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Red capitalism

Robert Peston | 07:06 UK time, Tuesday, 3 March 2009

A small, grubby, windowless room up a flight of stairs in central Shanghai demonstrated the reach and limits of financial globalisation.

The walls were studded with old-fashioned, cathode-ray screens showing share prices of Chinese companies.

And the dank airless space was mobbed with men and women in later middle age, most of them retired, who were speculating frantically.

This was the electronic market in its least sanitised form.

Greed, fear, hope, despair - they were all on display as ladies with dyed hair of an indeterminate colour whooped and shrieked over the ups and downs of their nest eggs.

The basic requirement for trading here is savings of at least £10,000 - though some have ten times that. Even so, these are not flashy, well-groomed speculators.

In their jumpers and slacks, they'd look more at home in a bus shelter than on a trading floor.

One shouted "I've lost everything". However, by the time I left - and before the announcement of AIG's record-breaking losses and HSBC's £12.5bn share issue - the market was edging up.

Although Chinese shares have lost 60% of their value over the past year and a bit, in recent weeks the trend has been sharply up.

How has China bucked the falls in share prices that have infected most stock markets since the start of the year?

Part of the explanation, according to economists, is the £250bn surge in lending by the state-controlled banks in December and January - because some of these loans have been used to buy shares.

Does this represent an explicit state-sponsored operation to support the stock market?

Like so much of what happens here in a form of capitalism whose tooth-and-claw redness is the colour of the Communist Party, it's hard to be sure.

If this is two fingers in the face of global market declines, it'll probably only work for a while: as I mentioned yesterday, the outlook for many Chinese companies, especially exporters, isn't great.

So the thought I couldn't shake off when watching the oldies' stock-market enthusiasm is that this was an addiction.

And it was probably the nearest I will ever witness to the market mania of ordinary Americans crowded round ticker tapes in the 1920s - before the Great Crash and Great Depression.

Which is not to overstate the similarities between America of 80 years ago and China today.

Because - just like Britain, America and much of the developed world - China is trying to refuel its economy with a potent mixture of public spending, cheap money and new bank loans for businesses.

In one respect, China has a significant advantage over the rich West: its banks are strong and well-capitalised, with significant capacity to provide the credit that's vital to an economic recovery.

But bank loans are useless for companies when demand for their products and services has collapsed.

To state the obvious, lending to businesses that aren't viable is throwing good money after bad.

And propping up the share prices of companies that are under pressure by buying their shares with borrowed money would probably be worse.

Comments

Page 1 of 2

  • Comment number 1.

    "To state the obvious, lending to businesses that aren't viable is throwing good money after bad.

    And propping up the share prices of companies that are under pressure by buying their shares with borrowed money would probably be worse."

    Excellent advice !! Have you told Crash Gordon about this ?? He still seems to be hellbent of doing just that !!

    More money for the HBOS fiasco !! Pumping money into banks to force lendings that no one wants !! Supporting "Scottish" banks that are eyeballs deep in the doo-doo !!

  • Comment number 2.

    Fascinating. Your experience there seems quite low-tech compared to what I'd've imagined.

    Thank you, Robert.

    I'm curious: Is the size of China's sovereign wealth fund significant in the context of its problems? Or other states with such a fund?

  • Comment number 3.

    Slightly off topic, but while we are on the subject of advice, perhaps you could tell Ms. Harmon to be careful what she wish for. She might actually get it. And then the same argument could be applied to *HER* pension as well !!

  • Comment number 4.

    If HSBC are seeking to raise £12.5bn by issuing further shares, doesn't that mean that the value of the company is divided over a larger number of shares so the share price will fall. Which further hits anybody who already has shares in HSBC, directly or indirectly (i.e endowment policies, pensions)

    Why do HSBC take that approach at a time when we want to see share prices recovering, to put some confidence back into the market ?

    Is it really essential to raise £12.5bn
    Is there really no other way of doing that ?

  • Comment number 5.

    Chinese people love to gamble, much like many of us, and there is nothing wrong with that.
    What is the true relationship between HSBC and the chinese government?
    Is it really a British company?

  • Comment number 6.

    The retired stockmarket punters in Shanghai remind me of the 2pm Chinese crowd at one of Manchester's Casinos. Robert might like to explore the Chinese ideas about luck and fortune which inform entrepreneurship and risk taking in business as well as pleasure..... I trust his visit was auspicious for the Shanghai daytraders whatever their age.

  • Comment number 7.

    Most of any China's January growth will be down to their own new Year which was in early February. China's economic rises and falls have been greatly affected by that, and the Olympics, over which the government have had no outside control on timing.

    From here on in expect the full force of government stupidity to really start kicking in. What will make it bad for the Chinese is their unshakable belief in their coming ascendancy and their government to make the right decisions. At least we in the west have been inured to dreadful competence and malfeasance in our governments for, well, 60 odd years.

  • Comment number 8.

    Hmmm...looks like a non story to me, unless you are at the whim of a different censor whilst you're in China

    Is this small, grubby, windowless room up a flight of stairs replicated across the rest of China?

    Was it the only one that wasn't full of high tech gadgets?

    Are you trying to point at areas where China needs to spend its money to improve its infrastructure?

    Sometimes you can get more information off a postcard.

  • Comment number 9.

    "But bank loans are useless for companies when demand for their products and services have collapsed.

    To state the obvious, lending to businesses that aren't viable is throwing good money after bad.

    And propping up the share prices of companies that are under pressure by buying their shares with borrowed money would probably be worse."

    Oh the irony.

    Someone should tell ZaNu Labour....

  • Comment number 10.

    This is evidently the common sense truth, does anybody know why the UK government thinks otherwise ?

    To bail out failed businesses is folly, they should be allowed to fail, their management has performed horrendously and their shareholders should pay in the normal way.

    Clearly in the special case of banks, the currency (i.e. depositors) should be protected, otherwise investors and speculators should lose.

