Why banks must be allowed to die
There's something of an Old Testament sermon at the kernel of the latest Financial Stability Report by the Bank of England.
When discussing how to reconstruct the banking system so that its periodic excesses never again propel more-or-less the whole world into recession, this is what those sobre chaps in Threadneedle Street say:
"To control risk-taking, financial institutions need to face a credible threat of closure or wind down."
Or to put it another way, the prospect of death rather focusses the mind. For most of us, it's a deterrent against taking excessive risks.
If we knew that we'd always be patched up and kept alive, no matter how much damage we wreaked on ourselves through reckless behaviour - well, we might be tempted to party just a little bit harder than is wise.
So banks too can't be expected to behave themselves unless and until they become convinced that the deal-too-far would send them to the knacker's yard, rather than landing taxpayers with an enormous bill for rescuing them.
Which implies three things:
(1) Banks must be prevented from pumping themselves up to such terrifyingly enormous dimensions as became almost commonplace. Because no government would ever willingly take the risk of allowing the precipitous demise of a bank, like Royal Bank of Scotland, the assets and liabilities of which exceed the output of the British economy by a comfortable margin. If RBS had gone bust, the UK would have been hammering on the door of the IMF for succour.
(2) No bank should be so complex that the relevant regulator can't confidently predict the impact on other financial institutions and the economy of its demise.
(3) All banks should write a contingency plan - what Mervyn King calls a "will" - that would make it easy to protect and separate the deposits of its innocent retail customers, in the event of an accident that mullered the shareholders and other creditors.
Those are the three rules for sanitising the banking system. Sounds simple enough, doesn't it?
If only it were.
The financial elite is broadly divided into three groups on all of this:
(a) there's the Treasury and the Financial Services Authority, which believe that banks can be encouraged to go on an crash diet by imposing a hefty punitive tariff - in the form of disproportionately high capital ratios - on those that remain dangerously big and complex;
(b) there's the Lib Dems, the Tories and (not quite yet) the Bank of England, which explicitly or implicitly say that banks have to be bifurcated by fiat;
(c) and then there are the grey-haired bankers, who think that chaps like me will soon tire of our tedious preoccupation with their size and structure, and they will soon again be gorging to their hearts' content.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~17~RS~)
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A most unfortunate analogy...
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you dont need a lot of rules to manage the banks...just implement a law that the bank directors are 100% personally liable for any loss.. If i go to the bank for a loan they want my house as security....well if their every penny was on the line they may think twice about taking risks with depositors funds.....
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Does anybody know why Peston has completely ignored the most important story of recent days: namely, the Exocet missile that the governor of the Bank of England fired at NuLabour's reckless, scorched-earth fiscal policies? He said that not only is fiscal policy unsustainable now, but also it was unsustainable before the recession began. I would have thought that this was worthy of note by the BBCs business editor. Is it too off-message for the BBC? Safer to stick to bank regulation.
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Peston,
Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average) ... before your next Chapter in The Big Book Of Banking...
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Agree with jolo13.
Perhaps the financial markets should propogate risk to the same places that it propogates the rewards.
We all know it was unconcienable that Sir Fred Goodwin took his bank to the brink of bankruptcy and walked away with such a handsome swag of cash.
Were he required to not only stake his reputation, but also his current financial status, I believe significant caution would affect the financial markets to the ultimate interests of all of us.
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Regulation can easily become lax or even forgotten about over a relatively short period of time. The good times are just too enticing.
What is needed is for a fix to be enshrined in an act of law similar to the US Glass-Steagall act of the 1930's.
This was the only thing that prevented a depression for the last 70 years.
It's no coincidence that its relatively recent repeal resulted in the meltdown we have just experienced.
We must separate the plain vanilla retail banks from the casino investment banks (by law) in order to avoid the dilemma of moral hazard.
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this is a good piece that makes good sense.
I will always despise the banks, because they really do hammer the poor. When I get very ill I can't manage my money. The bank doesn't help by taking 3/4 of my disablity money before I even recieve it.
I have had to move banks and have the most basic cash card with no direct debits so that when I go through periods of being very ill, i will still be able to buy some food.
I have no sympathy for these people (im not talking about the guy who you pay money into, but the execs). They make money by moving numbers from account to account, and taking numbers from anyone who can't manage their own affairs.
I look forward to a future where the entire global monetry system is replaced by something of a different concept.
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Hear, hear! Banks must be allowed to die! And so must financial bubbles! Yet they aren't!
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The issues about banking don't just apply to the UK. If the UK applied regulation without regard to what other major countries are doing then banks would simply move some of their activities to other countries. Banks operate internationally and regulation will need to as well as the crisis showed the interdependence of countries in the global economy. Last year, the Tories where gloating about the critisms of the German government about the UK economy - yet the Germany economy despite its supposed "prudent" fiscal policies is in a far worse economic position than the UK. International problems require international solutions and the banking problem is no exception.
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"There's the Libdems, the Tories and (not quite yet) the Bank of England, which explicity or implicitly say that banks have to be bifurcated by fiat."
I know the Lib Dems want a UK version of the old Glass Steagall Act from the US, but I haven't heard the Tories say they want this. Anyone know any more?
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This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
Save the economy plan
Government Intervention
Lend the incompetent even more money
Make the poor people even more poorer
They like being screwed by us and them
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To understand the financial crisis you need to understand the economy, the capitalist economy.
It is not about regulation to control individual behaviour so that the desired aggregate result (no more boom and bust) is achieved.
Capitalism exists for profit.
The superstructure (parliament, the courts, the Bank of England, the FSA, etc) are the political expression of the underlying economic relations.
In otherwords, those who make the laws are capitalists.
Any restrictions on the rate of profit get swept aside, e.g. the rush to the lowest corporation tax rate.
It is the rate or profit and its relationship to economic growth (capital accumulation) that determines the cycle of boom and bust.
But the current crisis looks to be more than just the cyclical crisis requiring a devaluation of capital to restore the rate of profit.
There is also the crisis theory of the breakdown of capitalism, whereby capitalism to grow is required to loot a non-capitalist part, e.g. Chinese peasants, Amazonian rainforest, Saudi oil, etc.
Fictitious capital, the printing of US dollars, only postpones the inevitable.
They have been trying to postpone the inevitable since the US dollar decoupled from gold.
Better regulation will not save capitalism.
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This is more like your usual clear sighted form, Robert, than that terrible blog on Liverpool Football club. First thing is to restore financial health to the banks. Second thing is to break them up and set a clear limit that none of them may have more than 10% of the national business. Then when the inevitable occurs and one of them gets into trouble, LET IT DIE. We will get no more banking trouble for the rest of this century.
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#9 stevenpalmer
I would disagree with you 100% re the German economy. I work in Hamburg and do not see anything like the economic crisis we have in the UK. Yes, there are certain problems(eg Karstadt and their owners, equivalent of John Lewis, but much bigger), but Mr Prudence could have learnt a lot from Germany and others in Europe, but no he was part instigator for this mess and self-declares he will clear it up as leader of the financial world - yeah right!!!!
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In principle you are right, but its not going to happen is it? Rescuing RBS and HBOS has done no good, better to guarantee domestic deposits and let the rest go down. No need for the IMF unless you take private debt onto public books, which unfortunately they now have.
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Your three implications are very good but do not go quite far enough. Sterner measures are necessary and I have suggested them on your other blogs so I won't do so again.
The problems come from the politicians because the bankers don't really count in this. And the politicians support the banks.
The real opposition is in dissaray so nothing will be done. The real opposition is the people, but while some are telling us to vote for independents and others are saying we must vote for the party capable of forming a government, and yet others are calling for new parties which the two other groups wouldn't support, Labour and the Tories have the field. Unless the real opposition can unite around some principles and policies that is the way it is going to be on an ongoing basis
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re my comment @ #1, the comment was in relation to the original version of this blog, as published, and in the light of then breaking news.
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True, Banks must die. Bankruptcy has a vital role in keeping the wheels of commerce turning. It is a pity that the blindingly obvious has taken so long to sink in (literally at the midnight hour, for Robert Preston!).
That said, small and medium depositors must be protected otherwise the crooks of finance will set up business after business with the objective of going bankrupt and defrauding depositors. Depositors has a different position to that of investors and shareholders.
The great advantage of bankruptcy is that it lets overpriced assets back into the market at a lower price and thus returned to potential productive capacity at a proper price.
The disadvantage of bailing out every bank is that their overpriced asset books remain stagnant and unproductive, and further the fact that their assets remain overpriced holds up the overpriced assets held by others and this depresses market activity.
(Think - estate agents make money when they sell houses not from the 'fact' that house prices are absurdly high! etc. in other users of assets.) In the end it is the productive use of assets that matters not their price level.
We will I think need legislative measures that stop banks being and getting too big. Perhaps only letting a single bank exist in a single nation or in not more that two or three nations. But it is tricky.
The fact is however that there never will be global regulation and as such global banks (and other businesses?) will have to be prevented. (In that it must be said that the Anti-Globalisation protesters may be advocating a sound economic point.)
One way ahead may perhaps an agreement to changes in the tax laws that push the market into doing the trick. E.G. make a business's global profits taxable in every country they trade if they trade in more than say 5% of the World by GDP - without double taxation relief! This would make international businesses think twice about growing too big.
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Isn't this a little like closing the stable door after the horse has bolted?
The point at which banks might have collapsed (died) has, by and large, passed. We, the taxpayer, didn't let them die.
Further, where we did let them die this is largely regarded as a failed decision, Lehman Bros, albeit that they were not technically a 'bank'.
This is a question of regulation, or lack thereof. Without regulation the banks took the preverbial biscuit, the FSA sent a few memos and went on holiday and hey presto- the tower of cards collapsed.
Next steps.
1. Establish product certification procedures via the FSA, no more collateralised debt products et al without certification, and no more buck passing by the FSA in future. Any further mistakes will absolutely be on their watch.
2. Provide the Bank of England with oversight and the ability to regulate capital ratios of all banks and lending institutions. Punitive sanctions in place for non compliance.
This is not/should not be about stopping the banks from making money. We are now shareholders in these same banks and more importantly are paying interest on the money/debt we owe having borrowed the money to bail them out. The more they make, the less we will have to pay.
However, profit should never be 'at any cost' and the banks have let us down. They should therefore be regulated more tightly. Talk of letting them die however is misconceived. The economic impact of such a policy would be disasterous and would send interest rates on national debt into orbit whilst simultaneously killing consumer confidence at a time when government revenue would be squeezed.
What is currently being called a bailout will hopefully, in time be called an investment. Perhaps wishful thinking but you never know.
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I agree there has to be an explicit link between action/inaction and consequence. For most people, the risk of personal liability, loss of pension & bank death will moderate their behaviour at the extremes.
However, we cannot allow banks to blow up the country/world systems when they have to die. The extreme risk takers will take us all down when they go down. These are the ones whose behaviour necessitates these regulations.
If you're too big to fail, then you're too big for the UK. Period.
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It's all very well if the institution has the threat of "death", but institutions don't make decisions, people do. And while there is limited liability - that is, an unlimited upside with limited downside - bank shareholders and employees will always have an incentive to take excessive risks. If the company makes £100 billion profit, the shareholders and employees keep it; if it makes £100 billion loss, the shareholders and employees don't have to pay it - the creditors do.
So the possibility of bank failure actually needs to be a discipline on the creditors of a bank, not its management. And to impose this discipline, creditors need to have much more transparent information about the bank than they do at present.
This is the theme of our submission to the Walker Review which the Treasury is currently carrying out:
http://www.knowingandmaking.com/2009/06/our-submission-to-walker-review.html
and also a Martin Wolf article from a couple of days ago:
http://www.ft.com/cms/s/0/095722f6-6028-11de-a09b-00144feabdc0.html
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When a bank is bigger than a country there has to be a problem. Countries that behave recklessly, have no democratic system, self harm and destablise are regarded with concern. Yet a bank it would seem can do all of those things and the only response in general is to provide aid. Bailing a bust business is now talked of in terms of achievement.
The capitalist system encourages risk taking. Fair enough. The capitalist system also says if you're broke due to risks gone sour, then tough luck. Businesses that self reward staff and shareholders cannot have it both ways, capitalism on the way up and socialism on the way down, then capitalism on the way up again. Public money is limited and there are better strategic uses for it than bailing out businesses, whether or not a return or even profit to the public purse in due course occurs.
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The stupid government allowed the banks to gorge themselves so that they could gorge in their turn on the taxes generated. That is the history of the British economy between 1997 and 2007. Then excess caused the wheel to fall off the bandwaggon and eventually the taxpayer was forced to step up to the plate and bail out the lot.
We are now a long way down the road from then but what has happened to prevent a repeat performance? Not a lot.
As a matter of critical urgency we need to divide retail banking from the funny stuff. This is so blindingly obvious I cannot understand why it has not been done already.
There also needs to be a period of austerity in the CIty. If I were the Chancellor I would be encouraging investment - real investment in value creation in the UK not the wet-the-wall-on-a-Friday night type of investment so beloved of this government - whilst whacking a great big tax on the big profits and big bonuses. If the City squeals then they will just be told they are paying for the folly of their own class so they should sort themselves out. The tax will remain, even selectively if necessary, until there is a sign of the old boring professionaliam returning amongst bankers.
The prospect of a hanging will always concentrate the mind and as all the greed of the Blair-Brown period becomes apparent the public are in a hanging mood.
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If Goodwin et al can walk away from their monumental disasters either with a fist full of dollars and/or into another overpaid job where's is the risk? Where is the disincentive to wreek havoc on the economy and ruin so many lives of ordinary customers and employees? The state and the law must have a role here.
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4 ComradePeps
''Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average)''
Irrelevent. Taxes are always with us.
Insufficient income to justify a 24 Billion GBP hole. Man in any recognisable form has not even existed for 24 Billion years. Thats how big the number is. The Jurrassic period was 144 Million years ago. All sounds better if you call it 24 somethings that people find difficulty in scaling.
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Should be allowed to die ? The banks know the score, and they always have.
They choose to play on regardless, confident that politicians who don't know, will pick up the pieces. With Brown at the helm, who's to say they are wrong ?
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Friedman and Hajek fundamentals. When you read them first time you also wonder how on earth that could be practice with today's banks, their size and widespread activities. More suited for the Wild West era. True, the banks should become smaller, more transparant and less divers. Consumers should be taught to divide their capital to more accounts. A guarantee that 30000 will be save per account but no guarantee that the bank will be saved. A body that ensures this, controlled by the national bank or on EU level. No bank license without joining that body and contributing to its reserves. A Rhineland version of the fundamentals.
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Retail banks to remain purely retail and investment banks to remain gamblers. Fair enough. Explain that the investment banks can go under but retail banks will have deposits guarenteed.
Problem is getting the off-balance sheet rubbish sorted. IF ONLY WE KNEW HOW BIG THE PILE IS. ANYONE LOOKED INTO THIS SINCE THE CRISIS STARTED NEARLY 2 YEARS AGO? Robert?
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Surely this isn't too difficult? - All good ideas but any bank applying for Government support should know that as a condition the shareholders funds will be forfeit, the directors and senior managers will have to resign and waive their compensation, be banned from working in a regulated business for 10 years and that their business will be broken up and the proceeds divided between the Government and the senior debt holders.
