Barclays' painful deal
Barclays says that it has sold iShares - a provider of specialist stock-market funds - for £3bn.
But it's not a sale in the sense that most of us would recognise. Because it has lent the buyer, the private-equity house CVC, £2.1bn of the purchase price.
In fact Barclays' continued exposure to iShares seems even greater than just those loans, in that the deal adds £2.7bn to what the bank shows on its balance sheet as its so-called risk weighted assets.
That said, Barclays says that through the miracle of how banks do their accounting there will be a useful addition to its capital resources, its buffer against losses on lending.
Some would argue that extra bit of buffer has been acquired at the steep price of selling a growing business at a knockdown price into a buyer's market.
Which only goes to show quite how desperately Barclays - like most banks - needs capital, even if it has avoided the indignity suffered by Lloyds and Royal Bank of Scotland of getting that capital from us, from taxpayers.
What's even more delightful for the purchaser, Barclays will pay CVC £120m if it rats on the deal by securing better terms from another bidder (there's also provision for both Barclays and CVC to receive between £34m and £120m if either side walks away for other reasons).
And for some Barclays employees who have stakes in a subsidiary of the bank, BGI, there's a lovely windfall from the deal, in the form of a cash dividend and a more than doubling of their holding in BGI.
Barclays' president, Bob Diamond, will receive £4.7m in cash and a substantial increase in his interest in BGI.
So to summarise: Barclays is providing the buyer of iShares most of the finance to "buy" iShares; the purchaser will receive £120m, if Barclays secures a better offer; and the transaction has triggered handsome rewards for some Barclays' employees.
In normal times, that would be seen as a deal so bad for the bank that shareholders would be volunteering to throw themselves off Beachy Head.
But Barclays' share price rose more than 12 per cent today.
To state the obvious, these are not normal times, these are credit-crunch times: and, I guess, if a bank can raise capital in any way at all without tapping taxpayers, that's seen as good news.
PS. I'm planning to skive off for a few days. So forgive me if Picks goes quiet for a bit (and if you appreciate the silence, you don't need to inform me).
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Enjoy your Easter Robert.
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Talk about robbing peter to pay paul! Oh and what a surprise senior managers get a nice little sweetner in with the deal.
Who was it that said power corupts.....?
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Robert,
Yet another banking story - a little more variety of business topics, as requested by many of your posters, would be refreshing and most welcome.
Don't scoff too many Easter Eggs lol.
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Interesting comment when you said:
"Barclays says that through the miracle of how banks do their accounting"
We all know where banks miracle accounting has gotten us. It`s the only walk of life where you can take nothing and turn it into something of great value. And if that wasn't a good enough trick the top execs can then collect millions in real money!
"How to Lose Your Shirt in Banking"
http://tinyurl.com/dmr5tp
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BTW enjoy the Easter break RP!
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You talk about Money as if it's a rare comodity it's not!
Just PRINT some more!
NONSENSE!!!!!!!!!
FOOLish1
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These Bankers are still living in "Cloud Cuckoo Land" whereas the rest of us are up to our armpits in alligators!!
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My dear friend Bob Diamond needs the money. So I hope no one is complaining about that.
http://moneyistheway.blogspot.com/2008/12/shine-on-you-crazy-diamond.html
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"the miracle of how banks do their accounting" is this :
This is how they make loan :
Dr Loan Account $100
Cr Current Account ($100)
The "Cr Current Account ($100)" is money - New money they just made up !
That's all money is : Universally Transferable Bank Debt
- This has some rather interesting consequences:
www.worldnews.blog-city.com
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Hmmm. What if, in the fullness of time, that £2.1 billion loan leaves a hole in Barclays' balance sheet and the taxpayer needs to step in once again (not inconceivable)? Remind me how much the Barclays guys are taking out of this deal? I think Bob Diamond alone may be raking in £10 million. This had better work for Barclays over time or Bob Diamond could find himself in exile with another well-known ex-banker ... and the taxpayer in even deeper hock. Perhaps it's a case of once a banker, always a banker, regardless of how much taxpayer cash is thrown at them? Time will tell.
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What a surprise another banking story from the BBC Banking editor.
Or is banking the only business that counts these days?
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So Barclays had to sell iShares to improve its capital ratios - that is it needed the cash. This deal shows just how desperate a seller Barclays has become.
Why?
What possible explanations can there be?
My feeling is that the degree of desperation of the sale speaks volumes about the state of something within Barclays. I see no other rational or logical explanation.
Barclays resisted Government help to keep its books from being examined by outsiders and paid 14 percent for its capital - now this move just compounds my concerns.
What are its external auditors doing and what will they do, for it seems to me that this sorry mess of very expensive capital and desperation selling point only one way and that is that there must be grave concern about something in the accounts or on the balance sheet of Barclays (or indeed not on the balance sheet!)! I can see no other explanation can anyone else? If they are as sound as they claim why can't they get money and sell things, like other sound banks? (And yes I know that no banks are trying to do much at present and this also points to problems within Barclays.)
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sounds very 'creative' - do the regulators approve ?
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If you have something which you have to get rid of, and if you sell that something by providing the funds for the buyer to buy, which sounds like a loan to me, do you make a commission on the sale, a commission on the funds provided, and a bonus for just doing your job. With the previso that if it goes wrong somebody else pays the bill. Is that how it works.
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This isn't robbing Peter to pay Paul, it's the Paul Daniel's magic school, being abused by the bankers!
For crying out loud! I presume this non-trick of accounting was deemed to be appropriate by the board reading their horoscopes in today's red tops. With this manky accounting, they obviously have seen it in the stars that there will be retrospective laws enacted. They have no intentions of doing the right thing, only what they know they will get away with.
And in today's climate the senior managers are doing very well. Surprised, anyone?
It is time criminal investigations are carried out in every financial institution in the land. The regulators should be investigated in the same way. Spivs no longer describes these people.
Enough is enough.
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Other news outlets are stating that Barclays have a further 45 days in which to seek a more favourable deal for this sale - so does this mean that any rewards to Barclays staff will have to go on the back burner until such deadline has expired? If so, then I trust that the financial regulators will take that period of time as an opportunity to go through the books with a fine toothed comb.
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I think barclays are a tremendous bank. brownwatch 417 days.
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To be honest, it's the likes of CVC that created this mess in the first place.
Which well-run, profitable household name was purchased by CVC and saw "Increased productivity" (ie 10-20% of the workforce being fired) "Like for Like Sales Growth" (trashing the fledgling respect the company was getting in specialist markets by importing cheap tat from China) "Well positioned" (an estimate £180 million of debt) and "Strong supplier relations" (repeated rumours of an investigation by the OFT )
What sane, intelligent bank would lend a company without any real assets £400 million to buy a good, profitable company in the hopes of making more by floating it on the stock market several years down the line?
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Have a good rest Robert, I'm sure you'll pipe up if anything really juicy happens in your absence.
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It is being reported in the Telegraph that around 200 Barclays bankers will share a whopping 150m windfall, as a result of this deal.
Apparently, the 4.7m for Bob Diamond will help make up for him forgoing last years' bonus - he had to manage on a paltry 250,000 pounds salary, bless his cotton socks - oh, not to mention the 7.5m previously committed cash award. In other words, 2008 was not such a good year for Mr Diamond, well, not compared to 2007 when he earned 21m pounds!
Truly beyond the comprehension of my little brain. How can anyone be worth that sort of money?
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Like many other people I'm fed up of stories about banks.
I need to reserve some anger to remind me how to vote at the next GE, not vent it all on this website.
Peston, please can you some stories on other stuff. And while you're on holiday you might do your bit to stimulate the economy by visiting a clothes shop and buying some decent ties. The ones you've been wearing for the past couple of months would give Jon Snow a run for his money.
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Is this just a cosy deal that allows the whole operation to be put at arms length to the bank, and once things settle down it can simply reabsorb the entity?
Not entirely sure it merits a blog entry
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there is one reason, and one reason only, why Barclays are not now state owned - they lost out to RBS in the battle for ABN Amro - and not for the lack of trying either - sheer dumb luck in other words, so no reason to take them seriously
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Banking needs to be simplified.
There are too many variants (should that be deviants?) in the banking process to allow professional chicanery to flourish.
It is nonsense to sell an enterprise to another party and lend them a whopping chunk of the money to buy the business. THEN have penalty courses to protect the buyer.
Money in an account is an asset. A loan is a debt.
A bank must ALWAYS hold at least 110% more money on account than it lends to others. Banks must carry insurance, properly underwritten insurance to cover any potential bankruptcy conditions.
No gambling with assets.
End of story.
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I love the way you "sell" a particular side of the story Mr Peston. When this govt goes, you'll be out on you backside... I can't wait for that day...
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This message was brought to you by HM Treasury... Isn't time for Peston to get a new job title - official government mouthpiece?
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AComprehensiveGirl, what i suggest is you run a complex operation that makes billions in difficult times. Simple really, don't know why everyone doesn't do it...
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John_from_Hendon, it avoided government cash because it was obvious that the strings that were attached to the deal were to start lending to the government's PFI deals to keep them going and to be a political football whenever the government had some embarrassing news to bury. If you think that not going to the government suggests something dodgy - look at RBS and HBOS. PS what you are saying is borderline defamation....
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moraymint - Barclays has taken exactly zero from the government. I know lying politicians and reporters pretend "the banks" have been bailed out but actually only a few have.
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Looks more like a sort of sale & lease back to me with a bit of CASH on
account? WE WILL SEE HOW IT GOES OVER THE NEXT FEW YEARS?
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Dealing off the top of the deck is painful ,so where is the pain and for whom ?
The financial canal built by the Faustian retentives under the direction of Mephistoffolees wasn't replenished with run off from the fractional reserve banking system and as what was once in it ebbs away ,all that shows above the receeding waterline is a mangled heap of rusting scrap that once passed for the Heath Robinson workings of the perpetual motion moneymaking machine in need of WD40 or the QE'er stuff to cover it up until the next election is over.
http://www.youtube.com/watch?v=bNmcf4Y3lGM&feature=related
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I see that all the Irish banks have been downgraded to AA2 by Moodys.
Is this the same Moodys that rated some of the Toxic Debt as AAA?
Why should we heed them or any other Credit Rating Agency?
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No. 31. "Barclays has taken exactly zero from the government. I know lying politicians and reporters pretend "the banks" have been bailed out but actually only a few have."
Every bank in Britain has in fact taken monetary assistance from the government. They have taken that assistance in the form of a substantially increased guarantee of depositors funds. Take that assistance away and virtually every deposit taking bank in Britain would have to close its doors the next day.
I can't recall ever having heard of a dodgier sounding sale of a substantial asset and I have to wonder what it was that induced the share buying public to push up Barclays' share price today.
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Barlays have got off lightly in the mess that the Government have made of our banking system. The ishares deal is a good one. It is interesting to note that Barclay's raising a couple of Billion is worth their share price trebling.
On the other hand, King Gordon continues to make pronouncements about his new banking empire for the glory of us all.
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#30. laughingblacksheep wrote:
"...it avoided government cash because it was obvious that the strings that were attached to the deal..."
OK, but that does not explain why it was forced to borrow from middle eastern investors at a reported 14 percent, does it?
Why would it have to pay such an extraordinary high risk premium? It is a commercial operation and would have only done so if the cost of any other means of financing its capital base was even more expensive, wouldn't it? Why? I can't see anything obvious in the accounts to explain such a premium or the need to take only 0.9 bn cash for iShare when the reason for selling it was ostentatiously to get more cash?
What is your explanation for these very very expensive deals? And by the way the reported reasons stated do not mention being forced to finance PFIs, rather they refer to the increased flexibility - this flexibility is coming at a huge price and we can only assume that this price is for some reason internal to Barclays worth paying, but why? There will be a commercial reason or set of reasons.
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I've been both a City Trader and a Cleaner (not at the same time, obviously) and what's quite stange is that the difficult job paid something like fifty times less than the easy one - so BD's remuneration, although ridiculous, fails to surprise
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#37 addendum
"Analysts at Société Générale have said that Barclays will ultimately need £20 billion of new capital, and that it will need to sell about a two-thirds stake to the British government." New York Times today.
Doesn't that put a different perspective on this deal and it is I think a reinforcement of my concerns.
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like I say, Barclays avoided disaster only because they lost the ABN bid battle - just luck, nothing to do with good management - their main reason for not taking Government cash (going instead for other, more expensive options) is to protect their ability to pay excessive boni to senior executives - that's what Investment Banking is all about
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You deserve a break - we miss your presence on the News - come back I say. I have been a Barclays customer for a very long time and the rather confusing deal they have struck today seems to be the hallmark of the manner in which they treat their customers, particularly when money is tight. Thanks
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Bank "sells" subsidiary to private equity company... boss gets huge bonus.......... Nothing new being created here just a bucket of money (debt) being pushed around.
So - despite Brown's promises of a brave new world nothing has changed.
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I seem to remember that when this sale of ishares was first suggested, a price of some 6 billion was mooted. That was revised down to 4 billion because of the tough market out there for sellers. Then we get to 3 billion. Tell you what, take it off our hands for 0.9 billion and we'll loan you the rest.
It's good to see the directors of Barclays are still able to liberate cash bonuses from a reputedly profitable arm of their bank.
Good luck to all Barclays shareholders...I think that you may need it.
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Another fine example of selling of the silver wear before going cap in hand to the tax payer for another hand out. Any one that thinks because a bank has not yet been bailed out by the tax payer is thriving is deluded, as has been quoted here a number of times there is no bank not affected by this crisis, because they all follow one another like sheep. In my opinion a great deal of fraud has and is still being carried out by those in high places. Has any one called in the police yet?. Better hurry up or the crooks will be long gone, with their bags of swag.
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Robert
The loan to the purchaser of an asset is not exactly an unknown practice, particularly in banking where, after all, lending is rather common. If they hadn't borrowed a large portion of the funds from Barclays, presumably CVC would have borrowed them from another bank or finance house. I can only guess Barclays are charging a pretty penny on the loan and wanted to get in on the deal as part of the sale.
The other questions you raise are rather more interesting, in particular how desperate Barclays is for the capital benefit (and what other bad news is yet to come) and the bonus to Diamond and his (shall I call them) colleagues for what may well be a bad deal.
I can't help but wonder that the bad news for Barclays is simply not yet out in the open. The bank is a lot more aggressive in its risk positions, tax aggressive deals and aggressive accounting attitudes than either HSBC or RBS; it's managed to have rather better capital position generally because it's management failed to complete a 'done deal' purchase in 2007 (of ABN Amro) in anticipation of which it raised pots of capital from mostly sovereign wealth funds and middle east investors.
I simply can't believe that with such a risk appetite, management 'success' through more luck than skill, and what looks like a fire sale of a good business, that Barclays isn't sitting on rather more bad news than it would like to admit.
Maybe Diamond knows he should take his bonuses now before he too is working for Her Majesty's government...
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As always Robert,
Thank you for this thought-provoking piece.
Enjoy your Easter break. I suspect, there may be worse to come.
ATB
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If Bob Diamond was worth the money he's paid, Barclays wouldn't have to sell off ishares at a knockdown price to a purchaser who Barclays have to lend the money to. Because make no mistake about this, ishares is a good business. When firms start selling off good business' that fit their profile, that firm is in trouble. And to sell it like this is even worse. It seems to me that either Barclays is in bigger trouble than hereto suspected, or they are expecting much more trouble in the markets.
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Peston you continue to tow the government line and continue to 'blog', I dare say report as that is too objective strange ailments of financial news.
As I Barclay's shareholder this report infuriates me somewhat. Barclays' funded the iShares sale to instigate a quick and efficient sale. By doing the financing in house at BarCap, there were no fees to paid to a third party investment bank and less chance of a deal falling through. This just reads like a big fundamental misinterpretation of how capital is raised through IB's.
You also note Barclays' may have to pay CVC £120 million if deal falls through - however, you fail to realise that if another deal was to be negotiated, it is likely Barclays' would obtain a margin greater than this £120 million and thus bank a further profit.
Another fact worth noting (you didn't), Barclays' holds warrants on future profits. So what you describe as a desperate sell in a buyers market is far from the truth when Barclays' will continue to reap the rewards.
I also sense not only from yourself but from posters on this blog a sense of longing for Barclays to lose it's independence as a bank. Why? You'll have to pay for it. This confidence sapping reporting is utterly absurd, especially on a matter to which the public would usually take no interest. Peston did you take such a negative outlook when RBS acquired ABN Amro? I think not....and look where that has led us.
Good luck with a job in a bull market.
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#26 newsjock
Your 110% idea is a non-starter. Our system relies entirely on banks lending money based on little or no reserves. How else could the continuous expansion of debt be maintained?
Everything runs on debt, which is a euphemism for mortgaging our (and our children's) future, in the certainty that if things go wrong prudent savers will always bail us out.
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more creative accounting by barclays - do they never learn? have a gr8 easter
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It is Enronesque, but as mentioned vendor financing is not unique and while the debt may be secured on ishare we also need to consider any other credit support/exposures to fully grasp the degree of divesture. Not a great deal but desperate times call for desperate measures, and no doubt the loan can be sub-participated; since Barclays share price has responded positively to every step taken by management to avoid gordon's clutches, well that tells you another story.
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In defence of Barclays, they are managing to sort out their own problems without falling to their knees in front of HM Government. The thing is as well, what they have to sell is still appearing to be some kind of lucrative investment for someone else, rather than poisonous debt.
Happy Easter Robert.
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A bank that just can't help itself but add to it's debt.. I mean assets. A bank that claims it has superior risk management than it's rivals. A bank that claims it has a level of probity above that of it's sector.
Where is this deal different to the crazed undervaluing and illegal kickbabcks from IPO's of the tech boom? This deal is clearly legal but reaks of the presently legal but bad practice deals at Enron and Worldcom; not their even more dodgy practices. Driving acquisition/wealth creation through asset price linked debt.
Who benefits? Not Barclay's shareholders who've just lost one of the most profitable parts of the bank. Oh yeah that might be the directors who've hugely undersold a business but all retain an interest so when it get's sold at market price they make millions more. Ha a new dawn in banking. Where is that different to underpricing an IPO, selling the stock to a client and demanding a kickback from the profits? One's legal and one's illegal but both are designed to stiff holders of common stock. Who benefits?
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So they, the bankers, are still at it. They sell something to someone by lending them most of the money to do it.
The top brass pocket loads of cash as a “bonus” for doing such a good job, and the bank has created a profit and capital out of thin air.
How long before they buy it back? Or lend someone else the money to buy it and make another “on paper” profit and more bonus. And so it goes on until at some point they are asked to come up with the real money and Ho! Sorry we haven’t got it! We have made a XXX Billion loss and could you bail us out of this mess.
Nice story Robert! Still about banking, but if that’s all you know about, I guess that’s all you can write about.
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KenHarvey, hate to break the news to you but the "guarantee" is pointless and worthless. Pointless because most of the deposits are not retail but wholesale deposits which the government is NOT guaranteeing and worthless because the government simply cannot make all the retail deposits whole - it doesn't have the money - and if you paid attention you'll see they didn't actually formally say they would make you whole upon collapse, they said your money was "safe".
Dodgier sale? It is almost certainly a tax avoidance measure. You sell at par - so there is no CGT and you "lend" the money which is then given to you so there is no principal risk and you bump the interest level to make up the difference.
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SelfStyledBanker, what makes you think Barclays is "desperate" for capital? From what i can see, Barclays has played this crisis perfectly. They rightly avoided the clammy grasp of the government who are in the process of destroying the banks they own. They were laughed at when they raised "expensive" capital - mostly by this "reporter" - but now they are sitting pretty whilst RBS and Lloyds have to lend to dodgy PFI deals to keep the government's support intact and so we can pretend for another year that things are great in the UK. After the election who cares?
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#37, Firstly, Barclays didn't raise cash at that cost.
Secondly they raised it in the aftermath of the collapse of LEH and most people were lucky to raise ANY capital. The fact that they could was a vote of confidence. At the time, people - such as this "reporter" - laughed at BARCL for paying that amount but one only has to see the damage the government inflicted in Lloyds to see how smart the bank was. As usual the government was lying about "hands-length" management. The commercial reason is that it doesn't want to be forced to lend to worthless government initiatives - as RBS and Lloyds are being forced to - and to spendthrift mortgage holders - such as NR.
Finally, the deal is probably structured this way for tax and accounting purposes. Why sell for 4 billion and give away 18% in tax when you can go through this and pay zero? I suspect that Barclays doesn't need the cash rather it needs the perception that it has the cash.
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#39, NYT? give me a break, their reporter is the only person who makes Mr P look like a finance guru. Also the SocGen report is well over a month old. Government wants Barclays as it's prison b*tch. Expect more spin in the near future.
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@ 55
It is almost certainly a tax avoidance measure. You sell at par - so there is no CGT and you "lend" the money which is then given to you so there is no principal risk and you bump the interest level to make up the difference
ooo, how about that? ... clever little bankers!
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for the record i appreciate the silence if robert is skiving off!!
however i feel i must comment on this given the negative spin robert is spinning again.
robert has mis led the blog viewers on this occasion because barclays wasnt desperate for capital!!
the board felt it was a good deal for the bank and shareholders and to say or imply the sale was soley cash motivated is a lie.
the i shares sale is good deal for the bank as a business given the continued rise in its share price since a possible sale was announced many weeks ago,it also allows i shares
robert needs to stop making the same negative spin about barclays the way he does about the now government owned banks lloyds group and rbs.
barclays are nothing like them in the way they run a business and never will be.
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Tatruth, typical dumbo statements with a complete ignorance of finance... you sure you are not a business reporter for the NYT or BBC?
The sale hasn't added to BARCL debt, it has added to CVC's but hey who cares about facts right?
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Might I suggest 2 things for people to do before forming an opinion on Roberts "report" :
1 - Look at post 48 for the exact way that this deal works and not just the bits that Robert has picked out so as to kick Barclays yet again (no matter what this bank does Robert thinks its wrong)!
2 - A few weeks ago Barclays financies and capital reserves were put under an "extreme stress test" by the FSA prior to any participation in the Govt's APS. Barclays did in fact come through this with the FSA reporting back that the bank's financies were in very good shape. I certainly do not remember Robert posting this news on his blog probably because it was a bit of good news about a British bank and further proof that Barclays have been able steered a good course through all of the madness of the last 18 months.
Robert it is time that you started to focus on getting good news as well as bad out to the public and to stop this continuous knocking of the banks so as restore confidence in the system, our economy and thus getting us out of this recession quicker which will be a benefit to everyone. Have a good Easter.
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Forget about all the detail of this, on the holiday weekend the next step on the personal agenda of disparaging the whole UK banking industry piece by piece is being planned.
First Northern Rock,then with the scent and taste of "blood" still on his lips it was generically "Banks" then turning the heat back on the individual institutions RBS and Lloyds,looking for yet another scoop and whipping up yet more frenzy.
HSBC will be next on his agenda for their global empire building and if the Building Society industry feel safe then the big boys like Nationwide had better watch out...it won't be long before he exposes the biggest scandal of them all. Some ............ offices are found to be opening early.. "how dare they do this without consulation and our agreement" ? cry all the public...... after reading claims of "unfair competition" in a daily blog.
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It is always amazing the lengths people will go to delude themselves that things are alright.
If I were a Barclays Shareholder I would be asking about BGI, and why Bob Diamond was making so much monewy on the side whilst working in the interests of the Public (PLC) Shareholders.
Of more curiosity, is why Investors buy Shares in Companies that are lossmaking, deeply in debt, and with declining Sales (and in this Climate, not likely to recover any time soon).
Sometimes the Herd mentality of Investors is a triumph of optimism (or gamblers desperation)over reality, with the last one in, paying over the odds, and losing out when the lead investor chooses to sell !
But like a Herd little thought is really given to their investment decisions, and crucially almost no thought is given to how the Directors are actually running the business.
This is one reason ,mentioned by others many times, why the Banks got away with the Foolish risks they took.
The only way to deal with this is to have proper regulation of the Banks by Govt, otherwise the wheelers and dealers of this world will soon be dreaming up new ways to rob their Customers, Shareholders etc, etc and line their own pockets with big bonuses..........
I wonder just how long the Bear Bounce will last, before the shortsellers ceasefire is called off !
Perhaps the Hedgefunds are on their Easter holiday, and when they return they will wield their disproportionate shortselling power to make another couple of yachts for themselves.
Be ready for a rollercoaster ride after Easter !
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I hope Barclay stays private. It is just as dangerous and unwise to have too much control in "government" hands as letting the banker and bankers do what they liked over the decades. National ownership and control is just a ruse and a cover. Anything "owned" by the public and claimed to be in the "public" interests never were, never are and very unlikely ever will be. It will be an opague few, whose heart and loyalty we don't know, who are controlling those banks now wholely or partly owned by "us".
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laughingblacksheep (Various/Numerous postings)
Did you read about the Barclays tax avoidance schemes outlined in recent weeks in the press? Do you think that that might not have something to do with the banks reluctance to accept apparently relatively inexpensive money from HMG. Then this would explain why their apparent perception of the cost of the money from HMG is far higher than the apparent cost. This in turn suggests that the tax avoidance schemes undertaken are far more extensive and important to Barclays than they appear on the surface. I cannot help but think that there must be a sound commercial reason for not taking HMG money (even though people like Société Générale think that they will need to take £20bn, eventually.)
Can you, as a strong and outspoken supporter, of Barclays' management provide another explanation to the concerned doubting Thomases out here?
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My grandfather bought Barclays DCO shares in the 1940's, and I remain a small shareholder. It would be a relief if Barclays can continue to contribute to my (much reduced) retirement income.
I am all in favour of this deal if it enables Barclays to regain its composure and stay out of Brown's clutches.
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Quite a price Barclays are paying, in order to retain their freedom to continue their 'tax schemes' business line !
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#62 bankbiz wrote:
"...Barclays financies and capital reserves were put under an "extreme stress test" by the FSA..."
So now we all believe that FSA are competent? After all they were one of the regulators who got it so very wrong and substantially contributed to the crash in the first place and they have as yet not changed their spots!
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Robert, it seems that the share value of Barclays has risen sharply with news of this deal, does this not mean that the sale actually benefits the shareholders and Barclays?.
Could someone explain to me why this is such a bad deal?. The only argumentation against the deal seems to be the financial gains that some of Barclays staff will receive.
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Enjoy your Easter Robert
Short term share price gains are not necessarily a sign of a good deal...
Really this deal shows how desparate Barclays are for cash. Where is the FSA in this instance as loaning money to someone to buy an asset of you has obvious moral hazard problems even before you get to managers making a big profit out of it.
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Oh, I forgot to add my trademark call:
Forty Percent rise for the Public Sector !
Lets inject some Consumer demand back into the economy by actually putting money into the pockets of ordinary people!
Govt policy at the moment is to suck every last Shilling nay every last Farthing out of the pockets of the ordinary folk (thro low deposit rates, high cost of living Inflation, but low pay deals etc).
This Polciy is doomed to failure and the UK is doomed to stagnation whilst it is in operation (declining sales and falling employment creating a vicious circle of further declining Sales).
(YAWN)
I do get tired of endlessly giving out good advice that just gets ignored!
Maybe I should just have some fun ?
I should get out more.......
Looks dull and overcast here, not quite Stormy yet.
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The question is more why Robert is trying to rubbish at any cost Barclays while hiding the scandal of the APS scheme. Everybody knows that Lloyds did not get a penny through the APS scheme, transfer basically no risk but had its capital ratio artificially increased? So Robert why are you trying to hide this intead of reporting honestly what is happening?
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John from hendon..... what the FSA were or were not doing before the crash is very well documented and I know that they were incompetent in their handling of regulation (regulation written by Govt and the EU) however they have received an almight kick up the **** and their current focus is to ensure that banks capital positions are in excess of regulatory requirements (well in excess in fact). If everyone started to focus on how we are to recover from all this for the better instead of harping back to the mistakes that have lead us to the situtation we have found ourselves in then our recovery will be much quicker and we will have a stronger set of regulations in place to hopefully prevent a repeat performance.