    Why should RBS be protected, when others such as Barclays and HSBC have navigated the same stormy waters more prudently ?

    The money would be better spent creating a new "clean" state sponsored bank established to concentrate on conventional banking activities.

  • Comment number 11.

    "Although Chinese shares have lost 60 per cent of their value over the past year and a bit, in recent weeks the trend has been sharply up. How has China bucked the falls in share prices that have infected most stock markets since the start of the year?"


    Maybe because China fell first - 60% is a hefty fall.

    Today, the FTSE is only down 47% from its peak.

    Give the markets time, Robert.
    All stock markets are going to be hammered in this economic mega mess......

  • Comment number 12.

    #3 If we are on the topic of Harmen please have a look at what I thought was an excellent column to sum up the situation.

    http://tinyurl.com/asuncr

  • Comment number 13.

    8,StrongholdBarricades:

    "Hmmm...looks like a non story to me, .."

    How dare you put down such a brilliant piece of investigative journalism? He's only been there for two days and already he's uncovered the fact that the Chinese like a bit of a flutter. Man's a genius!

  • Comment number 14.

    You couldn't put it in a better way to show how those people who decide our future have no clue as to what they are doing :

    ''But bank loans are useless for companies when demand for their products and services have collapsed.

    To state the obvious, lending to businesses that aren't viable is throwing good money after bad.''

    I just wonder if the same people that allowed this (financial meltdown) to happen can really find a solution.... apparently nothing they do seems to work out. This applies not only in the UK but everywhere.

  • Comment number 15.

    More money for the HBOS fiasco !! Pumping money into banks to force lendings that no one wants !! Supporting "Scottish" banks that are eyeballs deep in the doo-doo,,,,,

    ......and brought down by a board run by ENGLISH greed.....

  • Comment number 16.

    "To state the obvious, lending to business that aren't viable is throwing good money after bad"

    ....hear...hear...!

    Why do central bankers and politicians persist in pushing money out to corporations that are simply filling the holes in their dodgy balance sheets? To compound this they increase the public debt beyond any sustainable level and try to maintain (kickstart) demand by spending more and more on megaflop development ideas! What we need to do is counter intuitive to this...i.e. cut taxes and reduce government interference / management.

    If we want the auto industry to prosper we should allow people to take the cost of motoring out of gross income. Consumers will then spend money on cars with makers that produce good cars and offer good deals and service. Some car makers may go out of business...harsh yes but we know British Leyland never worked....

    If we want people to be employed we need to cut the cost of employment...i.e. cut or eliminate National Insurance. I'm of the old fashioned view that it is better to have people working in the private sector than it is to have people on benefits... Am I alone?

    If we want to stimulate consumer demand we need to cut sales taxes in a meaningful way...on an extended or permanent basis.

    If we want to shore up the banks balance sheets we should be making all savings and interest on savings tax free. Then people will be incentivised to save. The banks will have money coming in that can be used for lending (how old fashioned is that...LOL). People will then have, shock horror, reserves of their own. Perhaps they might even spend some of it on consumer goods.

    China is, of course, extremely interesting as a hybrid communist / capitalist economic model but it's not one I think we, and the rest of the free world, should be looking to emulate neither should we be pursuing what appears to be uninformed (misinterpreted) Keynesian methods to resolve the current financial crises.

  • Comment number 17.

    Fantastic - maybe you could follow it up with a blog about how bad the driving is, or maybe one about how many tall skyscrapers there are (don’t forgot to compare Pudong to "paddy fields"). I for one are happy to have chipped in for your fully flat seat.

  • Comment number 18.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 19.

    Every society has is weaknessess, maybe mass produced nonsense that isn't needed, beads or gambling.

    Get Brown to commission that super casino in Manchester that was cancelled and bus people in by the planeload to reverse some of those capital outflows.

  • Comment number 20.

    Good Morning RP,

    "To state the obvious, lending to businesses that aren't viable is throwing good money after bad".

    for me this is far from obvious, certainly without a definition of viable. Personally i would say it is a responsibility of governments to view the social and local economic impact of companies going to the wall as part of the consideration in supporting companies.

    In terms of proping up share prices of companies, is this not what the weight of speculators been doing and will return to do when positive econimic sentiment returns?

  • Comment number 21.

    Robert - anyone who has been in a British casino after the Chinese restaurants shut down in the early hours of the morning will have witnessed the kind of frenetic gambling which you describe in your article. The notion that this is anythng to do with developed capitalism in operation is fanciful.

    It is, perhaps, a generalisation - but no people on earth adore gambling like the Chinese, and if the available bets are on something called stocks and shares, they'll be there.

    I'd be willing to bet - and so would the Chinese - that if your stuffy room had featured two flies crawling up a wall, the scenes would have been similar.

  • Comment number 22.

    Robert,
    I thought leveraged share buying was at the heart of the 1929 crash?

    You are missing the fun today. Glenn Moreno and John Kingman are talking to the Treasury Committee at 9.45am about UKFI, their very important framework agreement and hopefully the 'advisers' role in Bank Bail-outs Numbers 1,2 and 3. See previous posts. I note everyone doesnt want to be seen to be interfering with Mr Goodwin's pension contract. Someone might have pointed out the legal ramifications of interfering / trying to subvert a legitimate contract. Hariet Harman's comments to Andrew Marr on Sunday look a little 'off message' compared to Mr Mcfall's comments on this morning's Today programme. I hope the pension stuff doesnt usurp the committee's work on the key role of UKFI and its advisers, Vadera amd Myners etc.

  • Comment number 23.

    In one respect China has a significant disadvantage to the West, and that's a bad loan book both domestically and internationally bigger than anything ever seen. It's hard to see it in Shanghai because there's so many bad skyscraper, unless someone local explains many of the property failures. Get out into the regional capitals and walk outside the CBD and the empty shells are where plenty of bank money went.

    Still economists say China will overtake the US in 2015. And well it might on paper but with huge poverty open to massive social-crisis if bad debt collapses many companies and banks.

