate and so companies can expect their margin to be increased. Companies whose rate is set relative to LIBOR may find interest rates not falling as fast as Bank Rate but that is not the banks' fault.
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I don't understand why the financial institutions are starved of funds. There are many thousands of investors eager to give them their money. I'm one.
We recently applied for a Cheshire Building Society bond, with £20,000 at our disposal.
A week after the closing date we still don't know if the Cheshire have judged us to be suitable investors as their 'phone lines are jammed with others trying to find out if they've been accepted and the deadline for informing the lucky ones has, we learn today, been extended by a further week.
This sits oddly with the perception that the financial sector is scratching about for money and needs the Government to help bail it out. It also suggests that the prudent who have saved for a rainy day may find it hard to get wet...
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As a small business owner and taxpayer, I strongly object to these plans.
We are one of the few manufacturers left in the UK and we have always worked hard and never had a business loan.
But over the years we have seen millions of pounds of taxpayers money wasted through and by government agencies on launching poor businesses which compete with us, deplete our profits and then disappear after a year or less when their initial funding runs out.
Under these plans we as Taxpayers and Businesses are now being asked to subsidise more silly companies which have loaded themselves up with debt, mostly deliberately. I do not agree with this at all.
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@62
"There's far too many "OMG, LOL, Gordy Broon is soooo useless" comments here by half. Can we keep to the subject?"
That is the subject!
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No 44 sppot on
NuLab aree busy now priming all the areas where they can get votes. They have created a big state employment system.
They are spraying money at the marginals by way of "saving them at all costs" from the do nothing conservatives!
Now they will be "saving" your firm with a loan to keep your jobs.
Paying for all this does not come into the equation.
October election on the way.
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More Taxpayers money which will never be seen again..bye bye
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RE 56: thinkb4
Spot on.
They are all self-serving myopic opportunists looking to make enough out of the situation such that they'll be alright when we've all gone to hell in a handcart.
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62,
Not if I heard Comical Ali and El Gordo correct ;-) They said at the outset the bailout was to get the lending going again, later on they changed their story to ?we had to bail the banks out, as collapse was imminent?.
A Labour lie often not debated by the press!!!
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Too little too late perhaps.
The major housebuilders alone have working capital (most of which is their landbanks) of in excess of £5 billion. They have difficulty refinancing and consequently have made 100000s out of work, including at subcontractors and suppliers, with little housebuilding happening, and it's not even clear they would qualify for such guarantees.
It does sound complicated and what is the incentive for the banks to take it up, in these days of higher capital ratios and accelerating recession?
The Government needs to start buying up asset backed securities from the banks at reasonable prices to get them lending.
At this rate the combined incompetence of the government, BoE and FSA will totally ruin this country. I can see why the wealthy are hoarding gold.
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I am not a small businessman but a pensioner.Throughout this whole debacle my greatest concern is 'where and how does the writer seem to have this information always prior to to the official announcement' Are we all just mugs?
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This latest 'DO ANYTHING' Gov't announcement just goes to show how out of depth they really are.
At this rate all we're going to end up with is a bunch of well capitalised banks.....all at the expense of real businesses.....which are going bust fast!
....oh, apart from Tesco's of course.
WHO ARE THE BANKS GOING TO BE BANKERS TO? (themselves???)
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I would like to propose a small experiment:
I would like everyone to ignore the TV and newspapers for 3 days (not too long I don't think!) and then assess how much the credit crunch is affecting you. My guess is that the majority of people will say 'not really'
I am working abroad at the moment as don't watch the local news or read the local papers, I rarely watch the BBC news as it's too depressing! It's amazing how well ignoring the bad news works. Just take s step back and say to yourself 'what has changed in my life? What is actualy different today than last year?'
As most people have commented sentiment is all about confidence and 'feeling' nd absorbing all the bad new 24/7 does not help this
The only news I get/read is on the web and reading blogs like this - i'm glad i'm not in the UK right now if this is the sentiment of everyone, the crunch has hit here as well but it's not reported and rammed down your throat all day long and to be honest most people here are just carrying on as normal
I know that people are affected with job losses etc and i'm sorry for them, but the fact is that the vast majority of people will are only affected because they feel they will be (or should be), but in reality nothing will change for them. A lot of this really is down to your outlook on life
Apologies to anyone who has been directly affected; ie made redundant as a result - my comments are meant to make people assess their situation and look at it from a different perspective; then maybe things won't look so bad
PS regular readers - don't panic, i'm not going to start banging on about Zen!!
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Yesterday I protested about the ill-defined use of the adjective viable to describe firms in need of government assistance. Well today Robert has managed to avoid the V word, so, am I pleased? Actually no, I am worried. The V word has been replaced by phrases such as businesses that are fundamentally sound, or sound, relevant, needy businesses and, scarily, firms regarded as vital to the long-term needs of the economy.
Sound is the new V word and still as meaningless when referring to businesses in need of taxpayers benevolence. Just who is defining relevant and vital? And as for needy, aren?t we all? Those contributors who have been warning of creeping communism look increasingly accurate if we are to be treated to Brown & co?s assessment of which business are to be saved. Yet, the BBC, Robert in particular and British journalism in general appear to be avoiding questioning who is to make these decisions and on what criteria. Maybe he is eyeing a job as pig iron production monitor for Potemkin nr. Pontefract.
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74 I agree
The election should be in the spring though.
If the majority of people in this country believe that Gordon Brown and his NuLabour merry men are up to looking after the interests of the UK and gain the country's support then they will win and have five more years to work on all the issues of Government.
If the majority of people want a change because they dont like the NuLabour direction and vote for an alternative Government then so be it.
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Sometimes you have to count to ten to be able to post without swearing!
I have said for a long time that I would vote for the party who would introduce and change no legislation for a full year - this way everyone would know what they are dealing with.
Now we are getting a massive policy announcement once a week (at least) and with RP knowing the day before it feels like double this amount.
There has not been time yet for any of the measures to flow through into the economy and now we have another one - the government are trying to deal with bad news by having a weekly policy announcement to deal with the situation. The Opposition and media are demanding this and the governemnt just keep on obliging.
For goodness sake - does anyone feel like they are in an episode of Dads Army.
Don't panic, don't paniiiiiiiiiiiiiiiic!!!!!
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Robert, when will Gordon and his cohorts admit that between his lot and the major banks, they have ruined GB Ltd. and yet they are all still in their jobs.
This mess must be allowed to sort itself out. No amount of "government" (taxpayers) money thrown at so many daft schemes will cure the problem. Gordy and the banks encouraged everyone to borrow and spend more than they could afford. I have run a small family owned property investment company for 40 years. We have never borrowed from banks despite them pestering us to and I strongly object to bailing out all the idiots that have.
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Why is it that all these 'announcements' get so much media coverage? We never read anything about the implementation or success of anything that was in one of these 'announcements'.
They should be legally obliged to make an announcement regarding the progress of these 'announcements' 6 months after they where first announced. (apologies for the excessive use of the word announcement) Then we could see some results, either positive or negative.
I for one am sick of hearing about x million for this and x billion for that, just to grab a cheap headline, and try to negate the news on job losses.
No more announcements please.
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However you dress it up, it is just unacceptable to prop up a business with public funds. There is no way you can then call it a private business. This government is sailing merrily towards grave disaster. A complete mess. No amount of funds will save a failing or borderline business.
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This is all well and good, but I'm growing increasingly frustrated at the lack of detailed commentary on important issues outside of the UK. The BBC does report reasonably well on the US economy but there is a painful lack of detail and analysis on:
Europe. It just isn't there! Couldn't the BBC syndicate something from elsewhere if they don't have the infrastructure in place. The Eurozon is our biggest trading partner - yet all we get is the odd statistic about (lack of) growth in Spain and how difficult it is for German exporters.
China. I'm fed up beating this particular drum. How about some full analysis and reporting on what has been going on (and continues) in China. I'm referring to their manipulation of the exchange rate, export subsidies, control of energy prices etc.
This is a global crisis and everything we see happening in the UK must be viewed within the context of what is happening elsewhere.
What is the UK governments response to the unfair trading practices in China?
Grrr.
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14 Disgusted of Mitcham
Like everything else in this now wretched country, the successful are to be brought to their knees. Everything you will have worked for will be micturated against a party wall, the labour party.
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Why is the government not hunting and then prosecuting the people who feed Peston his announcements?
The government leak a pre _____ (fill in the blank of your choice )report, then they report it.
Then a few weeks/months down the line they leak it again and still later report it.
Four headlines that they are doing something.
There is of course one HUGE problem.
Virtually nothing actually happens apart from taxes going up.
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Ah, micturated doesn't mean what I thought it did.
Good pithy post.
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Are the last 3 paragraphs not political bias? Labour plan good, Tory plan bad.
As for the proposal, well bailing the banks out of their responsibilities didn't get them lending the first time so i don't see how doing it again it will now.