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Cheers for the enlightening facts. Did Barclays benefit from the : Special Lquidity Scheme, swapping over the medium term mortgage-backed loans for govt liquidity to create emergency stability for them; Credit Guarantee Scheme, guaranteeing their money-market operations ? If so, we have given them the lifelines to survive. Sure, they will say they have paid handsome fees for the privilege, and then neatly passed them back to us.Enterprise Finance Guarantees also enable the banks to profit from secured lending via HMG.Asset Purchase Facility / QE is allowing HMG to buy crdedit guarantee paper issued by the banks - yipee for them and profits/bonuses will follow.
I have been told that that Barclays and others are paying over 3 month libor for money on the interbank market, say 1.75%. To lend to us, they apply their margin at, say, 3% - meaning we are paying real rates of 4.75% for loans when base rate stands at 0.5%.If the business is riskier, the rates are higher.
How is QE working to bring rates down?What's happening to restart the securitised debt markets? Lets have some real reporting on this acidic problem making everything worse after your hols.
Cheers
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this article just shows that our banking industry is inept and poorly run, if its not time for the government to step in and take control then its far too late.
banks in recent years seem to have been driven by greed and profits now with so many struggling due to their misshandled policies, let alone over paid top executives that drove the banks to collapse.
our governments inept regulation is partly to blame becouse due to its lack of control.
sadly unless the banks can proove themselves compitent before too long they may as well all close up, claim bankrupcy.
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It is worth remembering that the Shifting the Buck onward sale of securitised Mortgages and Loans is what brought the Banks low in the first place.
For example Bradford and Bingley and their deal with GMAC.
Now Banks (and others) are exposed for selling on their dodgy loans to Debt recovery Agencies (ie washing their hands, outsourcing their responsibilities).
This like Mortgage/ Loan securitisation needs to be stopped or at least very tightly regulated (I would opt for stopping).
Banks can raise money through the issue of Bonds, but why should they sell their Customers Mortgages to others? And why would they wish to buy Mortgages and Loans of unknown quality from other Agencies or Banks?
We need to return to the 1950's model of Banking (and they used to make good profits back then).
All this messing around with securtisation and creative accounting (dodgy accounting) is what has created this mess in the first place.
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More Government sponsored spin from Mr Peston. He, Cable et al just can't stand the fact that Barclays continues to work towards putting it's *own* house in order without having to submit to nationalisation or other interference from Brown and his discredited, inept cronies.
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Bankers really don't have a clue, do they?
And those pompous, no-nothing farts in their fancy suits sit in their offices deciding which of the business plans of entrepreneurs are to receive their stamp of approval and a loan.
"Thank 'ee, guvn'r, most kind I'm sure...."
(touching forelock and backing out of the manager's office).
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ahoy there Navy Seals
as #55 laughingblacksheep notes, a lot of what Barclays do is related to tax avoidance strategies, which is one of those 'elephant in the room' things
As extensively reported in the Guardian last month, and on a million internet websites afterwards, Barclay's SCM run a very large and lucrative department that specialises in this area
If they were to take the Govt shilling they would almost certainly have to close it down; that may be why they do these other deals which are arguably much worse for their shareholders than you would expect
I assume Mr Peston doesn't mention Barclays Structured Capital Management (SCM), even though their existence is central to their thinking on all this, because it was somebody else's scoop and he's miffed about it; but it makes his blog of dubious use if it is just an unbalanced bit of op-ed on most days
And the banking stories have become soooooo tedious; he is clearly NEVER going to report on manufacturing, SME, construction, infrastructure investment, unemployment, pensions or any of the other 20 or so things that are also vitally important
Anyway have a nice Easter everyone
I see that Britain came bottom of the league (or is that top?) for the most negative, depressed and worried about the future, so Peston's banking blog may be contributing something, though I suspect useless political parties, class system and housing obsessions are bigger factors; even the weather hasn't been that bad, though now that the cricket season is starting I presume snow flurries and rain are imminent
All this is rather discouraging for a pirate, who likes to be jolly and feel the sun on their back, so I've started my own countdown before relocating; only 23 days until I sail off to my Canadian backwoods bolt-hole for the summer; a bit of fresh water piracy on the Great Lakes, where there is a surprising amount of shipping, lots of smuggling, lots of pleasure craft, and no Navy should cheer up the crew
What do you call an Albertan pirate?
A jolly tar
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#75 shireblogger
"......What's happening to restart the securitised debt markets? "
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Securitisation is surely a discredited concept now.
How secure were these AAA packages? Not at all.
They should be banned just because they are near to impossible to value.
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#74. bankbiz wrote:
"If everyone started to focus on how we are to recover from all this"
Totally agree, but do you also think that the regualtors that have proved themselves to be 'incompetent', as you put it, are suitable people to be responsible for, or even capable of, running a system that is supposed to put things right? - I do not.
Looking forward: clearly re-inflating a property bubble is a non-starter as a 'solution', or even part of a solution, that can lead to a recovery (no matter how you define it). But unfortunately, the shibboleths of the past are still being presented as indicators of green shoots of recovery. (viz house prices going up in the recent Nationwide survey)
My benchmarks for a recovery include: reasonable long term interest rates (i.e. up to between 4 to 6 percent), stable banks with sensible balance sheets and honest tax paying, unemployment below 1.5 million - honestly measured, house prices at around 3.5 times earnings over the country - just for starters!
We have the problem that it is almost impossible to see a way to get from where we are today to this position in less than a decade. We can't squeeze the public sector or the taxpayer hard enough to finance all of the bailouts without letting (uncontrollable) inflation rip. My guess is that the absolute maximum that is squeezable/taxable is no more than 60bn a year and even that, without inflation at a very high number, will take a very long time (over a decade) to recover the situation that has already accumulated in the last six months.
So I see no other path but to manage quite a bit of inflation and quite quickly through quantitative easing or whatever - but this is exceedingly risky to the currency and very difficult (actually almost impossible) to manage.
The other persistent problem is that in maintaining zero interest rates for any longer that absolutely necessary we risk destabilizing the long term capital markets - to say nothing of destroying our pension funds!
Another problem is the effect on asset price deflation that results from not making the banks bankrupt when that in all honesty that is what they were. (This prevention of bankruptcy is preventing the fire-sale dumping of assets on the market and delaying their necessary downwards re-pricing and this in turn keeps the related asset prices over-priced and this in turn prevents the economy recovering more rapidly.)
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John_from_Hendon (#69) #62 bankbiz wrote:
"...Barclays financies and capital reserves were put under an "extreme stress test" by the FSA..."
So now we all believe that FSA are competent? After all they were one of the regulators who got it so very wrong and substantially contributed to the crash in the first place and they have as yet not changed their spots!"
Bankbiz goes on to rightly say (almost as it exonerated the FSA, banks and HMG), that this was indeed HMG/EU/USA policy. But note the FSA was set up by HMG and the key legislation (like the USA 1999 legislation which broke down their banking system firewalls) and staffing mean its staff:supervisee ratio was, and still is, far to low for any effective regulation to be done, and nothing has changed!. This has been said by the FSA and by others has it not? So, are we not just seeing a load of bluster about blame (cf. Mysners in the Treasury Sleect Committee fo an example par excellence) which the pathologically self-interested can afford given their obscene salaries/pensions?
I have a serious public appeal to make to the Pestons, Flanders and Masons out there:
How about doing some serious, expository, investigative journalism over an extended period to drive home to the trusting public what really happens to their assets in ISAs and Share Nominee Accounts, Pension Funds etc, where the public are only the Benficial Owners of their assets, not the literal owners (those being the banks/fund managers) who lend their clients' assets to short-sellers, therefore playing the markets for their own profit, at their clients' expenses (quite literally), whilst also having the chutzpah to charge clients for this 'service'. If anyone wants to appreciate how and why the stock markets have been so volatile and going nowhere in terms of capital growth in recent years, and why so many people have lost so much, this surely would be a very good place to start looking?
I would be happy to be corrected on this by anyone, as at present, I regard this as venal (but legal) white collar predatory 'criminal' behaviour, where the law has been written specifically to alter the perception and 'reality' of what is regarded as crime. The 'financial service' sector has preyed upon the trust which innocent people used to have in banks and regulators.
bankbiz (#74) Any comment?
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56. At 09:11am on 10 Apr 2009, laughingblacksheep wrote:
...... Barclays has played this crisis perfectly.... but now they are sitting pretty....
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Sounds like tempting fate making statements like this! I'd sell my shares straightaway if I had any.
62. At 10:12am on 10 Apr 2009, bankbiz wrote:
....... Robert it is time that you started to focus on getting good news as well as bad out to the public and to stop this continuous knocking of the banks so as restore confidence in the system, our economy and thus getting us out of this recession quicker which will be a benefit to everyone.
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You expect reporters to report good news? A little naive surely? - it so much easier to find the bad news as there is lots of it about (and worse to come if Soros is to be believed)
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84. At 12:44pm on 10 Apr 2009, _gemba wrote:
56. At 09:11am on 10 Apr 2009, laughingblacksheep wrote:
...... Barclays has played this crisis perfectly.... but now they are sitting pretty....
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Sounds like tempting fate making statements like this! I'd sell my shares straightaway if I had any.
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See link below - downgrading of certain Barclays debt.....
http://www.marketwatch.com/news/story/moodys-downgrades-subordinated-debt-barclays/story.aspx?guid=%7B1154A4CB%2D709D%2D4080%2DA29B%2D69A7C4DD5D62%7D&siteid=rss
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Peston likes to make reference to the banks "miracle accounting" but William K. Black likes to call a spade and spade and tell it for what it is - fraud.
I see from some of the comments over the week that alot of you have seen the interview Black did on April 3rd. He did a new interview on Monday (April 6th) that is also worth a listen.
http://tinyurl.com/bvsxue
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86. At 1:24pm on 10 Apr 2009, jd6969preston wrote:
Peston likes to make reference to the banks "miracle accounting" but William K. Black likes to call a spade and spade and tell it for what it is - fraud......
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Your links leads to another link, see below, and at last I think I understand how these structured investment vehicles can be so easily optimistically rated.
The way they are constructed produces an unintended magnifier effect such that slight rises in mortgage default rates can causes losses out of all proportion to the original "butterfly".
Surely investment bankers should run scenario software models before releasing these timebomb products on the public?
http://creditcrunchedoutinuk.blogspot.com/2009/04/how-to-lose-your-shirt-in-banking.html
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The vast majority of the above comments demonstrate that most people do not understand banking. This is hardly surprising as banking is not like any other business. When a customer goes to his bank for a loan of, say, £1,000 the bank puts £1,000 in his current (cr) account and the £1,000 becomes a loan (dr) account. According to some that is creating money. But the bank cannot go on doing that without the capital requirements necessary to enable that loan to be made.
In simple terms, out of every £100 deposited in the bank about £10 has to be retained to keep cash in the tills and to cover running costs. That leaves about £90 which the bank may lend, provided that the total amount of all monies lent is below the ratio of lending against capital that is required, formerly by the BoE and now the FSA, in meeting what are referred to as Tier1, 2 & 3 requirements. There are other considerations but the above is aimed at keeping it simple.
The need for sufficient capital is therefore a vital component of how much any bank can lend. Put simply that capital consists of the shares in issue plus the total of all deposits held. Customers can withdraw those deposits and if enough of them do so at the same time then we see a run on that bank (the cash in the tills would be roughly 10% of what is needed). And that is where the essence of banking comes in - the risk factor. Risk is the prime concern of every real banker. Unfortunately we have seen the banks 'taken over' by businessmen who are not bankers (a few of them were but they decided to ignore the vital importance of risk). Banking cannot recover completely until those in charge are of the old school of so called boring bankers, those who understand and work with risk as their prime concern.
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JadedJean # 83 - a post I completely agree with. But I'm not expecting anyone to do the work, or maybe I am too cynical?
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Here is the situation:
* CVC wants to buy iShares for £3bn.
* Barclays accepts £0.9 bn upfront, and takes a rate of interest (eg L+3%) on the remaining £2.1 bn.
* The remaining £2.1 bn is SECURED against the iShares franchise, so if CVC can't pay up, Barclays seizes the business back.
Ergo, Barclays now has less risk on their books, since cash came in through the door, and they do not lose money if iShares goes bust, only if CVC and iShares go bust *simultaneously*.
Less risk = lower capital required. Sadly very few posters here even know what bank capital is, let alone have the required understanding to comment in an educated manner.
This isn't dodgy accounting in any way, shape or form, and as others above have said is a common method of vendor-financing.
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#88 SovereignJaguar
I totally agree, it would appear that Barclays are embarking on the same path that they were on prior to the financial crisis.
I don't think it's 'miracle accounting' at all, I believe it's recklessness and they justify it by claiming not to have 'failed' just because they haven't turned to the government for money... yet.
Unless the G20 governments look to stamp out the transference of money between subsidiary firms within a group thus creating the illusion of creating money, we're headed for more problems.
The G20 achieved nothing, if the agenda could be summed-up in one question it would be 'How do we reinflate the bubble (and save our political careers)'?
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Don't you just luv 'em? The bankers are still in denial about how they have brought the economy to its knees and Teflon people like Bob Diamond will receive £4.7m in cash for a sale that ain't a sale. Of course it's a disgrace but while these people are apparently untouchable they will keep on behaving in this way without butter melting in their mouths.
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#83 JadedJean
Presumably you know that The Guardian undertook the type of project that I think you're suggesting for (legal) tax evasion.
The banks/financial institutions (mentioning no names) were some of the main culprits responsible for recruiting highly qualified, highly paid and well staffed teams to keep hundreds of steps ahead of the Inland Revenue. Why? Because it contributed enormous profits.
It's the same for the FSA although it would be great to have the publicly owned BBC undertake an investigative project in our interests rather than always leaving it to left-of-centre newspapers to carry the costs and potential litigation.
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90. At 2:57pm on 10 Apr 2009, horreur wrote:
Here is the situation:
..........Sadly very few posters here even know what bank capital is, let alone have the required understanding to comment in an educated manner.
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Whoa there...
In any selling activity there are only 4 possible outcomes:
1. Unhappy seller, unhappy buyer (government take over of banks)
2. Happy seller, happy buyer (illegal drug dealing)
3. Unhappy seller, happy buyer (fire sale)
4. Happy seller, unhappy buyer (Tesco)
So in the case of the iShares deal which is it, who is the patsie or are they just "drug dealing"?
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#90 horreur
Fine, you're obviously far superior in knowledge, however, a bank selling a part of itself to a private equity firm and lending them the money to do it doesn't sound right 'vendor financing' or not.
Haven't you realised that the game is now up? If Barclays hits big trouble and needs money, we, the taxpayer, will have to stump-up even if the government let it fall - because the government has insured deposit.
Just how much will it cost for Barclays to demerge iShares and seize the business back if CVC can't 'stump-up' (let's face it, it's possible)? Yes, I know that it's tax deductable for Barclays if CVC can't pay, however, that means we have to pay.
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this is not an arm's length commercial transaction, it's a piece of what they tend to call Financial Engineering - a misnomer of the first degree since absolutely nothing is created - and if nothing is created but some people get (say) five million pounds richer, then somebody else is poorer by the same amount
you can guess who that somebody is, can't you?
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New Gerald Celente interview from yesterday.
http://creditcrunchedoutinuk.blogspot.com/
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Obama just said there are "glimmers of hope" in the economy. That will be the que for Crash Gordon to come out now and say something similar in the coming days.
Larry Summers who is one of Obama`s top economic advisors spoke in Washington yesterday and said the recession could be over in a few months time.
Things change quickly when they change the rules and allow the banks sweep the dodgy assets under the rug or shift them onto the shoulders of the taxpayers. I can't help but wonder if some of this is going to come back and bite us in the a$$ further down the line.
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#88 SovereignJaguar
"The vast majority of the above comments demonstrate that most people do not understand banking. "
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I will put my hand up to that. I have tried to get up to speed. I have seen 'Money as Debt' and have carefully read all of the posts for some time.
It appears to me the a lot of bankers do not understand banking and a lot of people who are not bankers (FSA) do not understand either.
How else did we get in this mess. If I am wrong and this was deliberate then no punishment could be too much for the misery caused.
It is not enough to say this is Global. We should have been keeping our own house in order.
'Miracle Accounting'. 'Vendor Financing' Are these official accountancy terms?
#96 sagamix has a strong point. Why should anyone get five million GBP when nothing has been created?
The City seems to be like the Wild West.
When are the Marshalls going to show up?
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Barclays iShares deal is a wonderful example of Creative Accounting - do the shareholders understand what the Board are cooking up or perhaps the temporary increase in share-price is clouding their judgement.
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94. At 3:32pm on 10 Apr 2009, _gemba wrote:
Whoa there...
In any selling activity there are only 4 possible outcomes:
1. Unhappy seller, unhappy buyer (government take over of banks)
2. Happy seller, happy buyer (illegal drug dealing)
3. Unhappy seller, happy buyer (fire sale)
4. Happy seller, unhappy buyer (Tesco)
So in the case of the iShares deal which is it, who is the patsie or are they just "drug dealing"
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Option 2 obviously ;-)
Shame for Barclays that it has to get rid of a star performing unit, but a trade off between raising more capital or being taken over by the government is a no-brainer. Barclays/investors = happy.
As for CVC, they've immediately become one of the top-2 biggest players in the ETF market. CVC = happy.
Of course, remains to be seen who will be happier over the long run...could be a brilliant piece of biz for BARC if the ETF sector consolidates and margins are reduced over the coming years as they will have sold at the top of the market. On the other hand they are still retaining some equity so they'll share in any upside.
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95. At 3:55pm on 10 Apr 2009, extremesense wrote:
#90 horreur
Fine, you're obviously far superior in knowledge, however, a bank selling a part of itself to a private equity firm and lending them the money to do it doesn't sound right 'vendor financing' or not.
Haven't you realised that the game is now up? If Barclays hits big trouble and needs money, we, the taxpayer, will have to stump-up even if the government let it fall - because the government has insured deposit.
Just how much will it cost for Barclays to demerge iShares and seize the business back if CVC can't 'stump-up' (let's face it, it's possible)? Yes, I know that it's tax deductable for Barclays if CVC can't pay, however, that means we have to pay.
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Look all they've done is extend CVC a line of credit - like when you buy a car with financing. As people have said above, CVC would have to borrow from somewhere, so it might as well be BARC - everyone happy.
How much will it cost to demerge iShares? Who knows...but naturally this is taken into account when pricing the loan. There's a trade-off here. Do you think it would have been better for them to just accept £0.9 bn upfront and leave it at that. There is a shortage of cash in the market these days if you haven't noticed!
I don't understand how your second paragraph relates to the iShares biz.
This deal is a good deal for Barclays because they've raised capital in the market which makes the business safer.
If CVC goes belly-up then Barclays gets iShares back or sells it to someone else and they will have had the benefit of the interest and loan amortisation in the meantime....
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#88 SovereignJaguar
You have of course got it right as far as you went.
You need to take it further though.
Depositors in a bank may be putting money on deposit that was created by the same bank. Or of course it may have been created by another bank.
It would still have been created when somebody borrowed it initially.
I liken banking to a very very efficient sweetie factory.
There are no raw materials.
The workers can graze on the products.
Unlike sweeties the workers never get sick of the product.
No wonder the banking industry has flourished in recent times.
The worm (us) eventually turns though..
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I like what Barclays has achieved. It has successfully created a profitable business and has sold it for a goodly sum. It has financed the deal itself. The buyers are now taking responsibility for the risk. This effectively reduces Barclays risk. The outcome helps Barclays to regain its composure and stay out of Brown's clutches.
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#81 Toldyouitwould
The key to value is to have a diligent and trustworthy market place and players with rules and sanctions. If the loan originator is required to keep a large proportion of his lending risk in the package I cant see why this concept cannot work to the better. It gives a means to share risk and adds liquidity to the banking model. I have seen talk of a clearing house patroling these market places and the credit agencies are being rightly pilloried for past errors and reorganised through regulation.They, on the other hand, blamed the originators for supplying them with duff information. Big corporate and public debt issuers find value for their debt through their own market places signed off by agencies - why shouldnt these.....have a good break!
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I think Barclays are brill, glad I have nothing to do with them, but they are just brill. The further they stay away from sucking money out of the taxpayer like finacial vampires the better. If they have had to make a deal with a devil or two or go to Sodom and Gomorah for extra that is their problem. As for staying away from Midas Brown, thats a no brainer. The FSA remind me of when I went to an cultural event. I gave the man on the gate a 50 quid note and said sorry I've got nothing smaller thats all the bank had. He held it up to the light, he crumpled it up, then looked at the ink. He held it up to the light again. He rubbed it between his fingers. I said what are you looking for and he said I don't know. I said you must be looking for something and he said I'm looking to see if it is fake. I said what tells you if it is that and he said I don't know I've not see a 50 quid note before. I said - You must have, anyway they have just come from the bank here are some more they are all the same. He looked dubious. I said - It must be difficult if you don't know what you are looking for, how do you recognise it. At that point somebody in the rapidly growing queue said I wish I had a 50 quid note just let him in. So I was let in. I of course inspected the 20 quid note in the change to see if it was fake but I too did not know what I was looking for, but then I am just a customer. I think that fella would have been great with the FSA perhaps he even ended up there. BTW re bank stock going up a bit, surely probably maybe just the word getting around that the Wells Fargo stagecoach is due in with some bullion and there are no bandits around because they thought shipments had stopped. Becasue they have missed the Wells Fargo they are off after the others.
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Well if it works for HSBC then why not Barclays.
April 2007 HSBC sells Canary Wharf HQ for £1.09 billion with a bridging loan of £830m (provided by HSBC) (adds £1.09 billion to balance sheet, shows profit and makes more money from providing bridging loan)
Dec 2008 HSBC buys back building for £830m (money it had lent) and shows profit of £250m from the deal) and shows building as asset in Balance sheet.
Now will be find banks lending us money to buy their property assets and then repossessing be the latest trend.
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99. At 5:41pm on 10 Apr 2009, Toldyouitwould wrote:
#96 sagamix has a strong point. Why should anyone get five million GBP when nothing has been created?
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* Barclays built the successful iShares franchise from scratch.
* Employees were awarded (small) equity stakes in iShares.
* Barclays as majority owner sold iShares - the money is distributed amongst the equity-holders.
These employees (Diamond et al) helped build the iShares biz from zero to £3 billion, were rewarded with equity to align their interests and yet you say that "nothing has been created".
I guess I should remember that the internet was never the place to go for intelligent debate...
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This comment was removed because the moderators found it broke the House Rules.
To paraphrase the late Robert Heinlein slightly, these bankers could go to the moon and make fortunes selling rocks to each other. In the end though, someone else still needs to produce the food for them to eat.
The brokers and ratings companies scream "BUY!" one day, and "SELL" the next. The pension funds and unit trusts do it on our behalf, generating commissions and justifying management fees. The "Business" media obsequiously obsesses about short term movements in prices. People are encouarged to gamble, buying for the short term gain rather than the long term return. But this activity is essentially parasitic: it creates nothing real. We need and should have investment for the long term, not gambling for the short term. There should be punitive short term capital gains taxes to encourage this.
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Tories to break up banks!
I know we have moved on Robert but I am going to point out how stupid your last blog was.
It has been announced today in the newspapers that the Treasury Select Committee made up of 14 MPs from all parties are to discuss the break up of the banks in a bid to bring back the principles of Glass Steagal.
It's a shame you weren't able to say that the TSC were following GO's lead; it would also have saved me the bother of reading a lot of vacuous tribal comments from the rabble above who wouldn't have written such drivel if they knew that the government pet poodle without teeth, McFall was heading up the enquiry.
Happy Easter.
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To the moderators: if my mention of Claud Cockburn's famous journalistic maxim is what has caused my comment #108 to be referred, might I point out that this has happened before, HERE, at comment #59, and it was passed then.
Come on - my comment was hardly "Jerry Springer the Movie" (and anyway it was Auntie Beeb who screened that) - have courage!
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#93, well the Guardian Media Group was a large tax avoider last year. It avoided 300million GBP by setting up an SIV for the sale of some assets but i guess not being a hypocrite isn't necessary for being a socialist...
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shireblogger , the originator "keeping some of the risk" is what essentially bankrupted HBOS and RBS. They are called covered bonds. The point of securitisation is that there is NO risk on your books because someone else has the cashflows.
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Bye Bye Barclays, soon to be followed by JPM-C and HSBC. You couldnt make it up.
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Private institutions protect their own interests, weakly weighted politicians will only be the beginning of our infactuation with this implied risk taking as part of criminal law; as far as being negligent in as much as the money lenders are able to do, querying- where are the resposability's about their owm moral obligations to people who pay taxes.
Compeating and competativness will work for us. I like gambling so
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horreur @ 107
yet you say that "nothing has been created"
the transaction I'm talking about, not the i/share business - when the vendor lends the purchaser the money to buy the asset, it usually means the transaction is not pucka - more than likely done for one, or all, of the following reasons
- window dressing
- tax avoidance
- personal enrichment of senior executives
the interest rate on the loan might not reflect the risk, and the sale price of the business may not be an arm's length valuation
can't be taken at face value in other words
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It's great isn't it. Barclays sells an asset and who profits - the management. And even richer - the bank finances the deal.
In lala land that's called a bonus by another name.
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#112 laughingblacksheep: I disagree with you about very many things, but I'm sorry to say, you're right. At least you don't pretend to be a philanthropist, (of course, you may be on the quiet?) What I hate most is these sanctimonious illegitimates who preach at us all the time whilst feathering their own nests.
The latest issue of Private Eye reported that Guardian editor Alan "Rubbisher" Rusbridger was awarded a 15% pay increase last year, to £544,000, by the remuneration committee. The chairman of the remuneration committee, and indeed chairman of the Guardian Media Group until last year was, guess who? Lord Myners.
How can the pompous Mr Rubbisher justify a salary double that of the PM? It's certainly not due to to the commercial success of the Grauniad, which hasn't made a profit for years, if ever, being subsidised by the other titles in the group.
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jd6969preston
Yet again, thank you. The new interview with Bill Black was very informative and reinforced what he said in the other one. Even more scathing about Geithner and Paulson if possible.
All the interviews are viewable here:
http://www.youtube.com/results?search_type=&search_query=William+K+Black&aq=f
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sashaclarkson (#118) "It's certainly not due to to the commercial success of the Grauniad, which hasn't made a profit for years, if ever, being subsidised by the other titles in the group."
Comment Is Free used to have a Memory Hole whereby comments went strangely missing days after being posted, and without a trace, when deemed not on message ;-)
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116. At 10:35pm on 10 Apr 2009, sagamix wrote:
horreur @ 107
yet you say that "nothing has been created"
the transaction I'm talking about, not the i/share business - when the vendor lends the purchaser the money to buy the asset, it usually means the transaction is not pucka - more than likely done for one, or all, of the following reasons
- window dressing
- tax avoidance
- personal enrichment of senior executives
the interest rate on the loan might not reflect the risk, and the sale price of the business may not be an arm's length valuation
can't be taken at face value in other words
================================
"it usually means the transaction is not pucka" - thanks for this deep insight into the world of M&A/LBOs/PE.
There's a trade-off here between getting a higher price with financing, or a lower price without. Why do you think you are more qualified to make that call than management (who have actually seen the B/S, P&L etc...)
Point 3: If management have a large equity stake in the biz then they are indeed incentivised (sp?) to sell-up at a certain time, but bear in mind this alignment of interests may also have had the effect of employees working harder to build the business successfully. 9-5'ers do their work, watch the clock and go home. IB'ers put in 14 hour days to make money for the bank since their compensation will reflect this. You have to sign out of the Human Rights Directive saying you should only work 40-odd hours per week if you want to work in one!!
Point 2: Tax avoidance is not illegal. And given the high profile nature of the sale I expect the transaction is likely to be highly scrutinised so is unlikely to be structured that aggressively in this respect.