If Banks and bankers understand fully the downside to any recklessness is "transparent" and personal you can be sure their behaviour will be moderated. Then if we the taxpayer have to pick up the mess we'll know that at least there was a penalty for failure
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Everyone knows what is up with the banks. In one word - Greed.
More specifically, the need to get rich quick and to show to shareholders that they can get rich quick too.
That feeds basic corporate strategies which are
a) unhealthy for the National / European / Global economies,
b) unhealthy for the longer term stability of the companies (by company, I mean it in its literal sense, ALL the people involved with the enterprise, staff, managers, investors, customers,) and
c) damages the social security of those involved with the bank, through the damage of unprepared for 'bust' cycles.
In a nutshell, it's that Anglo American, Harvard Business School way of doing things - it's 'gun-ho' commerce, 'flatten the opposition', 'who cares about some people getting hurt?' (As long as its not me!)
Until we legislate and regulate against that very damaging way of doing things, greedy fools will keep going around and around the cycle driven by what is, in effect, their gambling addiction. They - because they are oh so 'smart' that they need to be paid fortunes in pay and bonus deals - will be wise enough to back out of the dodgy deal in time.
Of course, we know many of them just won't be that prudent or wise and don't know when to back out. We've seen what happens when these arrogant, egotistical fools can't have the humility to admit they got it wrong and walk away from a gamble.
And many grey-haired bankers should humbly remember that if various governments around the world had not significantly bailed their industry out they would probably by now be grey-haired supermarket workers, or grey-haired street sweepers, if employed at all.
There is the old adage that 'the only thing history teaches us it that history teaches us nothing'.
And the phenomenon that we have recently experienced is no new thing at all. It's just a variation upon a theme of Emile Zola's book L'Argent written in 1891, which though fiction, details the psychology of the situation candidly.
No grey-haired banker is going to vote for greater regulation of the system, any more than the punters in the local betting shop would vote for greater restrictions on what they do. Right or wrong, good or bad, gambling with money (usually other people's) IS what bankers do.
The problem is the difference between prudent corporate risk management strategies and what is, in actual fact, the buzz of the gamble.
Now, dear Regulators, go and work out how to separate out the two things, before these financial fools, despite their alleged expertise, bankrupt the entire human race once and for all.
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Rather than let them die, why not "encourage" them to be socially responsible. The growth in sales culture has led to bad advice for customers and has been the cause of great stress and pressure for staff. The banks are huge with vast value, but they only focus on shareholder value. We could set up a new tax arrangement for them, based on what their wider contribution to society is. This would be the return for the knowledge that they won't go bust.
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#9 steven palmer
German deficit to 2013 4-6%
British deficit to 2013 10-12%
No one should gloat but the facts are facts.
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Who lends his money without usury and does not accept a bribe against the innocent. He who does these things will never be shaken. Psalms 15:5
No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money. Matthew 6:24
The rich ruleth over the poor, and the borrower is servant to the lender.
Proverbs 22:7
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#26 couldnt have put it better myself. You sir or madam have it precisely laid out! Now where do I put that cross to make you the next chancellor?
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Robert, it won't work. UK and USA have already been bought with money.
Banks may be more tightly regulated, but individuals can still happily risk the banks for good personal gains, and get away with it. It is not just in banking and finance. Everywhere and everything where somebody think they can get away with gains at other people's expenses and risks.
A more effective way is to make risks and the subsequences personal and proportional to gains, in depth, breadth and duration, regardless of race, religion, location and nationality.
This event is inviting global dictatorship. Perhap that is the hidden agenda.
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I'm with #s 2, 25, 26 and 27.
If bank directors had to lay all of their own assets, including future pensions, on the line, then maybe we would see some of this supposed "real" talent emerging.
Why am I still expected to continue to teach children to admit mistakes, face reality and correct their behaviour, be honest, take responsibility for their actions when so many "talented" adults and politicians do the exact opposite.... Or should I just relax the rules and have a free for all?
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Apart from strong regulation, I still see the absolute necessity to BREAK THESE BANKS UP INTO SMALLER PARTS.
Given that banking can sometimes be risky, to have one single unit that is twice the size of UK gdp is crazy (as we are all finding out).
All these huge banks should split into their High-Street current and savings retail sections (the bit we WILL guarantee), and all else.... overseas, investments, buy-to-let, business etc must be seperated into different companies that will be bankrupted if they fail.
British banks are too big for this economy and population to guarantee.
"But allowing any British banks to go bankrupt will damage the UK financial reputation"....hard luck, we now need to live in the real world.
Bailing out buy-to-let losses is particularily infuriating to me as the taxpayer is clearly SUBSIDISING PROPERTY SPECULATION. We wouldn't have got the profits, would we?
BREAK THEM UP, AND STOP MOLLY-CODDLING THEM.
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"... make it easy to protect and separate the deposits of its innocent retail customers, in the event of an accident that mullered the shareholders and other creditors.". This seems to be a key point, though I don't think it should be just a contingency plan.
Would it not be possible to legislate that no other creditor of a bank can have a higher claim on the bank's assets than retail depostors? In other words if banks raise additional funds from wholesale money markets, they should not be allowed to use their assets as collateral for such loans. Wholesale loans should in effect be unsecured in the same way as retail deposits. It would make them more expensive of course, but perhaps that would make such a souurce of funding less attractive and encourage the banks to seek a greater source of funding from retail deposits (which I think would be a good thing).
I think such legislation would also put a stop to a lot of the off-balance sheet nonsense.
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Bearing in mind the huge rewards that are on offer for Bankers the risks they face are very small. Look at Goodwin how he is being made to suffer, bust the business and still gets a huge pension. Ex CEO of HBOS Andy Hornby linked with becoming CEO of Boots. Once upon a time the reason given for huge salaries in business was the personal risk taken by top executives. I would have loved the risk that meant if I failed I got a huge pay off, its even worse now than when 2 year rolling contracts were all the rage. If a gambler loses all of his money in Ladbrokes, they don't give him his stake back and tell him not to appear again. It is impossible to believe that depositors in any bank should lose their hard earned money but it is also right that those executives responsible lose the rewards they took, often against shaky targets. Finally lets get back to a basic understanding of what banking is about, they don't sell "products" they deal with peoples hard earned assets, the "retail" culture for banking should disappear completely, it is too fundemental to peoples lives.
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The banks are dead, but kept on life support, so their good parts can be appropriated by the criminals that run the show.
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#3 PRF101
Agree.
Ignored by Robert but covered by the political editor, Nick Robinson's "Mervyns done it again " Newslog
Post 38 by arr-jay on that blog is worth reading and made me think were stuck in this mess for the long term.
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15, "They have been trying to postpone the inevitable "
What is inevitable ?
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Bifurcated by fiat, eh? Is that before or after they've been castigated and ostracised?.
And a banker in a fiat-surely not!
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And in a worrying development, a BBC report has shown that American Cities are starting to sue banks in relation to sub-prime losses.
That will possibly lengthen and deepen the crisis.
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17. At 07:52am on 26 Jun 2009, tone1947 I would disagree with you 100% re the German economy. I work in Hamburg and do not see anything like the economic crisis we have in the UK.
The last time I looked Germany's unemployment rate was 7.9% against UK rate of 7.2% .Well done Hamburg for avoiding the recession ,obviously it must be OTHER parts of Germany who having a bad time.
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#44 Moorlandwoman
Hear, Hear
In his necessarily sotto voce, Mervyn King made it absolutely clear to the committee.
I don't think the thrust and implications of the story is lost on fellow bloggers.
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#39. nottoonear wrote:
'Why am I still expected to continue to teach children to admit mistakes, face reality and correct their behaviour, be honest, take responsibility for their actions when so many "talented" adults and politicians do the exact opposite....'
Because, to make their power and wealth, those otherwise are dependent on the rest of us to work hard, to be honest, to take responsibilities, to be content, to be weak and unquestioning and to swallow lies and spins.
Robert, Old Testament? How about the book of Obadiah and Proverb 16:18
"Pride goes before destruction, a haughty spirit before a fall" ?
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"bifurcated by fiat", surely this is wrong. Bifurcating implies splitting into two equal parts as in a bi-fork i.e. fork with two equal prongs.
The principle behind splitting the banks in retail and investment components, their relative size is of no importance.
Brown, Darling and Turner have bought into the argument that the banks have put forward that the big beasts will go offshore to Dubai or similar exotic location. Would this be a bad thing? Dubai (with the support of the rest of the Emirates) could afford to bail out a global bank to two, the next time they go broke (about 2025?)
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Surely if our currency was (once more) backed by gold, this would make it much more difficult for the banks to get out of control.
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We need a new prime minister. One who will
"Bring an end to boom and bust"
Anyone have any ideas!?
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Robert Peston is right. Like any other business that fails, banks should be allowed to die. However, to protect shareholders and investors, banks should have a collective mutual insurance scheme against going bust. In the case of Northern Rock, for example, the rest of the banking/insurance industry would have protected investors - not the general taxpayer or government. In view of the size of the debts incurred when a bank fails, this would involve the international banking/insurance community as a whole. Part of the huge profits from banks would be used to build up the fund - rather than provide top management with astronomically high rewards for failure!
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#49 hughesz
Statistics are a snapshot.
German unemployment is measured differently to British unemployment.
The British figures only count 'unemployed' as those receiving contribution or income based for six months. The Germans for two or three years.
British unemployment is 'hidden' in the statistics and has been for years. A receiver of unemployment benefit is no longer counted after six months because he/she goes off the definition.
The rate of increase is also important. That can't be hidden by methodology. That is were the collapse is to be measured.
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Having worked for many banks over 30 years it is distressing seeing the excesses over the last decade. There has always been the 'old boys' network - you know - it's not what you know but who you know. In the old days this saw the over promotion of individuals till they rose to levels beyond their competence. Now we have the spectre of individuals starting their banking careers at Chief Executive or Director level. This coupled with greed and a devil may care attitude adds to their ignorance and has contributed greatly to the crisis.
Our regulators are equally culpable. Where have the principles of collective board fresponsibility gone ? How can we have a system (Basel2) that allows banks to come up with their own ratings strategy (IRB or AIRB) and stress testing (but only using historic data - i.e. that has never happened to us - so it won't ever ?). The much vaulted VaR system using fat and swan tails has also failed. It is all well and good comstructing risk models that work for 95% of the time but the sub prime crisis was the 5% and it's losses were astronomic.
Talking of which, why has no-one questioned why bankers were allowed to dilute their balance sheet to such an expend on risky lending (the sub prime was caused by irresponsible banks lending to individuals who were unable to get credit elsewhere).
I am not advocating going back to the Captain Mainwaring style of bank manager but in my day you needed to qualify to progress and there were safeguards and controls to lending and dealing. We need to get back to realistic and responsible banks run by individuals who consider their job as a vocation not a means of getting exhorbitant 'golden hello's', obscene bonuses and equally outrageous pensions.
Robert Peston is right - there whould be no rewards for failure - executives must be made personally accountable - that is the only way they can begin to justify their high levels of compensation.
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Well some say the green shoots are now appearing, but it seems to me that nothing has changed. Bankers are set to make vast profits at the expense of innocent people, politicians have not been punished for defrauding the taxpayer in the expenses debacle, savers are footing the bill for buy to let mortgages (i.e. property speculation) and for the purchase of brand new cars on the never never.
It all adds up to an UNJUST SOCIETY and it will end with riots on the street when people realise that the green shoots are actually weeds and all the fairy money which has been injected into the economy is actually a systemic poison and not the fertiliser people believe it to be. I am so angry that I look forward to the time when reality kicks in, however much this will harm me personally.
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3. At 00:31am on 26 Jun 2009, PRF101 wrote:
Does anybody know why Peston has completely ignored the most important story of recent days: namely, the Exocet missile that the governor of the Bank of England fired at NuLabour's.
I agree with above.The treasuries figures from the budget are looking terrible against April and May actual figures .If growth does not return as Darlings prediction ,we could be 50 to 100 billion above the budget defiecet figure of 150 billion.This is a massive number and will have far reaching implications to all future public expenditure including education and health.I hope the BBC are going to do a Q1 report for next months (June)figures .The general public have a right to know their fate...
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The only way out of the s---- that we are in is to increase or manufacturing base money can only be made be working manually we have proved that the vast sums earned in the financial sector were only paper pounds which blew away quicker that they were gained and the working man/woman is now paying for the greed of the banklords for the goverment and the financial services to expect the country to recover without investment in manufactoring is pie in the sky
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While considering a meaningful contribution to this thread I spotted a spelling error in the article at the top. "Sober" is spelt sober, not sobre. If someone else has drawn this to your attention and I failed to spot their correction, I apologise.
Back to the head scratching...
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#2 jolo13
Absolutly right.
However, there are rules which say that a directors first prioity is to
the shareholders so I am amazed that shareholders of companies like Northern Rock havnt formed a group and taken a class action type case against the Directors for personal liabilty ? Anyone know why that hasnt happened ? The ex directors are still enjoying their super rich lifestyle whilst millions of shareholders have lost their shirts ? ( I was not a shareholder of any of the banks including Northern Rock) Just staggered that they have got away scot free.
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Surely if the country is going to pick up the tab every time these gamblers get it wrong,then the banks are effectively a nationalised industry.
Banks MUST be allowed to fail and investors in them Must lose money when they do,its harsh but that is the only way the directors will ever become accountable and stop burying risk.
The bank of England has a role to play in this,they should set out a clear set of rules for accounting that all Banks should follow.A set of rules that will give a realistic evaluation of a companies position and a bottom line figure that states what the tax payer would be asked to pay if the company folded tomorrow.And also a clear set of punishments for directors who allow their company to break the rules.
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34. At 09:23am on 26 Jun 2009, GreenhillOwl wrote:
"Rather than let them die, why not "encourage" them to be socially responsible."
I suspect many grey-haired bankers in the City would find that more painful than straight death!
Old habits die hard. Old Dogs / New Tricks etc.
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The main banking/financial story is the nigh on unprecedented criticism of government policy by the governor of the Bank of England
He stated in essence that the budget deficit was almost unsustainable BEFORE the credit crunch and that drastic action must now be taken to bring spending under control with the deficit reaching £200b+ this year
Why hasnt Peston even mentioned this
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42. At 09:48am on 26 Jun 2009, notfooledsteve wrote:
"Bearing in mind the huge rewards that are on offer for Bankers the risks they face are very small."
Now that IS a real problem which could be overcome by major shareholders of big companies.
If a new CEO, or other executive Board Member, had to put up a bond of a big wad of his/her own dosh, prior to taking the post, to get access to the job's perfromance-related big rewards .... well that WOULD be an advance and that would change the cutlure of the UK business world quite quickly.
And let me make one point here, I take no issue with those who are Sole Directors of their companies - i.e. it's their own dosh their protecting or risking.
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One last thought - if banks were allowed to die, then many other 'quick buck' speculators would be a great deal more prudent with risk managing their money and assets, e.g. property developers and other entrepreneurs.
We've become to believe the mantra, 'safe as having it in the bank' to our own peril.
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To me the response to the headline of this piece should be "Probably, but not yet". Now I accept - just - that with everything crashing down around our ears there was probably no real alternative than to prop up the miscreant banks with taxpayers' money, but to allow banks to fail *now* would mean our money going with them.