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So not really targetted at small businesses, so a bit like the Chancellor saying that the treasury would ensure that HM Revenue would afford small businesses flexibility in terms of settlement of tax. JUST not true. I spoke to my tax office and I can assure you they are as inflexible as ever and apparantly unaware of what the Chancellor has said in the Commons -NO change there then! God protect us from politicians and the likes of Mandelson
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Another thing.. please please call an election. Its just too much to watch an unwanted, unpopular, crappy, inept government playing wild cards left, right and centre.
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ROBERT........
SHORT SELLERS ARE BETTING ON THE BIGGEST COMPANIES IN THE WORLD.
Genral ELetrics , Pfizer, wells fargo , halliburton , IBM, AT&T, CSCO, INTC, I, XOM.
Whats more amazing is they control the world as in media and energy and security. in other words in complete control.
i have heard the word common purpose many times but god they been working hard on bringing the worlds Economy down.
i would certainly tell everyone never to believe a word you here anywhere more so in the news and media.
they crashed the finacial market of the world
in order to take power.
here are the links for people to see
i could not post the links check them out
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Robert, I know that being a good little journo means that you have to out 'scoop' anyone else, but for morality's sake, shouldn't you be telling your mole in Labour's back office that the government should be explaining their pathetic policies to the masses personally and not doing it through you?
I'm sick of hearing about what the government is announcing and not hearing about what IS actually happening which I suspect is very little. Has any promised bail out money actually reached the banks yet? Use your talents to tell us that!
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So mosts posts are saying you can't keep expanding credit when that is exactly what got us here in the first place.
Yes lets keep throwing money at the problem Gordon that'll do it.
They have no idea and, as a previous post, said it's all spin. I run my own business and am setting up two new ones, different times, different markets.
Labour policy seems to reflect whatever the screechings of the Daily Mail leader comment are that week. Come on Preston lets have a bit more in depth analysis. The BBC seem to be a mouthpiece for Labour Party press releases not the investigative, challenging beast it used to be. Challenge the status quo eh, but then we'd never get into the Ivy - public school broadcasting, public school government, upper class twit economics. I'm off to walk the dog, in fact he'd make a better PM.
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Ah! of Course. Off Balance sheet Nationalisation-just what we need.
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Read this everyone please and look up who they are.
http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=T
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This is just the latest attempt by Crash to try to keep enough plates spinning until the next election. It is like papering over the cracks of a badly subsiding house and hoping that no one notices.
We come back to a few very simple facts that caused this problem in the first place and required yet another attempt at a rescue of the UK economy.
1) The longest boom in history that Crash took all the credit for along with his promise of abolishing boom and bust was paid for by easy credit available to businesses, individuals and the UK government. This pushed growth and borrowing way beyond what makes economic sense.
2) All three of the above (individuals, businesses and government) lived on in the panancea that the good times would continue for ever and we would never see a recession again. Borrowings were never intended to be repaid merely rolled over.
3) Rather than put money aside for a rainy day many people, businesses and the UK government kept borrowing and spending.
Now the wheels have fallen off the economy and the banks, government, many businesses and individuals find that there is no longer virtually free credit and the supply of loan finance has dropped back considerably to what is probably a more sensible level.
Unfortunately for all those that have borrowed and spent like there is no tomorrow the day of reckoning has now come.
Whatever analogy people want to use be it a drug user having cold turkey or an alcoholic having the dt's we need a correction. The only problem is that the bubble was allowed to get way too inflated in the first place and now the crash is that much more severe and sudden.
There will be lots of innocent victims in this fallout . I just hope that they realise where the blame should lie i.e. 10 Downing Street.
For those that brorowed recklessly and businesses that borrowed sillily on the never never well I am afraid you only have yourselves to blame.
For those innocents caught up in the collateral damage my sympathy.
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Every day another stupid scheme requiring more civil servants to run it. There are already far too many civil servants and consultants getting paid good money to 'help' industry and achieving less than nothing because of the fundamental conflict with state aid laws and the fundamental disconnect between government and reality.
The way to boost industry is not through 100 complex schemes and an army of civil servants to run them. The way to boost industry is to cut corporation tax. Target the tax cuts on high technology and exporters and these sectors will be profitable and attract private investment.
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Robert-in the words of Anatole France.
'The reporter sits down to lunch with the banker and the politician and they speak on the best of terms.'
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No 59
Spot on post, got it in a nutshell. First mention of Basel 2 and the capital requirements banks will have to work under too.
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#88 arnsbrae
I couldn't agree with you more. How are we supposed to make any sense of what is happening if we can't put our situation in context.
The BBC spent a fortune covering the Democrat campaign and then even more on live coverage of the election itself - none of which we could influence in any way! Yet we only have a very hazy view of what the economic situation is in say France or Germany let alone the plans that they have for dealing with the slump.
The same can be said for the US coverage. All we here about is Wall Street and the car makers.
As you say there is little or no comment about China or the other Asian economies.
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Brown is dishing out more money without the say so of the electorate. Why is this allowed to happen.
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Robert.
Given that you have clearly been given information before its official release, then arrest and arraignment is your future.
Goodbye, we shall miss you.
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I'm confused about the way we taxpayers are endlessly guaranteeing loans - and every day I ( we) seem to be making more guarantee's....
Sorry If I sound thick but please can someone answer these basic and sincerely asked questions for me...( I'm sure I'm not alone in wanting to know)
1) Are we the public acting like 'gold reserves' now? Is Britain a 'virtual' bank vault with each person acting like £50,000 of gold bullion? Is that ethical, legal? Why does it work here and not say, in India where they have far more people and so can theoretically create vastly more 'virtual bullion'?
2) If we are collectively the guarantors for current debt on future tax then if the loans are ever called in how can we pay whoever calls them in? Do taxes stop paying for Hospitals and instead go to pay these bankers or do they repossess our homes, take our cars?
3) If in answer to 2 you say 'don't worry' the loan will never get called in then why are they even necessary?
4) Who can call in a loan like that anyway?
5) Who is 'creating' the money that were guaranteeing and will it actually get spent or is it just 'theoretical'. I.E where is it coming from? Is it just 'printed' or typed into a computer screen as 'being created now' when I press enter?
6) If it gets spent or loaned, then do we the taxpayer get the profit from the interest that charged on it ? i.e some kind of dividend from the companies we lend it to who have used it to make more money? 5% on £600 billion is a fair profit is it not?
7) Where did I sign a contract agreeing that I would be a guarantor to this loan? How, as a British citizen, am I legally or financially liable?
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@51:
Quite so, and my mind wanders to a certain Jackboot Jacqui's recent order for 30,000 Tasers. They know what's coming. You know, 10 years ago I was quite sanguine about the world and where it was going - all things considered.
Now, courtesy of what would seem to all intents and purposes a deliberate collapsing of the economy, and courtesy of the savage assault on our freedom occasioned by 9/11 and the subsequent "endless" war on terror, I am not at all. I expect to see the worst social unrest I have seen in my lifetime, and I am in my late 50s. The disaster that has uncontrolled immigration has been will inevitably fuel the flames of racial hatred in the cities.
If we were a ship, we would have mutinied by now. Where's Marlon Brando when you need him.
Digression. It is unfair to compare Bligh with Brown; whilst he may - or may not - have been a bastard of a captain, he captained one of the two greatest small boat "rescue" journeys of all time (Shackleton & crew's from Elephant Island to South Georgia being the other), as he saved their lives with his outstanding seamanship.
Go see here
http://www.amazon.ca/Captain-Blighs-Portable-Nightmare-Safety-4/dp/0060195320
And Brown talks of courage. Spineless wretch and malcontent.
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The government should be careful about backing credit for companies simply because without it they are about to collapse and make workers redundant. It could be that the company is badly managed or in a sector that would have had to contract even if there had not been a downturn.
The most important thing is to make sure that there are new jobs available in sectors were expansion is possible and useful.
There are such sectors in the public services where downward pressure on expenditure over the last few decades has left some poorly staffed. Examples are childrens' services and the Inland Revenue.
Tax (on those with surplus wealth or income, so that private spending is not significantly reduced) and spend is not a bad idea in a recession. If those who have money are not spending enough to reverse the downturn, then the government needs to spend their money for them.
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So having run my company for three years such that it now has a healthy positive cash balance I am rewarded for my prudence with 0% interest on my credit balance (meaning I might as well put the cash in a sock under the mattress) and the prospect of more taxes to fund my competitors who have outpaced me on the back of excessive debt.
In other words it's like the hare and the tortoise racing, but before the tortoise crosses the finish line someone picks it up and throws it at the sleeping hare.
Thanks Gordon. I knew you'd come up with something to stitch me up even further.