  • Comment number 24.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 25.

    If Chinese banks are OK why don't we all start borrowing direct from them and by-pass our toxic lot?

  • Comment number 26.

    The thing is Robert, which ever way we look at it there's no telling what'll happen once the Chinese government can no longer sustain the illusion that they can manage the impending crisis. Like us they're probably just praying that a little state intervention here and a bit of statistical manipulation there'll do the job: it won't of course. like it or not, they're an exporting nation and as overseas markets continue to dry up they'll be looking down the same bleak tunnel we are over here.

  • Comment number 27.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 28.

    "Does this represent an explicit state-sponsored operation to support the stock market?"

    Well, hey, if it's good enough for the US and the Federal Reserve...

    Of course looking at the Dow now, it would appear the vast amounts pumped into the US system to try and prop it up have failed, and failed badly. The Chinese may want to note that.

  • Comment number 29.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 30.

    "But bank loans are useless for companies when demand for their products and services has collapsed.

    To state the obvious, lending to businesses that aren't viable is throwing good money after bad."

    Far too simplistic and not always so.

    There are many companies that were viable and well run but where demand has fallen dramatically, are not currently viable. Many of those should restructure and if necessary, borrow to cover costs until demand picks up. That's called sensible investment.

    If demand is NEVER going to pick up..... well no one has an answer for that do they ?

  • Comment number 31.

    A few years ago I would not have given much thought to the possibility that China may one day become more capitalisitc than the West.

    Until this year, I would have totally dismiss any suggestion that China may one day become more democratic than the West.

    I am not so sure now.

    It is ironic that in the former communists country Russia, the top 10 billionaires have lost $150bn in this crisis. Similar statistics from China may tell a similar story.

    This global crisis brings to our attention serious weakness and illness in the world.

    Corruption, favouritism, secrecy, divergence of law from justice and selfish arrogant greed at the expense of others are applicable to every country and culture. Some are home-grown, more are from without, often it is just human nature.

    Years of sparkling economic growth masks these problems which China has in common with the West but who has more or less sanctioned these by law, spin or kept them well hidden.

  • Comment number 32.

    Men and women in later middle age were speculating frantically, sounds not too dissimilar to the average worker with their pension. I dread to think what my next pension statement says and I know it is only a matter of time before my pension contributions will need to double. Boeing is a typical example of the pension problem, with a 5 billion surplus turning into an 8 billion deficit within six months. Boeing faces the prospect of quadrupling its pension contributions over the next few years causing drops in profit and lost jobs.
    Going back to china, it is not obvious that the upturn in the Chinese market is due to the increased lending and it just does not feel right to me. We know that the number of investors is increasing and we know that the Hong Kong stock market has gone a different way. I have a feeling this is more of a flow to safety play as Chinese investors pull away from world markets and put their money to use in home markets and some big world investors turning (wrongly in my opinion) to emerging markets. Despite this the rumours that small private companies have used commercial bills to borrow short-term money to bottom-fish for stocks abound.
    The amount of lending is also questionable, with some suggesting that banks have just revalued some of their loans or pulled in off balance sheet loans to make it look like they are lending, while others had lent most of their yearly quota of lending in January. A large part of the loans in January were in the form of discounted bill financing, suggesting the money was used to resolve a short term capital flow rather than to restructure and reorganise. In effect China may well have run their factories at full capacity in January making stuff nobody wants.
    Looking at Taiwan, Korea and Malaysia it is hard to see how Chinese official figures of imports, exports and GDP can be right, unless China is stock piling inventory. We know that Panasonic, Sony and others are drastically cutting back production from their Chinese plants, so all this looks like a short term fix. Combine this with reports that china appears to have a real estate collapse in its large cities with reputedly more empty office space in shanghais than used office space in Manhattan and things don't look as rosy.
    Albert Edwards the analyst from France points us to electricity consumption in China falling significantly and also suggests that the reality of conditions in China may be very tough. Personally I tend to look at iron ore prices which reflect steel requirements in China, and despite all the railway projects starting up from the stimulus, steel demand in china does not appear to be picking up. It looks like another economy like the US who is trying to paper over the cracks.

    Still they have decided to buy a load of Jaguars and Landrovers which helps us a little.

  • Comment number 33.

    Hi This is really aimed at the BBC and the person who first reads this!!

    Why on the Business page has the Hong Kong exchange been dropped and the Shanghai and Tahrain been substituted? Shanghai maybe understandable but Tahrain?????????????????

  • Comment number 34.

    Banks and large corporations around the world are worried sick that the true value of their debtor books is mere pennies in the pound.

    I should think the Chinese government is pretty worried about the value of its debtor book too.

    We are well and truly into debt deflation territory now.

    But where will this all end?

    Well at some time in the future the system of world trade will be in equilibrium again. Albeit at an entirely different level to that of recent decades.

    The advanced civilisations of the world, for which you can read the (present day) G20 nations, are not going to let the world permanently disintegrate.

    Although I do accept that there is a risk of temporary, partial disintegration prior to the establishment of a new world order.

    It seems feasible to me that twenty years hence the big decisions in the world will again be made by the G7. The G20 will exist too. As a talking Shop. Who will belong to the G7?

    My guess: U.S.A., China, India, Brazil, Japan and 2 E.U. countries

    The EU countires will probably be Russia (sort of Europe) and one other......which would it be?

    As presently is the case, the G7 members of the future will each be advanced industrial nations with a high degree of harmonised industrial and labour market standards.

    Welders for example in each member state will enjoy comparable standards of living. Ditto farmers, electricians, plumbers etc etc.

    If the scenario that I describe transalates into some form of reality in the twenty, thirty year time frame then there are some stark conclusions to be drawn.

    1.A reliable method of comparing price levels of labour and goods must be in place....some sort of global ERM? Gold Standard?
    2. Real wages in today's BRIC countires must rise sharply, as must the standard of welfare provision in those countries
    3. Real wages in today's G7 must fall sharply as must the level of welfare provision in those countries.