As yet there has been a lot of talk about regulatory reform but I cannot see any evidence that anything has actually changed yet. (Please correct me if I'm wrong.) To paraphrase an epithet that I have seen elsewhere; you are either regulating or you are not; "talking about" is a subset of not.
I wonder if there are people with the right knowledge in the right places with the motivation to actually propose and enforce any change to the banking system. On present showing I would conclude that there aren't.
Until government accepts that it cannot meaningfully regulate without reducing the money it takes in taxes from both the institutions and processes of banking and the people who work in the business there can be little hope of a regulatory framework that will protect the rest of us. Equally of course the government is addicted to the money it gets every time we go out and spend money, or what little of it we have left. With manufacturing industry declining the government's options for getting hold of cash are becoming more and more limited.
Regulation has to start with the government weaning itself off spendthrift habits, and I see little sign of that happening either, or that there is any real likelihood of it happening.
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This is really very encouraging talk from Meryvn and the BoE.
They are showing initial signs indeed of truly representing the interests of ALL the people of the UK, and not just the cosy cartel of bankers and money lenders in the City of London and all those politicians who have sold their souls to this group in the miserable belief that the only thing Britain can be good at is "financial services".
Our present government clearly has not a clue what to do, but as a fall back position appears to wish to continue with the status quo, which is to deliver us - the majority of people in the UK - into the hands of bankers, as the price our nation has to pay for being a so-called "global financial centre".
I hope Meryvn and co do not lose heart here, and indeed do come forward with some strong detailed proposals that back these ideas up. The Labour government, like so many sheep, will surely end up adopting them.
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Well, as JK Galbraith pointed out, no matter what they do or have done for good or for ill, they always come out the winners.
The trick is to keep the destructive potential of the banks under control. The old steam engines had the regulator to stop the power shaking the machine to bits. The banks need to be regulated and put in their place. ie the engine needs to be max speed throttled.
The deregulation mania of the Clinton, Bush, Blair, Brown years will be the classic lesson for the next couple of decades in the same way that 1929-33 informed a whole generation. With the passing of that generation, the lessons were unlearned. The result will be plain to see over the next decade.
Of course, Mervyn King is right.
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Don't you think your posing a different point altogether? Banks must not get too big?
Banks shouldn't be privately owned in the first place! How on earth can we call ourselves a democrasy when all we do is vote in a government for how well it reacts to what is dictated to it by banks and big business?
Do you remember voting in the leadership for the bank of england? I sure don't. Do you remember voting for whether we wanted globalisation or not? I don't remember that either.
Banks by their very nature can't be allowed to go bust therefore they should by owned and run by the government otherwise it is an oligarchical dictatorship.
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#17
The difference between the UK and Germany is that when this mess is finally over Germany will still have Siemens, Porsche, VW and a host of other industrially important companies whereas the UK will have a bunch of weak banks but some wealthy individuals.
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Robert,
You ellude to the same point I made a couple of days ago (or rather the bank of England did) with this statement.
"To control risk-taking, financial institutions need to face a credible threat of closure or wind down."
Now this is basicaly an admission that the Capitalists argument of justifying profit - in contradiciton to the surplus value theory (I took a risk - therefore I deserve a reward) has disappeared from these large banks (and in fact any large company). When you're playing poker and you already have all the picture cards you can make huge bets (wiping out the opposition) because the risk of loosing is so small - and any losses are insignificant to the number of chips you hold.
The Risk v Reward model works on a small scale, a small businessman does risk a lot when putting his own house up for collateral against his business - however this has all but gone for the multinationals. In fact recessions like this merely increase their power and reduce their risk further as the competition fall by the wayside.
They also have the power (as BA has shown) to force the workers to take reduced pay (or offer redundancy as an option). A small business couldn't do this as if only a few staff walked out he would be in real trouble - however the risk for a large company is tiny that enough of the workforce would quit to make a difference.
It sounds to me as the BoE is talking about creating a 'risk' of being shutdown in order to compensate for this absence of it in the free market - it will be unnatural and will be open to abuse (which banks get shut down, why, what's the criteria, who decides, one mans risky business is another mans clever strategy)
So how many times will this system show itself to be inadequate before we give up on it? The free market has become like Darth Vader - more machine than man these days - with regulations and rules replacing the original theories which have been proven not to work.
Would you still persevere with your car if it needed a new engine, doors, windows, exhaust, tyres and fuel tank? Of course not - you would srap it and start again.
Sadly the masters at the control of our Economic system are not so flushed with common sense and continue to patch up this flagging system as they lack the creativity and selflessness to even begin looking at alternatives.
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Robert (or anybody)
Please indulge the only non-expert on here and justify the connection between a hypothetical bust of RBS and the spectre of the UK hammering on the IMF's door for succour.
RBS was a private organisation. Retail deposits to a reasonable level were already guaranteed by the government. Normally if a private organisation goes bust the receivers move in, liquidate any remaining assets, pay off creditors at an agreed rate and everybody buys the commodity or service elsewhere.
Yes, I understand that RBS was a big outfit - an economy (of sorts) in itself. Yes, I understand that the failure of a major bank might undermine the UK's position as a major purveyor of invisible financial shenanigans, although many of these have subsequently been demonstrated as wind and wee-wee. Yes, I understand "confidence" in UK plc might be "shaken" and that this might lead to exchange rate fluctuations, though these may benefit us as well as penalise us.
However I still don't see why the demise of RBS or any other FTSE 100 company would necessarily have put UK plc in the poorhouse and begging to the IMF?
Anybody??
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Dear Robert
I know you can't respond to individual postings, but would it be possible at some point to do a piece with a bit of detail on how you a) decide which banks are 'too big' and b) how you cut 'high-risk' and 'low-risk' apart? - I think Turner made a pretty good argument as to the flaws in that idea.
It seems to me that wrt a) when do you kick the super high ratios in? Easy enough if you just do it on the total assets, but that doesn't capture the interlinked nature of banks.
Lehman only had $639bn of assets when it filed for Ch.11: from what I understand the real problem was that Lehman was counterparty to an enourmous amount of the hedging contracts that OFCs take out to limit their risk. When Lehman went kaput all these contracts unravelled, forcing everyone to liquidate positions to meet risk constraints. Cue cascade effect.
I understand that clearing houses are meant to provide something of a solution to this. But will this capture all the OTCs? Will banks find new ways of producing OTCs? Can regulators adequately predict which banks will cause cascades? After all, you may let a small bank go to the wall, but it may happen to wipe out a few hedgies - who liquidate positions in x, which finishes off the balance sheet of another small bank which...
I know its not really news, more analysis, but could you say something about whether you think these problems will actually be addressed?
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#51 puzzling
Thanks - I don't teach weak, unquestioning, lie and spin swallowing. Should we vote for whosoever will bring back personal responsibilty and straight talk into public, professional and private life? If so which politician is offering this? If we don't have those basics, the rest is meaningless.
I agree with your post # 38 and # 58 economaniac.
It is utterly pathetic and words are just becoming ever more meaningless.
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Try again -
It isn't 'banks' that are the problem - IT'S BANKERS. After all that has happened bankers still appear to believe they can misrepresent and bluff their way out of any blame and then carry on as if nothing has happened. And everything they have done remains a big secret that stays within their own luxurious walls and that of the regulators.
How can anything ever get mended if no one is allowed to know how it was broken in the first place?
Has anyone of the banking illuminati suffered as a consequence of the economic catastrophe they instigated? - and I hope some banking spin doctor doesn't post the usual "it wasn't the bankers fault, it was all to do with sub-prime, complicated financial instruments and triple rated SPV's", in reply to this post - because we're tired of that response.
Let's face it, this is fundamentally about a handful of people who were given unregulated power by marshmallow Government to plunder entire economies for their own benefit - and not one of them has been brought to book. Consequently, the same greed and lack of integrity that caused this mess (integrity being the first requirement in the FSA Principles) is being allowed to proliferate a dire situation. And they are doing it blatantly (see; http://www.ianfraser.org/?p=856 )
Definitely time to regulate the bankers - and, if the financial regulators are a bit uncomfortable with that idea, perhaps the police could help.
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#66 Sutara
That's it in a nutshell.....moral hazard.
The absence of a real penalty for failure (incompetence, bad decisions et al.) is a recipe for disaster as the founding fathers of insurance knew only too well. If your house, job, pension is on the line, ie. you have a real stake in the success of your business, upside as well as downside, you have a meaningful incentive to keep your house in order.
If you or I screw up that is a tragedy for me and my employees. When the banks do similar, the fall-out takes out the thrifty, hard working, well run business and it seems that no one is responsible. Of course, there is collective responsibilty but no individual will ever pay the price for the recklessness of the banks, regulators.
The sad (and galling) fact is that we will pay the price.
The prime duty of government is to set the rules in such a fashion that the banks (and others in finance) are prevented from conducting themselves in a manner which can destroy the economic and social well-being of millions of citizens.
Socialism is nonsense. Do without that ideological micro-management, thanks very much. They are not much good at it anyway.
Freedom needs rules because with rights come responsibilities. If a sense of responsibility is absent, it must be enforced.
Mervyn King knows that.
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I think the first question that must be answered is "Are banks too big to fail?"
Recent events have taught us - YES. If NR had been allowed to go bust and the public lost money, there isn't anyone in the country who wouldn't have been outside their own bank the next day withdrawing the lot making the situation worse.
If that's established then the next logical step must be that banks must be publicly owned. You cannot have something that is too big to fail, in an arena which allows failure. The rules of ocmpetition only work when there is a risk of failure attached.
Once you have applied that logic and all the banking is in Government (or rather public) hands - then we look at other things deemed too big to fail
Transport
Health care
Utilities
Security (National and international)
Fuel supply
Medical supplies
Some of the above are publicly owned, but some have been privatised in the last 30 years.
If we deem the banking system too big to fail for the chaos it would cause then it must logically follow that our utilities are too big to fail.
I'm sure there would be as much anger if a large water company went bust, or a electricity supplier leaving thousands in the dark or without water - and yet the Government is happy to take this risk.....for now.
It would only take a few months of price volatility in the energy markets and we could see some of the big companies running short of cash and becoming insolvent. At that point they only have 2 choices - Government bailout or holding consumers to ransom.
Either way YOU PAY.
If you're going to have a system based on rules then they must be clear and straight and applicable to all. Concentrating heavily on the banking rules solely simply pushes the problem elsewhere next time.
It's all fairly simple really, the complication comes when people include their own interests in the analysis and that's when it all become skewed and not fit for purpose.
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61. At 10:29am on 26 Jun 2009, Radiowonk wrote:
Re Bob's spelling error.... "Sober" is spelt sober, not sobre".
Actually I reckon it was meant to be "sombre". Sober bankers? Before noon maybe, after that I doubt it....
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The suggestion that banks should be allowed to die focuses too much on the risk factor of the banks.
The writer of this blog seems to completely ignore a very important factor... jobs.
If a bank dies, a large number of people will become unemployed, leading to them having low (if any) disposable income, potentially get their houses repossed, and over time we'll be back here in a recession.
Yes, banks should have tighter restrictions placed on lending, but allowing them to die is extremely counter-productive.
Also, even with a "will", not all innocent savers will get all of their money back. Savings are a low return, but safe investment, let's keep it that way.
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At 00:46am on 26 Jun 2009, ComradePeps wrote:
Peston,
Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average) ... before your next Chapter in The Big Book Of Banking...
Hmmm,, right. So where EXACTLY did the money come from to pay those taxes ? My pension, my credit card bills, my loans, my investments, my low interest bank account, my insurance, my bank charges, my foriegn exchange, my bills hyped by corporate finance and commodity market plays by hedge funds on PETROL and DIESEL - all made possible via Banks.
What about the employee benefits of low mortgages and loans ?
Add in the tax avoidance schemes like CDS's and CDO's (What caused the banking crisis) as well as offshore banking.
Then add in the tax payer bail out.
Banks are a leeches on this country that have done nothing but destroy industry and saddle the public with debt - they are self serving, corrupt and useless.
Before you make comments about Bank earnings consider who EXACTLY is footing the bills.
On top of this consider that even those that save and avoid such bills are now tied in because of government corrupt incompetence - I am so, so ANGRY with Banks and Labour.
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The MPC were given the job of controlling the money supply to keep inflation on target using only one club, the base rate.
In the recent credit driven boom, the biggest contribution to the money supply, which became excessive, was bank lending. The control of lending by interest rates proved ineffective because high interest rates, which were supposed to control borrowing, were not used enough, or too late, because of their side effects on the manufacturing sector of the economy.
The MPC, or whatever their successor might be, must be given another club, which allows them to more directly control bank lending. The power to order variations in the capital to total lending ratio, in return for state underwriting of depositors' funds, is one possibility.
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Robert
Well well well, Yet another banking story. Do you really believe there is nothing else to discuss in the business world. This blog is becoming a joke.
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#45
The capitalists always try to postpone the inevitable devaluation of capital.
That is the attraction of Keynesian economic policy and hence the recent flood of money thrown at the City.
But even with this attempt the latest estimate is a 15 trillion dollar cost.
No small amount.
But given the size of estimated fictitious capital (as a result of the US being able to print as much money as it wants as well as the credit system in general) this looks like being no where near enough to restore the rate of profit, even if they temporarily delude themselves.
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"Banks should be allowed to die"
From reading today's headlines and seeing that there is finally an admissions from the BoE that we are merely coming to the end of the banking crisis (and therefore the recession is just beginning) - maybe the question should be.
"Should we kill the banks"
Why draw out the inevitable? Lets be humane and put them out of their misery and get on with dealing with the misery they have just bestowed upon us.
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Re: 4. At 00:46am on 26 Jun 2009, ComradePeps wrote:
Peston,
Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average) ... before your next Chapter in The Big Book Of Banking...
I am not sure how much RBS actually paid, however what we do know is that they avoided paying at least 500 million quid..From the Guarniad of 13/3/09 -
'Royal Bank of Scotland tied up at least £25bn in complex international tax-avoidance schemes during its boom years, costing the British and US treasuries more than £500m in lost revenue, the Guardian can disclose.
It is the first time that a major bank has admitted the existence of such deals on this scale. The new management at RBS, mindful of the fact that it is now 70% owned by the taxpayer, has disbanded the department responsible and will put an end to the controversial practice.
"The idea that we could take support from the Treasury with one hand and somehow pick their pocket with the other would be wrong on every level. We have always sought to avoid this sort of stance and thats more important now than ever. Its not a sustainable way to do business," said an RBS source'.
It appears from the tone of your post that you believe these wonderful institutions and individuals are quite willing to pay exactly the level of tax that their earnings would suggest they pay..How naive can you get?
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# 79 writingsonthewall
Yes, indeed. Executives of Network Rail are to be paid bonuses for increasing debt, declining profits and not meeting their objectives...
I await further information from BBC News.
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The only reason we are in such a deep recession now, is that the US Government allowed Lehman Bros to die. This cannot be allowed to happen anywhere else in the Western world ever again. End of Story
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#21 What you have said about bankruptcy makes sense !! Howerer, this statement - "We will I think need legislative measures that stop banks being and getting too big. Perhaps only letting a single bank exist in a single nation or in not more that two or three nations. But it is tricky."