Point 1: Not sure what you mean by this...
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There is nothing wrong with barclays providing some of the finance for this deal...they will actually earn more out of the deal with cvc paying interest on the loan......If they get offered a substantially better deal whats the problem with them paying a bit of compensation to cvc? Grow up. Barclays is finding a way through poor times very adroitly, the share price is rising strongly as will other banks shares v.shortly. Im afraid Mr Peston your constant gruesome and negative reportage may appeal to alot of the negative poverty stricken brits out there who need this non stop diet of misery to make them feel better but we are not all your disciples and in fact some of us are doing vety well thankyou...even on bank shares.
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#120 Interesting - I'm not sure it hasn't happened here too.
My referred post supported your bold appeal #83 by the way.
I just looked at the Comment is Free page, and was glad to see that Eric Hobsbawm is still writing.
His article is considered and thought provking.
http://www.guardian.co.uk/commentisfree/2009/apr/10/financial-crisis-capitalism-socialism-alternatives
I'm still digesting it.
Good night all. :-)
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when we get a recovery will brown be spouting off that its a "world recovery" some how i doubt it.....brown is a muppet brownwatch 415 days
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Post 112 & 118. Blacksheep and Sasha. The Guardian is not the only Newspaper that undertakes this sort of measure.
Sasha you obviously read the Private Eye. I am amazed that you didn't pick up on the tax arrangments of our friends from Wapping and the Daily Mail & General Trust and their Chairman both of which have been widely trailed in Private Eye.
Take anything you read from the UK press about tax matters and tax aviodance with a large pinch of salt.
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Personally I am really enjoying Barclays' game of chicken with the government. All power to their elbows, particularly when it is winding up so many chippy journalists, analysts and bloggers.
13. John_From_Hendon. You are conveniently missing out the fact that the FSA crawled all over Barclays books and gave them a (relatively) clean bill of health.
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#124
When we get a recovery?
That cannot happen for quite some time, the system failed because of bad regulation, and all the measures taken so far are inappropriate.
Until such time as the damage is repaired, and the loot taken is restored to its rightful owners, things will continue to get worse.
Brown, Blair, Major, Thatcher et al will all be a distant memory before we wake up and realise what is happening and get rid of the crooks who govern us.
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#126. morebalanceplease wrote:
"13. John_From_Hendon. You are conveniently missing out the fact that the FSA crawled all over Barclays books and gave them a (relatively) clean bill of health."
So you trust anything the FSA says when they were one of the set of three regulators under whose 'skilled' regulation gave us this credit crunch. Sorry, but I think it is entirely reasonable to take anything that they write or say with a very large pinch of salt. Unless and until they are radically reformed (i.e. all sacked and replaced by people untainted by the crash) I think that it will be wise for us all to do so.
I will not start listing names in full detail, but I am already on record as asking for the resignations of Meryvn King, the entire MPC, Hector Sants of the FSA and Sir Nicholas Macpherson, Permanent Secretary of the Treasury (since 2005)
These guys were responsible for running the regulation and the Nation (and the World) is paying the price for their 'success'! Their regulatory philosophy was wrong, as is now well established, and because they have been responsible and working in the business for decades they are unfitted to continue to do so - leopard don't change their spots very quickly!
Regulatory confidence can only be restored by a complete change.
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#127 Hodgeey
I agree with your comments.
We`re starting to see a real spin job of the illusion that we have hit bottom and it`s all up from here. We have Obama and his "glimmers of hope" yesterday. Comments from Larry Summers yesterday. One of the big American banks - which was viewed as insolvent about 7 weeks back - stating they have made a record profit in Q1. A national newspaper here in the UK with it`s front page (today) splashed with a headline claiming that we are all hitting the shops this weekend to spend £8 billion. Where exactly are they getting this figure from and what are they basing that on?? Sounds like pie in the sky stuff and wishful thinking to me.
For a decade the UK and it`s people have lived high on the hog and above it`s means. Now when it appears that some sense has finally taken hold and people are trying to rein in a little and start to reduce their debt the Govt and other interest groups are doing all they can to get us out and continue to spend like there`s no tomorrow.
All of this reminds me of that old film "Weekend at Bernie`s". They propped the dead guy up so everyone would carry on and think he was still alive. This is what nows seems to be happening with the economy. Don't get me wrong as I`m a small business owner myself and I would love to see the economy kick back to life and for business to boom. The only problem is I`m still waiting to see the real issues and problems addressed which I haven't seen our leaders do up to now. They are only storing up bigger problems, packaging those problems up in a nice pretty box and kicking the box down the road for another time. I fear the recession is not the biggest problem itself but only one part of the overall mess the UK really faces.
http://creditcrunchedoutinuk.blogspot.com/
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horreur @ 121
"it usually means the transaction is not pucka" - thanks for this deep insight into the world of M&A/LBOs/PE
sorry, I mean PUKKA - is that better?
a good example of window dressing is where you sell an asset to a friendly counterparty and lend them the money to buy it - often taking the asset itself as collateral for the loan, so a Reverse Repo you could say - it gets the asset off your Balance Sheet and replaces it with a loan
a transaction like that might be fine, of course, but it should be viewed by outsiders with caution
please let me know if you have any more questions
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#84 "You expect reporters to report good news? "
"Dog bites man" is not news but "man bites dog" is news !!
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Robert
As usual you dress this up as conspiracy. Vendor financing is quite acceptable - you buy a sofa on credit from the seller dont you? It it now a loan on Barclays balance sheet. I suggest you do some elementary book-kepping. Lets face facts. THE ONLY REASON BARALCYAS ARE DOING THIS IS TO AVOID CRASH GORDON AND HIS POLITICAL INTERFERENCE.
GORDON "NO MANDATE" BROWN MUST FACE ACCOUNTABILITY
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#129
Yes indeed.
The recession is a predictable and natural consequence of living beyond our means. The governments' pouring of fuel on the fire will not damp it down and there is worse to come.
We are engaged in mortgaging not only our own future but that of our descendants, and it is unsustainable.
Those of us who have worked and saved have bailed out the government and the banks from the consequences of their excesses; we will not be taken for suckers again. Bricks and mortar, land, emigration; those are our options now. We will get out of equities, bank deposits etc and put our remaining wealth where it is safe.
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130. At 10:13am on 11 Apr 2009, sagamix wrote:
horreur @ 121
"it usually means the transaction is not pucka" - thanks for this deep insight into the world of M&A/LBOs/PE
sorry, I mean PUKKA - is that better?
a good example of window dressing is where you sell an asset to a friendly counterparty and lend them the money to buy it - often taking the asset itself as collateral for the loan, so a Reverse Repo you could say - it gets the asset off your Balance Sheet and replaces it with a loan
=====================
I wasn't referring to your spelling, I was referring to your gross over-simplification.
As for your second-paragraph, you still haven't explained exactly why this is 1. window-dressing, and 2. a problem. £0.9 bn has come onto the balance sheet as cash (capital), while £2.1 bn is indeed now on there as a loan. This is clearly less risky because Barclays are now only exposed to iShares performance in the event that CVC default (think of it like a 2nd-to-default basket) while previously they were directly exposed.
No-one is claiming that a financing trade is less risky than an outright sale, but as I said above, there's a trade-off to make here between cash upfront vs possibly a higher overall price spread over 5 years, with a reasonable rate of interest.
All I'm really trying to say is that one shouldn't just write off the idea of vendor financing as "miracle accounting", or outright fraud, as some commentators above are claiming.
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This comment was removed because the moderators found it broke the House Rules.
sashaclarkson (#123) It is a little worrying when people and what they have to say which is officially evdience based (c.f the SEAL fiasco and Aiming High), go missing, some economically prophetic...too.
See what you don't see via Giddens at the end? ;-)
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new hero @ 132
if your definition of avoiding political interference is protecting the right to pay absurdly large boni to incompetent senior executives then, yes, spot on ... that is, for sure, what's driving Barclays
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#125 Economicallyliterate: "Sasha you obviously read the Private Eye. I am amazed that you didn't pick up on the tax arrangments of our friends from Wapping and the Daily Mail & General Trust and their Chairman both of which have been widely trailed in Private Eye."
You are quite right of course :-) However, I don't expect anything better from the other lot. The Guardian Media group is owned by a trust/not for profit company whose raison d'etre is public service. I do expect higher standards from them.
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horreur @ 134
All I'm really trying to say is that one shouldn't just write off the idea of vendor financing as "miracle accounting", or outright fraud, as some commentators above are claiming
okay, I see, fair enough - and all I'm trying to say is that a vendor financed transaction should be viewed with particular caution - so I think we agree! - as an example of when it could be a problem, imagine if a fair interest rate for the loan (to reflect the current market and the credit risk) is something like LIBOR plus 600 basis points, but the rate charged is, say, L plus 300 - that would then be a Soft Loan granted purely in order to facilitate the sale, wouldn't it?
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As is to be expected, most of the posts here are anti banker and whilst as an ex employee of Barclays i have some sympathy with this view I sincerely believe that the Government is getting off too lightly. A text book example of Lord M spin to keep the issue to the fore in the minds of the voter.
Please can we concentrate on applying pressure to the real architects of our woes - Mr Brown and his inadequate crew. Yes the bankers were (and are) greedy, but lets remember that it was GB who reorganised the regulation of the City which allowed the situation to develop. It was GB who gratefully received the tax revenue to pass on to an even greater public sector, most of which is employed to monitor itself rather than provide much needed services to the populace.
It was GB that ruined the pension sector by stealth tax. A measure which has greatly contributed to the poor performance of the Stock Market over the years that he has been at the helm.
Is it just that GB and the political elite will receive gold plated pensions when they are finally voted out of Government, whilst the rest of the population struggle to pay off their, student debt, mortgages and build a pension pot within a money purchase scheme, if they are lucky! How easy it is to issue regulations/taxes on the majority which will not affect you.
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laughingblacksheep 113
If loan originators retain no residual risk for the loans they make,the underwriting standards are going to suffer. All I am saying is that there is a roll for securitization in a newly regulated market where the loan originator is obliged to keep his skin in the game - its been around for a long time.I thought HBOS's fatal error was an over reliance on the wholesale funds market for liquidity being over exposed to commercial property and the RBS fatal error being buying the toxic rump of ABM Amro- not a covered bond catastrophe as such.
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141
I agree that there is a case for the securitisation of loans in the brave new world. One would hope that the buyers of second hand loans will have learned their lesson and will do due diligence before committing themselves. That way any sloppy lending will either attract a very poor price or will remain on the books of the primary lender
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They (Barclays) must be really struggling. If this is the best they can do to loosen up some capital,so not fall further behind,when the green shoots occur...heaven help them.
Their accountants must be bricking it at the l-ooming o ranges. Fluorescent,defaulting business l-o ans.
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I offer more!
But only if Barclays lend me the money
And then allow me to sell bits to my friends
Again, only if Barc;ays lend them the money.
That should be great for their accounting
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Oh yes
And they pay be a bonus.
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sashaclarkson (#123) From the article:
"..the basic idea that dominated economics and politics in the last century has patently disappeared down the plughole of history. This was the way of thinking about modern industrial economies, or for that matter any economies, in terms of two mutually exclusive opposites: capitalism or socialism.
We have lived through two practical attempts to realise these in their pure form: the centrally state-planned economies of the Soviet type and the totally unrestricted and uncontrolled free-market capitalist economy. The first broke down in the 1980s, and the European communist political systems with it. The second is breaking down before our eyes in the greatest crisis of global capitalism since the 1930s."
Rubbish.
One can't helpreading this patent nonsense everywhere. Why do I say it is nonsense? Because a) The People's Republic of China is 10 x the size of Russia and split with the USSR in 1956 for its revisionism b) the PRC is still Democratic-Centralist c) the PRC continues to support the adoption of Democratic-Centralism elsewhere in the world and leads the SCO (which has Iran as a candidate member, with Pakistan and India interested too).
The recent obsesssion with Islamic Jihad (struggle) dates back at least to 1920 when COMINTERN leader Zinoviev translated John Reed saying 'Class War' as 'Holy War' in a speech in Baku (a soon to be Soviet Republic). Even Iran's revolution owes much to French Maoist/Stalinist Sartre via Shariati.
Socialism has had makeovers all around via PR machines. Internationalist New Labour has precious little in common with Old Labour, they're free-marketeer anarchists like the other two parties. The UK electorate has no real political choice but sees statism relentlessly vilified by our Orwellian media every day.
Now the (essentially anarchistic/Trotskyite) teaching unions are trying to get rid of KS1 and KS2 statutory SATs because these (with KS3 SATs) expose the Lysenkoist equality myth, revealing that education is in fact a selection, not inculcation process, and the Pol-Pot policy of 'education, education, education' surreptiously inflates the underclass whilst winnowing the intelligentsia.
Still, let's hope I'm wrong.
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Does 107 have any useful suggestions for intelligent debate?
1 House of lords
2 Commons
3 University debating societies
4 My local pub
5 My new web site I'm thinking of calling
Face up to it.
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139. At 12:20pm on 11 Apr 2009, sagamix wrote:
horreur @ 134
okay, I see, fair enough - and all I'm trying to say is that a vendor financed transaction should be viewed with particular caution - so I think we agree! - as an example of when it could be a problem, imagine if a fair interest rate for the loan (to reflect the current market and the credit risk) is something like LIBOR plus 600 basis points, but the rate charged is, say, L plus 300 - that would then be a Soft Loan granted purely in order to facilitate the sale, wouldn't it?
===========================
Absolutely, but I believe there were a number of competing offers made for the business, so hopefully Barclays had the upper hand in any negotiations which went on and could avoid having to do this...
===========================
141. At 1:20pm on 11 Apr 2009, shireblogger wrote:
laughingblacksheep 113
If loan originators retain no residual risk for the loans they make,the underwriting standards are going to suffer.
===========================
True, but in an efficient market, if the underwriting standards fall too far, then there will no longer be demand for the loans in the secondary market. Shame this didn't seem to happen in the mortgage boom!
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147. At 3:09pm on 11 Apr 2009, greyancientwisdom wrote:
Does 107 have any useful suggestions for intelligent debate?
1 House of lords
2 Commons
3 University debating societies
4 My local pub
5 My new web site I'm thinking of calling
Face up to it.
================================
Perhaps pundits should have to take a multiple choice exam (set by me of course) before being allowed to comment on the matter?
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We bail the banks out with our money then we ask them to Lend us some to keep body and soul together and they refuse and Brown allows it? does not make sense really does it? So we have another bank story is this getting ready for more bail outs of whom the Govenment the PMs are not all getting to fleece us. So they have to be bailed out its all a con and you Robert know this but writting about it keeps you in a job. How is Coutts Bank doing if it good enough for the Queen its good enough for me!!!
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How long do our M.P's get off for Easter? I'd almost forgotten how expensive Easter can be.
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#146 Jean: you've tried and succeeded to be provocative. :-) Alas, I can't give you the serious response you merit, because the demands of real life are cruelly curtailing my activities in the the blogosphere for a few days.
Just didn't want you to think I was being ignorant.
LOL
S
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Yesterday my 12 year old daughter asked me "What's neo feudalism" luckily she's just done Wilhelm the conqueror, 1066 and the domesday book.
It wasn't too hard to explain that the bankers were just part of a long line of people that have been committing financial war and destruction on people and countries and when they win everybody else loses out.
All I have to do now is explain why I threw the telly out the window because robert peston was trying to sell more debt with sick humour at the expense of pensioners, punk rockers and the general population.
It's gonna be a long weekend. I've bought her a tshirt with the words 'Rise Up' on it to hopefully soften the blow.
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sashaclarkson (#152) We all have to do our bit for anti-terrorism/the economy.
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102 Prudeboy
We need bankers and banking otherwise our economy fails; banking is the oil that keeps the gears of commerce moving. What we don't need are a lot of non-bankers running our banks. Real banking is boring but they get it right and that's why we had almost 150 years with no bank failure and the BoE doing the regulation (the BSA looked after the building societies - ditto).
We all know that the FSA failed completely and will probably do so again as they do not have the knowledge, experience or command of banking to realise what is going wrong and what to do about it and that FAST action is imperative. When Brown put the tripartite committee - which had only met once before the NR saga - in charge he obviously had no idea what he was doing: the FSA was already unable to get on top of the other jobs it was set up to do, particularly complaints from customers across the whole financial spectrum. Get rid of Brown, put regulation of the banks back under the BoE (the Governor does not like doing that but that is his problem; he has the staff to do it) and tell the FSA to prove that they have got on top of their work and to stay on top or lose more of their senior personnel.
Everybody posting here needs to divorce banking from those so called bankers who failed to follow the essence of banking - risk - and went all out for profits and bonus. I am all for prosecuting those who failed in their directorial responsibilities and the sooner the better so the customers, staff and the general public can see the results.
#144 greyandancientwisdom
Really? So where is your deposit, and do you have the expertise to run the business? Barclays would have sold to a higher bidder if there had been one. I realise you were being sarcastic but you must accept that the business Barclays has sold was built up by people with the abilities to build up that business and were paid a bonus for doing so in a very competitive market. If you have the expertise and ability and can convince Barclays to back you in your venture then good luck to you.
These sort of deals are quite common and have been part of the financial market for many years. Only now, with so much media scribbling has any reporter taken a blind bit of notice. In better times Barclays would have almost certainly been able to sell at a higher price. Any brief examination of banks here, in Europe and the US will show just how much effort banks put into buying and selling a range of businesses in addition to parts of their own companies.
Barclays and HSBC have been determined to stay out of Brown's clutches, and we should be thankful for that. Not only does that relieve us, the taxpayers, of even more debt but it effectively puts a stop to bank nationalisation (through the back door). Even Harold Wilson realised it was not in any government's interest to nationalise banking - and there were strong labour moves to push him into it - because it would have been a complete failure. Just imagine what could have happened; civil servants running banks, making decisions on risk and loans, miles of red tape, serious over staffing and the government having to pump in large amounts of cash to keep things going with no hope of selling.
A lot of the comments above are made on the basis of what has been said in the media, but just how much has been really understood? It is easy to pass 'ho,ho' comments and decry everything that has happened. How many understand what CDOs and SIVs represent and how they are made up and why they have been so made up, in detail? How was it that the US investment banks were able to inveigle our banks into their new style assets? Why are investment banks called banks when in reality they are nothing of the sort? What is banking? If none of you were to get paid you would very soon want to know what the banks were doing; and it could be a very good education lesson to understand how banking works, and why we need it - unless you consider that we should all go back to Roman times and barter for everything.
Let's get this into proportion: prosecute the bad 'bankers' and get back to having strong, viable, competitive banks.
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I've noticed a lot of of bankers an economidians that post here are really annoyed that the papers and the public are interested in what's being done with peoples taxes and or savings.
As though it would be better if people ignored the magnitude of what is happening all around the world what kind of arrogance to think people would idly watch as countries as close as Iceland get screwed, Eastern europe and maybe Ireland could follow next.
Social unrest and possible collapses of government has always been part of the price we pay when our systems fail, Let's hope things don't go that far.
I hope people who only see things in terms of banks being nationalised or banks being corrupt and more powerful than countries start to exercise more imagination alternatives do exist. If people aren't prepared to admit that mistakes have been made on all sides.
New solutions and willingness to learn anew and break away from the past needs to be embraced before a new generation leave us all behind.
People often talk here about the luxury of hindsight or that no one could have predicted events well lots of people did see what was coming these are the people we need learn from and to trust to change things for us and others need to be locked up a clear message about fraud and corruption needs to be sent out around the world.
People need to admit this is not true capitalism, This is not true democracy.....to not admit this is bad, to not want to admit this is worse.
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Question directly to you Robert.
CVC are widely regarded as one of, if not the best LBO houses in Europe. Regardless of this noticeboard's attitude toward a Private Equity exit for iShares, how do you believe this spinout will fare?
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while Robert is away try try using this time to explore some other peoples opinions, this link may help....
http://zerohedge.blogspot.com/2009/04/incredibly-shrinking-market-liquidity.html..
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Robert
Your quote:
'To state the obvious, these are not normal times, these are credit-crunch times: and, I guess, if a bank can raise capital in any way at all without tapping taxpayers, that's seen as good news.'
The UK banks and finance sector would have sorted themselves out fairly quickly if Goondog Trillionaire Brown had not interfered with his ridiculous globalistic bloated financial debt rescue measures.
All that was necessary was for HM Treasury to ring fence the assets and interests that matter like individual saving accounts and protection from mortgage vultures for vulnerable hardworking families and full scale bank driven shareholder consolidation and attention to shareholder value would have occurred anyway - with a 'few nudges' from HM government.
Market driven bank consolidation would not have required such a vast amount of public money to have been invested/pledged/borrowed and Goondog 'Mc Poison' Trillionaire Brown has now made things much worse in the UK economy with a bureacratic expensive bloat and time lag to the desired 'improvement' in the UK economy. I say 'improvement' as a 'recovery' to what we had before is not going to happen but we can get 'overall improvement' in our economic conditions by allowing the banks to consolidate themselves.
It is not the changes that regulatory changes that Goondog is proposing that will alone prevent recovery to the bloated finance sector - the stock market and Pound sterling will not carry this 'large scale bloat' as investors will vote with their feet and will still switch their investments out of the UK if prices and values appear to be bloated.
I expect there to be fair number of banks and their off-shoot non dom. tax sleaze shadow dodgy money operation companies consolidated/re-created outside of the UK by the end of the year - this is good - and will show real improvement for Britain.
Smash the banks - too many banks - and too many bad banks and non dom. operations for effective regulation.
Goondog Brown 'global-bureacratizes' everything he touches - this is a shield for his cynical 'little England tax fetish agenda' and shows a clear lack of true financial leadership and vision. This is most inefficient, enormously expensive, immensely damaging and totally incompetent.
The good news is that the banks are eyeing up some of their rivals and the free market remedies will start moving eventually - but a big, early opportunity has been missed by our government to accelerate the consolidation process.
Very, very damaging - the irony is that seemingly complex problems can sometimes have simple straightforward solutions - our patient has thousannds of cuts in the form of too many leeching financial outlets - we need to reduce the number of cuts or the patient will bleed to death. We still have far too many financial institutions in the UK for effective control by the regulatory tripartite goonshow. No amount of regulation can stemmy that problem until radical surgery is applied.
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For anyone interested here is a new George Soros interview from Fiday April 10th.
http://creditcrunchedoutinuk.blogspot.com/2009/04/george-soros-on-bloomberg-10-04-09.html
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155 SovereignJaguar
''We need bankers and banking otherwise our economy fails; banking is the oil that keeps the gears of commerce moving. What we don't need are a lot of non-bankers running our banks. Real banking is boring but they get it right and that's why we had almost 150 years with no bank failure and the BoE doing the regulation (the BSA looked after the building societies - ditto).''
Interesting. We need everyday transactiions. Not rocket science. We need secure deposits and that is about it. You can seperate out loans and mortgages. If it is, as you say, boring then anybody can set up to do it. What is the problem with an independently operated but publically owned activity doing this. Everyday transactions are deemed necessary infrastructure, that was the basis of the bail out. Infrastucture should be under public control and if there is no other strategically secure choice it should be owned by the state. It is up to businesses wanting to perform this service to show they are up to the job or lose it.
BTW oil is no good on its own if the machinery is damaged. It is the machinery that produces.
''We all know that the FSA failed completely''
If the FSA was set up on a false premise by Brown then it was never going to do anything else. Further the banks are not supposed to self harm, they are supposed to have some survival instinct in their strategy. The FSA is not fit for purpose and is still, it would seem, failing to recognise that the sub prime market was controllable at the point of sale by some very simple rules treating the product as a defined consumer purchase. All the smirking Hector Sants, FSA could say to the select committee was basically we have done our job strictly as defined. Not once did he say we saw an area which looked potential trouble and advised accordingly, used our intelligence. Notably Lrd Turner who does not smirk is now the public face of the SFA, sorry FSA.
''Everybody posting here needs to divorce banking from those so called bankers who failed to follow the essence of banking...''
And how exactly do we do that. Andy Hornby CEO of Halifax sounded quite sane in interview. However when you look at the facts the actions appear less constrained by reality. Halifax expanded its share of the mortgage market by nearly 50 percent in its last independent year of operation in a situation where it must have been clear a crunch was coming and following specific IMF warnings. Further the sales culture was so embedded that in the 6 months following rescue by HMG '125 percent of value' mortgages where being still issued. These should have been squashed forthwith. These facts take time to get out into the public domain. On what basis can anybody either look at the publicly issued figures which lag the reality or listen to a CEO and believe what is said.
Let us look at a one of the 'better' ie less affected banks Santander. They put funds with Madoff, an outfit which a junior figure in the US identified as fraudulent after 45 minutes on a speadsheet and repeatedly advised as such. Did Santander undertake due diligence? Their rep couldnt answer that direct question in front of the select committee, simply kept saying that all customers money had been made good. Impressive dont you think. Amazing how many facts have to be supplied in letter after the select committee, how little can be said on the day. Such as Lloyds and Barclays err 'squirming' seems to come to mind.
The IFS figures suggest it will take until 2031 to pull back the public borrowing due to this mess to an acceptable level, that is with significant intervention, ie higher taxes and lower public services. And the situation may deteriorate further, that has been the pattern. Without intervention, ie taxpayer higher costs somewhere then the public debt is profiled to just expand. Brown perpetual motion.
''Barclays and HSBC have been determined to stay out of Brown's clutches, and we should be thankful for that. Not only does that relieve us, the taxpayers, of even more debt but it effectively puts a stop to bank nationalisation (through the back door).''
Well ''of even more debt'' seems to sum up the highlight of your position. HSBC seem to have retained old school values throughout this turning 125 percent self cert types away. I say seem because you never know as I have pointed out. They may 'escape' as you put it which is a positive term, equally well you could say they may yet not become insolvent, but could well do so, which is more representative of the situation. That outcome remains to be seen. Any less drag on the taxpayer purse has to be welcome. I don't see how anybody can forecast outcomes with any certainty yet. In what way does a bank profit from saying here is the bad news. It has to be forced out of them by circumstance.
Your message is basically let them get on with it. Mine is they have done their best damage themselves and everybody who deals with them. If they want to be left alone then return all taxpayer money and taxpayer liabilites forthwith. Otherwise people proven to self harm and damage others need keeping an eye on and it is very reasonable to discuss the issue. Don't you think. Or are you the sort of fellow who is comfortble with a generation of tax burden which could have been avoided. Whilst at the same time the wonderful stalwarts who built this 'business' continue and at the bottom of the financial industry food chain there will be 4 million plus homes with negative equity, (maybe 6 if the slide continues which is possible in a failing economy with expanding unemployment for the next copuple of years,) a lot this negative equity problem was sold following the IMF warnings, ie knowingly by big business with specialist knowhow and information, to people who clearly where not as well informed who trusted both bank and brown de facto advice alike. Exploitation perhaps.
The banks played this game to expand share value via divident values and give profit related bonuses. It was self defeating it would seem. Those shares badly affected are to take a very long time to recover to the middle ground, they are never going to be worth what they were in real terms. So quite appart from all of the fallout, just what was the point. Trousering short term bonuses it would seem. The French model already being implemeted of curtailing bonuses looks appropriate then. Leave them alone to get on and trust them is an alternative.
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Why does this headline not surprise me!
"Lloyds bank staff ‘puts frighteners’ on debtors"
http://tinyurl.com/dabna2
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SovereignJaguar (#102) "Barclays and HSBC have been determined to stay out of Brown's clutches, and we should be thankful for that. Not only does that relieve us, the taxpayers, of even more debt but it effectively puts a stop to bank nationalisation (through the back door).
HSBC is an international which only does a very small part of its business in the UK. Like Standard Chartered its main business is Eastern.
"Even Harold Wilson realised it was not in any government's interest to nationalise banking - and there were strong labour moves to push him into it - because it would have been a complete failure. Just imagine what could have happened; civil servants running banks, making decisions on risk and loans, miles of red tape, serious over staffing and the government having to pump in large amounts of cash to keep things going with no hope of selling."