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It is now becoming very clear that the tax payer will continue to carry the burden of bailing out ailing business entities of all sizes. Effectively the U.K economy is slowly but progressively being nationalised. This is good news for this government whose ideology which has been kept secret but nonetheless carries the aspiration to rule the country along socialist principles which includes but is not limited to nationalising the economy.
Basically the taxpayers money instead of being recirculated in the areas where is most beneficial to the taxpayer i.e pensions, social services to the people who have served their country and paid their dues and proper medical care to the same people is being distributed like confetti to ailing business whose performances are affected by people who have no connection with this country.
Where is the prime ministers pledge to protect the vital interests of our country.
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It is now apparent to everyone that the free market does not work,
just see what the speculators did with the oil price,
now they move on to other things, surely in the public interest this should be stopped,
It is now apparent that a lot of businesses were run as ghost ships with all the goodness wrung out of them to gain bonuses and income for share holders or asset strippers
Dont prop up ailing companies anymore or banks.
Let them fail pick up the pieces and then have them run as they should be by the many honest and talented business people we have in this country
it may mean a bit of pain now, but for the medium to long term is will be better if its done now
throwing money at these entities is only prolonging the pain and instead of a cure it is a death sentence to the economy
Then by all means invest money is decent honest sustainable well run companies, because they will actually return money to the public purse but this is better done once all the bad toxic companies are laid to waste
Instead of empty policies enforce company rules
Realise that the small company is keeping this country going
Do something now !!!!!!!!!!!
oh and Gordon say your sorry and get Tony in too, to apologise then resign
Watching the programme last night about city traders see it on Iplayer one of the people reminded me of Gordon
ok we will try this oops fail
ok lets try this ooops fail
and repeat
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Robert would you ask Gordon to loan me £50,000 so that I can pay off the debts he is amassing on my behalf. Of course I may need further loans as Gordon gives away even more of my money.
Not sure when I will be able to pay the money back. Mind you the banks have been given billions and Gordon does not know what has happened to that so I should be o.k.
I ask you to do this on my behalf as he does not reply to my emails nor has he phoned me.
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#66
From: truth or fiction
Summary of the eRumor:
A forwarded email with a quote dating back to 55 B.C. from Cicero of Ancient Rome about balancing the budget, reducing public debt, and curtailing foreign assistance.
The Truth:
This alleged quote from Marcus Tullius Cicero that began circulating on the Internet in October, 2008, is based on a true statement from the great Roman orator, but someone added a lot to it to make it match some of what the United States was facing economically.
The actual quote is: "The arrogance of officialdom should be tempered and controlled, and assistance to foreign hands should be curtailed, lest Rome fall."
So - not quite as it is cracked up to be - but still pertinent
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2 guy croft
a small prayer was said on your behalf
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If the following (from the Financial Times) is right, then we taxpayers are likely to be underwriting any number of things so that Gordon can appear to be doing for the sake of doing.
"A Whitehall friend tells me that the atmosphere in Mr Brown?s Downing Street ?war room? is captured in the constant cry of: ?Do something ... do anything ... do everything.? The big Whitehall departments are bombarded daily with demands for initiatives to be bundled up into the ?New Deal?."
Hasn't occurred to him that his doing will be our undoing.
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Unemployment continues to rise under the present economic crisis. The government on the one hand are attempting to be seen to be doing something to help alleviate the situation to give the impression of care and responsibility (which frankly will be a waste of time and money because the free market economies will dictate play not government actions) and on the other they are privately rejoicing the situation because unemployment brings misery and hardship both conditions usually play in the hands of a socialist government like the present one. The next step will be for this government to start throwing money around to help get these people back to work and thus give the impression that they are acting in the interests of these unfortunate people. However this will not be a responsible move by a caring government but a sinister attempt by this government to make these people lives dependent on the government actions. In other words this kind of action by this government is to effectively increase the number of people dependent on this government for a living and thus obtain their loyalty at the ballot box at the next election. Unemployed people will not be interested in the government's past performances. They will only be interested in survival. Hence their dependency on the government . Moreover this government aforesaid moves will increase the army of people relying on the government for a living. Unemployed people would be foolish to jeopardise this benefit. Therefore an economic crisis such as the one currently on display benefits a labour government. The next thing you know will be for this government to attempt to find jobs for some of these unemployed people in the recently nationalised institutions and thus cement their loyalty to the government. This will effectively complete the circle of control by the government not only on certain peoples lives but also on the nationalised industries who employ these people. Lovely Jubply as Del Boy will say. A double whammy.
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107, flynnstudio
I posted this over on Nick Robinson's blog on 11th Jan so the first bit is out of date, but I hope it helps to explain what's going on and why.
"What a lot of Nulab supporters out today. It must be because the Conservatives' business loan guarantee scheme is going to be adopted but in a Gordo thought of it first way. The Dark Lord was spinning it like that in Radio 4's 1pm News on Friday, when he said that business loan guarantee schemes had been mentioned in the PBR. Yes, they had, but the PBR mention was for the Small Firm Loan Guarantee scheme, which is a lesser proposition than the Conservative proposal. The SFLG already exists and has done for years. It guarantees 75% of the business loan for an extra 2% in interest and has limited appeal because not all banks offer it and they may attach conditions such as only offering it to start-up businesses.
Now, as I see it, and fellow bloggers with banking knowledge please correct me where I go wrong, banks want and need to lend because this is how they make their money and they need to make money to strengthen their balance sheets. The govt in its lack of wisdom is trying to get them to do contrary things. It wants them to lend, but has shackled them with repaying govt funding at 12% with bank rate at 1.5%. How can they make a profit in those conditions unless they lend HUGE amounts of money. And they can't lend huge amounts of money because they don't have the required capital to so. The potential result is bank losses which will further reduce capital adequacy, leading to further reductions in lending.
Now, let's take a step back. There are international regulations covering capital adequacy, to be found in the Basle 2 agreement, which IMHO is not the most sensible of documents for various reasons. Anyway, this agreement sets out the amount of capital required to cover the risk perceived in various types of loan and the security taken for those loans, so a loan secured by a 100% cash pledge theoretically has no risk, but a loan with no security pledge carries 100% risk. This may not be completely accurate because I'm out of touch with recent developments, but the principle is that a loan with 100% risk has to have 100% capital cover. Just to cover the cost of capital borrowed at 12% from the govt, the bank will need to charge a risky borrower 12% plus a bit to cover the bank's running costs. This rate of interest charge will make the loan even riskier.
If the govt provides 100% guarantees for business loans, the bank doesn't have to earmark its capital and can lend at a much lower rate and, hopefully, get some businesses back on track. The risk to taxpayers lies in the strength or weakness of a bank's ability to assess the risk in a business's loan application, and I would hope that 100% guarantees are not provided to applications that are considered pretty risky or there will be a huge taxpayer cost.
I think the Conservatives approach is sensible in this guarantee proposal, in the abolition of tax at the basic rate on savings interest, and in increasing personal tax allowances. I noticed that the Nulab line is that it's encouraging people to save when they should be spending. Well, we need people to save what they can to improve the banks' balance sheets so they can lend again and, for those people who rely on savings interest for income, there will be more income so they can spend more rather than apply for state benefits.
Incidentally, does anyone know if the banks have now actually received the promised money? When ministers were making a lot of fuss about banks not lending, they forgot to mention the fact that the banks hadn't received the funds, which I think were supposed to finally appear this month."
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"...to keep afloat, through the current recession, those businesses that are fundamentally sound."
Huh? What is this?
If they are fundamentally sound, they are afloat during a recession.
What the government is really saying is they are going to try to import some non-recession fundamentals into fair-weather businesses that would normally fold at this point. This extends to more debt, but it does not extend to more customers, which is why it will fail.
What next? Gluing the leaves on deciduous trees ahead of every autumn? Shaking hibernating hedgehogs awake?
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Robert, can you please answer the question asked by me at 118 and by NoMoreFA at 96?
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78 whatevernext1
..working capital .. in their land bank...
What do they withdraw, turf, do they have a turf accountant, sorry I doubt the working capital. Plenty of asset which has plumneted in value and some with boat loads of debt for buying the wrong competitor out. If you are saying they could be building social housing then yes but who is to fund it. In Ireland social housing need has resu ted in the buying of mainly empty luxury flats because it is cheaper than building from new.
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Several readers have commented on the rather confused - and confusing - wording in this report.
The title is misleading - so far as I can see, there are no loans but some extensive credit guarantee schemes and a small amount of equity. Not loans at all - but then we might all be surprised when the official announcement is made.
I am still wondering what difference these schemes will make - asuming they are cheap enough to be attractive to the banks, unless something is also done about reserve asset ratios, icreased in UK, in a pro cyclical fashion, last autumn, as part of the supposed bailout.
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79. At 3:40pm on 13 Jan 2009, Oldfifer wrote:
'I am not a small businessman but a pensioner.Throughout this whole debacle my greatest concern is 'where and how does the writer seem to have this information always prior to to the official announcement' Are we all just mugs?'