- can be challenged by the fact that HSBC *IS* a large international bank that has neither needed nor wanted any help from this hopeless government. Barclays needed a bit of help from the Middle Easterners but they, too, are doing nicely, thank you !! Lloyds TSB would have been fine and dandy if it had not been dragooned by Comical Ali and gang into "merging" with that dead duck, HBOS !! As for RBS and its "mind-boggling reward for failure" crowd, the less said the better !!
Northern Sponge and its ilk would have done better to take up a bookmaker's license than a banking license !! It's what they've been playing at all this time !!
Things are not that much better on the other side of the pond either !! Bear Sterns, Lehman Brothers, AIG, et al !! It's this reckless casino capitalism with *NO* brakes that has virtually destroyed the economy of the West and put billions of other people into deep misery !!
As I see it, it's time, and well overdue time, that banking *MUST* be broken up into retail banking, for the ordinary man-in-the-street, and casino banking, i.e. "merchant" banks, "investment" banks, hedge funds, etc !! It is also overdue time, that people cannot expect to keep borrowing money to fund projected continuous expansions since those expansions may not work out quite as planned !!
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#83 A Good Point, also the key battle they were fighting with one weapon was against the wrong enemy.
Basing Money Supply control on CPI & not RPI, basically ignored the biggest asset bubble - the out of control property market.
This target was set by the Govt and not the BoE. Tells you alot about Prudence. He wanted the UK electorate to 'feel rich' through inflated house prices, leading to equity withdrawls to fuel consumers spending on imported goods. Very Good Long Term Planning.
Incidentally, today the PM has paid tribute to Jacko. Doesn't he have anything better to be spending his time and effort on?????
Like running the country?
God help us!
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Robert,
As we're going all theological (perhaps it's increasing desperation) - and talking old testament - how about we remind ourselves of a few lines from the good book.
I do not believe in God, but I do know a warning when I see one (no matter how cryptic) - strangely our previous Prime minister claimed to be a devout Christian, and along with his Chancellor and the previous US president they seem to have assisted in breaking every one of God's laws.
"The rich rules over the poor, and the borrower is the slave of the lender"
Proverbs 22:7
"Be not one of those who give pledges, who put up security for debts. If you have nothing with which to pay, why should your bed be taken from under you"
Proverbs 22:26-27
"If you lend money to My people, to the poor among you, you are not to act as a creditor to him; you shall not charge him interest."
Exodus 22:25
...and finally - is this a stark warning for the current Government?
"He who oppresses the poor to make more for himself or who gives to the rich, will only come to poverty. "
Proverbs 22:16
When is the church going to really speak out and condemn the practices of the banks?
Why do we need regulation when the rules were already written for us - hundereds of years ago?
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#22 "1. Establish product certification procedures via the FSA, no more collateralised debt products et al without certification, and no more buck passing by the FSA in future. Any further mistakes will absolutely be on their watch."
This sounds like the tale of who's going to put the bell on the cat's neck !! It's all very fine to say that the FSA has to certify the products but does the FSA have the people and the talents to actually know enough to "certify" that the products are good ??
Remember that these are highly complex instruments and they need people with lots of knowledge and experience to see all the possibilities of where things might go wrong !! Or are you suggestion that the FSA do what this government does ?? When things go wrong, they just say "lessons have been learnt" and sweep everything under the carpet !! That makes for an extremely lumpy floor covering !!
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It is nonsense to try to run a market economy with ring fences all over the place the see-saw only works if it rise and falls equally on both sides, if intervention comes into play prices, costs, poverty, wealth all get skewed businesses markets have to rise and fall and everything has to take the consequences, business, people, politicians, civil servants and especially bankers
If we are to run a regulated economy there has to be rules of the game that everybody understands and a level playing field world wide. The collapse of the economy and the now social misery created by this labour partys policy for the last eight years has at least given us the opportunity to build a better society will it happen - No.
John Major and olleagues new globalization had arrived because following Maggies reform of the industrial relations landscape and bringing us into the new computer driven age gave us the opportunity for a level playing field. Sadly the old fashioned belligerent socialists thought it was a ruse and they would be excluded from the opportunities beingcreted. Blair spotted the chance and took it Gordon then in total self belief decide he could improve Majors plans and end boom and bust if he just re-wrote the rules. As a result the poor especialy and he country have become poorer and will be paying for this mess for at least two decades maybe three.
The rich have run of with the spoils the procrastination that is the hallmark of GBs government and the belief that it is no use bolting the stable door after has now allowed the bankers, the city and the unregulated back in to grab what they dropped on the way out last time.
Why has Gordon now done nothing to regulate the game to put in some rule to balance the economy to show what is needed for a fairer society and a society of opportunity of which this labour party has expunged all. Well his dilemma is if he created some rules and made some policy that would start to put things right that would be tantamount to admitting just how wrong he was.
For dear Mr prudence that would be one blush to far so he will leave the door open make the state of the poor, the oppressed and the depressed ten times worse and leave it to the next government to sort out I wish we could afford the other parties to walk away and leave Gordon to have to sort it for the next five years.
It would not be too many years before an uprising of the labour part supporters pushed every labour politician north of the border and closed the stable door on their inept socio-economic management for ever. For history shows that while they talk a good social policy they have failed at every chance they have had since the last world war to deliver one and they have always been instrumental in fiscal failure.
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#78 - blefuscu
"Freedom needs rules"
Wow - how do you manage to live in such a contradicting world?
The problem with rules is once you start making them - you can't stop. Just look at the laws in this country - we should be looking to make less rules not more.
The whole excercise will result in huge sums of public money being wasted on employing 'talented regulators' who get trounced by 'shrewd bankers' as the latter will always outnumber the former.
I completely agree that the Moral hazard has gone - but you can't simply make one up as someone else pointed out - when is a bank too big? what criteria is used? will there be exceptions? when and how? what about umbrella companies and diverse structures? What about international borders?
...thats a lot of questions to get answered - and very little time in which to answer them...
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#85 duvinrouge
You have made some insightful posts today.
The sad fact is that there is no-one who works in the running of the country who can accept this. Lie after lie is told in order to keep the charade going, just like a bad gambler who wants to borrow some money because "just one more win will see me straight".
Every Pound, Dollar or Euro that has been 'made up' in the last 10 years will now be 'unmade' - it won't be a smooth process and different sectors will be affected in different ways.
When Governments talk of 'growth' which exceeds the actual rate of production - it's like me saying I'm a millionaire because I have 10 credit cards with a limit of 100,000 each.
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In todays BBC News article 'Bank says banking crisis easing' the Bank of England's 'Financial Stability Report' is quoted:
'In its Financial Stability Report, it said the total losses from the financial crisis reached $15tn (£10tn).'
$15 trillion or almost £10 trillion loss!! That is an awful amount of money (assets) to loose and we as taxpayers will be paying for the best part of this decade for it, currencies will be devalued via inflation and public investment and services will be cut. The consequences are grave, many people are already jobless and many have lost significant parts of their pensions and savings.
I am sure the banks and other financial institutions have not paid
£10 trillion in taxes during the good times, so where has the money gone?
A significant part of the financial industries worldwide profits was never taxed and has been moved abroad into tax havens and offshore accounts by institutions and individuals. An estimated $15 trillion is sitting, stashed and hidden away, in those tax havens and offshore acounts, much of it never taxed.
Let's get these monies (assets) back form the global shadow banking system, enforce taxation by let's say 40%, invest it in value creating industries and the future will look brighter. Who has the political will to get this done?
You can find more arguments on these issues at:
http://globalinsights.wordpress.com/
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74. At 11:27am on 26 Jun 2009, Fingertapper wrote:
OK remember the queues outside Northern Rock? THe FSCS guarantee was still in place then - it didn't stop the queues. Remember the goverment said it would back ALL deposits, not just those up to the FSCS level? it still didn't stop the queues.
If they hadn't backed the banks poeple all round the UK, regardless of any legislation or guarantees, would have panicked and there would be queues all rounf the country. Herd mentality - sad but true.
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#90 - Your point on HSBC not needing a bailout is pertinent.
But it has little to do with Retail and Inv Banking being split. HSBC has and has had for the last 15 years one of the ten biggest, globally, Inv Banking Divisions.
It was one of the first to take a hit on the US Sub Prime crisis back in early 2007. Yet it still didn't need a bailout.
Why?
Because for the last fifteen years it has had the highest or one of the highest Tier 1 Capital ratios of any bank in the world. This is the key for regulation of banks.
Brown as Chancellor and architect of the Tripartite UK Regulatory System, did nothing to enforce UK Registered(This matters regardless of where they do business) Banks to maintain sufficient Capital.
Why?
Because this would have restricted their ability to lend to the debt hungry UK Retail & Corporate Mkts, and this would have restrained the UK electorate's 'feel good factor', leading to no third term for Labour.
The requirement to raise Tier 1 Capital last Autumn was years too late, and actually led to RBS, Lloyds and HBOS falling into Public Ownership by stealth.
So it all leads back to one street, it's not Wall or Threadneedle but Downing.
No 11 until 2007 and now No 10.
Spin and Blame may fool some people, but denying the facts of history is usually a precursor of the arrival of the men in white coats.
And not a moment too soon.
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It used to be the case that professional firms -lawyers,accountants,stockbrokers - were not permitted to incorporate.
Unlimited liability kept risk taking under control as all the partners in a professional firm kept a close watch on the business that was being undertaken.While it would be difficult to make partnership the required legal structure of banking groups,would it not be possible to require certain activities within large financial groups to be structured as partnerships -proprietary trading activities for instance - while attaching to group level executive directors a responsibility for net group losses arising from transactions entered into during their period of membership of the Board and coming to light within five years of their retirement from the Board limited only to the total of their remuneration as directors for the whole period of executive directorship?
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# 92 Hmm the bible or the FSA Handbook?
Great post at #79 by the way
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Re. point (2) "No bank should be so complex that the relevant regulator can't confidently predict the impact on other financial institutions and the economy of its demise"
I think it is important to stress here that, rather than seeking a simpler, less innovative, financial system, what we really need are more sophisticated regulators. Those who have sufficient academic and market experience to be able to penetrate the mists that simply confuse the civil service based FSA, which has shown itself either fiddling with the City burns or looking like a rabbit in the headlights.
We need regulatory powers returned to the BoE as a matter of urgency. We know (this was in the public domain including the ordinary press in Autumn 07 but has not seen the light of day since) King et al lobbied Downing Street for some years for a change to the disclosure laws that might have saved Northern Rock but Downing Street didn't listen, and preferred to leave these things to the Treasury/FSA.
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Robert, I think you've missed the point: if RBS had gone bust the government would have let it. Also it remains true today, the large government shareholding notwithstanding. There's no way the UK could possibly guarantee the RBS's liabilities. (Our foreign currency reserves amount to 50 billion pounds, which is a drop in the RBS ocean). This explains why the government was so desperate to avoid nationalising RBS (or HBOS for that matter).
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If there is one thing (almost) everyone is agreed on, it is that greed was the root cause of the banking crisis. Extraordianry as it is, not a single commentator in the past year has suggested making greed itself a crime. We have hate crimes aplenty. Why not greed crimes - with death the penalty for the worst such crimes? Makes sense, doesn't it?
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Robert, even if banks were allowed to die, the people run it don't and they are still wanted by other companies e.g. Andy Hornby. So death doesnt' really concentrate the mind. Everything to gain, nothing to lose.
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56. At 10:18am on 26 Jun 2009, blefuscu wrote:
#49 hughesz
Statistics are a snapshot.bla,bla.
Here is some more blefuscu ,GDP in Germany will fall 6% this year and UK approx 4.1%(Source IMF) .At least the UK can flex on the currency ,Germany is stuck with the rest of the basket cases of the Eurozone and will go down with them..
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So the Governor is being severely (and deservedly) critical of the Government. The IMF are saying (not in so many words) let's have a Tory government next as we can trust them to balance the books (again).
Perhaps the IMF will make it clear that if current Labour plans to 'increase spending' are not reversed then our soverign debt should be 'downgraded' - this way they could help get the right result at the next election.
Actually if Gordon is saying that spending will be increase, then this is the first sign that Labour intends to make cuts.
It is a pity: Gordon is so good at announcing impressive-sounding tax reductions and increased spending that are in the future (and when they arrive prove to be something already expected or swallowed up by some other bit of stealth). If only he would trumpet the necessary cutbacks (to happen in the future of course) it would please the IMF and we would all know it would amount to nothing.
It would (unforttunately) mean he would lose the next election as Tories are much better at making cuts intelligently and efficiently (and demanding value for money where extra money is spent).
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#95 Writingsonthewall
Yep, Freedom without rules morphs into anarchy which is essentially destruction. The nature and extent of those rules is what politics is all about. Is there a contradiction?
The argument about the limits of freedom is one of the oldest in the philosopher's book.
Freedom without responsibility, it was once said, is the privilege of the oldest profession.
Fear of consequences is the only thing that ultimately keeps any system working.
Remove that and you end up with Caligula. (or irresponsible banking practices)
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Sure let banks die.
We've been positively encouraging manufacturing industries to die for years.
The secret here is to not let them get into the position of dying but don't let on to anyone.
Here's a novel new approach; lets try buying goods produced in this country and exporting goods as we used to and generate some wealth into the country.
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107,
As much as I hate Labour and Brown, I cannot agree that the Torys will be better. Infact I believe that they will make things worse. What is the purpose of government but to nurture society?
The link between value and price has been lost forever in the fiat monetary system, the tories will exploit the situation even more
Mark my words.
Btw I wont be voting Labour or Conservative!
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#97
This is the point. How does the banking community (or society for that matter) view $15tr? Is it an asset, sitting on someone's balance sheet? Do you own it, or owe it, or does someone else owe it to you? Does it really exist, as in there are $15tr worth of items that society values (i.e. food, heating, petrol)?
If we can learn to see money as debt rather than wealth, then we should stop the nonsense of creating bigger and bigger piles of imaginary money. Money is a piece of paper that one person holds in place of holding a tangible asset. It is a claim on the (tangible) wealth of the community. If I hold £100, then that means I am entitled to use it to pay for an item of that value, or to offset tax.
Money is in fact just like musical chairs. Really you don't want to be holding it when the music stops (i.e. currency collapses) - it means someone else is holding the assets, and your paper money does not entitle you purchase it from them.
Read more at:
http://www.nationaleconomy.net/
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#7
thanks for your candid comments.
You provide a chilling flipside to the excesses of the banks.
From a practical point of view. Don't let them get away with it.They have taken so much public money the least they can do is help you when you are down.
It is almost impossible to fight this on your own, so name and shame the banks involved.
Also e email your MP setting out some specifics for them to deal with and since many MPs will brush you off, also write to;
Vince Cable Liberal
John McFall Labour
George Osborne Conservative
Best of luck and you are absolutely right, a new system is needed now.
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The Gov't piles up the debt on behalf of the taxpayer. The money markets lend. The cash goes to the Gov't and not to industry/businesses/ consumers. The credit cruch continues. Businesses go bust. Millions get made unemployed. The Gov't borrows more to pay benefits. Less money is then available to the wealth creating business sector. The credit crunch continues..........and so on! I vcious circle of Gov't debt piles and aenemic business! A downward spiral to nowhere!
The Gov't needs to slash public spending not by 10% but by 25% and divert thus allowing scarce funds to be diverted to business and consumers. Somebody needs to execute the nanny state!