Is that irony? Our Civil Service runs the country anyway, and it used to attract the best/brightest of our people. It needs to be purged/re-staffed no doubt, but that's still possible. China still has a soviet government and it runs its banks, even the former USSR did a good job with GOSBANK and GOSPLAN before revisionists made a mess of things. We have just been brainwashed by neo-Liberal economists for decades, and that's why we're now in such an anarchistic mess - it touches almost everything today, at everyone's expense. Sadly, most people still see this as freedom, but from what? What if the fears are bogus? In fact we're blighted by narcissistic self-destruct (see Liberal-Democractic birth rates, everywhere for irrefutable evidence of this).
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Hi Robert,
Since most of the bloggers seem tired of yet more Tales of Stupid Banking Folk why not do a piece on the root cause of pretty well everything that has gone wrong in this country in the last few years (and for most of the previous 50 at least), namely the ludicrous "Alice in Wonderland" concentration of centralised power in the Downing Street/Whitehall/Westminster village. This single factor has led to reckless idealogy,inefficient and undemocratic governance, centralisation of (usually poor) decision making and a lack of overview and supversion in areas of government, the banking system and industry and commerce. Before anybody shouts...."what about the US and their problems and don't they have a Federal system?"... I would refer them to countries like Germany where the federal states (Bundeslaender) are small enough to act as powerful and autonomous unitary authorities but not so big (like most of the US states) that they suffer the same problems of centralisation and absorption into Washington.
With such a German style federation we could encourage all the things which the UK desperately needs in order to change for the better, more local and dynamic government, smaller banks and financial institutions, a more balanced economy, regeneration of city regions, in short everything we need to give this much discussed New Order a much better chance of success.
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161. At 11:35am on 12 Apr 2009, glanafon wrote:
Interesting. We need everyday transactiions. Not rocket science. We need secure deposits and that is about it. You can seperate out loans and mortgages. If it is, as you say, boring then anybody can set up to do it.
======================================
The 'rocket science' as you put it helps the efficient flow and allocation of capital throughout the economy.
Look at what has happened over the past 18 months now that that flow has broken down.
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#165 horreur. Another perspective is look at what has happened over the last 18 months since the widespread exposure of the actions of the mind numbingly stupid self entitled rocket scientists. They were only ever second rate conjurers and stage hall magicians. I always preferred Tommy Cooper - much more professional.
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Seems NuLABOUR have resorted to the tactics the NAZIS used pre WW2.
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glanafon @ 161
The banks played this game to increase share values and give profit related boni
yes, spot on, this is the key issue - the problem was (is!) behavioural, rather than to do with structure or process
Q: why would somebody push 125 pc mortgages to people who clearly can't afford them?
A: to trouser the resulting bonus
Q: why would somebody cook the books to support the share price?
A: to trouser the resulting bonus
Q: why would somebody put on a big time trade, carrying substantial short term profit potential, but with a risk far higher than the reward merits?
A: yep, you've guessed it
the debate about the precise nature of the Regulatory Regime is so much hot air - no Regulator stood a chance against the Get Rich Quick culture - against the combined behaviour of tens of thousands of very sharp, very devious, very driven individuals within the industry - against such a tsunami of deceit and reckless greed
and what were they driven by, these individuals? ... why pocketing big boni, of course
I don't blame them, that's the way it is - banking (especially Investment Banking) is like that - it's human nature in any case, and most of us would probably behave in exactly the same way
but let's stop pretending that a different Regulatory Regime would have made a difference - unless they Banned The Boni it wouldn't have made one dollar of difference - and they wouldn't have regulated the bonuses, would they?
no, because all the "Talent" would have left
Ho Ho Ho and Ha Ha Ha ... is that how you type derisory laughter?
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I'd like to complain about this
http://news.bbc.co.uk/1/hi/business/7995850.stm
The article makes no mention of the fact that during the same period many householders have seen their mortgage payments shrink dramatically.
If the VAT cut has worked then we need to know who has increased their discretionary spending. Is it all those MP's claiming second home allowances?
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I understand that "Merchant Banker" is now rhyming slang. Beware if people start referring to you as "A bit of a merchant"!
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"I don't blame them, that's the way it is - banking (especially Investment Banking) is like that - it's human nature in any case, and most of us would probably behave in exactly the same way"
That's what some disreputable neo-liberal 'economists' would have one believe. The reality is that throughout history it has always been a small percentage of the human population (see Cluster B, Axis II, DSM-IV), but it's bound to be more prevalent in some groups than in others, athough even where that's so, it's still going to be a minority, just a larger one.
Such people need to be 'regulated' in the interest of the majority. As it is, in Liberal-Democracies, they prey upon consumers/punters with impunity, and some even revere them.
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165 horreur
''Look at what has happened over the past 18 months now that that flow has broken down.''
You might be right but I would suggest that if you have a economy based on credit, I mean debt, in constant inward flow, and you turn the tap off that this is what you get. Nothing to do with rocket science, simply the financial tide going out. It is effectively the banks being issued with notice that their overdraft is cancelled and all funds due are to be returned, a trick they in turn pull on customers. Incidentally it remains interesting to me that when a Canadian Bank was in trouble in the early nineties they foreclosed, or tried to, on a long time mortgage holder who had never missed a payment. They argued that they had the right to do this. It was overturn in the Canadian court, after a fight. Is that the sort of rocket science I am missing.
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169. At 2:50pm on 12 Apr 2009, StrongholdBarricades wrote:
''I'd like to complain about this
http://new
s.bbc.co.uk/1/hi/business/7995850.stm
The article makes no mention of the fact that during the same period many householders have seen their mortgage payments shrink dramatically.
If the VAT cut has worked then we need to know who has increased their discretionary spending. Is it all those MP's claiming second home allowances?''
I agree this comment.
In view of the fact that other forces are in play eg shops slashing prices by 50 percent in places to shift stock, (which some comentators have suggested will damage the retail sector), drops in mortgage payments for some, to have a headline giving all the credit to a 2.5 percent drop in VAT is less than giving perspective.
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168. At 2:48pm on 12 Apr 2009, sagamix wrote:
glanafon @ 161
The banks played this game to increase share values and give profit related boni
yes, spot on, this is the key issue - the problem was (is!) behavioural, rather than to do with structure or process
Q: why would somebody push 125 pc mortgages to people who clearly can't afford them?
A: to trouser the resulting bonus
Q: why would somebody cook the books to support the share price?
A: to trouser the resulting bonus
Q: why would somebody put on a big time trade, carrying substantial short term profit potential, but with a risk far higher than the reward merits?
A: yep, you've guessed it
the debate about the precise nature of the Regulatory Regime is so much hot air - no Regulator stood a chance against the Get Rich Quick culture - against the combined behaviour of tens of thousands of very sharp, very devious, very driven individuals within the industry - against such a tsunami of deceit and reckless greed
and what were they driven by, these individuals? ... why pocketing big boni, of course
I don't blame them, that's the way it is - banking (especially Investment Banking) is like that - it's human nature in any case, and most of us would probably behave in exactly the same way
but let's stop pretending that a different Regulatory Regime would have made a difference - unless they Banned The Boni it wouldn't have made one dollar of difference - and they wouldn't have regulated the bonuses, would they?
no, because all the "Talent" would have left
Ho Ho Ho and Ha Ha Ha ... is that how you type derisory laughter?
=================================
This is an overly-simplistic view of the problem.
Firstly, why are you calling them 'boni'? Are you trying to appear intellectual by announcing that you know 'bonus' is from the Latin? If so you've failed rather epically given that the plural should then be 'bona', and in any case only a complete tool would say this given that 'bonuses' is in the popular vernacular.
2. Q: why would somebody push 125 pc mortgages to people who clearly can't afford them?
Mortgage brokers are not compensated via bonuses in the same way investment bankers are. Furthermore, if the issue is so cut and dried then it would have been 'obvious' at the time to more than just a few people. As it is most people in society were happy to drink the kool-aid that house prices will always go up, and if you can't afford your mortgage then you will always be able to re-finance to a low initial rate.
3. Q: why would somebody cook the books to support the share price?
People will cook the books for a number of reasons. To keep their jobs, and therefore their reputations intact and their salaries are indeed likely reasons. However, this sort of conduct is not only rare, but is also not exclusive to those compensated via bonuses.
4. Q: why would somebody put on a big time trade, carrying substantial short term profit potential, but with a risk far higher than the reward merits?
It may surprise you to hear this but most people who work in banks are not, in fact, the complete morons that the media/politicians make them out to be. The problem in many cases is that people simply did not realise the degree of long-term risk which they held, AND THE AMOUNT OF SYSTEMIC RISK WHICH HAD BUILT UP. This last point is key to understanding the roots of the crisis.
The banks are indeed hugely culpable for their failed risk management, but it is the job of the REGULATORS to monitor systemic risk build-up, not just that of the banks.
5. no, because all the "Talent" would have left
"If you pay peanuts, you get monkeys" ;-)
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market moving?????????
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Re 174
If you allow a monkey do decide how many peanuts it gets, you'll end up with one fat monkey and no peanuts.
Re 165
It's a shame your macro economic observations aren't as good as your micro economic ones. The financial instruments created by the so called "rocket scientists" did indeed improve market liquidity and encourage "growth". However, the inability of the financial institutions to value such instruments lead to the credit crunch. In retrospect creating complex financial instruments led to short term "gain" with the consequence of long term instability. If the "rocket scientists" hadn't invented the complex financial instruments, we probably wouldn't be where we are now.
I guess whether short term gain is better than long term stability depends on your position. If you reap huge bonuses on a short term basis and have relatively few consequences to pay when things go wrong then it's probably good. If you stand to lose your job, your house and pay a lot more taxes it's probably bad.
In hindsight, I think that "financial weapons of mass destruction was an appropriate term".
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tufftimes
EXTRA FAT MONKEYS? NOW THERES A THOUGHT!!
GORDY!!
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#174 horreur. Most of the points you make are bogus - and sadly I suspect you know them to be bogus.
It is true that mortgage brokers are compensated differently from investment bankers and it is true that mortgage brokers were pushing125% mortgages. However it is also true that mortgage brokers are not the providers of funds and it therefore follows that they were only able to push 125% mortgages because someone else was standing behind them providing the funding, and that those funders offered every encouragement to the brokers to hit the phones and provide ever more "customers" for their "product." Who were these people, that you are so careful to avoid identifying? Why none other than the investment banking fraternity. It´s not so hard really when you just look for the correct answer as opposed to an answer that you happen to like.
Now that the sky is falling in I note how you are keen to widen the scope of blame and obfuscate the main issues. Your statement "Furthermore, if the issue is so cut and dried then it would have been 'obvious' at the time to more than just a few people. As it is most people in society were happy to drink the kool-aid that house prices will always go up, and if you can't afford your mortgage then you will always be able to re-finance to a low initial rate" is an elegant, but fraudulent attempt to achieve this aim.
It was obvious to lots of people that the whole housing deal was built on sand. Professional people who saw this and spoke out suddenly found themselves reassigned to "Deputy Head of Paper Clip Counting" Why should the average punter or mortgage broker have had any chance of understanding the scale of the fraud? The architects of this nightmare were busy buying up governments, the media and hiring PR expertise, awarding themselves gargantuan salaries and screaming from the rooftops that they were the Master of the Universe who had found new ways to ensure that asset prices could only ever rise.
It is true that the key to understanding the roots of the crisis is an appreciation of the systemic risk that had built up. However the fact that (as you say) people did not realise the degree of long term risk that they held merely serves to undermine your attempted defence of the intellectual capabilities of those running major financial institutions.
The failure to grasp the systemic risk is indeed a failure that should be shared with regulators - but banks don´t fund all those "Government Relations" departments out of alturism. They wanted some return on their investment. In this case they wanted the effective neutering of regulatory effectiveness, and they got what they paid for.
You can try and spread blame and confusion all you want - but the average guy in the street has no doubt as to the toxic effects of a small elite who became totally obsessed with money and power. To quote Paul Weller "...and as I was standing by the edge, I could see the faces of those that led, they were p***ing themselves laughing"
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Few have commented about the speed and complexity of New Communications and Multiple emails, in a period of information explosion and massive global competition.
Many of our so called "Rocket Scientists" at the Banks earning super dollars and massive bonuses are in the thirty to forty year old age Group. They have little experience of loss, true humility or being "Out of Work". They were born into a World of the Web with decisions made in split seconds and another email gets sent.
My Old World was one of contemplated decisions, paper and the pen. I sent letters and had them cleared by legal and contracts experts BEFORE I signed them. People involved with Financial Weapons od Mass Destruction have been suffering the severe stress of "Information Overload" and a complete lack of perspective or an ability to contemplate the consequences of actions upon others and Society in particular. They could NOT believe that everything they did was dangerous JUNK and had no real meaning, in fact they are all still in denial. They were never held to account, before.
It may take a Generation change of both perspective, morals and values in the Educated Classes, before we fully understand what happened.
However, I can decide with some confidence, that the World will never be the same again and drastci changes in both Nations and Societies are on the way. Watch out for the National Front, Fascist Parties and the BNP.
We have lost both the trust and our faith in so called democratic conventional politics, which has let us down badly, destroying tens of thousands of lives and businesses. We , the People, will never allow such people of power to abuse us again in such a manner.
They are all on Notice. When the People have distain for Politicians, Bankers and the Police, all we have left is the Crown and the Military, or face destiny in our own hands, very dangerous territory indeed. The Third World War is now upon us, being fought with paper currencies, credibility, stocks and shares, particularly with jobs and pay, where hope is the only currency worthwhile. We want our values back a feeling of pride of being led by Men and Women of honour, not sleaze and lies, feeding at the trough of our taxes.
Our fighters are the Lorry Drivers, those who combine together to march or simply stop the system in its tracks. Those who run our power stations, our trains and our health service could stop an yGovernment in its tracks. I feel that it is all soon to happen as we have too many injustices outstanding, particuarly the unfair treatment of pensioners, Savers and the vunerable.
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horror @ 174
most people who work in banks are not, in fact, complete melons
indeed not - at first sight, if I put a trade on which has a 50 pc chance of making 4 million and a 50 pc chance of losing 8 million, then the Expected Value of the transaction is negative 2 million, and I'm a tool for doing it aren't I?
well no because if it comes off I snaffle a boni of, say, 5 pc of the profit (so 200,000) and, if it doesn't, I pay precisely nothing - a one way bet, in other words, and I'd be a bit of a melon for NOT doing it
interests not aligned, that's the basic problem, not the intellectual capacity (or limitations thereof) of the participants
fair day's work for a fair day's pay, let's have some of that instead of these ridiculous boni - things won't change otherwise, believe me
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Armagiddeon...
and I always thought you were a Clash fan..
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174 horreur
This is an overly-simplistic view of the problem.
''Firstly, why are you calling them 'bon*'''
Who cares.
''Mortgage brokers are not compensated via bonuses in the same way investment bankers are. Furthermore, if the issue is so cut and dried then it would have been 'obvious' at the time to more than just a few people.''
The point is that HMG by making no comment, even indirectly, and the banks by encouraging people on, pushed the purchase of what was effective questionable stock, ie a house with the likelyhood of a collapse in value. A contract is a two way deal and it is incumbent on the bank to exercise diligence in its evaluation of the contract. Further people tend to trust big business and government opinion. Furthermore the whole deal is skewed towards the big business because they have departments of people studying the situation and issuing internal private reports, and buying in specialist opinion. Individuals have no such advantage. An individual applies for a loan under criteria. One of those is the value of the house. If the bank issues a mortgage knowing that very shortly, very very shortly within the 25 year term, that the criteria will not be met why does the bank move forward. Mortgage salesmen are not rewarded as per bank bonus culture, maybe not, but GS has been posted as paying 2x the commision for subprime, 1 percent. Why I wonder. BTW the likely mess, was obvious to more than just a few people or doesnt the likes of the IMF count.
''People will cook the books for a number of reasons. To keep their jobs, and therefore their reputations intact and their salaries are indeed likely reasons. However, this sort of conduct is not only rare, but is also not exclusive to those compensated via bonuses.''
So what.
''It may surprise you to hear this but most people who work in banks are not, in fact, the complete mor*ns that the media/politicians make them out to be. The problem in many cases is that people simply did not realise the degree of long-term risk which they held, AND THE AMOUNT OF SYSTEMIC RISK WHICH HAD BUILT UP. This last point is key to understanding the roots of the crisis.''
In what way can you say that these folk are not mor*ns when they behave surprisingly like mor*ns. You only had to apply the criteria which banks apply to their own customers to see there was a problem with the banks. Banks were wholely dependent on the inflow of external money, non UK money. You only had to measure the nett inflow to know this. If a GP cannot afford to buy anything to live in in the Home Counties then any mor*n can understand something is wrong, or are they all blinded by the bonus culture. Either that or the there is a systematic problem where individual reporting with negative content is discarded.
''The banks are indeed hugely culpable for their failed risk management, but it is the job of the REGULATORS to monitor systemic risk build-up, not just that of the banks.''
It is the job of a business to ensure it survives, to use commonsense, to be responsible, in fact the term due diligence applies to directors by law. When somebody drives dangerously is it the fault of the police. Brown is responsible for the FSA failures but the banks have abdicated responsiblity. QED.
''If you pay peanuts, you get monkeys'' ''All the talent would have left etc''.
No, possibly all of those with ******** motivation would have left. Is what has happened your definition of talent?
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180. At 7:33pm on 12 Apr 2009, sagamix wrote:
horror @ 174
indeed not - at first sight, if I put a trade on which has a 50 pc chance of making 4 million and a 50 pc chance of losing 8 million, then the Expected Value of the transaction is negative 2 million, and I'm a tool for doing it aren't I?
=========================
You get fired and your reputation is destroyed if you perform such an idiotic trade.
There is certainly an issue surrounding asymmetric payoff, but this is hardly new, and this is why risk managers exist. Shame they were trampled all over I suppose.
What is your suggestion for how employee interests should be aligned with the banks'?
=========================
178. At 7:09pm on 12 Apr 2009, armagediontimes wrote:
**#174 horreur. Most of the points you make are bogus - and sadly I suspect you know them to be bogus.**
Regarding the downstream point on mortgage brokers, IBs didn't create these products for fun, they created them because there was demand from hedge funds, pension funds, private equity etc. The fact that so much cr*p ended up on their balance sheets is a different matter in my opinion.
**Now that the sky is falling in I note how you are keen to widen the scope of blame and obfuscate the main issues.**
I'm sorry if you feel I'm attempting to obfuscate the issues but that is not my intention. My opinion is that the whole 'banker-bashing' has become totally out of hand and serves to hinder the understanding of why the crisis occurred.
It is true that many bankers are simply out to make a short-term buck for themselves. It is true that the bonus structure can encourage risk-taking. It is true that banks (along with most companies...) do not have a particularly well developed sense of social responsibility etc etc.
BUT NONE OF THESE ISSUES ARE NEW!
Bankers are an easy target: they were one of the principal architects in the crash and have always had the reputation for being overpaid, arrogant etc etc. Nothing like kicking someone while they're down, and politicians are happy to jump on the bandwagon and encourage outrage over (for example) Goodwin/AIG bonuses as a smoke-screen for 1. the unprecedented actions they must now take to kick-start the economy, and 2. their own role in the crisis. Funny how the news of Goodwin's pension leaked the same day the £125 bn (?) bailout of RBS was announced, hmm?
Why is anyone surprised that the banks did nothing to encourage regulation? Every industry campaigns for as little regulation as it can get away with! It is NOT the job of the banks to be a systemic risk monitor (other than to protect their own interests). This is the job of governments via their regulators. They failed to see it coming, and I believe this is an equally as egregious failure-of-care as that of the banks.
**However the fact that (as you say) people did not realise the degree of long term risk that they held merely serves to undermine your attempted defence of the intellectual capabilities of those running major financial institutions.**
I was defending the intellectual capabilities of the rank-and-file, not the executives.
Again, to emphasise, I am NOT absolving the banks of blame here, I am saying that the portrayal in the media of bankers/'rocket-scientists'/short-sellers/credit default swaps as the sole reason for the meltdown is a severe mis-interpretation and over-simplification of the systemic nature of the crash.
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183 horreur
''I was defending the intellectual capabilities of the rank-and-file, not the executives.''
The rank and file are, I would suggest not allowed to use their intellectual faculties, so saying they are not mor*ns is meaningless if the system they work under reduces them to de facto mor*ns and they willingly comply with it.
You say basically that you think the whole banker bashing gag has gone on long enough. Can I direct you to the last IFS report, which you can locate by searching for IFS. That shows a projected recovery of public accounts taking till 2031 and that is with public service cuts and tax hikes and assumes nothing deteriates further. It is the banks that have destroyed trust in them and damaged consumer confidence, not comment about banks. In what way does talking about reality damage reality. There would seem to be a reasonable case to compare the length of the duration you feel comment is fit and the period that resolving the public accounts is expected to need. Or are we all to just to gloss over a bill that will last a generation and get back to 'normality', business as usual.
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#181 Superiordeny - No doubt about it Strummer knew which way was up.
#182 Glanafon. You write: "Further people tend to trust big business and government opinion." I do so hope that this is not true.
#183 horreur. You write "Nothing like kicking someone while they're down." There is an old saying - "he who lives by the sword, so shall he die by the sword."
"Banker Bashing" as you term it is about the only outlet that the average guy has. In any sane society these guys would be on trial for fraud or criminal conspiracy. But that is not going to happen because ruling elites have closed ranks in a futile attempt to save the "system." People like Goodwin are irrelevant - just a name to be dropped for a short term Orwerllian style 2 minutes of hate.
Of course focussing on an individuals pension serves to hinder an understanding as to why the crisis occurred - that´s the whole idea. No-one in the UK is going to stand up and say that they were so impressed with the demise of Enron that they thought they would try and run an entire economy on the same basic principles. If they did then people might move from questioning their competence to questioning their sanity.
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armagediontimes, actually the originators of the 125% loans were commercial banks not investment banks. The idea is that essentially you could provide a no money down and as the value of the property goes up you get your collateral. Absolutely nothing whatsoever to do with bonuses.
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#182, no you are wrong. People are greedy. They saw other people making lots of money and thought "I want the same". Now after the collapse, they are looking for someone to blame and bankers are the perfect target.
The banks were perfectly rational. People were demanding that more lending be made - note they are STILL demanding this - and the "affordability" of property is no measure of the sanity or otherwise of the property market. What is so special about GPs and the home counties that should have rung alarm bells.
Brown was responsible for cutting away all other forms of investment leaving property and property backed derivatives as a sole investment. He also almost single handed destroyed retail deposits. Add those two together, mix in overly formulaic regulation and you have this crash.
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Thanks Bob,
I am now resolved to sell all my Barclay shares. I'm convinced that the desperation of Barclays management to pay over the odds has more to do with lining their own pockets than with looking after the shareholders who are supposed to own the damned company.
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When People get caught doing something they shouldn't and they can't lie or argue themselves out of the situation the the modern thing to do is hide behind/blame some technicality in the law.
Apologies are rare these days and are usually followed with the words 'but' and some kind of sermon blaming everyone but themselves,
Arrogance bad manners, Whatever you call it it doesn't help the healing process or allow people to move on.
We see so much of this all over society and politicians are definitly some of the worst culprits.
I agree with most of the above comments regarding short termism and greed.
We will all learn from our mistakes and the law will be changed and improved to prevent white collar crime on this magnitude ever happening again.(until next time?)
Everywhere else in society we have laws to protect us from baser human instincts.
I saw somebody post a comment to the effect that we all have to accept those responsible are going through the five stages of denial.(don't ask me what stage they're in now)
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#186 laughingblacksheep. Yeah OK - so where did the commercial (sic)banks get their money from then? It certainly didn´t come from depositors. It wasn´t just residential housing - substantially every class of asset could be acquired on these bananas terms, and the IB´s stepped out of the shadows for some of the bigger "sexier" deals.
It had everything to do with bonuses - or inflated salaries, justified on the basis of obtaining annualised growth of x zillion percent. I´ve been away from the world for a few weeks but I thought I read somewhere that some Scottish building society failed and there was a link to some toxic stuff that they acquired from LEH (could be wrong, don´t have the full facts on that one).
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184. At 8:39pm on 12 Apr 2009, glanafon wrote:
The rank and file are, I would suggest not allowed to use their intellectual faculties, so saying they are not mor*ns is meaningless if the system they work under reduces them to de facto mor*ns and they willingly comply with it.
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1. Having worked in a bank, I can assure you that you suggest incorrectly...
2. So why were the "rocket-scientists" hired in the first place, if not so they could utilise their scientific skills?
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**In what way does talking about reality damage reality?**
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I have emphasised a number of times that I DO NOT think the banks have no culpability, but that I DO think that other, equally important, aspects of the crisis have not been given the attention they deserve.
=========================
**"Banker Bashing" as you term it is about the only outlet that the average guy has. In any sane society these guys would be on trial for fraud or criminal conspiracy. But that is not going to happen because ruling elites have closed ranks in a futile attempt to save the "system." People like Goodwin are irrelevant - just a name to be dropped for a short term Orwerllian style 2 minutes of hate. **
=========================
It is not the only outlet given the alternative option for intelligent debate...I appreciate that I probably come across as a banker apologist given the prevailing view on this issue, but to re-emphasise, I believe a correct analysis is being hindered by the outpouring of vitriol towards the workers in the financial sector.
If you prefer issues to be dumbed-down so as to let Joe the Plumber have his "outlet" then I guess we will have to agree to disagree. :-D
As for criminal culpability, I'm not sure that is a good idea. While bad decisions were made by individuals, it was the SYSTEM which allowed these decisions to have such a massive effect on the economy. And I do not believe it is SOLELY the fault of the "bankers" which allowed this build-up of systemic risk.
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#184, that is because we had a spendthrift chancellor who is now trying to spend every penny he can to buy votes. Never mind that sooner or later he is going to be left with an even bigger crash. All he cares about is kicking the can down the road until after 2010. Again the Fiscal state of the UK has absolutely, completely and utterly nothing to do with the banks.
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#185, exactly what "fraud" have the bankers as a whole committed?
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#187 laughingblacksheep. If, as you say, the banks were "perfectly rational" then how come so many are bankrupt? Devising and executing, or participating, in a strategy that leads to your own annihilation is not rational.
Today the banks that remain are about as rational as a drowning man desperately clinging to the nearest floating object - in this case sovereign states. Let´s just hope that their bloated bodies are not sufficiently heavy to drag down the sovereign states.
Who are the people demanding that more lending be made? I am not demanding that there be more lending? Are you? If so why?
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187. laughingblacksheep
''#182, no you are wrong. People are greedy. They saw other people making lots of money and thought "I want the same". Now after the collapse, they are looking for someone to blame and bankers are the perfect target.''
It is inevitable that a number of people behaved the way you note. What has that got to do with a bank giving somebody knowing the outcome has a high chance of being disasterous. Hardly due dilligence is it.
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#193 laughingblacksheep. Tough question (although carefully caveated to make sure you can disagree with any answer).
Let´s take a quick look at Mr. Madoff as that seems to be a fairly non controversial case (he actually pled guilty). So where did he get his money from? Banco Santander, HSBC et al. What were they doing giving money to this guy to look after. Due Diligence? - that´s for wimps surely.
Was it really only last April that RBS came out with a GBP 12 billion rights issue? Didn´t they issue some kind of prospectus at the time? Did it say that would burn through this 12 billion faster than a furnace. I´ve no idea if this was a crime, but I´ve every idea that there is a prima facia case that should be investigated.
What were Lloyds doing taking over the stinking toxic corpse of HBOS? What kind of due diligence did they perform on this acquisition? Were they subject to any kind of untoward pressure from the government? I don´t know what the answers are, and I don´t know because the entire system has closed over to make sure no-one will ever know.
What kind of stuff were AIG up to? and why do some of their former executives have criminal convictions?