Surely not, what you are describing would be an orifice that passes all understanding
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Peston 'musing' today...policy tomorrow!
It's never been easier to inside trade :)
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No 83
No to a Spring Election. NuLab need some "green shoots" to hang on to. They will of course manufacture the green shoots first. Mandelspin will be on the telly calling on the GB electors to continue with the "proven team"
They will go down ofcouse because the GB elecorate know the score at last. Labour means calling in the IMF.
Hold on for a very rocky ride. Buy seeds!
Grow your own green shoots
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So will there be a "how to" to access this money or will it be wrapped in spangly red tape?
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#44
When Sheerness Steel was "force to merge"
with a welsh loss making company and was not allow to close one site or at least make reductions they resorted to financial jerymandering which in the end caused both to close
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Unlike most of the Jonahs on this blog, I run a small business, and any help I can get is most welcome.
And if anyone snipes that it is copycatting the Tories well boohoo to you.
Thankyou for bringing this to light Robert!
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Brown and his team are bereft of ideas and this is just another example of them stealing policies from the Tories...problem is they always make a hash of implementing them. As always, it is best to deal with the organ grinder and not his monkey..for Tory policies that work, elect a Tory government....The Labour copies are cheap imitations and won't stand up to tests.
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Tony Blair was famously quoted as asking for a new initiative a week to boost his flagging rstanding in the poles. He knew then he was doomed, even though he continued to hang on by his finger nails.
Son of the Manse Gordon is seemingly embarked on the same programme.
Unfortunately this time it is all of us who are doomed!
Gordon Brown - leader of the 'do nothing original' party.
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I don't think some of the posters realise how bad this is going to get. The recessions of 70's, 80's 90's were small beer compared to this.
I know some of the posters only want to hear good news, but there aint much and the media is actually downplaying the situation (to my mind irresponsibly).
EVERYTHING (all caps copyright AC) is going to be re-valued downwards in a big-styleee.
All your assets, your savings, your cash, your wages, your pension. The whole bloomin' lot.
Interest rates at effectively zero percent, printing money like crazy until inflation gets way out of control, de-facto restrictions on borrowing, higher taxation (you watch for changes to capital gains tax and death duties being sneaked in), foreign currency out of reach. What a minestrone.
We are all going to have to pay for a systemic banking collapse and a chancellor asleep on the watch. *
There is going to be only one currency -energy. He who has oil and gas is King.
Speculators are going to back into energy futures again as soon as they dare, watch for sweet Texas crude going back up to $100 a barrel by late Spring.
We're all for the poorhouse unless the Euro collapses first (a matter of when not if)
Regards,
ooh to be alive in exciting times.
Remember -what doesn't kill you, makes you stronger.
I'm not depressed, I just made the mistake of reading Martin A Andrews Domesday scenario last night. I think I am going to try and get him freed from Jail.... maybe he might be more upbeat if he sees a blue sky and a warm sun.
Better news from a selfish perspective. My bank agreed to a big increase in our business overdraft today as part of our plan B (personal guarantee only!) in case we don't get paid by anyone in the next 6 months for all the contracts we have in progress. Maybe your banks will do the same if you want it.
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119 werrington silent
I wouldnt worry about it. It will be tied to shared risk with the banks so the banks make the decision. Therefore lending will only occur to those who it would have occurred with anyway. First rule with this lot - check if not a publicity stunt. You cannot both protect taxpayer exposure and genuinely take risk to intervene. He is like a man wearing two condoms all the time. Give it time and when it makes no difference, it along with a whole load of other actions, will be defended with - we did out bit, we put this in place, that in place etc etc Somebody elses at fault we provided the means, they did nay do their bit. Like with the internships for graduates, I hope it makes a difference but I doubt it. El Gordo - It all started in America. Yes that is why the IMF say we are in worse position. El Gordo - I dont want to sound arrogant but back in 97 I was trying to put steps in place so this sort of thing didnt happen. etc ect etc. As both he and Comical Ali D in da House will be written about he is scurrying around trying to make a big play. Spinning plates on the end of bamboo canes whilst the scenery drops all around. If it was nay so sad it would be funny, panto.
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Re 118 : PammyAnny
HI PammyAnny,
Thanks for your efforts but that doesn't specifically answer each ( or any) of my questions.
If you, (or anyone else with a high level of understanding), could apply your knowledge and understanding specifically to those seven points raised in post 107 I would be extremely grateful. Nobody I know can answer them and I know some pretty smart people! I usually just get a conciliatory "I don't know what's going on"....
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109, stanblogger wrote:
The most important thing is to make sure that there are new jobs available in sectors were expansion is possible and useful.
There are such sectors in the public services where downward pressure on expenditure over the last few decades has left some poorly staffed. Examples are childrens' services and the Inland Revenue.
Tax (on those with surplus wealth or income, so that private spending is not significantly reduced) and spend is not a bad idea in a recession. If those who have money are not spending enough to reverse the downturn, then the government needs to spend their money for them.
This is possibly as close an insight into the economic beliefs of GB & co. (and BBC journalists) as we are going to get. There is a genuine belief (misguided) that government expenditure is productive. And, that taxing (surplus ? sic) wealth will not prevent productive investment. I presume such people do not have helicopter Ben Bernankes in depth knowledge of the 1930s depression, so I forgive them their naivety if not the impact of their policies.
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evening all; there are a lot of thoughtful posts on here today and almost a consensus amongst posters in general comments about too many initiatives and not enough actual clarity or conviction in policy
far too many posts to pick out individually but I thought that #118 pammyanny made some interesting points
a couple of things spring to mind:
a lot of us wonder if the 12% rate set by the govt for bank recapitalisation funds is proving a hindrance to the banks passing it on as eased credit; why on earth don't GB and AD just try resetting it lower if that's the case? heh, it could be another new announcement
as #118 asks, has the govt actually distributed any of the £37b to the banks yet anyway? or is it just more hot air and bluster from HMG? surely somebody must know
one worrying aspect of all this is that, on the other side of the pond, the US gov't seem to be way ahead of us and really did (for better or worse) go ahead and quickly distributed the first $350bn of the $700bn recapitalisation money for BOA, AIG, Citibank etc
but it hasn't had any impact over there so far ........ the banks are just sitting on the money
this from the NY Times:
Republican and Democratic Senate leaders signaled on Monday that they would support the release of the second half of the Treasury?s $700 billion financial system bailout fund, despite anger among many rank-and-file lawmakers over the Bush administration?s management of the program. As Congress prepared to act, regulators directed thousands of banks to provide more information about how they have used the money received through the bailout program, responding to concern that financial institutions were hoarding the cash rather than lending it to businesses and consumers.
the NY Times also has a very detailed graphic of who is getting and stashing the cash so far
http://projects.nytimes.com/creditcrisis/recipients/table
have a look; it's interesting, especially if you like really BIG numbers
it would be nice to have access to similarly detailed information this side of the Atlantic and not just Robert's latest scoops BTW
Bernanke is apparently saying that even the 2nd instalment of $350m won't be enough and they need to pump more funds into the banking system beyond that!!
And they've started talking about setting up a 'BAD BANK' for the toxic stuff as well again (is that like BAD SANTA......)
Worrying that Bernanke was here talking to Brown yesterday; these guys are suffering from groupthink
I know it's early days, but the impression has got to be that this strategy isn't really working; and economic contraction is currently looking like it's running at a rate of 6% annualised, which is double or triple the worst pre-Christmas forecasts
Anyone see any silver lining to this cloud?
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The UK government is borrowing more than £100 BILLION per year. The US government is borrowing even more. Barack Obama's "stimulus" package will borrow even more.
That's one of the main reasons for the credit shortage. Who would lend to a risky business or individual when they could instead buy government bonds?
The clowns who run the UK and the US governments (and the German government joined them today) REALLY are utterly clueless. If they really want money to be available to lend to businesses, they should take an axe to the bloated State.
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The 12% on the capital injections seems to be causing confusion.
The capital allows the banks to conduct far more business, (fractional reserve banking) so the actual additional cost on a specific loan is relatively small.
One of the main sources of income for the banks is commissions and fees and these have no capital requirements per se, only the loans/options/debentures which are generating the fees carry the capital costs.
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The missing parameter to the money equation is
If Income Received = zero => Total System Disintegration
When traders trade or gamblers gamble they must be able to cover their losses or they will lose their trading license or legs / kneecaps / fingers
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Why doesn't the Government just form a state bank? This way the taxpayer would benefit from any profits made from loans etc.
It would also give people the added confidence and trust that is clearly lacking where many high street banks are concerned. A move like this may even prompt the high street banks to start freeing up some of the money they are desperately clinging onto for fear of another international monetary scandal! I.E. If the competition is there, they either compete or they go under!
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129
I don't give a damn who copies whose policies; all I ask it that they work.
It's time to get real, cliche.cliche.