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Well, ask a Bradford and Bingley Shareholder if their Bank is dead or not.
Or indeed Shareholders in most other Banks !
They would probably say that they were walking corpses !
Santander advertises a lot these days, and the Spanish economy is strugling.....
Naughty me !
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Let the fiat be done.
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If ever there was a time for a new start and a blank sheet of paper then now is it. The situation we are in now has been brought about by the lack of action and ability on the part of the Treasury, Bank of England and FSA (founded at the behest of the EU and there to protect the interest of consumers). It has also been occasioned by the greed of bankers and the "must have it now" attitude of ordinary people (me included).
To correct this we need a completely new structure, not just a tinkering with the existing one about who does what and where. The buck stops with the people so it is up to them to ensure that the situation is not allowed to arise again. This probably means voting tory at the next election and persuading Vince Cable to join them.
There should then be a new Financial Services Act which:
* Breaks up the banks into their constituent parts and protects the consumer in those parts which they are involved in (your old high street branch system) If my memory serves me right the banks still managed to make a profit fron their core activities) London can still play a pre eminent part providing a home, but no protection, for the other bits.
* Enact laws within the new legislation that allows the BoE to provide the minimum regulation required and enhance the size and power of the Fraud Squad to prosecute individuals who transgress the act.
* Scrap the FSA and let europe do its worst (if these ideas work Europe might well follow theem anyway). No need for heavy expensive regulation now as the business owners / managers would have their own liberty on the line.
If you make the tax system attractive enough the banks will not leave London, indeed you will probably attract more in. Oh, and leave insurance and investments to the specialist companies who used to manage them quite well.
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#107. svrsig wrote:
"Perhaps the IMF will make it clear that if current Labour plans to 'increase spending' are not reversed then our soverign debt should be 'downgraded' - this way they could help get the right result at the next election."
There is no such thing as a "right result" in an election; only a result that you are satisfied or dissatisfied with.
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#99 isslider
I see the situation with HSBC as being one of perspective.
Before the bust they were seen as a bit stangnant, not aggressive enough and effectively 'missing out' on the vast profits being made by it's rivals.
Along with others (like Standard Chartered) these did not make up large portions of portfolio's as they were not providing the returns. Their lack of rapid expansion and their insistance on 'sitting on piles of cash' made them the victims of other banking bullies.
However, after the crash these banks are seen as employing a model business practice, clever and astute, and all round good eggs.
ishkander's point about seperating investment and retail banking is a great idea - it was great when they implemented it in 1933 and it was still great when they decided to remove it (around 1999).
The question has to be asked - why remove it?
The answer has to be - because big business is pulling the strings of Government and big business felt it was impacting profits and threatened Governments with reduced tax receipts if it wasn't carried out (oh how hidsight would have been great).
Conclusion - Governments are weak and suceptible to blackmail from big business. They would rather make every man, woman and child poorer for the next decade than risk the retribution of the banks.
Summary - Government is not your friend, it does not work for you, it is in the pockets of the 'big few'.
Can you see why the Anarchists want rid of it? Better to have nothing than to have something which actually works against your needs and wishes.
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It is surely terribly irresponsible to suggest banks should be let go to the wall. Because of their position in a capitalist economy they have to be backed by the state in an emergency, regardless of their behaviour, excessive or not. Only an idiot, or someone happy to contemplate mass unemployment, would suggest otherwise.
The actual issue is: how to prevent institutions implicitly backed by the state from acting irresponsibly. To talk of 'punishing them so they learn a lesson' is surely to personalise an institution. A near analogy might be closing down the police force were some officers found to be corrupt - or closing all hospitals should one surgeon kills a patient. The policy requirement is to reform the institution, not punish it. It is the culpable individuals who need punishing, not the bank, its customers or shareholders.
The proposal to cut ALL UK banks down in size (so they can be shut down if they misbehave) sounds equally stupid. a) Do they really think it would be a good idea for the UK economy to destroy, for all time, one business model where we enjoy real competitive advantage? b) Don't they think HSBC et al wouldn't simply decamp to somewhere in the colonies? c) Don't they understand that a run on one Bank, however small, would start a general run, forcing the state to intervene anyway? In short, don't they read any economic history? I know these public school boys tend to know it all but get real, Mr. Peston.
The current crisis has yet to be explained satisfactorily. We know some things like adverse incentives and dangerous derivatives etc contributed and we appreciate the momentous birth of China as an economic entity must have something to do with it but really most of the comment is simply hindsight dressed up as analysis.
My view (for what its worth) is that, apart from punishment US style for any individuals who falsely rated credit or wrote false insurance, the mechanisms that allow a modern trader to break a bank, or double oil prices with a mouse are what actually need urgent regulation. But note, these are activities run by traders and hedge funds, not bankers.
It looks to me like you are letting yourself get directed away from the really dangerous people, the hedgies(the 'banking problem' for the foreseeable is likely to be too little lending, not too much). I wonder why?
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#102 Bollinger88
"I think it is important to stress here that, rather than seeking a simpler, less innovative, financial system, what we really need are more sophisticated regulators. Those who have sufficient academic and market experience to be able to penetrate the mists that simply confuse the civil service based FSA, which has shown itself either fiddling with the City burns or looking like a rabbit in the headlights."
Excellent reasoning - unfortunately your (or rather our) Government has handed over the Educational system to the free market. Universities will start going under soon, or have to make major cutbacks due to the collapse of many public / private finance schemes.
To achieve the sort of knowledge and experience required we will need a tip-top education system and that can never be achieved with the constant cost cutting and 'efficiency savings' a private investment brings.
I agree in principle however, but with work experience there should be a ban on anyone who has actually worked in the city joining the FSA, but instead force banks to take on young FSA potentials to gain experience - without staining their 'clean' nature with some of the practices that go on in banks.
Otherwise it goes back to the the "police" being made up of the "criminals" who they are supposed to be catching.
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I think we should go back to "Star Points" and b#gger the banks
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#104 newprotectorcromwell
Ah yes - greed.
But how are you going to convince the 'greedy' MP's to bring in a law to prevent greed?
Everyone is happy to condemn greed - as long as it's not their own greed in question.
The population has had it drilled into their head that greed is acceptable, partly because it's been smeared with ambition (which to me can be mutually exclusive) and associated with success.
Many people will back you - but only until they realise they will be in the "greedy set" and will have to reduce their wealth.
However I completely agree with your principle, I see the sticking point being uncertainty. The uncertainty of life means people hoarde (goods, shelter, money) in case of an unforseen future event - eventually this gets out of control and becomes - greed.
This action in itself contributes to further uncertainty - making it a vicious circle, and of course the boom and bust of an Economy just makes it worse.
I have over 30k cash sitting in the bank earning no interest, I simply cannot find anything worth spending it on (I am prudence) - am I greedy for holding it? or am I simply 'prepared for the worst'.
Should I hand it to a charity? what if I do and then I loose my job?
If I knew my job was safe, and I knew inflation wasn't going to erode my money then possibly I would. I would rather people that needed it would get it
....however that my dear would be a planned Economy (Communist) and unfortunately - once again thanks to greed - that form of Government has had it's reputation tarnished.
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Pity you're confusing the Bible with Dr Johnson, but never mind. The Bible had lots about feast and famine, so it's not a complete cock-up.
Like most other 'isms', capitalism depends on people and only works if it is properly managed. Like all other organisms (because it is run by people, who are themselves organisms) it has a cycle of life and death. Moreover, the nature of humans is that they want to push boundaries ever further, so the viability of the 'ism' is constantly being stretched to extents that were never within the original contemplation. If capitalism is to survive, it must return to basics, which means brave people making sensible decisions, sticking to their guns and being prepared to explain themselves when the cry goes up that other people are making more money than they are. Otherwise the party's over - and that might very well be biblical.
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this banking crisis is being made out to be more complicated than it should be. sure the solution to the current climate is tricky, but the long term solution is rather simple in my view.
when the financial crisis first began - it was reported by the bbc that one particular country was immune or rather least affected. i cannot now remember which country unfortunately. however, this country by law demands that all its banks actually hold onto 30% of their assets in cash. i thought this was rather excessive, but it actually makes sense. ok, holding onto the cash itself may or may not be feasible - but by law it should be the case that no bank is allowed to spend/invest or borrow more than there means. by this i mean, the current demise occurred because banks were not only spending/investing customers savings, but also then going onto borrowing more from other financial institutions to further spend and invest. these borrowers were inturn doing the same. normal individuals can only borrow cash after meeting strict credit requirements and its all based on a review of income and outgoings. no person is allowed to borrow if the payments exceed income or are a high % of the income. But banks apparantly can! the very organisations that control our financial lives cannot even look after themselves. they have went to the races and gambled all the saving, but then borrowed more and lost all that also and now the borrow wants his money back.
the banks should have been allowed to fail. instead of the government buying the banks, the customers savings should have been guaranteed and the should have been left to deal with their own mess. new institutions would have risen who would have better learnt the lessons of the past. instead nothing has been learnt and we have quick fixes in place to boost political motives. nothing has been installed for a long term fix. we need all banks to be made to hold onto a % of cash income and with the rest they be allowed to do what they want.
this will not happen. my prediction is that to divert attention and in using this crisis as a excuse - some government body will soon propose a plan to get rid of physical money and make it all electronic. we will be told that it will be safer and that the financial institutes will better manage the flow of money - but this will not be the case. this last paragraph may seem like science fiction as you read this - but do remember what i have said for when the time comes.
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#117 rbs_temp Perhaps you should share your thoughts with the EU. Presumably if they believe you then they would not make the Irish vote again on the Lisbon Treaty.
#119 Garthking You are in danger of making up your own definitions. The very essence of capitalism is that insolvent entities are allowed to go to the wall. However you seem happy with the status quo, and that too has been tried before; consider the words of Benito Mussolini
"Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power."
So, you appear to see merit in fascism. Are you sure that Fascism is what you want and that it will operate in your best interests?
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#108 blefuscu
"Yep, Freedom without rules morphs into anarchy which is essentially destruction"
I'm afraid I disagree completely, human beings are social animals - it's society and social discipline which guides our behaviour.
We don't need written rules dictated by the few, if I mis-behave in my social group I am disciplined with the greatest threat of all - social exclusion.
Everything we do in life is to either get into, or out of a particular social group. Different social groups have different social order, what is socially acceptable in Burnley, may not be socially acceptable in Birmingham. However in our society it's "1 rule for all dictated from the top".
Look at the bankers - chasing big bonuses - why?
Because they want to be accepted by their peers, have the most expensive Ferrari, the nicest house in Monaco etc.
Look at the MP's - why did they take the expenses? - because amongst their social group it was seen as 'acceptable'.
The problem is rules allow society to no longer bother to administer social discipline. MP's all said 'it was within the rules' - the banks created CDO's because they were 'within the rules' - and you cannot disagree with that.
Lets suppose a simple social solution to the problem. The people are upset about the banks paying bonuses - they show this by marching to their bank on Monday and demanding their money in cash in 2 weeks time (which would collapse the banking system). If the bonus practice was stopped then you would cancel your order for the cash. No rules required, no statue to be updated - it's socially unacceptable and the people have made it clear.
Unfortunately the people have relinquished their power of social and colective discipline and instead hope the hokey-cokey laws of this country will protect them - which it's been proven they can't.
All new rules provide are reasons for more rules to be invented. We are trying to control an infinite number of possibilities with a finite set of rules.
I must have seen a thousand suggestions on Roberts blogs for new rules to stop this happening - every one can be circumvented or avoided. Just look at tax - a simple concept and yet many rules still can't make everyone pay it fairly - especially the rule makers themselves!
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The banks growing too big and taking risks that were too large is just a symptom of the underlying malaise. The problem is global trade. Western democracies cannot compete on cost with police states, where workers do 12 hour days, with no employment protection, no pension, no health care and no umemployment benefits. Our people and banks couldn't make a normal return on their work or capital. Govt seeking re-election prompted a feel good asset bubble and thought it was enlightenment.
The bursting of this bubble should wake us up. The statement from Corus made it plain. This collapse in demand will last years. Years of mass unemployment coupled with a massive govt debt.
Bill calls it the "New Normal", like it's a baseline. It's not. It's a process of real decline.
As Buffett states, recessions end when asset prices decline and wages rise. Wages are falling.
Continuing unemployment, falling real living standards and falling real govt income will open western electorates to the view that a lack of employee and citizen, rights and welfare, is immoral and an unfair competitive advantage. In other words, cheating.
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#123 fitzexpat
What is the obsession with saving Capitlaism?
If Capitalism was your car and you were unable to control it's speed (Booming and Busting) which led to the inevitable crash - would you keep it?
We plan our finances
We plan having kids
We plan our gardens
We plan our futures
We plan what to watch on TV
We plan where we want to live
So why do we let our Economy 'do what it likes' and let us be subject to it's tantrums and bad behaviour?
I can never understand why people are so accepting that our Economy is a wild dog - but we crave control in everything else in our lives.
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#125 Armageddontimes
"Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power."
Excellent - that might wake a few sleepwalkers up!
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Seems to me that we already have the required and necessary legislation in place via Corporate Governance (CG) and Corporate Social Responsibility (CSR) 'guidelines'. Business folk who transgress these regs in 'normal' busineses go to prison for defaulting. Unfortunately, with the banking 'fraternity' we have a problem. Firstly, as Mr Peston rightly points out, the country 'needs' its banks, but more importantly I feel, those who should be held accountable for oversight (and therefore imposing proper fiduciary accountability for CG and CSR) are a) the FSA, b) The bank of England and c) the Treasury. Now this is on 'old boys' network where they protect one another, if ever there was one! Their motto being, if one falls we all fall! At least it must be as such, otherwise why has no one yet taken action against (for one) SIR Fred Goodwin???? ....
Break that 'cartel' and perhaps we would have a fairer system with proper accountability and without the need for more (useless and costly) legislation. There is one other way, I believe, and that is to break the dominance of the balance sheet (and bean counters) in business decision making; but that is radical and for another day!
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banks should be allowed to die yes not sold off to overseas banking conglomerates.
you walk down the high street today and almost every thing is overseas owned making us feel like second class citizens in what was once our own country.
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I wonder if Robert Peston has a moment to consider the effect of the four pillars policy in the Australian Banking industry with the result that Banks cant get too big in their market but cant be taken over either.
Its interesting to note that until the credit crunch the policy was slated for limiting the risk taking of Australia banks and of restricting the potential competition element of being taken over.
Now that the credit crunch has arrived it is being heralded as the saviour of the Australian banking industry, which, has survived relatively unscathed in this crisis.
Given the state of Lloyds and RBS here in the uk surely a conservative yet seemingly anti-competitive policy is the way forward before the uk looses its banking industry along with the kitchen sink.
http://www.abc.net.au/lateline/business/items/200903/s2505524.htm
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#80 "Actually I reckon it was meant to be "sombre". Sober bankers? Before noon maybe, after that I doubt it...."
In the days of yore, when knights were gore, and I still worked in the City....we were expressly forbidden to drink at lunchtimes. That habit still stands to this day !! What's the world coming to nowadays ?? :-)
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Gold and silver have been stores of wealth and a means of exchange for 5,000 years, limited in quantity to how much is in the earth and what could be economically mined. Paper money used to represent actual gold and therefore was a sound means of exchange.