How many banks have made settlements with the Enron administrators? Why make these settlements if they did nothing wrong?
What about Allan Stanford? How come the US government decided to change the law in a matter moments so that they could pump money into Goldman and MS?
Gordon Brown clearly thinks there is something deeply dodgy about the entire Icelandic banking system - otherwise he wouldn´t have threatened them with UK anti terror legislation.
Just because you take someone to court does not necessarily mean that they are guilty - but it does mean that you get an opportunity to examine facts, review evidence and reach an informed conclusion. Something that the banking community and its apologists seem determined to avoid at all costs. Now why might that be?
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#191 horreur. I and millions of others have been forcibly dragooned into shoring up the banking sector. If people don´t want to hear the sounds from the street then just stop taking our money.
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MrSupergeek (#189) "When People get caught doing something they shouldn't and they can't lie or argue themselves out of the situation the the modern thing to do is hide behind/blame some technicality in the law.
Apologies are rare these days and are usually followed with the words 'but' and some kind of sermon blaming everyone but themselves,"
If there's one thing we know it's that errant people's behaviour rarely if ever changes the way people are led to hope, especially where it is venal/criminal behaviour. All one can do is contain it. Apologies just do not matter. In the current fiascos they are distrations. Once errant behaviours of this sort are identified, the sources have to removed from the system to prevent future repetition.
"Arrogance bad manners, Whatever you call it it doesn't help the healing process or allow people to move on.
There is no 'healing process'. See NPD/ASPD. All such talk will just serve to reinforce the behaviour. We know this.
We have a systemic problem. It is endemic. Few appreciate the extent of this.
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191 horreur
''184 glanafon wrote:
The rank and file are, I would suggest not allowed to use their intellectual faculties, so saying they are not mor*ns is meaningless if the system they work under reduces them to de facto mor*ns and they willingly comply with it.
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1. Having worked in a bank, I can assure you that you suggest incorrectly...''
Hmm we have dealt with banks on a domestic and business basis. If the staff cannot input what the computer says is the criteria then the matter does not move forward. The decisions are made by the computer. Regional level management have effectively no decision making capability from what I can see. As 'decisions' are made by the computer which by definition is not intelligent the term mor*n appears appropriate. In the event of the computer saying no and the regional manager having to agree with the computer but commenting it is a nonsense then the next stop is a solicitor as the legal department will not talk sensibly without a solicitor. The current bank desire is apparently that you also do the clerical work for them online or on a automated terminal, there is some bizarre logic in this as if the bank staff cannot do anything themselves then you may as well deal direct with the computer. So inevitably by complying with the directive to be a mor*n these staff are making themselves redundant, wouldnt you say.
''2. So why were the "rocket-scientists" hired in the first place, if not so they could utilise their scientific skills?
=========================''
Search me. Imaginary skills from what I can see. Forgive me but the blame for the whole of this is laid at the door of subprime mortgages. You don't need a rocket scientist, not unless you are looking for a flight of fancy.
''**In what way does talking about reality damage reality?**
=========================''
I have emphasised a number of times that I DO NOT think the banks have no culpability, but that I DO think that other, equally important, aspects of the crisis have not been given the attention they deserve.
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Well I have commented on the BoE committee being wrong 8 out of 9, repeatedly, Prof D Blanchflower being right repeatedly and sidelined. I have commented about El Gordo and his perpetual economic bubble machine. I have commented about the SFA, sorry FSA. I have commented about the device of planning control to effectively restrict housing supply. So have many others. However this is the Banking blog masquerading as the Business blog so banking comes up again and again.
''**"Banker Bashing" as you term it is about the only outlet that the average guy has. In any sane society these guys would be on trial for fraud or criminal conspiracy. But that is not going to happen because ruling elites have closed ranks in a futile attempt to save the "system." People like Goodwin are irrelevant - just a name to be dropped for a short term Orwerllian style 2 minutes of hate. **
=========================
It is not the only outlet given the alternative option for intelligent debate...I appreciate that I probably come across as a banker apologist given the prevailing view on this issue, but to re-emphasise, I believe a correct analysis is being hindered by the outpouring of vitriol towards the workers in the financial sector.
If you prefer issues to be dumbed-down so as to let Joe the Plumber have his "outlet" then I guess we will have to agree to disagree. :-D''
I don't think I posted this.
''As for criminal culpability, I'm not sure that is a good idea. While bad decisions were made by individuals, it was the SYSTEM which allowed these decisions to have such a massive effect on the economy. And I do not believe it is SOLELY the fault of the "bankers" which allowed this build-up of systemic risk.''
I dont think I posted anything about this, however talking about the 'system' is a soft get out isnt it. Any system can be abused, particularly when the villians are vastly better funded and outnumber the police. Due dilligence comes to mind. I believe investigations are underway.
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192. laughingblacksheep
''184 that is because we had a spendthrift chancellor who is now trying to spend every penny he can to buy votes. Never mind that sooner or later he is going to be left with an even bigger crash. All he cares about is kicking the can down the road until after 2010. Again the Fiscal state of the UK has absolutely, completely and utterly nothing to do with the banks.''
The whole of the debt is not due to the banks. However this debt problem clearly relates to the massive multi billion prop provided to the banks. Further the banks acted in unison with browns perpetual economic bubble machine and acted, shall we say, unwisely. The banks saw the pumping of funds into the UK from overseas as to their benefit. This is the result. They therefore are part of the pantomime. Otherwise why is the behaviour of the banks changing voluntarily or involuntarily. If you are not part of the solution you are part of the problem, my conclusion is that the banks are part of this debt problem, they certainly have not been a solution. In what way is demanding multi billions to avoid collapse a solution. It is the never ending denial by the banks of being a major player in this old school 'carry on banking' farce that is odd. There is a sort of conditional acknowledgement followed by caveats that it somehow is really related to somebody else elsewhere. The pyschologists have studied this condition I think you will find. I listened to Varley making what was reported as an apology. If you listened to it carefully he never said sorry, just suggested that somebody elsewhere should.
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199. At 11:25pm on 12 Apr 2009, glanafon wrote:
Search me. Imaginary skills from what I can see. Forgive me but the blame for the whole of this is laid at the door of subprime mortgages. You don't need a rocket scientist, not unless you are looking for a flight of fancy.
==============================
I find it incredible that anyone can lay the whole of the blame for the crisis at the door of subprime mortgages.
There is nothing inherently wrong with the concept of a subprime mortgage. Sure, more may default, but you compensate this by taking more interest. Of course, once liar-loans, over-securitisation, mis-ratings by Moodys et al come into the mix then you have a perfect storm and the whole shebang collapsed.
Read 'Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud, and Ignorance' by Richard Bitner. (http://www.amazon.co.uk/Confessions-Subprime-Lender-Insiders-Ignorance/dp/0470402199)
==============================
I dont think I posted anything about this, however talking about the 'system' is a soft get out isnt it. Any system can be abused, particularly when the villians are vastly better funded and outnumber the police. Due dilligence comes to mind. I believe investigations are underway.
==============================
You did, you said that these people would be prosecuted in any sane society.
Of course, I am speaking in generalities when I talk about the system, but I believe this is necessary when one has limited space.
I suppose my position can be best summarised by paraphrasing Ice-T: "Don't JUST hate tha player, hate tha player AND tha game."
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197. At 11:15pm on 12 Apr 2009, armagediontimes wrote:
#191 horreur. I and millions of others have been forcibly dragooned into shoring up the banking sector. If people don?t want to hear the sounds from the street then just stop taking our money.
============================
I feel like I am banging my head against a brick wall here.
I DO NOT think the banks can be absolved of blame (and indeed they hold the lion's share).
I DO think that crisis should be addressed by more than just jumping on the banker-bashing-bandwagon.
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listen, all you City Apologists ... the banks as a whole didn't act rationally but the individuals within them did, that's the paradox - if I'm being remunerated based on short term profit (regardless of true risk) and I suffer no immediate financial penalty for loss, then I'm being completely rational in putting on trades which, big picture, may make little sense - mega reward for apparent success versus no penalty for real failure
loss of reputation? getting fired? don't make me laugh - during the boom years, anybody with a clean shirt got hired in the City - lose your job? fine, get another one the next day - a whole industry run purely for the benefit of the participants - a kind of ultra capitalist workers' collective - nice work if you can get it - personal enrichment has been the driver, you see, not the long term interests of the banks themselves - this behaviour, this RATIONAL behaviour, of tens of thousands of like minded individuals, all scrambling to Get Rich Quick has now blown us up - the Regulators didn't stand a cat's chance
so that's what happened, okay, and the reason it happened is the venal GRQ culture in the City, and on Wall St, as enacted via the bonus system - it's not an over simplification, it's the truth - sorry
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British taxpayers really are a bunch of losers. Barclays boss, Bob Diamond will get 4.7 MILLION pounds for this deal. In a few months the taxpayer could be bailing out this bank because the government allowed bank bosses to make deals just like this. Of course, Bob Diamond knows the government won't allow Barclays to go under, so he has this country over a barrel.
It just goes to show that we have learned nothing from recent events and Gordon Brown is happily going to stand by and watch the bosses screw over their own bank for their own selfish greed.
In the past, maybe they could have been forgiven, because no one really knew what became of greedy actions like this. But now there really should be no excuses since everyone knows what happens when a few individuals are allowed to screw over a bank.
Yet another nail in the coffin for the free market economy, I think.
And lets be honest, its not just bank bosses that behave like this. I wonder how many large PLC’s are currently being screwed over by directors that are just in it to make a quick buck?
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Jadedjean #198
Thanks for addressing my comments.
I agree with you about the depth of this problem, If legally people can be pursued and removed it would be the start of something very beneficial for society.
Maybe I'm being naive to think some of the people who are ready to admit that they and large parts of the system they operated in used flawed and corrupt thinking,
So that they could be put to use sorting out this mess(sometimes it takes a thief to catch a thief).
Other than some supercomputers, We might need people with inside knowledge to claw back some of the money stolen and close the loopholes so it doesn't happen again.
I'm clinging to the hope if you rob and piss off too many people, The powers that be will have to concede some ground just to avoid political change, civil unrest and or public anger(again maybe I'm being naive).
Something else I want to get off my chest.
There are a couple pathetic cliches I'm sick of hearing from city folk, bankers and people who defend them.
1.That the talented people will go elsewhere unless they get paid obscene amounts of money.
2.Working 14 hours a day for a couple of years justifies being paid more than most people ever see in a lifetime.
3.Everybody benefited the money that was made in the city.
4.Everybody would have done the same if they were in that situation.
5.Nobody could have predicted this situation.
etc,etc.
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MrSupergeek, #205 - here are some answers to your "cliches"
1) The talented people mostly have left already. You'll see the effect in the performance of your now state owned banks.
2) You can work any hours you like but most people in banking don't get paid anything like the headlines you hear. To earn that much you need to have made alot of money for your company. When you earn hundreds of millions or billions for your company I am pretty sure you'll be earning similar amounts too.
3) Well this one is pretty much indisputable. Strip out Finance sector contributions and housing and the UK pretty much becomes a third world country. Certainly you wouldn't have had in the excess of 6 trillion GBP spent on the public sector in the last 10 years - oh and that's REAL money not worthless "guarantees".
4) Not everyone did "act" the same way. cough HSBC, cough Standard Chartered etc etc. The point was in a bubble it is hard to sit it out. The head of Morgan Stanley lost his job because he tried.
5) Lots of people predicted it and our glorious leader ridiculed them.
But hey again who cares about facts right?
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sagamix, #203. You suffer an immediate financial loss which is your salary and you are never renumerated on a straight revenue basis, there is always some risk or capital deployed adjustment. If you ever find a definition of "true risk", I'd write it up - there is a dead cert nobel prize waiting for you.
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#200, the behaviour of the banks is to retrench and rebuild their tattered balance sheets - aka credit crunch. The behaviour of the government is to try and force the banks to lend at bubble rates in the middle of a crash. You think that even short-term that is a good or bad idea? If lending when prices are going up was "stupid" and "obvious", does lending when prices are crashing make sense?
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brownwatch 413 days........make it 28 days brown .you are a disgrace the worst pm we have had for 290 years and thats saying something.
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I can see that you are trying to scare us all half to death Mr Peston but you seem to have twisted the tail a bit too much. Barclays is a bank ... banks lend money ... someone borrows the money ... the borrower pays back the money. Is there a problem here?
The accounting aspects of what you are saying has also been presented in a very selective way. Not good. You need to explain exactly what your personal fears are. After all, the market, you say, liked what they saw and Barclays' share rose 12% on the deal.
Maybe this is a potboiler and you had a deadline to meet but couldn't find anything else to say in time.
Some here are calling for more stories about things other than banking but a better version of this story would help.
Duncan
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Posts 206 and 205 1) The talented people mostly have left already. You'll see the effect in the performance of your now state owned banks.
I am always intrigued by this and genuinely want to know where all of these talented people are going to go. Secondly, why would it be so bad if they did leave and what do you mean by talented?
There have been a few stories from the UK and the USA, among others, since the middle of 2008 or so in which banks/building societies that work in the way they used to work announce good rates of profitability, low or even no bad debts and even no doubtful debts ... I wonder if the bankers here are talented. I wonder if those bankers are paid obscene amounts of money.
The old fashioned way is: mortgagees pay a significant deposit, the bank sees genuine documentation that the mortgagee has a job, earns what he says he earns and can therefore pay the mortgage installments, the bankers actually meet their clients and any of the few problems there are are dealt with immediately so that help can be given and action taken.
If by talented you mean a pre credit crunch return to status quo ante then I hope all of these "talented" bankers do go somewhere else and learn to spend their ill gotten gains there.
If this means we won't be so "rich" that can only be a good thing because we have seen the mercurial nature of this post Thatcherite banking "success" and "talent".
Duncan
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sheep @ 206
To earn that much you need to have made a lot of money for your company
mmm, let's see ...
I buy a stack of bonds for 85m in 2007
at year end they're valued at 105m and I record a profit of 20m
I trouser a boni for 2007 of 5 pc of that - a cool million
my boni is REALISED (it's in my bank accoubt) but the 20m profit for the bank is UNREALISED (haven't sold the bonds yet)
in 2008, the bonds turn out to be a load of cabbage stumps - they're not worth 105m, they're not even worth the original 85m - oh dear, they're worth precisely nothing
2008 loss therefore of 105m, wiping out prior year profit of 20m - net loss over the period of 85m
loss to the bank, that is, because I'm okay - I'm more than okay, I've walked off with a million quid
million pound boni to me, multi million pound loss to my employer
interests not aligned, you see
legal larceny
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You guys are right that no-one cares about the 'talent' in CDO groups etc anymore.
But what about someone in (eg) M&A? These guys do not take risk onto the firm's books (usually) and in fact it is a COMPLETELY different business to structured derivatives.
But they are all being lumped in together with the 'rocket-scientists'.
Do you think if someone makes their employer $200mm in a year they deserve to get paid a bonus? Note there is no risk-reward payoff in the sense a trader might have here.
Interested to hear your thoughts.
Btw 'old-fashioned' banking was never as profitable as more complex stuff. As things go out of date in finance, margins retract, reducing profit, and people have to look for new ways to make money.
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bawlee @ 204
In a few months the taxpayer could be bailing out this bank
yes and what's quite amusing is that Barclays only have Sir Fred Goodwin to thank for not being state owned now - they tried their level best to buy ABN Amro at the height of the bubble but RBS tried that little bit harder - if Barclays had won, they'd be BUST
pure dumb luck, in other words, so less of the plaudits for "staying out of Brown's clutches" from all you City Apologists if you don't mind
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horreur @ 213
okay, M and A then ...
hook up with a Private Equity firm and target a so called under performing business (as measured by the share price) - borrow a ton of cheap money and buy the target - put virtually none of your own money down - oh and don't forget to secure the borrowing on the assets of the company being bought
got that?
right, now break up the target - sell bits and pieces off to the highest bidder - sack a load of people at what's left and cut costs to the bone - now sell that and get out of there - move on to the next table
PE firm makes a killing on the buys and sells - M and A department at Bank does very well thank you from the fees
mega boni all round!
merited? some people may think so - think we can guess who those some people are, can't we?
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Ok Sagamix, by now we got your point. You probably work(ed) for RBS or HBOS, have a poor understanding of risk management, did not get any bonus this year and are very bitter about people/instutions doing better than you. Fine. Now get a life and move on!
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201 horreur
''I find it incredible that anyone can lay the whole of the blame for the crisis at the door of subprime mortgages.
There is nothing inherently wrong with the concept of a subprime mortgage.''
Funny that is not what bank CEOs are now saying is it. And unsurprisingly sub prime is not being offered any more. Now why could that be. Whether subprime is a label or not is irreleveant it is representative of the problem, the expansion of debt to levels that induce economic instablity. Debt provided by banks not out of thin air.
''you said that these people would be prosecuted in any sane society.''
I didnt but you tend to cut and paste a number of posts together and refer then to one person. Bad practice. The nearest I have come to this sort of comment is to refer to the fact that it is reported that investugations are under way. This is because unlike most people we have high court experience so I am aware of how much effort is required and how long the timescale is, and what the cost can be, even when it is blindingly obvious what the outcome will be.
208 laughingblacksheep
''the behaviour of the banks is to retrench and rebuild their tattered balance sheets - aka credit crunch. The behaviour of the government is to try and force the banks to lend at bubble rates in the middle of a crash. You think that even short-term that is a good or bad idea? If lending when prices are going up was "stupid" and "obvious", does lending when prices are crashing make sense?''
As I have pointed out before if you have a economy which is fueled by a debtstream, if you turn off the debtstream then like a hot air balloon it collapses, it is no longer carried along. The only thing is to keep some debt flow in place by one means or another. There is no alternative to using the banks as the conduit other than replacing them. It has obviously been decided that it is easier and quicker to bodge than rebuild. Considerable money is being made available or underwritten via Finance UK to allow the banks to keep some lending in place. It would appear part of the deal of saving the banks from insolvency. I fail to see why any bank which is at the point of insovency should complain at this request. They can always return the taxpayer money and go bust. Quite frankly if a banks cannot following being propped then undertake the basics of transaction processing or providing debt, their only product, I see them as failing to function. I am repeatedly surprised by people who claim to work in the banking sector who do not seem to have developed any overview, perhaps it is a sector problem. It is discontiuities that are damaging to businesses and economies and individual finances. Discontinuities force the resolution of long term in a short timescale which usually leads to foreclosure, long term debt is usually can not be cleared in a short period by definition. That in fact was the situation the banks put themselves in and why their balance sheet is in 'tatters', quite bizarre and quite shakespearian, a belief the rules that apply to others, and that they enjoy applying to others, do not apply to them, I think the pyschologists have a view on this behaviour. You couldnt make this sort of thing up. I would sound too stupid.
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duncan @ 210
The accounting aspects of what you are saying has also been presented in a very selective way. Not good. You need to explain exactly what your personal fears are
hi Duncan, let me have a go ...
the main problem with the accounting for a vendor financed transaction is that it takes the risk of the asset being sold off the Balance Sheet when the risk is maybe still there
how so?
because of Cross Correlation
can you illustrate please, Sagamix?
yes, okay
I hold some Russian equities valued at 100 - I sell those to you (for 100) and I lend you the money (the 100) to buy them off me - you are a Russian bank and you're rated quite a bit higher than the equities - I accept the self same equities I'm selling to you as my collateral for the loan
instead of the equities, I'm now carrying a loan to you as the asset on my balance sheet - that looks a lot better because the shares were deemed to be high risk - I gain benefits regarding capital and market perception - the risk of the equities has disappeared from my Balance Sheet because I've sold them to you
but has the risk really gone?
well let's say there's a problem in Russia (got to be a chance of that, right?) and that problem affects both the equities and you - because you're a Russian bank, remember?
so, bad news for you and for me too - you default on the loan and flip me back the collateral - those equities have come back to me like the proverbial bad penny! - and they're more or less worthless now of course, nobody's touching Russian equities
valued at, say, 10 and I've lost 90 pc of the proceeds from the previous sale - the risk hadn't gone away after all, had it?
oh and what about the Big Boni I trousered for putting together the original vendor financed deal? - do I pay that back?
nah
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surfer @ 216
Ok Sagamix, by now we got your point. You probably work(ed) for RBS or HBOS, have a poor understanding of risk management, did not get any boni this year and are very bitter about people/instutions doing better than you. Fine. Now get a life and move on
ah I thank you! ... the classic retort of someone who can't win the argument
time indeed to move on ... looks like my work here is done, doesn't it?
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213 horreur
''Btw 'old-fashioned' banking was never as profitable as more complex stuff. As things go out of date in finance, margins retract, reducing profit, and people have to look for new ways to make money.''
This is inevitable. But why use the stability and income of the boring stuff as a basis for high risk activity. It is the classic gambling situation, using the domestic money to fund the gambling, rather than seperating out the gambling and letting if succeed or fail on its own. Furthermore the banking sector should actually be grateful that the taxpayer had to save the boring bit, because the taxpayer was not interested in saving the risk area but had no choice due to the deliberate intermingling.
206 laughingblacksheep
''Well this one is pretty much indisputable. Strip out Finance sector contributions and housing and the UK pretty much becomes a third world country. Certainly you wouldn't have had in the excess of 6 trillion GBP spent on the public sector in the last 10 years - oh and that's REAL money not worthless "guarantees".''
And at what cost has this revenue been generated. And if the situation is the UK is third world, which is hardly a sensible statement, then how does trying to hide the fact under a short term bubble help. This argument does not stand up. Oh by the way the Brown Bubble and the trouble it has caused has occurred over approx 5 years, nothing to do with 10 years of tax revenues collected from across the board. PS Is the word sustainable in your dictionary.
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#213 horreur. I do not understand on what basis you can conclude "'old-fashioned' banking was never as profitable as more complex stuff."
Why should any business be able to generate super normal profits over the long term? "Old fashioned" banking provided for normal profits given the risk profile and relative simplicity of the core business.
How can you possibly conclude that the more complex stuff was (more) profitable? So far the US alone has had to inject upward of $13 trillion into the financial system. This will not be sufficient and more commitments will follow. Additional commitments (whatever they are) will also not be sufficient. Attempts to shore up this broken system will only end when it becomes apparent that effective rescue is impossible.
Far from being more profitable the "more complex" stuff has generated losses so huge that not even the sovereign guarantees of the US will be sufficient to cover those losses.
To repeat a previous comment - the situation is not so hard to understand when you look for the answer as opposed to an answer that you happen to like.
Meltdown is coming and the pace is quickening. Sure, everybody can make mistakes, and probably no-one caused this situation by deliberate intent. However the loonies in the financial system who were determined to monetise every single hard asset and to replace them with virtual assets and real debts have a big responsibility. Plenty of people warned them that their big experiment was doomed to disaster of epic proportions - but no-one wanted to listen. Even now with the evidence piling up all around there are still people who refuse to acknowledge the root causes of this developing nightmare.
Someone asks "where has the talent all gone?" Well those guys are lying on a beach somewhere, watching some guy polish up their Mercedes Benz. And why are they where they are? Because they knew all along that the business model was a short term deal and that in the end the system would break beyond repair. If they didn´t think that then they´d still be at their desks hoovering up even more cash on the basis that you can always make money in volatile markets. But they know that there is no more market volatility - just a downward spiral, all the way down to the ground.
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217. At 11:55am on 13 Apr 2009, glanafon wrote:
I didnt but you tend to cut and paste a number of posts together and refer then to one person. Bad practice
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Congratulations, you're an interweb hero. Apologies if I confused you with someone else.
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**Funny that is not what bank CEOs are now saying is it. And unsurprisingly sub prime is not being offered any more. Now why could that be. Whether subprime is a label or not is irreleveant it is representative of the problem, the expansion of debt to levels that induce economic instablity. Debt provided by banks not out of thin air.
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There are shades of grey here, and you actually allude to this by saying that the label is irrelevant. And of course these products aren't being offered at the moment - risk tolerance is low.
Oh, and remind me who it was who encouraged the development of the subprime mortgage market to allow more people to achieve the American Dream of home-ownership?
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**This is inevitable. But why use the stability and income of the boring stuff as a basis for high risk activity. It is the classic gambling situation, using the domestic money to fund the gambling, rather than seperating out the gambling and letting if succeed or fail on its own. Furthermore the banking sector should actually be grateful that the taxpayer had to save the boring bit, because the taxpayer was not interested in saving the risk area but had no choice due to the deliberate intermingling.
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I have no objections to separating commercial and investment banking. But again, remind who it was who allowed the two to re-combine?
Again, I emphasise, it is overly-simplistic to blame the entire crisis on bonus-driven 'bankers'.
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222 horreur
''Again, I emphasise, it is overly-simplistic to blame the entire crisis on bonus-driven 'bankers''
I don't think I have ever said this is the case, repeatedly I have said otherwise. It is you that keeps associating with this mantle.
BTW the fact I comment that I do not say something that you say I said and that for you to do so repeatedly is bad practice does not make me a interweb hero. It just means I object to you saying I said something that I didnt, and you keep doing it. I try to be careful what I say. Why do you relapse into emotive terms when your position fails.
Anyway I'm off, it is sunny.
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glan @ 217
They can always return the taxpayer money and go bust
yep - except we can't allow that (apparently) so if (post bailout) they can't (or won't) do their (very easy) job, let's stop messing around and nationalise
ooo quite a few brackets in that, wasn't there?
arm @ 221
They knew all along that the business model was a short term deal
double yep, and so two key questions ...
- why did they do it?
- how did they manage to get rich out of causing a catastrophe
same answer to both, my friends - those big bad boni
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223. At 1:19pm on 13 Apr 2009, glanafon wrote:
222 horreur
''Again, I emphasise, it is overly-simplistic to blame the entire crisis on bonus-driven 'bankers''
I don't think I have ever said this is the case, repeatedly I have said otherwise. It is you that keeps associating with this mantle.
BTW the fact I comment that I do not say something that you say I said and that for you to do so repeatedly is bad practice does not make me a interweb hero. It just means I object to you saying I said something that I didnt, and you keep doing it. I try to be careful what I say. Why do you relapse into emotive terms when your position fails.
Anyway I'm off, it is sunny.
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Easy to lose track when you're arguing with four people. Apologies.
And using the term 'bad practice' in relation to the internet does indeed make you a hero.
Have a nice day...
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"THE BIG BONI" I WOULD JUST CALL A SPADE A SPADE : THEFT PLAIN & SIMPLE.
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okay I'm sorry - I'm over contributing, I know that - dark surfer's advice to get a life, whether well meant or not, is good advice!
but just one thing ...
on this thorny matter of What Caused The Crash? - you can over simplify, that's true, and you can also get too complex and hence fail to get to the core of the problem
the best technique is to consider whether the (Bubble and) Crash would have happened without something - if the answer's yes, then that something is NOT a root cause, right?
so in this case ...