    I think that we can draw a great deal of long run hope from the great economic depression that is currently enveloping the world.

    That hope is that disparities in wealth around the world will shrink.

    Further there is a very good chance that aggregate consumption around the world will shrink.

    For the sake of my children and grandchildren I pray that this will be so.





  • Comment number 35.

    This makes even your most depressing pieces on the UK situation sound optimistic.

    If the (what may now prove temporarily ) strong and well capitalised banks are lending and investing as brilliantly as those in the West, times are already very interesting.

    Good night Vienna.

  • Comment number 36.

    32

    When I was last in China I could only work half the day because the electricity supply to industry went off in the other half (most of them had generators for the afternoon). It would be interesting to know what the situation is now.

    Re the piece of paper bought back, anyone who does business in China knows that the deal is only done when the money is in the bank from the LC. Bits of paper are worthless. I suspect that the "Memo of Understanding" is worth little more than toiler paper. In fact probably less, because you can do something useful with toilet paper.

  • Comment number 37.

    I used to say

    If the Halifax goes belly up then we'll know we are in trouble

    I now say

    If China goes belly up God help us all



    I do hope the 'ladies with dyed hair of an indeterminate colour' (go granny go) manage to pull China through

  • Comment number 38.

    Dear Nick,
    This down turn is heading for freefall, its passed the buffers, and is spreading quickly and surely into depression.( ANOTHER SHARE CRASH YESTURDAY)
    The Major back bone of the British Ilse economy is Exports, and those are Crumbling, Manufacturing in a major Down turn this month, --- even China will find a slump here as unwanted goods fail to sell.
    There is a major major issue for Britain as more and more of its Mercnant Fleet are Shored up, The ability to supply also drops deeply.
    We as AN iSLAND now have no credible merchant navy that can sustain Britains demand both in import and export, -----the point
    " Are we as a nation prepared for a slump in world shipping and supply of essential goods, as Chima and other exporting countries cut back that we now have to rely upon to service the British needs, will we suddenly see restrictions on such materials such as Food, " ?
    We no longer have a Merchant Navy capable of supplying Britain to keep it running, and we are entirley dependant on other Nations vessels for our needs,
    Imports look to beome extremly expensive as we are held to ransom and have to pay through the nose to keep us going.
    Commodaties go to the highest bidder, and ships will be routed to who ever pays the most ie, liquid gas oil wheat oil, metal ores etc, how far off are we having to fend for our selfs, seeing tha Britain is deeper in the Mire than China, who is Self suffient in many ways and is way ahead of Britain in getting through this crisis.
    It may well be a world crisis BUT the two major failures are Britain and America and in 2009 we will see China recover as Britain and America slide into depression.
    and thats Serious business.

  • Comment number 39.

    Robert, please would you continue in similar vein with your next feature.

    I would recommend a visit to Shanghai's greyhound racetrack.

    Just ask at the tourist office where you can find the running dogs of capitalism.

    Don't make any jokes about little red bookies.

  • Comment number 40.

    Robert - Could you let us know what Crozier has achieved during his tenure as CEO.
    It would also be interesting to know his current salary and what his pension will be, if unfortunately he gets booted out soon.

  • Comment number 41.

    Bob...try opening a couple of Chinese fortune cookies while your over there...and tell us what they say.

    PS - don't forget to bring back one of those golden cats with the waving paw.

  • Comment number 42.

    To No 16 and others: I agree.

    The West, and the UK in particular, can never 'compete' on a global platform because of the cost obstacles imposed by the Government's policies.

    In the UK, for example, the cost of 'big' government, vast bureaucracy, unsustainable welfare, H&S, inefficient public services, social engineering projects - both at national and local level - and the lack of an internal infrastructure to provide for basic needs (food, energy etc) means that the population need to earn a certain amount just to support current Government structures - much of it non-productive.

    Every year, year on year, Government costs an ever-increasing amount. This is obviously unsustainable, In 50 years Government alone will cost us more than we earn!

    Additionally, while these Government structures exist there can be no 'level playing field' or 'globalisation' in the truest sense - the only 'winners' at the moment being global corporations which can shift manufacturing to the lowest cost area, but I don't see much top management being auctioned off to the lowest cost centre!

    The bottom line is that we can no longer afford 'Government'. We need a programme of reform that begins to reduce the cost of 'Government' by anything up to 50% in real terms over the next 20 years or so.


  • Comment number 43.

    As I remember the 'obsessive' popularity of gambling amongst chinese people in Macau in the 1970s it does not surprise me that the chinese stock market bubble may be bursting with perhaps more extreme consequences for them than we have expected. Its not good news, but its another driver on the markets, the consequences of which are now quite unfathomable. There are some new futures emerging and people should stop clinging onto the old models - they will miss the new ones in the process.

  • Comment number 44.

    "Lending to businesses that aren't viable is throwing good money after bad", and even worse than that, it can make it more difficult for better run businesses in the same sector to survive.

    Recessions are caused by an excess of supply over demand. Propping up failing businesses, inhibits the natural recovery mechanism whereby supply is reduced by failures. Even banks and insurance companies should be allowed to go under.

    Governments should nevertheless intervene strongly, but solely to boost demand. Their resources should be deployed by bringing forward government spending on investment projects and training for new jobs. Benefits should be increased, particularly for the unemployed, and taxes on the less well off should be reduced, since these are likely to stimulate immediate additional spending. General tax reductions, are not as effective since some of the money will go to those who already have plenty.

  • Comment number 45.

    This all avoids the obvious problem of market.

    To manufacture a consumer product requires that another party is able and willing to buy such a product.

    In Britain, pay restraint has helped to create the consumer reliance on debt.

    Undermining working salaries leads to eventual consumer market collapse (which we are seeing now).

    Trickle down never works.
    Because Rich people will never pay more than they have to !