Then the banking system came up with a great wheeze, in cahoots with Government, to allow virtually unlimited creation of money not backed by anything. This is the greatest fraud ever perpetrated against the people of the earth. What we call money actually represents debt and there will never be enough "money" in the world to pay off the principle and the interest. When the debt pyramid bursts we have recession (nothing to do with the collapse of Lehmans - this was a symptom not the problem - we have all borrowed and spend too much currency that we did not have. If you refuse to partake in the debt pyramid - don't worry - the Goverment will get into debt on your behalf)
Unless we break from this we will always be enslaved, and all other debates about regulation, banking, government controls etc are pointless.
Through inflation (increase in the supply of money) asset bubbles have been created (housing) and are now totally overpriced. Instead of admitting this honestly, the government are now trying to reinflate the bubble by borrowing and creating vast sums.
Will we ever have the will, backbone and determination to rid ourselves of this fraud and return to sound money?
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Where did all that M4 come from?
I've just had a look at the ONS figures for M4 (total - broad money) in the UK for the last 45 years:
1963 1.4bn
1973 8.5bn
1983 19.7bn
1993 23.9bn
2003 73.3bn
2008 276.3bn
That's a factor of 186 times the amount of money, and growing exponentially (i.e. self-reinforcing explosive growth)!
Does it not worry anyone where this is coming from, and whether it is sustainable?
Do these figures represent REAL economic productivity growth, or an overinflated paper currency (note the major uplift since the 1971 gold window closed)?
----------------
UK stats available from:
http://www.statistics.gov.uk/StatBase/tsdtables1.asp?vlnk=fsf
3.1H Sectoral analysis of M4 and its sterling lending counterpart
Similar exponential growth in M2 & M3 seen in the US:
http://en.wikipedia.org/wiki/Money_supply#United_States
(and why the desire of the Fed to stop publishing the M3 figures in the US?)
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104 newprotectorcromwell
122 writingonthewall
why stop at Greed? Let's outlaw sloth, jealously, gluttony, envy and the other two (err..... whatever they are!)
Though to be balanced and fair, we should ban a few virtues too. I have heard a certain gent bang on quite enough about prudence, she has just got to go! Likewise Faith, though she deserted me way back.
We'll hang on to justice and temperance though, as they are our main hopes for the future.
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Message 125
Back in my youth in the mid-Sixties I can recall listening to two old political activists banging on about Harold Wilson and the corporate state. They concluded that Harold Wilson was actually a fascist. Interesting thought; I expect it never saw the light of day because he was so many other things as well.
Happy days!
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#106 "Here is some more blefuscu ,GDP in Germany will fall 6% this year and UK approx 4.1%(Source IMF) .At least the UK can flex on the currency ,Germany is stuck with the rest of the basket cases of the Eurozone and will go down with them.."
While you are quoting statistics, can you tell us from what point did the German GDP fall from and from what point the UK GDP fell from ?? You see, statistics can be used to tell lies if the parameters are not carefully specified.
For instance, Chine is "in a recession". They will have a far less growth rate this year. Boo-hoo !! Poor China. They will have *ONLY* 7% growth this year !! Meanwhile, UK will be "out of the recession" soon. "The decline in growth rate has fallen" !! Meaning that the economy in the UK is *STILL* shrinking !!
Considering that the Germans have a large stash of cash from their years of plenty, I don't think they'll be as worried as the Brits whose national gold reserves were sold (down the river ??) by the then Chancellor and current PM at the lowest price of gold just to fund his political spending !! The UK cupboard is bare whereas the Germans still have some reserves to live on !! In fact, it is this very reserve that the rest of Europe had been eying up and demanding to be lavished on them to make up for their lack of borrowings that had prompted Frau Merkel to become known as Frau Nein !!
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#115 "Let the fiat be done."
Terrible cars !! They start rusting in the showroom !! Give me a good, solid Mercedes or BMW panzerwagon any day !! VW will also do, at a pinch !! :-)
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truths33k3r # 134
"Will we ever have the will, backbone and determination to rid ourselves of this fraud and return to sound money?"
A very good question! If governments and central banks continue to pursue the current policy of trying to re-inflate the "bubble", that is to artificially prop up prices and wages through monetary pumping and deficit spending when market conditions dictate that they should be falling, they will be creating an even almightier crisis in the future.
Governments love to inflate; it enables them to spend more on their pet projects and favoured groups. Those "projects" and "groups" represent votes; and those votes mean power. What is happening in the US, UK and other European countries is nothing short of government power grabs at the expense of individual freedom. Governments never let a good "crisis" of their own making go to waste (The War Against Terror and the War against AGW are good examples of government becoming ever more powerful).
However, the next crisis will be the short-lived crack-up boom which will inevitably lead to a currency crisis; a paper money crisis with hyperinflation as the precursor to final fiat monetary collapse. Maybe then, a return to sound money and individual economic freedom will eventually be acknowledged.
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#6 BankSlickerminustheR
Spot on in every paragraph. Enact legislation similar to the Glass-Steagall Act and MAKE IT STICK. Separate vanilla retail banks from casino investment banks and demand instant transparency from the latter inveterate gamblers about their off-balance sheet toxic 'assets'. Bring back Captain Mainwaring and his TRULY prudent High Street values!
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#119 "b) Don't they think HSBC et al wouldn't simply decamp to somewhere in the colonies?"
Actually, it wouldn't since (1) they were originally incorporated in China (as their original name - The Hongkong and Shanghai Banking Corporation - suggest, and (2) they are currently incorporated in the sovereign state of Bermuda !! They are here to do business and if this government decides to drive them out, they'll just carry on doing business from the other parts of their empire elsewhere in the world !! Unlike in the 19th century, Britannia no longer rules the waves and London is no longer the "be all and end all" of all financial businesses in the world !! New York and Tokyo have some small(??) share of that too !!
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Do show me all these grey haired bankers - professionally trained and with years of experience. They were largely dumped by banks in recent years. If there had been more bankers, working for financial firms and for the FSA, who remembered the recession of the early 1990s and those of earlier years then it is quite likely that we would not be in the mess that we are in today.
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#120 "I agree in principle however, but with work experience there should be a ban on anyone who has actually worked in the city joining the FSA, but instead force banks to take on young FSA potentials to gain experience - without staining their 'clean' nature with some of the practices that go on in banks."
Shurly there's a lot of truth in the old saying about "setting a thief to catch a thief" !! If they are so "clean-cut", they'll not have the requisite knowledge to spot the many crooked ways that will be used to dress up mutton as lamb !!
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#126 "Just look at tax - a simple concept and yet many rules still can't make everyone pay it fairly - especially the rule makers themselves!"
This is based on the sound principle that "all animals are created equal but some animals (the pigs/rule makers) are more equal that others" !! George Orwell was a prophet !! Now, for full brownie points, can you tell me what is here today that best resemble his "Ministry of Truth" ??
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#127 "The problem is global trade. Western democracies cannot compete on cost with police states, where workers do 12 hour days, with no employment protection, no pension, no health care and no umemployment benefits. Our people and banks couldn't make a normal return on their work or capital."
"The statement from Corus made it plain. This collapse in demand will last years."
How do you reconcile these two statements. First you decry the cheap labour of the police states and then you decry the fact that they are no longer buying as much steel from Corus as they used to because the Western democracies are so bankrupt that they haven't the money to buy more of the police state products !! You can't have it both ways, you know !!
If you don't like the "police states" so much, perhaps you should try and crash Corus and throw *all* those workers out rather than trade with these "evil police states" !! I'm sure those workers will gladly support your views even when they are broke and starving !!
I just love such commendable ideals !!
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#136 "why stop at Greed? Let's outlaw sloth, jealously, gluttony, envy and the other two (err..... whatever they are!)"
How about "Lust" and "Pride" ?? Jealousy and Envy are interchangeable !! Also try "Rage" !! :-)
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#90. ishkandar wrote:
..."that banking *MUST* be broken up into retail banking, for the ordinary man-in-the-street, and casino banking, i.e. "merchant" banks, "investment" banks, hedge funds, etc !!"
Let us say that thee are just a few huge pan-national banks in each of your sectors: I cannot see how even if a bank is restricted a sector your proposals will work as these banks would be still too big to fail!
Also one of the huge opportunities for pan-national banks is to 'fiddle' their accounts with off-balance sheet and overseas trading. This MUST be stopped and I don't see how your proposal would do that.
I figure that banks must be limited in size by limiting the maximum number of regulatory regimes in which they can exist. The present situation is a bit analogous to shipping lines and flags of convenience. I think changes to the taxation regime could do the trick, as I proposed in #21.
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Two things will show evidence of change. Re-enactment of Glass-Steagall legislation. Secondly the members of the House of Commons abandoning the unquestionably unfair pension and benefits scheme.
Finally agree with JoLo. Until directors put money in tangible form prior to taking office shareholders will continue to be stuffed.
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#148 "The present situation is a bit analogous to shipping lines and flags of convenience. I think changes to the taxation regime could do the trick, as I proposed in #21."
It is taxation regimes that gave rise to the "flags of convenience" in shipping. And unless Britannia once again rule the waves, UK laws and tax regimes will have absolutely no effect on other countries. If they deem it to their benefit to allow large pan-national banks to exist on their soil, probably for the ease of trade financing, then the UK will be left with few places to trade !! This would, in turn, defeat the purpose of having manufacturing to rescue the UK economy !! Little trade = little need for more manufacturing !!
It is these pan-national and their reach into so many economies that facilitate and smooth the trade financing !! And it is trade that Britain need more of, especially export trade !! And to do that, Britain needs the trade financing capabilities of these banks !!
Why do I get the feeling that if you mention Northern Rock to the Vietnamese, they think you are talking about a little hill in China (once known as the Northern Aggressors and now known as Northern Brothers) !! :-)
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Reading the comments to this blog leave me in despair. If they are representative of public opinion, then there is little hope for future stability.
The banks were not saved. Recognition of the certain demise of most of them has merely been staved off at great expense.
No profits will be made by the taxpayer sometime in the future. One does not make profit from investing in a bust business.
We do not need a beefed up FSA. We need rid of the damned thing.
We do need fiat to stop the intermixing of commercial and investment banking. That fiat needs to leave the Governor of the central bank with the awesome power that this individual must have to monitor and oversee banks individually. There is no need to replace the current incumbent; he merely needs the authority to do the job without political interference..
We do need banks small enough to be allowed to go bust. The disaster was the decision not to let Northern Rock go to the wall where it belonged.
We do need to regress to the point where a bank share was bought for its safety; not its return. (We have the Wilson Government of the late 'sixties to thank for turning bank shares into an ordinary market counter by prohibiting the undisclosed transfer of part profits to hidden reserves).
Not yet accepted, but the most essential element of all, is the outright banning of performance bonuses, and not only in the financial sector. Such bonuses are the total and only source of the moral hazard that has been permitted to arise over the last two decades. While the bonus system exists there can be no worthwhile reparation of the financial system.
We do need stock exchange reporting reduced to half yearly. Managers need to manage not thumbsuck for the market.
We do need to stop referring to commercial banks as "retail banks". They are no such thing and to refer to them as such is to draw attention to one's total lack of understanding of international finance.
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#151 "We do need to stop referring to commercial banks as "retail banks". They are no such thing and to refer to them as such is to draw attention to one's total lack of understanding of international finance."
I believe that commercial banks are referred to as "retail banks" because they do business in retail lots. Merchant and Investment banks do business in wholesale lots and, as such, can go bust in a wholesale manner as exemplified by Lehman Brothers !!
Then again, what do I know about banking ?? I'm just a boring, old ex-bean-counter !! :-)
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http://news.bbc.co.uk/1/hi/business/8120835.stm
Oh dear !! It looks like the portraits of dear old George Washington is not is such high demand after all !! So much for the joys of quantitative easing !!
Now, back to banks.....
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And while the US lectures the world on the evils on money laundering...
http://news.bbc.co.uk/1/hi/business/8120676.stm
Don't do what I do. Do what I tell you to do !! Sounds familiar ??
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http://news.bbc.co.uk/1/hi/business/8119986.stm
Asked whether the bottom of the economic cycle had now been reached, Mr Steinbrück shrugged his shoulders and said nobody knew.
"If you can find someone who knows," he said dryly, "give me his number."
Any one knows the phone number for 10 Downing Street ?? Or even 11 Downing Street ??
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ishkandar # 155
"Asked whether the bottom of the economic cycle had now been reached, Mr Steinbrck shrugged his shoulders and said nobody knew."
The Austrians know; it's all there - in Mises's The Theory of Money and Credit (1912). Trouble is that nobody bothered to read it 97 years ago!
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151. KenHarvey
We have witnessed the worlds biggest Ponzi Scheme and when the voluntary participants ran out, then the brilliant masterstroke was to ensnare all of the population by making us all involuntary participants by extending the scheme to the public purse. As the payoff is likely to be decades then even some unborn are involuntary participants in this giant scam. Meanwhile guff keeps getting posted about how wonderful and important the financial sector is, carefully ignoring the fact that what was built up over 30 years can be piped away to elsewhere on the planet just as easily. There is no stability, it is an illusion. All these projections of this - and - that are just that, projections. There is only growth or decline and decline is rampant at present despite what people want to say.
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88. nottoonear :
"Yes, indeed. Executives of Network Rail are to be paid bonuses for increasing debt, declining profits and not meeting their objectives...
I await further information from BBC News."
Don't hold your breath. The BBC is too obsessed with the appalling Michael Jackson to report on anything else. How convenient for Notwork Fail...
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#150. ishkandar wrote:
"It is taxation regimes that gave rise to the "flags of convenience" in shipping" - I don't think that is entirely true. It was more to do with inspection and crewing costs I think the costs of registration - but no matter. (I recall in an earlier life having contact with the Baltic Exchnage.)
I don't feel that your proposals for making big banks, small would work as they do not address the size of the Bank. Whereas my (imperfect) proposals at least address that issue.
There needs to be a countervailing increase in cost with acts against the benefits of commercial size. That is why I chose tax and double taxation relief and the taxation of global profits. Stop them fiddling the systems, and they may see a financial benefit in doing what is necessary.
(I had a similar idea to prevent excessive lending on inflated assets a decade or more ago. In that instance I recommended a scheme to the Treasury and the then Chancellor of (subtly) limiting the security which could be gained and held as valuable for a lender to a strict multiple of the borrower's earnings, which the lender was responsible for ascertaining - again I was ignored and see when that got us!)
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"who think that chaps like me will soon tire of our tedious preoccupation with their size and structure, and they will soon again be gorging to their hearts' content."
Robert, the day people like you are silenced, something bad happened, or pushed is the day I know for certain the BBC too, like must politicians and the government, have been bought.
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153. At 9:00pm on 26 Jun 2009, ishkandar wrote:
http://news.bbc.co.uk/1/hi/business/8120835.stm
Oh dear !! It looks like the portraits of dear old George Washington is not is such high demand after all !! So much for the joys of quantitative easing !!