- would the Crash have happened if the BoE, rather than the FSA, was the Regulator? ... YES
- would it have happened without Gordon Brown? ... YES
- and would it have happened without sub prime? ... YES
- what about Securitisation? ... YES
- would the Crash have happened without the lax monetary policy coming out of the Fed? ... NO
- and, finally, would it have happened without our old friend the Bonus Culture ... NO NO NO
so simple algebra gives us our answer now, doesn't it? - it tells us what were the Sine Non Qua ingredients for the current pickle
(sorry, Horror, I know you frown on gratuitous use of Latin!)
guess it's obvious, since I'm betting that algebra is meat and drink to you guys, but to summarise anyway ... the two main causes of the Crash were lax US monetary policy and the warped remuneration structures in the banks and other financial institutions
Regulation (except in so far as it relates to the curbing of boni) is a complete red herring and should be dropped from the discussion - the risk now, if anything, is that we'll get too MUCH regulation
and things like sub prime and securitisation are symptoms, not causes - in their absence, other avenues would have been found to chase yield and liberate the nice fat boni - in fact, I'm a big fan of sub prime and securitisation - SP is a way to democratise credit, giving the less well off a sniff at the cherry - it's a GOOD THING and no way do we want to revisit the bad old days of having to put up 40 pc and, even then, virtually beg the Bank Manager for a home loan which (if you are the right sort of person) you might just get - as for securitisation, it's a very clever technique - clever in the right way - it was only the reckless (sometimes fraudulent) excesses in these areas that has caused the strife - excesses driven, as I think we can now see, by cheap money and expensive boni
so, yes, the Fed fell down on the job and the Boni did the rest
the final step is to unify these two factors into one - bit like Physics now this, isn't it? - looks like it IS Rocket Science after all!
we do this by asking a simple question (please see below)
was the Bonus Culture caused by the Fed's lax monetary policy? ... or was it the other way around?
put that another way ... was the Fed overly influenced, in its desire to supply a cheap money environment, by the titans of Wall St in order to protect their boni building capability?
it's a yes, isn't it? ... a great big YES
so there we are - the two factors become one and we (finally!) arrive at the answer - the truth we've been searching for all this time
what REALLY caused the Crash?
the Boni, the full Boni and nothing but the Boni ... so help me God
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227. At 3:00pm on 13 Apr 2009, sagamix wrote:
put that another way ... was the Fed overly influenced, in its desire to supply a cheap money environment, by the titans of Wall St in order to protect their boni building capability?
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I realise you're being slightly facetious, but don't you think the Fed has any culpability for being 'overly influenced' by the industry it is supposed to be in charge of?
The bonus culture has been around for decades btw, not just during the last few years of lax monetary policy. Remind me who is responsible for policing the financial institutions?
(Oh, and I don't mind gratuitous use of Latin, but I do like it to be correct - sine qua non, mate, sine qua non.)
And how does one put bold/italics into a post? Is it html tags?
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226. At 2:33pm on 13 Apr 2009, alexandercurzon wrote:
"THE BIG BONI" I WOULD JUST CALL A SPADE A SPADE : THEFT PLAIN & SIMPLE.
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Comments like this are pretty unhelpful imho and serve to obscure a proper discussion of the causes of the crash.
Please take a leaf out of Sagamix's book and actually explain whatever the hell it is you're trying to say.
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Boni and Clyde were also bank robbers!
Sorry...couldn't resist that one.
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#212, how simple... almost as simple as i suspect you are. Pity this isn't how it works in the real world.
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#227, Crash happened because there was an artificially low interest rate and because there was a property bubble. Both are due to GB. End of story.
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#220, there have been two bubbles under Brown. Have a look at the FTSE.
The point is that he spent like crazy and now there is no money left. Lets do a deal - why don't you return the 3 trillion out of the 6 trillion spent on public sector that the finance sector contributed and then we'll return the few hundred billion LENT to the banking sector. Sound good?
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horreur @ 228
well I prefer Sine Non Qua - sounds better, don't you think?
for italics you go i in sharp brackets either side of the text and put a forward slash before the i in the closing bracket
and for bold you do the same thing but with a b instead of an i
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sheep @ 231
how simple ... almost as simple as I suspect you are. Pity this isn't how it works in the real world
ooo, you sound like a seasoned old fruit !!
and the same really deep thinking blogger cat @ 232
Crash happened because there was an artificially low interest rate and because there was a property bubble. Both are due to GB. End of story
devastating ... simply devastating
really put me in my place
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#232 Lucky you are a sheep and not a shepherd, otherwise with your counting skills you would soon lose your flock.
People like you have spent years bleating about how banking is a global business - and hence the need for global salaries. Suddenly you appear to have developed a much more local perspective.
So far the US has committed in excess of $13 trillion to the financial system. Evidence is emerging that some of that money has been used to shore up such all American companies as UBS and SocGen. So let´s not confuse ourselves by imagining that money respects national boundaries. In simple terms it is not possible to quantify the amount of money that private banking institutions have taken from sovereign states (i.e. the average Joe in the street) - but it is a lot more than politicians, financiers and their spinmeisters would have you believe.
So the British based financial sector contributed GBP 3 trillion to public revenues. Would that be a gross contribution - or a net contribution when PFI profits returned to the financial sector have been deducted? Maybe the people would like to know.
What money has been spent in the public sector? Money on hospitals. If you tried to keep animals in the same condition as some of the hospitals I´ve seen in the UK then you would be prosecuted for cruelty. Money on schools - so that you can educate an entire generation of intellectual idiots. Presumably this is considered helpful in getting the people to swallow the garbage that people like you and your corporate media mates regurgitate. Money on wars in Iraq and Afghanistan. Had these wars gone to plan then I wonder who would have been major beneficiaries - step forward the financial sector who had planned to finance all those new pipelines and other energy infrastructure projects.
So, net it all out and any sane person would take the deal you propose. Maybe that is why the deal isn´t actually on offer.
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I come in for tea and I find people arguing in latin on news blog. You couldnt make it up.
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236 armageddiontimes
It is the leaky nature of a multinational that sucks in electronic money that totally puts me off anything other than the most basic form of support. It has never been clarified as far as I know that the LBros UK cash that was piped out of the UK at the last minute has been returned as requested by the UK administrator. 'Money' can be moved around the world at the speed of light. Quite a trick. Debt too, presumably, can be moved around too. The question has never been answered as far as I am concerned as to why a multinational with the majority of its activity outside the UK and probably the majority of its problems outside the UK, unless they are moved in, should be rescued by the UK. And the basis for verifying anything is auditors paid for by the multinational who do not have seemed to have been doing a good job.
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I'm glad to see the thoroughly balanced reporting on this blog is creating an army of militant followers to buy Peston's next book! Back to coal mining & the textile industry that's what i say...
Without knowing the specifics of the deal, loans etc. none of you can possibly say whether this is a good deal or not - how about somebody has a pop about the journalists profiteering from the exposure created by passing sensationalist comment week in week out?
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BROWN "NO MINISTERS INVOLVED" WHAT ABOUT YOU GORDY??
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WHERE IS NICK ROBINSON THIS WEEKEND?
NO POLITICAL BLOG TO VENT OUR DISGUST AT GORDYS TEAM'S LATEST DISGUSTING
ANTICS.
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mmm, spending half of Easter bickering on the internet with people I don't know from Adam ... is there anything better, I don't think so
anyway, Horrid Sheep, Black Surfer, Dark Glasses, Laugh A Minute, the rest of you City Apologists ... yes, you guys! ... of course He bears the Political Responsibility since it happened on his watch, that's obvious and he'll pay the price at the election
but I'm doing a cause and effect analysis, not making partisan political points, and so we need to look more carefully at what's happened and why it's happened - we need to look at Boni I'm afraid
however, forget about that for a second, I'm as tired of typing it as you are of seeing it - no, let's examine this claim that the slump is Down to Brown
I am happy to accept that it is, that He is the root cause, if you can answer just one question - it's a difficult one but please don't be put off by that
here it is ...
if Gordon Brown is a Material Contributory Factor in the Slump, how come virtually every country in the developed world (plus most of those in the developing world) are also experiencing the Slump? ... how can that possibly be? ... if Brown is the main factor, and only one country (the UK) has had the pleasure of his company for the last decade and more, why isn't the UK the only place in the shooby dooby doo?
it's a toughie, isn't it?
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#227 sagamix
I've said it before ... but I'll say it again.
If you do not have serious regulation, as in world (of banking and finance) changing stuff, as in changes that substantially re-write the customs and practices of the industry, then all that will happpen is that the financial world will limp on until if falls into another such situation, led by the "new generation" of bad bankers. (As I have - perhaps cynically - described it previously "Son of Fred" / Fred II bankers)
Don't be fooled, just removing the bonus culture isn't enough. I know the old behaviourist adage that 'remove the (perceived) reward and the behaviour changes'. But other 'rewards', e.g. promotion, prestige, ego, being in the right clique/circle of influence, and others, could drive us into another similar situation. And I, for one, am confident that the industry will find some other carrot to dangle in front of people for so-called "motivational" reasons.
That is why I continue to advocate for the professionalisation of the banking industry with independent certification of bankers who want to be able to practice and also with independent scrutiny mechanisms.
Hell, why can't bankers be held to professional account in the same way as Social Workers or Nurses are?
Why don't bad bankers (individuals) get 'struck off' some sort of professional register?
(Don't you suspect that some of the current casualties will 'reappear' in bank, insurance, pensions or other boardrooms, after a period of "lying low"? I know I do.)
I would LOVE to believe that the solution was just a matter of removing the big buck rewards, because that would be one whole lot easier for everyone.
But life and human beings are not that simple and straight-forward and its easy to sublimate one reward for another.
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If I got paid millions and got my kicks by pressing buttons on a computer moving around other peoples money, I'd do more than a 14 hour day for sure, I'd never sleep or go home.
Actually these banking /city folk give morons and thieves a bad name.
I think even the mafia have some kind of saying about not drinking someones blood all in one go.
So really vampires have a better long term view than these fools.
The phrases 'shear don't slaughter' or 'Don't eat the seed corn' come to mind.
As I've tried to point out before just because certain things are not against the law doesn't make it alright.
The housing bubble, intrest rates and GB have all played a part no doubt. Trying to say that no one else is responsible is an over simplifcation that insults eveyone.
Any taxes earned from the city are cancelled out by bailouts needed in past, present and future, interest on these debts and future loans and damage done already will blight this country for years to come.
A small minority carved out the real money for themselves in a game of pass the debt parcel and now we are all left with the bill(wheres the risk in that?).
How much fun it must have been to give loans out all day in the knowledge you can sell it on and take a comission.
Insurance companies had a licence to print money selling phoney insurance in the event of the soon to arrive/unavoidable financial armageddon.
Secure in the knowledge they could never pay up on the insurance issued and would be able make governments cover any losses and still make comissions on the bail out money(what a wheeze).
The whie point was short termism it was about very quick turn over and repackaging of credit card debt, dodgy mortgages and insurance, make a comission pass it on and on...It looked like eveybody was doing amazing buisness. as long as there was a fresh supply of suckers.
Now the game has stopped we found out most of the wealth creation was a big illusion. And taxpayers now and in the future will foot the bill
Holographic banks playing with virtual money.
No wonder Gordon Brown and co are scared to change the law too much just in case the ordinary joes realise what a sham our system is and exactly why pensioners, savers and taxpayers are being fleeced.
So the government are just going to carry on encouraging
to borrow money to buy stuff and or a house, enabling the same people to carry on getting paid.
Thanks to all the people who have explained this in much better terms than I could.
I thought should just add my weight, I think it all helps to get the message across.
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242 sagamix
Hubble Bubble n Trouble. You just can't get the cleaners these days. lol
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#235, well we can't all aspire to your razor sharp insight into investment banking. Needless to say your example was simply not how the world of banking works:
1) To make the investment of 85million the trader needs to borrow that money either internally or externally. This is a risk adjusted cost.
2) He will then get renumerated based on a risk weighted return. In your example he will probably not get much credit for the increase as it would have to be a "risky" bond.
3) Finally he would not get 5% of the "profit".
and so on and so on. Guess when moaning about the "bonus culture" it helps to not have a clue about how banking actually works. Then pesky facts can't get in your way.
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#236, armagediontimes methinks kettle and pot. How the hell has the US committed 13 trillion USD? A microsecond's thought would show this cannot even be in the ballpark as US GDP is around that amount.
PFI profits would be at best in the 100s of billions not trillions and i am afraid you are sorely mislead about where money gets spent in the public sector. Less than 1 in 6 public "servants" are doctors, nurses, firemen, teachers, policemen. So around 500billion would be the contribution to them. Lets net that off - still 2.5trillion GBP of worthless public sector spend. Lets assume that every single guarantee the government gives is monetized and every single share it owns becomes worth zero. That is still comfortably 1+ trillion contribution to the economy. I guess you missed out on the fantastic new education that GB splurge apparently paid for.
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MrSupergeek, care to do a quick calculation showing exactly how all the bailouts come to 3 trillion GBP? Throw in interest too. Remember the 3 trillion is a LOW-end estimate.
One of the basic requirements for earning those millions is basic numeracy. If you can't count - and judging by what you and sagamix are claiming neither of you can - then it you'll find the job a little tough....
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#243, are you armagediontimes and sagamix holding a shaved chimp convention? FSA has a register of all investment bankers and you can get struck off it and you need to pass an exam to get on it. Guess someone thought of your brilliant idea several decades ago!!
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LBS @ 247
thanks ... I'm right onto that ... please see below
1. yes, would need to fund it - unsecured borrowing from treasury at, say, LIB plus something or repo type finance at LIB plus a different something - so a funding cost but, on the other side, some income from dividend or coupon - both dwarfed by the 20m MTM increase
2. fine, a risk adjustment bringing the number down to a lower number
3. sure, not always 5 pc - could be 3 pc, could be X pc
but I'm on the right lines, yes?
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Sagamix, the rest of the world ISN'T in the same doo doo. Guess where the unit of AIG that wrote all the CDSes was based? The division of Bear Stearns? Citigroup? Where most of the "shadow banking" world is based? Where Credit derivatives were invented? Where the unit of UBS that lost all that money was based? I give you a clue it is ALL in one country.
Other countries are NOT in the same "doo doo" as the UK. That is purely and simply a lie that Brown is trying to palm off onto you. I always wondered who was simply that dumb to believe him but I guess now I have met them. The UK will have the worst deficit of any developed country with the exception of the US - who in case you didn't notice fought two very expensive wars the UK made an insignificant contribution to. It has the quickest rising debt level, it has the highest personal debt level of any country, it is raising - or rather trying to raise - more debt than in its history. EVERY SINGLE independent analyst expects the UK to be the last to come out of recession and to have a deeper and longer recession than anyone else. Thanks to Mr Brown under the most optimistic scenario, you are going to be paying thousands of pounds extra in tax - which with the exception of the US no one else is going to.
But hey why bother with facts when you can parrot the same crap over and over?
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sheep @ 251
thanks again, that's valuable feedback ... it's important for me to try and understand a little better how people like you think
so anyway ...
not precisely the same recession, of course not - we are uniquely placed to suffer because of being seriously overweight property, financial services, personal debt, corporate debt, government debt - the latter, government debt, has gone from high but manageable to very high and a real problem because of the banking bailout - the banking bailout (a.k.a. state rescue of the failed private sector) was caused by excess in the private sector and that (I think we all now agree) was due to the combination of lax monetary policy (UK blindly following the USA) and warped remuneration structures (UK blindly following the USA)
I must admit that it's bizarre to me for anyone to believe that UK government spending is a bigger source of this economic crisis than the banking meltdown - almost as if you're swallowing all that hackneyed fixing the roof, caulking the keel, burying the cat, ironing a spare shirt blah blah blah from Her Majesty's Opposition
still, if you want to believe that, it's your right as a citizen - it may be hard for me to accept, it may be unfair, but in the democratic system we have, your vote will count just as much as mine
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mister sheep @ 249
are you armagediontimes and sagamix holding a shaved chimp convention? FSA has a register of all investment bankers and you can get struck off it and you need to pass an exam to get on it
I'm glad you put things like that - it's very appropriate because I have to tell you that a Chimp could pass the FSA exam, no problem at all
shaved or otherwise
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#248 sheep.
If I give you fifty quid so I can Kick you in the B****X would you take it? Even if you like pain you'd be a fool because it wouldn't make up for the medical bills or your future lack of aility have fun or procreate.
You enjoy pointing out this country is one of the worst placed for dealing with present crisis. I agree.
These problems arent over yet(in fact some people more qualified than you say they haven't started yet, so don't speak too soon).
The three trillion you mention, if you know exactly the price monetarily or othewise this crisis is going to cost this country or any other country for that matter, you must be the cleverest person on the planet right now,
Your abilities must go beyond maths and are more akin to being able to read the future.
If that is the case you'd think you would have better things to do than post non stop on this site.
Go save the world, people like you are needed badly right now.
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re: 251 laughingblacksheep
Some of your points are well argued, but to suggest that other countries aren't in serious difficulties is ridiculous. You may have seen that Ireland had to deliver an emergency budget the other day, that Spain is heading for 20 percent unemployment, the entire country of Iceland went bankrupt and had to be bailed out by Russia, for god's sake. Thats just in Europe, Japan barely found the funds to try one more fiscal stimulus for its moribund economy and the US will have unemployment at 10 percent before long..a strange outcome if their deficit is purely down to 'fighting two expensive wars'..
Its extraordinary how blinkered some otherwise intelligent posters can be on here
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the expert at shutting the door after the horse has bolted watch 412 days.
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#254 MrSupergeek
I do agree with you this is a global recession and, sadly, the U.K. due to its dependence on service and financial industries is particularly vulnerable to the problems we are currently experiencing.
We would probably be in a much better situation if we were mainly dependent on 'real' economy and also better prepared for surviving future problems.
Whilst we can argue that historically this is all one (or another) politician's fault, unless anyone has a time machine and is going back in time to that point to stop him/her doing it, I don't really see the value of discussing it.
In fact - leaving aside the current economire - perhaps people should consider whether a national economy based on 'middle men' is truly sustainable and, if they think it isn't, what they, as individuals, can do to change that.
To those who are doing those things, I say congratulations and well done, though I know how very difficult it is in the current ecomonic climate.
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#255 citygambler
And the U.K. has had a voracious appetite for the American way of doing finance - which has probably put us more in the firing line for difficulties than some other places.
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I agree with many of the comments of the regular posters on this blog. I feel that anyone who thinks we have seen the worst of this mess will be in for a serious shock somewhere down the road.
All of this talk we are being fed now of green shoots and banks making profits again is a farce. Of course the banks are going to be showing signs of life again as hundreds of billions have been pumped into them not to mention allowing the banks to move the goal posts and change the accounting rules - i.e. marked to market - and sweep bad assets under the rug or simply shift them onto the mug taxpayers!
The Govts the UK as well as the US and our respective central banks have done everything possible to create an illusion that we are the bottom (or atleast very very close).
The problem is there are still a few more bubbles out there waiting to burst. For us in the UK the recession is not the main problem but only one part of the overall issue. Like the US, I think the UK still has it`s financial day of reckoning to come and it isn't going to be pretty. It may be 12 or 18 months away but I can see record umemployment, small/slow growth, increased taxes and serious inflation, all hitting us at the same time. These conditions will make life very difficult for every single one of us whether you`re in a job or not.
I also find it interesting that the biggest cheerleaders who would have us believe the banks are ok never saw any of this coming in the first place. None of the various economists, analysts, etc. - Roubini, Whitney, Celente to name a few - who forecast the credit crunch and resulting collapse believe we are near the bottom.
Our Govt has just been adding fuel to the fire to buy short term relief and kick the real problems down the road to bite us at some point in the future.
"HSBC faces crisis over US credit cards"
http://creditcrunchedoutinuk.blogspot.com/
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259 jd6969preston
As I keep trying to point out, being a simple type I cannot see what the banks have got to do with economic recovery. The banks in essensce skim transactions and sell debt. What else do they do. I can't find anything, give you a cup of coffee that you are paying for in the charges, thats about it. If you have an economy fueled by a debt stream and you turn the debt off then there are going to be problems. Turn it back on after a break and you cannot expect much. The hot air balloon has plumented in the meantime. Pump money into banks because you have to well yes. Banks pick up, having taken the opportunity to dump staff unchallenged, take massive funds, changed the rules. Fine. Elsewhere people are flapping around like fish when the tide has gone out. The bubble has popped and people in general have been left in long term debt. Those seen as exposed are being billed higher by the banks, as reported already. What a surprise. Banks are bound to survive and profit, it is a choice of semi skimmed or full skimmed milking of the customer, what is new. Who will pay for bad debt, those customers still active. That has to reduce economic activity in the best of situations. It looks as though inflation will be used to reduce the UK public accounts problem, along with higher taxes, reduced public services and probably more means testing. In what way does this help recovery. A great many of the sectors that have been hit hard could be seen to be ripe for problems but the recession has acted as a catalyst and hit them. Sectors once hit big time seldom recovery. If high inflation follows high interest rates will too and house building, a major activity will not be busy. Unemployment lags a down turn considerably. Employment lags an upturn considerably. The message I get - hearsay - is many forthcoming graduates are planning to pack Mess isnt the word. Meanwhile the professional young with some experience are also emigrating. That is bound to have consequences. Better get ready to import some non EU nationals when there is a pickup. Economically most people are keeping on keeping on and a few are doing well. Midas Brown, everything he touches turns to brown. But he does enjoy a bit of expenditure therapy.
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preston @ 259
yes, agreed - I rather fear unemployment of between 4 and 5 million and a slump lasting the best part of a decade
forget about getting too technical as to why - Newton's Third Law is best because that's proven science not idle speculation - for every action, there's an E and O reaction - the bubble was big and long lasting, and so the slump must be the same - most of the wealth creation in the UK wasn't real, was it?
still, big picture, long term, it's all good - we've been living the life of Reilly on the back of underpriced energy and commodities, artificially cheap money, financial engineering, inflated assets and the hard work of people in the Developing World - couldn't go on like that forever, could we? - time now for a much needed (and well deserved) drop in our material living standards - stop taking out more than we put in
think that might be another of Sir Isaac's come to think of it - you can't take out of something more than you put in - Conservation of Energy, that one
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Laughingblacksheep I read your posts on the technical side of finance with interest. For any insight into the wider economic mire you're insight is baaaingwhitesheep, just replace the baaing with brown when any financial difficulty occurs.
So here Barclays are financing the debt needed to buy ishares, whilst the repayment on the loan is remarkably close to the profit that ishares previously brought to Barclays. Isn't it amazing that CVC can suddenly turn a bigger profit, servicing the loan and other 'consultancy fees' when withdrawals from most financial companies are high? It's not much different to self-financing deals done by Enron where the main benificaries were the CEO's and financial officers. Except Barclays don't even have to spin off a chunk of their shares into a seperate entity, they just create paper money and take the loan repayments.
Hey that's modern finance and Barclays can't help themselves. Of course they're not increasing debt, it's a risk weighted asset for nothing... I mean 280 odd million. And that's nothing to do with adding debt to an economy where it wasn't before. This is what banks do, but this little accounting shuffle really shows how desperate they are for cash and how unlikely it is they can raise it externally. This shows come August/September when the pressures rise again their massive debts/assets won't survive intact the next phase of financial pressure.
But of course everything's Brown's fault. He didn't have a clue as to what you and your financial geniuses did before the credit crunch. But now you're not earning the money it must be all his fault. Barclays wouldn't exsist without Keynsian, Bernanke and Brown believing in bailouts and the printing of money. Whether they took money or not their risk weighted assets, so carefully balanced against their debt concerns, would be defaulting with institutions around the world unable to pay Barclays.
It's alright for AIG to payoff CDS's with make believe money but when Brown does it to keep people in work and not idiot derivative playing companies in business it's down right wrong. The market knows best eh? Or is it social deprivation and conflict knows best? Seems like you free marketeers are the new know nothings on history.
I am no Brown fan but thank God he's the PM compared to your Fabulous Bailout Boys, salivating around Milton's pavlovian free market bell. The market does most things better, but boy does a Friedman market need big government because you and your boys are wrong more than any politician. There's only one definite with Friedman economics, every four to five years the Fabulous Bailout Boys need a bigger and bigger set.
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#259 jd6969preston
And what your comments exclude are other factors - ecological (e.g peak oil), enviromental (Flu epidemic, global warming), political (war breaking out in some part of the world, protectionism , nationalism), civil unrest (eco-warriors, disgruntled unemployed, whoever), criminal activities (ID theft, mass virus attack, fraud), etc., etc.
Because we are weak financially, it means we are less well able to cope with other problems that put stresses on our lifestyles and survival. Because we are increasingly poor, we are less pay for remedies to 'additional' problems.
If this recession does last, technically, until 2012 - though the consequences and sequels will clearly last much longer - do you really believe it will be the one and only thing we'll have to deal with?
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Goldman Sachs have just posted 'surprising' profits based on currency and fixed income business, not investment activity.
That does not tell us we are coming out of recession, just that they have been competent in making money off a plunging pound and some other basket-case currencies; and that they can also cream more rip-off fees from their terrified customers.
From what I have seen in UK banks, they are also making a fortune in charges and interest rate spreads, stealing from their customers in the hope that they can offset some of their toxic waste. I don't think that was the deal the great British public thought the dear leader was signing us up to, but I suspect he did (your day of reckoning will come Gordo)
No green shoots for a long while yet, I fear.
Regards,
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I know it's exceptionally unfashionable to be optimistic at the moment, but I feel like I have to respond to all the doom mongers.
It does seem to me that we are approaching a bottom: there are one or two moderately encouraging signs from the housing market, the pound appears to have stabilised against both the Euro and the Dollar at a level where our exports are (for the first time in a decade) competitive but our imports are (just about) affordable, and it is just possible that the banks are profitable again (if indeed they ever stopped being truly profitable.
Whisper it or you will get enormous amounts of abuse from people on here, but taking stakes in Lloyds and RBS at bargain basement prices may just end up being a nice little earner for the government/taxpayer.
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247 laughingman - Some numeracy skills displayed ~$13 trillion is indeed around the reported US GDP (reported at $15 trillion - but many think there is a substantial element of double counting).
As some of the things you write sound plausible to some, here is how the US has committed $13 trillion:
TARP $700 billion. Fannie and Freddie $400 billion. Auto manufacturers $42 billion. BearStearns $29 billion. AIG $185 billion. Citigroup $350 billion. Federal Housing Administration Rescue bill $300 billion.JP Morgan $87 billion.Loans to banks under the Feds term Auction Facility $200 billion. $520 billion to rescue various currency markets. $620 billion in currency swaps for industrial nations. $120 billion in swaps for emerging markets. Several $ trillion to cover the FDIC´s expanded bank deposit insurance. Several $trillion in other sweeping guarantees. $300 billion to buy long term treasuries. $700 billion in agency backed mortgage securities.
If you care to do even the most basic research you will find that these numbers are uncontested by the US government who accept as a broad estimate a current aggregate $13 trillion commitment.
Try not to mislead the people with your veneer of knowledge. If you stop to think about it, as opposed to just trying to outsmart me you might begin to realise that this situation is much worse than most people can possibly imagine. There is unlikely to be any escape for you, me or anyone else.
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#249 and #247 I guess you have found a gap in my education. I have no idea what a shaved chimp competition is, but I´m always up for a new experience.
I do hope that your post is not implying that I have at any time stated or suggested that the FSA does NOT have a register of investment bankers. Because if you are then we will have found a gap in your education - basic literacy.
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#265 GHBRich
At risk of echoing jd6969preston (#259), aren't the things that you mention - and which you regard as a sign for optimism - merely what you would expect, given the actions taken by various Governments? Is that really the same as mid-term or long-term recovery? Wouldn't you expect an upward 'blip'?
The reduction of symptoms doesn't necessarily mean the disease is cured.
I mean, if someone, or some group of people, gave me wads and wads of dosh, then my financial future would look more cheerful too - at least for the short-term.
Whilst I would personally like your deductions to be correct - I'm afraid I don't share your confidence.
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#261 sagamix Your post refers to proven science together with a proposition that unemployment may peak at around 4 to 5 million.
Given that there are currently 9 million people of working age in the UK who are not working then science would seem to suggest that you have some explaining to do. The English language would suggest that whatever else these 9 million people may be they are also unemployed.
Meltdown is coming - it cannot be avoided by believing in the lies of the politicians and the media. Reality is paying us all a visit.
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#268 Sutara
Your comments are spot on in your last post.
What our Govt is doing is simply taking a patient who has a fatal disease and filling the patient full of drugs to allow him to carry on in the short term even though there is only ever going to be one outcome in the end.
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laughingblacksheep - I would say that all the lenders have 'taken' from the government by increasing their lending margins (from an arguably too low starting point due to underestimating of risk) at a time when the base rate has plummeted. - It's just that some lenders have taken through the 'front door' as well as via this back door too !