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18 months ago, on this blog and the the BBC HYS web site, I predicted where we are today, although I did say a few more banks would have failed than have. However, the course of events have so far followed the logical route, with all parties acting out there predictable roles perfectly.
The next stage I believe is now fully underway. Bit by bit all economies which are fully interwovern in the Global market will, planned or unplanned, gain greater and greater control and ownership of the wealth creating elements of their own economies.
The taxpayer will in effect own everything but have no control or say over them. The status quo MUST be maintained at ANY cost.
Bail outs by the worlds governments will be looked back on as a stealthy and sly move to nationalisation. A new sociopolitical order is emerging and I for one wonder how much pain its birth will bring.
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I dont think anyone is really surprised by this latest announcement are they?
Just as we will not be surprised when they start to print money.
Just as we will not be surprised when they announce big spending government schemes.
Just as we will not be surprised when non of the above works.
You can not borrow yourself out of debt on one hand as someone else has rightly said on these pages.
and
Government can not invest to create real jobs on the other. Any government investement will be way too slow and ineffective due to governments own inefficiencies and red tape to make a difference, the damage will already be done by the time a single major government contract is awarded for anything that may make a difference.
There is no short term fix to be had.
The above chain of events are inevitable as will be the current governments utter defeat at the next election and humiliation for the PM, if he even gets that far.
All this blogging by Robert and the people here is just a facinating pre post mortem. We are the doctors debating which kind of terminal cancer the patient has got while we watch the next natural progression of the disease unfold.
The final post mortem will be left to history, which may identify a point several years back that if different decisions had been made at that point this could have been avoided.
Facinating though this phase is, what is useful to concentrate on now, ahead of the game, is what happens next after the ineviatable chain of events above unfolds.
Jericoa
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This comment was removed because the moderators found it broke the House Rules.
The words "banks" and "trust" are incompatable!
It really is high time we bit the bullet on the banks and dumped them. They never will play the game properly and now they're effectively agents of the commissariat I just don't want anything to do with them.
We need to think seriously about setting up new mutually owned banks and transferring all our accounts and savings to them.
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Hi flynnstudio22
I'll try:
1 No.
As a taxpayer you are part of the process of guarantee. Because we (and that includes YOU even if you did not) voted this government into power, they have the legal authority to act on everyone?s behalf.
(Here?s to the revolution!)
Because we have an economy with a per capita GDP that should allow repayment and on a per capita basis India does not you are stuck with the repayment. TOUGH.
2 The process of calling in may be difficult, but if the lender refuses to roll over the loan we have to raise the money elsewhere. We might have to raise the rate of payment, via interest rates, and the cost will increase. TOUGH.
3 Because there is no calling in, only a refusal to roll. TOUGH.
4 See above, but naturally it?s still TOUGH.
5 The process of balance sheet inflation is essentially theoretical, as you correctly put it. While companies/funds/governments etc are prepared to work on this basis the happy merry go round can continue. TOUGH ain?t it?
6 Only if the end user covers the interest AND can repay the capital. Potentially and probably TOUGH.
7 VERY TOUGH if you are a British citizen and taxpayer. Birth or other qualification to be a Brit means you are stuck with it.
Gee thanks Gordon Brown, I?m so glad you are my ex-chancellor and now unelected Prime Minister.
Now that?s TOUGH>
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Stump - the - Chump
Why didn't our Business leaders / Heads of Industry / politicians etc
ever plan for a worst case scenario type situation?
Going forward what is the worst case scenario type situation?
and What are our Business Leaders plans in these events?
(hope I'm being constructive not destructive)
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More confusing by the day.
What on earth is going on between the banks and the government.
As you clarified earlier on News 24 the government are expecting the British banks to take over the lending to businesses that has been pulled by foreign banks.
All for 20 billion. A drop in the ocean.
The relationship between government and banks just gets more crazy by the day.
Government wants miracles bank can't provide and taxpayer gets angrier and angrier at not getting what they've been told to expect.
Is it real money we've lent to the banks or just another promise to pay the bearer?
Someone very soon is going to have to come clean and explain what's really going on.
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With government and BOE now embroiled in so many schemes to baleout first the banks, then home owners and now small businesses, using taxpayers money, the question they need to ask themselves is does the treasury and BOE have enough people of sufficient calibre to oversee where this money is going on a macro level and more importantly how the hell are they going to oversee their commitments to assist small businesses on a micro level.
With all due respects to the Prime Minister and Peter Mandelson (and most other politicians) what experience do they have of the practicalities of ensuring that such vast sums of money will go to where it is best needed, in such a short timescale.
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With a risk of getting completely slaughtered.....its not really GB or BO or AD who are coming up with these policies is it - they have teams of supposedly top economists telling them what they should be doing and then they're the public face (for better or worse) who tell us how its going to be.
So its not really GB who is a total idiot its all his advisors - GB isn't clever enough to work this all out any better than we are without a bit of help.
So basically the majority of GB's & OB's (and remember he's at the beginning of his term and not the end) advisors either think that
a) this really will work and save the world
OR
b) OB's stuck with it coz its what GBush's advisors committed to and GBrown has been told its the best short term policy to save his neck.
The really frightening thing is that the majority of posters on this site completely disagree with government policy - but are we really that much cleverer/knowledgeable than all the government economists and advisors?
Or is it that those who agree with govt policy and think it will work just don't bother posting?
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Didn't Blair look embarrased when Bush pinned that stoopid medal on him todaY.
How many of the wounded and dead from from Iraq and Afghahn (whoops Afghanistan) were awarded medals?
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It's starting to look as though HMG's running out of cash. 20 bn direct input aimed at lifeboat companies suggests not only that he's at long last given up on the banks, but also that this is all that's left in the kitty.
If so, then it's time to start using the Madoff solution, hauling some of the ill-gotten loot back by force. Oh, and by nationalising the banks, the fuel companies and every other functional open-market monopoly or cartel. If we're forced to do this the hard way, skewer the fat cats first, their meat goes a lot further than the mice who're currently being sacrificed.
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Who was it who said that,
"Labour is the natural government of this country, except in times of crisis, but every time you get a labour government you get a crisis"
I know that Pink Floyd wrote "The ship of fools has finally run aground"
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Moderators...you are obviously too young to remember 'Boys from the black stuff'
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Every story has a happy ending
Glasgow kiss
Phil Redmond's
Yosser Hughs
Gissa Job
No
Boys from the blackstuff
Gordon Brown
Incompetent
Glasgow Kiss
Morally bankrupt
Arrogant
Will you vote for me?
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I researched a Debt Business Model and determined
if you increase+ debt
and increase++ debt
and increase+++ debt
you can not afford to pay it off (damn interest)
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Sony to hike prices up from this month by 10% for goods being shiped to europe.
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Has anyone read the small print on a bank loan?
It frightened me when I ran a company.
Just slowed down expansion - but we kept all the profits.
Didn't fancy paying to hire money on ridiculous terms.
That is the problem with being a dim (but rich) engineer.
Insurance ditto.
I hate parasites.
Fick or wot.
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#107 The basic idea is that the Government will spend money that it does not have in order to "stimulate" economic activity.
It is intended to finance this expenditure through the issuing of bonds. The bonds will be repaid over the long term through future tax receipts.
If the market considers the amount of money to be "excessive" or has doubts as to the overall credit worthiness of the UK then the market will demand higher interest payments on these bonds.
The amount of bonds issued and the cost of issuing the bonds has direct consequences for future tax and interest rates. Both will be higher, although the exact increase cannot today be quantified. There are limits as to how high taxes can rise (rich people tend to leave the country). In order to mitigate the quantum of tax rises public spending can be cut. High taxes, high interest rates and low public spending is deliterious for the long term wealth of the general population.
Maybe investors will still not want to buy all of the bonds that the UK will need to issue. This is possible both because of the quantum of money being raised and also because a lot of other countries are also trying to raise funding via this mechanism. Some of these countries maybe more attractive to investors than the UK.
Taxpayers pay for the cost of the bonds - they do not receive any return. The return goes to the buyers of the bonds. The benefit to taxpayers is the use to which the money raised from the bonds is put - in this case baling out insolvent corporations, although their insolvency may be so great that no amount of bail out can work. In such a case taxpayers get no benefits at all and merely pick up the costs.
If bonds don´t work then the Government will resort to printing money. This will lead to hyper inflation and the destruction of the currency and the economy as it has in Zimbabwe.
Most people believe that the UK will not or cannot follow the example of Zimbabwe - although they provide no evidence to support this belief. Contemporaneously the corporate controlled media invite a ritual boo-ing of members of the Royal Family for alleged racism, whilst proceeding in complete ignorance of their own ingrained racism that holds as a simple article of faith that the UK can never replicate Zimbabwe.