====
I suepect that is because the Chinese are in the business of 'Politics', whereas the Yanks are in the Politics of 'Business'. Chinas attachment to Capitalism strikes me as the opposite of ours, if the view of the US could be that, 'War is Business by another means' I suspect for the Chinese 'Business is Revolution by other means' or maybe even 'War by other means' - if that is true, we in the West are toast unless we look again at Globalisation, and, we may already be toast, I suspect that some in the US already appreciate it, but maybe think that a Tiger can change its stripes. Interesting times as the Chinese would say. Still, has to be better than a real war, doesn't it? (Mind you there is also the big danger for China that their people get a taste for wealth, and as all us debt encrusted UK plebs know, wealth is freedom, as , oddly enough in a different and less enjoyable way, is absolute poverty, so HMG better beware that they don't load us plebs down with too much debt!
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Pick the bank where deposits are greater than advances. Then try (its a big ask) and work out the contingent liabilities risk from CDO's etc. Not many to choose from. Otherwise, mattress bank beckons.
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Bankers are only interested in how much they can get in to there own pocket
Most of the regulators are ex bankers it's like putting the kids in charge of the sweet shop
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I couldn't agree more, Robert. However, we all know it won't be allowed to happen.
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I wish it were more than just a kernal of an Old Testament Sermon. I have been writing on the current financially distrous situation in a weekly column for our local newspaper, referring to Nehemiah's powerful and positive leadership where he dealt firmly with the loan sharks, mortgage lenders and 'bankers' of his day, who were fleecing the people. He so mistrusted these men who just 'gave their word' that it would not be repeated that Nehemiah made them take a vow in front of the nation. Perhaps the Prime Minister and Chancellor should make today's 'money men' take a solemn vow. Such strong leadership is required at this time.
I was asked to write on 'Debt' and copy it below - this is from the New Testament - vital teaching indeed!
"Would you write again on 'debt'?" was the serious request made to me last month. I have written on this topic thrice now!
"More and more people are incurring debts, which take months to repay."
Debts cause serious on-going arguments, distress and trouble.
More people get into debt as they are presented by tempting offers and special terms.
One very simple way of avoiding debt is to say clearly and specifically, "I am not buying that. I can't afford it. We can't afford it".
It is possible to resist the temptation to buy things which you know are beyond your means.
God has something very real and highly practical to say about debt - "Let no debt remain outstanding, except the continuing debt to love one another".
This is a decision which an individual has to make. Sometimes the decision is not easy, but it will normally be a wise decision.
Refuse to get into debt.
Decide that you are not to get into debt. This has nothing whatsoever to do with emotion - it is a decision an individual makes.
If you enter into a contract, that is all right, but keep up with the payments and never take on more than you can safely repay.
Discover what God teaches us regarding debt and it will save you from weeks of upset, anxiety and heartache.
God speaks to us about this subject in the context of our behaviour, and relationships with those around us.
Attitude is important.
Pay your tithes and offerings to God, your taxes to the state, and whatever you might owe your neighbour, no matter who your neighbour might be.
Yes, all this was first written to people who were disciples of Jesus Christ, but it is so essential in 2008, and so very practical.
It might just prevent you from running up unnecessary bills, and many many other ills.
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On the subject of the vices, I'd add Neediness - a very annoying flaw in human nature. It makes people behave like Gollum, seeing famine where there's plenty. The way the bankers are clinging to their bonuses is a perfect example.
As for the virtues, how about adding Transparency? The strongest light should be shone on all financial affairs. The figures you list @ 135, Hawkeye_Pierce, would be a good place to start. Can anyone suggest what's going on there?
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I worked for an Investment Bank for may years and know the kind of culture and lifestyle so many of the people there enjoy..........it strikes me that the whole culture has to change and just maybe if their expenses were made public (why not if so many are government owned) they just might be shamed into looking inwards just a little. The pressure wouldn't hurt. How about starting a campaign Robert !!
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A good reason why RP did not comment on the Governor's comment about fiscal policy (see earlier post) is that he is the Business Editor and not the Economics Editor. This would be to stray onto others' turf. I am sure it has not been missed.
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Some of you may be interested in a different perspective from der spiegel
http://www.spiegel.de/international/world/0,1518,632494,00.html
An extract as follows
"Obama's Cheney is named Larry Summers. He is Obama's senior-most economic advisor, and like the former vice president, he is a man of conviction. The financial crisis may be large, but Summers' self-confidence is even larger. More importantly, President Barack Obama follows him like a dog does its master.
The crisis, Summers intoned last week at a conference of Deutsche Bank's Alfred Herrhausen Society in Washington, was caused by too much confidence, too much credit and too many debts. It was hard not to nod along in agreement.
But then Summers added that the way to bring about an end to the crisis was -- more confidence, more credit and more debt. And the nodding stopped. Experts and non-experts alike were perplexed. Even in an interview following the presentation, Summers was unable to supply an adequate explanation for how a crisis caused by frivolous lending was going to be solved through yet more frivolity."
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steven palmer @9
"The issues about banking don't just apply to the UK. If the UK applied regulation without regard to what other major countries are doing then banks would simply move some of their activities to other countries. Banks operate internationally and regulation will need to as well as the crisis showed the interdependence of countries in the global economy. Last year, the Tories where gloating about the critisms of the German government about the UK economy - yet the Germany economy despite its supposed "prudent" fiscal policies is in a far worse economic position than the UK. International problems require international solutions and the banking problem is no exception"
sorry sir, in my opinion, you could not be more wrong, its precisely because we followed the lax regulation of other countries, that we got in this mess.
our legislation was working very well thankyou prior to gordon brown taking control, our pension funds were at record levels, our banking system was relatively stable, our national debt was almost wiped out entirely.
we used to apply our own regulations very well, the bank of england had a real control over the banks, no overstretching or stop the lending and safeguard yourself, it may not have been stylish, but i didnt see an out going stream of financial business leaving our shores because of it.
Banks operate in all countries, under the regulation of that country, if they dont then they cannot stake a claim to the business generated in that country.
the argument that we need international regulation to sort this mess out, is one that on serves the purpose of not being able to pinpoint, the finger of blame on any institution or government body/policy.
a good example of financial negligence is our pension funds.
pre gordon brown a company could not take over another company unless the worker's pension provision was matched or bettered by those wanting to buy it.
after gordon brown this disappeared.
he made it worse still, by taxing pension fund profits to the tune of £5 billion a year - a total taxtake of £55 billion pounds since 1997
as a result of gordon's wisdom (and i use that term loosely) as of 2007, every working individual 40 and above will have to work years longer before they can retire.
the unions claimed back in 2007, that if gordon brown paid back £27 billion out of the money he had taken, the retirement age for all those 40 and older could return to previous levels. gordon the wise one, dismissed this idea out of hand.
"International problems require international solutions" - i would dispute this most strongly
national problems require a government that considers what effect its policies will have in the future, BEFORE implementing them, ie, active policies instead of brown/blairs reactive policies.
as we have seen so often in recent years, brown/blair react to events their policies have brought about, instead of leading the way and showing some conviction/backbone to stand up for what they believe in.
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The outrageousness of allowing Banks to have more power than electors must be ended. The Banks, with their profits are levying a tax upon all electors. This would be the justification for requiring accountability and removal from office if it were "in government". The practice of banking profit - also known as Usury - should be ended. The Banks should never be allowed to grow beyond the real economy. This can be done by levying one hundred percent taxation for all earnings above the rate of growth of the economy for all forms of financial services. Accurate and up to date accounts, open to public scrutiny with a recall process for all senior bankers should be the order of the day. As to bonuses: bankers should be expecting no more than the average bonus of an average employee outside the banking system.
Money and financial services are not a premium but a utility. Their purpose is not to accumulate endless amounts of capital but to facilitate the useful activities of general economy. Any Banker thinking otherwise should be sent to prison.
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the importance of Old Testament prophets is that they challenged how far the people of God had strayed from the "right path". Perhaps we need more listening to OT sermons which focus on "community" and not individuals
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Why stop with killing just the banks?
Bolder moves are required.
Maybe we should start with killing the Square Mile, and then follow by slaughtering the entire leech-like debt based financial system it spawned.
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#7, onedaysoon: if your "disability money" is a state benefit, the banks are not allowed - by law - to take any of it. All you have to do is to write to them, explaining that those deposits are protected in law, and they must leave them alone. Have a look at the Consumer Action Group forums for more information about what to write.
FWIW, I entirely understand what you're going through!
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After many months of reading this blog Ive finally been driven to jump in and Im afraid it sounds like a rant but I hope I finish on a proactive noteThe recent talk about big bonuses making a come back and some first hand knowledge about an individual receiving a half a mill signing on bonus at a leading bank makes me sick to the back teeth. Why is it so obvious to the rest of the working population that disproportionate bonuses simply drive the wrong human behaviourwith respect to greed, caring (or lack of) about the impact to others in the food chain, telling lies,the list of basic qualities missing from the banking system that the rest of the society respects is endless. Dont get me wrong I believe financial reward when its properly earned is a key part of a incentive scheme but think about engineers, doctors, nurses, teacherswho all add tangible long term value to society, but when someone earns multiple 100s k and millions for pushing around shares in companies, options, and other complicated structures which they can rarely explain in useful terms as opposed to actually creating something from tangible raw materials of lesser value, or making someone healthy who might go on to be a great inventor, or teaching someone maths, or whateveryou get my driftIt just wrong and devalues everyone elses contribution to societies well being. Somy proactive pointHow do we the other intelligent people and hard-workers making a contribution to the countrys wealth and well-being, who dont have the keys to the banking industry - make sure these greedy selfish bankers dont screw it up again for the rest of us?
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"a good example of financial negligence is our pension funds.
pre gordon brown a company could not take over another company unless the worker's pension provision was matched or bettered by those wanting to buy it.
after gordon brown this disappeared.
he made it worse still, by taxing pension fund profits to the tune of 5 billion a year - a total taxtake of 55 billion pounds since 1997
as a result of gordon's wisdom (and i use that term loosely) as of 2007, every working individual 40 and above will have to work years longer before they can retire."
This cannot go unchallenged
the Pensions crisis is not the construct of G Brown, but the result of demographic forces which were in play long before Labour came into government - you can't finance a 30 year retirement from 15-20 years contributions ( unless you are Sir Fred or a civil servant.)
Sure G Brown didn't help with the tax credit take and neither did the pensions holidays taken by FTSE100 companies in the 1990's.
The hole caused by demographics is measured in the trillions and the long bull market since 2002 wasn't even enough to plug the deficits.
If you listen to Frank Field on pensions, a temperate and knowledgable expert in this field, he predicted riots on a recent Panorama.
Regarding companies taking over pension schemes by acquisition, acquiring companies have sought to cap liabilities and end open ended DB schemes as a matter of prudence again nothing to do with G Brown -
do you only read the Daily Mail?
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All this talk of banking regulation is so much waffle unless proper sanctions to recover and punish bankers individually and their families to recover the excessive rewards. Private Eye has been reporting on the City for years and described the 'as was' DTI as the Department of Timidity & Inaction and the SFO 'as was' as the Serious Farce Office. I guess they have the suitable expression for the FSA. The fact is these regulators have been pussy footing around for years spending millions on cases that rarely result in conviction or appropriate punishment . Robert ask how many have ever been prosecuted for insider trading yet we all know this goes on. Regulation is only as good as the teeth in the system. How about a Whistleblower hotline for the city? until we get transparency on risks and rewards that is? trouble is the City has too much at stake to stop this gravy train. Let's be clear, however, there is no silver bullet solution.
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A Police Economics Crime Unit should control wrongdoing in the Banking Sector. This would mean closing down the FSA because it is a coterie of ex bankers.
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#179 All this talk of banking regulation is so much waffle unless proper sanctions to recover and punish bankers individually and their families to recover the excessive rewards.
Indeed! - in fact, there needs to be serious restrictions on limited liability for public companies and directors. Directors should be liable for negligent decisions.
By the way, now that Shred has "voluntarily" foregone part of his pension, there should be attention on others, like Gordon Pell his deputy, acolyte and apologist who recently retired with a 10 million pension pot.
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#71 wrote
"Do you remember voting in the leadership for the bank of england? I sure don't. Do you remember voting for whether we wanted globalisation or not? I don't remember that either."
As the governors of the Bank of England are appointed by the Government, effectively we do vote for them indirectly.
As for Globilisation, sadly that has also been "voted for";
by people who are quite happy to buy goods without worrying where they came from, as log as they are cheap.
by banking with huge multi-national banks
by stopping for a break in faceless multinational coffee shops and burger bars, putting smaller independent cafes and tea shops out of business.
For years the population has gorged on cheap credit, spending more than we earn on imported goods, all egged on by our "prudent" government. Now that the inevitable has happened, it is a bit late to complain about globalisation.
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Robert, I have never and will never rate you or your abilities. And this blog is the perfect example of the reasons. There is a phrase called "lender of last resort" which is associated with the function of almost ALL central banks. Obviously, not many people seem to know the meaning of it, least of all you. Banks simply cannot and should not be allowed to die. Yes, I agree that they are commercial entities like other businesses. But because of their unique function i.e. money which is what we all use for trade, failure of banks means the whole trading system collapses. Are we going to go back to barter? It's not going to happen. The BoE is the lender of last resort to all banks and this means that the banking system will never run out of money. All this tax-payer takeover of the banks was/is completely unnecessary. But thanks to journos like you who've managed to instil fear & panic into people, the govt. had to take action. If we all had enough cash to buy things and never ever had to a loan or credit card from a bank ever again, do you actually think we could say the banking system is healthy? Can you please think before you write these blogs?
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We have as a species generally moved on (I hope) from slaughtering each other in the trenches en mass. But we still allow the power of high finance to warp the worlds wealth and allow the huge benefits that have come from mechanisation and technology to be held in the pockets of a very few.
Their extraordinary wealth (greeed) is on the back of extraordinary hardship, millions are losing their jobs and being thrown into deep poverty, many will be losing thier lives and suffering as an indirect consequence of the actions of the financial global elite.
If you view it in those terms the systemic pursuit of extraordinary wealth by leveraging the poor (e.g. sub prime) can only be described as a 'white collar crime against humanity' and nothing will change until people realise it is exactly that and take action accordingly. No shots were fired, there is no blood on the floor but people are surely suffering and dying all the same.
I know that sounds very dramatic but can anyone please explain to me why I am totally wrong about any of the above?
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#185 Jericoa
You are totally right IMO!
One of the main facilitators that the wealthy global elite use to hide their capital from the rest of the world has undoubtedly been through the use of tax haven status sovereign states (most of them with British patronage). This was even the case through two world wars of last century. There have been noises recently from B Obama (et al) about chasing the tax havens down, but not much has been said by G Brown's government on this subject. D Cameron/G Osborne haven't said much either.
I believe that B Obama has recently secured an open book agreement with Switzerland, but IMO it's very 'woolly'.
Following on from this financial disaster, we will be able to gauge if anything really changes by using the tax havens' continued existance as a yardstick for measuring any change. However, I doubt it, given that they have already survived two world wars.
As much as I despise this current Labour government, I can't help thinking that a Tory government led by D Cameron will simply allow the elite to have another safe pair of hands at the helm.
I won't be voting for either at the next GE.
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#184 NonEnglish - Perhaps you may care to explain how it is that so far in 2009 45 banks in the US have died, with the Federal Authorities performing the role of both Priest and Doctor in administering the last rites and pronouncing death.
Your pained entreaty to think before writing is manifestly worthy of consideration.