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#262 Tatruth. There is no purpose in seeking to seperate the role of the bankers from that of government. They are two sides of the same coin, and both acted in concert to pursue the same broad aims - i.e. the impoverishment of the many and the enrichment of the few.
Just think about it. Why did governments act instantly to bail out banks with other peoples money? Where was the discussion? Where was the debate? Where was any explanation of the likely predictable consequences?
Don´t bail out the banks and you get a deflationary depression. Bail out the banks with unlimited funds and you get an inflationary depression. Neither are nice, but some people (probably the majority) will survive a deflationary depression and be more or less OK. Go for an inflationary depression and everyone gets wiped out - unless of course you are already very rich and plan on getting richer - see Stinnes in the Weimer republic for an example as to how you achieve this.
Oddly the only thing that can now save us is the free market - this could still serve to crater sovereign bond markets and forestall the deliberate attempts to generate hyper inflation.
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#255-#264
I Hope is's ok to say i agree all your comments pretty much.
My fear is that the 'us' and 'uk' might be tying to buy a new credit card to pay off the last credit card (throwing petrol on the fire).
I'd hate to think we're just going to create another bubble down the road for future children to inherit.
Most people realise that we have become too dependant on bankers and we'd all be better served if as a country we could create more real stuff/real jobs so as a country we are less affected by others problems in a global recession.
The whole world is affected,but some those coutries will find they are have a more flexible manufacturing base and solid infrastructure so are better prepared to explore new avenues.
Surely being able to trade real products with the rest of the world is better for us all than just trading money.
I also worry about what kind of capitalism we have that isn't able to create a real middle of class of people with real wealth not just people with bigger credit card bills or massive mortgages(from what I can tell some countries, germany for one are have less fear of people having money in the bank).
Just to address two of the ponts made above sutara I think it would suit GB and some others if the issue of blame was swept under the carpet, We all need to keep dicussing these issue and make sure those responsible accept they have to change or step down(if more people had a better grasp of history and a willingness to discuss politics we would all be better off).
As for the comments about future cheap labourWhen this coutry adequately takes care of it's own population and the immigrants we have already, then if there is a shortage of workers we can think about finding more(Sorry if I'm misunderstanding and you're being sacastic).
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Jim Rogers had some interesting views in an interview he did with Bloomberg.
The interview is available:
http://creditcrunchedoutinuk.blogspot.com/
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@273 Mr Supergeek
"I also worry about what kind of capitalism we have that isn't able to create a real middle of class of people with real wealth"
The kind of capitalism that gives governments the right to levy confiscatory tax, not just on the middle classes but on everyone.
If everyone was allowed to save the surplus tax (the bit that the government doesn't spend to benefit the electorate), we would all become millionaires on retirement. That would not suit our Stalinist government, so they devise ways of keeping us poor and dependent.
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times @ 269
Given that there are currently 9 million people of working age in the UK who are not working then science would seem to suggest that you have some explaining to do
sorry, I meant five million on the official basis - so between two and three times what we have now - I share your view that the prognosis is extremely gloomy
but then again, not, because it's a necessary and overdue adjustment - there's a chance we'll emerge the other side with a better way of carrying on - so on that score ... All Hail To The Credit Crunch!
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#268 Sutara
Not really. QE should weaken Sterling, not cause a temporary upward 'blip' (printing more of your currency reduces its value).
I agree that if the housing market has bottomed, that is a result of the govt's actions.
However, isn't it slightly churlish of you to concede that the govt's actions seem to be having the desried effect, yet at the same time discount the possibility of a recovery. Surely if the government's actions were to kick-start a recovery, that recovery would begin with a bottoming out.
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#272 Armagediontimes
"Just think about it. Why did governments act instantly to bail out banks with other peoples money? Where was the discussion? Where was the debate? Where was any explanation of the likely predictable consequences?"
Frankly ridiculous comment. If you cast your mind back to that fateful week last year after Lehman's went under, the US govt had about 3 days to do something before pretty much every bank went under.
Now what would have been the point of the protracted discussion you (in ironically 20/20 hindsight) favour? After a month of discussions, the government decides that it would have been the best thing to save the banks, but it's too late now...
Please don't run for office any time soon.
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#278 GHBrich. Well thanks for your informed and fully reasoned conclusion that my comment is ridiculous. Speaking of ridiculous how do you know as a matter of fact that the US Govt had "about 3 days to do something before pretty much every major bank went under"? How do you reconclie that statement with the verifiable fact that it took rather longer for the TARP package to be voted into law.
Of course there would have been substantive problems with a significant cascade of banking collapses. However these banks will still collapse in the end anyway. A lot of the banks that you refer to by implication have already either subsequently collapsed (RBS and HBOS) or are effectively zombie banks. Banks are still collapsing - Caja Castille la Mancha in Spain, some Scottish building society and whole host of US banks. You think CitiGroup is a viable stand alone entity - they are consuming more money than an industrial furnace could deal with.
All you have done is spend a pile of money - yours, your childrens and your grandchildrens to draw out a collapse over months instead of days. You think that´s a good investment - be my guest pay my share.
Do you have the same overweening concern for car manufacturers, Woolworths or any any of the other thousands of companies forced out of business by this mess? If you do no doubt you will exercise your true democratic rights to make your own private subsidy as your governments have declined (or will shortly decline) to do so. If you do not then we can reasonably conclude that your comments are nothing more than meaningless invective.
No need to worry about me - I won´t be running for any kind of office the intellectual calibre of the constituents puts me off.
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Poland has had to turn to the IMF today for £20 billion.
Is a good thing that Crash Gordon saved the world with that extra IMF funding at the G20.
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Story released by the FT this afternoon.
"US retail sales fell in March, dashing recent hopes that consumer spending might finally be stabilising in the US as a savaged labour force continues to curb its spending.
Sales declined by 1.1 per cent in March against the previous month, commerce department figures showed on Tuesday. The results disappointed analysts who were expecting a small increase."
See what happens when they try and get everyone`s hopes up.
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Armegedion - Your misunderstanding is pitiful, yet far too common.
By saving the banks, we alleviate the need to plow the same money into the industries you carp on about.
Poorly run, uncompetitive companies, like Woolworths (and possibly GM will and should go under) but even well-run, profitable companies will go bust if they cannot get their hands on credit. Without banks, no-one gets credit.
You, my friend, are advocating throwing the baby out with the bathwater.
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268 Sutara v GHBRich various postings.
Before this crunch/crisis/meltdown/recession/depression/mild downturn(?) started I felt I had a grasp of money and what it meant. Now I don't really think I can truly grasp it at macro economic level.
Simplistically I think Sutara is more likely to be correct but then I wonder if it is possible to at least level off at this level based on credit and hold at this level until wages catch up and houses are affordable again.
The macro economic questions I just can't grasp.
The G20 countries have just all had to get together to lend money to the IMF so that they can lend money to other countries. But apart from China noone really has any money to lend to the IMF. So UK for example could lend to the IMF but then have to borrow from the IMF & if US had to do that too then IMF would run out of money. If IMF runs out of money and only China has money and China decides not to lend to IMF then US and UK default on all their loans and China money is worthless so why would they do that?
But if that is the case then US and UK can just keep on clocking up huge debts and know someone will underwrite them? Well works for US, not so sure about UK.
So if 'money' is simply circulating whatever happens then does it really matter who spends how much when? If so why?
It seems that at micro and macro level the supply of 'credit' has destroyed the value of 'money' and I don't understand how it gets fixed so that Sutara is right (ie we've way over borrowed and stimulated the economy with fresh air which means we must crash and burn eventually) otherwise GHBRich is right and by stuffing the economy with money we can blow up the bubble again and the money can just keep going round and round.
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Incidentally 5 houses around me that have been for sale since last year have all been sold in the last two weeks - spring is in the air? Mad March house buyers? The bottom is being reached? A temporary plateau? A freak statistic?
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#283 GRIMUPNORTH
That is a interesting description of macroeconomics, which, despite all the apparent economics professors on here, very few people, if any, truly understand.
There is, however, surely a middle ground between crashing and burning and reinflating the bubble. Take house prices, for example. These were undeniably too high for too long (ie a bubble), but it is in nobody's interests for them to keep plummeting (even first time buyers - if mortgage companies think prices are falling they will demand bigger deposits, thereby making it much more difficult for first time buyers). IMO we have now reached a stage, or soon will, where house prices are somewhere close to reality (relative to wages) so the government's policy should be aimed at slow steady growth from this level (ie 2-3% per year). This would not be reinflating the bubble, which was created by 10-15% annual growth.
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#277 GHBRich
Churlish? I don't have a mean, or unkind, bone in my body.
You seem to have overlooked the point I made i.e. that in one way or another, in recent times, the banks have taken inwards a great deal of dosh from U.K. and U.S. Governments and the like.
Given that fact, I fail to see why anyone would draw any significant conclusions that the recenly published performances of some banks is indicative of a 'recovery' from the recession. If in another six months or so, they are all still doing so seemingly well, then that would perhaps be a cue for more optimism.
And, as others have commented, some banks are still going to the wall in one way or another, e.g. banks in the U.S. that don't happen to be "too big to fail".
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#286 Sutara
Has GS had any governement money? I can't remember hearing that it did.
The fact is that most banks remain profitable as organisations. Whilst the collapse of asset prices has made them balance sheet insolvent without govt intervention, there is a distinction between that and profitability.
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Sutara & GHBRich to some extent you are both partly right and partly wrong. Allow me to explain, or at least expand my hypothesis.
During the dreadful week last September when we had Lehman's go under and emergency rescues of AIG, Merrill Lynch and a number of others the US Treasury had little option but to act as they did.
Equally when the proverbial hit the fan re RBS and HBOS we in the UK had little option either but to stand behind them.
We can all argue about whether they should have been subsequently allowed to fail rather than be bailed out but the position is rather like a very high stakes game of poker.
The money already put in is already on the table and effectively lost. The question now is do we fold or do we play on.
Had the governments not stepped in there would have been queues outside every bank in the UK and USA. The government actions effectively stopped runs on virtually every bank out there. Had this have happened there would have been total chaos.
The Anglo Saxon financial model rests on confidence in the high street banks and the government. Had confidence have gone in the banks the government would surely have fallen; we almost certainly would have seen troops on the streets and mass panic, if not rioting and looting.
Now we are in a position where we can soberly and sensibly make a decision as to how we should proceed.
Gordon Brown is the poker player who has used up all his cash and has a number of IOU's already on the table. For Gordon and new labour there is only one option now which is to keep writing IOU's and hope that they will be accepted. He has to keep throwing money at the problem in the vain hope that it will work.
David Cameron and the conservative's view is that we need to cut our losses and accept that we need to get out of the game. The phrase that might be used is not putting more money against bad. The conservative believe that we are already in too deep and need to accept our losses and try to bring our finances in order.
To use an another analogy Gordon has maxxed out his credit cards and believes the answer is simple in applying for another card. David's view is that we need to cut spending and start to pay down our debts rather than increase them.
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Ian-the Chopper
I agree with all that but don't think there is much choice left. The choice you describe was available in the autumn and over new year and GB made it with the stimulus (I believe rightly). There are very few people who think another stimulus is possible (although GB seems to think publicly it is, his chancellor appears to disagree) and there is little chance the budget will contain one.
The question now is whether what has been done so far will bring us out of, or at least shorten, the recession. Personally, I think there are one or two mildly encouraging signs, although it is far too early to tell for certain.
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#284 grimupnorth77
I noticed the same house selling activity in the home counties. I suspect that it may to do with the roll out of the Home Improvemnt packs (HIPS) for all domestic house sales from 6 April this year. I believe it was only applicable before for houses with more than 3 bedrooms? So there might have have been a rush to beat the deadline.
Sales in April and May should settle this.
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#280. jd6969preston wrote:
"Poland has had to turn to the IMF today for ?20 billion.
Is a good thing that Crash Gordon saved the world with that extra IMF funding at the G20."
Could you ask for a clearer example of the muddled thinking, blinded by political dogma, that typifies this forum?
When Gordon Brown claims that this is a global recession you mock him for blaming the UK's woes upon the world.
When other parts of the world demonstrate that they, too, are in deep trouble you mock him for not fixing their problems.
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#287. GHBRich
My memory is that GS benefitted significantly as a counter-party to the AIG bailout, by the way.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/03/the_goldman_infallibility_myth.html
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292. At 5:01pm on 14 Apr 2009, Sutara wrote:
#287. GHBRich
My memory is that GS benefitted significantly as a counter-party to the AIG bailout, by the way.
============================
They got the money they were owed.
Also they claim to have hedged themselves, so if AIG hadn't paid them, they would have made money on their hedges to offset these losses.
Oh, and they got $10bn of TARP money.
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Sutara
It did benefit, as we all did (AIG going under would have resulted in most banks going under, resulting in everyone losing their life savings, social disorder etc etc)
But that does not mean that GS was unprofitable or poorly run - in fact, it merely highlights how important the bailouts were. They have allowed profitable organisations to remain profitable.
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#282 GHBRich - Thanks for your pity - but it´s just one more commodity I don´t need, so thanks but no thanks.
What I would like is an acknowledgement that you are factually incorrect when you state that the US was left with only 3 days to act after the collapse (that the US intentionally allowed)of LEH.
You write "By saving the banks, we alleviate the need to plow the same money into the industries you carp on about." and then immediately follow this with a statement that many of these companies should be allowed to fail anyway. So, my question is why would you plow money into companies that you have every intention of allowing to fail?
You are clearly correct when you state that profitable well run companies will also go to the wall if they cannot get their hands on credit. However you don´t bother to mention that the multi $ trillion "rescue" of the banks has been accompanied by these same "rescued" banks withdrawing and/or increasing the price of credit across the board.
It follows logically that if the banks are not offering credit then rescuing them manifestly does not avoid the need for someone to plow money into the companies that someone (maybe you) decides are profitable, well run and deserving of saving.
Logical inconsistencies such as the ones you display may well contribute to some form of msunderstanding, whether they be pitiful or not.
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c'mon guys, what's with the cosy consensus that we HAD to bail out all these insolvent banks? - sure, we couldn't let them (the major ones, that is) fail otherwise, yes, potentially catastrophic outcomes ... but why not Nationalise the Blighters?
they're Utilities, aren't they? - you know, essential infrastructure and the like
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rbs_temp
I don't like GB policies period. Before you come back and tell me that the Tories would not have done any better - as you only ever post on these forums to take issue with people - I can categorically state that I do not support any political party.
I don't want GB to fix the problems of other nations as he has more than enough to deal with in his own backyard. GB is the one who wants the rest of the world to view him as some kind of great statesmen.
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GBRich and Sutara
Goldman Sachs are many things, but what is a concern is their size with respect to the market and their influence in worldwide goverment decision making. The site below is a thorn in their flesh and they are actively seeking its removal through legal process. Interestingly the only English speaking media that reported it was the Telegraph.
http://www.goldmansachs666.com/
Ex staffers are found all over the place: ex Chairman of the BBC Gavin Davies, chairman of the Italian Central Bank, Hank Paulson in the US Treasury, the list does go on and on.. Recent events indicate a repayment of the TARP to remove US government scrutiny of its activities (in reality salary constraints imposed by Obama) and this article:
Tuesday, April 14, 2009
Is Goldman Sachs Running the U.S. Government? - I Say Yes.
Editor's Note: The excerpts below are from an article in Newsweek. I think you will find them interesing, and there is a link to the full article.
Who's designing Geithner's rescue plan? Goldman guys, of course.
by Michael Hirsh
As it was in the beginning, so shall it be in the end: Goldman Sachs will be there.
Back in the '90s and through the mid-'00s, major figures from Goldman Sachs such as Robert Rubin, Gary Gensler and Hank Paulson stood fast against derivatives regulation (Rubin and Gensler) and lobbied successfully for higher leverage ratios so they could bet more of their capital on the market boom (Paulson). When those policies came to grief and Wall Street imploded, and the Feds scrambled to rescue stricken insurance giant AIG, Goldman CEO Lloyd Blankfein was reportedly the only bank executive invited to an emergency meeting at the New York Federal Reserve (convened by then-Fed president Tim Geithner).
Now Treasury Secretary Geithner—a Rubin protégé, of course—has assigned two more ex-Goldman men to fix the vast mess their colleagues helped to create.
Read the full article at Newsweek.com - http://www.newsweek.com/id/187705
Breakup Goldman Sachs - Too Big To Fail Means Too Much Power
Editor's Note: Mish Shedlock put out a piece titled Time To Breakup Goldman Sachs and I agree. I also agree it is time to breakup Citigroup and probably JP Morgan.
Here is the opening paragraph from Mish . . .
It's time to breakup Goldman Sachs, Citigroup, and for that matter any bank or holding company deemed too big to fail. It's not just the "too big to fail" hazard that is troubling, it's also the power these corporations have and the potential to abuse that power that is also troubling.
The influence of its current and former personnel is disturbing. That Obama was also bankrolled in the US Presidential election by GS execs whilst not illegal, it certainly gives ammunition to the conspiracy theorists.
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"What I would like is an acknowledgement that you are factually incorrect when you state that the US was left with only 3 days to act after the collapse (that the US intentionally allowed)of LEH."
It is not factually incorrect (save that 3 days might have been 4 or even 5 if they were lucky). Whilst you are correct that the measures did not come into effect for some time, you again miss the point. The value of bank stocks was collapsing day on day after Lehmann - so the banks were coming closer and closer to insolvency. Once the measures were announced, this abated. So it is the announcement of measures, not their implementation, which is important.
"You write "By saving the banks, we alleviate the need to plow the same money into the industries you carp on about." and then immediately follow this with a statement that many of these companies should be allowed to fail anyway. So, my question is why would you plow money into companies that you have every intention of allowing to fail?"
You obviously understood my point as you correctly repeated it in the very next sentence you wrote, but I will clarigy it for you nevertheless. By saving the banks, we ensure that profitable companies can obtain credit and stay afloat. If the banks go under, these profitable companies cannot get credit, so go under along with the unprofitable companies, which will go under in any event.
"However you don?t bother to mention that the multi $ trillion "rescue" of the banks has been accompanied by these same "rescued" banks withdrawing and/or increasing the price of credit across the board."
Now that is a different question. I very much believe that the banks needed to be rescued, whether I they were rescued in the right way I'm not so sure. The trouble is that they were rescued and the govt said two contradictory things to them: 1) Repair your balance sheet; and 2) start lending again. It seems to me that the best way to go would have been fully to nationalise the banks - they could then have been forced to lend and would not have had to worry about their balance sheets (in the short term anyway).
I hope the above is helpful to you and assists your understanding of what are, admittedly, difficult points.
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284. At 3:22pm on 14 Apr 2009, GRIMUPNORTH77 wrote:
--- "Incidentally 5 houses around me that have been for sale since last year have all been sold in the last two weeks - spring is in the air? Mad March house buyers? The bottom is being reached? A temporary plateau? A freak statistic?" ---
IF the houses had actually sold [Just enquiring: they hadn't just been taken off the market due to the new HIP regulatons (see below)?] it is most likely to be a freak statistic, combined with a small post-Christmas confidence boosted rush amongst the minority of potential purchasers in the very best position to buy. There could be many explanations: An estate agent targetting a particular area and offering staff incentives for sales; a cash rich investor looking to expand their property portfolio in a local area; a change to school catchment areas. Or possibly a resurging housing market.
I've been FTB house-hunting in the Sarf-East for six months now and have heard anecdotal evidence that the Estate Agents I've been dealing with had been incredibly busy post-Christmas (possibly explaining why I've been called by them significantly fewer times than before Christmas). However all the activity appears to be at the 'bargain' end of the market, where cash-rich purchasers can take advantage of very low tracker rates and 'keen vendors'.
290. At 4:57pm on 14 Apr 2009, excellentcatblogger wrote:
--- "I noticed the same house selling activity in the home counties. I suspect that it may to do with the roll out of the Home Improvemnt packs (HIPS) for all domestic house sales from 6 April this year" ---
The slow roll out so that HIPS have been required for all property sales had been completed late 2008 IIRC. The most recent, and significant, change is that a HIP (with EPC and the 'survey' questionnaire) is required BEFORE a house is marketed. Prior to this date, the HIP could produced after an offer had been made.
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ghbrich @ 299
the banks needed to be rescued, whether they were rescued in the right way I'm not so sure
quite - a better option would have been (still is) to nationalise - we have the exposure anyway, so it might be quite nice to have control too - plus, looking to the future and learning some lessons from this crisis, if something is too BIG and IMPORTANT to FAIL that means it's effectively underwritten by the public - and if it's underwritten by the public, it's better that it be OWNED by the public - Utility - Essential Infrastructure - otherwise, you get all that Moral Hazard, One Way Bet stuff
Private Gain from Public Pain ... no thanks
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#299 GHBRich - Take a look at US bank share price movements from Oct 2008 to early March of this year, and you tell me where you spot an end to the decline in their share prices.
Of course banks had to be rescued - if by that you mean that depositors needed to have confidence that their money was safe. However as you allude to there are many ways in which this could have been achieved. The chosen method was one basically chosen by Paulson and his core thinking is informed by all that he has learned at GS. Therefore the chosen method was one calculated to be maximally advantageous to GS and thie ilk irrespective of the consequences to the wider society.
Post #298 is highly informative as to the all pervading and pernicious influence of GS.
In post #294 you argue that the bailouts have allowed profitable organisations to remain profitable. That much is (for the short term)a truism, however it is also true that they have for the time being allowed otherwise insolvent entities to remain trading.
So much money has now been committed to the "system" that only 2 possible outcomes remain: (i) Bond markets collapse forcing an abandonment of these commitments, or (ii) Governments subvert bond markets through direct money printing. If option (ii) is pursued then every historical reference point indicates that hyper inflation will follow.
Hyper Inflation will more effectively destroy everything that you wish to see saved than any other possible course of action.
If the commitments need to be abandoned then all the money spent prior to abandonment will be wasted money, and this will exacerbate the effects of the deflationary depression that follows.
The only logical thing to do is batten down the hatches and accept a deflationary depression as being the least bad option. Every available alternative is worse for everyone, and every attempt to avoid the inevitable only weakens us collectively and leaves us less able to cope with the hardship that must come.
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catblog @ 298
It's time to break up Goldman Sachs !!
hang on, let me just quickly consult my back copies of The Daily Banker ... yes there it is, yes indeedy I thought so ... these are the Wild and Crazy Guys who pay themselves absolutely Gigantic Boni at the end of each year, aren't they? ... all making perfect sense! ... ooo, don't you just love it when a Conspiracy Theory comes together?
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armagedion @ various
very proud to AGREE with you that ...
- a severe and long lasting Economic Slump is inevitable
- the Banks can't be trusted
- Governments shouldn't blindly throw good money after bad
- our living standards must drop
- the scariest of all outcomes is Hyper Inflation
but a little ashamed to DISAGREE with you that ...
- we therefore Do Nothing and just "Batten Down The Hatches"
the one doesn't follow from the other - there are some tools at our disposal (both national and supranational) which should be used - we should try and mitigate the downward spiral the best we can, and we should try to ensure, as far as possible, that it's those most able to ride with the blows who take the blows
Abdication of Responsibility otherwise - no point having governments, world banks, IMFs, EUs etc unless they give it their best shot in times like this
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#302 armagediontimes
Very well put. (In fact, so well put that I can't be bothered, now, to draft my own comment!)
You remarked, "The only logical thing to do is batten down the hatches and accept a deflationary depression as being the least bad option".
Sadly, that more or less sums up my view. (I would love to find proper reason to be more optimisitic - but so far the hints of recovery seem to me to be fools' gold.)
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Wow Robert, amazing to still see that so many people and the BBC still talking such crap. Come the next election the nationlist will be in power and if not the lib, lab, cons will be running to form a coliation goverment. Even though i do hope the BBC will manage to overcome the NATIONLIST onslaught i think somehow they will not. But its the will of the people and demoarcy of course that will win the day. I am not a betting man but if i was i would put my money on the NATIONLIST coming out as clear winners. And why because rural Hamphire is saying so.Never in the 20 years i have lived here have i herd the Nationlist party being mentioned, But now i here them everywhere. I suppose it all comes down to if you want the brain washing media to run our country or real down to earth people who still believe in this country. Nationlist say that parliment have committed treason. Including the media but above all the BBC. On this sort analysis i believe no immigrant at all will come to any harm,but believe many white indigenous people will for the crime of treason agaisnt the state.
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#304 sagamix
You state that the banks can't be trusted and then go on to suggest national and supranational tools that are "at our disposal".
Well, firstly, I really don't understand why you trust politicians to resolve everything when they are surely, as a homogenous group, just as self-serving (in the main) as bankers have proven to be. (Hell, politicans need big business - of one sort or another - to fund their election campaigns, for one thing.)
Secondly, are these tools at OUR disposal, or are they at the disposal of various 'authorities' who may, or may not, use them according to political expedience and/or administrative convenience? (Remember, of paramount importance, to any government, is the maintenance of law and order).
Perhaps individuals should focus on what they can do individually, or in small groups, rather than convince themselves they are able to sway national governments, or the politicians within them, to do (or not do) any particular thing.
Or does that make me a 'doom-and-gloom' artist?
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I've loved reading this blog for the last couple of months and at times you've had me believe that there was no option other than major change in the fields of politics and business.It's quite clear now that NOTHING will change,the status quo is maintained, house prices will slowly rise again,everyone responsible has got away with it and Gordon will claim the credit in time for the next election.Meanwhile as a chippy in Sussex i'm finding it harder and harder to find work.V depressing.
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sutara @ 307
it does indeed make you a DAG artist but there's nothing at all wrong with that - if you've caught any of my drift you will know that I'm a bit DAGGY myself and I agree with a fair amount of what you've been saying - but, yes, I distrust Bankers a whole lot more than I distrust Politicians (I'll take Barack Obama over Dick Fuld all day long) and, although I'm sceptical about co-ordinated fiscal stimuluses and printing money and all the rest of it, and although I'm scared (make that terrified!) of Hyper Inflation, I think the Authorities are duty bound to try and do something - not "Whatever Is Necessary" just Something - stuff that may be effective but which isn't completely crazy - to just get the firewood in and bolt the doors seems rather defeatist - for me, however, the key role of Government should be more about protecting the vulnerable than a Devil May Care reflating of the economy
gonna be bad though, pretty bad ... whatever they do
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#304 Sagamix. "battening down the hatches" does not mean that nothing is done. It does mean that we stop doing things that will make the situation worse, things like throwing limitless amounts of money at irredeemably insolvent institutions and further enriching the already wealthy.
What money there is (real money, not invented money) should be targeted to helping the most vulnerable members of society. In this environment that basically means taking steps to ensure that people continue to have access to food, warmth and shelter. Already in the US 1 in 50 children are homeless - why do you think that doesn´t make the news?
The IMF and the World Bank can be counted on to do precisely nothing other than to continue to protect the rich. In 1999 these institutions demanded that Argentina implement policies that resulted in the impoverishment of that country to the extent that some people actually starved. All this in a country of almost boundless fertility and agricultural capability.
The real problem is that no government or supra national organisation has any intention of doing anything to help ordinary people. Western Governments long ago abandoned any pretence of representing the people and sold their souls to big business and the god of mammon.
Best to ignore governments to the maximum extent possible and concentrate on developing local community based solutions.
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arm @ 310
mmm, dunno - as a Gaucho, I get a bit excited sometimes, about all this, Capitalism collapsing under the weight of its own contradictions as I think Karl put it, but I'm also a big believer in Sod's Law and SL says that things are going to be very bad, very bad indeed, but not quite bad enough to foster the mass mood swing I'm looking for
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Lets have a new blog Robert as this is now boring!
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#243
I took my 'Banking exams'after a lot of contoversey in the branch because I was a women and wouldn't need them (1978) only to find that they are 'useless' in the real world and have had to do a load of others.
I am now self employed and fortunately do not have to account to anybody but my husband!
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310 Armgdn Times
The brutal truth is the majority just heave a sign of relief that they are not affected that much, 'that much' being relative. But funnily enough it is not being at the bottom of the imaginary pile which is the most important to some. How do I know this, because I was hit in a previous recession, and I was not alone.