The political system can offer no effective opposition to the policy of creating debt to cure a debt problem. Most ordinary people understand (at least subliminally) the grotesque asininity of such a policy - after all if you are drunk you do not sober up by increasing your rate of alcohol consumption.
The general population is effectively disenfranchised and largely atomised and it is unlikely that popular pressure can avert catastrophe.
If you don´t like it then either organise or emigrate. The latter option may be preferable because as Mr. Strummer noted "mobs don´t march they run."
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140. sosraboc wrote:
'I don't give a damn who copies whose policies; all I ask it that they work.'
To spin off this point
I couldnt agree more. However it is fair that anybody asks what is going on - I mean it is a bit strange that an entity that consumes money, never creates it - HMG - that allowed this to develope however partially, despite warnings floating about like messages in a bottle, is now looked to for a solution and for policies. Further when so many flaws in the system and so many hollow men and hollow companies abound and are exposed, that it is questioned what is going on. Just what demonstration of skill and commercial skill is HMG able to bring to the table. Not a very good CV is it. If you where headhunting would you say these are the boys to sort. Their job is regulation, anything else is new ground. No time for a novice, thanks for that advice, must remember it, particularly from a cockup cowboy.
The idea that viable activities are helped is of good intent. However offer a ticket and everyone turns up to have ago. Look at me I'm viable. What is a viable activity. One that does not require help. So that doesnt help. So it is actually abou trying to mitigate damage. Well that should be the criteria. So who should be helped. Damaged businesses or damaged individuals. Sorry but I am entirely dubious about the truthfulness of businesses, I am dubious that they really know their position. I am dubious that a business that has self harmed should even be helped. It is the individuals that should be helped. Forget all this baloney abou helping businesses. They can go bust, be bought if judged viable and move on. That is the only measurement of a business. Much as I dislike the image of the man I have to say Mandleson got it right for me with the carmakers so far, propose to ensure money is available to people who want to borrow to buy them, let the carmakers sort themselves out, at least that ws the last I heard, could have relapsed I suppose. No the answer is small not big. Ensure as much as possible that means are in place for the individual, leave the businesses to sort themselves out, quicker the better.
As for policies, most are postulations, implemented as experiments. The options are actually quite narrow, as is the money to do it when compared with the problem, in some respects I think that is a good thing. That experiments can be limited by the available resource. There are actually very few business activities related to national security that you can justify true intervention on, and they should be either under state ownership and not have been sold off or told they will taken over if the need arises. Seized and ringfenced. If you can do it with an Icelandic bank claiming a national threat you can do it with anything, including a abusive grocer, if judge to go on the list. After all you dont have to be clever to be abusive, just in a position to abuse. In fact it is questionable if abusers are clever, so I dont know why the word clever comes into it. Perhaps that would concentrate the minds and things could move on. Fits the governance and regulation activity. Does not require any commercial knowhow by HMG. Business sort yourself out. Listed as a critical supplier sort yourself out behave ethically or be ringfenced. Hmm no support from the public, doubt that, tell them a few facts.
The gloom and doom merchants seem to think I am too jolly. Well theres your downside scenario, a possible one anyway.
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145 sosracboc
I'm forever blowing bubbles : )
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Robert.
You said it, IF the scheme works.
But, THEN what happens if it doe's NOT???
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#107
I'm not an expert, but here's a stab (subject to correction by more knowledgeable!)
1. Public are not acting as gold reserves as the money is actually future tax revenues, not from currently held assets. This is,of course, a variable and potentially very large figure as tax can be increased and spending reduced.
2. Govt can choose to increase taxes, say reduce spending on hospitals etc or some combination of both. But the loan has to be repaid.
3. Loan will get called in, so worry.
4. Whoever makes the loan in the first place.
5. BOE (govt) will create money. Increased money supply will tend to deflate value of pound on international markets.
6. Depends, but probably not in practice. Any punitive interest will be swallowed up in administration costs.
7. You (or more accurately the majority of electorate) voted in a group of clowns. They have a responsibilty for running economy. They have failed miserably and are merely trying to save their own skins by obfuscation with useless initiatives and
help from their fawning mouthpiece on earth, R. Peston esq.
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eh ?
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If you try to save some body from drowning there is a good chance you will drown or get dragged down too.
There must be a way of saving individuals rather than banks or companies instead of the other way around.
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#149
Actually you are broadly correct in that GB, AD haven't got the first clue about economics etc. They are merely (bad) presenters of information. Unhappily, the advice they seek is tainted by their objectives. So, GB might say, you say we could inject x, y or z amount into the economy, what will the effect be over time? Advisers / civil servants say well the immediate effect will be
immediate x neutral, y good, z poor
6 months x v. good y neutral z poor
3 years x catastrophic y poor, z great
Ok, now as GB which strategy are you going to adopt and when are you going to call a general election?
Its not just whether the advisers are good, its the question you ask them and your objective - best for country or best for the governing party!
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For your consideration:
IBM, Verichip, and the Fouth Reich
http://uk.youtube.com/watch?v=x2udoNmQkR4&feature=related
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Evening all
All this money been flung around-bit like feeding the ducks in the winter!
Seriously though, had there been real income tax and NI cuts, there would have been no need to finanacially engineer additional loans.
Nor a need for £2500 bribes to employ anyone on the dole for 6 months.
(that idea must surely have safeguards built in otherwise you could sack 5 expensive workers and replace them with cheaper ones cos they're desperate for a job, and get £12500 for doing it!)
This again would mean more people keeping their jobs, and reduce, in real terms, the cost of overloading the benefits system.
And yes, agree with Guycroft-small, rural companies have been left completely out of the equation AGAIN!
Small companies need help now, without masses of red tape. The drop in sterling is affecting virtually every business, but small ones feel it more keenly. Suppliers are now taking advantage of the drop to maximise their profits by vastly increasing their prices. In one case I heard today, a supplier has increased the cost of one product by nearly 100 percent, and another by 80 percent.
I'm sure sterling hasn't dropped that much around the world, even against the Yen!
This is a further impact on cashflow, as obviously new orders will need to have this charge passed on-if not in full then profit margins are going to be severely affected.
In the meantime, current orders will have to have old rates applied-therefore, a good profit margin 1 month ago is now a loss. Suppliers demand payment on the 30 or 60 day limit, clients pushing the envelope with credit terms.
Therefore, even companies with a good amount of cash in the bank will find this eroding rapidly.
And before you ask, the products quoted above are not made in the UK-one shipped from China, and one from Spain.
Hence why I would imagine businesses needing an overdraft to fund the gap in cashflow for a couple of months. Thing is, what client will tolerate a price hike when everyone is looking to cut costs?
The idea of loan funding is a good one in theory, but the nuts and bolts already seem to be concrete boots.
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Regarding poster who blamed Robert for the banking stock falls as a result of this article, shares were falling yesterday and continued their descent today. I'm curious as to why Barclays was the worst today-couldn't find the answer, so I can only assume they've heard of our seemingly weekly complaints at their crass ineptitude on opening accounts for our 2 new businesses.
Cherry picking companies to help with loans will not help the whole economy. We need to encourage and support a diversity of industries-otherwise our economic infrastructure will never exist as a balanced one.
It is not rocket science. Get it sorted and stop knee jerking.
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Regarding the money to finance these loans for business, trade credit insurance etc.
I assume some will come from quantatitive easing (the printing money option) and a loan secured against future income from taxes.
A loan from whom I have absolutely no idea-the World Bank maybe?
Whatever, I would assume that GB and Ally D would have been required to provide a cashflow forecast, just as any business will be required to do. Realistically, that should have been showing a decline in income and an increase in expenditure. No bank would lend against that evidence, hence, I suspect, why banks are being careful about loans to businesses.
Just how realistic was the cashflow forecast I wonder?!
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And finally, to play devil's advocate again...
What incentive was there for businesses to save for a rainy day? Any profits were going to be taxed heavily, so why not spend it all or take it all out?
Not my personal philosophy with my companies, but then I have always been extremely cautious anyway.
Night all!
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This is a paradigm shift to a global web based economy. The pain is a re-adjustment in asset values and wages to those of this new paradigm.
The western economies are overburdaned with unproductive individuals who rely on the rest of us to keep them whether through government redistribution, returns on investment, or ridiculous house price inflation.
We do have fantastic opportunities. Huge spending on infrastructure is needed, particularly housing, communications, fibre optic cabling, efficient energy use and real education without the debt.
This government don't have a clue. They need to do the honourable thing. And the tories need to step back from their infatuation with financial services. These people may have the old school tie but they are just crooks and it's time to put them on trial for fraud and conspiracy and confiscate the +100 billion in ill gotten gains using the proceeds of crime act.
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On reflection??
The UK seems to be SLEEPWALKING
into a VERSION of COMMUNISIM by
GORDY.
WE are finished.
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What is sound or viable?
Was Waterford Wedgewood with 5 years losses and massive debt and 'buy me now' designs?