    Costs chase downwards, until (as prior to the first world war) craftsmen and workers cannot afford to live decently.


    In Britain we now see ordinary and middle class families cutting back on their spending.

    Each cut back reduces the profitability of the businesses they buy from, who in turn lay off workers (both here and abroad), who themselves are less able to buy goods, continuing the downward spiral.

    The only way to break this cycle is to raise spending power of British workers (pay rises) coupled with measures to create a level playing field for British manufacturers.

    The British Pound is overvalued in terms of Yuan (and a number of other currencies).

    This enables goods to flood Britains market at prices far lower than they could be manufactured for here.

    Free Markets only work if every participant is on an equal footing, otherwise currency distortions, labour distortions, technological distortions etc , will beggar the weaker economies.

    In the current Freemarket setup Britain is a weaker country.

  • Comment number 46.

    Oh yes.

    Pay rises for the Public Sector !

    I would say it will take at least forty percent to inject enough demand back into the economy !

  • Comment number 47.

    Oh and on a lighter note, looking at the News, I would say todays word is:

    SNAFU

  • Comment number 48.

    @iskander: "Crash Gordon". Ha! I see what you did! That's incredibly clever. Cleverness like that inspires me to believe that you have a highly-insightful view on complex issues like economics.

  • Comment number 49.

    @betrayedagain: We did borrow from the Chinese, via our banks. Cheap money from China was one of the many factors which got us into this mess in the first place.

  • Comment number 50.

    Amidst all the gloom and doom the one thing I am really fascinated by is the number of people being interviewed who have lost significant amounts of money in shares.

    Invariably they are all everyday people who worked hard all their lives to save up for a golden sunset on a beach somewhere - but on the way went completely mad when confronted by the stock market.

    There were a couple of people interviewed last night who had put lots of money into RBS. When describing their actions, one of them said 'it seemed like a pretty safe bet'.

    YES THAT'S EXACTLY WHAT THE STOCK MARKET IS - A BET.

    That's why every share prospectus says that shares can go up as well as down, so what's the use in complaining and saying that you deserve your money back when the wheel hits red instead of black.

    I always believed that you should never inest in anything unless you could afford to write it off completely - and I can't afford to write anything off so I don't invest in the stock market. People have to start taking some responsibility for their own actions.

    If the banks are adjudged to have misled or acted unlawfully, then fine, screw them into the ground according to the full extent of the law.

    Finally - No 36: Toilet Paper.

    I'm thinking about getting some printed with Brown, Darling and Harman on it. It's my bet that it would sell quite well...

  • Comment number 51.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 52.

    well thanks for the info robert,not that anything we have heard about the chinese economy we dont know already.

    im still intrested in knowing how much your worthless trip is costing the licence fee payer.

  • Comment number 53.

    You guys........

    It's a blog for gods sake!

    .... get over yourselves

  • Comment number 54.

    Re 50

    We could become the first blog originated business.

    I know a place in Guang Dong that could print a container load in no time.

    Anyone else up for a stake ? After all, I need the working capital and have to take the risks with someone elses money, and BTW, my pension entitlement will be a minimum pot of 16 million.

  • Comment number 55.

    54 -

    You too? Damn, we'll need £32million just to cover the two of us then.

  • Comment number 56.

    Robert,

    Come home quickly, it's all going FUBAR here!

    In the midst of a FTSE nosedive and the discovery by MP's that UKFi is a disaster waiting to happen, nobody has noticed the whacking great 1.4 BILLION POUND LOSS Northern Rock has posted today.

    A sign of the times is that this huge loss is accompanied by a statement saying

    "Northern Rock has made good progress against the business plan objectives laid out in March 2008,"

    Good progress? loosing 1.4 Billion pounds of Public money??

    Robert, come back quickly and expose these frauds and Charlatans - it's no good hiding out in China - they're not really up for the 'freedom of the press' thing.

    Ask the Chinese what would happen to the Ex-CEO of a bank that lost 1.4 Billion pounds of public money......

  • Comment number 57.

    #44 stanblogger

    "Recessions are caused by an excess of supply over demand."

    Karl Marx - Overproduction.

    Unfortunately the capitalist is caught in a contradiction - he knows the banks (and businesses) should be allowed to fail, but he also knows the cost of letting them fail would be far too much for the system to bear.

    The answer is not to allow overproduction in the first place. Otherwise you are merely treating a cold with a tissue and not addressing the underlying virus.

    Sadly, too many people have built their careers on the resolution to the 'sneezing' and talk of 'a virus' scares them for it will make them look stupid.

    When the 'sage of Omaha' (Warren Buffet) gets it so badly wrong - surely even the hardest of Capitalist must see that the whole system is anarchic and out of control.

    The market is now fully in control of the people. We have created a monster which no-one can predict and no-one can stop.....

  • Comment number 58.

    I can only assume the strange shortage of posts here today for Roberts piece and the non existent moderation queue is a direct function of the usual commentors all being glued to thier flat screens engaging in hope, greed and despair just like the Chinese as they watch the Dow drop like a lead balloon.

    Jericoa



  • Comment number 59.

    Make sure you attend - 28th March

    http://www.putpeoplefirst.org.uk/

  • Comment number 60.

    it is amazing we have so many people who know what is wrong !

    except they sit in their armchairs like me !

  • Comment number 61.

    50 eddixon

    I agree with what you say about shares being a 'bet' - but what about the fact that RBS gave a skewed prospectus of how well they were doing.

  • Comment number 62.

    I am not sure how relevant Mr Preston's trip to China is in the current climate.

    The BBC is extremely lucky not to have to rely on normal business practice to fund it's activity and have it's overhead paid by us, the license payers.

    I wonder if he travelled economy and what he see's is the benefit to us of the business editor tour of China.

  • Comment number 63.