#185 Jericoa - Plenty of people have died and are dieing, and plenty of shots have been fired, and are being fired. It is just that we have become so civilized that we no longer carry out these activities in your neighborhood.
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#187
The Swissies very much do not want the end of privacy in banking - they will be exposed as the last resting place of Nazi expropriated plunder and the payoffs from the Cold War, both sides - add in the Russians, Africans and Arabs and you know the Swiss problem will never be solved.
Having said that, UBS has stopped its executives going to USA on business - a problem with the toothpaste I believe!
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#183 Dr_John_B You are only partially correct.
In many cases it is illegal for people to concern themselves with the origin of goods and services. With regard to capital goods - you tell me who voted to close down the UK capacity to make its own trains, who voted to sell of substantially the entire power generation industry into foreign ownership?
In many cases people have found themselves banking with "huge multinational banks" by default, as more and more smaller banks and building societies were hoovered up by the big players. Sure there were somethings people could have done - but not much.
Part of the problem with multinational coffee shops and burger bars has to do with the planning regime. There are examples of these places operating illegally and applying for retrospective planning permission. Local Councils get tied up with a company legal department that has an essentially unlimited budget, and the ability to fund endless legal reviews and appeals.
The dice are loaded in favour of large corporates, and they are loaded because the government long ago abandoned any pretence of representing the people. They never made any announcement to this effect, it was just done through a gradual process of attrition.
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re #4 - and interesting question, but the argument would actually be how much additional tax was received as the result of the bank's being larger and indeed what was their net additional contribution to the economy - taking into account the zero net sum issue of additional costs that others may have incurred due to anti-competitive proactices.
Intriguing but virtually impossible to determine with any degree of accuracy.
What should however be evident to all is that the British economy is far too dependent upon the financial services industry as a whole.
As post #2 points out - the underlying concept of limited liability also has a lot to answer for, by its very nature it encourages risk taking, sometime this has advantages, but the widening of this to professional services seems to have done little to increase the watchfulness of such parties and more to increase the remuneration of such bodies with the removal of personal risk,
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#104 - I assume that your definition of greed is the commonplace one, best phrased as "having anything I've not got".
Not that the death penalty has ever made sense. Least of all when the genocidal tyrant you've chosen to memorialise in your user name was imposing it willy-nilly, and frequently without benefit of trial.(And yes I am English)
Sorry, at least three different debates there!
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Shareholders of the Bradford & Bingley, Northern Rock, Lloyds Group and, the grandaddy of them all, Royal Bank of Scotland (RBS) have, EACH OF THEM, lost a fortune. In some cases, their shares are worthless, in others they'll never re-gain their former value as massive new share issuance has diluted their value and in return for taxpayers' cash injections.
That's not enough retribution for the crazy risks they took, as their directors and senior managers who got us all into this appalling debt have mostly got away with nice pay-offs. Moral Hazard should lie with the decision-makers who authorised the gambles they directed.
Therefore, it's not the Banks themselves and their shareholders that need more suffering, nor their depositors and ordinary employees, but the fat cats at the top. That's the ones who hide behind so-called contractural severance pay and pensions. Those are the ones who've got away "Scot-free".
Useful expression that (Scot-free), as the worst decisions were made by RBS - now distinguised as being the most indebted Bank in the World - in Edinburgh. Not London.
It's within Lloyds Bank that its new subsidiary's Bank of Scotland gamblers need to carry the responsibility for huge debts. The rest of that Group is not to blame for those excesses. Take note SNP: it's Scottish banks that's saddled the UK with these vast debts!
If Banks are "allowed to fail" as you suggest, those fat-cats would still get away with it. It's the depositors and ordinary employees that would be hit. Just as John Major allowed the BICC banking collapse to hit its depositors and employees. Even that smallish Bank collapse had a severe effect on public confidence at the time.
What's needed is a special legal liability upon Bank Directors for the gambling losses that accrue on their watch. To be set against all their personal properties and including contractural severance and pension pay-offs. And to ensure that Scottish taxpayers - and London taxpayers when appropriate - pay an extra proportion of any future debts their banks incur. Just as Icelanders are having to pay extra taxes to cover their Banks' debts.
Bank shareholders have rightly been punished for their investment gambles. Bank Directors are the ones who should be gutted too.
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It is a sign of our society that the rich grow richer and the poor remain poor. We have to risk everything and it appears that the bankers have gambled with our money and walk away with bonuses. I cannot believe that the human race would not survive the bank's failing, it is merely that the rich politicians don't want to deal with the consequences of the negligence that has taken place. We all evolved from a barter system I am sure we could again. The general public merely want justice and we have not seen any yet and it is unlikely we ever will. This nation should unite and take all their money out of the banks one by one and show them that we have a voice and it should be listened to.
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* 196 eskimo08
I agree with you 100%!
Probably a well-run barter system would suit most of us for our real needs. Whenever a system evolves with a priesthood telling us how difficult it has to be and how only the talented few can decipher it, you can bet the old naked emperor is prancing around somewhere nearby.
The language of bankers and politicians is full of the tricks of their trade, "quantatative easing" being in vogue at the moment amongst one lot, and "redacted" with the other. What they mean is "cheating" and "lying" really.
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To continue the original religious theme, here's something I heard from a Buddhist context, with regard to ethical behaviour:
The lowest level is where you get away with as much as you can, even if it causes harm, and are only prevented from carrying on in this way because you're afraid of being caught or punished.
The middle level is where you stop yourself from causing harm as much as you can, because you are are aware of damage you can cause to everyone (including yourself), though you stil have the tendency and urge to do so.
The highest level is where the urge to act in any way which causes harm does not even arise.
The bankers at present have no fear of being caught or punished - they had a minor ritual humiliation when they had to report to the select committee, but this was soon forgotten. The politicians who sit on the same boards as the bankers, or join the same clubs, want the same lifestyles, power and status - have slighly more motivation to act in a way that seems ethical, because they know they could be punished by the electorate.
The regulators seem happy to be invisible and ineffective, and also sit on the same boards, hanging on to the shirt-tails of power.
But the motivation for all three groups seems to have been much the same - greed, self interest and a strange egoistic mania - a harshness encouraged by rampant capitalism when its competitative urges become divorced from any sense of concern for others. There's nothing wrong with entrepreurism - but it's when it becomes divorced from ethics that it becomes a problem.
The bizarre view that there's no such thing as society - lauded by Thatcher and now seeping into the fabric of the culture: haves, who want more; the have-not's who want (and need) more, with some wanting to destroy what they can't get. This madness goes back much further than this government and is also part of the global economic culture.
What is needed is a recommitment to ethical and cultural values that are not driven by a fear of retribution by the law or god or some spurious authority on the one hand, or by arrogant self interest on the other.
We need an emphasis on basic, mature, humanist values -respect for others, generosity, and a drive for minimising inequality.
All very idealistic... but there are many people who have been working to this end whose voices perhaps are becoming a bit more credible now, to counterbalance the delusive arguments and self-justification of those politicians who can't understand why they should repay expenses because they 'abided by the rules', and the bankers who see the world as their casinos and are just taking a breather at the moment.
We must get more modest in our demands when consuming and using resources and return to a more open, healthy relationship with ourselves and the environment. Those in power who threaten the basis of our society by refusing to do this will have to be reigned in by the law - but also it's not enough to blame those who have been very, very good at running amok when we demand more and more for ourselves at the expense of other people who then will have less.
As I understand it, a basic premise of capitalism is constant growth - but where in the universe does this ever happen? In the seed of everything is it's opposite...
Rant over, for today anyway.
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#198
Did not sound much like a rant to me. To be fair it was extremely well put and touches on many themes that appear here and on other blogs time and time again.
The understanding is out there for sure but there is no coherent focus to it, no mechanism for it to become anything more than idle chatter on the net, which threatens none of the entrenched vested interests.
We are all caught on here by the intellectual trap, even more so in our modern world of virtual lives. We must remember that to effect real change in the real world knowing is not enough ..you must take action.
We have been working in the background for some time now on a webspace to co-ordinate such people who know and would like to take action.
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What is the point of allowing banks to go to the wall if the chief executives (often unqualified) can just move to another position with a seven figure salary while the qualified personnel spend the rest of their lives collecting dole?
Since Andy Hornby can leave HBOS a smoking car-wreck but still stroll into the CEO job with Boots, what incentive is there for other top bank execs to drive carefully? They know that the network will keep them in well paid and pensioned "employment", Even if BoE says there will be no rescue for crashed banks - there's still no direct impact on the chumps at the top!
House of Commons commitees discovered a lamentable lack of qualification amongst banking chief execs, this can be simply remedied by regulations that require chief executives to be licensed by BoE. While proving a personal liability against a chief exec would be complex and unlikely to recover significant value, suspension and investigation leading to withdrawal of a license following a bank collapse might just make such execs think twice... at least until they can get a directorship in another retail sector sorted out!
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#199
Yes, you're right Jericoa - words are not enough in themselves and can sanitise one into thinking that expression is the same as action.
I'm also in touch with various people who are quietly plugging away at trying to live differently, creating an alternative value system that hopefully isn't driven by dogma or too much naive idealism. eg, one friend is involved in introducing consultative values into the boardrooms of large multinationals and it's going down well with the big cheeses. But feel-good in the moment only goes so far...
In some ways, this crisis is creating a groundswell of support for another way of living, so it could be a good thing in the long run, but only if there is some credible alternative that people can act within, themselves, and it needs a network of like-minded people to keep it all alive.
I'd be interested in knowing more about your webspace, but not sure how to go about this, as this blog doesn't allow advertising, i believe.
Anyway good luck with it - may the force be with you!
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There's no reason why people shouldn't make huge rewards, if they are taking huge risks along the way. The trouble we have seen is the disconnect between risk and reward, and the asymmetric nature of the risk/reward dynamic.
Put simply, if you are investing your own money, you start with £1000 and your annual returns are +50%, +33%, +50%, +66%, -95% you end up with £250. Had you bailed at the end of year 4 you'd walk with £5000 but since you stayed at the table another year you lost all your profits and some. Had a fund manager achieved the same for you they would take a cut of the profits, and when your fund collapsed you take all the losses. Just for good measure you'd most likely find you had paid a management fee for their splendid performance in year 5.
It must be good to be in a business where you get to gamble with someone else's money, take a share of the profits and simply shrug if you do badly. It's like gambling on a tab but when someone else picks up the damage if you're down at the end of the evening.
Agree entirely that a bank too big to fail is too big to exist. Also agree that if we make life hard for the banks they'll relocate elsewhere. Surely it can't be too difficult to say that if a bank wants to offer retail banking services (which is still very profitable) they must, by law, be entirely ring-fenced from more speculative activities.
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To everyone complaining about banks, there is a better system. Check www.abcul.org to find a CREDIT UNION near you. These are financial co-operatives that are safe, ethical, friendly and better value in every conceivable way than a bank. Run by volunteer members, no fat cat bonuses, no big commissions. Just common sense and good value - remember that!! Described recently by Which? Magazine as "a little chink of light in the current economic gloom" - you can download the whole article here: http://www.abcul.org/page/news.cfm#607
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#188 - So suddenly you're jumping to the US? OK, let's do that anyway. 45 banks may have died, but that's only because the politicians decided to meddle in things that they do not understand. The US is a big country. But does this mean that they should have that many banks in the first place. The rules governing granting banking licences were obviously loose or to use a better phrase, "applied with a light touch". Why don't you read about central banks function before commenting here? You are obviously one of those people who panicked when the banking crisis started and queued up to withdraw all your money. Or you are one of those people who is in a spot of bother because of the crisis and looking to blame anyone except take reponsibility for your own actions.
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Speeding up the M4............
Continuing the train of thought from post 135, I'm wondering whether there is a clear link to the velocity of money.
Wikipedia states that:
"Those favoring a quantity theory of money have tended to believe that, in the absence of inflationary or deflationary expectations, velocity will be technologically determined and stable, and that such expectations will not generally arise without a signal that overall prices have changed or will change."
What if the system is working the other way round?
Taking some clear observations from the last few years:
1) Prices have not changed much (i.e. inflation tends to be in the range of 1-4%)
2) Certain items / assets have plummeted in demand during the last 18 months (e.g. new car sales -40%)
3) The amount of broad money (M4) has increased 50% in 2008 (post 135)
As I've proposed before, the key way that velocity of money is determined must be for individuals to repeatedly transact / re-sell an item they possess:
http://www.bbc.co.uk/blogs/newsnight/paulmason/2009/03/us_quantitative_easing_policy.html#P77432713
Surely as eggs is eggs, the velocity of money in 2008 must have slowed considerably, yet there was no consequent decrease in prices. The increase in the amount of money has dramtically increased as a counter balance to this (as all modern monetary systems / policies are oriented to keeping prices stable). So contrary to the Wikipedia statement above, the amount of money, and the velocity of money are far from stable, but are actually veering wildly, somehow just about keeping prices in concert.
The big risk to the system is that any future increase in velocity of money goes quicker than efforts to contract (withdraw) the excess money in existence - as this will lead to hyperinflation.
If I'm correct, then the ideal early warning system for a hyper-inflationary outcome is surely the extent to which comsumers begin re-selling items they possess (but no longer view as essential) in order to acquire items they really need in the short term.
Does anyone know of such a measure of market "re-sale" activity, that could act as a precursor to hyperinflation?
Am I on my own here?
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Your moral hazard argument is only part of the answer, Robert. First, banks must become small enough and manageable enough NOT to hold their countries hostage. Second, bonuses are to be established on a moving average basis so Year 1's incompetent decision is not made even worse by paying a bonus for value destruction. And no bonuses at all, ever, for banks with their snouts still in the public trough. Want bonuses again? Pay off the loans your bank received as 'rewards' for past incompetence, Mr. Hester.
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@ 106: Well I doubt the Euro is a bad thing for us in this recession. The GDP is falling stronger in Germany than it is in the UK because we are far more dependant on our exports. Since German products are also usually rather high than low costs those exports are plumbing in an economic downtun as this. So therefore I don't actually blame the Euro for the strong fall in the GDP. Once the crisis is over (and though some bankers say so already, it is definitely not!) there will be still companies left to boost the economy back up...
And even though there may be some news even in the Bristish press about cases like Arcandor/Karstadt, personally I don't think that is much a of drama either (well it is for the employees). But this company was in the red numbers for many years and only now when money is hard to get the banks finally decided to not throw any more money in the bottomless pit. Well Opel is saved for now but whether or not that is a good long term investment on future will show - personally I doubt it.
About those banks / bankers. I think controlling banks is far better than just allowing them to die as usually then people that deserve it the least will lose their well earned money. For the regualtion there should be an authority capable of testing every single product banks offer to their customers and I would even go so far saying that the banks are to pay this (supra-national/independant) authority for it instead of letting the taxpayer do so as it is the case now. If they want their products to be certified then I don't see why it should be any easier for them than for industries that also need to need to get their products certified o their own costs.
I know that this is a rather unpopular topic in these forums but this authority should be installed on European level at least so that there won't be any competition among the individual countries about who offers the least strict regulations. Sure banks can still move to the cayman islands or similiar places but then if they die it is not us the tax payers paying for it and I even doubt that it is people like you and me who give their money to banks with their HQs on such a place. The people who store their money there are usually well aware of the risks and don't need protection from taxpayers...
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