Was USC, basically restructured by its owners
Was Woolies? Really? Did it have a USP? and Iceland offered to buy the lot back in the summer and the company rejected the bid
Were all those look alike furniture outfits sound?
Which 'failures'were saddled with debt from some monster acquisition process?
Which have already been snapped up by corporate bargain hunters
TOO MUCH KNEE JERK REACTION TO TOO MANY PRESS RELEASES
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Oh and by the way Ayn Rand should be compulsory reading
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Once again Rober Peston reveals the bias handed down to him by his father. This scheme has no better chance of succeeeding than any of the other expensive panic measures in play. He's right to say We'll see. I'm not optimistic.
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There is a literary theory described as 'death of the author' which claims that every reader rewrites a piece of text according to their own experiences and prejudices. Hence the meaning of the text becomes different from that which the original author intended. (Hence, death of the author)
In your article you stated that the money was to be aimed at viable firms, yet several bloggers have complained about supporting failing firms. There are many more examples of people attacking your article over things you haven't written. This would then demonstrate that this literary theory is correct. People read into any article what they want to read, not what is actually written. You could argue that it is not the end of the author, but the end of objectivity. Losing objectivity is a bad thing in an economic crisis.
The plan seems a good one and I think the timing is right. The root of solving the problem is 'confidence'. The shock of the economic collapse made people feel depressed. The country needed a period of mourning for the end of the 'good times'. It is only after such a period that it can really think about rebuilding itself. Although some of the government's ideas have been useless, others haven't worked because the country wasn't ready for them to work. Perhaps the right time is now. Anyone who has suffered a loss knows that there is a right time to start getting on with life and will describe attempts to get them out before they are ready as being 'too soon'
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Standard Chartered's Chair Mervyn Davies becomes a Lord in charge of Trade.
So much for democracy, then.
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Will the rates of Interest charged be the high twelve percent the Govt charged the Banks?
How are Banks supposed to lend when they have limited Capital and the Govts so called bail out is completely punitive ?
It will be interesting to see how the Rock court case progresses and of course this has bearing on Bradford and Bingley, who will be next in court.
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What's the betting there is a substantial quango in this scheme somewhere down the line. Lots of highly paid/pensioned jobs for more of Labour's girls and boys, sorting out the diversity/outreach principles of credit etc?
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'those businesses that are fundamentally sound.'
Oh.....that's okay then!!! Because it's very easy to establish that!!
Most busininess that relies on retail spending is doomed - a few of the big boys will survive. Any other form of business that has started in the last 6/7 years will find it impossible to re-finance if they are 'leveraged' like the banks!
This is just a labour smoke screen! There is still alot of pain ahead!
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HSBC NEEDS 20 TO 30 BILLION DOLLARS OF NEW CAPITAL SAYS MORGAN STANLEY.
its shares are down 6% at open this morning. So does the tax payer need to pay for this also?
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There are bound to be too many conditions before funding to a business is granted. What we are effectively looking at is the company having to provide a full business plan and justification for its needs and that in the mean time that business may well go under. The process will be slow, banks will procrastinate and continue to hoard the cash that the government has given them for this specific purpose. The theory is reasonable but the practicalities are not and this will be another failure by the government to really dictate lending criteria to the banks who after all are still able to enjoy autonomy despite their terrible mistakes of the past. Unfortunately I believe that SME's will continue to fail in very large numbers with or without support. Maybe the public have finally learned to save money and not spend it on a need to have basis. Good for the people but bad for the economy.
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Whilst Workers pay rises remain below the rise in their cost of living Consumer spending will continue to fall.
This is obvious and inevitable.
And of course this is made worse by virtual pay freezes in the Public AND Private sector.
I haven't even mentioned the rise in unemployment, but quite obviously people who aren't earning cannot spend.
And people who are maxed out on their Credit cannot spend either.
If they are worried about their jobs they are more likely to try to repay debt than buy new things........
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The point that GB and AD are mouthpieces for the advisors is interesting but misses the point that ministers set the agenda. Ministers determine what they want to achieve and instruct the advisors to come up with plans. The ministers choose which plans to follow.
The advisors may well be incompetent but advise as instructed.
My fear is that the advisors have no experience of running small or medium sized enterprises and certainly will not have the range of experience to cover the huge variety of businesses that will come with begging bowls; so sorting the viable from the unviable, let alone the plausible but fraudulent will be beyond the ken of the civil servants involved.
At the most senior advisory levels most of the captains of industry involved in the main will also only have single industry and then big business only experience.
I am reminded of the case of Lee Iacocca the super star head of Chrysler. He was hired at great expense by a small manufacturer and was unsuccessful. He only knew how to run big business with its armies of support staff.
Government is a dead hand on the tiller.
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I'm not a fan of this idea but am certain that using banks as conduits is a fundamental flaw. Tax cuts directed at small business would have been far more effective.
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If these SMEs funded under the scheme are the bet ones - the cream of the crop, then why have these banks not identified them already. Why are they reluctant to lend.. I would suggest that the risk assessment is the key issue, and the way the banks are structured. They need new and improved tools to support lending decisions. What do you think?
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Mervyn Davies, ex director of Tottenham Hotspur the new cabinet guru.
Look where Tottenham are: in the relegation zone. Have not been particularly successful in years.
As an allegory for UK United and GB Town's likely position in the world league it could hardly be bettered
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172 AC
No, I am not sleepwalking into communism, and there are many more angry and frustrated members of the public out there too. It's just that people feel helpless and insignificant in what is left of this country under this awefull government.
I have been encouraging people to join in the petition originated by Alex Wallace asking for GB's resignation since last week. The problem is that the links have become more difficult to follow, resulting in only 945 signatures of this morning.
I keep trying.
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188 gonzo
I signed it.But unless we ALL do
something we will sleepwalk to the
PRECIPICE.
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£10bn of guarantees leading to £20bn of credit for companies? Where does this comes from? Morelikely to be around £10bn.
This seems to be a very inefficient scheme!
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yet again I hear the call to give businesses a tax break, what they really mean is they want to avoid paying their tax whilst those of us who work and are on PAYE cannot avoid paying.
the moans about the Council Tax and its Business element should be directed at the Tories who introduced as a Poll Tax mark 2 !
We may never go back to the old rates system but the rich certainly have benefitted from the Council Tax !
Much of the current problem is down to greed and trying to increase profit margins, never being happy with a good return but wanting more !
No doubt I will read many more postings blaming GB but there were not moaning very much in the last decade, only now !
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How to re start the economy
Easy
The Government want us to get finance from banks and spend - cannot do as banks are not gicing
Well
By pass them
go direct to the source
The people of the country
Pay some of their mortgage - pay some of their car payments- want a new car contribute and so on--
The money will eventually go to the banks in a round about way but joe public will benefit directly as he will have money to spend
Tony
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Comment 176 : Boilerbill
Death of the author : Losing objectivity
I'd suggest that the reason for this development is less that the recipients are unwilling to absorb arguments contrary to their own prejudices, and more that the authors, increasingly, are making prejudicial statements and passing them off as objective comment or discovery.
Fewer and fewer people are prepared to accept as definitive anything they hear or read. And who can blame them!
Perhaps persuasion by the deception of camouflaged advocacy has reached the end of its useful life. Could the new reality see the return of intellectual honesty and precision as the expected standards of social and political discussion?
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Is becomes more clear as time passes by that Mandelson is now the Prime Minister in all but name.
Gordon Brown is now Mandelson's puppet.
So there you have it, the UK is led by an unelected person of dubious character.
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The whole of this banking crisis is due to banks gambling with their customers and shareholders money, then they want the taxpayer to pay and get them out of trouble as they have no money. The BBC and everybody else states that the banks will not lend as they have no money, so they go to govt and get money. The govt have instructed the banks to lend, but the banks say no. Result stalemate. So why not cut the banks out of the picture. Have the govt set up a bank, funded by the taxpayer, who will then lend at the bank rate after the correct due diligence has been carried out on the proposective borrower. Solution Borrowing starts up again, credit flows, businesses start working again (and we the taxpayer make money which will be a change). The alternative, we still have this log jam and soon the govt prints money creating even more problems
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176 boilerbill
you give a rather too simplistic explanation of the "death of the author"
This was a seimotics concept paper by Roland Barthes which (and I quote from a 2006 opinion piece) puts forward the argument that
"there is no such thing as the ?Author? of a text, but merely a ?scriptor? whose ideas are not entirely original" (benjamin789)
come to think of it, that rather neatly sums up Peston's role I would say
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The EFG scheme is a high risk product for banks NOT the government. The proposed guarantee limit of 75% is misleading - read the small print.... 9.75% is nearer the truth.
As a replacement for the Small Firms loan Guarantee scheme, it isn't fit for purpose.
The main issue remains that banks are (rightly) unwilling to lend, given the deterioration in the UK economy (not forgetting the huge oversupply of credit for the past 5 years).