    This has gone beyond a joke. Ed Liddy of AIG
    is the latest Corporate fat cat to demand
    money from Government in order to carry on
    his lavish life style at our expense. He and his fellow thieves and robbers use fear as their weapon of choice. "You will lose your Domestic Insurance" "You will lose your pension", etc. etc.
    And the Biggest Lie "We are too big to be allowed to fail".
    No Mr Liddy you are too big to be allowed to carry on fleecing your fellow citizens and using financial terrorist tactics to ensure your survival. Time to put an end to this nonsense. UK and USA Governments must both find the guts to say to Liddy and his ilk. "That's it . Enough. No more . Fight your own way out of the paper bag that you made to fool your customers. And be thankful that you are not in jail"

  • Comment number 64.

    We are going to need banks somewhere to be in good shape in order to help us out - lets`s all go Chinese!

    Bankrupt European Banks Sitting on $23 Trillion of Losses - http://tinyurl.com/b5jr9r

  • Comment number 65.

    Robert,

    Now you really need to get back - it's all kicking off.

    The UKFI was appointed by Government to manage the 'rapidly nationalising' banks.

    This morning the MP's criticised the body UKFI for not knowing anything about the banks they are running - and for not turning up with PRE-REQUESTED INFORMATION.

    Now UKFI are critcising the RBS board for not disclosing (and in fact agreeing to in advance) the discrecionary part of Fred Goodwin's pension.

    As with all cockroaches - when the light comes on they all scatter for cover - blaming each other as they go.

    The final ounce of credibility (if there was a final ounce) of the Governments handling of this situation has just gone out of the window.

    The BODY appointed to MANAGE the NATIONALISED banks is clearly struggling to ACHIEVE THEIR GOALS.

    I suspect they are all assuming that if they truly mess it up they will be in for a 'big bonus' - as per the banking rules.

    Sadly they do not realise the public cannot stomach much more of this and every lie they tell brings them closer to eventual doom.

    No wonder Gordon's hiding out in the US - it's getting hotter and hotter here and we've only just started spring!

    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 66.

    I'm not much of a believer in global warming but I do believe we should save our oil and natural gas as feedstock for plastics and chemicals and move to renewable energy sources as soon as possible.

    In my view, this is the place to throw the money on a global basis, to get the renewable energy industries up to a global size where they can replace well over 50% of fossil fuels.

    At the same time we could reforest all those totally deforested parts of the world, including the UK.

    That would be a much better use of money than propping up businesses whose products we no longer need much of.

  • Comment number 67.

    Just one really vital story that needs to be investigated in China. Will the yuan ever be allowed to appreciate to its proper level?

    I believe that is the only way out of this crisis. Instead of China lending us money to buy their goods until we can borrow no more, there needs to be a rebalancing of international trade, so that the real wealth of the average Chinese citizen is properly recognised. They'll sell less to us because the prices of their goods will of course rise. But they will buy more FROM us as our prices fall compared to theirs. By this route we will get back some of the jobs and income that we so badly need. We can't rely uniquely on domestic consumption any more. And they can't rely on exports which they have to lend us the money to buy.

    In a way, this is a readjustment that, however painful now, should ultimately lead to a better fairer world.

    I've believed for a long time that the notion we Brits could all be specialist 'knowledge workers' and leave manual labour and manufacturing to the developing countries was a nonsense. With the best will in the world, not all of our 60 million population, not even the majority will ever be able or willing to be brain workers and paper pushers.

    The idea of dignity in manual work and the ability to support a family with the income from such work has all but disappeared here. And I think that has contributed to the rise of a workless underclass.

    If the Chinese standard of living rises closer to our own, then they will stop specialising in manual labour and we in services and a balance can be restored in which we are more equal trading partners.

    ON another matter, did everyone see John McFall Lay into UKFI heads this morning. OK they'venot had their feet under the desks all that long, but the UKFI lot were woefully underprepared. They made Turner and Sants seem heavyweight and that takes some doing.

    Mervyn King to run everything I say.

    Preserve Merv
    Enable Cable

    :-)

  • Comment number 68.

    61 Japanbytes

    Absolutely, as I said, if the banks have been misleading their clients or falsely presenting their positions, then they should be prosecuted to the fullest extent of the law (not the court of public opinion), but in the meantime, ordinary punters have to accept that shares are not a one way bet.

  • Comment number 69.

    #60, spetmologer: "it is amazing we have so many people who know what is wrong ! except they sit in their armchairs like me !"

    Hanging on in quiet desperation is the English way.
    The time is gone, the song is over,
    Thought I'd something more to say.
    (Pink Floyd)

    Maybe they've accepted defeat but just don't like to admit it?

  • Comment number 70.

    I guess that the relatively low level of posting reflects the understandable tendency of people to be more interested in putting out a fire in their own house than in a neighbour's, if they are both burning down at the same time......

    All of this unrelenting bad news has even infected Stephanie's blog now, and her latest post is suffering from a severe case of Pestonism

    If the global economic growth of the last decade is now looking to have been a single, interconnected Ponzi scheme Iguess we had better find the ultimate gullible external investor

    Fancy a trip to Mars Robert?

  • Comment number 71.

    #60 - spetmologer

    It's not how many people know what's wrong, but how long we've all known it to be wrong (since the late 1800's) - and still there are people who still think it's right - even in the face of such a blatant dis-proving of their 'theories' as this recession is once again proving to be!

  • Comment number 72.

    #64 - very interesting article.

    I wonder if the BBC will opress this statement here too...

    "European Commission officials have estimated that "impaired assets" may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the 'trading book' total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.

    In addition, so-called 'available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion."

    A challenge for the moderators...

  • Comment number 73.

    Moderators - you have pulled item #65 and yet you haven't told me why.

    Where is my E-mail so I can re-write it in a 'Government friendly' manner like a good down trodden citizen would do in an oppressive regime run by lunatic civil servants, a billion rules and policemen on every corner to impose them?

  • Comment number 74.

    #38 freecornwall, #67Wharfgirl

    I agree with your views that the Brits inevitably get poorer (by mass unemployment) and the Chinese inevitably get richer (by revaluing their currency).....see my #34 above.