Societies throughout history have been quite happy to sacrific people, by ethnic group, or class, or profession, or religion, arbitarily in order to seek majority salvation, whether the sacrifice was sensible or not, you have referred to one case previously.
That is why welfare has to be in place. Welfare is in place here but not everywhere, and I don't mean the US. That is where the problem will be.
The main problems for the affected in the UK are not survival but psychological. The suffering can still be real. You are mistaken if you think local community based solutions are the answer, because the majority are not that motivated, other than to complain.
Because the impact is restricted the majority will not be any more motivated in a 'typical' local community any more than a nationwide population. It is only when the damage is spread broad in any population group large or small that 'widespread' unrest results. The government appears concerned about the possibility of local dominion anyway so further devolvution seems difficult to swallow it would seem. But who knows.
The majority in recession stay in work and pay taxes. The minority have intevention via welfare and other programmes and policies to stop civil unrest. There is no debate about government policies in this situation really, by and large they are just enacted, and if the situation unstable then even less discussion takes place.
The mechanism of government is to protect structures that relate to wealth generation and to ensure the majority are compliant and supportive. In Jason and the Argonauts the crew decided that the load needed lightening and tricked a crew member ashore on a deserted island and sailed away. Whats new.
The bottom line is that in distress family are the last resort and much has been done to weaken the family in modern society.
I therefore would not put much store in local solutions which you seem to hope will be a good outcome. The issue is more likely to be having an informed electorate that understand the downside of polices through communication and having a interactive dialogue more than just every GE interval.
The internet is the only hope, why do you think there is such interest in invigilating all that goes on with it. It is not terrorists, there are not that many terrorists, it is because it is going to be influential and they dont know how to deal with the problem of being questioned in what they are doing, which is the logical outcome. Look at the impact of FOI. It is a query mechanism and it is changing behaviour.
In response to the fact it is obvious that an internet dialogue has to start at some point highly restrictive communication routes are starting to appear. eg what work do you want those given community work to do in a locality, and some fledgling dialogue appears to be developing in Scotland. Obama has said in will occur in the US. The barriers will breakdown but it will take time and people have to use it. If they dont use it it will not work.
It is strange that an entire community has been decimated, manufacturing, in this country decade after decade without much comment or protest, yet if farming comes under threat there is much public talk of how farming protects the heritage of the countryside and the culture is important, it is strategic, where would we be without farming. The difference is the farming community is organised and has a collective voice so achieve more, not that I dont want to see them fight their corner.
I have repeatedly said that there is no reason that this recessionary landscape should be viewed as being a total wasteland. And some businesses are doing well, there just needs to be more of them. When in trouble is big business that squeaks and gets the oil. Big business is good at sqeaking. Look at the treatment of the car industry. The answer is for others to squeak more in an equally focused way. And those in trouble need a hand - Just as in a natural disater. If you dont think this is a homily.
Anyway did you have a good holiday.
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It seems to me that along with everybody else, Barclays did not see the crash happening so fast or so soon.
This isShares deal on the surface seems to make sense as it balances their books a bit better. I can understand their shareholders being a bit uppity that this deal was not done last year when they could have got 8bn for it but que sera.
Everybody knew the crash was coming, just not when. (even nostradamus was calling it back in the 16th cent) When it came it was fast and furious, buts lets be honest, a crash was no real surprise.
The culminating factor, the one that pushed us over (and I mean that globally folks) was not the banks, it wasn't the politicians, it wasn't even the regulators.
It was simply the price of oil.
Sudden and prolonged increases in the availible price of oil have caused all of the recessions in the west since the last world war. Now that the economy is global, the oil induced recession is global.
We have to stop being reliant on oil somehow.
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Important News,its Ground Hog day?
Major Bank desperate for cash manages to get rid of £3 billion worth of risky assests from off it's (the Bank's) books by allowing a stock market specialist to take them off their hands, on the understanding that the recipient will be given recieve £2.7 billions from Barclay's to complete the transaction.
The banks President who is due to receive a bonus of £4.7 million plus a substantial number of shares, when the deal is completed not unsurprisingly believes this is a good deal.
Here we go again. In spite of all the turmoil that they have created it seems the banks and bankers have learned nothing from their recent mistakes.
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#308 PhilSeagull
In my view, you're absolutely right. There is no option but for radical change, but unfortunately that needs political will. But that's just my view.
For anything to happen, it also needs translating into legislation or regulation and then needs to be implemented and then monitored and enforced.
It's interesting how quite Lord Turner of the FSA has been of late, isn't it? Perhaps, as my mother would have said, the cat's got his tongue.
Perhaps it really doesn't matter what model or intervention anyone suggests - the solutions may well be all 'fixed' in order to suit the requirements of the rich and influential and the politicians. So, perhaps, we will remain in the pervading status quo of the rich (and influential) getting richer and the poor (including some from the previously-rich-but-now-unemployed category) going to the wall and the pauper's grave.
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I just had the amazing thought that this crisis was planned, or even just a part of a grander strategy.
Brown's biggest ever stealth tax; 30% devaluation, interest on savings ended, pensions reduced, home equity slashed. What better way to rob people of the fruits of their labour and keep them in slavery?
While the inner circle - MPs, bankers, apparatchiks - all get fat on the proceeds.
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#318
As late as last year I would have dismissed such suggestions as entertaining fantasy conspiracy theory ....
Now, I think you are on the right track.
Use of fear, greed and spin/propaganda to rob the masses for the benefit of a few have been going on for decades, at least.
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Barclays creating money again but hey if Gordon Brown can print money, sorry quantative easing, why not everyone. The only fools that get hurt are the taxpayers that will get fleeced yet again next Tuesday.
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#314 glanafon. It is difficult to argue with much of what you write, so I won´t. However:
I am not suggesting that local solutions are a ready made panacea for anything, just that they are possible, whereas it is not possible to change the overarching policies of the government.
I do take issue with your final paragraph. Absent total meltdown there will always be some businesses that are doing well. However substantially all credible independent commentators expect current events to tip the advanced economies into a depressionary environment. Should this be the case things will get a lot worse and the number of thriving businesses will decline further. Somewhere there is a tipping point.
As you say new businesses are needed. As you have also previously said there is evidence that many qualified young people (i.e. the human seedcorn) are in the process of exiting planet UK. So, where are these businesses going to come from?
My personal experience is also not positive. For my sins I know some very wealthy people with substantial investment funds available. One guy wanted me to go to South America to look for investment opportunities. For a variety of reasons I am no position to leave Europe at the moment. I suggested the UK, as the same kind of opportunities should be available there. I was laughed out of court - you must be joking, the UK is far to complicated and uncertain. Makes you think.
Why do you think that people agonise and pontificate over some trivial deal that Barclays enter into and yet totally ignore the fact that 1 in 50 children in the US are homeless? Which piece of news do you think is more illustrative of the mess that we are in and more indicative of the likely future course of events? No, big business is determined to crush the capability of the internet - but as you say this is a fight that has not yet been lost.
Speaking of farmers, as you do, are you aware that they have one of the (if not the highest) rates of suicide of sny occupational group. I wonder why that might be? - and I wonder why the supermarkets don´t come up with a catchy slogan to publicise this fact.
I recall Harold Pinter having something to say with regard to this type of reporting - but of course that wasn´t widely reported either.
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#302 Armegedion times
"So much money has now been committed to the "system" that only 2 possible outcomes remain: (i) Bond markets collapse forcing an abandonment of these commitments, or (ii) Governments subvert bond markets through direct money printing. If option (ii) is pursued then every historical reference point indicates that hyper inflation will follow."
How about (iii) The coordinated actions of various governments begins to stimulate the economy, banks increase lending, the housing market recovers, banks become profitable again (if they ever really stopped) and the nationalised stakes are sold off for a tidy profit on the part of the taxpayer, lessening the need for future tax rises?
As I said before, it is exceptionally unfashionable to be in any way optimistic, but I would rather state my own opinion (or hope) than go along with the conventional, pessimistic view.
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#322
Give that man a 120% mortgage, He deserves it.
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Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.
How did it do that? One way was to hide a lot of losses in not-so-plain sight.
Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.
The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.
Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?
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Just had a quick glance through your laughinglyderangedsheep comments lbs and had to chuckle to myself. Having been party to writing a few complex derivatives, I'd have thought you'd be able to calculate that without AIG's payout Barclays would have made very little if no profit last year.
Barclays being the fith biggest recipient of phantom dollars via the American Government via AIG. Oh look and who's the investment bank that's looking the most successful out of this mess it's Goldman Sachs. How much did that receive? Only about 12.9 billion. Both banks claim they don't need government bailouts!
Barclays never turned a profit last year, and didn't avoid government bailout it got it all from the US With billions of investments defaulting, it obviously had a fair bit of risky assets. Without US state funding it's risky assets make Barclays look like as big if not bigger basket case than many of it's rivals.
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#325
I don't really understand your point here. Whilst AIG may have received a government bailout, surely GS and Barclays have merely received what they were contractually entitled to from AIG?
Do you receive a government bailout if your bank goes bust but the government guarantees your savings?
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Bill Black on Goldman Sachs, accounting tricks & angry taxpayers
[Unsuitable/Broken URL removed by Moderator]
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#322 GHBRich - I hope you are correct in your view. However when you question the profitability of the banks, consider the case of Goldman - as also set out in post #324.
Prior to Goldman obtaining a change to its status in the latter half of 2008 so as to allow it to receive TARP funds (i.e. bail out money) its reporting year ended in November. Post the change to its status it moved to a calendar year reporting structure.
Reported profits for Q1 2009 (i.e. Jan to March) came in at $3.39 per share. This exceeded consensus analyst estimates of $1.64 per share. This news has been widely reported and interpreted as a sign that banking profitability may be recovering.
The change to reporting periods leaves December as an "orphan" month - i.e. it does not feature in the quarterly earnings report. For December Goldman announced losses of $2.15 pr share.
A linear extrapolation (not quite the right methodology - but close enough) leaves earnings per share at $1.24 - i.e. somewhat below the consensus analyst estimate of $1.64.
In addition to this the use of some very complicated language means that it is not possible to draw any proper conclusion as to how much, if any, of the reported profit is recurring in nature.
It maybe that some, or all, of the reported profit only arose because Goldman received $12.9 billion of government money via AIG. The architects of the original scheme to fund Goldman in this way happened to be Goldman and former employees of Goldman. At the time the scheme was created it was intended that the funding received via AIG should not enter the public domain.
If, as you postulate, the banking sector is profitable how do you explain the need to engage in such complicated and obtuse reporting? When you say there is a prevailing mood of pessemism how does that fit with the main media lauding the impressive achievement of Goldman without ever needing to mention the methods to which they have resorted in order to produce their headline numbers?
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#325. Tatruth wrote:
"Goldman Sachs...Barclays...AIG and the US Treasury"
What I still find perplexing is the almost absolute silence of the professional accountants on both sides of the pond in all this. Arn't there supposed to be standards? And if there are are these not supposed to be in place to protect shareholders and investors?
There has been far too much avoidance ans special investment vehicle construction set-up specifically to put a gloss on the accounts and share price of companies but there is only silence from the accountants and auditors!
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Any update on the golden rule and the economic cycle? Where are we and is the golden rule still golden?
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#328
Whilst I will not pretend to understand the intricacies of banking reporting (although I suspect it is not quite as starightforward as you make out), even if Goldman made a loss in December, it was still hugely profitable in the period Jan-Mar.
Given that October/November 2008 saw the biggest banking crisis in 80 years, is it surprising that GS made a loss in December 2008? Not really. Is it surprising that GS made a profit in Jan-Mar 2009? very much so.
As for the AIG cash, see my post 326 above. I'm not sure your analysis of the AIG/GS relationship is correct. As I understand it, GS received from AIG only what it was entitled to. Much like you or I would have done (up to £50,000) if the high street bank with our savings in it had gone under.
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321 armgnd times
I think the point I am trying to make is that it is possible to run a successful business in the UK. From the general tone on this blog you would think such a thing was impossible. As many will find they have no option other than to look at this route it is sensible they are at least aware they can work. Businesses have to do something other than try to take on low labour cost areas with similar products.
If looking to put money anywhere I too would not move to put money into the UK, I would look for a economy less vulnerable. Less 'mullered' to use the venacular, perhaps 'muller lite'. A country with a lower density population and natural resources.
I am aware of the suicide problem amongst farmers, a family friend took this route. The point that was being made was that one sector has not presented its case very well and another has. The one that did not has suffered decimation and people who where not interested not say we need it. Farmers have failed to act as a collective when it comes to the retail issue so have failed. If a small number of buyers dominate your order book you have lost control of your business. I do not know the detail it is not my sector but farmers seem to think they are in competition with one another when the issue is the small number of buyers.
The fact the grass is genuinely greener elsewhere for the young is a concern, rather than propping up failing big business efforts should be made to retain the young. At the same time we have positioned our own activity so it can operate from anywhere, after the nineties we were never prepared to be at the mercy of stupid local policy.
As for the issue of people agonising over Barclays and ignoring children in tents. Barclays is seen as somehow being related however indirectly to their financial situation, as an economic indicator, as an indication of maybe somebody getting away with something somehow. The children in tents are the victims and as I have pointed out the majority who are relatively unaffected walk on by and would prefer they did not exist. The media instinctively know what the public want to see and although they make efforts to show all, not everybody wants to see all. It is most unlikely to be 'most read' topic.
You say that local solutions are not a panacea. I'm saying that they are an experiment and unlikely to work due to a lack of motivation. You say that overarching government policy cannot be moved, and I say it clearly can. It moves in the face of public opinion if the public opinion is strong. The issue is the communication to the public of policy options, the likely outcomes of policy, and the public then expressing opinion. Because of the inertia involved it is difficult but it is possible. The key if there is one is easy communication.
As for tipping points, there probably is one but we are a long way away yet and the tipping point may move as conditions change.
As far as recovery goes this is almost certainly going to be called too early, called short. There are too many people with vested interests wanting to see uplift. I hope the calls are not short but I expect them to be.
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Labour and GB will get re-elected if the following happen before the election.
1. The recovery of every penny of the tax payers money handed out, in whatever form and with whatever excuses, to the banks, financial institutions, other indutrial companies, and all the middlemen who took a cut.
2. The reduction of debt to, say, 40% of GDP.
3. Backdating to 2008 of interests paid to savers.
4. keeping inflation, especially food and utility costs, to the guidelines and levels before September 2008.
Otherwise ... I FEAR we will see the rise and rise of nationalism in UK and Europe.
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331 gbhrich
''As I understand it, GS received from AIG only what it was entitled to. Much like you or I would have done (up to ?50,000) if the high street bank with our savings in it had gone under.''
The issue is in what way is GS entitled 'deliberately' or by 'mistake' or 'deliberate mistake' and the leaky nature of the system. And what was sold as a intervention to the US public at the time. There's a hole in my bucket dear Liza. AIG was bust. If it had been alowed to fail and picked up from the administrator all liabilites would have had the option of being left behind. Whilst this would have left a hole in GS accounts they too could have then turned to seek assistence in plugging that hole. Better I would suggest than what happened.
The UK 50K retail deposit security is not the same thing at all, it is simply lifting a ceiling from a long establishe 35K and is funded by the bank industry. Whereas money supplied to GS was lifted from zero and is funded by the taxpayer, from what I can see.
I dont want to sound as though I am on your case all the time because I agree some of wht you post however your position is essentially to defend what has gone on and this is near impossible because so much that has gone on smells, and not of roses.
As far a reports from banks showing account improvement. I am afraid my reaction is so what. Is this report true, in the same way was the RBS March 08 share raising prospectus true. Or has the position come about from selling a dodgey deal to the taxpayer or what. Or has some change in reporting occurred.
The only thing which is proven is that the taxpayer is dealing with some clever and hardened operators from a group of people which contains members who are under FBI investigation. That is all. If the bounce is so marked just what was the need for taxpayer money.
BTW this is the link I was referring to yesterday - It was NR not HBoS. But under HMG control 125 percentage mortgages were still issued for 6 months. It would be surprising if almost all of those mortgages were not in some form of trouble.
If the housing bottoms with a 40 percent drop, as seen in some points of the 90s recession, these 125 percentage mortgages become 200 percent mortgages and extremely difficult to remortgage.
Further the Halifax mortgage market share rose by almost 50 percent in the last year of independent trading, whilst that is down to Halifax the problem both statistics give is the apparent situation of a lack of control. The last year of expansive trading by Halifax is probably a book riddled with problems. Unguided missiles.
The minute these activities become related to taxpayer money they are up for scrutiny, and it is noticable how little info comes out willingly.
re NR ---
''The Treasury has been criticised for allowing Northern Rock to lend ?800m in risky mortgages for six months after it was propped up with taxpayers' cash.
The National Audit Office report on the Treasury's handling of the crisis found the bank was still giving mortgages of up to 125% in early 2008.''
from the BBC
http://new
s.bbc.co.uk/1/hi/business/7952923.stm
So tell me, when you read it does it make you feel more comfortable, less so, or make no difference.
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#331 GHBRich - One of us has a problem with the English language. I invite you to consider why Goldman resort to "complicated and obtuse reporting" and you accuse me of presenting a "straightforward" analysis. Just so there is no confusion I did NOT make a straightforward analysis not least because no such analysis is possible given the obsufication embedded in Goldmans own statements, announcements and "clarifications".
The situation regarding Goldman and AIG is exactly as I have stated and the historical record will confirm this. If you have any doubts you should undertake your own research. Your contention that Goldman were "entitled" to this money is in manifest error.
How can you possibly conclude that Goldman was "hugely profitable in the period Jan - Mar 2009"? According to Goldman they made $1.8 billion in this quarter and yet no-one knows how much of that was a direct and sole consequence of the $12.9 billion received from AIG. With such deliberate obsufication being put in place no-one can logically conclude anything about Goldmans Q1 profits. All they can do is question the need to resort to such methods.
These are not opinions they are facts - and if you don´t believe them that´s up to you. You are as free as the next man to invest in GS stock -but I won´t be joining you on the share register.
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333,
I agree with your conclusions, except I think we are already further down the road than that.
Who would vote for the tories? We already know what they are like - No thanks!
Who would vote Labour? We already know what they are like - No thanks!
There is no difference between tories or labour, westminster is just a fill your boots gravy train. Get elected, get rich!
A rise in the BNP vote in England followed by a rise in the SNP vote north of the border. Labour are finished IMO, done!
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armgdn times
I did read somewhere that approx 2 percent of the population are estimated to be sociopaths. Quite high dont you think. They are very hard to detect on casual contact. Their characteristic is they damage and exploit those around them without conscience.
With a sociopath you can reverse what they are saying and you get what is really being said. So - I am not interested in you for your money etc = I am very interested etc. I am just a dumb blonde who wouldnt harm a fly = I am a razor sharp operator and my instinct is eliminate all opposition. I have just escaped from an abusive relationship = I am abusive and my last victim has escaped. rofl. It is hard to keep a straight face at times.
Applies to both men and women and to all spheres including business. So I am afraid with most people I invert what they say on first contact and then check if the subnsquent behaviour confirms or otherwise.
If the inverse of contact statement looks to be supported by subsequent behavior then I avoid like the plague. Further - at least some specialists in behavior have suggested that there may be sociopaths in the higher reaches of some organisation.
I am sure this could not be the case because if it was then those organisations would be at least partly sociopath in nature. And I am sure this could not happen. Nevertheless, as my response is to follow the route of reversing some statements to check, I apply this to bank executives statements, even though there should only be a 2 approx percent chance of them being a sociopath, it is enough of a potential problem for me to do this. It then is quite interesting to compare subsequent developments with those inverted statements.
BTW this procedure does not damage relationships with non sociopaths. This is because sociopaths soon let their guard down because they rely on you never asking the question true or false about their statements.
People who are not sociopaths generally have no comprehension that anybody could so completely and grossly misrepresent so are vulnerable.
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#333. puzzling wrote:
"Labour and GB will get re-elected if the following happen before the election...
3. Backdating to 2008 of interests paid to savers."
Backdating of interest? I'm not sure I know what you mean by this. There is nothing to "backdate". Are you suggesting that the government should somehow compensate savers for the low interest rates? If so, this is more than a little simplistic.
Should they also take money back from mortgage-holders who have benefited from those low interest rates? What about those who have both savings and a mortgage?
Isn't it better simply to accept that interest rates go up and down, and that people's savings income and loan repayments vary as a result?
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The business has been publicly marketed to achieve the best price possible today. CVC are a buyout house who need debt to fund a purchase. Which bank is better placed to understand ishares better than Barclays?
Barclays has a right to 25% of any upside over a hurdle rate i.e. if they sold it too cheap, they get 25% of the upside.
If they oversold it, they have undertaken to hold 51% of the debt for 5 years; i.e. If it defaults they will control the banking syndicate and be able to regain control.
Why not report the whole deal?
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Armegedion
I suggest that you do not understand the role of AIG.
AIG insured CDSs/mortgage backed securities etc. Goldman purchased this insurance from AIG and expected AIG to share its liabilities if these loans went bad (that is what insurance is for).
Now if AIG went bust, GS, as its creditor would have had to look to AIG's estate for the money it was owed.
This is no different from you holding a bank account with Halifax, and the govt stepping in to save Halifax so you do not lose your money.
And I would thank you in future from not presenting your OPINONS as facts and my facts as opinions.
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#336. JavaMan1984 wrote:
"A rise in the BNP vote in England followed by a rise in the SNP vote north of the border. Labour are finished IMO, done!"
You really think that people are going to vote for the BNP in large numbers simply because they are fed up with the two main parties? That's ridiculous. BNP is a party founded on racism.
Your idea that the BNP is somehow the "English Nationalist Party", akin to the SNP or Plaid Cymru, is simply wrong.
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#332 glanafon. I agree with the vast bulk of your sentiments, but I fear you are in error by believing that overarching government policy can be changed (absent violent revolution).
Consider that since the mid 1970´s real wages as a proportion of GDP have been in constant decline. Do you think the public demanded their own impoverishment?
The growing gap caused by the decline in real wage levels was plugged by ever rising debt levels. Do you think the public demanded their own financial enslavement?
Now the debt bubble has burst you, me, our children and our grandchildren are being lined up to foot the bill. Do you see any popular demand for a return to mass servitude?
Take a look at specific events. Were you part of the mass demonstrations demanding that the British invade Iraq as soon as possible? Have you ever spoken to anyone, anywhere who can provide a cogent explanation for what the UK is all about in Afghanistan?
British taxpayers money was for years used to prop up Pol Pot. Do you think the average man in the street is proud to have helped finance a man who murdered some 30% of the Cambodian population?
The only things that change are spin, presentation and issues deemed irrelevant by those with power. I mean who cares if you have a poll tax or a Council Tax - either way you get to take money off the population. The key is access to money - those with access don´t care as to method of access, only that they have access.
You can´t find any examples where the powerful have surrendered access to what they want - but there are plenty of examples of their being highly flexible as to method. All that flexibility that´s what proves they can think "outside the box" - it comforts them as to their own intelligence and allows them to feel that they deserve what they are taking.
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I see they are trying to re inflate the housing market again this week.
they can't wait to sucker the fools in again, and get the City's gravy train going again.
Beware
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gbhrich
''UBS made a first-quarter loss and will cut another 11 percent of staff, its new chief executive said on Wednesday, warning that Switzerland's largest bank still faces an uncertain future.'' Reuters
Takes the skim off the milk a bit.
If AIG was bust and its assets where worth less than the laibilities there would be no worthwhile payout to creditors. In the same way creditors od the icelandic collapse are looking at between 0.9 and 9 pence in the pound, a good deal less than the full fat 100 percent. Same quite possible in the AIG case.
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Glanafon
1) Yesterday you said that HBOS was giving out 125% loans 6 months after being taken into public ownership. I said, I don't think so, HBOS was only taken into public ownership less than 6 months ago and 125% mortgages were off the table over a year ago now. You then sent a link from April 2008 claiming it was from April 2009 to prove your point.
You were wrong, please admit it.
2) Now you say that you meant Northern Rock. I accept you made a mistake first time around and will address your point now. Again, you are wrong. NR did not come into public ownership until Feb/Mar 2008, some time after 125% mortgages were withdrawn. Public money was first used to prop up the Rock in September 2007, but I'm not sure how much control that gave the govt. In any event, it is easy to say all this in hindsight, but most banks were offering 125% mortgages in September 2007 (which is how we got into this mess in the first place) so all these people
3) "AIG was bust. If it had been alowed to fail and picked up from the administrator all liabilites would have had the option of being left behind. Whilst this would have left a hole in GS accounts they too could have then turned to seek assistence in plugging that hole. Better I would suggest than what happened."
Why should GS have to beg the treasury for money that it was entitled to pursuant to contracts of insurance with AIG? The reason that the US govt propped up AIG is that every major bank in the world had insurance contracts with it and would have gone under if AIG had. But that IS NOT THE SAME as GS itself having been bailed out.
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"If AIG was bust and its assets where worth less than the laibilities there would be no worthwhile payout to creditors. In the same way creditors od the icelandic collapse are looking at between 0.9 and 9 pence in the pound, a good deal less than the full fat 100 percent. Same quite possible in the AIG case."
Thank you for making my point for me! If my company makes £1m profit last year, invests it in IceSave and IceSave goes bust, is my company profitable?
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341,
I said there would be a rise in the votes for those parties, I did not say they were somehow linked.
I have good idea’s as to why this will happen.
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#340 GHBRich - OK, one last go.
An understanding of AIG is relevant to an analysis of the Goldman accounts only to the extent that the US Govt. funneled $12.9 billion of US taxpayers money to Goldman through the medium of AIG. The core business of AIG is completely irrelevent to this analysis. It makes no difference whether AIG insured complex derivatives or manufactured milk floats.
My core analysis does not rely on any opinion - the numbers I used came from Goldman themselves. It is a fact that Goldmans accounts do not provide for any meaningful understanding as to what part, if any, of their profits arose as a result of money received from AIG. It is a fact that Blackstone have indicated that a substantial part of Goldmans reported profits may be non recurrable in nature.
The only instance in which I have expressed an opinion is when I invite consideration as to why Goldman may have chosen to resort to complicated and obtuse reporting of its accounts. I would have thought it self evidently obvious that such a statement is not and cannot be factual.
Whereas with your musings, I remain at a loss to identify any substantive facts.
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342 armdgn times
I do not want to get into an argument about the nitty gritty Mr Times. Nor do I particularly want to see the elimination of hope. I have already taken what positoning can be done. Here we are active and independent of location. Our offspring have been well educted and positioned, under their own motivation when certain aspects of the situation have been put to them to consider. One, highly qualified, and in asought after profession is trying a year abroad and sadly is unlikely to return. Another may follow. The issue is not what happnes here.
Some of your points may be correct, but some may be a bit ingenious. For example the decline in UK income per head of population is likely associated with the development of low labour areas. I am afraid the UK population has been quite comfortable with debt, howver damaging it was going to be. The current landscape is likely to improve but it is reality and people have to recognise there is no easy ticket. However I will pass on an arguement if you will give me that favour. If the internet does not provide a route forward then servitude does beckon, but not for me - with a bit of luck. But tell me where has servitude for some not been present.
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#337 glanafon
You mentioned sociopaths. Now that's kind of interesting. Whereas if someone suffers from say manic depression, s/he might be sectioned under the mental health act, say s.3 for treatment, with sociopaths however, that normally doesn't happen because they're not regarded as being treatable.
So, whereas the manic depressive would probably never rise to the giddy heights iof an organisation, or be recruited into a high-level post (as s/he has a 'history' of mental illness), sociopaths might make it in through the door. Of course, some job candidate selection processes would vet out such persons, but then some selection processes certainly would not.
But if the industry were better professionalised, that's the sort of issue that can be addressed by the profession - i.e. recruitment and selection standards - much as they are in other professions.
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