Calls for banks to be forced to lend to customers is somewhat misplaced. I personally wouldn't lend someone £100, knowing full well that I'm never going to see it again. Yet this is exactly what some sections of the public are demanding!
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107 flynnstudio72
Sorry not to be back on the blog until now. I see that sosraboc@145 has provided answers to the individual questions - many thanks. And thank you too to 135 somali_pirate for considering my points interesting.
Now, in case you're still interested ;-), this is my take on the individual questions, and all disagreements are welcome. Incidentally, you're not thick, I don't think anyone really understands what's going on, including the politicians and me. This is just my perception of it:
"1) Are we the public acting like 'gold reserves' now? Is Britain a 'virtual' bank vault with each person acting like ?50,000 of gold bullion? Is that ethical, legal? Why does it work here and not say, in India where they have far more people and so can theoretically create vastly more 'virtual bullion'?"
Effectively, yes. The govt can raise money from us (we are the assets or gold bullion) via the tax system. It's perfectly legal but there can be debate about ethical depending on the level of taxation, what it's spent on, and your political viewpoint. India can do exactly the same with its own assets / taxpayers to fund its own needs if it has to. I think the confusion is arising because it has been described as a taxpayer guarantee, which it is, because ultimately the money comes from us, but it is given by HMG on our behalf.
"2) If we are collectively the guarantors for current debt on future tax then if the loans are ever called in how can we pay whoever calls them in? Do taxes stop paying for Hospitals and instead go to pay these bankers or do they repossess our homes, take our cars?"
If the loans aren't repaid, HMG will pay the banks, at least they should do if the guarantee terms are normal. If HMG doesn't have enough money in its coffers, it will need to increase taxation. You do not have any personal liability other than to pay increased taxes if required. Nobody can take away your house or your car if you keep up the payments for them. If taxes get too high though, you may not have enough money to keep up your payments. HMG will have to make a decision about cutting hospital funds, if necessary, to pay the banks, if the need arises.
"3) If in answer to 2 you say 'don't worry' the loan will never get called in then why are they even necessary?"
If the govt gives a guarantee for a loan (I gather it's going to give a guarantee for 75%), the bank can say that 75% of the risk of that loan is fully secured, so it doesn't need to put aside so much of it's capital to cover the risk. That means it's got a bit of spare capital to use for further lending. If the loan isn't repaid, the bank will make a loss and HMG should pay 75% of that loss to the bank.
"4) Who can call in a loan like that anyway?"
Banks can call in loans they've made, if the agreed repayments aren't being made. In this instance, I don't know if there will be any circumstances agreed with HMG that will cause a bank to call in its loan.
"5) Who is 'creating' the money that were guaranteeing and will it actually get spent or is it just 'theoretical'. I.E where is it coming from? Is it just 'printed' or typed into a computer screen as 'being created now' when I press enter?"
The banks create money by providing loans and the actual mechanism is pretty much as you describe, but there are repayment terms and conditions created at the same time. So why can't banks just keep pressing the create button? They can only create money up to a regulated multiple of their capital. In "the good old days" it was 8 times capital. This is why capital adequacy is important. Securitisation meant that banks could create loans and earn fees, then bundle them up for investors to buy and receive some of the interest that the borrowers were paying. Once the loans were bundled up and off the bank's balance sheet, it could use its capital again to create more loans,and it had to create more because some of them were needed to replace loans in the bundle that were paid off.
Will businesses actually spend the money? Some will use all of it, others may use some of it one month and pay it back, then use it again - as in a properly used overdraft facility.
"6) If it gets spent or loaned, then do we the taxpayer get the profit from the interest that charged on it ? i.e some kind of dividend from the companies we lend it to who have used it to make more money? 5% on ?600 billion is a fair profit is it not?"
I don't think the taxpayer gets interest on this funding because the banks need to cover their costs, but I understand that businesses will be charged for access to the guarantee and HMG may well get that. The money that has already been used to recapitalise some banks has bought preference shares owned by HMG, which have to pay dividends of 12%, which is far too high and will make the banks even less able to lend money. Your 5% is much more reasonable!
"7) Where did I sign a contract agreeing that I would be a guarantor to this loan? How, as a British citizen, am I legally or financially liable?"
Any contract of employment, or to open a savings account, or to buy a house over a certain value etc., means you have agreed to let HMG tax you, and HMG decides how it spends your tax.
Just bear in mind that this guarantee scheme DOESN'T mean that HMG is giving the banks money for the guarantee scheme soon. HMG will ONLY pay money to the banks if the borrowers with guaranteed loans don't pay.
Hope that's clearer!
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166 peaceand unity
That is really scary, and horribly believable. How many times have people joked about being chipped at birth ......
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Hi
I think we should take an alternative route
to resolve the crises- give money to householders etc who in turn will either spend or save-or still make part payment towards a persons mortgage or loan- this way both the individual and banks benefit
its a cycle for starting the economy again
rgds
Tony
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Now I've seen the details of this, I am less than impressed. Not only is it the wrong thing (my view), but its also structured so that no bank will really want to participate.
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The tax-payer to provide another 10bn. In a collapsing economy who is the tax-payer?
Sales for December were worse than expected. Why was it expected otherwise? Everyone's being told everything is going bust. So what idiots think the people would be attracted to go out and spend!!
We're also being told we spent beyond our means. We borrowed more than we should. So what other idiots (or are they the same ones?) tell us to spend 'again'!
I am an engineer, you know, one of those low-down professional cretins but I do know my work, I do know my field. Sadly, we have very high-ranking and respected (but by whom?) cretins that have and continue to run this planet.
Maybe we're heading for the same big-bang we believe happened 4+ billion years ago. Good Heavens! Just think, all this could happen again... another Bush, another Brown, another Peston... oh Lord, another me!!!
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the capitalist system may not have failed but it has been shown up for its crass way of working.
greed is only beaten by more greed.
unrestricted free market equals the law of the jungle, mob rule and financial anarchy !
boring bankers have been replaced by
gamblers (who lost big time).
no doubt GB allowed all this to happen so its is his fault !
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The Government is all talk about helping small business. I defaulted on a VAT payment because the Bank of England has chosen not to adopt the Faster Payment Service adopted by almost every other bank. So now I find myself as a small business, raising tax revenue for the country and being fined for doing so, while the Government supposedly hands out billions of pounds to big business and the banks because they got us in this mess in the first place. Sounds to me like there a way too many Merchant Bankers in government, with it's security of job. Why I bother running a small business? I don't know anymore.
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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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Maybe I don't understand all the implications but I certainly hate to see my tax being used in this way, and I have also seen a cut in my income from savings.
If the banks won't cooperate with the Government's demands about credit, why not bypass them.
Use the Government's existing NS&I systems to create a new, tax-free, savings account paying about 3% interest. This would be the same as nearly 4% from a bank/building society before tax. Being Government-backed savings, they would be 100% guaranteed as well.
Use the funds received (which would probably be significant!) to provide loans to businesses, individuals or whoever at 3.5%.
I have thought about this for some time, and can see no flaws. Can anybody else see why it wouldn't work?
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#207 CoulsdonTony
It is a topsy turvey world we live in.
The government does not actually want to run things efficiently.
The last thing they want to do is get savings money taken out of banks.
They want the banks to lend that money out themselves.
If the savings money is withdrawn from the banks then they would fail.
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Anyone want to join me in an action against the Lloyds TSB board? Surely they should be brought to account for not looking after their (existing - pre HBOS) shareholders interests. If they had not 'merged' with HBOS they would now be in a superb position to take advantage of the chaos in the markets as one of the few banks who seemed to act reasonably responsibly in the last 10 years. Writing to the Chairman and CEO was a waste of time as they told me it was a great opportunity! It was tosh a few months ago and its complete tosh now. Ego driven is all it was.
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In my opinion the greatest contributory factor which will hold back any recovery is the plethora of confusing articles by the media "experts" which only cause fear and confusion to the public.
In the Thatcher era a huge number of ordinary people became involved as share holders. Unfortunately few really understood the market. As soon as the current downturn started these people were paniced by the doom monger reports. Robert Pesimism is a prime example of one who seems to delight in making the gloomiest predictions.
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It really is all swings and roundabouts, albeit this recession is deeper than most. However, despite the high-minded rhetoric about how the system must be reformed, and how leaders of industry must learn some lessons, and how the greed of a few has destroyed the wealth of others, I'll guarantee that within the next fifteen or twenty years the same thing will happen again. It's not just that many people will forget the lessons - if any are actually learned - or even that new people, not having learned the lessons will begin playing the game, it's mostly that the majority of people are greedy by nature.
Truth is that most folks couldn't really care less about someone else losing their savings or losing their job, so long as it's not them losing their money or their job.
Bottom line is that people will behave as people do ... generally greedily; it's human nature.
Henry
UK Insurance Direct
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