    The trouble is that this process is going to take years and it is going to cause immense discomfort along the way.

    It never did seem quite right to me that workers here in Britain can enjoy 4x or 5x the standard of liviing of comparably skilled workers in China, India etc.

    It is not realistic to expect the Chinese to quadruple their standard of living anytime soon. But if we were to halve our standard of living and if they were to double their standard of living we would be getting somewhere close to matching the lifestyle of say an electrician here with an electrician there.....

    .......I suspect that at these numbers the British standard of living for an electrician would still be much higher than a Chinese electrician's.....but it is a start.

    I think that the problem is going to be more difficult for workers in the rich west to come to terms with than it will be for workers in the developing world.

    And as for welfare dependents here in the west???????

  • Comment number 75.

    A number of people seem to be moaning that Robert Peston is in China. Last week some of the same people were moaning because all we ever heard about was bonuses.

    One way or the other, the path taken by the Chinese economy is going to be incredibly important to the whole international finanical and political system. It is, potentially, just as important to us as what is happening in America. If it went very wrong, you might well end up seeing the odd war (Taiwan, anyone? Korea? or just a little internal difficulty in the Islamic provinces?); and if it goes as well as it might, businesses here might find new markets opening up - or new competitors emerging just at the time that we're weakest.

    If there's one thing I'd perfectly happy to see my licence fee spent on, it's the relativfely minor expense of sending the BBC's Business Editor to China. And when he's finished there, a couple of weeks in Russia or in India wouldn't go amiss.

  • Comment number 76.

    Meanwhile....Shouldn't the title be "Capitalism in the red?"Ouch! Meeeeoooowwwwwwhimper

    Mine's a Liffey, Slainte
    ed

  • Comment number 77.

    70, somali_pirate_SP500:

    ".. the understandable tendency of people to be more interested in putting out a fire in their own house".

    I'd never thought of it that way - the blogosphere could revolutionise firefighting! If my house or land ever catches fire maybe I should just be be interested in" putting it out. I'll get together with some people and discuss preferred firefighting methods (including all previous historical examples of it).

    Hopefully, someone who can do something about it will be listening and they'll come and sort it out for me. Far better than actually getting involved and doing something myself.

  • Comment number 78.

    #74

    I'm glad you touched on the welfare dependants in this country.

    The argument about state control and state management is always that:

    "The lazy people will live off the backs of the people who do contribute making it an unfair system"

    This has been on my mind lately, because I have now considered the situation we have in this country.

    We all know that the unemployed have to exist - as the free market requires a 'push' for the employed to be productive (fear that they can be replaced by someone else)

    Full unemployment under Capitalism is impossible (despite what the politicians tell us)

    In addition to this we have a whole class of people who have never worked. Not the doley's, but the super rich who inherit their wealth. These people are able to live without earning a wage because they already 'own most of the country' - or means of production - which they cleverly 'rent out' to the rest of us so we can dream about being owners too.

    These two elements are a fact of capitalist life - so my question is, which is more difficult to control - the current Capitalist situation with it's freeloaders - or a Communist system with it's freeloaders?

    The BIG difference is that in a Communist structure it would rapidly become socially unacceptable to laze around and do nothing - and social policing is the most powerful form of policing
    (want proof? - ask yourself why so many people change their looks, style, perceived wealth etc. - the answer is social acceptance)

    However under Capitalism it seems that at least one of these freeloaders is acceptable, and in fact before now - actually admired! Up until about a year ago Fred Goodwin was held up as a 'pillar of society' - well they gave him a Knighthood! - and now we can see him and his ilk for what they are.

    Freeloaders - living off the rest of us.

    You might argue he was working before, but I suspect he was only doing it'for fun' as he probably earnt enough to stop working a long time ago - and he's certainly one now with his £650k a year (virtually state) pension!

  • Comment number 79.

    Robert.

    did you see BLAIRWATCH comments re the parlous state of things...about bang on..

    I get the feeling that GB and co are in Nero mood, Fiddling while the fire rages around us.

    If this were war, a war cabinet would be formed.

    What is the point in Brown continuing to take advice from discredited entrepreneurs and experts who cannot calculate the value of a pension?

    I have freinds in France and Greece who are astonished that we are letting things get worse for everyone with no civil unrest in sight.

    Ohh and another difference economically between the french and us is that unemployment benefit there is 57% of salary, whereas here we can get by on 60.50 per week!

    Things are not getting better. Each day only shows the level of ineptitude of the people we are hoping will lead us out of this mess.

  • Comment number 80.

    #79 - You have the answer.

    If this country declares war on the banking system then we can have a war cabinet, we can mobilise troops and build weapons - all good for the Economy.

    It also has the advantage (unlike a real war) that we cannot loose and not many people will die (except accountants and bankers - who aren't REAL people anyway).

    We also can annex large sections of the city as 'conquered land' and re-populate then with the homeless and the less well off.

    Why hasn't anyone come up with this at Government - is it because fighting wars is something we only do against 'non-whites' and in foreign lands?

  • Comment number 81.

    #1,9,10

    Gordon is God he know best.

    Think Vince Vable was wrong he is not Mr Bean,

    He is still Stalin.

    Although if he calls an election

    He will be Mr Has-Been and Ms Har will be a goldfish is a very small bowl, rather than the
    what she thinks at the monent.

    Maybe we should change the pension rights as she suggests so that when Zanu-labour are out she has to live ina 2+2 and get into the REAL world again

  • Comment number 82.

    #79

    If this were a war............!!!!

    It IS a war, between governments and the markets.

    Markets always win because they take the long view and not the short term expedient measures so beloved of politicians.

  • Comment number 83.

    I am just up the road to you Robert, in Changzhou.

    You should comment perhaps on the lack of people in the airport at Shanghai and on driving out of town the lack of usual traffic and especially the containers which are visibly fewer.

    Difference is that the Chinese government has money to deal with their problems.

    This is the BIG difference between China and the rest and boy do they know it! Not that they brag since this is not the way but watch it happening in real life - things like mining in Australia for example. Also the big money that they are spending at home and again they have the cash to do it.

    Oh and as has been commented Chinese love to gamble and stocks are just another form of this. Don't get too hung up unless you regularly visit the place and have a minimum of a clue. Even then the culture is so different that you never really fully understand everything.

    Your luck money is in the post......... ;-)

  • Comment number 84.

    73

    There is an inconsistency among moderators over what is allowed.

    I suggest they put the time of release as well as the time of posts.

  • Comment number 85.

    75

    i very much doubt robert pestons trip to china is A MINOR EXPENSE..

    this the the bbc we talking about here

    the very same bbc who spend thousands on expenses for people like alan hansen to be transported to the match of the day set and talk rubbish.

    i call on mr peston or someone from the bbc to update this blog topic and tell us how much this is costing licence fee payers.

  • Comment number 86.

    It takes a nation of millions of harcore gamblers to lend America a trillion dollars.

    Good luck guys.

  • Comment number 87.

    #59

    The march looks like a lot of well meaning people getting annoyed about stuff. Until we move to gold and silver as money and stop fractional reserve lending you are wasting your time.

  • Comment number 88.

    @73

    Mine at 29 hasn't got the expected email yet, so the backlog must be large

    Do you think its as large as Sir Fred's restated Pension? That's just normal for some of Crash's statistics though.

  • Comment number 89.

    #73 hum
    policeman at every corner , fighting crime etc or spying on hardworking citizens , that would be a turnup,

    are they all the lamppost then ? about as mobile as the current lot unless you are engaged in protests against Ms Harman social engineering where they appear like magic , they are sleeping lampposts then that would explain it

  • Comment number 90.

    Stronghold: I don't know what all the fuss is about with his pension pot (16m? 24m? or whatever). With his financial know-how he'll have lost it all by this time next week anyway.

  • Comment number 91.

    @90

    According to Panorama he may be cited in a multi-party law action originating in the US because the investors were mislead over the share issue.

    Whereas our government just quibbles about what they were told before they signed the document. No body thought of reading the small print?

  • Comment number 92.

    Just wondering Robert if you're style of journalism alters depending upon circumstances like that you now find yourself in?

    Your visit to China as an outsider probably means that you have very little "clout" in that foreign country, and I presume that as a BBC journalist you could have been targeted by the authorities to stem the flow of information that you receive. We are led to believe that these stereotypes abound and you could disabuse us of them.

    I would guess you would have a whole van full of special advisers to vet your diary, reports, filming and suggest locations to visit. Will we only find this out upon your return or can you comment now?

    Now if only our government could teach them how to provide a flow of information about what they want in the public domain. Do you think its an exportable model?

    In this country you might only need one friend to allow you access to public documents. So we could teach them how to save on their expenditure.

    Maybe we could get your colleague Nick to reflect upon the differences in the language used?

    You missed the Treasury committee party today. It was a hoot and might have provided many blogs on its own.

  • Comment number 93.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 94.

    Robert,

    is this really your first trip to Asia in your long career?
    Such behaviour has been readily observable for a very long time in Hong Kong for example - the clusters of investors (often elderly) clustered round the share price screen - rushing off to make a trade when the price is right. It is basically gambling and hobby mixed into one.

    That the mainlanders do the same thing as soon as they could is entirely unremarkable.
    The market is just another gambling activity and the Chinese are legendary gamblers.

    Chinese banks will be unlikely to do a RBS with the governments stimulus funding deliberately since early retirement may not mean quite the same as it does to Shred.

    Certainly some will be some loan to bet but pumping a huge amount of cash into investment most of which will go to local companies seems likely to be a good thing for Chinese companies does it not?

  • Comment number 95.

    Bang up income tax rates to the old supertax levels and blame it on greedy bankers like Fred the Shred. Ordinary people won't feel any different but the greedy rich will feel it and blame it on Fred.
    Also lots of money for the treasury.

  • Comment number 96.

    #70 maybe Mr Peston has been sent to china out the way to stop his blogs on UK.

    So maybe Stephanie will be next to go to china.

    Cannot have GB TASS/PRAVDA ie the BBC reporting the REAL news can we

  • Comment number 97.

    Your comments regarding the pension hit the nail on the head in terms of the old adage owe a small amount and you will be hounded with the full force of the law but do a deal like Sir Freddie's and you can walk away because no one will put their hand up to agreeing to it in the first place because they want their pension and rights as well. I do think the non executive members of the Board have to be held accountable as they are supposed to be the steer for the Board and no one seems to have mentioned the role of the auditors who have regularly signed off balance sheets for the past years - what comments did they make about over stretching etc? Finally the issue about the rights issue does need exploring. I was asked by my bank to take part in a rights issue, the bank has now been taken over by the Government and the shares are now useless. Is the risk on rights issues explained fully enough to share holders?

  • Comment number 98.

    #39 You evil sod !! You made me spatter coffee all over my screen !!

    Capitalist running dogs, indeed !!

  • Comment number 99.

    #65 "No wonder Gordon's hiding out in the US - it's getting hotter and hotter here and we've only just started spring!"

    And just where do you think Mr. Peston is right now ??

  • Comment number 100.

    http://news.bbc.co.uk/1/hi/business/7920602.stm

    With this report of profit from Standard Chartered, that's three (3) banks with focus in Africa, the Middle and Far East that have not fallen into the government's clutches !!

    This might also explain why HSBC is asking for more money. It could very well be that they are priming their war chest preparatory to pouncing on a few "less well run" banks in this part of the world; as opposed to RBS's failed attempt to swallow up a well run ABN-AMRO and choking to death on it !!

    I'm just guessing but is it possible that the Banco Santander management are not quite the happy chappies they were before Christmas ?? That some of the "things" they swallowed then may contain more toxins that they knew about, a la HBOS ??

 

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